short selling and the price discovery process we show that stock prices are more accurate when short sellers are more active first in a large panel of nyse listed stocks intraday informational efficiency of prices improves with greater shorting flow second at monthly and annual horizons more shorting flow accelerates the incorporation of public information into prices third greater shorting flow reduces post earnings announcement drift for negative earnings surprises fourth short sellers change their trading around extreme return events in a way that aids price discovery and reduces divergence from fundamental values these results are robust to various econometric specifications and their magnitude is economically meaningful the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the determinants and persistence of canadian tariff rates an empirical investigation into the determinants and persistence of canadian tariff rates was conducted empirical results indicate that both u s tariff rates and real canadian gdp have causal influence on canadian tariff rates canadian real trade balance and political affiliation however were found not to influence canadian tariff rates evidence of persistence in canadian tariff rates is also presented the authors results indicate that when canadian tariff rates are increased for whatever reason the effect was prevalent in the fifth year even if the original stimulus had disappeared

the price of pollution a dual approach to valuing so2 allowances under the 1990 clean air act amendments a market based scheme to reduce u s sulfur dioxide emissions takes effect in 1995 indications are that participation in the market will be light and allowance prices will be lower than was once expected using an output distance function approach for wisconsin coal burning utility plants we estimate the shadow price of so2abatement which should approximate the allowance price the estimated average shadow price is above the prices at which the few observed allowance trades have occurred wisconsin s stringent state so2legislation may explain a portion of this divergence

tariff endogeneity evidence from 19th century europe abstract this paper tests an endogenous tariff model for six european countries from around the mid 19th century until the eve of world war 1 ww1 the tariff rate was generally cointegrated with real gnp real wages the price level and the external trade balance results from granger causality tests suggest that real gnp and the price level may be important endogenous determinants of tariff levels

black hole tariffs and endogenous policy theory political economy in general equilibrium preface acknowledgments list of results 1 a preview of the results 2 endogenous policy theory a diagrammatic approach part i endogenous policy theory with specific factors the theory of industry tariffs in partial equilibrium 3 the probabilistic voting model of political efficiency and powerless politicians 4 endogenous lobbying theory and the contribution specialization theorem 5 endogenous tariff theory 6 the power function model of endogenous industry lobbying 7 three simple tests of the stolper samuelson theorem 8 the invisible foot and the waste of nations lawyers as negative externalities part ii endogenous policy theory in general equilibrium a long run theory of national tariff levels 9 the 2 x 2 x 2 x 2 model of endogenous redistribution theory 10 a prisoner s dilemma theory of endogenous protection the leontief model 11 the compensation effect and the multiple equilibrium trap 12 increasing returns to politics and factor endowments economic development and brazilian vitality versus the indian disease 13 endogenous protection in the united states 1900 88 14 a cobb douglas model 15 black hole tariffs 16 the endowment effect cross national evidence on endogenous tariffs part ii postscript 17 the senile industry argument for protection 18 optimal obfuscation and the theory of the second worst the politically efficient policy mathematical appendices references author index subject index

re examining the consumption wealth relationship the role of model uncertainty this paper discusses the consumption wealth relationship we use data on consumption assets and labor income and a vector error correction framework this framework defines a set of models that differ in the number of co integrating vectors the form of deterministic components and lag length further models can be defined through parametric restrictions and in particular interest centers on a weak exogeneity restriction that says that the co integrating residuals do not affect consumption and income directly key results in previous work relate to the roles of permanent and transitory shocks in driving wealth and how consumption responds to these shocks we investigate the robustness of these results to model uncertainty and argue for the use of bayesian model averaging we find that there is a large degree of model uncertainty whether this uncertainty has important empirical implications depends on the researcher s attitude toward the theory used to motivate a co integrating relationship between consumption assets and income if we work with models consistent with this theory and impose the weak exogeneity restriction we find precisely estimated results that show that permanent shocks have only a small role in driving assets and that the predominant transitory shocks have little effect on consumption these findings are consistent with the previous literature however if we work with a broader set of models and let the data speak we find that the exact magnitude of the role of permanent shocks is hard to estimate precisely thus although some support exists for the view that their role is small we cannot rule out the possibility that they have a substantive role to play copyright c 2008 the ohio state university

combining results of different models the case of a levy on the dutch nitrogen surplus economic instruments such as levies are considered by the dutch government for reducing the harmful effects of the production and application of manure to analyse these levies a framework which makes it possible to combine and to choose among different types of research is developed the results are integrated along the line of the marginal abatement cost curve the problems related to integrating different types of research are taken into account the method developed allows every farmer to react to a levy differently a levy turns out to be more effective to reduce the nitrogen surplus on farm level in the pig fattening sector when compared to the pig breeding sector but even a levy of 2 guilders kg of nitrogen does not remove the total manure surplus in the pig sector and results in large profit losses further research is needed to underpin the empirical input required by the model

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

measuring the business cycle effects of permanent and transitory shocks in cointegrated time series abstract this paper proposes a statistical framework to evaluate the contribution of permanent and transitory shocks to the cyclical fluctuations of cointegrated variables an empirical application with us macroeconomic data reveals that transitory shocks are responsible for most of the variability at the business cycle frequencies

technology shocks structural breaks and the effects on the business cycle abstract it is shown that time series of us productivity and hours are apparently affected by a structural break in the late 60s moreover the importance of technology shocks over the business cycle has sharply decreased after the break

endogenous protection and retaliation between canada and the united states abstract endogenous protection theory and the theory of retaliation explain movements in tariffs differently using a varma model to test for the presence of granger causality we examine the interrelationships between tariffs and political pressure in the u s and canada

multivariate detrending under common trend restrictions implications for business cycle research abstract this paper outlines a methodology to detrend multiple time series under common trend restrictions the same filters used to construct the estimated trend in univariate exercises are shown to be appropriate in multivariate studies with a single common trend however to estimate the common trend in the multivariate case the filter is applied to a linear combination of series rather than to each series individually an empirical example and simulation exercises illustrate the implications of common trend detrending for measurement of business cycle properties

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

women and tariffs testing the gender gap hypothesis in a downs mayer political economy model i am convinced that at least two out of every three women have a grudge against the tariff and a grudge which is all too frequently increased to an indignation by the subtle suggestion on the part of importers and retailers that the tariff adds to the prices of the things they buy it is the women of the household who spend the husband s earnings she has to make them go around and anything which she is told adds to the prices of the things she buys naturally finds little excuse in her mind her attitude regardless of logic is a natural one she doesn t stop to consider the part the tariff may have played in making her husband s earnings what they are or in fact in making them possible at all nor does she stop to consider the relatively minor part the tariff plays in the retail prices of the things she buys she has never seen the tariff law and so she cannot know that with such commodities as coal coffee tea cocoa furs and shoes on the free list some explanation other than the tariff must account for the increased price of these things barbour 1928 1 the notion that women and men hold systematically differing political preferences that there is a gender gap is an old one in american politics even before the national enfranchisement of women in 1920 analysts and commentators attempted to identify issues on which such a gender gap would affect policy outcomes one such issue was the tariff with which we are concerned in this paper the above passage from the january 1928 issue of the tariff review serves as an excellent text for our sermon the logic of the argument is interesting american women prefer a low tariff because a high tariff raises the prices of the things they purchase our paper represents this hypothesis as an extension of the downs 1957 mayer 1984 political economy model and then presents a simple empirical test of the hypothesis we present our analysis in four major parts first we set the stage with a brief discussion of the political economy of the tariff during the period relevant to our analysis 18901934 this discussion provides motivation for the details of the more formal analysis in the following section next we develop the logic of the classic tariff system in the context of the downs mayer model the third section presents the testable proposition that the enfranchisement of women results in a lower equilibrium tariff as an implication of this model in the final section we present our methodology and results i the political economy of the classic tariff system it is not unreasonable to think of the period from the end of the civil war until 1934 as the era of classic tariff politics in the united states during this period the tariff was a significant partisan electoral issue republicans were the party of the protective tariff democrats were opposed to the tariff system while there was regional variation with respect to details at the level of specific products this characterization is quite accurate over the entire period with respect to overall commitment to the tariff system whether one studies political platforms or campaign speeches this split between republicans and democrats remains clear 2 furthermore there seems to be a fairly direct relationship between sectional economic interests and strength of partisan support the industrial northeast was the historical center of republicanism while the rural south and mid west was the center of democrat support another important aspect of the electoral politics during the era of classic tariff politics from the perspective of this paper was the essential one dimensionality of the tariff as an issue 3 that is partisan conflict revolved primarily around support for and opposition to the tariff system not the details of the tariff structure it is important to recall that during this period the tariff was one of the few instruments of industrial policy available to the national government and at least since the end of the civil war the tariff as an electoral issue was explicitly presented by both democrats and republicans as a system of support for american industry

testing the endogeneity of tariff policy in the u s abstract endogenous tariff theory suggests tariffs are created in response to self interested political pressure using a varma model covering the period 1890 1970 in the u s we show that macroeconomic variables which proxy political pressure granger cause the tariff

detrending and business cycle facts a user s guide this note argues that it is hardly the case that the profession is fully aware that the application of di erent filters to the data leads to di erent outcomes and that we have enough evidence to claim that these di erences are unimportant to evaluate the fit models to the data 1998 elsevier science b v all rights reserved jel classification b41 e32

multivariate estimates of the permanent components of gnp and stock prices the economic assumption that a present value relation holds between consumption and income and between stock prices and dividends or the statistical assumption that the consumption income ratio and the dividend price ratio are stationary imply that the permanent or random walk component in each series of a pair must be the same as the permanent component in the other series of a pair either assumption then allows us to estimate the variance of the permanent component of one series gnp stock prices from the variance of the permanent component of the other consumption dividends or from the covariance of the two series permanent components this paper presents such estimates and finds that the permanent components are about half those estimated by similar univariate methods a series of recent papers has examined the importance of a potential unit root to the behavior of real gnp campbell and mankiw 1986 1987 cochrane 1986 clark 1987 and stock prices fama and french 1986 lo and mai if by 0 the series is stationary the response can be any real number which is the innovation in these estimates instead of forcing us to ask the dichotomous question is there a unit root or not they allow us to continuously measure the importance of a potential unit root the actual estimating technique used in these papers varied somewhat cochrane poterba and summers and lo and mai if a series is stationary the variance of k differences will tend to a precursor to this paper appeared under the title spectral density estimates of unit roots we thank masanao aoki lam hansen masao ogaki and chris sims for helpful suggestions the computer programs and data used in this paper are available on request from the authors

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

cyclical fluctuations in strike durations canadian data on strikes between 1946 and 1983 are used to estimate linear regression models for the logarithm of completed duration a thorough investigation of the influence of the business cycle reveals strong support for the hypothesis that strike durations are countercyclical the cyclical effect is shown to be robust to both the choice of cyclical variable and the econometric specification and the magnitude of the effect is quite substantial experimentation with different representations of the cycle reveals that it is difficult to improve on a simple formulation involving a single continuous variable

on identifying permanent and transitory shocks in var models abstract a simple procedure to identify the groups of permanent and transitory shocks in a cointegrated var model is suggested and a method for inverting the cointegrated var is provided

nitrogen land substitution in corn production a reconciliation of aggregate and firm level evidence in this paper we seek to reconcile low farm level substitution elasticity between nitrogen fertilizer and land with larger industry level values for the corn sector this is accomplished with a micro simulation model which identifies twenty three heterogeneous groups of corn farmers based on survey data for indiana after controlling for soil quality slope crop rotation and natural nitrogen sources considerable variation in fertilizer application rates remains model simulations indicate that the estimated substitution elasticity at the state level 1 15 is consistent with very low farm level substitutability the difference is attributable to compositional changes in the wake of relative price shocks these compositional effects are potentially very important but they are ignored in most policy analyses

testing tariff endogeneity in japan a comparison of pre and post war periods abstract this paper tests an endogenous tariff model for japan 1890 1970 using a vector autoregression var i find that tariff changes are endogenous in the post war period rather than being designed to promote economic activity this suggests that tariffs respond to macroeconomic disturbances

evidence on features of a dsge business cycle model from bayesian model averaging the empirical support for features of a dynamic stochastic general equilibrium model with two technology shocks is evaluated using bayesian model averaging over vector autoregressions the model features include equilibria restrictions on long run responses a structural break of unknown date and a range of lags and deterministic processes we find support for a number of features implied by the economic model and the evidence suggests a break in the entire model structure around 1984 after which technology shocks appear to account for all stochastic trends business cycle volatility seems more due to investment specific technology shocks than neutral technology shocks

delegation ratification and u s trade policy why divided government causes lower tariffs recent research on executive legislative relations concludes that divided government causes higher tariffs and inhibits international cooperation i find that divided government leads to lower u s

on levies to reduce the nitrogen surplus the case of dutch pig farms pig farms in the netherlands pay a zero or low price for using the environment as a consequence the environment is overused the dutch government wants to reduce the emissions of nitrogen and phosphorus possible instruments are regulation and levies in this study a levy on feed and a levy on the nitrogen surplus are investigated by incorporating a bad output in the production model the model is estimated using panel data of dutch pig farms over the period 1975 1989 levies on nitrogen turn out to be more cost effective than levies on feed

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

on the credit to gdp gap and spurious medium term cycles abstract i provide empirical evidence suggesting that the credit to gdp gap is subject to spurious medium term cycles i e artificial boom bust cycles with a maximum duration of around 40 years

quantitative assessment of tariff endogeneity abstract the paper provides a quantitative assessment of the tariff endogeneity hypothesis in the macro context for the interwar and postwar u s economy there is an almost unidirectional causality running from unemployment and trade deficit to the average tariff rate during the interwar period while more interactive relationships hold in the postwar period compared with the interwar era there is a decline in the dependence of tariff on unemployment and trade deficit but the individual effect of unemployment on tariff has increased and that of trade deficit has decreased furthermore unanticipated shocks exert smaller and less persistent effects of tariff

regulating nitrogen pollution with risk averse farmers under hidden information and moral hazard we consider a model of pollution regulation for a risk averse farmer involving hidden information moral hazard and risk sharing the representative farmer faces a production risk originating from nitrogen leaching and privately observes the soil capacity in retaining nitrogen only after the regulation contract is signed the latter specifies a transfer and a nitrogen quota whose decomposition by the farmer among different production stages is unknown to the regulator we first characterize the optimal solution to the regulator s problem the sequential decision model is estimated on french crop production data and the results are used to calibrate and simulate the optimal contract

time series decomposition and measurement of business cycles trends and growth cycles abstract a study of business cycles does not require trend estimation and elimination but a study of growth cycles does major cyclical slowdowns and speedups deserve to be analyzed but the needed time series decomposition presents difficult problems mainly because trends and cycles influence each other we compare cyclical movements in levels deviations from trend and smoothed growth rates for both the quarterly real gdp and the monthly u s coincident index using the phase average trend pat then we compare alternative trend estimates deterministic and stochastic linear and nonlinear and the corresponding series of deviations from these trends we discuss how the resulting estimates differ for u s growth cycles in the post world war ii period the results of pat show great similarity to the results obtained with the hodrick prescott local linear trend band pass filtering methods

adjustment costs and pricing to market theory and evidence abstract this paper develops an adjustment cost model of pricing to market the model consists of a monopolist who supplies an identical nondurable good to two foreign markets it is shown that the degree of pricing to market increases with the relative importance of the transitory component in exchange rates customs data from 1978 through 1987 on u s and canadian imports of seven german commodities are used to estimate the model s parameters and test its over identifying restrictions

divided government and u s trade policy theory and evidence if different parties control the u s congress and white house the united states may maintain higher import protection than otherwise this proposition follows from a distributive politics model in which congress can choose to delegate trade policymaking to the president when the congressional majority party faces a president of the other party the former has an incentive to delegate to but to constrain the president by requiring congressional approval of trade proposals by up or down vote this constraint forces the president to provide higher protection in order to assemble a congressional majority evidence confirms that 1 the institutional constraints placed on the president s trade policymaking authority are strengthened in times of divided government and loosened under unified government and 2 u s trade policy was significantly more protectionist under divided than under unified government during the period 1949 90

analysis of us real gnp and unemployment interactions abstract instead of the more common unemployment rate the time series data of the level of us unemployment is used together with us real gnp and later also with the us money stock to identify a bivariate and trivariate structural model the model is then used to examine the interaction of the unemployment level with the real gnp in the business cycle frequencies the commonly perceived okun s law is shown to disappear in the trivariate model

a systematic framework for analyzing the dynamic effects of permanent and transitory shocks this paper proposes a systematic framework for analyzing the dynamic e ects of permanent and transitory shocks on a system of n economic variables we consider a two step orthogonolization on the residuals of a vecm with r cointegrating vectors the rst step separates the permanent from the transitory shocks and the second step isolates n r mutually uncorrelated permanent shocks and r transitory shocks the decomposition is computationally straightforward and entails only a minor modi cation to the choleski decomposition commonly used in the literature we then show how impulse response functions can be constructed to trace out the propagating mechanism of shocks distinguished by their degree of persistence in an empirical example the dynamic responses to the identi ed permanent shocks have properties similar to shocks to productivity the real interest rate and money growth even though no economic

import prices and the political economy of tariffs evidence from germany japan and the united states 1954 1994 abstract endogenous protection theory suggests that macroeconomic conditions affect tariffs through policy responses to political pressure however import prices affect average tariffs even in the absence of policy changes i examine the effects of import prices and macroeconomic conditions in postwar germany japan and the united states finding strong evidence for the effect of import prices but little evidence consistent with endogenous protection theory

unemployment and infant health times series evidence from the state of tennessee this is the first study that decomposes unemployment into its structural and cyclical components and investigates their impact on income distribution controlling for the influence of inflation increases in structural unemployment have a substantial

the prebisch singer hypothesis a reappraisal independent of stationarity hypotheses time series behaviour of the relative price of primary commodities raul prebisch i950 and hans singer i950 believed that the long term trend of primary commodity prices was negative the latter in an interesting discussion of the above quandary pp 482 3 viewed rises in primary commodity prices as purely temporary sources of surplus that offered short lived opportunities to increase industrial investment these opportunities were missed by private investors who instead increased primary sector investment in such circumstances because all private activity tends to be governed by the price