black market exchange rate and the productivity bias hypothesis abstract previous studies that tested the productivity bias hypothesis employed the official nominal exchange rate in constructing the real rate hence in testing the productivity bias hypothesis in this paper we show that if official real exchange rate does not support the productivity bias hypothesis the real black market rate does this conjecture is tested by using data from chile colombia and costa rica

can oil prices forecast exchange rates an empirical analysis of the relationship between commodity prices and exchange rates we show the existence of a very short term relationship at the daily frequency between changes in the price of a country s major commodity export and changes in its nominal exchange rate the relationship appears to be robust and to hold when we use contemporaneous realized commodity price changes in our regression however when we use lagged commodity price changes the predictive ability is ephemeral mostly appearing after instabilities have been appropriately taken into account

spillover effects in wage determination an econometric analysis 1991 spillover effects in wage determination an econometric analysis applied economics vol 23 no 9 pp 1473 1482

how do daily changes in oil prices affect us monthly industrial output detecting asymmetry has become increasingly difficult using single frequency data this paper goes beyond the prevailing use of aggregate averaged data in order to provide a more in depth treatment of the dynamic effects of the price of crude oil on industrial output growth to do so we propose an asymmetric mixed data sampling amidas model to examine if there is any concealed evidence of asymmetry arising from daily effects of the price of crude oil on monthly changes in industrial output in the united states us we find that this model is able to detect dynamic asymmetric impacts of a high frequency independent variable on a low frequency dependent variable more effectively than when the high frequency variable is aggregated up at the time interval of the low frequency variable we find that in comparison with the marginal lagged effects of a rise in the daily price of crude oil the effects of a fall in the daily price of crude oil are more sluggish as it takes longer for the effects of the oil price drop to die off over time this finding implies that a fall in the price of crude oil shifts the supply curve rightward less and at a much slower pace than an equivalent price rise shifts it to the left

testing the unbiasedness hypothesis in the forward foreign exchange market a specification analysis abstract this paper evaluates two popular regression methods of testing the unbiasedness hypothesis in the forward foreign exchange market for the 30 day canada united states forward foreign exchange market the evidence overwhelmingly indicates that it is inappropriate to treat the structure of the systematic and stochastic components of the test relations as constant over time hence conclusions inferred from parameter significance testing based upon full sample estimation can be very misleading accordingly we argue for a specification analysis of the test relations and more explicit modelling of market fundamentals

a reexamination of purchasing power parity a multicountry and multiperiod study abstract this paper re examines the purchasing power parity ppp theory in a multiple exchange rate world owing to a lack of precision in estimating the parameters many authors concluded that ppp did not hold very well in the 1970s using a time series cross sectional estimation procedure we are unable to reject the hypothesis that ppp holds in several currencies simultaneously in addition the parameters are precisely estimated this result follows from the estimation procedure which allows us to exploit the cross sectional variation in the data and the contemporaneous correlation in the deviations from ppp

purchasing power parity modeling and testing mean reversion abstract a model of mean reversion of exchange rates to purchasing power parity is developed and tested where exchange rates are assumed to follow a mean reverting elastic random walk toward a stochastic ppp rate the model recognizes the possibility that mean reversion towards ppp may be nonlinear which allows greater flexibility in the adjustment process regression equations consistent with the theoretical model are derived the model is tested using long and short term data for six countries while the results are generally consistent with the findings of previous studies evidence is presented which demonstrates that the mean reversion process is not linear for some countries

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

the j curve in the emerging economies of eastern europe devaluation or depreciation of a currency worsens the trade balance before improving it resulting in a j curve pattern a new definition of the hypothesis implies a short run deterioration combined with the long run improvement by using monthly data over the january 1990 june 2005 period from 11 east european emerging economies most of which are the new european union eu members or the eu candidate countries this article uses the bounds testing approach to cointegration and error correction modelling and finds empirical support for the j curve hypothesis in three countries of bulgaria croatia and russia the results have important implications for policymakers involved in economics in terms of using exchange rate policy as a policy device to achieve real convergence toward eu standards

extended generalized purchasing power parity and optimum currency area in east asian countries this article extends the theory of generalized purchasing power parity g ppp by developing a model including foreign variables such as the real money supply output and interest rate a cointegration rank test with two structural breaks in the deterministic trend was adopted to selected asian countries with japan as the base country there were two cointegrating vectors and six common stochastic trends in the model the cointegrating vectors were estimated by the same approach used by pesaran et al 2000 the first cointegrating vector is interpreted as g ppp and the second one is interpreted as the extended g ppp according to g ppp these countries could form a single currency area the first stochastic trend is primarily driven by japan s real money supply the second third and fourth by the real exchange rates of the philippines singapore and thailand respectively the fifth by japan s output and the sixth by japan s government bond yields

a reexamination of balassa s productivity bias hypothesis rency by ri s the price level in country i by pi and the price level in the united states by pu s the ppp theory postulates that ri u s pi pu s many studies have tried to verify whether exchange rates follow the path outlined by the ppp equation the empirical results at best are inconclusive for example j a frenkel tested the ppp by drawing data from the 1970s and showed that the ppp failed on the other hand n davutyan and j pippenger criticized frenkel s work and reversed his conclusion 2 both studies used ordinary least squares and two stage least squares methods even recent studies that have used a relatively modern econometric technique cointegration analysis have mostly rejected the ppp 3 several reasons have been given in the literature for the failure of the ppp or deviation of the ppp based exchange rates from equilibrium exchange rates including lack of free trade existence of transaction costs existence of nontradables simultaneity problems different weights used in constructing different national price indexes money and asset prices and real factors or real variables among the real variables the productivity differential between two countries has received most of the attention in the literature if we denote the market determined equilibrium exchange rate by re and the ppp based rate by pi pu s following the literature we

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

unit roots and the real exchange rate before world war i the case of britain and the usa abstract unit root and cointegration tests indicate that the dollar pound real exchange rate was stationary during the us greenback and gold standard periods purchasing powwer parity ppp performed about equally well in the two periods and better than in recent years deviations from ppp were corrected by changes in british prices and us gold dollar prices greenback prices did not adjust the similarity of the adjustment parameters in the two periods suggests that expectations of a return to gold were embedded in the greenback price of gold

testing for news in foreign exchange markets abstract traditional tests of the role of interest rate news on foreign exchange rates are analysed and found to be of little empirical value

news shocks in the data olympic games and their macroeconomic effects we examine the macroeconomic effects of bidding for the olympic games using panel data for 188 countries during the period 1950 2009 our findings confirm that economies react to news shocks investment consumption and output significantly increase 9 to 7 years before the actual event in bidding countries hosting countries also experience significant increases in investment consumption and output 5 to 2 years before the hosting of the games mapping the olympics into a macroeconomic model we show that we can match our empirical findings if we assume that an olympic bid represents news about increases in government investment

political risk and foreign exchange rates an efficient market approach this paper examines the reaction of the foreign exchange market to the announcement of changes in the business environment of a country our results suggest that sampled political risk news conveys important information about a country s investment climate and causes its currency s exchange rate to vary it appears however that the reaction of the foreign exchange market is more dramatic for unfavorable events than for favorable events the evidence presented is also consistent with the hypothesis that the foreign exchange market is efficient in interpreting the type of event considered in this study

the black market exchange rate vs the official rate in testing ppp which rate fosters the adjustment process abstract in testing the purchasing power parity theory ppp researchers hardly pay attention to the speed with which the exchange rate adjusts to a change in relative prices in this paper we show that the speed of adjustment is faster when the black market exchange rate is used in testing the ppp as compared to the official exchange rate this could be another reason as to why central banks should unify the two rates

us money announcements and covered interest parity the case of japan abstract this paper examines the effects of us money announcements on dollar and yen denominated securities in their respective onshore markets the effects are consdered over several periods corresponding to possible us and japanese policy regimes the consistency of the responses is further examined by testing whether the responses of dollar denominated securities yen denominated securities the spot yen dollar exchange rate and the forward yen dollar exchange rate violate covered interest parity given the results of previous studies the evidence suggests that restrictions on capital mobility in japan have not allowed complete international integration of japanese financial markets

real exchange rate behavior abstract using random simulations with artificial data with identical sample characteristics to the long sample exchange rate data employed by lothian and taylor lothian j r and taylor m p 1996 the recent float from the perspective of the past two centuries journal of political economy 104 488 509 we show that standard unit root tests have extremely low power over sample sizes corresponding to the recent float the probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

the effects of incomes policies on the frequency and size of wage changes theoretical models accounting for variations in the rate of wage or price inflation rarely take explicit account of the costs of altering money wages or prices and yet these models are often evaluated in terms of their correspondence with data that presumably reflect the existence of such costs at least until the more inflationary experiences of the 1970s the normal situation in british and american manufacturing industry was for wage rates to be adjusted no more frequently than once a year even when there were indications of substantial inflationary pressures the recognition of this point has induced economists to incorporate in some fashion the varying time pattern of wage settlements into their fitted models of wage inflation but all have taken this pattern as exogenously determined 2 by contrast this paper considers the determinants of the probability of a new wage settlement in addition to the determinants of the size of the wage change conditional upon a new settlement taking place this distinction between the occurrence of an event and the extent of the occurrence has been investigated in the literature on the demand for durable goods e g cragg 1971 on labour force participation and hours of work e g heckman 1974 and on the choice of transport modes e g domencich and mcfadden 1975 but with few exceptions it has been neglected in empirical work on wage inflation 3 yet the distinction is an important one with immediate relevance to the evaluation of the effects of incomes policies on the course of wage inflation the typical procedure in this literature is to regress some aggregate index of wage changes on dummy variables that indicate the presence or absence of incomes policies but this procedure does not make full use of information about the form of these incomes policies that is incomes policies have sometimes taken the form of specifying a permissible ceiling on wage increases in which case they are designed to affect the extent of occurrence of the event but not the occurrence of the event on other occasions incomes policies have operated by postponing the implementation of new wage settlements in which case they are directed towards the occurrence of the event one purpose of this paper is to re evaluate the effectiveness of incomes policies by making use of information both on the frequency of wage settlements and on the size of wage changes when a settlement takes place

what can we learn from a large border effect in developing countries abstract failure of the law of one price lop in the short run is an empirical regularity recent research using disaggregated price data for different cities across an international boundary has shown that the variation of the prices in equidistant cities located in two different countries is systematically larger than that for the cities within the same country nontariff barriers and exchange rate variability are cited as the proximate causes of this systematic difference in consumer price variability results using data from developing countries with large nontariff barriers and more volatile exchange rate suggest that those claims are overemphasized

a quantitative reassessment of the purchasing power parity hypothesis evidence from norway and the united kingdom summary annual data from norway and the united kingdom from 1874 to 1971 are used to reassess the empirical performance of the purchasing power parity ppp doctrine the simple version of the ppp relationship is supported by the data only if different short run dynamics during a floating rate period 1914 1928 is allowed for two sets of factors were found to be important in amending the simple ppp model these were short run cyclical variables affecting the adjustment towards the ppp equilibrium relationship and long run structural factors such as productivity and terms of trade within this expanded model the proportionality between the exchange rate and relative price levels could not be rejected

urban economic growth in china theory and evidence this paper analyses the relationship between per capita gdp growth and investment foreign direct investment labour force growth government expenditure and urban infrastructure based on the data

median unbiased estimation in df gls regressions and the ppp puzzle using median unbiased estimation recent research has questioned the validity of rogoff s remarkable consensus of 3 5 year half lives of deviations from ppp these half life estimates however are based on estimates from regressions where the resulting unit root test has low power we extend median unbiased estimation to the df gls regression of elliott rothenberg and stock 1996 we find that median unbiased estimation based on this regression has the potential to tighten confidence intervals for half lives using long horizon real exchange rate data we find that the typical lower bound of the confidence intervals for median unbiased half lives is just under 3 years thus while previous confidence intervals for half lives are consistent with virtually anything our tighter confidence intervals now rule out economic models with nominal rigidities as candidates for explaining the observed behavior of real exchange rates therefore while we obtain more information using efficient unit root tests on longer term data this information moves us away from solving the ppp puzzle

purchasing power parity in less developed and transition economies a review paper abstract the concept of purchasing power parity ppp has been the subject of numerous studies many of which have been unable to prove conclusively this core principle of international finance although industrialized countries have received most of the attention studies that focus on less developed and transition economies have also attained mixed results this study surveys trends in this branch of the literature highlighting the econometric advances that have sought to solve this puzzle while pointing out that more needs to be done to address the reasons that might cause ppp not to hold

a note on the determinants of unexpected exchange rate movements abstract in this paper we study the relative importance of surprises in fundamentals in explaining unexpected exchange rate movements employing a unique survey dataset that contains matched exchange rate and interest rate expectations we are able to derive a number of interesting conclusions a variance decomposition of unexpected exchange rate movements into various components reveals that interest rate news is relatively unimportant but that changes in perceptions about risk premia and more importantly revisions of expectations with regard to future exchange rate levels are crucial in explaining unexpected exchange rate movements

import pricing and the trade balance in a popular model of exchange rate determination abstract this paper extends a popular model of exchange rate determination to include an import pricing relationship that is consistenc with imperfect competition in the importable sector the analysis highlights how import pricing behavior and aggregate macroeconomic relationships interact in determining the dynamics of the exchange rate the price of imports and the trade balance a basic prediction of the analysis is that an increase in the substitutability of imported product varieties in the domestic market will raise the responsiveness of the exchange rate and dampen the responsiveness of the trade account to monetary shocks

post bretton woods deviations from purchasing power parity in g7 exchange rates an empirical exploration abstract exchange rates have deviated substantially and idiosyncratically from purchasing power parity ppp since the breakdown of bretton woods in this paper a model incorporating both traditional ppp and financial market variables is constructed and tested on the us dollar s six g7 exchange rates during the floating rate era empirical tests show that the model s common set of variables with consistent signs can explain the divergent behavior of g7 exchange rates during 1973 2 90 2 idiosyncracies are reflected in different subsets of the model s variables entering significantly into each exchange rate s regression the existence of stable relationships is demonstrated by the equations co integration

a model of speculative efficiency with news error components this paper proposes a theoritical model to assess of news on the spot forward exchange rate relationship and thereby predicts of the impact of news on the exchange rate two types of news are analysed rational expectations type innovations and announcement effects form newspapers by using historical data form a time period which includes the german hyperinflation of the early 1920s an estimate from of the model is derived which is substantially simpler than the version requried using contemporary data preliminary results support the main theoretical predictions but also cast some doubt on a literal interpretation of the exchange rate model plus rational expectations

purchasing power parity in the presence of foreign exchange black markets the case of india the empirical validity of b ppp eb as a long run constraint between india and the us is examined in the preesence of foreign exchange black markets in a triariate model the official exchange rate is found to be coinergrated with both the price ratio and the black market exchange rate both the official exchange rate and price ratio respond to correct short run departures from b ppp eb also both the official and the black market exchange rates respond to correct departures from their own equilibrium relation the two sources of endogeneity in the official rate follow rate follow as indian authorities aimed to stabilize domestic prices and reduce uncertainty about the dollar price of rupees

empirical determinants of purchasing power parity deviations abstract this paper investigates the empirical determinants of purchasing power parity ppp deviations over the recent period of flexible exchange rates transitory ppp deviations arise in a world in which prices are sticky but where exchange rates respond instantaneously to news permanent ppp deviations occur when price indices differ across countries and the world is subject to real shocks regressions consistent with the hypothesis that current exchange rate changes create immediate ppp deviations which are slowly dissipated but not eliminated imply that both sticky prices and real shocks are responsible for the recent failure of ppp

productivity bias hypothesis and the purchasing power parity a review article abstract productivity differentials among countries are said to be one of the major sources that contribute to the deviation of the purchasing power parity based exchange rate from the equilibrium rate hence the productivity bias hypothesis prior to last review article on the productivity bias hypothesis in 1976 almost all studies relied upon cross sectional regression analysis since then two groups of empirical studies have emerged while one group has employed time series data the other one has used panel data these two later groups have provided more support to the hypothesis than the earlier cross sectional studies this paper reviews and criticizes each group separately and provides tables that summarize main features of each study

the j curve effect and us agricultural and industrial trade this paper examines the j curve hypothesis for us agricultural and manufactured goods using the shiller lag model the results support the j curve effect for agricultural goods but not for manufactured goods these findings explain why many studies in the literature fail to support the j curve phenomenon there are two explanations for these findings 1 the aggregation bias of data that combine both agricultural and manufactured goods and 2 the country under study is often an industrial nation like the us or japan with a high proportion of manufactured goods in both exports and imports

money supply announcements interest rates and foreign exchange abstract this paper presents a test of the joint hypothesis that money supply announcements affect the real interest rate and that changes in the real interest rate affect the exchange rate in the short run the test results are consistent with the joint hypothesis for example it is found that announcement of an unexpected jump in the money supply is accompanied by an increase in interest rates and an appreciation of the dollar if the rise in interest rates was entirely due to higher inflationary expectations the dollar should not appreciate

real exchange rates national price levels and the peace dividend the crumbling of the berlin wall in germany in 1989 the dismantling of communist party control of central and eastern european governments in 1990 and the dissolution of the soviet union in 1991 have created the opportunity for substantive reductions in military expenditures in the united states and europe this paper addresses conceptually and empirically some of the issues surrounding the potential structural impacts of disarmament upon an open economy s allocation of capital and labor between tradable and nontradable goods upon the relative price of tradables and nontradables and upon the nation s price level relative to a world average theoretically the effects of military spending reductions on these variables is ambiguous the effects depend upon the relative factor intensities in production of civilian versus military goods and those of civilian tradable versus nontradable goods as well as upon the relative importance in utility of civilian tradable versus nontradable goods empirically the model suggests that the effects of disarmament on the relative demand for and relative supply of nontradables to tradables are economically and statistically significant however because military spending reductions will tend to increase the relative supply only slightly more than the relative demand their relative price i e the real exchange rate is predicted to decline by only a small amount consequently lower military expenditures are predicted to result in a small real depreciation of a country s currency and thus only a minor fall in the national price level relative to the world average

exchange rate models and exchange rate expectations an empirical investigation a non parametrictest of popular modern exchange rate models under alternative expectation specifications is presented it is found that there is little difference in the predictive success of the alternative exchange rate models however there are significant differences in the performance of a model depending upon the expectations mechanism specified our most important finding is that the flexible price monetary model the portfolio balance model and a hybrid model under extrapolative and adaptive expectations mechanisms provide statistically significant information about the direction of exchange rate movements by contrast the same models when employing static regressive and rational expectation mechanisms do not provideany satistically significant information

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

structural determinants of real exchange rates and national price levels some empirical evidence contrary to the long held notion of purchasing power parity ppp economists have found systematic evidence that the general level of prices across countries at a point in time varies dramatically irving b kravis alan w heston and robert summers 1982 for example report that some countries national price levels are no more than one third the u s price level extensions of this work show that such departures from ppp have persisted for decades recently efforts have been made to explain systematically these persistent or structural departures from ppp pioneering work by kravis and robert e lipsey 1983 1987 1988 has demonstrated that a positive correlation between the price level and real per capita gross domestic product is robust across numerous cross sectional specifications for instance using data from kravis et al 1982 table 6 12 87 percent of the variation in national price levels pl of 21 countries in 1975 is explained by per capita gdp y and a constant

purchasing power parity and the canadian float in the 1950s in this paper the authors present evidence that neither large differences in inflation nor long time periods are necessary for a finding favorable to purchasing power parity evidence from cointegrating regressions and tests of the real exchange rate indicate that purchasing power parity held as a long run constraint between the united states and canada for the period 1950 10 to 1961 5 the authors also find that government intervention can distort purchasing power parity over a finite period once the data were extended beyond the period of the free float the evidence is no longer favorable to purchasing power parity copyright 1991 by mit press

syndicated euro credit sovereign risk assessments market efficiency and contagion effects this study investigates the informational efficiency of the syndicated euro credit market by analyzing the adjustment of spreads to news characterizing the state of sovereign borrowers creditworthiness in addition the potential for an interlinked crisis contagion effects between three major borrowing countries is examined that is contagion tests are conducted to see how news for one borrower affects the spreads charged to the others the evidence suggests that the euro credit pricing process has been informationally efficient however with respect to the contagion effects it was found that noncountry specific risk factors systematically influence country specific spreads

the system of administrative and political corruption canal irrigation in south india the paper describes how some irrigation engineers raise vast amounts of illicit revenue from the distribution of water and contracts and redistribute part to superior officers and politicians it argues that the corruption system which is centred on control of personnel transfers is an important supply side reason for poor performance of canal irrigated agriculture insofar as the same system operates in other government departments it may be more important for understanding indian politics and the political influences on economic development than has previously been realised

the impact of monetary regime changes some exchange rate evidence abstract lucas has argued that coefficient changes can be explained by changing expectations caused by the policy regime shifts this paper provides evidence consistent with the lucas critique using an efficient markets news framework kalman filter results show that surprise relative u s monetary expansion is associated both with periods of u s depreciation and appreciation i show that variables representing changes in monetary policy regimes can explain a substantial fraction of the movements in the time varying parameter

do exchange rates follow a random walk process in middle eastern countries abstract in this note we employ the kpss test in addition to the adf test to determine whether the real effective exchange rates in middle eastern countries follow a random walk process or they are stationary while in most cases the kpss test supported the stationary of the real effective rates thus the ppp the adf test did not the failure to support the ppp by the adf test is said to be due to its low power

exchange rate based stabilization in latin america abstract this paper examines the use of the exchange rate as a nominal anchor for achieving price stability in latin america it will explore the impact of exchange rate anchoring on the real sector by analyzing five stabilization programs the paper will identify conditions that make exchange rate based stabilization successful and those that lead to its failure it will also demonstrate that while the income effect can be instrumental in describing consumption booms associated with exchange rate based stabilizations the popular view based on the credibility hypothesis fails to explain key events associated with such programs

real exchange rates ppp and the relative price of nontraded goods the purchasing power parity hypothesis ppp states that nominal exchange rates move with differences in relative prices between economies the theory has received considerable attention in the economic literature since cassell 6 and is the foundation of many long run theoretical hypotheses in international finance yet its empirical validity remains in question many tests of ppp focus on the stationarity of the real exchange rate the nominal exchange rate adjusted for changes in price levels between economies if domestic and foreign price levels and the nominal exchange rate are integrated then cointegration between these variables implies the existence of both a long run equilibrium relationship and ppp the residual the real exchange rate then follows a stationary process the paper uses the multivariate cointegration methodology of johansen 16 and johansen and juselius 17 18 to examine the source of real exchange rate nonstationarity is the nonstationarity due to shifts in the domestic and foreign price of nontradeables or productivity differentials between traded and nontraded sectors or is the nonstationarity a possible outcome of difficulties in intercountry comparisons of prices movements associated with construction of these price indices most research finds the real exchange rate follows a nonstationary process due to the presence of a unit root 8 12 1 9 19 27 however the existence of a variable trend in the real exchange rate does not imply the absence of a long run relationship between relative prices levels and nominal exchange rates for two reasons first a long run relationship between price levels and nominal exchange rates may exist but not the one for one relationship implicit in the calculation of real exchange rates due to measurement differences in the construction of price indices between economies second ppp violations may occur due to the presence of permanent productivity innovations which affect the relative price of nontradeables if these shocks are not represented by measurable variables a cointegrating relationship will not exist the paper constructs traded and nontraded gdp price indices and productivity rates for 14 oecd economies and tests 1 if the variable trend the nonstationary process in the real exchange rate is due to permanent innovations in relative price of domestic and foreign nontradeables 2 if long run ppp violations are due to permanent movements in the relative price of nontradeables 3 if the nonstationarity in the real exchange rate is due to permanent innovations in domestic and foreign productivity differentials between the traded and nontraded sectors 4 if the variable trend in the relative price of nontradeables is due to permanent innovations in productivity between sectors lastly the paper constructs a cointegrating error correction model

how sensitive is commodity trade flows between us and india to currency depreciation previous studies that investigated the impact of real depreciation of the rupee on indian trade balance used aggregate trade data and provided no support for real depreciation to be effective in improving india s trade balance in this article we disaggregate the indian trade data by commodity and consider the sensitivity of each industry s inpayments export value and outpayments import value to real rupee dollar exchange rate annual data over the period of 1962 to 2004 from 40 industries that trade between the two countries as well as bounds testing approach are used to show that while in half of the industries real depreciation of rupee has short run effects on inpayments and outpayments the short run effects do not last into the long run in majority of the cases

the determinants of contract length an empirical analysis based on canadian micro data abstract recent theoretical work on the determinants of wage contract length focuses on inflation uncertainty as an explanatory variable additional to the more traditional variable of transactions costs this paper analyses the empirical determinants of contract duration using a large sample of contract data and confirms the conclusions reached in the theoretical literature

arima and cointegration tests of ppp under fixed and flexible exchange rate regimes real exchange rates between the united states and its major trading partners were calculated for the bretton woods and flexible exchange rate periods unit root tests indicate that purchasing power parity performed poorly in both periods tests for cointegration reveal limited instances in which it is possible to estimate the deviations from ppp as an error correcting model the estimated error correcting models indicate that foreign but not u s prices responded to deviations from ppp frenkel s 1981b finding that purchasing power parity ppp worked better during the 1920s than the 1970s caused considerable controversy for example davutyan and pippenger 1985 contend that the socalled collapse of ppp is a result of an increase in the relative importance of real versus monetary shocks they argue that the 1970s as opposed to the 1920s was characterized by real supply shocks and the international coordination of monetary policies the argument is that ppp did not fail rather there was an increase in the volatility of those factors giving rise to deviations from ppp hakkio 1984 reestimated ppp over the 1920s and 1970s using cross country tests i e sure estimates to improve the efficiency of his estimates he was able to support the hypothesis that ppp worked better in the 1970s than in the 1920s on the other hand papers by adler and lehman 1983 dornbusch 1980 frenkel 1981a junge 1985 and krugman 1978 report findings contrary to the ppp hypothesis moreover kenen and rodrik 1986 find that the volatility of real exchange rates has increased throughout the flexible rate period this paper tries to shed some light on the importance and persistence of the observed deviations from purchasing power parity under alternative exchange rate systems while it is interesting to compare ppp in the 1920s versus the 1970s it is equally useful to compare the 1960s versus the 1970s and 1980s if real supply shocks and lack of monetary coordination are characteristic of the latter period ppp should perform better in the 1960s to illustrate the issues involved consider the following econometric model of relative purchasing power

asymmetric responses in the timing and magnitude of changes in australian monthly petrol prices to daily oil price changes abstract this article investigates whether uncompetitive pricing tactics are being employed in the retail petrol market in australia through examining the effect of a change in daily oil prices on monthly petrol prices to do so we incorporate asymmetry into the coefficients of a normalised beta weighting function within an asymmetric mixed data sampling amidas framework this enables us to examine both the timing and the lagged marginal effects of a change in retail petrol prices in response to a change in the oil price we find evidence of asymmetries in both the timing and magnitude of retail petrol prices to a change in the oil price specifically we find that while price falls are slowly and symmetrically passed onto consumers price increases are more delayed but higher in intensity over time depending on the capital city when retailers eventually do increase petrol prices in response to an oil price rise with delay the price rise is between 2 1 and 3 4 times more than when retailers reduce petrol prices in response to a fall in the price of oil this finding is consistent with retailers delaying substantial petrol price rises in order to mask the existence of uncompetitive practices

exchange rate volatility economic growth nexus in uganda abstractthe global financial crisis has disrupted trade and capital flows in most developing economies resulting in an increased volatility of exchange rates we develop an autoregressive distributed lag model to investigate the effect of exchange rate volatility on economic growth in uganda using data spanning the period 1960 2011 we find that exchange rate volatility positively affects economic growth in uganda in both the short run and the long run however in the short run political instability negatively moderates the exchange rate volatility economic growth nexus these results are robust to alternative specifications of the economic growth model

purchasing power parities and exchange rates in latin america purchasing power parity ppp studies in recent years have revealed clearly that international comparisons of real income based on exchange rate conversions are very misleading indicators of standards of living there is no question that ppps provide the conceptually appropriate conversions of national accounts statistics from one currency to another and recent studies have shown that ppps deviate substantially from exchange rates 1 stimulated in part by the appearance of new bodies of data economists have recently renewed their interest in theoretical explanations of the long term or structural deviations of ppps from exchange rates the empirical tests of these models have been conducted almost entirely with data from the international comparisons project icp the purpose of the present paper is to test some of these models with a body of data collected by eciel for some latin american countries in 1970 2 this sample can also be combined with the phase 1 1970 sample of the icp to put this empirical study in context i shall first review briefly the theoretical and empirical literature on deviations of exchange rates from absolute ppps then i shall proceed to the empirical procedures and findings

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

on jump processes in the foreign exchange and stock markets exchange rates exhibit systematic discontinuities even after allowingfor conditional heteroskedasticity in the diffusion process the results are much more significant in theforeign exchange market than in the stock market which suggests differences in the structure of these markets finally this jump component is shown to explain some of the empirically observed mispricings in the currency options market the objective of this article is to analyze and compare the empirical distribution of returns in the stock market and in the foreign exchange market there are a number of reasons why a better understanding of the stochastic processes driving prices in these markets would be useful many financial models rely heavily on the assumption of a particular stochastic process while relatively little attention is paid to the empirical fit of the postulated distribution as a result models like option pricing models are applied indiscriminately to various markets such as the stock market and the foreign exchange market when the underlying processes may be fundamentally different the foreign exchange market for instance is characterized by active exchange rate man

do revenues or expenditures respond to budgetary disequilibria the post world war ii increase in the size of the federal government has led to a number of theoretical and empirical investigations of the sources of this growth in particular economists have questioned whether increases in the size of the federal budget tend to be initiated by changes in expenditures followed by revenue adjustments by the reverse sequence or both friedman for example argues that governments adjust expenditures to the level of revenues so that control of taxation is essential to limit growth in government 13 alternatively the spend and tax model posits that revenues will be adjusted to finance any politically chosen level of expenditures a third perspective reflecting the institutional separation of allocation and taxation functions of the federal government hypothesizes the independent determination of revenues and expenditures the goal of this investigation is to test these three alternative theories of the budgetary process for the united states

what drives infrastructure spending in cities of developing countries there exists a dearth of empirical studies on what determines infrastructure spending in cities of developing countries this in part can be attributed to the absence of quality data and the tendency for researchers to gloss over variations in infrastructure expenditure in or across developing world cities in the general belief that investment in infrastructure is generally low using the united nations human settlements programme s global urban indicators database this paper examines variations in infrastructure spending across cities in developing countries with a view to identifying the factors that explain these differences the empirical analysis identifies substantial intercity variations in infrastructure spending both across and within the regions of africa asia the middle east latin america and the caribbean and the economies in transition further analysis suggests that intercity variations in infrastructure spending are accounted for by differences in the macroeconomic environment urban g

corruption in public service delivery experience from south asia s water and sanitation sector summary this paper presents empirical information regarding the types and magnitude of corrupt behaviors documented in water supply and sanitation service provision in several south asian localities it also examines the strengths and weaknesses of current strategies to reduce corruption among several public water and sanitation bureaucracies in south asia drawing on interviews and focus group discussions with more than 1 400 staff customers and key informants where corruption has been reduced two concomitant drivers are observed a shift in the accountability networks of service providers and a change in the work environment that increases the moral cost of misconduct 2003 elsevier ltd all rights reserved

the determination of the real exchange rate the productivity approach abstract this paper explains deviations of exchange rates from purchasing power parity with the differences between countries of the relative growth rates of labor productivity between traded and nontraded sectors two cases are considered germany and japan versus their respective major trading partners the results show that the time series methodology yields a more favorable confirmation of the productivity differential model than the cross section regressions in the literature

real and nominal effective exchange rates in mena countries 1970 2004 the main purposes of this article are 3 fold first we construct measures of real and nominal effective exchange rates for 14 middle east and north african countries over the 1970 2004 period second we test the validity of the purchasing power parity ppp by applying the adf and kpss tests to the real effective exchange rates finally we employ the bounds testing approach to cointegration and error correction modelling to show that nominal devaluation leads to real devaluation in the short run as well as in the long run in many of the countries

the ecu as international money abstract the ecu is compared with alternative foreign currencies to determine how adequately it performs the various functions of international money for the period april 1979 through december 1984 it is found that for most european economic agents the ecu was superior to the sdr the us dollar and a representative foreign currency the netherlands guilder as a unit of account as a store of value and as a means of deferred payment an examination is made of the distribution of the series of exchange rate changes so that appropriate statistical methods are employed in making a final assessment about the variability of the ecu

are devaluations contractionary in mena countries currency depreciation reduces aggregate supply by raising cost of imported inputs and increases aggregate demand by increasing its net export component depending on the relative strength of the two effects depreciation could be expansionary or contractionary we employ the bounds testing approach to cointegration and error correction modelling to evaluate the effects of exchange rate depreciation on output growth both in the short and in the long run across a sample of mena countries exchange rate fluctuations are found to be important to fluctuations in real output growth in the short run anticipated exchange rate depreciation may induce long run expansionary or contractionary effects on output supply consistent with theory s predictions the expansionary effect of unanticipated depreciation is only transitory on output growth nonetheless unanticipated depreciation is found to have a contractionary effect on output growth in the long run via an increase in the cost of imported inputs

beyond the purchasing power parity testing for cointegration and causality between exchange rates prices and interest rates abstract this paper reexamines the causality between the dollar and the yen in a multivariate framework with the aid of cointegration and error correcting modeling for the 1951 94 period the phillips perron tests and johansen s tests are performed while causality from interest rates to exchange rates is found in the short run no causality between prices and exchange rates is found in the short run however causality is found running from relative prices to exchange rates along with interest rates between the u s and japan in the long run which supports the long run ppp hypothesis

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

ppp in the 34 oecd countries evidence from quantile based unit root tests with both smooth and sharp breaks abstractconventional unit root tests have mostly failed to validate the ppp quantile based unit root tests by previous research have provided some support for the ppp in this article we take an additional step and incorporate sharp shifts and smooth breaks into the quantile based unit root test and re examine the ppp in each of the 34 oecd countries over the period 1994 01 2016 03 we find support for the ppp in 18 countries of austria chile estonia finland france germany italy korea mexico netherlands new zealand poland portugal slovenia sweden switzerland turkey and the united kingdom

incorporating daily market uncertainty data into a conventional short run dynamic model the case of the black market exchange rate in iran the effect of market uncertainty on a country s currency while widely recognized is either omitted from mainstream models or addressed using low frequency series which are typically subject to a

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

understanding the empirical literature on purchasing power parity the post bretton woods era abstract this paper argues that the empirical failure of statistical tests of ppp in post bretton woods data is largely due to the low power of the tests employed this result is demonstrated using monte carlo experiments on the size and power of different testing procedures a new procedure based on horvath and watson econometric theory 11 pp 984 1014 1995 has greater power than previous approaches using the horvath watson procedure we find moderate evidence in favor of ppp in the post bretton woods era

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

global foreign direct investment flows the role of governance infrastructure abstract it is widely argued that a country s economic performance over time is determined to a great extent by its political institutional and legal environment we refer to these institutions and policies as the governance infrastructure of a country we utilize newly developed indices to examine the effects of governance infrastructure on both foreign direct investment fdi inflows and outflows for a broad sample of developed and developing countries over 1995 97 in addition we examine the role of other forms of infrastructure including human capital and the environment the results clearly indicate that governance infrastructure is an important determinant of both fdi inflows and outflows investments in governance infrastructure not only attract capital but also create the conditions under which domestic multinational corporations emerge and invest abroad it would appear that investments in governance infrastructure are subject to diminishing returns so that the benefits in terms of inflows are most pronounced for smaller and developing economies