efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

garch inadequacy for modelling exchange rates empirical evidence from latin america this article checks for the adequacy of using garch models in exchange rate series using the hinich portmanteau bicorrelation test we find that a garch formulation or any of its variants fails to capture the data generating process of the main latin american exchange rates our results highlight the potential of having misleading public policy when estimates are based in garch types of models this article also complements recent similar findings encountered in european and asian economies

efficient resource allocation on the basis of priorities many institutions allocate resources by non market mechanisms based on priorities in this paper we introduce a model of resource allocation on the basis of priorities and address the following questions is it possible to allocate resources on the basis of any priority structure if yes when can we do this pareto efficiently without creating incentives for manipulation and consistently across different groups of agents and resource levels we adopt a basic indivisible objects model with a finite number of object types and a finite quota of goods of each type some interesting examples are the determination of access to education allocation of graduate houses offices or tasks agents are assumed to have strict preferences over object types and remaining unassigned an assignment is an allocation of the objects to the agents such that every agent receives at most one object a rule associates an assignment to each preference profile we formalize a priority structure to be a collection of strict priority rankings of individuals indexed by the object types where i a j would be read as i has higher priority for object a than j we assume that the priority structure is exogenously fixed and allow the preferences of the agents to vary a rule is said to violate a priority of i for a if there is a preference profile under which i envies j who is assigned a and publication information econometrica 70 6 november 2002 2489 2497 the copyright to this article is held by the econometric society http www econometricsociety org it may be downloaded printed and reproduced only for personal or classroom use absolutely no downloading or copying may be done for or on behalf of any for profit commercial firm or other commercial purpose without the explicit permission of the econometric society for this purpose contact julie p gordon executive director of the society at jpg northwestern edu i would like to thank faruk gul wolfgang pesendorfer the co editor the four anonymous referees and the participants of the micro theory lunch seminar in princeton university for their comments and suggestions

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

generalized expected utility analysis of risk aversion with state dependent preferences in this paper the author develops measures of absolute risk aversion for preference relations on risky prospects that are state dependent and are representable by frechet differentiable nonlinear functionals a comparative statics analysis of optimal air travel insurance coverage illustrates the usefulness of the proposed measures it is also demonstrated that the analytical framework described above is consistent with the purchase of air travel insurance even in circumstances where expected utility theory is not copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on stable and strategy proof rules in matching markets with contracts abstract this paper studies stable and one sided strategy proof rules in many to one matching markets with contracts not assuming any kind of substitutes condition or the law of aggregate demand we obtain the following results first the number of stable and strategy proof rules is at most one second the doctor optimal stable rule whenever it exists is the unique candidate for a stable and strategy proof rule third a stable and strategy proof rule whenever it exists is second best optimal for doctor welfare in that no individually rational and strategy proof rule can dominate it this last result is further generalized to non wasteful and strategy proof rules due to the weak assumptions our analysis covers a broad range of markets including cases where a unique stable and strategy proof rule is not equal to the one induced by the cumulative offer process or the deferred acceptance algorithm

nonlinear adjustment to purchasing power parity in the post bretton woods era abstract this paper models the dynamics of adjustment to long run purchasing power parity ppp over the post bretton woods period in a nonlinear framework consistent with the presence of frictions in international trade we estimate exponential smooth transition autoregressive estar models of deviations from ppp which are obtained using the johansen cointegration method for both consumer price index cpi and wholesale price index wpi based measures and a broad set of us trading partners in several cases we find clear evidence of a mean reverting dynamic process for sizable deviations from ppp with the equilibrium tendency varying nonlinearly with the magnitude of disequilibrium analysis of impulse response functions also supports a nonlinear dynamic structure but convergence to long run ppp in the post bretton woods era is very slow

are fluctuations in oil consumption permanent or transitory evidence from linear and nonlinear unit root tests abstract this paper examines the integration properties of the total oil consumption in 57 countries for the period of 1965 2012 a combination of new and powerful linear and nonlinear stationarity tests are employed to achieve the objectives of the study we find that the oil consumption series in 21 countries follow a nonlinearity path while those in the other countries are linear in nature evidence of the presence of a unit root is found for the total oil consumption series in 38 countries while the series is stationary in the remaining 19 countries an important insight is that the blueprints that were designed to reduce oil consumption are likely to have a permanent effect in most of the countries

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

comparative statics and non expected utility preferences abstract researchers have shown that many though not all of the basic results of expected utility analysis can be more or less directly generalized to non expected utility preferences this paper describes the essential difference between results which can be extended in this manner and those which cannot and shows that an important family of comparative statics theorems falls into the former class

long run purchasing power parity with asymmetric adjustment further evidence from african countries this study applies threshold cointegration test advanced by enders and siklos 2001 to investigate the properties of asymmetric adjustment in long run purchasing power parity ppp in 22 selected african countries during the period of january 1980 to december 2003 although there is evidence of long run ppp for most african countries the adjustment mechanism is asymmetric these results have particularly important policy implications for african countries

the inadequacy of linear autoregressive model for real exchange rates empirical evidence from asian economies utilizing the formal linearity test of luukkonen saikkonen and terasvirta biometrika 75 491 499 1998 as diagnostic tool the empirical finding suggests that the linear autoregressive ar model is inadequate in describing the real exchange rates behaviour of 11 asian economies it is noted that the conventional battery of diagnostic tests is capable of identifying the inadequacy of the linear model in only three of these series moreover the linearity nature of this behaviour has been formally rejected in favour of the non linear smooth transition autoregressive star model the finding of non linearity in the data generating process of these real exchange rates warrants that the use of linear framework in empirical modelling and statistical testing procedures in the field of exchange rates may lead to an inappropriate policy conclusions

purchasing power parity as a long run relation dickey fuller and stock watson tests of purchasing power parity ppp as a long run proposition are provided within the cointegration framework proposed by granger since different countries use different weights to construct price indices the traditional constraint that the coefficients on the price indices should be unity in the log linear ppp relation is relaxed the absence of a general ppp relation cannot be rejected at most a ppp relation is indicated in five out of fifteen country pairs that are examined even if a long run ppp relation exists it is not found to be useful in predicting future nominal exchange rates which is consistent with efficient speculative markets

a note on efficiency of australian and new zealand stock markets in this article we re examine efficiency of the australia s and new zealand s stock markets extending recent work of narayan 2005 for this purpose we apply the nonlinear unit root test procedure recently developed by kapetanios et al 2003 the nonlinear unit root tests reject the null hypothesis of unit root suggesting that the both stock markets are not weak form efficient contrary to the findings of narayan 2005

modeling non linearities in real effective exchange rates abstract the aim of this paper is to test for and model non linearities in the real effective exchange rates of 10 major industrial countries the g 10 to exploit non linear dependencies in exchange rates we apply the star smooth transition autoregressive family of models these non linear models imply the existence of two distinct regimes in exchange rates with potentially different dynamic properties but the transition between the regimes is smooth tests reject linearity for eight exchange rates the real exchange rate process is cyclical in both regimes for almost all countries and there appears to be some evidence of asymmetry star models outperform hamilton s markov regime switching model in an out of sample forecasting contest

spot electricity price discovery in indian electricity market this paper investigates the spot electricity price discovery that exists among the five regions of indian electricity market using hourly spot electricity price data from 1st january 2014 to 31st december 2015 using augmented dickey fuller 1981 and narayan and popp 2010 unit root tests we find that the spot electricity prices for both peak and off peak hours across all the regions are stationary at level then by applying granger causality test for a reduced var model at level the results show that there hardly any causality exists between these electricity markets barring few regions though we did not find any causality between peak price and off peak price for all individual region but we formed two panels by using peak and off peak price data of all five regions our results showed short run and long run panel granger causality between peak price and off peak price the results of the study suggests that though india as a nation has all the regions inter connected with single frequency of power grid operation since 2008 however these markets are not highly integrated in comparison to electricity markets of developed nations around the world

are us stock index returns predictable evidence from automatic autocorrelation based tests this article re examines the evidence of return predictability for three major us stock indices using two recently developed data driven tests namely the automatic portmanteau box pierce test and the wild bootstrapped automatic variance ratio test in tracking the time variation of return predictability via rolling estimation window we find that those periods with significant return autocorrelations can largely be associated with major exogenous events theoretically the documented time varying nature of predictable patterns is consistent with the adaptive markets hypothesis

strategyproof assignment by hierarchical exchange we give a characterization of the set of group strategyproof pareto optimal and reallocation proof allocation rules for the assignment problem where individuals are assigned at most one indivisible object without any medium of exchange although there are no property rights in the model the rules satisfying the above criteria imitate a trading procedure with individual endowments in which individuals exchange objects from their hierarchically determined endowment sets in an iterative manner in particular these assignment rules generalize gale s top trading cycle procedure the classical rule for the model in which each individual owns an indivisible good

a fractional cointegration analysis of purchasing power parity a generalized notion of cointegration called fractional cointegration is introduced to examine the long run purchasing power parity ppp hypothesis by allowing deviations from equilibrium to follow a fractionally integrated process the fractional cointegration analysis can capture a wider range of mean reversion behavior than standard cointegration analyses this gain is flexibility in modeling subtle mean reverting dynamics is found to be important for a proper evaluation of long run ppp empirical results based on historical data for the 1914 1989 period show that ppp reversion exists and can be characterized by a fractionally integrated process in three out of five countries studied the results support ppp as a long run phenomenon though significant short run deviations from ppp can exist

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

characterizing nonlinearities in business cycles using smooth transition autoregressive models during the past few years investigators have found evidence indicating that various time series representing business cycles such as production and unemployment may be nonlinear in this paper it is assumed that if the time series is nonlinear then it can be adequately described by a smooth transition autoregressive star model the paper describes the application of these models to quarterly logarithmic production indices for 13 countries and europe tests reject linearity for most of these series and estimated star models indicate that the nonlinearity is needed mainly to describe the responses of production to large negative shocks such as oil price shocks

new evidence of regional income divergence in post reform russia this article investigates regional income convergence in russia during 2000 2008 we test the hypothesis in which income divergence across regions of the country should give place to income convergence as the country moves toward free market economy with strong market institutions the study contributes to the existing literature by using the exponential smooth autoregressive augmented dickey fuller adf unit root test in a panel setup a novel econometric technique which encompasses cross sectional dependence results show strong evidence of on going regional income divergence in post reform period

why do popular mechanisms lack efficiency in random environments we consider the problem of randomly assigning n indivisible objects to n agents recent research introduced a promising mechanism the probabilistic serial that has superior e ciency properties than the most common real life mechanism random priority on the other hand mechanisms based on gale s celebrated top trading cycles method have long dominated the indivisible goods literature with the exception of the present context thanks to their outstanding e ciency features we present an equivalence

exchange rates and fundamental variables a semi parametric analysis of binary choice this study is motivated by the dearth of models that provide good out of sample fit for exchange rates that is current models of exchange rate behaviour are poor predictors of subsequent currency movements an attempt is made to determine if the relationship between exchange rates and fundamental variables can help explain the more extreme exchange rate movements distributional switches models are developed that relate fundamental economic variables to the resulting estimates based on the mixture of normal probability distributions parametric estimation procedures logit and probit are compared with a semi parametric technique maximum score estimation mscore which is relatively untested in the field of finance the fundamental variables of these models include information on trade balances money supply changes interest rate changes real economic growth relative inflation rates and changes in stock market indexes classification results favour mscore implications of results and improvements

asset returns and state dependent risk preferences we propose a consumption based capital asset pricing model with state dependent risk aversion the corresponding risk premium includes consumption risk and the risk associated with variations in preferences our model can be estimated without specifying the functional form linking risk aversion with state variables the estimates are based on markov chain monte carlo estimation of exact discrete time parameterizations for linear diffusion processes we find estimates for relative risk aversion that are reasonable by usual standards correlated with both consumption and returns and indicative of an additional preference risk of holding the assets

on the operation of multiple matching markets abstract we provide a new perspective on how to operate matching markets when there are many types of markets our finding is that the market wise adaptation of strategy proof and non wasteful rules yields a strategy proof rule with the following efficiency property no strategy proof rule pareto dominates the rule such rules are abundant as they include the market wise use of the well known priority based rules of the top trading cycles and the deferred acceptance this result gives theoretical support to the independent operation of markets observed in real life markets as well as our practice in market design that separately treats each market for its design

strategy proof stochastic assignment abstract i study strategy proof assignment mechanisms where the agents reveal their preference rankings over the available objects a stochastic mechanism returns lotteries over deterministic assignments and mechanisms are compared according to first order stochastic dominance i show that non wasteful strategy proof mechanisms are not dominated by strategy proof mechanisms however non wastefulness is highly restrictive when the mechanism involves randomization in fact the random priority mechanism i e the random serial dictatorship and a recently adopted school choice mechanism deferred acceptance with random tie breaking are wasteful i find that both these mechanisms are dominated by strategy proof mechanisms in general strategy proof improvement cannot be due to merely reshuffling objects and therefore must involve assigning more objects

incentives in the probabilistic serial mechanism abstract the probabilistic serial mechanism bogomolnaia and moulin 2001 9 is ordinally efficient but not strategy proof we study incentives in the probabilistic serial mechanism for large assignment problems we establish that for a fixed set of object types and an agent with a given expected utility function if there are sufficiently many copies of each object type then reporting ordinal preferences truthfully is a weakly dominant strategy for the agent regardless of the number of other agents and their preferences the non manipulability and the ordinal efficiency of the probabilistic serial mechanism support its implementation instead of random serial dictatorship in large assignment problems

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

random matching under dichotomous preferences we consider bilateral matching problems where each person views those on the other side of the market as either acceptable or unacceptable an acceptable mate is preferred to remaining single and the latter to an unacceptable mate all acceptable mates are welfare wise identical using randomization many efficient and fair matching methods define strategyproof revelation mechanisms randomly selecting a priority ordering of the participants is a simple example equalizing as much as possible the probability of getting an acceptable mate across all participants stands out for its normative and incentives properties the profile of probabilities is lorenz dominant and the revelation mechanism is group strategyproof for each side of the market our results apply to the random assignment problem as well

transactions costs and nonlinear adjustment in real exchange rates an empirical investigation eolquilibrium models of real exchange rate determination in the presence of transactions costs imply a nonlinear adjustment process toward purchasing power parity ppp conventional cointegration tests which ignore the effect of transactions costs may be biased against the long run ppp hypothesis our results using both monthly data for the interwar period and annual data spanning two centuries clearly reject the linear framework in favor of an exponential smooth transition autoregressive process the systematic pattern in the estimates of the nonlinear models provides strong evidence of mean reverting behavior for ppp deviations and helps explain the mixed results of previous studies

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound