intrinsic bubbles the case of stock prices several puzzling aspects of the behavior of united states stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends the authors call bubbles of this type intrinsic bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors intrinsic bubbles provide a more plausible empirical account of deviations from present value pricing than do the traditional examples of rational bubbles their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods copyright 1991 by american economic association

spectrum auction designs and revenue variations this study examines a sample of 93 national 3g spectrum auctions for the period 2000 2011 to identify the sources of substantial revenue variations an implied reduced form econometric model that recognises the censored nature of the sample relates per capita winning bid per mhz per million populations values to regulator determined auction design characteristics auction competitiveness mobile wireless market conditions and spectrum package attributes identified from tender documents the analysis reveals that among other factors all auction design characteristics independently impact on realized 3g spectrum auction revenues

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

is international diversification really beneficial abstract previous research claims that low constant correlations among international stock indices create substantial risk reduction from diversification we contend that only using constant correlations is too simplistic an approach we examine international diversification by 1 using conditional correlations 2 evaluating tail risk including the effect of skewness and kurtosis and 3 examining the possible tradeoffs of standard deviation with correlation skewness and kurtosis we show that conclusions concerning diversification based solely on constant correlations across markets can be misleading since the diversification benefits are time varying are affected by non normality and depend on the benchmark country employed finally tradeoffs do exist between standard deviation and the other risk factors

market integration and price convergence in the european union abstract the implementation of international treaties in the european union was expected to promote integration of consumer markets using economist intelligence unit worldwide cost of living survey data i analyze the convergence of prices for a range of traded goods and find that large price differences remain across europe using high income non euro european countries as a control group i test the effect of the euro and the single european act on the convergence of prices within the european union using a difference in difference estimation strategy i find that the single european act rather than the euro reduced price differences and promoted market integration distinguishing between the two stages of the euro implementation shows increasing price divergence as a result of the common currency

getting ppp right identifying mean reverting real exchange rates in panels abstract recent advances in testing for the validity of purchasing power parity ppp focus on the time series properties of real exchange rates in panel frameworks one weakness of such tests however is that they fail to inform the researcher as to which cross section units are stationary as a consequence a reservation for ppp analyses based on such tests is that a small number of real exchange rates in a given panel may drive the results in this paper we examine the ppp hypothesis focusing on the stationarity of the real exchange rates in up to 25 oecd countries we introduce a methodology that when applied to a set of established panel unit root tests allows the identification of the real exchange rates that are stationary our results reveal evidence of mean reversion that is significantly stronger as compared to that obtained by the existing literature strengthening the case for ppp

combining buy in penalties with commissions at auction houses most auction sellers consign property to auction houses rather than holding the auction themselves in addition to charging sellers a commission on property that sells in the auction many auction houses also specify buy in penalties in auction contracts this is an amount the seller must pay the auction house if the property fails to sell at auction an important managerial question for auction houses is whether and when buy in penalties can increase revenues of the auction house seller or both and what combinations of commission and buy in penalty to use we show that auctions which combine buy in penalties with lower commissions pareto dominate auctions that use only commissions this strategy motivates the seller to set a lower reserve which creates a surplus in auction revenues that can go to one or both parties this strategy is pareto dominant even if the auction house and the seller are uncertain about the number of bidders at the auction or the auction house is uncertain about the seller s own valuation for the property at the time the buy in penalty commission and reserve are contractually set we also discuss the incentive issues raised by this strategy

the development of nominal wage rigidity in the late 19th century wage price and output indexes suitable for comparing cyclical movements across decades show a decrease in nominal wage flexibility the change in wage inflation associated with output fluctuations after the 1880s following an increase in strike frequency linked to the spread of large scale manufacturing cross sectional data show that firms in industries experiencing more strikes in the 1880s were less likely to cut nominal wages in the depression of 1893 this and other evidence suggests that the nineteenth century decrease in wage flexibility was caused by an increase in workers bargaining power in the absence of binding wage contracts copyright 1993 by american economic association

a model of u k emigration 1870 1913 this paper develops a simple time series model of emigration and applies it to data for emigration from the united kingdom 1870 1913 the model is derived from a macroeconomic analysis of the migration decision and provides a specific functional form and dynamic structure it encompasses and explains many of the empirical findings of earlier research on the determinants of emigration over this historical period the results support the model strongly in most respects both wage rates and employment rates in the sending and in the receiving countries influenced fluctuations in emigration the short run fluctuations were driven largely by variations in employment rates while the long run level of emigration was determined largely by the relative wage

living and dying with hard pegs the rise and fall of argentina s currency board the rise and fall of argentina s currency board shows the extent to which the advantages of hard pegs have been overstated the currency board did provide nominal stability and boosted financial intermediation at the cost of endogenous financial dollarization but did not foster monetary or fiscal discipline the failure to adequately address the currency growth debt trap into which argentina fell at the end of the 1990s precipitated a run on the currency and the banks followed by the abandonment of the currency board and a sovereign debt default the crisis can be best interpreted as a bad outcome of a high stakes strategy to overcome a weak currency problem to increase the credibility of the hard peg the government raised its exit costs which deepened the crisis once exit could no longer be avoided but some alternative exit strategies would have been less destructive than the one adopted

spillover effects of germany s final demand on southern europe we use data from the world input output database to fit a closed multiregional input output model in order to estimate the size of spillover effects of germany s final demand on gdp employment and the trade balance in southern european countries we find that spillover effects are rather small germany alone will hardly make a significant contribution to the external adjustment process in the european south

models of currency crises with self fulfilling features the discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency market equilibria after describing an illustrative model in which high unemployment may cause an exchange rate crisis with self fulfilling features the paper reviews some other self reinforcing mechanisms recent econometric evidence seems consistent with the practical importance of these mechanisms

bidding frenzy speed of competitor reaction and willingness to pay in auctions this research examines how the intensity of the dynamic competitive interaction with other bidders in ascending auctions influences consumers willingness to pay wtp for auctioned products it focuses on one important aspect of this interaction the speed of competitor reaction the key hypothesis is that having one s own bids reciprocated by competing bidders more quickly increases one s wtp in an auction evidence from five experiments demonstrates this effect and pinpoints the essential aspects of the psychological mechanism that underlies it in particular the effect of speed of competitor reaction on bidding behavior 1 is serially mediated by the perception that the auction is more intensely competitive and by a greater desire to win 2 is distinct from the effects of time pressure and of the auction s duration or overall rate of progression 3 is not driven by inferences about the auctioned product s market value 4 is not qualified by the number of competing bidders nor due to any inferences about the latter and 5 hinges on direct competitive interaction with other human bidders

when credit bites back using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle relative to typical recessions financial crisis recessions are costlier and more credit intensive expansions tend to be followed by deeper recessions in financial crises or otherwise and slower recoveries we use local projection methods to condition on a broad set of macro economic controls to study how past credit accumulation impacts key macro economic variables such as output investment lending interest rates and inflation the facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle

when rational sellers face nonrational buyers evidence from herding on ebay people often observe others decisions before deciding themselves using ebay data for dvd auctions we explore the consequences of neglecting nonsalient information when making such inferences we show that bidders herd into auctions with more existing bids even if these are a signal of no longer available lower starting prices rather than of higher quality bidders bidding a given dollar amount are less likely to win low starting price auctions and pay more for them when they do win experienced bidders are less likely to bid on low starting price auctions remarkably the seller side of the market is in equilibrium because expected revenues are nearly identical for high and low starting prices

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

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

nonstandard bidder behavior in real world auctions empirical work on auctions has found that bidders deviate from standard behavior in important ways we investigate a range of these behaviors including nonrational herding auction fever quasi endowment effect and escalation of commitment our innovations are to more completely control for unobservables by using new data from a field experiment on ebay and by accounting for censoring of bids below the starting price consistent with standard auction theory and in contrast to the predictions of the nonstandard behaviors we find that auction starting price has no effect on bidder willingness to pay in a private values setting we conclude that there is little evidence that these nonstandard behaviors are important in the field

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

hot money in bank credit flows to emerging markets during the banking globalization era this paper investigates the relative importance of hot money in bank credit and portfolio flows from the us to 18 emerging markets over the period 1988 2012 we deploy state space models a la kalman filter to identify the unobserved hot money as the temporary component of each type of flow the analysis reveals that the importance of hot money relative to the permanent component in bank credit flows has significantly increased during the 2000s relative to the 1990s this finding is robust to controlling for the influence of push and pull factors in the two unobserved components the evidence supports indirectly the view that global banks have played an important role in the transmission of the global financial crisis to emerging markets and endorses the use of regulations to manage international capital flows

a statistical model of speculative bubbles with applications to the stock markets of the united states japan and china it is common knowledge that the more prices deviate from fundamentals the more likely it is for prices to reverse taking this into account we propose a simple statistical model to identify speculative bubbles in financial markets through the estimates of the time varying parameters including transition probabilities we can identify when and how newly born bubbles grow and burst over time the model can be estimated by recursive computations which require a huge storage capacity for standard computers for this reason we introduce an approximation in the computation maintaining the recursive nature of our estimation technique we then apply this model to the stock markets of the united states japan and china estimate its parameters and the probabilities of a bubble crash and obtain several interesting results the time series data of the stock price bubble show an inherently non stationary development and the probability of a bubble crash indeed increases as the stock price becomes too high or too low

the cross price effect on willingness to pay estimates in open ended contingent valuation abstract previous literature has shown that potential buyers use a reference price or product to form their opinion about the value of a new product therefore the pricing decision is an interactive process we investigate the two generalizations of the cross price effect the neighborhood price effect and the asymmetric price effect on consumer willingness to pay wtp for multiple similar products in an open ended contingent valuation context results show that the cross price effect on wtp is prominent with the neighborhood price effect holding in contingent valuation no conclusions are reached about the asymmetric price effect

testing for rational bubbles in the presence of structural breaks evidence from nonstationary panels this paper presents new results on the rational bubbles hypothesis for a panel of 18 oecd countries using the model developed by campbell 2000 we provide an analysis of international data that exploits increased power deriving from the panel unit root and cointegration methodology together with the flexibility of allowing explicitly for multiple endogenous structural breaks in the individual series differently from the time series methodology the panel data approach allows for a global analysis of the financial crashes that are related to rational bubbles we find strong evidence in favor of bubbles phenomena

auctions with a buy price the case of reference dependent preferences abstract in an auction with a buy price the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price this paper develops a model of an auction with a buy price in which bidders use the auction s reserve price and buy price to formulate a reference price the model both explains why a revenue maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders reference price through the auction s reserve price and buy price than when she can affect the bidders reference price through the auction s reserve price only the comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction s buy price have no effect on bidding behavior

speculative bubbles in u k house prices some new evidence in this article we test the view widely held among both academics and practitioners that speculative bubbles have characterized the time series behavior of u k house prices in recent times we motivate our empirical analysis using a stylized overlapping generations model which generates a housing demand function of the form assumed by a large literature illustrating how rational bubbles may arise as a solution to the house price determination equation employing two recently developed econometric techniques specifically designed to test for rational bubbles we then provide empirical evidence for the existence of bubbles in u k house prices over the sample period 1983 2002 a widely held view among academics and practitioners is that the time series behavior of house prices of several major industrialized countries may have been characterized by explosive bubbles which are not present in the underlying fundamentals and which therefore may drive an explosive wedge between house prices and their fundamental determinants in particular with regard to the united kingdom a large empirical literature has studied the determinants of the two booms experienced by house prices in the early 1970s and late 1980s providing some tentative evidence in support of the view that speculation on expected future house prices might have been an important force driving actual house prices see inter alia hendry 1984 muellbauer and murphy 1997 renaud 1997 teraisvirta 1998 more recently concerns of an ongoing house price bubble in the united kingdom have been repeatedly raised by the press and policymakers these concerns are well summarized in the following quote it will be different this time those are the most dangerous words in investment and in economic policy the u k is yet again in an unbalanced expansion behind it lies explosive household

wage adjustment under low inflation evidence from u s history data from recent years indicate that employers are especially unlikely to cut the nominal wage rate paid for a job adjustments to real or relative wages that require absolute cuts in money wages are very rare relative to the frequency one might expect to observe based on distributions of wage changes that do not require money wage cuts erica l groshen and mark e schweitzer 1995 1997 david e lebow et al 1999 a worker who remains with the same employer from one year to the next is accordingly unlikely to report an absolute reduction in the nominal wage he receives david card and dean hyslop 1997 shulamit kahn 1997 joseph g altonji and paul j devereux 1999 the existence and causes of downward nominal wage rigidity have implications for macroeconomic outcomes and for practical issues in monetary policy presumably efficient operation of labor markets requires many downward adjustments of relative wages and occasional decreases in the overall wage level relative to product prices if the average rate of wage inflation were close to zero some of these relative or real wage adjustments would be blocked by a floor under current levels of nominal wage rates george a akerlof et al 1996 assert that downward nominal wage rigidity reflects fundamental preferences of workers and argue that it implies a central bank should target a rate of price inflation greater than zero because a target of zero inflation will impose permanent real costs on the economy p 2 the notion that downward nominal wage rigidity is a fundamental constraint so that inflation serves to grease the wheels of the labor market is controversial even among those who accept the possibility of nominal rigidities in general it has been argued that downward nominal wage rigidity as distinct from such phenomena as menu costs which would discourage adjustment of a wage in either direction david romer 1993 may be an artifact of an inflationary monetary regime and would disappear in the absence of persistent inflation nominal wage reductions would no longer be seen as unusual if the average nominal wage was not growing workers would not see them as unfair and firms would not shy away from imposing them robert j gordon 1996 p 62 see also n gregory mankiw 1996 william poole 1998 william b english 2000 to see whether downward nominal wage rigidity would exist in a noninflationary regime it may be useful to examine data from times and places where there was no persistent wage inflation for the united states at least that excludes data from years since the second world war throughout the postwar period price inflation or real wage growth has been sufficient to keep average wage inflation above zero before the second world war on the other hand long run trend rates of price inflation were often close to zero or negative robert b barsky 1987 if wage inflation was correspondingly low u s historical data may offer tests of the proposition that downward nominal wage rigidity exists even in noninflationary

equity and bond flows to latin america and asia the role of global and country factors abstract this paper investigates the factors motivating the large capital flows to a number of developing countries in recent years we use monthly us capital flows to nine latin american and nine asian countries to analyze the behavior of bond and equity flows employing a panel data approach we find that although global factors the drop in us interest rates and the slowdown in us industrial production are important in explaining capital inflows country specific developments are at least as important especially for asia we also find that equity flows are more sensitive than bond flows to global factors but that bond flows are generally more sensitive to a country s credit rating and secondary market debt price

contagion as a domino effect in global stock markets this paper shows that stock market contagion occurs as a domino effect where confined local crashes evolve into more widespread crashes using a novel framework based on ordered logit regressions we model the occurrence of local regional and global crashes as a function of their past occurrences and financial variables we find significant evidence that global crashes do not occur abruptly but are preceded by local and regional crashes besides this form of contagion interdependence shows up by the effect of interest rates bond returns and stock market volatility on crash probabilities when it comes to forecasting global crashes our model outperforms a binomial model for global crashes only

rational bubbles or persistent deviations from market fundamentals abstract tests for fractional integration in the s p 500 log dividend yield are conducted in order to test the proposition that exogenous shocks have permanent effects the presence of a unit root in the log dividend yield is consistent with rational bubbles in stock prices our findings based on tests for fractional integration yield robust rejections of the null hypothesis of rational bubbles the results strongly suggest that the log dividend yield is mean reverting

stability without a pact lessons from the european gold standard 1880 1914 stability pacts european lessons from the gold standard the gold standard was a system of fixed exchange rates that offered little opportunity for carrying out monetary policies short of suspending gold convertibility trade integration and capital mobility were very high it is worthwhile asking whether there are useful lessons to draw for emu from european experience during that period one clear lesson is that debts matter another basic finding is that the stability of the european gold standard depended on the underlying price trend deflation prior to 1895 resulted in rising public debt burdens which forced some countries to leave the system once gold was discovered and deflation gave way to inflation real interest service fell debts grew more slowly and a high degree of convergence allowed most countries to return to gold for emu this result implies that stability will hinge on the ecb s policy not being too restrictive other lessons concern the fragility of institutions in the face of deep public finance difficulties the risks for the single market of leaving out countries that have not fully converged and the existence of a virtuous cycle including low real interest rates fast growth and debt reduction marc flandreau jacques le cacheux and frederic zumer

selecting optimal selling format of a product in b2c online auctions with boundedly rational customers abstract the advancement of internet technology has enabled new formats for selling products in the b2c online auctions at present on the major online auction sites there exist three popular selling formats namely the posted price pure auction and buy price auction formats it is an important decision problem for a firm to select the most profitable format to sell its products through the internet the customer behavior is of course a crucial element of the decision process to the best of our knowledge most models available today assume that customers are perfectly rational to better understand the decision process in this paper we incorporate the concept of bounded rationality into consideration we first present a behavior choice function to characterize the behavior of the customers with bounded rationality then corresponding to each selling format we construct a revenue model based on the bounded rationality for analysis finally we conduct some elaborate computational experiments to investigate the performance of each revenue model for developing new managerial insights our computational results clearly demonstrate how the bounded rationality of customer behavior affects the choice of a preferable selling format for a b2c firm in an online auction

anchoring in payment evaluating a judgmental heuristic in field experimental settings abstractanchoring the biasing of estimates toward a previously considered value is a long standing and oft studied phenomenon in consumer research however most anchoring work has been in the lab and the results from field work have been mixed here the authors use real transactions from an empirically investigated and commercially employed pricing scheme pay what you want to better understand how anchors influence payments sixteen field studies n 21 997 and four hypothetical studies n 3 174 reveal four main points 1 although anchoring replicates both with and without financial consequences studies 1 2 the percentile rank gap between anchors in the distribution of payments is a much stronger predictor of anchoring emerging than merely the absolute gap between the anchors on a number line studies 3 5 2 low anchors influence payments more than high anchors studies 6a b 3 findings from the literature that should enhance anchoring effects anchor precision descriptive and inj

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

regional vulnerability the case of east asia in a case study of six east asian economies we use dynamic factor analysis to estimate a regional component of the exchange market pressure index empi as a measure of regional financial stress the extent to which this indicator is explained by regional economic and financial factors is interpreted as regional vulnerability to crisis we find that regional external liabilities and exuberance in domestic stock and credit markets as well as the us high yield spread were positively correlated with regional vulnerability individual country empis are also explained by regional factors with country specific factors and trade linkages playing little role

choice experiments are not conducted in a vacuum the effects of external price information on choice behavior abstract consumers carry a wealth of external knowledge and experience into a study that may affect choices in even the most well crafted experiment we derive a conceptual model showing how the level and variability of price perceptions outside the task at hand might affect choice behavior and we conduct an experiment to test the model by manipulating information provided to respondents in a way to alter the outside the experiment perceptions mixed logit error component models show that reference dependent models best describe the choice data and we find that consumer choice is significantly affected by the experiment manipulations the predictions of the model are borne out in the data as expected price sensitivity is generally higher for price changes above a price reference point than below also as predicted exogenously increasing external reference prices and exogenously reducing the variability in references prices both serve to increase the probability of making a purchase and reduce the probability of choosing none these results have important implications for the design and practice of choice experiments as they show that consumer choice is affected by perceptions of the level and variability of prices outside the experiment more generally the results highlight the need to understand the formation and distribution of reference prices when predicting consumer choice

stuck on gold real exchange rate volatility and the rise and fall of the gold standard 1875 1939 abstract did the gold standard diminish macroeconomic volatility supporters thought so critics thought not and theory offers ambiguous messages hard regimes like the gold standard limit monetary shocks by tying policymakers hands but exchange rate inflexibility compromises shock absorption in a world of real disturbances and nominal stickiness a model shows how lack of flexibility affects the transmission of terms of trade shocks evidence from the late nineteenth and early twentieth century exposes a dramatic change the classical gold standard did absorb shocks but the interwar gold standard did not supporting the view that the interwar gold standard was a poor regime choice

restructuring sovereign debt this paper provides new empirical evidence relevant to the debate over the desirability of reforms to the way that financial markets and the international community deal with sovereign debt crises in particular given the ongoing opposition of investors and some sovereigns to greater use of collective action clauses cacs in emerging market bonds we present new evidence on the way that financial markets have priced the use or non use of cacs

nominal wage stickiness and aggregate supply in the great depression building on earlier work by eichengreen and sachs we use data for 22 countries to study the role of wage stickiness in propagating the great depression recent research suggests that monetary shocks transmitted internationally by the gold standard were a major cause of the depression accordingly we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships we find that nominal wages adjusted quite slowly to falling prices and that the resulting increases in real wages depressed output these findings leave open the question of why wages were so inertial in the face of extreme labor market conditions

hot money accounting labels and the permanence of capital flows to developing countries an empirical investigation using maximum likelihood kalman filtering techniques and non parametric variance ratio statistics we gauge the relative importance of permanent and temporary components of capital flows to latin american and asian developing countries over the period 1988 1997 for the broad categories of flows in the capital account equity flows ef bond flows bf official flows of commercial bank credit bc and foreign direct investment fdi we find relatively low permanent components in ef bf and of while commercial bc flows appear to contain quite large permanent components and fdi flows are almost entirely permanent these results have a natural interpretation and clear policy implications

the effect of semantic cues on consumer perceptions of reference price ads this article examines the differential effects of two types of semantic cues 1 cues connoting that an advertised price discount exhibits low consistency over time and 2 cues connoting that an advertised discount is highly distinctive vis a vis competitors results suggest that for manipulations of external reference prices with offering price held constant semantic cues that connote high distinctiveness are more effective in influencing consumers price related evaluations when the external reference price is otherwise implausibly high than are semantic cues that connote low consistency for manipulations of offering prices with external reference price held constant however semantic cues connoting high distinctiveness exert more relative influence on price related cognitions when offering prices are high

consumer perceptions of comparative price advertisements the authors analyze the issue of comparative price advertising from a behavioral perspective because public policy recognizes that comparative pricing may lead to consumer misperceptions the auth

implementing the new fiscal policy activism to many observers the current recession provides compelling circumstances for renewed fiscal policy activism but the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis however the recent debate about possible fiscal policy interventions suggests that we are still relying on the approaches to discretionary policy used in past periods of policy activism it is not surprising that there have been few advances in discretionary policy design given the lack of favor such policy suffered over many years but if we are going to practice fiscal discretionary policy on a large scale then more attention to policy design is sorely needed this abstract was borrowed from another version of this item

trade and empire we employ a new database of over 21 000 bilateral trade observations from 1870 1913 to assess the contemporaneous effects of empire on trade our analysis shows that belonging to an empire roughly doubled trade relative to those countries that were not part of an empire the use of a common language the establishment of currency unions the monetisation of recently acquired colonies and the establishment of preferential trade agreements and customs unions help to account for the observed increase in trade associated with empire

fetters of gold and paper we describe in this essay why the gold standard and the euro are extreme forms of fixed exchange rates and how these policies had their most potent effects in the worst peaceful economic periods in modern times while we are lucky to have avoided another catastrophe like the great depression in 2008 9 mainly by virtue of policy makers aggressive use of monetary and fiscal stimuli the world economy is still experiencing many difficulties as in the great depression this second round of problems stems from the prevalence of fixed exchange rates fixed exchange rates facilitate business and communication in good times but intensify problems when times are bad

internal or external devaluation what does the ec consumer survey tell us about macroeconomic adjustment in the euro area this paper explores the dynamics of national inflation expectations within the euro area during the recent crisis using the european commission s consumer survey we find that the strong anchoring of area wide inflation expectations which is typically found in the literature does not extend to individual member states we also measure the effect of the crisis on national inflation expectations using sovereign bond spreads and find that increases in sovereign risk have a significant negative effect on inflation expectations this suggests that consumers expect their country to adjust through a process of internal devaluation in contrast we find no evidence that tensions in the sovereign bond markets increase national inflation expectations as one would be expect under an exit or breakup scenario

pitfalls in testing for explosive bubbles in asset prices a number of studies e g robert j shiller 1981 olivier j blanchard and mark watson 1982 kenneth d west 1988 have argued that dividend and stock price data are not consistent with the market fundamentals hypothesis in which prices are given by the present discounted values of expected dividends these results have often been construed as evidence for the existence of bubbles or fads related arguments have been made with respect to gold bonds and foreign exchange a major problem with such arguments e g james hamilton and charles whiteman 1985 is that apparent evidence for bubbles can be reinterpreted in terms of market fundamentals that are unobserved by the researcher behzad t diba and herschel i grossman 1984 1988b and hamilton and whiteman 1985 have recommended the alternative strategy of testing for rational bubbles by investigating the stationarity properties of asset prices and observable fundamentals 1 in essence the argument for equities is that if stock prices are not more explosive than dividends then it can be concluded that rational bubbles are not present since they would generate an explosive component to stock prices 2 using unit root tests autocorrelation patterns and cointegration tests to implement this procedure diba and grossman 1988b p 529 state that the analysis supports the conclusion that stock prices do not contain explosive rational bubbles this paper shows that the above battery of tests is in fact unable to detect an important class of rational bubbles the point is demonstrated by constructing rational bubbles that appear to be stationary when unitroot tests are applied even though they are explosive in the relevant sense simulations show that when such bubbles are present stock prices will not appear to be more explosive than dividends on the basis of these tests even though the bubbles are substantial in magnitude and volatility the presence of rational bubbles in actual stock prices thus remains an open question

capital flows to developing countries long and short term determinants this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries copyright 1997 by oxford university press

buyer behavior under the best offer mechanism a theoretical model and empirical evidence from ebay motors abstract we use data from ebay best offer listings to analyze haggling over prices in transactions with one seller and a series of potential buyers for a limited supply product we characterize this transaction mechanism as a sequential move game to investigate buyer behavior our model suggests that a buyer s offer price increases in relations to the number of buyers who have previously made an offer on the item and the buy it now price chosen by the seller on the other hand the offer price decreases for items which have been listed on ebay for a longer period of time we empirically test our theoretical predictions using data on the sales of toyota camry cars on ebay motors the empirical evidence is consistent with our model

effects of seller supplied prices on buyers product evaluations reference prices in an internet auction context a field experiment investigated the impact of two external reference points under the seller s control on the final price of an auction when an item s seller specified a high external reference price a reserve price the final bid was greater than when the seller specified a low external reference price a minimum bid when the seller provided both high and low reference prices the reserve influenced the final bid more the low reference price led to a lower outcome compared to when the seller did not communicate any reference price the number of bidders influenced outcomes in the absence of seller supplied reference prices

promotional bundles and consumers price judgments when the best things in life are not free a series of experiments examined the amount that consumers were willing to pay for products bundled together in a promotion describing one of the disparate products in the bundle as free decreased the price consumers were willing to pay for each product when sold individually however a freebie offer did not influence the overall price for the bundle of disparate products a finding robust across two different settings and populations the differential effect of freebies is explained by varying judgment difficulty with the price being easier to arrive at for just a single product than for the combination consistent with this explanation factors that influence judgment difficulty the salience of the company s motive for offering the freebie and time pressure to make a judgment moderated the effects of a free offer on the amount consumers were willing to pay

sovereign risk credibility and the gold standard 1870 1913 versus 1925 31 author s obstfeld maurice taylor alan m abstract what determines sovereign risk we study the london bond market from the 1870s to the 1930s our findings support conventional wisdom concerning the low credibility of the interwar gold standard before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads in the 1920s however simply resuming prewar gold parities was insufficient to secure benefits countries that devalued before resumption were treated more favorably and markets scrutinized other signals public debt and british empire membership were important determinants of spreads after world war one but not before

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

the effects of relative and referent thinking on tourism product design abstract this study adopts three field experiments to analyze the influence of relative and referent thinking in online tourism auctions of bed and breakfast b b accommodations on consumer bidding behavior in study one the starting bid price equals or is lower than the reference price relative and referent thinking are applied to evaluate the products to see whether consumers prefer monetary or non monetary sales promotions and if they are willing to pay a higher end price in study two moderate extreme deviation appears between the start bidding price and reference price non monetary monetary sales promotions are favored and so higher end price would be paid in study three consumers tended to pay a higher end price due to the symbolic meaning of luxury b b for example greater wealth and social status and did not have a preference for monetary sales promotions the findings could help future researchers when designing tourist products for online auction strategies

gaucho banking redux argentina s economic crisis has strong similarities with previous crises stretching back to the nineteenth century a common thread runs through all these crises the interaction of a weak undisciplined or corruptible banking sector and some other group of conspirators from the public or private sector that hasten its collapse this pampean propensity for crony finance was dubbed gaucho banking more than one hundred years ago what happens when such a rotten structure interacts with a convertibility plan we compare the 1929 and 2001 crises the two instances where rigid convertibility plans failed and reach two main conclusions first a seemingly robust currency board can be devastated by an ill conceived approach to the problems of internal and external convertibility or to rephrase gresham bad inside money drives out good outside money second when modern economic orthodoxy collides with caudillo style institutional backwardness a desperate regime with its hands tied in both monetary and fiscal domains will be sorely tempted by a capital levy on the financial sector for as willie sutton said when asked why he robbed banks because that s where the money is

the falsification of four popular hypotheses about the asian crisis various claims have been made about the causes of the asian crisis and its spread here we use data on the behaviour of capital flows during the crisis to test the strong forms of four such hypotheses that portfolio investors and hedge funds played a dominant role in initiating and or spreading the crisis that moral hazard kept efficient markets from predicting the crisis and finally the common lender hypothesis of kaminsky and reinhart in the process we also test implications of the calvo mendoza model of rational investor ignorance all are falsified as monocausal explanations for example portfolio investments that could not have been subject to substantial moral hazard continued to flow into asia until very shortly before the crisis likewise banks were a much larger source of capital outflows during the crisis than were portfolio investors while falsified in their strongest forms several of these hypotheses in less strong forms should play a role in a more nuanced analysis it is necessary to move past simple single factor approaches in order to produce a more complete synthetic explanation of this episode

international house prices and macroeconomic fluctuations abstract the paper investigates linkages between general macroeconomic conditions and the housing market for the g 7 area among the key results of the paper we find that the us are an important source of global fluctuations not only for real activity nominal variables and stock prices but also for real housing prices secondly albeit distinct driving forces for real activity and financial factors can be pointed out sizeable global interactions are also evident in particular global supply side shocks are an important determinant of g 7 house prices fluctuations the linkage between real housing prices and macroeconomic developments is however bidirectional with investment showing in general a stronger reaction than consumption and output to housing price shocks implications for the real effects of the sub prime crisis are also explored

reserve prices in auctions as reference points we consider second price and first price auctions in the symmetric independentprivate values framework we modify the standard model by theassumption that the bidders have reference based utility where the reserveprice minimum bid plays the role of the reference point in contrast to theusual result the seller s optimal reserve price is increasing in the number ofbidders even if an individual bidder perceives only a very small utility losswhen he has to pay more than the reserve price the impact on the optimalreserve price can be strong when there are many bidders

the effect of plausible and exaggerated reference prices on consumer perceptions and price search this article examines whether advertisers regular price claims affect consumer perceptions and price search behavior experiments involving simulated shopping via personal computers indicate that compared to an ad with no reference price an ad with a plausible reference price raised subjects estimates of the advertiser s regular price and the perceived offer value an exaggerated reference price had generally the same positive effects on perception as a plausible reference price even for the more skeptical subjects further when subjects were presented with an advertised sale price above the lowest expected price the exaggerated reference price increased the percentage of subjects who purchased the product from the advertiser without checking other stores prices

moral hazard asset price bubbles capital flows and the east asian crisis the first tests we examine the view that the recent east asian crisis was precipitated by bursting asset price bubbles which had been fuelled by strong capital inflows that were largely the result of a moral hazard problem in financial intermediation and was exacerbated by a vicious cycle of asset price deflation and incipient and actual capital flight we find evidence of stock market bubbles in all east asian economies examined although not in australia we examine various categories of capital flows to these countries and find in particular relatively high reversible components in portfolio flows to east asian economies

cross of euros the eurozone currently confronts severe short run macroeconomic adjustment problems and a deficient institutional architecture that has to be reformed in the longer run europe s efforts at economic and monetary union are historically unprecedented however the gold standard provides lessons regarding what will and won t work macroeconomically and politically in the short run while us history provides long run lessons regarding appropriate institutional structures the latter also suggests that institutional reform only happens at times of great crisis and that it cannot be taken for granted the eurozone s leaders may therefore ultimately have to take heed of the lessons of history regarding currency union breakups