the secondary market and the international debt problem abstract the objective of this study is to analyze the new secondary market of developing country debt we provide a brief description of the market participants instruments and purposes an analysis of prices in the secondary market follows we are especially concerned about the recent plunge in secondary market prices and whether it reflects fundamentals such as movements in debt to export ratios and suspensions of interest payments or simply the illiquidity of the market we find that both sets of factors are involved and as a result conclude that prices on the secondary market are probably below their long run equilibrium values in the next section we review the risks inherent in using the secondary market for debt from a developing country point of view and discuss the market s near term potential growth we conclude with some general remarks about the role of the secondary market in resolving the international debt problem that is in restoring capital flows to developing countries

the internationalisation of stock markets and the abolition of u k exchange control this paper aims to assess the impact of the abolition of u k exchange control on the degre of integration of u k and overseas stock markets using cointegration techniques we find that although there is no significant increase in the correlation of short run stock market returns for the united kingdom and certain overseas markets post 1979 there does appear to be a marked increase in the degree to which these markets move together in the long run after this date there appears to be no long run gain from diversification since cointegration of two variables implies that at least one of them can be used to help forecast the other our findings also imply the inefficiency of a number of stock markets

debt sustainability and overadjustment abstract a simple debt accumulation model based on balance of payments identifies is analyzed and used to project debt to export ratios in latin america and africa uo tp 1990 the fundamentals of debt dynamics are shown to be determined by four ratios interest rate to export growth import growth to export growth and the initial debt to export and import to export ratios the relevance of the initial conditions and the importance of import growth on debt dynamics are discussed sustainability of the debt in terms of keeping debt to export ratios on a declining trend is defined and used to quantify the associated amount of excess import restraint in debtor countries two tests are constructed that measure excess restraint i e overadjustment based on the fundamentals of debt dynamics both tests assume that interest rates exceed export growth the first requires a substantial amount of past adjustment effort the second does not but places tighter restrictions on the future commitment that is needed to remain solvent these tests are applied to latin america and to africa both before and after the recent downward oil price shock estimates of excess import restraint are reported

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

pricing and patents of hiv aids drugs in developing countries this article provides empirical evidence on the impact of patents on drug prices across developing countries it uses sales data on human immunodeficiency virus hiv acquired immuno deficiency syndrome aids drugs in a sample of 34 low and middle income countries between 1995 and mid 2000 the main findings are that patents do shift drug prices up drug prices are correlated to per capita income levels and drug firms follow a skimming strategy when pricing new hiv aids drugs that is there is across country and intertemporal price discrimination in the global drug markets

unit roots and the real exchange rate before world war i the case of britain and the usa abstract unit root and cointegration tests indicate that the dollar pound real exchange rate was stationary during the us greenback and gold standard periods purchasing powwer parity ppp performed about equally well in the two periods and better than in recent years deviations from ppp were corrected by changes in british prices and us gold dollar prices greenback prices did not adjust the similarity of the adjustment parameters in the two periods suggests that expectations of a return to gold were embedded in the greenback price of gold

the effects of mongolia s booming mining industry on its agricultural sector a test for dutch disease dutch disease occurs when currency strengthening associated with a booming sector of an economy crowds out a lagging trade dependent sector in this study a keynesian style model is specified to deduce hypotheses about how increased foreign direct investment fdi aimed at mongolia s mining sector affects its agricultural sector a key finding is that while econometric results suggest the increased fdi strengthened mongolia s currency its adverse effect on mongolia s trade sensitive agricultural sector is not sufficiently strong to cause the sector to decline although dutch disease was not detected the posited mechanism clearly is important specifically when currency strengthening is ignored the reduced form elasticity of agricultural value added with respect to fdi is 2 7 times larger than when currency strengthening is taken into account 0 103 vs 0 038 also fdi induced currency strengthening causes the keynesian multiplier y g to drop from 2 40 to 2 00 and the fdi multiplier y fdi to drop from 3 05 to 1 89

long run price elasticities and the marshall lerner condition revisited abstract in estimating trade elasticities most previous researchers employed nonstationary data and ols or 2sls method with new developments in the literature this paper uses stationary data and johansen s cointegration analysis to provide new trade elasticities for almost 30 countries

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

informal self employment and macroeconomic fluctuations article i nfo article history informal self employment is a major source of employment in developing countries its cyclical behavior is important to our understanding of the functioning of ldc labor markets but turns out to be surprisingly complex we develop a flexible model with two sectors a formal salaried tradable sector that may be affected by wage rigidities and an informal non tradable self employment sector faced with liquidity constraints to entry this labor market is then embedded in a standard small economy macro model we show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model relative salaried self employed incomes relative salaried self employed sector sizes and the real exchange rate model predictions are then tested empirically for argentina brazil colombia and mexico we confirm episodes where the expansion of informal self employment is consistent with the traditional segmentation views of informality however we also identify episodes where informal self employment behaves pro cyclically here informality is driven by relative demand or productivity shocks to the non tradable sector

are real gdp levels nonstationary evidence from panel data tests potential nonstationarity of important macroeconomic variables and unit root tests are now a standard procedure in empirical analyses while there are many findings of unit roots in macroeconomic variables using the popular augmented dickey and fuller 1979 test this test has low power against near unit root alternatives recently panel data procedures have been proposed as an avenue to increased power this paper applies panel unit root tests to international real gdp and real gdp per capita data the results overwhelmingly indicate that international real gdp and real gdp per capita levels are nonstationary

information marketing and pricing in the u s antiulcer drug market introduced into the united states in 1977 tagamet was the pioneer product in the class of antiulcer drugs known as h2antagonists by promoting ulcer healing through inhibiting acid secretion tagamet was able to heal ulcers and treat pre ulcer conditions pharmacologically on an outpatient basis thereby substituting for more costly hospital admissions and surgeries in 1983 another h2 antagonist called zantac entered and by early 1987 u s zantac sales surpassed those of the pioneering tagamet today there are four h2 antagonists sold in the united states tagamet zantac pepcid and axid zantac is now the world s largest selling prescription drug having estimated worldwide sales in 1994 of about 4 billion each of the four h2 antagonists is among the top 100 in world drug sales although tagamet lost u s patent protection on may 17 1994 in this paper we examine empirically the role of information in facilitating and explaining growth of the overall antiulcer drug market as well as in shaping the changing market shares of the four patented products the dissemination of information is due largely to the use of marketing channels such as visits by manufacturers representatives to physicians called detailing advertising in medical journals and most recently by direct to consumer advertising we examine these and also explore pricing policies product differentiation and orderof entry effects

empirical generalizations about market evolution and stationarity we present empirical generalizations about conditions under which marketing variables evolve or remain stationary we first define evolution statistically and make the case why it is an important concept for increasing our understanding of long run marketing effectiveness we then briefly review ways in which evolution can be tested empirically from readily available data we present a database of over 400 prior analyses and catalog the relative incidence of stationarity versus evolution in market performance and marketing spending we find that evolution is the dominant characteristic for sales and marketing mix spending but that stationarity is the dominant characteristic for market share thus we find strong support for the conjecture that many markets are in a long run equilibrium where the relative position of the players is only temporarily disturbed by their respective marketing activities we assess the impact of a number of covariates on the likelihood of finding stationarity evolution in sales

real and nominal exchange rates in the long run an empirical investigation abstract this paper reports on econometric tests of the hypothesis that purchasing power parity holds as a long run relationship using data on eight industrialized countries during the flexible exchange rate period the empirical work proceeds by i testing whether nominal exchange rates and relative price levels are co integrated and ii conducting impulse response analysis of long run exchange rate and relative price level changes to explain the data keynesian models suggest that shocks during the estimation period were due principally to exogenous shifts in aggregate demand while equilibrium models suggest that monetary factors have been relatively more important

consumption externalities and diffusion in pharmaceutical markets antiulcer drugs we examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs externalities emerge when use of a drug by others affects its value and or conveys information about efficacy and safety to patients and physicians this can affect the rate of market diffusion for a new entrant and can lead to dominance of one drug despite the availability of close substitutes we use data for h2 antagonist antiulcer drugs to estimate a dynamic demand model and quantify these effects the model has three components an hedonic price equation that measures how the aggregate usage of a drug as well as conventional attributes affect brand valuation equations relating equilibrium market shares to quality adjusted prices and marketing levels and diffusion equations describing the dynamic adjustment process we find that consumption externalities influence both valuations and rates of diffusion and that they operate at the brand and not the therapeutic class level

the dynamics of fertility family planning and female education in a developing economy unlike most empirical works on fertility analysis this study is the first attempt to analyse the dynamics of fertility and its determinants with a particular focus on the role played by female education and family planning programmes in the context of a traditional society the analysis is based on the application of the following dynamic time series techniques in a multivariate context cointegration vector error correction modelling and variance decompositions these dynamic tools are recently developed and hitherto untried in fertility analysis in the context of a poor developing economy such as india the results based on the above most recently developed methodology broadly indicate that in the complex dynamic interactions the importance of conventional structural hypothesis as a granger causal factor in bringing fertility down in the longer term cannot be denied however overall in the short to long term the findings appear to be more consistent with the recent ideational hypothesis

is there a j curve abstract if the response of the value of the trade balance to movements in the real exchange rate is described by a j curve then a real depreciation initially worsens a balance of trade deficit only improving it over time this paper investigates whether a j curve can be detected in the last twenty five years of american data no statistically reliable evidence of a stable j curve is detected the model is checked extensively to support this finding

competition and investment in telecommunications this study examines the relationship between competition and investment by incumbert local exchange carriers ilecs in us telecommunications markets a panel data model and a dynamic panel data model that have not been used in previous studies are applied in this analysis results of the panel data model suggest that investment by ilecs is positively related to the market share of competitive local exchange carriers clecs and negatively to the absolute number of clecs however once the persistence in ilecs investment behaviour is controlled for using the dynamic model our measures of the existing competition from clecs at best have a weak effect on ilecs investment therefore while strengthening competition in the telecom sector may be key to restoring telecom investment it is uncertain that competition spurred by the mandatory sharing policy in this sector stimulates ilecs incentives to invest in new infrastructure

pricing dynamics in the pharmaceutical industry pricing behaviour has traditionally been approached from the concept of long term static equilibrium this paper argues that this approach is inappropriate at least with respect to the pharmaceutical market because new innovation and patent expiry lead to a continually changing environment a theoretical analysis argues that price change will depend on the age of the therapeutic class the degree of brand loyalty the extent to which it is sold over the counter rather than on prescription and measures of competition the empirical results based on an analysis of the leading twenty five therapeutic class of pharmaceuticals in the usa the uk west germany and france over the period 1981 1988 tends to support the theoretical conclusions although it would appear that government controls in the uk are distorting profit maximizing behaviour more than in the other three countries

strategic pricing of new pharmaceuticals this paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals both at introduction and after 4 6 and 8 years most important is the extent of therapeutic advance embodied in a new product for drugs which represent important therapeutic gains launch prices can be two or three times those of existing drugs used for the same purposes while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels in addition the number of branded substitutes has a substantial negative effect on launch prices which reflects the importance of competitive pressures duplicate products thereby play an important economic role in pharmaceutical markets

further results on long run purchasing power parity in the 1920s abstract we reexamine long run purchasing power parity ppp for the dollar sterling exchange rate in the 1920s using a three variable cointegration regression and the new statistics tabulated by engle and yoo 1987 consistent with taylor and mcmahon s 1988 results we reject cointegration for the dollar sterling exchange rate the u k and the u s a price levels for the sample period february 1921 to may 1925 contrary to taylor and mcmahon however we find only weak evidence of cointegration for the shorter sample period february 1921 to may 1924

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

misspecification versus bubbles in hyperinflation data monte carlo and interwar european evidence abstract this paper analyzes some new tests of the cagan hyperinflation money demand model which have several advantages relative to those in the literature they do not confound specification error with rational bubbles can be implemented with a linear procedure and are frequently able to detect periodically collapsing bubbles which have challenged existing tests after a monte carlo analysis the tests are applied to data from hyperinflations in austria germany hungary and poland evidence of misspecification is found for austria germany and hungary while the model without a rational bubble component appears to fit the data for poland

pharmaceutical patents prices and welfare losses policy options for india under the wto trips agreement c oncerns on the effect of product patents on the prices of medicines have been acute in many developing countries which up to the entry into force of the world trade organisation wto agreement on trade related aspects of intellectual property rights trips in 1995 could and did disallow such patenting in their national patent laws with trips all members of and those seeking accession to the wto have to make available with limited exceptions both product and process patents in every sector including pharmaceuticals more specifically trips provides that all wto members have to receive product patent applications for pharmaceuticals from the date of establishment of the wto i e january 1995 it is important to note that even under the trips regime patents are to be granted only on applications received from 1995 onwards for new patentable pharmaceutical inventions thus prices of existing pharmaceuticals already on the market or even those covered by patent

how much of a threat to economic growth is a mature aids epidemic the article models the impact on economic growth of hiv aids when the epidemic is in a mature phase in contrast with previous studies focused on periods of expansion as it is typically the case in african countries simulations for honduras the epicentre of the epidemic in central america show that aids is not likely to threaten economic growth neither through labour nor capital accumulation channels impacts are estimated between 0 007 and 0 27 points of gross domestic product gdp growth annually for the period 2001 to 2010 increasing spending on prevention higher public treatment subsidies and increasing treatment access will not jeopardize economic growth prospects critical factors that slash economic growth in africa such as human capital reductions and shifts in relative skills are not strong in honduras

pricing profits and technological progress in the pharmaceutical industry the decades old debate over pharmaceutical industry prices profits and innovation has again intensified a number of events coalesced to refocus public interest on pharmaceuticals contributing to public concern were bureau of labor statistics price index increases for pharmaceuticals far outpacing those for the products of other industries another prominent characteristic of the pharmaceutical industry has been its extraordinarily high reported profitability this article examines the phenomena that precipitated the current pharmaceuticals debate their historical antecedents and the principal questions at issue in the author s considered judgment a pell mell march toward regulation of pharmaceutical industry pricing could seriously impair the industry s incentives for investment in new products

do national patent laws stimulate domestic innovation in a global patenting environment a cross country analysis of pharmaceutical patent protection 1978 2002 this paper evaluates the effects of patent protection on phar maceutical innovations for 26 countries that established pharmaceutical patent laws during 1978 2002 controlling for country characteristics through matched sampling techniques to establish two proper comparison sets among 92 sampled countries and through country pair fixed effects regressions this study yields robust results national patent protection alone does not stimulate domestic innovation as estimated by changes in citation weighted u s patent awards domestic r d and pharmaceutical industry exports however domestic innovation accelerates in countries with higher levels of economic development educational attainment and economic freedom additionally there appears to be an optimal level of intellectual property rights regulation above which further enhancement reduces innovative activities

how to evaluate the solvency of an indebted nation reassessing third world debt daniel cohen the conventional measures of the solvency of developing countries usually rely on such indices as debt export or debt gnp ratios the underlying rationale is that to be solvent a country must eventually pay back all its debt this paper starts from two simple but important remarks first solvency need not require the full eventual repayment of all debt continued borrowing may be possible rather what is required is that a country s debt accumulation does not outstrip its capacity to make future repayments and the capacity of lenders to make future loans second solvency therefore cannot be defined independently of the growth rates of lender and borrower countries nor of the interest rate at which past debts accumulate putting these ideas together a new solvency index is proposed and this is computed for all the less developed countries this new index suggests a less gloomy view of the international debt crisis the largest debtors may have already accomplished an adjustment which is more than sufficient to restore their solvency when this is properly computed to investigate this claim there is a detailed analysis of the policies recently adopted in argentina and brazil

market efficiency and cointegration an application to the sterling and deutschemark exchange markets abstract the assumption that the foreign exchange market is efficient that is that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate is a property often imposed in theoretical international macroeconomic models although a vast empirical literature has evolved to test market efficiency we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency we ffind evidence inconsistent with market efficiency for both germany and the united kingdom

pricing patent loss and the market for pharmaceuticals dustry the drug price competition and patent term restoration act of 1984 very clearly reflects the determination of policy makers to simultaneously address issues of price control and technical progress the 1984 act increased returns to innovation by extending the period of patent protection to take into account the time between receipt of a patent and food and drug administration fda approval of a drug for sale in the market the 1984 act also reduced the testing requirements for approval of new generic brands of existing chemical entities thus reducing entry barriers in markets where patents have expired the expected outcome from eased entry conditions for generic substitutes was substantially enhanced price competition and lower prices for brand name drugs in fact prices for brand name drugs have tended to increase following entry by generics wagner and duffy 28 examined price changes for top selling generics and name brands they show substantial price increases in brand name prices accompanying large reductions in generic prices as entry of generics occurs grabowski and vernon 9 examined data on 18 major orally administered rug products subject to generic competition between 1983 and 1987 and found that the name brand price increased by an average of 7 one year subsequent to generic entry and 11 two years following generic entry

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

strategic sharing in regulatory regimes abstract a firm subject to price cap regulation pcr disciplines the regulator s choice of entry accommodation rule through a convex combination of earnings and effort sharing the first best level of cost reducing effort is not achieved in this model even under pure pcr

regulation and investment use newly assembled data on regulation in several sectors of many oecd countries to provide evidence that regulatory reform of product markets is associated with an increase in investment a component of reform that plays a very important role is entry liberalization but privatization also has a substantial effect on investment sensitivity analysis suggests that our results are robust jel e22 l5

demand models for direct mail and periodicals delivery services results for a transition economy this article examines the demand for services of the slovenian national postal operator for the direct mail and periodicals market and separately for the direct mail market the main factors of the demand are found to be various price indicators with respect to individual market two income series and the variable of economic environment the results of our empirical analysis suggest that the price elasticity of demand on both markets is below zero the autonomy in price increases is limited due to positive cross price elasticity of demand for direct mail with regard to price fluctuations for tv commercials substitution effects on the direct mail market are even more evident with regard to price fluctuations for advertisements in magazines and daily papers an additional finding is that the demand on both markets varies seasonally in all models estimated by us finally coefficients of income elasticity of demand for direct mail services show that the total number of mail deliveries on the direct mail ma

currency substitution and monetary autonomy the foreign demand for us demand deposits abstract this paper presents new evidence of currency substitution using the two step estimator of cointegrated systems developed by engle and granger 1987 we estimate and find cointegration among variables suggested by the money services model of currency substitution following engle et al 1989 we estimate an error correction model for each of five countries allowing isolation of long term from short term influences on the foreign demand for us demand deposits our results suggest that currency substitution is a potentially significant phenomenon influencing long term monetary policy independence

are sovereign debt secondary market returns sensitive to macroeconomic fundamentals evidence from the contemporary and interwar markets abstract the insensitivity of sovereign loan secondary market returns to macroeconomic fundamentals has been attributed to market illiquidity and the absence of publicly reported transactional prices during the 1920s and 1930s sovereign bonds were traded in an active market and weekly transactional prices were publicly available this paper shows that price changes from both eras are insensitive to unexpected changes in key external and country specific macroeconomic aggregates but that returns are moved by individual agent announcements that presage changes in future lending the results which contrast with studies of us equities indicate that the sovereignty of the issuer matters more than the type of debt contract

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

a valuation model for developing country debt with endogenous rescheduling creditors have little recourse if a sovereign state repudiates debt obligations they can however threaten to impose penalties if such action occurs which results in deadweight losses to the system as a whole a preferred alternative for both borrower and lender is to reconstruct debt obligations reschedulings are a device that creditors can use to restructure the incentives faced by borrowers such that repudiation is never a rational action this article develops a numerical method of valuing the option to reschedule the model shows why fees are preferred to higher interest spreads during a rescheduling exerise why maturities get shorter prior to a debt crisis but are lengthened in a rescheduling and why little has been done to attempt to seize the assets of countries that have not repaid any interest or principal for extended periods of time the model shows that lenders are willing to commit greater amounts if reschedulings are possible than if they are not and that precommitment to provide additional funds at rescheduling can raise the market value of existing debt and should not be construed as concessions by commercial lenders alternately the model can be used to improve systems for ranking country creditworthiness to assess the degree of adjustment requried to spark resumption of spontaneous lending or to estimate how much interest rates would have to fall to restore a country s creditworthiness

restaurant prices and the mexican peso 1 introduction balance of payment concerns facing latin american economies have caused international currency valuations to receive ongoing scrutiny throughout the past decade and a half given its importance to regional economic performance border areas between countries such as the united states and mexico canada and the united states colombia and venezuela and ecuador and colombia also monitor exchange rate developments very closely typically one of two types of monitoring tools have been utilized for formal econometric work in this branch of international economics nominal purchasing power parity ppp indices and trade weighted real exchange rates both of the latter rely on easily obtained macroeconomic data a widely cited exception to those macroeconomic data approaches is published quarterly by the economist magazine utilizing hamburger prices from a well known restaurant corporation with worldwide franchises the research at hand develops a similar tool utilizing a variety of international restaurant franchises with operations in el paso texas and ciudad juarez chihuahua on the border between the united states and mexico more than 70 signature menu item prices are sampled every month in order to develop an exchange rate measure based on the so called law of one price hypothesis parametric and nonparametric statistical testing is then conducted to examine whether the border restaurant price ratio bears any relationship to the exchange rate value of the peso over the 36 month sample period for which data are available july 1997 june 2000 section 2 of the paper includes a literature review data and methodology are described in section 3 section 4 provides an empirical analysis of the results concluding remarks and suggestions for future research are included in section 5 2 literature review exchange rate monitoring has become a staple of international corporate and public policy analysis in the two plus decade period subsequent to the demise of the bretton woods fixed exchange rate system a common approach is the measurement of trade weighted real exchange rates designed for country risk analysis and balance of payments pressure gauging such indexes will generally indicate overvaluation with respect to a preselected base with values in excess of 100 and undervaluation with values below 100 batten and belongia 1986 fullerton 1989 another practice is the calculation of theoretical nominal exchange rates under a ppp approach beltran del rfo 1999 the latter are often popular among financial market analysts because they are defined in the actual units in which trades are conducted international restaurant franchise menu pricing has given rise to a new empirical variant on the law of one price in recent years the economist magazine runs a periodic comparison of hamburger prices to nominal exchange rates for a group of 20 plus countries the economist 1998 hamburger prices in local currency units are divided by a corresponding dollar price whenever the resulting price ratio is higher than the exchange rate it implies that the local currency is overvalued when the ratio is below the prevailing exchange rate it implies the opposite the popularity of this readily identifiable index has spawned several subsequent studies that study both geographic and time series characteristics and implications of the approach while cumby 1996 and ong 1997 find fairly good evidence in favor of the hamburger index pakko and pollard 1996 conclude that nontradability and institutional factors cause it to perform unreliably a growing number of studies examine the ppp principle using data that involve more than one product and take into account geographic factors such as distance engel and rogers 1996 parsley and wei 2000 in one such effort james gerber sampled individual menu items from seven restaurants in san diego and tijuana regents of the university of california 1997

aggregate price indices new goods and generics this paper examines the appropriate treatment in the cost of living index of the appearance of new varieties of old goods existing theory here applies to individual households thus we first show in what sense laspeyres and paasche indices for groups of households can be considered approximations to theoretically desirable group indices and then go on to the case of new goods we apply our results to the case of the introduction of generics in pharmaceuticals and show that proper treatment can make a considerable difference

generics and new goods in pharmaceutical price indexes drug prices and their rate of inflation are a major focus of current policy debates on u s health care in this paper we show that where patent expiration and generic entry are significant as they are for many important classes of drugs movements in the official price indexes may be poor indicators of the actual prices paid and the resulting changes in consumer welfare when a drug goes off patent those consumers who regard the branded and generic versions as more or less perfect substitutes experience a substantial price decline and concomitant welfare gain which the current methods used by the statistical agencies fail to capture we suggest a number of alternative ways of proceeding although our computations are based on a limited number of cases they imply that the overall rate of inflation in drug prices may be quite seriously overstated while generic pharmaceuticals are the topic of our calculations the problem discussed is also of wider importance generic drugs are a special and possibly easy case

international transmission of aggregate shocks under fixed and flexible exchange rate regimes united kingdom france and germany 1959 to 1985 abstract this paper analyzes the transmission of aggregate shocks between the usa and three major european economies the uk france and germany under fixed and flexible exchange rate regimes using time series techniques short run linkages are investigated in the context of vector autoregression models while long run relations are analyzed by testing for cointegration empirical findings indicate that flexible exchange rates have not in general completely insulated domestic economies from foreign shocks and that the degree of insulation and interdependence across exchange rate regimes and over the long and short runs differs substantially across the european countries

tests of exchange market efficiency fragile evidence from cointegration tests abstract several recent papers have employed engle and granger 1987 cointegration tests to determine whether or not markets are efficient we use a new test for cointegration due to johansen 1988 to examine market efficiency with respect to the us dollar exchange rates for canadian japanese and west german currencies the fragile nature of the test indications suggests that cointegration methodologies cannot be relied upon to provide reliable evidence on market efficiency

predictability of secondary market developing country debt prices this paper examines the predictability of secondary market prices for sovereign debt instruments issued by colombia ecuador and venezuela monthly time series observations for each economy are utilized in a seemingly unrelated regression framework econometric analysis includes both in sample and out of sample modelling and forecasting results only data available to financial markets are included in the extrapolation analysis theil inequality coefficients are reported for the simulation tests

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

bootstrap testing for cointegration of international commodity prices this paper investigates cointegration with respect to nine commodity groups traded on international markets nonparametric bootstrapping is utilized in the testing procedure of the 21 pairs of price series investigated here for 13 the no cointegration null hypothesis is rejected in favour for the cointegration of the series in addition to five out of the remaining eight cases that were not cointegrated a plausible explanation is the prevailing trade policy thus a great majority of the institutionally nonregulated cases turn out to get empirical support for being cointegrated an important statistical finding is that the augmented dickey fuller test for cointegration cradf generally yields p values that are close to the p values obtained by the bootstrap testing but once they differ substantially it is usually an indication of irregular periods e g structural changes in the series the paper conducts also a monte carlo simulation experiment to investigate the power and size properties of the t

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

the impact of exchange rates and developing country debt on commodity prices a major feature of the international economy over the past decade has been the swings in the value of the us dollar the dollar fell to a historically low level in the late i970s but rose sharply over the period i982 4 by the beginning of i985 the dollar was generally considered to be over valued by between 2o and 40 since i985 there has been a depreciation of over one third these wide fluctuations in the value of the dollar have had implications for all major traded goods this paper focuses on the effects of changes in the value of the dollar on primary commodity prices and possible interactions between ldc indebtedness and these effects a rise fall in the value of the dollar must be expected to result in a fall rise in dollar commodity prices ridler and yandle i972 proposed a simple comparative static single commodity model to analyse the effects of exchange rate changes on the price of an individual primary commodity they showed that the commodity price change would be given by the change in an appropriately weighted exchange rate index write the price of commodityj as

understanding the empirical literature on purchasing power parity the post bretton woods era abstract this paper argues that the empirical failure of statistical tests of ppp in post bretton woods data is largely due to the low power of the tests employed this result is demonstrated using monte carlo experiments on the size and power of different testing procedures a new procedure based on horvath and watson econometric theory 11 pp 984 1014 1995 has greater power than previous approaches using the horvath watson procedure we find moderate evidence in favor of ppp in the post bretton woods era

the residential demand for electricity in australia an application of the bounds testing approach to cointegration this paper reports estimates of the long and short run elasticities of residential demand for electricity in australia using the bounds testing procedure to cointegration within an autoregressive distributive lag framework in the long run we find that income and own price are the most important determinants of residential electricity demand while temperature is significant some of the time and gas prices are insignificant our estimates of long run income elasticity and price elasticity of demand are consistent with previous studies although they are towards the lower end of existing estimates as expected the short run elasticities are much smaller than the long run elasticities and the coefficients on the error correction coefficients are small consistent with the fact that in the short run energy appliances are fixed

hyperinflation the exchange rate and endogenous money post world war i germany revisited abstract we re examine the interaction of domestic and external factors in the german hyperinflation by extending frenkel s monetary model of the exchange rate to incorporate 1 endogeneity of the money supply with respect to government debt expected inflation and money wages 2 the direct impact of exchange rate depreciation on the domestic price level and 3 endogenous wage determination four equation estimates support each extension of the monetary model it appears that government deficit finance the collapse of the exchange rate and the monetary transmission of the wage price spiral were all crucial contributors to the price explosion

auditing the producer price index micro evidence from prescription pharmaceutical preparations from january 1984 through december 1989 the bureau of labor statistics bls price index for prescription pharmaceuticals grew at 9 09 per year using bls type laspeyres index procedures with monthly price and quantity data on all prescription pharmaceuticals sold by four u s pharmaceutical manufacturers accounting for 24 of industry domestic sales we find that the four company index increases at 6 68 per year when we employ a divisia price index with smoothed weights incorporating new goods the index grows 6 03 per year why does the bls index grow 50 more rapidly than the divisia index that mystery is the focal point of our article