revealing space in spatial externalities edge effect externalities and spatial incentives abstract this paper analyzes the spatial incentives created by distance dependent negative spatial externalities titled edge effect externalities it illustrates standard externality results in a spatial context and derives several new results while the externality creates an incentive for a recipient to distance himself from the externality generating land use this distance is too small from a social standpoint rationalizing buffer zones imposed by regulatory authorities further the market rental rate of land for the externality recipient is higher than socially optimal resulting in a potential barrier to entry for the impacted land use finally although the recipient understands and can geographically avoid externality damage standard market failure occurs results are demonstrated using graphical and land rent interpretations of familiar aspatial general equilibrium conditions the paper thus strives to provide a more thorough exposition of the spatial impacts of this class of externalities than provided elsewhere in the literature

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

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

exchange rate puzzles and distorted beliefs abstract we propose a new explanation for the foreign exchange forward premium and delayed overshooting puzzles we show that both puzzles arise from a systematic distortion in investors beliefs about the interest rate process accordingly the forward premium is always a biased predictor of future depreciation the bias can be so severe as to lead to negative coefficients in the fama regression delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of misperception we document empirically the extent of this distortion using survey data for g 7 countries against the u s and find that it is strong enough to account for these irregularities

do unions reduce investment evidence from canada the authors test for a link between unionization and net investment rates in canadian manufacturing analysis of data on 18 industries for the years 1967 87 reveals a negative non linear relationship the presence of unions appears to have reduced investment when the percentage of firms in the industry that were unionized was between 0 and approximately 50 with a plateau or slight positive marginal effect above this level in an industry moving from no unions to the mean level of unionization net investment and gross investment are predicted to fall by 66 74 and 18 25 respectively

designing development planning charges settlement patterns cost recovery and public facilities there is a large body of literature that discusses the control of settlement patterns using traditional planning instruments whilst there is some theoretical literature discussing the use of development charges to influence settlement patterns by addressing market failure there is limited literature examining how such charging is implemented in practice this paper presents the theoretical basis for development charging based on the pigouvian tradition and discusses how these charges can be calibrated it identifies the potential for second best approaches including hypothecation of revenues this approach is distinguished from infrastructure charging which is a cost recovery instrument the irish system of infrastructure charging is assessed as a means of exploring how current instrument design could be improved to align with policy aspirations using the lessons that theory provides

strategic control of growth in a system of cities abstract this paper provides an analysis of the supply restriction model of growth controls growth controls in such a model harm consumers while enriching landowners and they will only be adopted if landowners have political power in the model this power is manifested in the city government s use of a social welfare that takes both landlord and consumer welfare into account since cities cannot be small if the supply restriction inherent in growth controls is to have an impact strategic interactions must be considered in the analysis of city choices a general model is presented and an extended example based on leontief preferences is then considered comparative static analysis of nash equilibria in the leontief case shows that perturbations of preferences or other characteristics of a single city can have important spillover effects that alter the choices of all cities in the region

trade unions investment and employment the implications of long term wage contracts and investment in capital on non cooperative wage bargaining between a firm and a union are analysed the union maximises a utilitarian utility function and the firm faces a neoclassical investment problem with internal adjustment costs the monopoly union outcomes with binding contracts is time inconsistent because the union has an incentive to renege on announced low wage strategies once the capital stock has been accumulated the monopoly union outcome without binding contracts leads to credible strategies which correspond to higher wages and lower levels of employment investment and the capital stock efficient contracts give rise to higher employment than monopoly union outcomes whether with or without long term wage contracts the results are illustrated with a numerical example finally when the game between the union and firm is repeated reputational equilibira provide a solution to the problem of time inconsistency

testing long horizon predictive ability with high persistence and the meese rogoff puzzle a well known puzzle in the international finance literature is that a random walk predicts exchange rates better than economic models meese and rogoff 1983a b and 1988 this paper offers a potential explanation for this finding when exchange rates and fundamentals are highly persistent long horizon forecasts of economic models are asymptotically biased by the estimation error in the parameter that measures the persistence when this bias outweighs the benefits from exploiting economic information the random walk model will forecast better this happens even if the economic model is the true data generating process the reason is that a random walk model imposes a unit root rather than estimates it the paper thus proposes a test for equal predictive ability in the presence of highly persistent variables when applied to the meese rogoff exercise this test shows that the poor forecasting ability of economic models does not imply that the models are not a good description of the data

exchange rate forecasting on a napkin abstract this paper shows that there are two regularities in foreign exchange markets in advanced countries with flexible regimes first real exchange rates are mean reverting as implied by the purchasing power parity model second the adjustment takes place via nominal exchange rates these features of the data can be exploited even on the back of a napkin to generate nominal exchange rate forecasts that outperform the random walk the secret is to avoid estimating the pace of mean reversion and assume that relative prices are unchanged direct forecasting panel data techniques and non linear models can outperform the random walk but fail to beat this simple calibrated model

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

patterns of growth in chinese cities implications of the land lease abstract a special feature of china s housing market is land use rights in the form of land leasehold contracts granted by the government we consider an equilibrium model in which a representative developer may choose to redevelop existing centrally located housing or to develop new housing at the periphery of the city we show that as the city grows the land leasehold system results in the city center being developed less intensely and more land being used on the outskirts of the city when compared to a fee simple environment thus cities in china are likely to be relatively more spread out with city centers relatively older than would be the case with fee simple ownership our model suggests that excess residential land use is about 6 percent in addition compared with the ownership case housing supply will grow more quickly in the near future but more slowly later on during the transition of the chinese economy parallel to the supply growth pattern equilibrium price grows relative slowly in the near future but more quickly later on while we focus on residential uses we believe our model can be applied to other land uses

exchange rate forecasts and expected fundamentals using a large panel of individual professionals forecasts this paper demonstrates that good exchange rate forecasts are related to a proper understanding of fundamentals specifically good interest rate forecasts this relationship is robust to individual fixed effects and further controls reassuringly the relationship is stronger during phases when the impact from fundamentals is more obvious e g when exchange rates substantially deviate from their ppp values finally forecasters largely agree that an interest rate increase relates to a currency appreciation but only good forecasters get expected interest rates right

urban growth controls transitional dynamics of development fees and growth boundaries abstract this paper investigates how development fees and urban growth boundaries affect urban development when the short run construction supply function is upward sloped i e convex development costs whereas the policies are equivalent in the traditional static model dynamic analysis reveals important differences out of the steady state in particular the development fee that is efficient in the steady state is also dynamically efficient in contrast the long run efficient urban growth boundary generates inefficiently fast development out of the steady state the results are robust with or without location rents and perfect or myopic foresight assumptions

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

the intensity and timing of investment the case of land the authors model the decision to replace durable capital when intensity is variable decisions of this type include land redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital replacement decisions where capacity is variable the authors provide a general yet simple formation of the problem using an optimal stopping framework they characterize the value of the project the timing of investment and the intensity of development the authors show that intensity interacts in important ways with timing taxes and project values the ability to vary intensity raises hurdle rents and delays development decisions copyright 1994 by american economic association

taylor rules and the deutschmark dollar real exchange rate we explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate the interest rate rule in conjunction with some standard assumptions implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials the weights are functions of the parameters of the interest rate rule an initial look at german data yields some support for the model

exchange rate predictability the main goal of this article is to provide an answer to the question does anything forecast exchange rates and if so which variables it is well known that exchange rate fluctuations are very difficult to predict using economic models and that a random walk forecasts exchange rates better than any economic model the meese and rogoff puzzle however the recent literature has identified a series of fundamentals methodologies that claim to have resolved the puzzle this article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up to date thorough empirical analysis overall our analysis of the literature and the data suggests that the answer to the question are exchange rates predictable is it depends on the choice of predictor forecast horizon sample period model and forecast evaluation method predictability is most apparent when one or more of the following hold the predictors are taylor rule or net foreign assets the model is linear and a small number of parameters are estimated the toughest benchmark is the random walk without drift

taylor rules with real time data a tale of two countries and one exchange rate abstract using real time data that reflects information available to monetary authorities at the time they are formulating policy we find that estimated taylor rules based on revised and real time data differ more for germany than for the u s taylor rules using real time data suggest differences between u s and german monetary policies and taylor rules for the u s using inflation forecasts are nearly identical to those using lagged inflation rates evidence of out of sample predictability for the dollar mark nominal exchange rate with forecasts based on taylor rule fundamentals is only found with real time data and does not increase if inflation forecasts are used

unions and investment in british industry this paper presents an empirical analysis of investment in british industry using data at the industry level and focusing on union effects the authors find that the rate of investment is around 28 percent lower in firms that recognize unions and have an average union density relative to those in which unions are not recognized this is the gross effect holding wages product prices and productivity constant if we take account of union effects on these as well the overall effect is an investment reduction of 16 percent in competitive firms and 3 percent in noncompetitive firms copyright 1992 by royal economic society

forecasting exchange rates out of sample with panel methods and real time data abstract this paper evaluates out of sample exchange rate forecasting with purchasing power parity ppp and taylor rule fundamentals for 9 oecd countries vis a vis the u s dollar over the period from 1973 q1 to 2009 q1 at short and long horizons in contrast with previous work which reports forecasts using revised data i construct a quarterly real time dataset that incorporates only the information available to market participants when the forecasts were made using bootstrapped out of sample test statistics the exchange rate model with taylor rule fundamentals performs better at the one quarter horizon and panel estimation is not able to improve its performance the ppp model however forecasts better at the 16 quarter horizon and its performance increases in panel framework the results are in accord with previous research on ppp and taylor rule models

growth controls real options and land development abstract many urban growth controls attempt to check sprawl by restricting allowable new housing densities however land may be undeveloped to preserve its real option value real options in land markets arise from uncertainty as to the optimum use of a site by limiting allowable development choices growth controls can narrow real options and potentially accelerate investment this paper examines the effect of price volatility a generator of option value on the timing of development after the imposition of an urban growth boundary ugb around seattle while the net effect of the ugb is to lower the likelihood of new housing outside the boundary by between 28 and 39 price volatility is no longer a deterrent to development

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

investment and union certification using data on union certification elections we estimate the impact of unionization on firms investment behavior employing both a standard q model and an investment surprises technique we find that union certification significantly reduces investment in the year following the election we find that a winning certification election has on average about the same effect on investment in the year following the event as would given the elasticity measures taken from the public finance literature a 33 percentage point increase in the corporate tax the magnitude of the response in years further away from the election is less certain

the panel purchasing power parity puzzle does long run purchasing power parity ppp hold over the post 1973 floating exchange rate period panel unit root tests provide evidence of ppp that increases with the number of observations the strengthening of the evidence however is highly cyclical when the dollar appreciates at the end of the sample the evidence of ppp strengthens and when it depreciates the evidence weakens while these patterns cannot be explained by the specifications that are normally used to model real exchange rates the strengthening but not the cyclical pattern can be explained by a specifi cation that incorporates ppp restricted structural change

labor policy and investment evidence from canada some critics of proposed legislative labor policy changes contend that laws favoring labor would adversely affect business investment research on labor policy however often assumes that investme

the effect of labour relations legislation on strike incidence the impact on strike incidence of nine labour relations policy variables representing legislation in eleven canadian jurisdictions is estimated using logit analysis of 3 347 individual collective agreements mandatory strike votes compulsory dues check off and compulsory conciliation boards are associated with significantly lower strike probabilities prohibition of replacement workers and employer initiated strike votes are associated with significantly higher strike probabilities no significant association was found between strike incidence and the length of cooling off period following conciliation and negotiated or automatic reopeners policy impacts are interpreted in a framework emphasizing the influence of asymmetric inforrnation and joint costs on strikes

out of sample exchange rate predictability with taylor rule fundamentals abstract an extensive literature that studied the performance of empirical exchange rate models following meese and rogoff s meese r a rogoff k 1983a empirical exchange rate models of the seventies do they fit out of sample journal of international economics 14 3 24 seminal paper has not convincingly found evidence of out of sample exchange rate predictability this paper extends the conventional set of models of exchange rate determination by investigating predictability of models that incorporate taylor rule fundamentals we find evidence of short term predictability for 11 out of 12 currencies vis a vis the u s dollar over the post bretton woods float with the strongest evidence coming from specifications that incorporate heterogeneous coefficients and interest rate smoothing the evidence of predictability is much stronger with taylor rule models than with conventional interest rate purchasing power parity or monetary models

the effects of public policy on strike duration hazard function estimates are utilized to analyze the effect of numerous public policy variables on strike duration based on 7 546 strikes in canada between 1967 and 1985 we find that only the mandatory strike vote substantially reduced conditional duration however the policy variables generally had a more favorable effect on reducing strike incidence so that on net they tended to reduce unconditional duration incidence times conditional duration specifically reduced unconditional duration was associated with the existence of conciliation and the requirement of a mandatory strike vote but the prohibition on replacement workers had a perverse effect