what explains recent changes in international monetary policy attitudes toward inflation evidence from developed countries abstract this paper identifies source s contributing to the recent international shift in monetary policy attitudes toward inflation data from 18 developed countries suggests that this shift is connected to the universal increase in policy responses to economic openness in the 1990s

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

monetary accommodation exchange rate regimes and inflation persistence stable url http links jstor org sici sici 0013 0133 28199205 29102 3a412 3c461 3amaerra 3e2 0 co 3b2 lthe economic journal is currently published by royal economic society your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals res html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgwed feb 13 07 34 49 2008

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

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

immigrant specificity and the relationship between trade and immigration theory and evidence studies routinely document that immigrant employment concentrates in non traded goods sectors and that many immigrants have low inter sectoral mobility we consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation s pattern of production and trade we model an economy producing three goods one is non traded domestic labor and capital are domestically mobile but internationally immobile allowing that some new immigrants will become specific to the non traded goods sector the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants empirical investigation in a panel data set of oecd countries supports the model s prediction that immigration raises the output of non traded goods consistent with the model we also find that immigration and trade are complements given its empirical support the model s implications for immigration policy are then discussed

determinants of the structure of u s foreign trade 1958 1976 abstract the heckscher ohlin model with three direct factor inputs is borne out for u s net exports of manufactures in annual cross section regressions for 1958 1976 the coefficient on unskilled labor became significantly more negative over the period and there is evidence that the negative sign on physical capital may reflect the inclusion of natural resource industries further analysis based upon 1960 and 1970 census years suggests the importance as well of skill and technological variables calculations of the total factor requirements of u s trade uphold the leontief paradox for 1958 but not for 1972

the failure of woodford s model of the channel system in the cashless economy woodford claims to present a cashless and frictionless model of the channel system of interest rate control this note explains why woodford s frictionless model omits an essential feature of channel systems the need for clearing e cash balances at the central bank without the existence of some form of final settlement on the books of the central bank channel systems collapse woodford makes this conceptual error because he assumes that moneyless accounting systems of exchange can be applied to model e cash economies

a model of international asset pricing under imperfect commodity arbitrage abstract this paper examines the effect of imperfect international commodity arbitrage i e violation of the law of one price modeled as the existence of non traded goods on the structure of purchasing power risk optimal portfolio rules of the risk averse investors and the equilibrium yield relationship among assets the major results of the paper include i there are two separate sources of purchasing power risk i e relative price risk and inflation risk relative price risk is specific to the country in which the investor resides ii in a world of n countries investors may hold n 1 hedge portfolios as vehicles to hedge against purchasing power risk facing different relative prices investors residing in different countries display divergent portfolio behavior iii in equilibrium investors are compensated in terms of excess return for bearing not only the systematic world market risk but also the systematic inflation and relative price risks

exchange rate rules and macroeconomic stability this paper discusses exchange rate rules in their role as macroeconomic instruments we abstract throughout from the trend part of exchange rate behaviour a crawling peg necessitated by differences in trend inflation and emphasise instead the implications of exchange rate rules in providing flexibility of real wages or in affecting the stability of output or prices

deviations from purchasing power parity and capital flows abstract this article examines the implications of deviations from purchasing power parity ppp for an investor s portfolio decision and the consequent capital flows in a two country intertemporal model with complete financial markets in the presence of deviations form ppp investors from different nations hold disparate portfolios and the equilibrium that results is not a pooling one we solve eplicitly for asset demands and derive the relationship between the direction of capital flows and deviations from ppp in contrast to the small country assumption in the existing literature the world interest rate in this model is determined endogenously

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

capital accumulation and the growth of aggregate agricultural production abstract this report empirically examines the role which capital accumulation plays in the growth of agricultural production potential the report assumes that the degree towhich available technology can be implemented in a nation s agricultural sector depends on accumulated investments that have been made in the sector results from estimating aggregate agricultural production functions show the primary importance of rural labor in accounting for agricultural gdp and crop production capital accumulation is the dominant explainer of livestock production estimation results support the conjecture that capital tends to save scarce land resources substitute relationship and use rural labor complementarity relationship output supply elasticities derived from the estimated equations tend to be large the large elasticities imply that price distortions have had large impacts on resource use and production

real exchange rates under alternative nominal exchange rate systems abstract the paper develops an equilibrium model of the determination of exchange rates the relative price of nontraded goods and the current account the focus is on the effects of various real and nominal disturbances and the conditions under which the nominal exchange rate system is neutral with respect to real variables in the economy the model demonstrates an assymetry in the roles of trade and nontraded goods in affecting exchange rates an econometric investigation of the raltion between the exchange rate system and the variability of real exchange rates provides some evidence against the neutrality hypothesis

why real interest rates cost of capital and price earnings ratios vary across countries abstract this paper examines how productivity changes affect real rates of return and price earnings ratios in a small open economy the model provides conditions under which increased productivity in a country s traded goods sector causes prices of non traded goods to increase relative to the price of traded goods under these conditions real rates of interest decline and the production of certain non traded durable goods such as capital equipment and housing immediately increase this overconstruction has two effects first the increase in capital relative to labor in these sectors increases the marginal product of labor and hence immediately causes an increase in wages and the prices of non traded goods second an oversupply of capital goods and housing depresses their rental rates in the current period thereby increasing their price to rental ratios or equivalently their price earnings ratios

a time series approach to test a change in inflation persistence the mexican experience when a central bank commits credibly to a nonaccommodative monetary policy observed inflation should be a stationary process in countries where for a variety of reasons the determinants of inflation could lead it to follow a nonstationary process the adoption of a credible disinflationary programme should therefore induce a fundamental change in the stochastic process governing inflation and in particular should diminish its persistence this article studies the time series properties of both inflation and core inflation during the 1995 2006 period for the mexican economy using recently developed techniques to detect a change in the persistence of economic time series consistently with the adoption of an inflation targeting framework the results suggest that inflation in mexico seems to have indeed switched from a nonstationary to a stationary process around the end of year 2000 or the beginning of 2001

econometric testing of purchasing power parity in less developed countries fixed and flexible exchange rate regime experiences we investigate the purchasing power parity ppp hypothesis for 16 less developed countries ldcs from all over the world during their fixed and flexible exchange rate experiences over the period 1957 01 1999 12 the main contribution of this article to the empirical literature on ppp is that our study is the first to consider ppp hypothesis on alternative exchange rate regimes for ldcs the bilateral exchange rates of ldcs and the united states and their respective price levels are considered three different time series methodologies are employed unit root tests engle granger 1987 cointegration technique and johansen multivariate var methodology 1988 the cointegration techniques improve the results which allows the examination of the more frequent long run relationship between relative prices and nominal exchange rates nevertheless using each of econometric techniques we find only a few and a nearly equal evidence in favour of ppp under the alternative regimes in ldcs hence the main conc

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

an empincal examiation of the factor endowments hypothesis cross country regression of net exports on factor endowments has suggested that endowments provide a good explanation of international trade patterns in manufactures this paper examines whether endowments explain the composition of manufacturing activity as is proposed for the most policy relevant versions of the heckscher ohlin samuelson model or merely the level of manufacturing activity application of the cross country method to output data suggests that endowments do not provide a good explanation of composition

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

changes in the international distribution of resources and their impact on u s comparative advantage t he heckscher ohlin h o theory suggests international trade is determined by relative resource supplies among countries prior empirical research such as work on the determinants of u s comparative advantage in a single year has concentrated on the static predictions of h o theory however h o theory also suggests changes over time in resource supplies will alter trade structure the present paper investigates this aspect of h o theory particular emphasis is given to the role of world resource changes as an explanation of changes in u s trade and of the increased international competition in manufactured goods faced by the united states some recent studies have examined the relationship between changes in resource endowments and trade heller 1976 examined changes in the factor content of japan s trade between 1958 and 1968 and found the observed patterns consistent with changes in japan s physical and human capital endowments stern and maskus 1981 investigated changing factor input determinants of u s trade by estimating annual cross section regressions over 1958 77 they suggested u s net exports made less direct use of unskilled labor over time further analysis of the factor content of u s trade suggested increased u s abundance in physical capital relative to human capital between 1958 and 1971 balassa 1979 using a 1970 crosssection of countries concluded that physical and human capital accumulation largely explained changing patterns of comparative advantage in manufactures although these studies made important contributions a number of issues remain concerning the relationship between resources and trade stern and maskus in listing directions for further research cite first an examination of how and why endowments of physical capital human capital and labor have changed within the u s and our major trading partners this paper reports a substantial data effort which addresses this topic another important consideration is that the direct effect of resource endowment variation on trade has yet to be determined previously inferences about the effect of resource endowments on trade have been based primarily on results from industry cross section regressions authors of such work indirectly infer the effect of resource variation on trade by assuming the coefficients from such regressions reflect resource abundance however leamer and bowen 1981 recently demonstrated that signs of coefficients from such regressions need not reflect a country s true resource abundance thus the usual negative coefficient for the capital labor ratio in an analysis of u s trade cannot be used to infer the scarcity of capital and thus cannot be used to infer the effect of an increase in capital endowment on u s trade similarly balassa s procedure of first regressing for each of a sample of countries industry trade on input intensity and then using the estimated coefficients as the dependent variable in a cross country regression on resources is an inappropriate method for inferring the effect of resources on trade this paper advances consideration of these issues by investigating aspects of the relationship between resources and trade section ii examines changing patterns of resource supply among thirty four countries over 1963 75 section iii investigates whether these resource changes are associated with altered comparative advantage in manufactured goods section iv uses cross country regressions to estimate the resource endowment as opposed to factor input determinants of u s manufacturing trade and thereby the direct effect of resource variation on u s trade the received for publication april 23 1981 revision accepted for publication november 30 1982 new york university this paper is an outgrowth of research in bowen 1980a and of further work conducted at ucla under a ford foundation grant directed by edward e leamer an earlier version was presented at the 1980 southern economic association meetings in washington d c comments by c michael aho robert baldwin edward leamer joseph pelzman leo sveikauskas and an anonymous referee are gratefully acknowledged the author remains responsible for errors

money as stock abstract the fiscal theory determines the price level from the value of nominal government debt as a claim to government primary surpluses just as private stock is valued as a claim to corporate profits valuation equations are not constraints so this theory does not mistreat the government s intertemporal budget constraint i anchor the analysis in a simple cash in advance model when money demand falls to zero i show that the price level can still be determined by the government debt valuation equation

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

the impact of industrial policy on japan s trade specialization recent research has demonstrated the possibility of welfare enhancing industrial policy this paper analyzes the impact of industrial policy on japan s trade pattern and explores the possibility that it has been welfare enhancing econometric results indicate that industrial policies have had an impact on japan s trade specialization these results are obtained contemporaneously and when the explanatory variables are lagged suggesting either that policymakers have been forward looking or that policy interventions have had persistent long lasting effects although some cases of successful targeting are uncovered welfare enhancing interventions appear to have been the exception not the rule copyright 1993 by mit press

persistence in real variables under alternative exchange rate regimes some multi country evidence abstract in this paper we try to establish empirically whether a different degree of persistence is found in real variables under alternative nominal exchange rate systems the measure of persistence employed is the modified rescaled range statistic proposed by lo econometrica 1991 59 1279 1313 which tests for the presence of long range dependence after having accounted for a wide class of short memory processes the empirical results indicate a systematic increase in persistence in real variables under floating

the international convergence of inflation rates during fixed and floating exchange rate regimes abstract according to the assets approach to the balance of payments exchange rate under a fixed exchange rate regime inflation must grow at the same rate in each of the participating countries at least in the long run the model implies that reserve currency inflation causes world inflation the mechanism by which inflation is transmitted when currencies are allowed to float is more complex the long run international convergence of inflation is studied using modern time series techniques on post war data from the g 7 countries the evidence on the convergence of inflation during the fixed regime portion of the sample is strong and consistent with the notion of reserve currency causality i e from the us to the rest of the world the evidence of convergence over the floating portion of the sample is also quite strong but no single currency can be characterized as the common underlying source of world inflation implying the inflation rates are endogenous

can nominal exchange rates be differenced to stationarity abstract the objective of this paper is to examine the well known assumption of difference stationarity of nominal exchange rates with the method of leybourne et al 1996 we conclude that the assumption of difference stationarity is innocuous for quarterly exchange rates but not for monthly exchange rates in fact a randomized unit root process is appropriate for monthly exchange rates these findings are important for exchange rates modeling

international trade comparative advantage and the incidence of layoff unemployment spells the gains and losses to factors of production from trade are discussed primarily within the context of the stolper samuelson theorem which focuses on factor rewards but policy makers are more concerned about employment effects of trade this paper focuses on the short run effects of trade on the incidence of layoffs in u s manufacturing industries a probit model with endogenous switching is employed to estimate the effects of trade shocks and explore the role of comparative advantage on layoffs the evidence suggests that trade shocks play a minor role in the incidence of layoff spells however net importing industries tend to adjust their labor force through layoffs to a greater extent than net exporting industries copyright 1995 by mit press

a specification test of the heckscher ohlin theory abstract under strong assumptions the heckscher ohlin model predicts not only that factor endowment differences alone determine trade patterns but that they do so in a particularly simple way the factor content of trade should be a linear function of national and world factor endowments the evident empirical shortcomings of this simple relationship need not however imply the more general empirical failure of endowment based trade theories this paper provides empirical evidence consistent with a more general endowment based model by showing that the strong heckscher ohlin relationship excludes important additional channels through which factor endowments affect the pattern of trade

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

comparative advantage in manufactured goods a re appraisal japanese input coefficients are used to investigate the pattern of comparative advantage in the exportation of manufactured products in a cross country framework estimates are made for the imports of manufactured products as well as for net exports also alternative techniques of estimation are utilized and an attempt to explain the residuals in the regression equations and to indicate the predictive power of these equations is made the paper shows that patterns of comparative advantage in manufactured goods can be explained by reference to commodity characteristics and country characteristics in turn intercountry differences in the extent of trade orientation the concentration of exports and foreign direct investment explain part of the residuals of the cross country regression equations finally it has been found that the method applied permits projecting the factor intensity of trade for individual countries

dominant real exchange rate movements abstract principal component analysis is used to investigate two types of questions about the behavior of real exchange rates first what group of currencies display the same empirical regularities can we attribute dominant movements in real exchange rates to a specific country e g the united states or a group of countries second does the prevailing nominal exchange rate regime affect the long run properties of real exchange rates in the empirical analysis we use real exchange rates between 15 industrial countries for the sample period 1957 to 1986 the standard principal component analysis is modified such that results are independent of the numeraire currency

the real interest rate a multi country empirical study how real interest rates behave over time is critical to our understanding of many macroeconomic issues and much recent research has pursued this question very little of the research however has focused on real interest rates outside the united states this paper is an empirical exploration of real interest rate movements in seven oecd countries from 1967 ii to 1979 ii further research is needed on real rates in other countries for several reasons not only are measures of foreign real rates of interest in their ownright but extending an analysis of real rates to other countries also has the following additional benefits it can generate more powerful statistical tests of propositions previously tested on u s data and yield information on whether results found for the u s hold up in other countries this study pursues several questions that have arisen naturally from this earlier work is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries does the real rate decline with increased inflation and money growth in other countries besides the united states how reliable is the fisher effect in which nominal interestrates reflect changes in expected inflation are movements in nominal interest rates a reliable indicator of movements in real rates what kind of variationsin real interest rates are there in different countries have real rates declined from the 60s to the 70s for other countries besides the u s this abstract was borrowed from another version of this item

temporal aggregation and purchasing power parity persistence this paper uses a unique new monthly us uk real exchange rate series for the january 1794 december 2009 period to reexamine the academic debate over purchasing power parity ppp the consensus view described by rogoff 1996 is that ppp holds in the long run but short run deviations are very persistent with half lives ranging from 3 to 5 years most of the literature using long time series relies on the annual data developed by lee 1976 and lothian and taylor 1996 which were both constructed from underlying higher frequency data sources estimates of purchasing power parity persistence using these series may therefore be subject to temporal aggregation bias we find evidence of aggregation bias which indicates the half life of ppp deviations has been overestimated in much of the previous literature we also find that estimates of the half lives are further reduced once we account for the harrod 1933 balassa 1964 samuelson 1964 effect the result of aggregation bias appears to be robust even when considering the case that real exchange rates exhibit nonlinear dynamics

the clash of central bankers with labour market insiders and the persistence of inflation and unemployment this paper analyses the implications of monetary policy for the dynamic behaviour of inflation in a natural rate model characterized by endogenous unemployment persistence we present evidence for the main industrial economies that suggests that inflation displays persistence which is of the same order of magnitude as the persistence of deviations of unemployment from its natural rate we provide a theoretical explanation of this fact based on a model of the dynamic interactions between central bankers and labour market insiders the clash in the objectives of central bankers and labour market insiders is what causes both inflation and unemployment to display the same persistence in this model the analysis suggests that inflation persistence could be addressed in a welfare improving way if central banks adopted monetary policy rules that targeted unanticipated changes in unemployment rates instead of deviations of unemployment from its natural rate

the rules of the game international money in historical perspective no world central bank issues a separate currency for commerce across national boundaries instead a system of national monies works more or less well in providing a medium of exchange and unit of account for current international transactions as well as a store of value and standard of deferred payment for longer term borrowing and lending how do national governments and banking institutions interact to provide international money for merchants and investors by necessity this monetary interaction changes with time place political circumstances and financial technology to better understand its historical evolution let us follow robert mundell and distinguish between a monetary system and a monetary order

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

doing without money a critical assessment of woodford s analysis woodford employs an inter temporal general equilibrium model to examine the properties of the monetary system as it evolves from the use of a physical medium of exchange to an electronic medium he presents a structure in which cash as a means of payment can be made to vanish at the limit but where he claims the price level remains determinate it is shown that woodford s analysis involves fundamental but still widespread conceptual and methodological errors his general equilibrium model does not map into the world of electronic money and his analysis has no implications for the art of central banking copyright 2006 oxford university press

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

purchasing power parity abstract this paper examines the purchasing power parity henceforth ppp using historical data and the cointegration approach the results indicate that the exchange rate is cointegrated with the wholesale price index wpi ratio but not with the consumer price index cpi ratio the cointegrating vector is close to 0 1 for the cpi based real exchange rates however we cannot reject the random walk hypothesis the findings caution us on the use of general price indexes that give a large weight to nontraded goods and are therefore subject to long run deviations from ppp

terms of trade and the exchange rates of new zealand and australia effects of the terms of trade on the bilateral exchange rate of new zealand and australia and of each of these countries with the usa are evaluated there is strong evidence of cointegration of the exchange rates and a ration of the respective national price levels when the relative terms of trade of the countries are included in dynamic models while evidence that the long run equilibrium relationships satisfy purchasing power parity is mixed relative improvement of a country s terms of trade results in real appreciation of its currency in all cases the terms of trade are also found to be exogenous for the parameters of the long run new zealand australia exchange rate equilibrium

mussa redux and conditional ppp abstract the extreme persistence of real exchange rates found commonly in post bretton woods data does not hold in the preceding fixed exchange rate period when the half life was roughly half as large in our sample this finding supports sticky price models as an explanation for real exchange rate behavior extending the classic argument of mussa 1986 from a focus on short run volatility to long run dynamics two thirds of the rise in real exchange rate variance observed across exchange rate regimes is attributable to greater persistence of responses to shocks including greater price stickiness rather than to greater variance of shocks themselves

resource supplies and changing world agricultural comparative advantage abstract this paper advances consideration of the heckscher ohlin h o theory of comparative advantage to agriculture in a dynamic setting the dynamic relationship among trade flows resource supplies and factor contents is studied the view that special circumstances in the agricultural sector render the h o theory inapplicable as a guide to agricultural trade is challenged consistent with the h o theory the results suggest that changing world patterns of resource abundance are an important explanation of the evolving structure of world trade in agriculture commodities

a test of the heckscher ohlin vanek theorem the leontief commonplace abstract this paper provides a logically complete empirical test of the hov theorem for the united states by comparing measures of factor intensities trade and factor endowments under the appropriate computations of the factor contents of trade and production u s data are shown to diverge often from their values as predicted by hov as a result it appears that paradoxical outcomes may be common in empirical applications of the theorem

purchasing power parity and real factors it is acknowledged that purchasing power parity ppp fails in empirical tests the position adopted is that real factors are an omitted variable from the ppp relationship and are the cause of divergences from ppp the real exchange rate as being determined by supply and demand shift factors as in stockman 1987 and neary 1988 is modelled we then empirically estimate a real exchange rate equation and use the fitted value as a generated regressor in tests of ppp it is demonstrated that when changes in the real exchange rate are incorporated into the ppp relationship ppp improves

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

investigating the multivariate granger causality between energy consumption economic growth and co2 emissions in ghana abstract the economy of ghana continues to witness a rising demand for energy coupled with growth in gross domestic product that follows a wavy trajectory in the midst of this economic phenomenon there is a trend of increasing greenhouse gas emissions with attendant economic health and environmental consequences this paper examines the causal interdependence between energy consumption economic growth and co 2 emissions in ghana from 1960 to 2015 by using the toda yamamoto and granger causality tests the johansen and johansen juselius cointegration approach and the autoregressive distributed lag bounds test approach are employed to test for cointegration relationship the results show that the variables are cointegrated the causality tests reveal that there is feedback granger causality between energy consumption and co 2 emissions since there is a causal link between energy consumption and economic growth with its concomitant effect on co 2 emissions any energy conservation oriented policy not derived from energy efficiency and technological progress may hurt the ghanaian economy in effect more effort should be aimed at improving energy efficiency through technological progress and investment should be made in renewable energy to reduce over reliance on fossil fuels

the pricing of forward exchange rates abstract this paper tests the hypotheses that 1 risk premia fully account for the observed systematic discrepancies between forward and future spot exchange rates and 2 efficient markets versions of ppp holds a simple theoretical framework is used to derive testable restrictions on the parameters of a multivariate regression model the data reject the restrictions and each hypothesis in contract to past investigations the empirical analysis strongly suggest that forward exchange rates incorporate anticipated real exchange rate movements

econometric methods and purchasing power parity short and long run ppp this paper defines the different versions of the purchasing power parity and establishes the existing relationships between them in the light of econometric techniques monthly and annual data for real exchange rates are studied through a variance ratio test unlike other authors it is found that there is not explosive behaviour in the real exchange rate when monthly data are used besides stationarity is easily accepted using annual data these results allow to reconcile the two main versions of the purchasing power parity and also explain why trade imbalances are persistent but not permanent

nominal exchange rate regimes and the stochastic behavior of real variables abstract this paper examines the behavior of some key macroeconomic variables under alternative exchange rate regimes by looking at persistence volatility and the relative importance of symmetric worldwide versus asymmetric nation specific shocks as a driving force of business cycles the empirical evidence is not supportive of the nominal exchange rate neutrality hypothesis unemployment and real interest rates are more persistent under floating whereas industrial production and real exchange rates are less persistent also the conditional variance of the two latter variables and of the unemployment rate exhibits higher variability in the post bretton woods era furthermore principal components analysis shows that the flexible rate regime is characterized by increased international correlation of business cycles and that cyclic movements have become less country specific

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

a review of interest and prices foundations of a theory of monetary policy by michael woodford this is a review article of interests and prices foundations of a theory of monetary policy princeton university press 2003 by michael woodford

tests of three parity conditions distinguishing risk premia and systematic forecast errors abstract this study provides evidence that uncovered interest differentials between currencies cannot be attributed to either risk premia or systematic forecast errors alone the evidence is based on developing joint tests of three parity conditions uncovered interest parity purchasing power parity and real interest parity the study tests parameter restrictions based on knowing that risk premiums only affect nominal and real interest differentials but not inflation differentials while systematic errors in forecasting exchange rates only affect nominal interest differentials and inflation differentials but not real interest differentials the study finds a variety of cases where deviations from some or all of the parity conditions can be systematically related to variables currently known to investors and borrowers the most intriguing evidence is that for some currencies these deviations from parity are perfectly correlated as if they were driven by a common factor

price flexiblity and output volatility the case for flexible exchange rates abstract this paper uses descriptive statistics and regression analyses to examine the relationship between exchange rate variability and output volatility in developed countries based on 1961 to 1984 data the result indicate that a flexible exchange rate system is associated with less not more dispersion in output growth across industrialized countries despite a more turbulent global environment also countries which have more exchange rate volatility experience less output volatility the relationship appears not to be spurious the results are consistent with the idea that an increase in price flexibility does not destabilize output