can unspanned stochastic volatility models explain the cross section of bond volatilities in fixed income markets volatility is unspanned if volatility risk cannot be hedged with bonds we first show that all affine term structure models with state space m n m can be drift normalized and show when the standard variance normalization can be obtained using this normalization we find conditions for a wide class of affine term structure models to exhibit unspanned stochastic volatility usv we show that the usv conditions restrict both the mean reversions of risk factors and the cross section of conditional yield volatilities the restrictions imply that previously studied affine usv models are unlikely to be able to generate the observed cross section of yield volatilities however more general usv models can match the cross section of bond volatilities this paper was accepted by wei xiong finance

why gaussian macro finance term structure models are nearly unconstrained factor vars this paper explores the impact of simultaneously enforcing the no arbitrage structure of a gaussian macro nance term structure model mtsm and accommodating measurement errors on bond yield through ltering on the maximum likelihood estimates of the model implied conditional distributions of the macro risk factors and bond yields for the typical yield curves and macro variables studied in this literature the estimated joint distribution within a canonical mtsm is nearly identical to the estimate from an economic model free factor vector autoregression factor var even when measurement errors are large it follows that a canonical mtsm does not oer any new insights into economic questions regarding the historical distribution of the macro risk factors and yields over and above what is learned from a factor var in particular the discipline of a canonical mtsm is empirically inconsequential for analyses of impulse response functions of bond yields and macro factors or empirical studies of term premiums these results are rotation invariant and therefore apply to many of the specications of risk factors in the literature in deriving these results we develop a new canonical form for mtsms that is particularly revealing about the nature of the over identifying restrictions implied by mtsms relative to yield based factor models

no arbitrage near cointegrated var p term structure models term premia and gdp growth abstract the recent macro finance literature does not agree either about the empirical properties of the expectation part and of the term premium on long term bonds or about the importance or even the direction of the relationship between the term premium and future economic activity this paper proposes a two step approach to handle both problems first in a var setting we extract a reliable measure of the term premium by means of averaging estimator techniques aiming at optimally solving prediction problems when highly persistent processes are present and thus providing a so called near cointegrated var p approach second we analyze the dynamic response of gdp to shocks to the term premium by using the new information response function concept as far as the first problem is concerned we find that the ncvar based term premium measure is rather stable and counter cyclical as suggested by interest rates survey based estimation of yield curve models and by its risk compensation role regarding the second problem we find that an increase in the long term spread caused by the term premium induces two effects on future economic activity the impact is negative for short horizons less than 1 year whereas it is positive for longer ones

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

tips from tips the informational content of treasury inflation protected security prices treasury inflation protected securities tips are frequently thought of as risk free real bonds using no arbitrage term structure models we show that tips yields exceeded risk free real yields by as much as 100 basis points when tips were first issued and up to 300 basis points during the 2007 2008 financial crisis this spread predominantly reflects the poorer liquidity of tips relative to nominal treasury securities other factors including the indexation lag and the embedded deflation protection in tips play a much smaller role ignoring this spread also significantly distorts the informational content of tips break even inflation a widely used proxy for expected inflation

term structures of inflation expectations and real interest rates i use a statistical model to combine various surveys to produce a term structure of inflation expectations inflation expectations at any horizon and an associated term structure of real interest ra

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

uk term structure decompositions at the zero lower bound this paper employs a zero lower bound zlb consistent shadow rate model to decompose uk nominal yields into expectation and term premium components compared to a standard affine term structure model it performs relatively better in a zlb setting by capturing the stylized facts of the yield curve the zlb model is then exploited to estimate inflation expectations and risk premiums this entails jointly pricing and decomposing nominal and real uk yields we find evidence that medium and long term inflation expectations are contained within narrower bounds since the early 1990s suggesting monetary policy credibility improved after the introduction of inflation targeting

on the conservation of distance in international trade the volume of world trade has grown more than twice as fast as real world income since 1980 surprisingly the effect of distance on trade has increased during this period it could be that countries are trading greater volumes of goods that are highly sensitive to distance an alternative explanation is that distance has become more import for a significant share of goods using highly disaggregated bilateral trade data we find that adjustment in the composition of trade has not influenced the way in which distance affects trade in contrast for about 25 percent of industries distance has become more important this implies that the increased distance sensitivity of trade is a result of a change in relative trade costs that affects many industries as opposed to a shift to more distance sensitive products we also find that homogeneous products are twice as likely to have become more distance sensitive as compared with differentiated goods this is consistent with the hypothesis that falling search costs resulting from improvements in transport and communications are relatively more important for differentiated goods the results offer no evidence of the death of distance rather they suggest that distance related relative trade costs have remained unchanged or shifted in favor of proximate markets

survey measures of expected u s inflation of real interest rates and cash flows for decisions concerning investment expenditures international capital flows and exchange rate movements hinge in large part on expected real yield differentials across countries the federal reserve needs reliable measures of expected inflation to formulate and gauge the thrust of monetary policy in fact inflation expectations have become more important to the fed given the diminished stability of the link between the monetary aggregates and gdp expenditures since the early 1980s and the greater role which has been thrust upon expected real short term interest rates in the implementation of federal reserve policy the issue of rationality of inflation expectations that is the extent to which agents form expectations without making systematic mistakes in their beliefs about what inflation will be is important if inflation expectations are formed rationally labor and financial markets will strongly tend to neutralize the potential redistributive effects of inflation over time financial capital will flow efficiently within and across national borders moreover some of the stronger claims of new classical macroeconomics like the claim that only unexpected monetary policy actions will

price behaviour in european countries testing the law of one price in the short and long run at various levels of aggregation the objectives of this paper are to test the relaltive version of the law of one price in the short and the long run at various levels of aggregation for traded goods the use of an error correction model is made to test the validity of the hypothesis in the short run with a built in tendency to one price in the long run using unit value trade data at the aggregate 2 digit and 3 digit levels of the standard international trade classification the law of one price is generally rejected in the short run although a long run proportional relatlionship between prices of fairy homogeneous products are used the hypothesis is rejected both in the short and long run this suggests that non price changes which are likely to be incorporated in unit values are probably gradual and affect eec countries in a similar manner price changes however are somewhat erratic and hence with unitvalue data the law of one price in the long run is not contradicted while it is refuted at the disaggregate level when price data

trade and the greenhouse gas emissions from international freight transport we collect extensive data on worldwide trade by transportation mode and use this to provide detailed comparisons of the greenhouse gas emissions associated with output versus international transportation of traded goods international transport is responsible for 33 percent of world wide trade related emissions and over 75 percent of emissions for major manufacturing categories including transport dramatically changes the ranking of countries by emissions per dollar of trade we systematically investigate whether trade inclusive of transport can lower emissions in one quarter of cases the difference in output emissions is more than enough to compensate for the emissions cost of transport finally we examine how likely patterns of global trade growth will affect modal use and emissions full liberalization of tariffs and gdp growth concentrated in china and india lead to transport emissions growing much faster than the value of trade due to trade shifting toward distant trading partners

an empirical examination of long run purchasing power parity as theory of international commodity arbitrage an empirical analysis of long run purchasing power parity ppp as a theory of international commodity arbitrage between uk and us prices and the sterling us dollar exchange rate for the period 1975 1980 is presented econometric techniques concerning the cointegration of economic time series are applied to a sample of 35 manufactured commodities which in 1977 constituted approximately a quarter of the net output of all manufacturing industry in great britain our results are extremely unfavourable to the ppp hypothesis as a stable long run proportionality between exchange rates and disaggregated prices

distance time and specialization lean retailing in general equilibrium transport time increases with distance traveled and time is valuable we show the implications of these facts for global specialization and trade products where timely delivery is important will be produced near the source of final demand where wages will be higher as a result in the model timely delivery is important because it allows retailers to respond to final demand fluctuations without holding costly inventories and timely delivery is possible only from nearby locations using a unique dataset that allows us to measure the retail demand for timely delivery we show that the sources of u s apparel imports have shifted in the way predicted by the model with products for which timeliness matters increasingly imported from nearby countries jel f1 transporting goods and people costs time and money and both transport fees and time in transit generally increase with the distance traveled these facts imply an incentive to economize on distance and the equilibrium effects

expectations and the stability problem for optimal monetary policies eine auf den fundamentaldaten beruhende regelbindung der geldpolitik ohne selbstverpflichtung die bei vollkommen rationalen erwartungen der privaten akteure optimal ware ist instabil wenn diese akteure de facto den ublichen regeln des adaptiven lernens folgen dieses problem lasst sich dadurch beheben dass die erwartungen privater akteure berucksichtigt und in geeigneter weise in die optimale geldpolitik einbezogen werden diese eindeutige schlusfolgerung gilt auch dann wenn sich der geldpolitische entscheidungstrager und die privaten akteure in einem simultanen lernprozess befinden unsere ergebnisse zeigen wie wichtig es ist die geldpolitik angemessen zu gestalten und dabei nicht nur die fundamentaldaten sondern auch direkt die beobachteten erwartungen privater haushalte und unternehmen zu berucksichtigen

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

does the exchange rate follow a random walk a monte carlo study of four tests for a random walk abstract several authors have urged that real and nominal exchange rates follow a random walk conditions under which the exchange rate follows a random walk are reviewed in this paper many of these do not appear to hold therefore the empirical evidence presents a puzzle some evidence suggets the exchange rate follows a random walk while other evidence suggests the opposite should be true this paper attempts to reconcile the evidence it is argued that the tests for a random walk have low power monte carlo evidence on four tests for a random walk is presented that suppors this claim

comparative advantage and the welfare impact of european integration this paper investigates the welfare gains from european trade integration and the role of comparative advantage in determining the magnitude of those gains we use a multi sector ricardian model implemented on 79 countries and compare welfare in the 2000s to a counterfactual scenario in which east european countries are closed to trade for west european countries the mean welfare gain from trade integration with eastern europe is 0 16 ranging from zero for portugal to 0 4 for austria for east european countries gains from trade are 9 23 at the mean ranging from 2 85 for russia to 20 for estonia for eastern europe comparative advantage is a key determinant of the variation in the welfare gains countries whose comparative advantage is most similar to western europe tend to gain less while countries with technology most different from western europe gain the most andrei a levchenko and jing zhang

measuring the level and uncertainty of trend inflation abstract firmly anchored inflation expectations are widely viewed as playing a central role for the conduct of monetary policy this paper presents estimates of trend inflation based on information contained in monthly data on realized inflation survey expectations and the term structure of interest rates in order to assess whether inflation expectations are anchored a timevarying volatility of trend shocks is estimated as well while there is some commonality in inflation and survey based estimates of trend inflation yield based trend estimates embed a highly persistent component orthogonal to trend inflation trimmed mean inflation rates and survey forecasts are most indicative of trend inflation

speculation and the bond market an empirical no arbitrage framework an affine no arbitrage asset pricing framework is developed that allows for agents to have rational but heterogeneous expectations the framework can match both bond yields and the observed dispers

fiscal policy driven bond risk premia abstract fiscal policy matters for bond risk premia empirically government spending level and uncertainty predict bond excess returns as well as term structure level and slope movements shocks to government spending level and uncertainty are also priced in the cross section of bond and stock portfolios theoretically government spending level shocks raise inflation when marginal utility is high thus generating positive inflation risk premia term structure level effect uncertainty shocks steepen the yield curve slope effect producing positive term premia these effects are consistent with evidence from a structural vector autoregression asset pricing tests using model simulated data corroborate our empirical findings

export sensitivity to time delays and the pattern of international trade a growing body of literature in the field of international trade highlights the increasing importance of the time delays associated with transporting goods over long distances and the differing eff

the distance puzzle and low income countries an update the distance effect measuring the elasticity of trade flows to distance has been found to be rising since the early 1970s in a host of studies based on the gravity model leading observers to call it the distance puzzle however this puzzle is regularly challenged by new developments in the specification of the gravity equation or in its estimations we propose an original survey on the existing methods used to quantify the distance puzzle basically the computation of an average distance of trade a meta analysis on existing gravity papers and the implementation of recent econometric developments all on a well specified gravity equation both in cross section and panel data we apply all these methods to a unique large database 124 countries from 1970 to 2006 it appears that if all these new developments can change the amplitude of the increase in the trade elasticity to distance none solve the distance puzzle we confirm the existence of this puzzle and identify that it only applies to low income countries which exhibit a significant rising distance effect on their trade of around 18 between 1970 and 2006 while the distance puzzle for trade within richer countries disappears

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

declining distance effects in international trade some country level evidence technical progress can be expected to reduce transport costs over time yet most studies of bilateral trade based on the gravity model find distance effects to be increasing rather than decreasing we investigate countries openness to international trade the ratio of exports plus imports to gdp we find that trade decreases with geographical remoteness land area and lack of access to the sea all of which are likely to be correlated with transport costs in contrast to the results obtained with log linear models of bilateral trade distance effects remoteness and land area have declined over time trade decreases with population density and increases with improvements in the terms of trade investment and a more liberal trade policy

intertemporal asset pricing with heterogeneous beliefs abstract we examine the behaviour of the interest rate asset prices and asset holdings in an economy with heterogeneous rationally updated beliefs about the expected rate of production growth the equilibrium interest rate is a weighted average of the interest rates that would prevail in economies populated by homogeneous agents with the beliefs of the respective agents in the heterogeneous model the weights are given by the fractions of total wealth held financial innovation affects the dynamics of allocations and prices but preserves the aggregate output process and the structure of equilibrium asset prices also display the wealth weighted average characterization journal of economic literature classification numbers c60 d52 d91 g12

inflation risk premia in the term structure of interest rates this paper estimates the size and dynamics of inflation risk premia in the euro area based on a joint model of macroeconomic and term structure dynamics information from both nominal and index linked yields is used in the empirical analysis our results indicate that the inflation risk premium on euro area 10 year nominal yields was approximately equal to 20 basis points on average over the 1999 2007 period the inflation premium has also been subject to moderate but statistically significant fluctuations for the post 2003 period in which reliable index linked bond prices are available our results suggest that increases in the raw break even inflation rate above 2 the upper bound of the european central bank s definition for price stability have mostly reflected variations in the inflation risk premium while long term inflation expectations have remained well anchored

a contribution to a multidimensional analysis of trade competition international trade grew substantially throughout the last decades and international relations became more important for the economic performance of the countries simultaneously new poles emerged in the international arena leading to growing competition for higher market shares therefore trade competition is a critical dimension of analysis for applied international trade studies we propose a conceptual framework for measuring this phenomenon by combining some critical previous contributions to build a multidimensional and more comprehensive concept which defines trade competition as a function of the degree of both structural similarity and total exports overlap moreover structural similarity should take into account three elements sectoral shares similarity inter sectoral similarity evaluating how different the distinct sectors are and intra sectoral similarity proximity in terms of quality ranges exported several measures are proposed to empirically capture the concept suggested finally we present an example including the exports of the three largest european economies to 122 destination markets in order to illustrate the application of the concept and the measures suggested this abstract was borrowed from another version of this item

the internationalization of inventive activity a gravity model using patent data this paper discusses the extent and the determinants of the internationalization of european inventive activity between 1990 and 2004 using an innovative method to treat the information contained in the european patent office s patstat database the observed level of internationalization of inventive activities while being rather low has steadily increased over time the amount of collaboration between actors residing in different countries is assessed by means of a gravity model as it is familiar in the literature on international trade the amount of bilateral collaboration is positively affected by the presence of a common language and a common border and by the common participation in the european union participation in the euro zone is also found to have a marginally negative effect international collaboration is negatively affected by distance with estimated elasticities that are significantly smaller than the ones that characterize international trade contrary to the rumors about the death of distance this effect has become stronger in recent years

core and crust consumer prices and the term structure of interest rates we propose a model for nominal and real term structures of interest rates that includes dynamics for the three main components of total inflation core food and energy these dynamics combine together to produce a measure of expected total inflation that investors use to price nominal treasuries this framework captures different frequencies in inflation fluctuations shocks to core are more persistent and less volatile than shocks to food and especially energy the crust we find that a common structure of latent factors determines and predicts the term structure of yields and inflation our model outperforms popular benchmarks e g arma var and random walk specifications and it is at par with the survey of professional forecasters in forecasting inflation moreover we estimate real rates that agree with inflationindexed bond yields after adjusting for the liquidity premium in these bonds finally inflation and real rate risk premia show a declining pattern consistent with the changing nature of inflation and real rate risks

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

interest rate control and nonconvergence to rational expectations this paper investigates the feasibility of a monetary policy aimed at pegging the nominal rate of interest it shows that under general conditions such a policy would produce the well known cumulative process despite the fact that there exists a well behaved rational expectations equilibrium with no tendency for inflation to accelerate or decelerate the cumulative process shows up as the failure of learning to converge to rational expectations specifically the paper shows first in a conventional is lm model with an expectations augmented phillips curve and then in a micro based finance constraint model that if people follow any learning rule based on experience that satisfies a weak condition then the sequence of temporary equilibria under a policy of interest pegging cannot converge the nonconvergent path that will be observed accords with the familiar cumulative process in that inflation accelerates if the market rate of interest has been pegged below the natural rate

the evolution of comparative advantage measurement and welfare implications using an industry level dataset of production and trade spanning 75 countries and 5 decades and a fully specied multi sector ricardian model we estimate productivities at sector level and examine how they evolve over time in both developed and developing countries we nd that in both country groups comparative advantage has become weaker productivity grew systematically faster in sectors that were initially at the greater comparative disadvantage the global welfare implications of this phenomenon are signicant relative to the counterfactual scenario in which an individual country s comparative advantage remained the same as in the 1960s and technology in all sectors grew at the same country specic average rate welfare today is 1 9 lower at the median the welfare impact varies greatly across countries ranging from 0 5 to 6 among oecd countries and from 9 to 27 among non oecd countries remarkably for the oecd countries nearly all of the welfare impact is driven by changes in technology in oecd countries and for the non oecd countries nearly all of the welfare impact is driven by changes in technology in non oecd countries

the eurozone expected inflation an option s eyes view abstract we estimate inflation risk neutral densities rnds in the euro area using inflation swaps and caps floors options and introduce a parsimonious approach to jointly estimate the rnds across horizons thus we obtain daily implicit rnds for forward measures such as the 5 year on 5 year inflation rate which although not directly traded in the market is a key reference for monetary policy then we discuss several indicators derived from the information content of those historical rnds that are relevant for policy makers and compare them in light of the ecb s decisions and communication since 2009 specifically we study the evolution of tail risks associated with deflation and high inflation the balance of inflation risks risk aversion and how forward inflation rates react to the ecb s non conventional monetary policies longer term refinancing operations ltro securities market programme smp asset purchase programme app and its variants and extensions

asset prices and real exchange rates with deep habits i introduce an external habit for each consumption good known as deep habits into an otherwise standard international equilibrium model with multiple consumption goods and multiple countries i show that deep habits coupled with consumption home bias account for a wide range of asset pricing and exchange rate moments calibrated to a set of ten countries the model reproduces the cross sectional evidence on currency risk premiums when sorting on interest rates interest rate volatility innovations to global exchange rate volatility and value hence the model provides an equilibrium interpretation of these empirical regularities

trade geography and the skill premium in u s manufacturing i introduction the discernible increase in wage inequality in developed countries over the past several decades has been a topic of considerable interest in both the international trade and labor economics literatures a number of studies have identified at least some role for international trade in these increasing wage disparities 1 recent contributions to the new economic geography literature by head and mayer 2006 hanson 2005 mion 2004 and redding and venables 2004 have emphasized the influence of the geography of trade on wages suggesting that countries or regions with access to larger markets have higher wages in this paper we unite these two strands of the literature by developing a model that examines whether the wage increases attributed to access to larger markets are non neutral redding and venables 2004 henceforth rv develop a structural model of trade relating access to larger markets to per capita incomes they estimate a generalized gravity equation using world trade data to construct empirical proxies for market and supplier access these are trade cost weighted measures of export demand and import supply respectively that take into account the geographical distribution of trade flows market access measures the size of the market that can be reached by firms positioned in a given country supplier access measures the ease at which firms in a given country can acquire intermediate inputs rv show that per capita incomes are increasing in both of these measures their model however does not differentiate between labor types and therefore does not address the issue of whether market access has different influences on skilled workers and unskilled workers there is a good reason to believe that the wage increases attributed to market and supplier access would be non neutral across both skill groups and industries first a number of recent theoretical contributions demonstrate a positive relationship between market size and the skill premium epifani and gancia 2006 2008 show that in the context of a new trade model scale itself is skilled biased under very reasonable assumptions and they provide supporting empirical evidence in addition the new economic geography models of epifani 2005 and amiti 2005 which explicitly account for factor endowment differences between countries suggest that the forward and backward linkages provided by agglomeration exacerbate the stolper samuelson effect leading to relative wages that overshoot the values that would be observed in the absence of such linkages second redding and schott 2003 provide empirical evidence suggesting that in countries with higher values of market and supplier access individuals have greater incentive to invest in skills leading to a higher return to education and a larger skill premium and third as feenstra and hanson 1999 henceforth fh demonstrate if production is fragmented changes in the parameters of the production function over time can shift the composition of activities that are performed abroad in a given industry leading to non neutral effects on productivity and factor prices countries and industries with better access to overseas production activities that is larger levels of supplier access would be more likely to observe such changes in this paper we augment the methodology in rv to examine the relationship between market and supplier access and the skill premium in u s manufacturing industries our analysis differs from rv in two principal ways first we develop a model that relates market and supplier access to value added prices rather than to wages this is the natural generalization to a model with more than one internationally immobile factor of production second we use industries as our unit of analysis rather than countries an industry level analysis allows us to gauge the effects of market and supplier access on industry value added prices which we can then decompose into mandated factor price adjustments

the term structure and inflation uncertainty abstract to assess the importance of inflation risk for nominal treasury yields a novel quadratic term structure model with time varying inflation risk is estimated using survey based inflation uncertainty the resulting yield decomposition captures very diverse macroeconomic dynamics of inflation and real risk premiums large and positive during the 1980s but small and negative post 2008 and generates sensible high frequency estimates of expected inflation and real short rates over a long sample the explicit link between the model implied factors and macro fundamentals reveals that short but not long run fluctuations are unspanned by yields consistent with an interest rate policy unresponsive to transient inflation shocks

do countries influence neighbouring pollution a spatial analysis of the ekc for co2 emissions abstract by considering spatial relationships this study aims to analyse to what extent per capita co2 emissions are determined by renewable energy consumption the share of the services sector in gdp energy intensity and real per capita income a panel data set composed of 173 countries over the 1990 2014 period is used to estimate an environmental kuznets curve ekc augmented by neighbouring per capita income and energy intensity both standard and spatial forms are estimated for seven different sets of countries to assess the robustness of the results finally several forecasts are performed to verify global sustainability and to provide some policy suggestions for the period 2015 2100 the empirical results indicate that i most areas support the standard ekc ii there seems to be an inverted u shaped relationship between neighbouring per capita income and national per capita emissions in europe asia and the world as a whole iii neighbouring energy intensity increases national per capita emissions and iv forecasts show that economic growth will accelerate climate change however a steady annual growth in renewable energy consumption and a steady decrease in energy intensity both close to 2 5 may guarantee environmental sustainability prior to 2100

the effect of competition on trade evidence from the collapse of international cartels how do changes in competitive intensity affect trade patterns some cartels may find it advantageous to eliminate cross hauling and divide markets geographically we exploit a quasi natural experiment associated with increased antitrust enforcement to determine if market division strategies were used in seven recently prosecuted international cartels since antitrust activity is unlikely to affect spatial patterns of demand and supply other than through its effect on the competitive environment enforcement induced changes are ideally suited to study the effect of competition on trade patterns analyzing the cartels individually and as a group we find no significant change in spatial patterns of trade following cartel breakup in particular there is no systematic change in the effect of distance on trade these results suggest that cross hauling is not uncommon under collusion and hence that the existence of cross hauling by itself does not provide evidence of effective competition

ricardian productivity differences and the gains from trade abstract this paper evaluates the role of sectoral heterogeneity in determining the gains from trade we first show analytically that in the presence of sectoral ricardian comparative advantage a one sector sufficient statistic formula that uses total trade volumes as a share of total absorption systematically understates the true gains from trade greater relative sectoral productivity differences lead to larger disparities between the gains implied by the one sector formula and the true gains using data on overall and sectoral trade shares in a sample of 79 countries and 19 sectors we show that the multi sector formula implies on average 30 higher gains from trade than the one sector formula and as much as 100 higher gains for some countries we then set up and estimate a quantitative ricardian heckscher ohlin model in which no version of the formula applies exactly and compare a range of sufficient statistic formulas to the true gains in this model confirming the earlier results formulas that do not take into account the sectoral heterogeneity understate the true gains from trade in the model by as much as two thirds the one sector formulas understate the gains by more in countries with greater dispersion in sectoral productivities

expectations bond yields and monetary policy through explicitly incorporating analysts forecasts as observable factors in a dynamic arbitrage free model of the yield curve this research proposes a framework for studying the impact of shifts in market sentiment on interest rates of all maturities an empirical examination reveals that survey expectations about inflation output growth and the anticipated path of monetary policy actions contain important information for explaining movements in bond yields estimates from a forward looking monetary policy rule suggest that the central bank exhibits a preemptive response to inflationary expectations while accommodating output growth and monetary policy expectations forecasted gdp growth plays a significant role in explaining time variation in the market prices of risk the sensitivity of long yields is linked to the persistence of expected inflation under the risk neutral measure models of this type may provide traders and policymakers with a new set of tools for formally assessing the reaction of bond yields to shifts in market expectations the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

the term structure of inflation expectations we use information in the term structure of survey based forecasts of inflation to estimate a factor hidden in the nominal yield curve we construct a model that accommodates forecasts over multiple horizons from multiple surveys and treasury real and nominal yields by allowing for differences between risk neutral subjective and objective probability measures we establish that model based inflation expectations are driven by inflation output and one latent factor we find that this factor affects inflation expectations at all horizons but has almost no effect on the nominal yields that is the latent factor is hidden we show that this hidden factor is not related to either current and past inflation or the standard set of macro variables studied in the literature consistent with the theoretical property of a hidden factor our model outperforms a standard macro finance model in its forecasting of inflation and yields

inflation risk premia and the expectations hypothesis abstract we study the properties of the nominal and real risk premia of the term structure of interest rates we develop and solve the bond pricing implications of a structural monetary version of a real business cycle model with taxes and endogenous monetary policy we show the relation of this model with the class of essentially affine models that incorporate an endogenous state dependent market price of risk we characterize and estimate the inflation risk premium and find that over the last 40 years the ten year inflation risk premium has been has averaged 70 basis points it is time varying ranging from 20 to 140 basis points over the business cycle and its term structure is sharply upward sloping the inflation risk premium explains 23 42 of the time variation in the five ten year forward risk premium and it plays an important role in help explain deviations from the expectations hypothesis of interest rates

there goes gravity ebay and the death of distance we compare the effect of geographic distance on ebay and total international trade flows we consider the same 61 countries and basket of goods for both types of transactions we find the effect of distance to be on average 65 smaller on ebay we argue this difference is due to a reduction in search costs it increases with product differentiation and is higher when trade partners speak different languages when corruption in the exporting country is high and when uncertainty avoidance is high in the importing country moreover ebay s seller rating technology further reduces the distance effect on ebay

why inflation rose and fell policy makers beliefs and u s postwar stabilization policy this paper provides an explanation for the run up of u s inflation in the 1960s and 1970s and the sharp disinflation in the early 1980s which standard macroeconomic models have difficulties in addressing i present a model in which rational policymakers learn about the behavior of the economy in real time and set stabilization policy optimally conditional on their current beliefs the steady state associated with the self confirming equilibrium of the model is characterized by low inflation however prolonged episodes of high inflation ending with rapid disinflations can occur when policymakers underestimate both the natural rate of unemployment and the persistence of inflation in the phillips curve i estimate the model using likelihood methods the estimation results show that the model accounts remarkably well for the evolution of policymakers beliefs stabilization policy and the postwar behavior of inflation and unemployment in the united states

identification of maximal affine term structure models building on duffie and kan 1996 we propose a new representation of affine models in which the state vector comprises infinitesimal maturity yields and their quadratic covariations because these variables possess unambiguous economic interpretations they generate a representation that is globally identifiable further this representation has more identifiable parameters than the maximal model of dai and singleton 2000 we implement this new representation for select three factor models and find that model independent estimates for the state vector can be estimated directly from yield curve data which present advantages for the estimation and interpretation of multifactor models

on the death of distance and borders evidence from the nineteenth century abstract we investigate time dependent border and distance effects in the nineteenth century and document clear declines in these variables over time this suggests that trade costs may have not declined as dramatically in the late twentieth century as has been supposed

measuring the impact of china s export growth on its asian neighbours the rise of china as an economic power has led to concern in many countries especially among asian countries that this development poses a serious threat to their own economic performance and in particular their ability to export the empirical support for this view remains inconsistent however with mixed evidence for the view that chinese exports has harmed or helped exports by other asian economies and which countries are more or less affected one explanation for these inconsistencies might include the various biases that follow from the use of a gravity model that is specified in an a theoretical manner in this paper we study the effect of the chinese exports growth on those by other asian countries using the empirical framework outlined by baldwin and taglioni 2006 the disadvantage of this approach is that we capture the relative effect rather than its direction that is when using the theoretically robust gravity model we are able to identify which countries are more or less harmed by chinese exports and not whether the effect is positive or negative to identify that we use instead trade on parts and components and final goods taken together we evidence of a positive relation between chinese and its asian neighbours exports with countries with greater endowments of human capital and capital labour ratio benefiting most from this growth

decomposing real and nominal yield curves abstract inflation indexed and nominal yield curves capture investors expectations of real short rates and inflation as well as their required compensation for bearing liquidity inflation and real interest rate risk we estimate an affine term structure model that allows us to decompose real and nominal bond yields into these components and use the model to study the transmission of monetary policy the model decompositions imply that the federal reserve s announcements of lsaps lowered yields primarily by reducing real term premia changes in real term premia also account for the strong response of long term real forward rates to federal funds rate surprises

death of distance and the distance puzzle abstract despite the onset of globalization year by year cross country regressions of the gravity model usually suggest that the impediment of geographical distance on bilateral trade is rising and not declining over time this effect of distance is dubbed the distance puzzle in this paper we argue that prima facie evidence of the distance effect from the year by year regressions may not be a good indicator of the true impact of distance on trade

has distance died evidence from a panel gravity model the estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade this distance puzzle proved robust to several ad hoc versions of the model using data for 1962 96 for a large sample of 130 countries the introduction of an augmented barrier to trade function removes the paradox yielding a decline in the estimate of the elasticity of trade to distance of about 11 percent over the 35 year period for the whole sample however the death of distance is shown to be largely confined to bilateral trade between rich countries with poor countries becoming marginalized

estimating inflation risk premia using inflation linked bonds a review this paper provides an overview of studies that estimate the inflation risk premium using inflation linked bond ilb yields i categorize existing studies outline their research designs and compare their estimates for the inflation risk premium furthermore the importance of accounting for ilb illiquidity and an overview of existing ilb liquidity proxies are demonstrated a discussion of current literature developments such as the zero lower bound and an outline for future research directions conclude the paper