duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

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

purchasing power parity based on effective exchange rate and cointegration 25 ldcs experience with its absolute formulation abstract with the development of cointegration technique the purchasing power parity ppp theory has received renewed attention most studies have tested the theory by using data from developed countries dcs and some high inflation less developed countries ldcs they have mostly rejected its empirical validity in this paper we use the concept of effective exchange rate and quarterly data over 1973 1988 to examine the experience of 25 ldcs for most countries we found little empirical support for the ppp

optimal symmetric punishments in a bertrand differentiated products duopoly abstract this paper studies how product differentiation affects collusive pricing in a duopoly when products are horizontally differentiated and firms compete in prices in contrast to earlier work the punishment mechanism supporting collusion is assumed to be the optimal symmetric punishment proposed by abreu 1986 journal of economic theory 39 191 225 such punishments have previously been characterized only for cournot oligopolies and for bertrand oligopolies with capacity constraints the optimal symmetric punishment turns out to have a simple two phase structure after one period of an intense price war firms return to the collusive outcome if prices are restricted to be non negative and the discount factor is large the price war will be extended to more than one period the best collusive price is shown to be lower the more substitutable are products

are asian real exchange rates stationary by applying the newly developed nonlinear stationary test advanced by kapetanios et al journal of econometrics 112 2003 359 in examining the stationary property of 11 asian real exchange rates this paper rejects unit root in 8 us dollar based and 6 japanese yen based rates whereas the augmented dickey fuller adf test has led to no rejection at all

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

do real exchange rates contain a unit root evidence from turkish data this study explores whether the long run purchasing power parity ppp hypothesis holds for selected real exchange rates from turkish economy during the period 1982m1 2003m12 in addition to conventional unit root tests five different unit root test procedures have been applied including efficient point optimal tests extended m tests and gls detrended variants of df tests to four monthly real exchange rate series defined in terms of both producer and consumer price indices the countries analysed are the usa the uk germany and italy which are major trade partners of turkey mixed evidence is found for the long run ppp hypothesis when real exchange rate is defined in terms of german dm and italian lira however the empirical analysis reveals that the ppp hypothesis holds strongly in the long run for the uk and us based real exchange rates series using either ppi or cpi in corroboration with other studies in the literature the bias correlated half life estimates suggest relatively faster speeds of

real and nominal effective exchange rates for 22 ldcs 1971 1 1990 4 the international monetary fund constructs and publishes the real and nominal effective exchange rates mostly for developed but not less developed countries this paper employs a method of constructing real and nominal effective exchange rate from the literature to produce quarterly data over the 1971 1990 period for 22 developing nations as an application the stationarity of real effective exchange rates are determined to establish the empirical validity of the purchasing power parity theory ppp the results reveal that ppp fails to hold for most countries

the process followed by ppp data on the properties of linearity tests recent research has reported the lack of correct size in stationarity test for ppp deviations within a linear framework however theoretically well motivated nonlinear models such as the estar appear to parsimoniously fit the ppp data and provide an explanation for the ppp puzzle employing monte carlo experiments we analyze the size and power of the nonlinear tests against a variety of nonstationary hypotheses we also fit the estar model to data from high inflation economies our results provide further support for estar specification

does ppp hold in the transition economies the case of poland hungary this paper uses non stationarity and cointegration of time series to investigate the validity of long run purchasing power parity for poland and hungary for the period 1981 1 1993 2 long run ppp is examined vis a vis three countries the united states united kingdom and germany although the nominal exchange rates and relative price ratios between poland and hungary and each of the three countries are non stationaary they are not cointegrated indicating a rejection of the hypothesis this conclusion is supported by the real exchange rate which follows a random walk

tests for symmetric and asymmetric nonlinear mean reversion in real exchange rates new tests based on smooth transition autoregressive models for mean reversion in time series of real exchange rates are proposed one test forces mean reversion to be symmetric about the integrated process central case while the other permits asymmetry the tests are applied to monthly series of seventeen real exchange rates against the u s dollar and fourteen against the deutsche mark they reveal stronger evidence against the unit root null hypothesis than does the usual dickey fuller test

exclusive territories and manufacturers collusion this paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains we show that with observable contracts exclusive territories have two countervailing effects on manufacturers incentives to sustain tacit collusion first granting local monopolies to retailers softens competition in a one shot game hence punishment profits are larger thereby rendering deviation more profitable second exclusive territories stifle deviation profits because retailers of competing brands adjust their prices to the wholesale contract offered by a deviant manufacturer whereas intrabrand competition prevents such instantaneous reaction we show that the latter effect tends to dominate thereby making exclusive territories a more suitable organizational mode to cooperate these insights are robust to endogenous communication between manufacturers we also consider retailers service investments here a novel effect emerges that softens the procollusive value of exclusive territories retailers of a deviant manufacturer increase investments which renders deviation more profitable this paper was accepted by preyas desai marketing

does ppp hold in african countries further evidence based on a highly dynamic non linear logistic unit root test with a view to investigating whether the purchasing power parity ppp theory holds true for selected african countries during the january 1980 december 2003 period we employ a rigorous highly dynamic non linear logistic unit root test as first advanced by leybourne et al 1998 which is considerably more powerful than those tests traditionally used compared with the rejection of the null of the unit root process for only one of the 22 countries under study when we use the traditional adf pp kpss np and the df gls unit root tests with the leybourne et al 1998 test we strongly reject the null of the unit root process for a surprising six of the 22 countries these empirical results clearly indicate that ppp holds true for these six countries namely the central african republic the cote d ivoire kenya madagascar uganda and lesotho

purchasing power parity and country characteristics evidence from panel data tests abstract we examine long run purchasing power parity ppp using panel data methods to test for unit roots in us dollar real exchange rates of 84 countries we find stronger evidence of ppp in countries more open to trade closer to the united states with lower inflation and moderate nominal exchange rate volatility and with similar economic growth rates as the united states we also show that ppp holds for panels of european and latin american countries but not for african and asian countries our findings demonstrate that country characteristics can help explain both adherence to and deviations from long run ppp

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

what explains the deviations of purchasing power parity across countries international evidence from macro data abstract this paper explores systematic cross national sources affecting the amplitude of purchasing power parity ppp deviations we theoretically show that a more open economy has smaller ppp deviations as its monetary factors are less dominant 63 cross country data evidences this prediction

relative ppp and the long run terms of trade for five latin american countries a cointegration approach this paper uses a cointegration approach with an error correction mechanism to examine purchasing power parity with the us for brazil colombia costa rica mexico and venezuela a relative version of purchasing power parity ppp is tested which includes the possibility of secularly declining or rising long run real terms of trade ppp explains the data fairly well for the more diversified economics of brazil and mexico but is rejected for the other three economies

mean reversion of real exchange rates in high inflation countries we test for mean reversion in real exchange rates using data from five countries four of which have experienced episodes of high inflation using monthly data for argentina brazil chile colombia and israel we find that a stochastic unit root model is typically appropriate brazil is the exception kalman filter estimates of the stochastic unit roots show sharp deviations from unity associated with high inflation episodes this suggests that stochastic unit root models are a more appropriate way to model mean reversion in real exchange rates for high inflation countries than models with fixed rates of mean reversion

delivered pricing and the impact of spatial differentiation on cartel stability abstract this paper analyzes the impact of spatial differentiation on the sustainability of collusion on delivered prices it shows that the choice of the punishment mechanism that enforces collusion is crucial for determining whether differentiation facilitates cartel pricing or not if punishments are optimal then differentiation tends to facilitate collusion optimal punishments impose minmax profits on deviators independently of the degree of differentiation a high degree of differentiation then renders deviations less profitable since it makes business stealing more costly but does not affect the deviator s punishment profits depending on the transport cost technology excessive differentiation may have a countervailing effect however because it also implies high transport costs for the cartel if collusion is sustained by standard grim trigger punishments instead then collusion may be easiest for minimal differentiation the reason is that competitive and thus grim trigger punishment profits are higher the higher the degree of differentiation

an alternative test of purchasing power parity abstract the fisher and seater fisher m e and seater j j 1993 long run neutrality and superneutrality in an arima framework american economic review 83 402 415 methodology is applied to taylor s taylor a t 2002 a century of purchasing power parity review of economics and statistics 84 139 150 data to test for purchasing power parity generally the evidence is supportive of ppp further fs test statistics have no size distortion problem and test power is improved with longer samples

the war trap revisited a revised expected utility model the expected utility framework developed in the war trap is revised to correct several deficiencies risk taking orientations are now treated as an integral part of the model by introducing concavity or convexity into the utility functions the zero sum properties of the theory are largely eliminated and the tendency toward interpersonal comparisons of utility is removed several earlier results are replicated with the new model and with annual capabilities data new propositions are deduced that identify important limitations on conflict initiation and relationships resulting from differences in perceptions are tested support is found for the contention that the revised version of the theory of which the original model is a special case is a powerful tool for integrating many extant hypotheses about conflict and for explaining a substantial portion of the tendency for some threats to escalate to violence or warfare and for others to be resolved peacefully

are asian real exchange rates mean reverting evidence from univariate and panel lm unit root tests with one and two structural breaks there are a number of studies that examine the purchasing power parity ppp hypothesis the empirical findings from the extant literature for the ppp hypothesis are mixed this article applies univariate and panel lagrange multiplier lm unit root tests with one and two structural breaks to real exchange rates for 15 asian countries the univariate lm unit root tests find evidence of ppp for two thirds of the sample the results from the panel lm unit root test support long run ppp for the asian countries in the sample the results from the lm panel unit root tests differ from those of existing panel unit root tests of ppp for asian countries that have not allowed for the existence of structural breaks

purchasing power parity in developing countries multi period evidence under the current float abstract using panel unit root tests we examine purchasing power parity ppp for us dollar real exchange rates of developing countries during the current floating rate period since evidence of ppp may vary from period to period we examine the data for moving 10 year periods from 1976 85 up to 1990 99 we organize panels based on country characteristics influencing the validity of ppp those characteristics include openness inflation and the level and growth rate of per capita gdp although we find stronger evidence of ppp after 1980 our examination of panel data over 15 10 year periods yields only limited support for ppp

tacit collusion in differentiated cournot games abstract in a simple oligopoly with quantity setting firms we analyze the conditions under which more product differentiation makes tacit collusion easier it is found that the net effect can go either way

do real exchange rates follow a nonlinear mean reverting process in developing countries in an effort to fight relatively high inflation many developing countries try to manage their nominal exchange rates through official intervention in addition developing countries tend to have high transportation costs tariffs and nontariff barriers these factors are among the sources of generating nonlinearity in real exchange rates and hence some nonlinear adjustment toward purchasing power parity ppp in developing countries in this paper we employ monthly real effective exchange rate reer data of 88 developing countries and test the null of nonstationarity versus an alternative of linear stationarity by the means of a conventional unit root test and compare the results with those obtained from a new test in which the null is the same but the alternative hypothesis is nonlinear stationarity the latter test supports the ppp theory in more developing countries compared with the former test suggesting that nonlinear adjustment toward ppp in developing countries is an important phenomenon reported country characterizations indicate that reversion in reer occurs more often for high inflation countries and for countries with high flexibility in their exchange rates

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

consumer loss aversion product experimentation and tacit collusion abstract two firms compete to attract loss averse consumers that are uncertain about how well the goods on sale fit their needs to resolve valuation uncertainty firms can allow prospective customers to test experiment their products before purchase we investigate firms dynamic incentives to allow experimentation and analyze the resulting effects on the profitability and the stability of tacit collusion depending on the regulatory regime in place i e whether experimentation is forbidden mandated or simply allowed but not imposed laissez faire the degree of loss aversion has ambiguous effects both on the profits that firms can achieve through tacit collusion and on the stability of these agreements while in static environments consumer welfare is always maximized by a policy that forbids experimentation the opposite happens in a dynamic environment

panel stationarity tests for purchasing power parity with cross sectional dependence we investigate the purchasing power parity ppp hypothesis for a group of 17 countries using a new panel based test of stationarity that allows for arbitrary cross sectional dependence we treat the short run time series dynamics nonparametrically and thus avoid the need to fit separate and potentially misspecified models for the individual series the statistic is simple to compute and uses standard normal critical values even in the presence of a wide range of different deterministic components we also evaluate the behavior of the test using a factor model to approximate cross sectional dependence and find that it generally improves finite sample performance taken together these features provide a widely applicable solution to the problem of testing for stationarity versus unit roots in macro panel data the test finds significant evidence against the ppp null hypothesis being true even when allowance is made for structural breaks

does the real exchange rate follow a random walk the pacific basin perspective abstract in this paper we present evidence that dispels the view that ppp has broken down during the 1970s and 1980s evidence from unit root tests of the real exchange rate indicate that ppp held as a long run equilibrium condition for eight pacific basin countries over the period 1974 to 1987 in contrast we find the nominal exchange rates to be non stationary additional evidence however shows that strong trend components bind the nominal exchange rates of that set of countries together jel f31

threshold cointegration and purchasing power parity in the pacific nations the paper uses a threshold cointegration methodology to explore the properties of long run purchasing power parity ppp in the pacific nations using japan and the usa as base countries it is shown that long run ppp holds for most asian countries but that the adjustment mechanism is asymmetric in contrast to symmetric error correction models it is found that asymmetric adjustments of nominal exchange rates play an important role in eliminating deviations from long run ppp

real exchange rate behavior in the middle east a re examination abstract this letter extends recent work by bahmani oskooee bahmani oskooee m do exchange rates follow a random walk process in middle eastern countries economics letters 1998 58 339 344 on testing long run purchasing power parity for middle eastern countries during the post bretton woods period using multivariate nonlinear models strong support is provided for highly nonlinear reversion of real exchange rates toward a stable equilibrium for each country examined

the effects of product differentiation on collusive pricing abstract using the spatial competition framework of hotelling 1929 this paper explores the relationship between the degree of product differentiation and the ability of firms to collude with respect to price we show that the minimum discount factor required to support the joint profit maximum as an equilibrium outcome monotonically increases as products become better substitutes when the joint profit maximum cannot be supported the optimal collusive price is shown to decline as products become more substitutable these findings suggest that firms producing stronger substitutes tend to find it tougher to collude in terms of their product price