one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

energy consumption at business cycle horizons the case of the united states in this paper we propose a simple extension to a keynesian type macro model by augmenting it with energy consumption we show the relationship between energy consumption and output in a macroeconomic setting and ask the question do permanent shocks dominate changes in energy consumption and output at business cycle horizons for the united states to achieve the goal of this paper we undertake a variance decomposition analysis of shocks based on a common trend and common cycle framework within a vector error correction model our main finding is that permanent shocks explain the bulk of the variations in energy consumption and output at business cycle horizons for the united states

does money matter in canada evidence from a vector error correction model this paper investigates the statistical properties of a set of canadian and u s economic time series and uses the data to address the question of the importance of monetary variables in canadian business cycle fluctuations the individual time series are found to contain unit roots but the data reveal the existence of several economically meaningful cointegrating vectors a multivariate vector error correction model is estimated and canadian velocity which appears as an error correction term is significant in the canadian output equation this supports the contention that monetary variables have predictive content for real output copyright 1989 by mit press

uncovering the common risk free rate in the european monetary union summary we introduce longitudinal factor analysis lfa to extract the common risk free crf rate from a sample of sovereign bonds of countries in a monetary union since lfa exploits the typically very large longitudinal dimension of bond data it performs better than traditional factor analysis methods that rely on the much smaller cross sectional dimension european sovereign bond yields for the period 2006 2011 are decomposed into a crf rate a default risk premium and a liquidity risk premium our empirical findings suggest that investors chase both credit quality and liquidity and that they price double default risk on credit default swaps copyright 2013 john wiley sons ltd

the canadian u s exchange rate evidence from a vector autoregression a vector autoregression is used to elicit the empirical facts co ncerning exchange rate movements the author finds 1 the exchange rate relati ve price levels and trade balances are closely related 2 most other lagged v ariables have no perceptible influence in theexchange rate equation 3 exchan ge rate innovations are negativelycorrelated with innovations in output and pri ces positively with innovations in the balance of trade and almost not at all with innovations in money and 4 impulses in money trade balances and govern ment spending are followed by opposing future movements in theexchange rate and the price level taken as a whole the evidence suggests that exchange rate cha nges may be associated with real rather than monetary shocks copyright 1986 by mit press

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

sources of fluctuations in relative prices evidence from high inflation countries casual analysis of six high inflation episodes indicates a strong positive relationship between movements in the relative price ratio measured by wpi cpi and the inflation rate the authors estimate a vector autoregression model in which relative price movements are driven by several fundamental disturbances fiscal monetary output and exchange rate identified using only long run restrictions based on a general equilibrium optimizing model analysis of the endogenous response of relative price changes to these disturbances suggests that output and monetary shocks are the most important driving forces although fiscal and exchange rate shocks are also influential in explaining relative price movements in some countries copyright 1993 by mit press

liquidity maturity and the yields on u s treasury securities the efrect8 of aaaet liquidity on expected retuma for ts with infinite maturities toc ka are eumined for bonda treuury notes and bills with matched maturities of lellll than 6 months the yield to maturity ill higher on notes which have lower liquidity the yield di1ferential between notes and billa is a decreuing and convex function of the time to maturity the results provide a robult confirmation of the liquidity effect in auet pricing this paper studies empirically the effects of the liquidity of capital assets on their prices amihud and mendelson 1986 1989 proposed that liquidity affects asset prices because investors require a compensation for bearing transaction costs transaction costs paid whenever the asset is traded form a sequence of cash outflows the discounted value of this cost stream proxies for the value 1088 due to illiquidity which lowers the asset s value for any given cash flow that the asset generates 1 as a result the return on assets should be an increasing function of their illiquidity other things equal for stocks the illiquidity effect is expected to be strong because their transaction cost sequence is infinite amihud and mendelson 1986 1989 demonstrated that common stocks with lower liquidity yielded significantly higher average returns after controlling for risk and for other factors these results on the importance of liquidity in the pricing of stocks raise additional questions i does the liquidity effect depend on the specific controls used by amihud and mendelson 1986 1989 1 ii does illiquidity have a similarly strong effect on the pricing of bonds whose maturities are finite and iii if liquidity affects bond yields how is this effect related to the bond s time to maturity

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

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

the effects of additive outliers on tests for unit roots and cointegration this article discusses the properties of the univariate dickey fuller test and the johansen test for the cointegrating rank when there exist additive outlying observations in the time series we provide analytical as well as numerical evidence that additive outliers may produce spurious stationary hence the dickey fuller test will reject a unit root too frequently and the johansen test will indicate too many cointegrating vectors the results easily generalize to models with temporary change outliers through an empirical example we discuss how additive and temporary change outliers can be detected in practice and we show how dummy variables can be used to remove the influence of such extreme observations

the uncertain trend in u s gdp abstract several recent papers conclude that gdp is trend stationary implying that all shocks are transitory we re examine the evidence in light of test size distortion due to data based lag selection and departures from the maintained hypothesis of temporal homogeneity and find both effects trigger false rejections of the unit root hypothesis when it is true and signal the presence of permanent shifts in trend that did not occur trend stationarity is not supported by the more homogeneous post war data but if imposed implies cycles of implausible duration and pattern 1997 output was 8 below trend

sovereign spreads in the eurozone which prospects for a eurobond in this paper we provide new evidence on the determinants of sovereign yield spreads and market sentiment effects in the eurozone in order to evaluate the rationale for a common eurobond jointly guaranteed by eurozone member states we find that default risk is the main driver of yield spreads suggesting small gains from greater liquidity fiscal fundamentals matter in the pricing of default risk but only as they interact with other countries yield spreads that is with the global risk that the market perceives more importantly the impact of this global risk variable is not constant over time a clear sign of contagion driven by shifts in market sentiment this evidence points to a discontinuity in the disciplinary role of financial markets if markets can stay irrational longer than a country can stay solvent then the role of yield spreads on national bonds as a fiscal discipline device is considerably weakened and issuing eurobonds can be economically justified carlo favero and alessandro missale

sources of business cycles in europe 1960 1988 evidence from france germany and the united kingdom abstract this paper investigates the sources of macroeconomic fluctuations in france germany and the united kingdom since 1960 aggregate demand and aggregate supply shocks are identified by assuming that in the long run output and employment are only affected by aggregate supply innovations the empirical results show that aggregate demand shocks bear significant responsibility for business cycles providing evidence against strong versions of equilibrium business cycle models however aggregate supply shocks are also found to be important for short run fluctuations

the long term relationships among china s energy consumption sources and adjustments to its renewable energy policy abstract to reduce its consumption of coal and oil in its primary energy consumption china promotes the development of renewable energy resources i have analysed the long term relationship among china s primary energy consumption sources changes in coal consumption lead those in the consumption of other energy sources in the long term coal and oil fuels substitute for each other equally the long term elasticities of china s coal consumption relative to its hydroelectricity consumption were greater than one and nearly equal during the two sample periods therefore increased hydroelectricity consumption did not imply a reduction in coal consumption china holds abundant hydroelectricity wind and solar energy potential china must prevent an excessive escalation of its economy and resultant energy demand to realise a meaningful substitution of coal with hydroelectricity moreover china must develop and use wind and solar energy sources natural gas can be a good substitute for coal given its moderate price growth and affordable price levels

fertility choice and economic growth theory and evidence this proposed theoretical model is based on new models of barro and becker and becker murphy and tamura and explains the interaction of family decisions about fertility and the macroeconomy in a growth situation the proposed model captures a dynamic interaction between labor leisure and fertility choice and a structural fertility preference shock endogenous factor are consumption labor leisure and fertility while exogenous factors are production and utility parameters the aim was to develop a general equilibrium model which expresses short and long term dynamics to test the impact of economic disturbances on fertility and to explain the us baby boom and subsequent fertility patterns savings in capital accumulation and in labor supply were expected to have ambiguous effects while improved productivity was expected to increase steady state consumption the methodology a structural vector auto regression var model was developed by blanchard and quah and ihmed ickes wang and yoo structural impacts include disturbances in employment fertility theoretical preference shift and output long term restrictions are based on theory rather than on ad hoc causal orderings sims method or current responses bernanke method the structural var model is estimated using the logged differences of labor fertility rate and output the empirical results are based on analysis of us data 1949 88 on fertility weekly hours worked and real gross national product the model revealed that fertility choice should not be considered exogenous to the labor market or to economic growth variance of the forecast error for the fertility rate was significantly explained by employment shocks the effect was reduced fertility and increased labor force effort output responses to fertility and technology shocks were similar to those reported by shapiro and watson in the variance decomposition analysis output shocks explained about 33 of output variance fertility shocks explained about 33 of labor growth and 25 of output growth after the first year with a lag of one year about 37 of fertility variance was explained by employment shocks concluding remarks underscore the importance of knowing which shock initiated the motion and causal ordering

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

macroeconometric modelling and pakistan s economy a vector autoregression approach abstract recent applications of the vector autoregression var technique pioneered by sims litterman and doan has become popular in macroeconomic modelling particularly when knowledge about true structural relations is absent this study represents the first attempt to apply such a technique to pakistani data for ten key macroeconomic variables unlike some of the earlier studies on pakistan s economy our empirical results are intuitive and consistent with the predictions of the standard new neoclassical model more importantly based on these results perhaps one may also shed light on some of the dominant recurring macroeconomic issues of pakistan s economy

shifting trends segmented trends and infrequent permanent shocks abstract a stochastic trend model is considered in which permanent shocks occur infrequently and randomly we show that this model is observationally equivalent to shifting segmented deterministic trend models moreover we show that standard full sample time series methods are incapable of distinguishing between small frequent permanent shocks and large infrequent permanent shocks an outlier search however reveals substantial evidence of large infrequent shocks to the gnp deflator and that these shocks account for most of the persistence in the gnp deflator for real gnp evidence of infrequent permanent shocks is weaker

how does liquidity affect government bond yields the paper explores the determinants of yield differentials between sovereign bonds using euro area data there is a common trend in yield differentials which is correlated with a measure of aggregate risk in contrast liquidity differentials display sizeable heterogeneity and no common factor we propose a simple model with endogenous liquidity demand where a bond s liquidity premium depends both on its transaction cost and on investment opportunities the model predicts that yield differentials should increase in both liquidity and risk with an interaction term of the opposite sign testing these predictions on daily data we find that the aggregate risk factor is consistently priced liquidity differentials are priced for a subset of countries and their interaction with the risk factor is in line with the model s prediction and crucial to detect their effect

consequences of hodrick prescott filtering for parameter estimation in a structural model of inventory behaviour much work in macroeconomics relies on detrending a time series prior to analysis a popular method of detrending has been the hodrick prescott hp filter this filter has been widely applied in th

are us macroeconomic series difference stationary or trend break stationary this article tests for the presence of a unit root in all time series included in the extended nelson plosser data set using the statistics devised by zivot and andrews perron and murray and zivot it specifies the mixed model characterization of the trend break stationary alternative that allows for a simultaneous break in both the intercept and slope of the trend function it rejects the unit root null hypothesis for real gnp nominal gnp real per capita gnp industrial production employment gnp deflator nominal wages interest rate and common stock prices use of appropriate critical values to assess the significance of the trend function coefficients reveals that the slope break should be included in real gnp nominal gnp real per capita gnp nominal wages interest rate and common stock prices the results indicate that there is less evidence against the unit root hypothesis with the extended nelson plosser data compared to the original nelson plosser data

real convergence in some central and eastern european countries this article examines the real convergence hypothesis in some central and east european countries both towards the german and the us economies by means of using time series techniques during the period 1950 to 2003 no evidence is found of real convergence for the whole period however when one allows for structural breaks evidence is found of a catch up process during the 1990s to 2003 period for poland the czech republic and hungary towards germany and only for poland towards the us economy

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

trends and random walks in macroeconomic time series a re examination in their 1982 article c r nelson and c i plosser provided evidence supporting the existence of an autoregressive unit root in a variety of macroeconomic time series the author reexamines their evidence using small sample distributions for various unit root test statistics these distributions are calculated from specific null and alternative models including median unbiased models that correct for ols coefficient bias estimated from the data contrary to earlier assertions the null and alternative models of many macroeconomic series provide very different characterizations of persistence but cannot be distinguished with unit root tests copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

money growth volatility and the macroeconomy this study analyzes the effects of variability in money growth on the macroeconomy for the period 1961 1 1984 4 within the context of a vector autoregressive model that contains variables typically included in a small macro model variance decompositions and historical decompositions are used to assess the impact of money growth variability the variance decompositions suggest substantial effects of money growth variability on the long term interest rate output and the price level historical decompositions for 1979 4 1984 4 suggest substantial effects of money growth variability on the interest rate and output but smaller effects on the price level are found copyright 1988 by ohio state university press

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period