international evidence on output inflation tradeoffs a bootstrap analysis abstract a bootstrap analysis of existing data on international output inflation tradeoffs is performed in contrast to some previous empirical work the results of the bootstrap analysis strongly support lucas 1973 rational expectations model of the natural rate hypothesis

the open economy consequences of u s monetary policy a failure to identify movements in the federal funds rate that are both unpredictable and independent of other determinants of open economy variables may lead to attenuation bias in the estimated effects of u s monetary policy on the exchange rate and foreign variables using a u s monetary policy measure which isolates unpredictable and independent federal funds rate changes we quantify the magnitude of the attenuation bias for the exchange rate and foreign variables the exchange rate appreciation following a monetary contraction is up to 4 times larger than a recursively identified var estimate there is stronger evidence of foreign interest rate pass through the expenditure reducing effects of a u s monetary policy contraction dominate any expenditure switching effects leading to a positive conditional correlation of international outputs and prices we compare our results with those obtained using identification based upon 1 non recursive var restrictions and 2 restrictions derived from high frequency asset price behavior

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

the changing relationship between aggregate price and output the british experience over the past two and a half decades great britain has exhibited the most noticeable increase in inflation variability among the ten major noncommunist industrialized countries in addition there has been an apparent worsening in the output inflation tradeoff this paper attempts to identify and empirically assess possible causes of the deterioration in the british output inflation tradeoff in the context of a new classical type model supply side shocks can cause an increase in the inflation rate and a decrease in real output and it is estimatedthat such shocks interacted with inflation variability to reduce real output roughly 3 3 percent between the period 1957 1968 and the period 1969 1980 also contributing to the deterioration in the output inflation tradeoff it is estimated that the decline in the natural rate of real output due to inflation variability as hypothesized by milton friedman amounted to about 2 3 to 2 5 percent between these two subperiods this abstract was borrowed from another version of this item

fluctuations in the foreign exchange market how important are monetary policy shocks abstract we study the effects of u s monetary policy shocks on the bilateral exchange rate between the u s and each of the g7 countries we also estimate deviations from uncovered interest rate parity conditional on these shocks the analysis is based on a structural vector autoregression in which monetary policy shocks are identified through the conditional heteroscedasticity of the structural disturbances unlike earlier work in this area our empirical methodology avoids making arbitrary assumptions about the relevant policy indicator or transmission mechanism in order to achieve identification at the same time it allows us to assess the implications of imposing invalid identifying restrictions our results indicate that the nominal exchange rate exhibits delayed overshooting in response to a monetary expansion depreciating for roughly ten months before starting to appreciate the shock also leads to large and persistent departures from uncovered interest rate parity variance decomposition results indicate that monetary policy shocks account for a non trivial proportion of exchange rate fluctuations

monetary policy actions intervention and exchange rates a reexamination of the empirical relationships using federal funds rate target data the authors reexamine the relationships among federal reserve monetary policy actions u s interventions in currency markets and exchange rates using an alternative measure of monetary policy actions the federal reserve s federal funds rate target they find that exchange rates generally respond immediately to u s monetary policy actions and that these responses are usually consistent with the overshooting hypothesis the authors also find evidence of signaling and leaning against the wind u s intervention policies over the sample however controlling for such interventions do not alter their estimates of exchange rate responses to federal funds rate target changes copyright 1998 by university of chicago press

inflation dynamics and the output inflation trade off international panel data evidence we explore the impact of inflation and its variability on the output inflation trade off using a unified single step approach in a panel data context a limitation of earlier empirical approaches is that they focus on either cross country or country by country time series analyses this paper employs a dynamic heterogeneous panel data specification and uses an all encompassing estimation framework that accounts for parameter heterogeneity cross sectional dependence dynamics and non stationarity our sample covers 60 countries from 1970 to 2010 while inflation variability reduces the trade off for specific periods and country groups an unambiguous and more pronounced negative relation emerges between the inflation rate and the responsiveness of real output to nominal shocks the findings are in line with the new keynesian view of a negative association between the rate of inflation and the output inflation trade off as well as with the observed flattening of the phillips curve over the past decades

anticipated inflation the frequency of transactions and the slope of the phillips curve this paper examines the effects of expected inflation on the responsiveness of output to nominal disturbances in the framework of a localized markets model the mechanism described in the theoretical part of the paper is that expected inflation has a positive effect on the transaction frequency which in turn increases the flow of price information across markets more information implies less misperception of monetary shocks as relative shifts in excess demand resulting in lower sensitivity of real output to these socks the empirical implication of this proposition namely that expected inflation reduces the coefficient of nominal shocks in an output equation is tested first using data across countries and then with time series data from the united states the first test uses lucas s and alberro s estimates of phillips curve coefficients from different countries and the corresponding average inflation rates the second test involves data from the post world war ii period it uses nominal rates of return on treasury bills and corporate bonds as measures of anticipated inflation and barro s estimates of unanticipated money in general results in both tests provide support stronger than expected for the implication of the theory this abstract was borrowed from another version of this item

emerging market economies and the world interest rate abstract we use a factor augmented var model to estimate the dynamic responses of interest rates in emerging market economies to the world interest rate which we extract from a dynamic factor model of yields in industrialized countries our results provide evidence that many emerging market yields respond to world rate shocks at least gradually which is broadly consistent with capital market integration our findings also suggest that the world rate captures information about emerging market yields not contained in us rates which are typically used to proxy for the world rate

a new consumption based accounting model for greenhouse gases from 1948 to 2012 abstract greenhouse gas emissions embodied in international trade have grown rapidly as globalization has progressed and potentially threaten the efficacy of unilateral climate treaties such as the kyoto protocol consumption based methods have been put forward as a way of overcoming this issue and help design future climate policies we improve the long term consumption based accounting lcba model with transfer carbon data from 1948 to 2012 by introducing country specific import intensities and detailed bilateral trade data from uncomtrade comparisons of our new lcba2 model with existing 4 studies show similar consumption based emission patterns both in trend and magnitude and significant emission changes in many european countries the results independently confirm previous findings on the efficacy of the kyoto protocol the results indicate transferred emissions have contributed an historic 36 gt co 2 of cumulative emissions have grown rapidly during the past 30 years up to 8 of total emissions and are likely to become increasingly influential in the near future as the global economy recovers we also use the improved model to study other gases ch 4 n 2 o and so 2 embodied in trade and results indicate similar transfer patterns as co 2 with comparable or even moderately larger magnitudes across method result differences between lcba2 with 3 other models are analyzed based on using common input datasets large emitters show moderate biases within 10 and about 75 of countries have differences within 25 independent of input dataset the lcba2 model provides useful estimates of transferred emissions in both across country and long term historical contexts

from production based to consumption based national emission inventories abstract under the united national framework convention of climate change unfccc countries are required to submit national emission inventories nei to benchmark reductions in greenhouse gas ghg emissions depending on the definition and system boundary of the nei the mitigation options and priorities may vary the territorial system boundary used by the unfccc has been critiqued for not including international transportation and potentially causing carbon leakage to address these issues past literature has argued in favour of using consumption based nei in climate policy this article discusses several issues in moving from the standard production based nei to consumption based nei first two distinct accounting approaches for constructing consumption based nei are presented the approaches differ in the allocation of intermediate consumption of imported products second a consistent method of weighting production based and consumption based nei is discussed this is an extension of the previous literature on shared responsibility to nei third due to increased uncertainty and a wide system boundary it may be difficult to implement consumption based nei directly into climate policy several alternative options for incorporating consumption based inventories into climate policy are discussed

the time varying parameter model for modeling changing conditional variance the case of the lucas hypothesis the main econometric issue in testing the lucas 1973 hypothesis in a time series context is estimation of the forecast error variance conditional on past information the conditional variance may vary through time as monetary policy evolves and agents are obliged to infer its present state under the assumption that a monetary policy regime is continuously changing a time varying parameter model is proposed for the monetary growth function based on kalman filtering estimation of recursive forecast errors and their conditional variances the lucas hypothesis is tested for the u s economy 1964 1 1985 4 using monetary growth as aggregate demand variable the lucas hypothesis is rejected in favor of friedman s 1977 hypothesis the conditional variance of monetary growth affects real output directly not through the coefficients on the forecast error term in the lucas type output equation

adaptive expectations and the variance hypothesis abstract it is shown that lucas variance hypothesis on output inflation tradeoff is consistent even with adaptive price expectations hence empirical evidence of the model need not support the rational expectations natural rate hypothesis

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

constructing long term 1948 2011 consumption based emissions inventories accompanying the boom in the global economy co2 emissions have soared over the past several decades with the developing world exhibiting higher emission growth rates than the developed world emissions transfers between regions which represent a significant fraction of total emissions are assumed to be a primary factor contributing to this difference it is important to understand these transfer figures and the resulting consumption based emissions in order to evaluate the emissions drivers and establish climate policies existing studies however have merely estimated figures over a 20 years span post 1990 using a traditional input output analysis ioa framework to broaden the data coverage to pre 1990 of these transfer figures and to further analyze their impacts on total emissions in the long term a new model called the long term consumption based accounting model lcba which is directly based on statistics is developed to span the period from 1948 to 2011 the results are consistent with the magnitudes and trends of existing studies over the validation post 1990 period we use monte carlo methods to calculate upper and lower bounds on the lcba for each country and year and find that 3 existing time series are almost fully included within these boundaries from 1990 furthermore the lcba model is succinct enough to be easily expanded for future ghg estimations or to analyze other ecological footprints related to the flow of materials it can be assumed that the soaring emissions transfers will seriously jeopardize the current climate policies such as kyoto protocol the durban platform for enhanced action adp under which all parties are legally bound will require a consumption based accounting method together with the territorial one in order to achieve an equitable agreement however more researches are still needed to facilitate the use of these figures to better support decision making

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

real exchange rate monetary policy and the u s economy evidence from a favar model this paper examines the effects of exchange rate depreciation to the u s economy in a factor augmented vector autoregression model using monthly data of 148 variables for the post bretton woods period of 1973 2017 exchange rate shock is identified to reflect exogenous disturbances to the foreign exchange market and movements in exchange rate that are not accounted for by changes in the u s monetary policy we find that depreciation is expansionary and inflationary to the broad u s economy the current account improves over time conforming to the j curve theory and monetary policy is leaning against the wind jel e3 e5 f31 f32 f41

the great moderation of the term structure of uk interest rates abstract the conduct of monetary policy the term structure of interest rates and the structure of the economy in the uk have changed over the post wwii period we model the interaction between the macroeconomy and financial markets using a time varying var augmented with the factors from the yield curve there is evidence of a great moderation in the dynamics of the yield curve with the factors being persistent and volatile before the introduction of inflation targeting in 1992 but becoming stable afterwards the introduction of time variation in the factor augmented var improves the fit of the model and results in expectation hypothesis consistent yields that are close to actual yields even at long maturities monetary policy shocks had a significant impact on the volatility of inflation output and the policy rate over the pre inflation targeting era but their contribution has been negligible under the current regime shocks to the level of the yield curve accounted for a large fraction of inflation variability only before 1992

exchange rate pass through to domestic prices does the inflationary environment matter abstract the paper tests a hypothesis suggested by j taylor 2000 low inflation pass through and the pricing power of firms european economic review 44 7 1389 1408 that a low inflationary environment leads to a low exchange rate pass through to domestic prices to test this hypothesis the paper derives a pass through relation based on new open economy macroeconomic models a large database that includes 1979 2000 data for 71 countries is used to estimate this relation there is strong evidence of a positive and significant association between the pass through and the average inflation rate across countries and periods the inflation rate moreover dominates other macroeconomic variables in explaining cross regime differences in the pass through

sources of fluctuations in real and nominal exchange rates this paper attempts to distinguish empirically real versus nominal sources of fluctuations in real and nominal exchange rates the distinction is obtained by imposing the following restriction on the bivariate vector autoregression of real and nominal exchange rates over the current flexible rate period nominal shocks are required to have no permanent effect on the level of the real exchange rate given this identification scheme the author analyzes the dynamic effects and relative importance of real and nominal shocks with regards to exchange rates the findings indicate that real shocks dominate nominal shocks for both exchange rate series over short and long frequencies copyright 1992 by mit press

the stock market and exchange rate dynamics abstract this paper articulates a model of the open economy in which as in tobin 1978 the price of shares in the stock market subtitutes for the real interest rate in the determination of aggregate demand the stock market reduces the impact of monetary policy on the real exchange rate indeed if the link between stock prices and aggregate demand is important enough the impact of monetary policy on the real exchange rate can be reversed in contrast with standard dynamic mundell flemming models anticipated fiscal policy can be expansionary rather than contradictionary as in for example burgstaller 1983 blanchard 1984 and branson et al 1985

price and output responsiveness to nominal changes under differential information abstract the paper considers how changes in nominal income are transmitted into price and output changes within a setting where the traditional assumption of instantaneous market clearing costless coordination is given up in favour of a more realistic setting where price decisions are made by numerous agents firms acting independently on their private decentralized information the responsiveness of firm specific prices is considered and it is shown how absolute or nominal price rigidity can be explained building this into a theory of the general price level it is proved that heterogenously perceived nominal changes affect the price level less than proportionally moreover it is shown how a phillips curve relation between inflation and output can be rationalized within the model finally the issue of relative price variability is considered and related to misallocation of economic resources under differential information

are the macroeconomic effects of oil price shock symmetric a factor augmented vector autoregressive approach abstract this paper aims to examine the asymmetric effect of oil price shocks on real economic activity in the u s within the context of a nonlinear factor augmented vector autoregressive favar model by employing simulation methods we trace the effects of positive and negative oil price shocks on the macroeconomic variables through the impulse response function irf it is found that the negative impacts of higher oil prices are larger than the positive effects of lower oil prices and the asymmetric effects are more evident when the oil price shocks are larger the results are robust to different lag specification and choice of factors

declining exchange rate pass through to u s import prices the potential role of global factors this paper documents a robust and sustained decline in exchange rate pass through to u s import prices from well above 0 5 during the 1970s and 1980s to around 0 2 over the last decade we attribute this decline to the rising prominence of competition from china a shift in import pricing behavior since the asian financial crisis and the reduced share of material intensive goods in u s imports we also find evidence that foreign exporters are increasingly setting their prices with an eye on u s prices these results in turn suggest a new and more general hypothesis linking the decline in pass through to the evolving nature of competition in global markets and structural changes in international production patterns

commodity currencies and commodity prices modelling static and time varying dependence abstractthis article employs the copula approach to study the relationship between exchange rates and commodity prices for large commodity exporters using data for the nominal exchange rates of four commodity currencies australian canadian and new zealand dollars and norwegian krone against the us dollar and the relevant country specific commodity price indices constructed on a daily basis we find 1 a positive dependence between the values of commodity currencies and commodity indices i e a commodity index increases when a respective currency appreciates and provides several explanations for this finding 2 no major asymmetries in the tail dependence for most pairs of exchange rates and commodity indices and 3 a pronounced increase in the time varying tail dependence following the global financial crisis

is the exchange rate a shock absorber or a source of shocks new empirical evidence this paper analyses the role of the real exchange rate in a structural vector autoregression framework for the united kingdom euro area japan and canada vis a vis the united states a new identification strategy is proposed building on sign restrictions the results are compared to the benchmark conventional approach of clarida and gali 1994 based on longrun zero restrictions although the restrictions are derived from the same theoretical model the results are strikingly different in contrast to the benchmark model an important role for nominal shocks in explaining real exchange rate fluctuations is found hence the exchange rate can rather be considered as a source of shocks instead of a shock absorber

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

the exchange rate a shock absorber or source of shocks a study of four open economies abstract the paper provides svar estimates for the uk canada sweden and denmark making explicit a monetary policy reaction function and taking account of exchange rate targeting practices it examines the role of the exchange rate as shock absorber as opposed to a source of its own and destabilizing shocks we find that in all countries but the uk real shocks are predominantly symmetric relative to the neighbor implying little need for the exchange rate to act as shock absorber the shocks arising in the exchange market appear to have played a more important role in denmark than in the other countries

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

between a rock and a hard place a trade theory analysis of leakage under production and consumption based policies without a comprehensive global climate agreement carbon leakage remains a contentious issue consumption based pricing of emissions which could in practice be implemented with a full border tax adjustment bta has been forwarded as an option to increase the effectiveness of unilateral climate policy this paper questions the economic rationale behind this approach using a theoretical 2 times 2 trade model in which leakage occurs through terms of trade effects we show analytically first that consumption based pricing of emissions does not necessarily result in less leakage than production based policies second the sign of the optimal unilateral carbon tariff depends on the carbon intensity differential between the foreign country s exporting and non exporting sectors and not on the differential between home s and foreign s exporting sectors as implied by the full bta approach third based on empirical data for the year 2004 our model implies that full bta applied by the european union on e g imports from and exports to china would by shifting china s production from the export sector with a relatively low carbon intensity towards the more carbon intensive non export sector actually increase leakage

pass through of exchange rates and competition between floaters and fixers this paper studies how a rise in the share of u s imports from china or any country with a fixed exchange rate could disproportionately lower pass through of exchange rates to u s import prices we develop a theoretical model showing how changes in the competitive environment induce exporters from other countries to lower markups in response to a dollar depreciation thereby moderating pass through the model indicates that a particular local bias condition is necessary for this effect and that free entry amplifies it the model also produces an approximately log linear structural equation for pass through regressions including the china share panel regressions over 1993 2006 indicate that the rising share of trade from china or from all countries with fixed exchange rates can explain a decline in pass through by about onefifth of its size

the lucas hypothesis on the phillips curve further international evidence abstract this paper is a further attempt to test the lucas hypothesis on the phillips curve by making cross country comparisons that hypothesis posits that nominal shocks affect real aggregates only if individuals mistake them for what they are not movements in real variables the existence of a trade off between output and inflation is conditional on economic agents misinterpreting the price movements they observe countries with widely fluctuating exogenous shocks will have a more vertical phillips curve as their inhabitants sharpen their instrumental to differentiate between real and nominal shocks hence cross country comparisons provide fertile grounds to test this hypothesis if it holds true we should find a positive correlation between phillips curve slopes and the standard deviations of the exogenous shocks the evidence presented here confirms lucas s findings

are devaluations contractionary recently a number of authors have criticized the role of devaluations in traditional stabilization programs it has been argued that contrary to the traditional view devaluations are contractionary and generate a decline in aggregate output in spite of the renewed theoretical interest in the possible contractionary effects of devaluations the empirical evidence on the subject has been quite sketchy in this paper the khan and knight 1981 model is extended to empirically address the issue of contractionary devaluations the extended model considers the effect of money surprises fiscal factors terms of trade changes and devaluations on the level of real output the results obtained using a variance components procedure on data for 12 developing countries provide some support to the short run contractionary devaluation hypothesis the results obtained indicate that in the short run a devaluation will generate a decline in aggregate output it is also found that after one year a devaluation will have an expansionary effecton output the evidence suggests that in the long run devaluations will have no effect on output this abstract was borrowed from another version of this item

the transmission of international shocks to the uk estimates based on a time varying factor augmented var the aim of this paper is to gauge the importance of foreign demand supply and interest rate shocks on the uk economy and assess how their role has changed over time to that end we devise a time varying factor augmented var model that captures the relationship between 17 industrialised countries and the uk and accounts for any temporal evolution in this relationship the response of uk macroeconomic variables to a foreign interest rate shock is estimated to have changed significantly since the early 1990s international demand shocks play an important role in driving world and uk real activity especially during the recent recession

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

measuring the effects of dollar appreciation on asia a favar approach abstract exchange rate shocks have mixed effects on economic activity in both theory and empirical var models in this paper we extend the empirical literature by considering the implications of a positive shock to the u s dollar in a factor augmented vector autoregression favar model for the u s and three large asian economies korea japan and china the favar framework allows us to represent a country s aggregate economic activity by a latent factor generated from a broad set of underlying observable economic indicators to control for global conditions we also include in the favar a global conditions index which is another latent factor generated from the economic indicators of major trading partners we find that a dollar appreciation shock reduces economic activity and inflation not only for the u s economy but also for all three asian economies this result which is robust to a number of alternative specifications suggests that in spite of their disparate economic structures and policy regimes the dollar appreciation shock affects the asian economies primarily through its impact on u s aggregate demand and this demand channel dominates the expenditure switching channel that affects a country s export competitiveness

intracountry evidence on the lucas variance hypothesis intracountry evidence on the lucas variance hypothesis i introduction seventeen years ago lucas 1973 developed an aggregate supply model that challenged the efficacy of neo keynesian macroeconomic stabilization policy and significantly altered the development of macroeconomic models employing a multimarket stochastic equilibrium model lucas assumed that individual suppliers decide how much to produce based on perceived relative prices their expectations of future prices and demand are formed rationally using all available information about specific and economy wide prices and quantities changes in market specific prices however reflect both changes in the general price level and changes in relative prices individual suppliers cannot distinguish between the two because they have instantaneous information about their own specific prices but only lagged information about the general price level thus a current unanticipated increase in the general price level and nominal aggregate demand will be partly perceived by suppliers as an increase in the relative price and relative demand for their goods and they will temporarily increase output a highly volatile general price level and nominal aggregate demand result in less general relative price confusion and a fading of the short run output inflation tradeoff that is the lucas model suggests an inverse relationship between the output inflation tradeoff and the variability of the rate of inflation and the rate of change of nominal aggregate demand lucas used a sample of eighteen countries to see whether the terms of the output inflation tradeoff vary across countries in the way predicted by the natural rate theory 1973 330 he estimated the following reduced form supply function over the 1952 67 period y sub ct pi delta pi delta chi sub t lambda y sub c t 1 1 where y sub ct is detrended real gnp delta chi sub t is the change of the natural logarithm of nominal gnp delta is the average rate of demand expansion lambda is the speed of adjustment with lambda less than to 1 and pi is the response of real gnp to changes in nominal gnp with 0 is not less than or equal to pi is not less than or equal to 1 since the estimated tradeoff coefficients were found to be greater for a group of sixteen stable countries than for two highly volatile countries lucas argued that the behavior of the estimated pi values across countries is in striking conformity with the natural rate hypothesis 1973 332 empirical studies by albero 1981 attfield and duck 1983 fernadez 1977 hanson 1980 hercowitz 1983 and koskela and viren 1980 have generally provided cross country evidence supporting luca s variance hypothesis froyen and waud 1980 however presented in addition to cross country evidence limited intracountry evidence for 1 the relationship between the output inflation tradeoff and the variances of the rate of change of nominal income and the price level and 2 the relationship between the variance of the inflation rate and the variance of the rate of change of nominal income they examined these relationships on a cross country basis for each of ten industrialized countries for the 1956 76 period the 1957 66 and 1967 76 subperiods were used to make intracountry comparisons in individual countries their cross country and intracountry results support the hypothesis that the output inflation tradeoff and the variance of the inflation rate are inversely related their evidence however does not suggest that the variance of the rate of change of nominal income is negatively correlated with the tradeoff and positively correlated with the variance of the inflation rate 1 it is assumed in luca s paper and all other cross country studies that the slope of the supply curve gamma and the variance of the specific market price from its economy wide average tau

devaluations and income distribution in latin america although the adoption of floating exchange rates by industrial countries may have reduced their foreign trade preoccupations most developing countries ldcs retain some form of fixed rates and have to confront with seemingly increasing frequency the dilemmas raised by large balance of payment deficits in spite of the clamor that arises over the allegedly negative impact on real wages and income distribution of the typical stabilization package of exchange rate devaluation and domestic contraction little rigorous study of the problem has been attempted since diaz alejandro s pathbreaking work of over two decades ago 12 in this article we present a model in which devaluations and domestic contraction2 lower the real wage and worsen the distribution of income and test that hypothesis for nine latin american countries for the theoretical presentation of our argument we construct a pair of aggregate supply curves one modeling labor supply along classical lines the other utilizing what is called the new classical macroeconomics the demand side is composed alternatively of a straightforward function representing changing domestic demand or of formulations of devaluations utilizing either of two markedly different assumptions about what happens to the money supply although these models have different implications about what happens to aggregate output 47 they all agree as to the effects on real wages a brief argument is then presented as to why changes in real wages should determine changes in labor s share of output or the functional distribution of income empirical tests support our hypotheses we also discuss the relation between labor s share and the size distribution of income and the broader question of intersectoral income redistribution due to these demand shifts we end the paper with some concluding remarks on related issues

disinflation credibility and price inertia a danish exposition this paper analyses the disinflationary policy pursued in denmark since october 1982 focusing on the phillips curve trade off and the credibility of this disinflationary policy the overall conclusion confirms no significant indication of the disinflationary policy being credible

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models