short selling and the price discovery process we show that stock prices are more accurate when short sellers are more active first in a large panel of nyse listed stocks intraday informational efficiency of prices improves with greater shorting flow second at monthly and annual horizons more shorting flow accelerates the incorporation of public information into prices third greater shorting flow reduces post earnings announcement drift for negative earnings surprises fourth short sellers change their trading around extreme return events in a way that aids price discovery and reduces divergence from fundamental values these results are robust to various econometric specifications and their magnitude is economically meaningful the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

international environmental agreements for river sharing problems we study partial coalition formation and the strategic timing of membership of an iea for environmental issues in the coalitional bargaining game cbg of gomes econometrica 73 1329 1350 2005 we apply the cbg to a specific river sharing problem with two symmetric upstream agents each at a tributary and one downstream agent located at the junction of tributaries we identify five regions in the parameter space of a discount factor and a productivity parameter for water in one region the grand coalition always forms immediately in two other regions immediate formation of the grand coalition and gradual coalition formation both occur with positive probability in another two regions only gradual coalition formation occurs in one of these latter regions a region with discount factors close to one both upstream agents form a monopoly with positive probability formation of the monopoly persists in the limit as the discount factor goes to one

long range dependence in spanish political opinion poll series this paper investigates the time series properties of partisanship for five political parties in spain it is found that pure fractional processes with a degree of integration d between 0 6 and 0 8 fit the time series behaviour of aggregate opinion polls for mainstream parties quite well whereas values of d in the range of 0 3 to 0 6 are obtained for opinion polls related to smaller regional parties those results are in agreement with theories of political allegiance based on aggregation of heterogeneous voters with different degrees of commitment and pragmatism further those models are found to be useful in forecasting the results of the last general elections in spain as a further contribution new econometric techniques for estimation and testing of arfima model are used to provide the previous evidence copyright 2003 john wiley sons ltd

capacity choice and water management in hydroelectricity systems this paper proposes a simple two period model that captures the seasonal pattern of water inflows and electricity demand observed in many countries where hydropower is a major source of electricity supply the model characterizes the effects of different inflows pattern on the optimal water management capacity and the associated electricity production and price the first best capacity is a non monotonic function of water inflows which provides a rationale for the observed differences in reservoirs sizes across hydropower systems around the world the monopoly solution is qualitatively similar to the first best outcome and the privatization of hydroelectric power generation systems does not always imply a social welfare loss

the livelihood impacts of cash transfers in sub saharan africa beneficiary perspectives from six countries summary cash transfers cts are a social protection mechanism to reduce the poorest households vulnerability to shocks and build human capital by smoothing consumption and sustaining expenditure on education and social welfare our study examines whether and how cts go beyond welfare objectives to promote livelihoods presenting a cross case analysis using original qualitative data on beneficiary perspectives from six african countries kenya ethiopia malawi lesotho zimbabwe and ghana we explore ct livelihood impacts within household economies and social networks paying attention to gender issues we find that a small but predictable flow of cash improves strategic livelihood choices and stimulates productive investments including through positive effects on beneficiary entry into risk sharing arrangements and networks for economic collaboration levels of household vulnerability and labor constraint nevertheless significantly mediate the ability of cts to consolidate livelihood outcomes the varying availability of economic opportunities plus effective program implementation also shape livelihood impact incorporating beneficiary perspectives brings to the fore the multi dimensionality of ct effects on experiences of poverty and deprivation including gender dynamics and intangibles such as dignity and respect they add powerful realism to the influence of the ct on both immediate survival and livelihood choices beyond this they confirm wider knowledge on productive impact and bring nuance to the conditions under which and mechanisms by which beneficiaries use cts to build productive capability and assets and to make strategic livelihood choices

further empirical evidence on popularity and electoral cycle effects this paper empirically examines the hypothesis that popularity is typified by electoral cycle effects we suggest that if the data is filtered on the basis of a model assuming informed voters there is no evidence for the electoral cycle hypothesis

hearing the voices of the poor assigning poverty lines on the basis of local perceptions of poverty a quantitative analysis of qualitative data from participatory wealth ranking in rural south africa summary we applied a mixed methods approach to participatory wealth ranking pwr to identify the number of poor households in eight villages of rural south africa and describe how poor they are we generated a household wealth index on the basis of the ranking process and statements made on standard of living descriptions from pwr identified households as very poor poor but a bit better off or doing ok of 9 671 households 3 113 32 2 could be considered very poor or poor the paper presents a novel approach to wealth ranking that generates a rich appraisal of poverty

energy consumption at business cycle horizons the case of the united states in this paper we propose a simple extension to a keynesian type macro model by augmenting it with energy consumption we show the relationship between energy consumption and output in a macroeconomic setting and ask the question do permanent shocks dominate changes in energy consumption and output at business cycle horizons for the united states to achieve the goal of this paper we undertake a variance decomposition analysis of shocks based on a common trend and common cycle framework within a vector error correction model our main finding is that permanent shocks explain the bulk of the variations in energy consumption and output at business cycle horizons for the united states

a floor and ceiling model of us output abstract building on previous nonlinear time series models we further examine the form of nonlinearity in us output we develop a model of us output that allows for floor and ceiling effects to alter the dynamics of output growth the model estimated on post korean war quarterly data displays features similar to nonlinear trade cycle models of the 1940s and 1950s thus as predicted by many of the earlier theoretical models our empirical results suggest that the turning points of the business cycle provide new initial conditions for the ensuing growth process we also find important asymmetries in the responses of output to positive and negative shocks this history and shock dependence property is not present in linear or approximately linear models of the type that arise in the standard implementations of real business cycle theory

measuring the business cycle effects of permanent and transitory shocks in cointegrated time series abstract this paper proposes a statistical framework to evaluate the contribution of permanent and transitory shocks to the cyclical fluctuations of cointegrated variables an empirical application with us macroeconomic data reveals that transitory shocks are responsible for most of the variability at the business cycle frequencies

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

permanent and transitory movements in labor income an explanation for excess smoothness in consumption many have argued that if labor income is difference stationary the permanent income hypothesis predicts that consumption should be relatively volatile in u s aggregate data labor income is well characterized as having a unit root however consumption turns out to be relatively smooth this anomaly is known as deaton s paradox i resolve deaton s paradox by providing decompositions of labor income into permanent and transitory components these preserve the univariate dynamic properties of labor income however when agents distinguish permanent and transitory movements in their labor income as the rational expectations hypothesis asserts they should the permanent income hypothesis correctly predicts the observed smoothness in consumption

investment in electricity markets with asymmetric technologies abstract capacity investments in electricity markets is one of the main issues in the restructuring process to ensure competition and enhance system security of networks we study competition between hydro and thermal electricity generators under demand uncertainty producers compete in quantities and each is constrained the thermal generator by capacity and the hydro generator by water availability we analyze a two period game emphasizing the incentives for capacity investments by the thermal generator we characterize both markov perfect and open loop equilibria in the markov perfect equilibrium investment is discontinuous in initial capacity and higher than it is in the open loop equilibrium however since there are two distortions in the model equilibrium investment can be either higher or lower than the efficient investment

multivariate detrending under common trend restrictions implications for business cycle research abstract this paper outlines a methodology to detrend multiple time series under common trend restrictions the same filters used to construct the estimated trend in univariate exercises are shown to be appropriate in multivariate studies with a single common trend however to estimate the common trend in the multivariate case the filter is applied to a linear combination of series rather than to each series individually an empirical example and simulation exercises illustrate the implications of common trend detrending for measurement of business cycle properties

modeling government popularity in postwar britain a methodological example economic theory suggests that government popularity may be related to the rate of change of nonstationary economic quantities and the level of stationary financial variables like inflation or interest rates political theory suggests that this relationship may not be stable over time we find that there is a well defined relationship between u k government popularity in the postwar period and a small set of economic variables i e unemployment inflation and real interest rates unusual political events are also important voters appear to discount history at a high rate remarkably the estimated equation is very stable and passes a battery of stability tests including postsample parameter stability tests furthermore estimation using the kalman filter shows no tendency for the parameters to vary systematically over time implying that voter preferences have remained broadly constant throughout the postwar years

econometric estimations of popularity functions a case study for austria in this paper we investigate the effects of changes in economic conditions on the popularity of political parties in austria after a brief description of the austrian political system we estimate single equations and simultaneous systems of popularity functions for different parties based on traditional theoretical foundations results show that some effects of economic variables on popularity exist although they are different between different policy regimes traditional popularity functions nevertheless outperform models based on the assumption of voters rational expectations which claim that only unexpected changes in economic conditions affect political popularity

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

sources of mistrust an experimental case study of a central asian water conflict with the disintegration of the ussr a conflict arose between kyrgyzstan uzbekistan and kazakhstan over the transboundary syr darya river upstream kyrgyzstan controls the toktogul reservoir which generates hydropower demanded mainly in winter for heating downstream uzbekistan and kazakhstan need irrigation water in summer primarily to grow an export crop cotton regional agreements obliging kyrgyzstan to higher summer discharges in exchange for fossil fuel transfers from downstream riparians in winter have been unsuccessful due to lack of trust between the parties striving for self sufficiency in irrigation water uzbekistan initiated new reservoir construction this paper examines their economic impact we report a laboratory experiment modelling the syr darya scenario as a multi round three player trust game with non binding contracts payoff schemes are estimated using real life data while basinwide efficiency maximisation requires regional cooperation our results demonstrate that cooperation in the laboratory is hard to achieve uzbek reservoirs improve cooperation only weakly and their positive impact is limited to low water years

is political popularity a random walk this paper tets for nonstationarity in the political popularity of uk parties and governments within the context of an economic model which predicts that party support is an arima 0 1 1 process the hypothesis is rejected for the government s popularity but the results for individual party support are less clear out

expectations and preferences in british general elections t a te address two questions how do people form their expectations about the likely winner of the next general election and what are the links between expectations and votes using v v data collected by the gallup organization in great britain we find that the expectations formation process 1 has a significant inertia component but also a rapid adjustment to current information 2 reflects voters ability to translate economic expectations into political forecasts and 3 is time bounded possessing special characteristics immediately before and after a general election the analysis also confirms the existence of a small bandwagon effect whereby expectations that one party will win inflate that party s vote the ability of voters to make reasonable forecasts without being unduly influenced by their own preferences suggests that under normal circumstances voters are expressing real preferences and not simply following the crowd

uniform externalities two axioms for fair allocation abstract positive resp negative preference externalities say that an agent always prefers his actual welfare to his virtual welfare should other agents share his preferences resp prefers his virtual to his actual welfare negative group externalities say that an agent never prefers his actual welfare to his virtual welfare should he be the sole user of the resources these two axioms unify several familiar fairness properties and yield some new ideas as well in the division of unproduced commodities and the cooperative production of a private or a public good we also discuss their compatibility with no envy and resource monotonicity

some consequences of temporal aggregation in empirical analysis i derive the generating mechanism of a temporally aggregated process when the disaggregated one belongs to the vector autoregressive integrated moving average class i then study the effects of temporal aggregation on a set of characteristics of usual interest such as exogeneity causality cointegration and common features an empirical example with canadian interest rates illustrates the main issues

optimal provision of hydroelectric power under environmental and regulatory constraints hydroelectric power plants can quickly and inexpensively respond to changes in electricity demand however this operational flexibility can cause negative environmental im pacts and these environmental effects are miti gated through direct restrictions on hydropower operations rather than taxes or other market based mechanisms a dynamic model of hydro electric generation is used to derive hourly hydro electric generation and purchases of replacement power to meet contract demand in the presence of these operational restrictions the pattern of hydropower generation is shown to depend on differences between on peak and off peak spot electricity prices within the operational restric tions set by external regulatory mechanisms

reaching the poor cash transfer program targeting in cameroon identifying and selecting poor households with efficient targeting methods is essential for effective poverty alleviation programs this paper assesses the ex post performance of two popular targeting mechanisms proxy means testing pmt and community based targeting cbt in a pilot cash transfer program in cameroon several indicators and metrics to measure each method s performance in terms of inclusion of poor households and exclusion of non poor households are employed results consistently show that cbt performs poorly in terms of selecting households with low per capita consumption when compared to pmt cbt appears to select households with low physical and human capital regardless of actual consumption level however cbt also shows more variability in the selection decision than pmt even when alternative poverty definitions are used as robustness tests the pmt method used in the pilot slightly outperforms other targeting methods hybrid alternative pmt and universal targeting with equal budget but errors remain high when selecting 35 of the population for program participation the results suggest caution is needed in employing cbt methods to select households with low per capita consumption in an environment where poverty levels are high and administrative capacities are limited cbt performance may be improved through more uniform and consistent guidance on program selection criteria and process including explicit criteria that enable cbt monitoring as well as a better integration between pmt and cbt

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

sharing a river abstract a group of agents located along a river have quasi linear preferences over water and money we ask how the water should be allocated and what money transfers should be performed the core lower bounds require that no coalition should get less than the welfare it could achieve by using the water it controls the aspiration upper bounds demand that no coalition enjoy a welfare higher than what it could achieve in the absence of the remaining agents exactly one welfare distribution satisfies the core lower bounds and the aspiration upper bounds it is the marginal contribution vector corresponding to the ordering of the agents along the river journal of economic literature classification numbers d62 c71

decentralizing hydro power production we analyse the production of electricity from n power stations in a dynamic model each power station s production of electricity is constrained by the quantity of water available to it supply constraint as well as limitations on reservoir capacity storage constraint we show that hydro power production can lead to two sources of welfare loss suboptimal management of water resources and the exercise of market power a monopolist minimizes the first source of inefficiency whereas decentralized production in a competitive environment minimizes the second the decision to introduce competition in hydropower production must account for these two opposite effects jel classification l11 q48 decentralisation de la production d hydroelectricite nous analysons la production d hydroelectricite par n centrales dans un modele dynamique la production de chaque centrale est contrainte par la quantite d eau disponible contrainte d approvisionnement et la capacite du reservoir contrainte de stockage nous demontrons que la production hydroelectrique peut donner lieu a deux types d inefficacite la gestion sous optimale des ressources hydrauliques et l exercice de pouvoir de marche l entreprise monopolistique minimise la premiere inefficacite alors que la production decentralisee dans un marche concurrentiel minimise la deuxieme la decision d introduire la concurrence dans la production d hydroelectricite doit tenir compte de ces deux effets opposes

detrending and business cycle facts a user s guide this note argues that it is hardly the case that the profession is fully aware that the application of di erent filters to the data leads to di erent outcomes and that we have enough evidence to claim that these di erences are unimportant to evaluate the fit models to the data 1998 elsevier science b v all rights reserved jel classification b41 e32

multivariate estimates of the permanent components of gnp and stock prices the economic assumption that a present value relation holds between consumption and income and between stock prices and dividends or the statistical assumption that the consumption income ratio and the dividend price ratio are stationary imply that the permanent or random walk component in each series of a pair must be the same as the permanent component in the other series of a pair either assumption then allows us to estimate the variance of the permanent component of one series gnp stock prices from the variance of the permanent component of the other consumption dividends or from the covariance of the two series permanent components this paper presents such estimates and finds that the permanent components are about half those estimated by similar univariate methods a series of recent papers has examined the importance of a potential unit root to the behavior of real gnp campbell and mankiw 1986 1987 cochrane 1986 clark 1987 and stock prices fama and french 1986 lo and mai if by 0 the series is stationary the response can be any real number which is the innovation in these estimates instead of forcing us to ask the dichotomous question is there a unit root or not they allow us to continuously measure the importance of a potential unit root the actual estimating technique used in these papers varied somewhat cochrane poterba and summers and lo and mai if a series is stationary the variance of k differences will tend to a precursor to this paper appeared under the title spectral density estimates of unit roots we thank masanao aoki lam hansen masao ogaki and chris sims for helpful suggestions the computer programs and data used in this paper are available on request from the authors

cyclical fluctuations in strike durations canadian data on strikes between 1946 and 1983 are used to estimate linear regression models for the logarithm of completed duration a thorough investigation of the influence of the business cycle reveals strong support for the hypothesis that strike durations are countercyclical the cyclical effect is shown to be robust to both the choice of cyclical variable and the econometric specification and the magnitude of the effect is quite substantial experimentation with different representations of the cycle reveals that it is difficult to improve on a simple formulation involving a single continuous variable

sharing a river among satiable agents abstract we consider the problem of efficiently sharing water from a river among a group of satiable agents since each agent s benefit function exhibits a satiation point the environment can be described as a cooperative game with externalities we show that the downstream incremental distribution is the unique distribution which both is fair according to the aspiration welfare principle and satisfies the non cooperative core lower bounds on the other hand the cooperative core may be empty furthermore the downstream incremental distribution satisfies all core lower bounds for all connected coalitions if and only if each agent s individual rationality constraint is independent of the behavior of the other agents

the term structure of currency carry trade risk premia we nd that average returns to currency carry trades decrease signicantly as the maturity of the foreign bonds increases because investment currencies tend to have small local bond term premia the downward term structure of carry trade risk premia is informative about the temporal nature of risks that investors face in currency markets we show that long maturity currency risk premia only depend on the domestic and foreign permanent components of the pricing kernels since transitory currency risk is automatically hedged by interest rate risk for long maturity bonds our

a measure of the u s output gap abstract an autoregressive distributed lag regression of the unemployment rate on output growth is structurally stable over the 1890 1986 period inverting this equation yields a measure of the output gap which is not subject to the spurious detrending problem

water on fire gains from electricity trade in light of the ongoing liberalization of electricity trade in the nordic countries and perhaps in northern europe we argue that gains from electricity trade may be different from those traditionally associated with comparative advantages and economies of scale in particular we consider gains arising from the exploitation of technological complementarities between hydro and thermal systems our theoretical framework highlights essential features of the two systems and allows for an analysis of effects of trade we study three trading regimes which may arise either endogenously or because of trade regulations day night power exchange seasonal energy banking and unbalanced trade the analysis suggests that gradual trade liberalization may be costly

is the political business cycle really dead a decade ago in this journal mccallum 26 proclaimed the theory of the political business cycle 30 25 17 to be dominated by the emergence of the rational expectations literature 23 24 34 clearly the two theories are inconsistent when a strong view of rational expectations sees governments unable to manipulate real variables to create booms in election years since then new developments in macroeconomics have occasioned serious doubts as to whether the strong version of rational expectations is supported by the data 28 2 1 31 12 furthermore new advances in the political business cycle literature 36 4 have attempted to reconciliate the two theories by emphasizing that expectation errors may result from the presence of party dependent policy reaction functions and uncertainty about election outcomes the purpose of this paper is to step back and reconsider whether or not the empirical evidence presented by mccallum favoring rational expectations for the u s was really that strong and could be generalized to other countries here the u k given that the rational expectations hypothesis has been rejected at least in the strong mccallum and sargent version 26 34 it

the anti paradox of cooperation diversity may pay abstract this paper considers the stability and success of a public good agreement we allow for any type and degree of asymmetry regarding benefits and costs we ask the question whether asymmetry and which type and degree of asymmetry is conducive to cooperation we employ a simple non cooperative game theoretic model of coalition formation and derive analytical solutions for two scenarios an agreement without and with optimal transfers a central message of the paper is that asymmetry does not have to be an obstacle for successful cooperation but can be an asset we qualify two central results in the literature firstly the paradox of cooperation known since barrett 1994 and reiterated by many others afterwards stating that under those conditions when cooperation would matter most stable agreements achieve only little secondly a kind of coalition folk theorem known without proof in the literature for a long time stating that without transfers stable coalitions will be smaller with asymmetric than symmetric players we show that even without transfers the grand coalition can be stable if there is a negative covariance between benefit and cost parameters with massive gains from cooperation moreover with transfers many distributions of benefit and cost parameters lead to a stable grand coalition again some of them implying huge gains from cooperation stability and success greatly benefit from a very skewed asymmetric distribution of benefit and costs i e diversity may pay

evolutionary voter sophistication and political business cycles the concept of the sophisticated electorate is central to many contemporary political economic models however no existing studies have yet clarified how voters could develop a sophisticated way of evaluating economic performance this study suggests a transitional hypothesis that removes the constraint that voters have prior knowledge about the macroeconomic environment and the true economic intent of the incumbent government the hypothesis permits behavioral innovation from learning and predicts that the evolutionary process toward sophistication may be triggered by socially suboptimal political business cycles that reveal the self serving characteristic of the government the empirical analyses using recent japanese experiences show that japanese political support behavior shifted from naivete to sophistication in the early 1970s after political manipulation occurred in the 1969 and 1972 parliamentary elections

peasants or bankers the american electorate and the u s economy t he usual model of electoral reaction to economic conditions assumes the retrospective economic voter who bases expectations solely on recent economic performance or personal economic experience voter as peasant a second model assumes a sophisticated economic voter who incorporates new information about the future into personal economic expectations voter as banker using the components both retrospective and prospective of the index of consumer sentiment ics as intervening variables between economic conditions and approval we find that the prospective component fully accounts for the presidential approval time series with aggregate consumer expectations about long term business conditions in the approval equation neither the usual economic indicators not the other ics components matter moreover short term changes in consumer expectations respond more to current forecasts than to the current economy the qualitative result is a rational expectations outcome the electorate anticipates the economic future and rewards or punishes the president for economic events before they happen economics moves political behavior with hard times administrations lose support with good times they gain it we know this to be true but when we ask how by what processes the political translation of economic experience occurs the an

the beveridge nelson decomposition of economic time series another economical computational method abstract this note describes a simple and an economical computational procedure for generating the permanent cyclical decomposition of economic time series proposed by beveridge and nelson 1981 our procedure is a more complete alternative than the method suggested by cuddington and winters 1987

change and stability in superpower rivalry we investigate the dynamics of superpower rivalry participants in policy debates within each state use information about expected future threats and economic costs to influence other policy actors and this process of sophisticated reaction links the security policies of these two states into a single rivalry system analysis of vector autoregression models of u s and soviet military expenditures and diplomatic hostility and u s gross national product supports the hypothesis that these policies approximate the behavior of unitary rational states capable of forming rational expectations of each other s future behavior the dynamic response of this system to a wide range of exogenous shocks or innovations reveals the underlying stability of this rivalry system the military expenditures of both states exhibit a cyclical response to innovations with a shorter u s cycle this lack of synchronization creates several problems for analysis and for policy change

a quarterly model of unanticipated monetary growth output and the price level in the u k 1963 1978 abstract this paper develops and estimates using quarterly data from 1963 to 1978 a three equation model of the u k economy in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in the money supply expectations of monetary growth are assumed to be muth rational the model was estimated using efficient procedures and tests of the over identifying restrictions were favourable to the model specification in particular anticipated monetary growth was found to have no significant effect on output

market power in water markets abstract we model market power in water markets as multi market cournot competition with a river structure suppliers are connected through water balances which imposes resource constraints and they are connected to heterogeneous water users via a water delivery infrastructure our model captures a wide range of specific water market structures we establish conditions for existence of an equilibrium and we assess the effects of market power on water extraction delivery and water prices although the monopoly case is similar to standard economic theory three other specific water market structures illustrate that standard intuition has to be revisited

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

forecasting output gaps in the g 7 countries the role of correlated innovations and structural breaks trend gdp and output gaps play an important role in fiscal and monetary policy formulation often including the need for forecasts in this article we focus on forecasting trend gdp and output gaps with beveridge nelson trend cycle decompositions trend cycle decompositions and investigate how these are affected by assumptions concerning correlated innovations and structural breaks we evaluate expanding window one step ahead forecasts indirectly for the g 7 countries on the basis of real gdp growth rate forecasts we find that correlated innovations affect real gdp growth rate forecasts positively while allowing for structural breaks works for some countries but not for all in the face of uncertainty the evidence supports that in making forecasts of trends and output gap policy makers should focus on allowing for the correlation of shocks as an order of priority higher than unknown structural breaks

the unemployment rate consequences of partisan monetary policies economists and political scientists have identified several ways in which political motivations and institutional arrangements can affect macroeconomic policymaking one way is described by the political business cycle model 42 37 in which vote seeking politicians manipulate the path of the economy to secure unsustainably favorable conditions at election times variants of this model have been widely tested with limited success a second channel for political impacts comes through partisan policy changes brought about by electoral turnover the pathbreaking work in this literature includes the contributions of hibbs 30 31 32 33 and beck 11 these works have focused on the empirical issue of how unemployment rates vary under democratic and republican presidents in the u s and have found strong support for the proposition that unemployment rates decline under democratic administrations a third phenomenon has been studied primarily by economists and concerns the credibility problem faced by a central bank selecting money growth rates models of the credibility problem 8 21 describe a setting in which the central bank and the public interact by respectively choosing actual and expected money growth rates in a variant of the prisoners dilemma this interaction can result in excessive inflation

on the credit to gdp gap and spurious medium term cycles abstract i provide empirical evidence suggesting that the credit to gdp gap is subject to spurious medium term cycles i e artificial boom bust cycles with a maximum duration of around 40 years

examining trends of criteria air pollutants are the effects of governmental intervention transitory despite its growth in other areas of economics time series econometric methods have not beenwidespread in the area of environmental andresource economics we illustrate one use oftime series methods by examining the time pathof us nitrogen oxide nox emission dataover the period 1900 1994 the analysishighlights that proper time series methods canaid in optimal regulatory policy as well asdeveloping empirical verification of theoriesput forth to explain economic phenomena inaddition several interesting results emerge first we find that the emissions seriescontains both a permanent and random component second if one attributed all of the emissionsreductions to regulatory policy interventionanalysis suggests that the 1970 clean air act caa did not merely have transitory effects but permanently influenced the noxemission path in terms of total regulatoryimpact an upper bound on the emissions saveddue to the 1970 caa is in the range of27 48

strong tiebout equilibrium under restricted preferences domain abstract we investigate the existence and give a partial characterization of a strong tiebout equilibrium which consists of an endogenously formed partition of the individuals into disjoint jurisdictions with each jurisdiction producing and financing its own public goods and moreover there exists no group of individuals who can all benefit by establishing their own community in particular no single individual finds it desirable to migrate from his equilibrium jurisdiction the existence proof makes use of the notion of consecutive games which we introduce and show that for such games there always exists a partition with a nonempty core

the rational timing of parliamentary elections this paper presents a rational choice model for the timing of parliamentary elections in political systems where the government has the option of calling an early election the optimal timing of elections involves the government weighing the benefits of calling an election versus the costs and is modelled mathematically as an optimal stopping problem the model implies that the timing of elections depends upon time left in the government s term the degree of electoral uncertainty the volatility of government popularity the government s time rate of discount and institutional constraints such as the length of term and whether the government is likely to be forced from power by a vote of no confidence

time series decomposition and measurement of business cycles trends and growth cycles abstract a study of business cycles does not require trend estimation and elimination but a study of growth cycles does major cyclical slowdowns and speedups deserve to be analyzed but the needed time series decomposition presents difficult problems mainly because trends and cycles influence each other we compare cyclical movements in levels deviations from trend and smoothed growth rates for both the quarterly real gdp and the monthly u s coincident index using the phase average trend pat then we compare alternative trend estimates deterministic and stochastic linear and nonlinear and the corresponding series of deviations from these trends we discuss how the resulting estimates differ for u s growth cycles in the post world war ii period the results of pat show great similarity to the results obtained with the hodrick prescott local linear trend band pass filtering methods

water sharing agreements sustainable to reduced flows by signing a water sharing agreement wsa countries agree to release an amount of river water in exchange for a negotiated compensation we examine the vulnerability of such agreements to reduced water flows among all wsas that are acceptable to riparian countries we find out the one which is self enforced under the most severe drought scenarios the so called upstream incremental wsa assigns to each country its marginal contribution to its followers in the river its mirror image the downstream incremental wsa is not sustainable to reduced flow at the source self enforcement problems can be solved by setting water releases and compensations contingent to water flow we apply our analysis to the aral sea basin we compute the upstream incremental compensations for the bishkek agreement and asses its vulnerability with historical flows

adjustment costs and pricing to market theory and evidence abstract this paper develops an adjustment cost model of pricing to market the model consists of a monopolist who supplies an identical nondurable good to two foreign markets it is shown that the degree of pricing to market increases with the relative importance of the transitory component in exchange rates customs data from 1978 through 1987 on u s and canadian imports of seven german commodities are used to estimate the model s parameters and test its over identifying restrictions

the socially stable core in structured transferable utility games we consider socially structured transferable utility games for every coalition the relative strength of a player is measured by a power function the socially stable core consists of the socially and economically stable payoff vectors it is non empty if the game itself is socially stable the socially stable core consists of a finite number of faces of the core generically it consists of a finite number of payoff vectors convex tu games have a non empty socially stable core irrespective of the underlying social structure when the game is permutationally convex the socially stable core is shown to be non empty if the power vectors are permutationally consistent and is shown to contain a unique element if the power vectors are permutationally compatible we demonstrate the usefulness of the concept of the socially stable core by applying it to structured hierarchy games sequencing games and the distribution of water

analysis of us real gnp and unemployment interactions abstract instead of the more common unemployment rate the time series data of the level of us unemployment is used together with us real gnp and later also with the us money stock to identify a bivariate and trivariate structural model the model is then used to examine the interaction of the unemployment level with the real gnp in the business cycle frequencies the commonly perceived okun s law is shown to disappear in the trivariate model

emerging market business cycles learning about the trend abstract emerging market business cycles feature a higher variability of consumption relative to output and a strongly countercyclical trade balance an equilibrium business cycle model in which agents learn to distinguish between the permanent and transitory components of total factor productivity shocks using the kalman filter accounts for these features calibrated to mexico the model accounts for the behavior of consumption and the trade balance for a wide range of variability and persistence of permanent shocks relative to transitory shocks estimation for mexico and canada suggests more severe informational frictions in emerging markets than in developed economies

income risk the tax benefit system and the demand for children because children represent an irreversible commitment parents might hedge against higher income risk by having fewer children we show that under plausible assumptions recent increases in income risk might have reduced prudent parents desired fertility responses to this via the tax benefit system are considered introducing an expected revenue neutral transfer cum child benefit system under proportional taxation which lets the government share the household s income risk increases desired fertility for parents who would choose to have small families in this system s absence pound for pound the targeted child benefit enhances fertility more than the lump sum transfer

the rationality of economic voting and the macroeconomic regime since voter rationality plays a major role in theories of political economics it is important for political analysts to investigate the extent of voter sophistication a conventional strategy for addressing this question is to determine what decision rule voters appear to use by estimating rival political support models that embody varying assumptions about voter rationality however under some circumstances such a strategy may be incapable of identifying the descriptively superior model due to an observational equivalence problem the paper estimates the competing political support models under alternative macroeconomic regimes and finds evidence favoring the nonrationalist or adaptive model

the environment as a commodity all economic activity is based ultimately on re sources found in nature whether it is consumption the point in exposing the morphology of produced or production or whether it is exchange the comgoods and services is not to construct a resource moditi es which are involved are made of constitutheory of a value there are any number of natural ents provided by nature thus the ingredients of resources and this alone precludes such an at any manufactured good are other produced goods tempted theory from being coherent my purpose labour time and skills and natural resources each rather is to use it to express surprise at the fact that of these constituent produced goods is in turn made despite the centrality of natural resources in eco up from the ingredients that went into its manufacnomic activity they find little room in economics ture namely labour time and skills natural rediscourses interest in resource economics more sources and further produced goods it follows particularly environmental economics has only that any manufactured commodity is ultimately a been intermittent and if we are currently witness combination of labour and natural resources ing a resurgence and this special issue is an ex ample of it we have also just lived through a labour too is a produced good even raw labour is decade long neglect during which much valuable an output manufactured by those natural resources research could have been done 2 we are way behind which sustain life resources such as the multitude where we should have been and could have been

regulation via the polluter pays principle we consider the problem of regulating an economy with environmental pollution we examine the distributional impact of the polluter pays pp principle which requires that any agent compensates all other agents for the damages caused by his or her pollution emissions with constant marginal damages we show that regulation via the pp principle leads to the unique welfare distribution that induces non negative individual welfare change and renders each agent responsible for his or her pollution impact we extend both the pp principle and this result to increasing marginal damages due to pollution we also compare the pp principle with the vickrey clark groves scheme

sharing the costs of cleaning a river the upstream responsibility rule jorge alcalde unzu acknowledges the financial support from the spanish government through the project eco2012 34202 and fundacion ramon areces maria gomez rua acknowledges the finan cial support from the spanish government through the project eco2011 23460 and the galician government through the project 2013xgcedu08072013emer elena molis acknowledges the financial support from the spanish government through the projects eco2012 31346 and eco2013 44879 r from the consejeria de economia innovacion ciencia y empleo junta de andalucia through the projects sej 492 and sej 1436 and from the basque government through the project it568 13

sharing a polluted river abstract a river carries pollutants to people living along it if it is polluted to make the water in the river clean some costs are incurred this poses a question of how to split the costs of cleaning the whole river among the agents located along it to answer this question we resort to the two main advocated doctrines in international disputes the theory of absolute territorial sovereignty ats and the theory of unlimited territorial integrity uti applying these two doctrines we accordingly propose two methods the local responsibility sharing lrs method and the upstream equal sharing ues method for each method we provide an axiomatic characterization interestingly both the lrs method and the ues method coincide with the shapley value solutions to the corresponding cost games that are naturally induced according to the ats and the uti doctrines respectively

involving communities in the targeting of cash transfer programs for vulnerable children opportunities and challenges we used baseline data collected in july september 2009 from a randomized controlled trial of a cash transfer program for vulnerable children in eastern zimbabwe to investigate the effectiveness coverage and efficiency of census and community based targeting methods for reaching vulnerable children focus group discussions and in depth interviews with beneficiaries and other stakeholders were used to explore community perspectives on targeting community members reported that their participation improved ownership and reduced conflict and jealousy however all the methods failed to target a large proportion of vulnerable children and there was poor agreement between the community and census based methods

estimating long run economic equilibria with stochastic trends an asymptotic theory is provided to analyze a menu of currently existing estimators of cointegrated systems we study in detail the single equation ecm seecm approach of hendry our theoretical results lead to prescriptions for empirical work such as specifying seecm s nonlinearly and including lagged equilibrium relationships rather than lagged differences of the dependent variable as covariates simulations support these prescriptions and point to problems of overfitting not encountered in the semiparametric approach of phillips and hansen 1990

unemployment and infant health times series evidence from the state of tennessee this is the first study that decomposes unemployment into its structural and cyclical components and investigates their impact on income distribution controlling for the influence of inflation increases in structural unemployment have a substantial

the prebisch singer hypothesis a reappraisal independent of stationarity hypotheses time series behaviour of the relative price of primary commodities raul prebisch i950 and hans singer i950 believed that the long term trend of primary commodity prices was negative the latter in an interesting discussion of the above quandary pp 482 3 viewed rises in primary commodity prices as purely temporary sources of surplus that offered short lived opportunities to increase industrial investment these opportunities were missed by private investors who instead increased primary sector investment in such circumstances because all private activity tends to be governed by the price