declining values and the afternoon effect evidence from art auctions we study the order of sale in art auctions the final bid relative to the auctioneer s estimated price declines throughout the course of an auction a theoretical model shows that in an auction ordered by declining valuation even in the presence of risk neutral strategic bidders the price received relative to the estimate for later items in an auction should be less than the price relative to the estimate for earlier items furthermore ordering heterogeneous items by value maximizes revenue for the auctioneer

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

how to set minimum acceptable bids with an application to real estate auctions in a general auction model with affiliated signals common components to valuations and endogenous entry we compute the equilibrium bidding strategies and outcomes and derive a lower bound on the optimal reserve price this lower bound can be computed using data on past auctions combined with information about the subsequent sales prices of unsold goods we illustrate how to compute the lower bound using data from real estate auctions

fiddling with value violins as an investment i introduction in this article we analyze the prices of violins using two different datasets one dataset includes 337 observations on repeat sales of the same violins at auction and at dealer sales starting in the mid nineteenth century and the other dataset includes over 2 500 observations on sales of individual violins at auction since 1980 the purpose of this article is to give some indication as to whether violins are a viable alternative investment that might be part of a diversified portfolio and to determine if some types of violins have had higher returns than other types of violins despite the growing discussion of alternative investments in the economics and finance literature the growing number of wealthy individuals funds and syndicates that invest in violins and the interest in violins as a collateralizable asset the only previous study of violin prices published in an academic journal was a study by ross and zondervan 1989 of repeat sales of 17 stradivaris this dearth of academic analysis is most likely due to the difficulty in gathering information on the sale prices of violins compared to real estate and even art the market for high end violins is thin and many violins are sold through dealers rather than auctions resulting in difficulty gathering the data to preview our results overall real returns for the dataset on repeat sales for the period 1850 2009 have been approximately 3 5 real returns to the overall portfolio of individual sales at auction since 1980 have also been about 3 3 not including transaction commissions the price path has been stable with a slightly negative correlation to stocks and bonds the overall returns mask differences in returns between different types of violins it is believed that better violins are sold through dealers rather than through auction houses indeed the real return on dealer sales for 1850 2008 was 4 32 and the real return to violins sold at auction for the same period was 2 86 since 1980 modern italian instruments sold at auction have increased steadily in price relative to old italian instruments sold at auction this article proceeds as follows the violin market is discussed in section ii and in section iii we discuss the data and our estimation methodology in section iv we present our regression results and in section v we interpret our regressions we conclude in section vi ii the market for violins a how the market works fiddles the term used by dealers and collectors to refer to even the finest violins are sold through both auction houses and dealers and also directly from one musician or collector to another the main sellers and buyers of these instruments other than dealers are musicians collectors often foundations and investors individual musicians have used various schemes to purchase a good instrument including borrowing from banks that specialize in loaning funds against musical instruments and assembling syndicates to raise money most collectors both private and institutional loan out their instruments to talented musicians the musician typically pays all insurance and maintenance costs but not a rental fee insurance costs range from about 0 5 to about 2 of the value of an instrument there are also buyers who are interested in purchasing violins primarily as an investment as part of a diversified portfolio these instruments are then also loaned out to musicians who pay insurance and maintenance violins are sold through both auction houses and dealers the relative size of the various markets is very difficult to gauge through conversations with dealers and analyzing our auction data we speculate that auction sales make up between 10 and 20 of the market one advantage of transacting through a dealer is that it is easier to borrow and try out the instrument though auction houses also accommodate a small number of potential buyers in this manner

updating the reserve price in common value auctions we consider a common value auction model with bidder participation determined jointly by nature and by bidder optimization in this framework an increase in the reserve price as two effects it deters marginal bidders and it deters bidders from becoming informed we then derive a test statistic for establishing when it is optimal to raise the reserve price this statistic is independent of the distribution of valuations we then apply the analysis to u s offshore oil sales and find evidence that the reserve price is dramatically too low this abstract was borrowed from another version of this item

measuring inflation expectations a survey data approach expectations of inflation can be important determinants of actual inflation because they influence the process of wage bargaining price setting speculative buying and financial investing decisions englander and stone 1989 a central bank given its primary objective of price stability therefore takes a natural interest in inflationary expectations of economic agents in fact as illustrated by the theoretical work of e g kydland and prescott 1977 and barro and gordon 1983 inflationary expectations of the public are an important factor determining the success of the central bank in achieving its policy goal measures of inflation expectations can be used for monetary policy purposes for example as information variables in the sense defiined by friedman 1993 or as intermediate targets in the so called direct inflation targeting strategy svensson 1996 fuhrer 1997

sealed bids sunk costs and the process of competition how do firms recover precontract costs for example suppose 10 firms compete in a sealed bid auction for the right to explore and develop an offshore oil field each spends 500 000 to estimate the value of the field and to prepare its bid suppose this investigation reveals that the tract is worth approximately 20 million if sunk costs do not matter competition dictates that the winner must bid 20 million but if the winner is to recover its prebid costs the maximum offer can be only 19 5 million furthermore long run industry equilibrium considerations suggest that the highest bid will be only 15 million 20 million minus the total bid preparation costs of 5 million if competition forces firms to charge marginal cost why do firms ever invest in resources which become sunk in some industries inframarginal rents can be used to recover these costs however the example above as well as many others involves an all or none deci

a reexamination of purchasing power parity a multicountry and multiperiod study abstract this paper re examines the purchasing power parity ppp theory in a multiple exchange rate world owing to a lack of precision in estimating the parameters many authors concluded that ppp did not hold very well in the 1970s using a time series cross sectional estimation procedure we are unable to reject the hypothesis that ppp holds in several currencies simultaneously in addition the parameters are precisely estimated this result follows from the estimation procedure which allows us to exploit the cross sectional variation in the data and the contemporaneous correlation in the deviations from ppp

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

the quantification of qualitative survey data a critical assessment abstract data obtained from business and consumer surveys are often used in forecasting models and in testing different expectation formation schemes their use however requires a previous step of transformation of the qualitative data into quantitative figures this paper contains a critical review of the different quantification methods highlighting the limits of their use in macroeconomic modelling

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

comparing optima do simplifying assumptions affect conclusions consider a family of maximization models in which the optimum trades off beneficial and costly effects then comparative statics derived under many kinds of simplifying assumptions about the benefits technology are also true for general convex and nonconvex technologies for example any comparative statics conclusion about investment by a risk averse decision maker under uncertainty that holds when expected returns are described by a general linear function also holds for an arbitrary nonlinear expected return function

direct measurement of popular price expectations expectations are an important determinant of economic behavior the analysis of economic expectations however has suffered from inadequate measurement throughout the literature expectations have been treated as unobservable and have therefore been measured only indirectly the object of this paper is to develop and test a direct measure of the expectations of inflation a particularly critical economic variable a direct measure of inflationary expectations is here taken to be one constructed from a sample survey in which individuals are asked to state their expectations explicitly the paper focuses on a popular forecast of the rate of change of consumer prices in the forthcoming year as calculated from responses to the survey of consumer finances scf this measure is presented in section i the scf and others like it have existed for some time but a few recent studies notwithstanding most economists continue to regard survey measures as inherently unreliable their principal criticism is that the opinions an individual expresses

is art market behaviour predictable abstract in this paper we look for relationships between art and financial markets through econometric methods the main results indicate that financial markets influence the art market with a lag of about one year which seems plausible due to the relative sizes of both markets the vector auto regressive v a r model shows that lagged financial variables help predicting art prices even if the lag does not allow for systematic profits

on pricing the priceless comments on the economics of the visual art market abstract behaviour in the arts is often related to pleasure and imagination however art objects paintings pieces of sculpture and others have been traded on markets for a long time more importantly the place attributed to an artist by contemporary aesthetic judgement more or less depends upon markets we consider here different questions about art objects as commodities markets and prices the returns to art including comments on the comparison of prices of paintings and stock market fluctuations

measuring returns on investments in collectibles this paper considers the question of how to measure and interpret the financial return to investing in collectibles we review various methodologies for creating priced indexes and then discuss studies that explicitly calculate a rate of return to some set of collectibles while most collectibles appear to yield positive real returns the majority embody more risk and yield lower financial returns than stocks other characteristics of collectibles prices such as covariance with other asset prices are also examined

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

uncertainty in currency mispricing abstractdeclaring a currency to be mispriced is fraught with uncertainties in this article these uncertainties are explicitly recognized in a model of pricing a homogeneous commodity around the world this allows for a common driver of prices due to a base currency effect and country specific factors that lead to departures from absolute ppp on account of income differences local taxes and charges etc this approach leads to estimates of currency mispricing whose significance can be tested in the usual way using big mac prices we show that the approach has advantages over the popular big mac index to currency valuation

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

economic insights from internet auctions this paper surveys recent studies of internet auctions four main areas of research are summarized first we survey several studies that document and attempt to explain the frequently observed sniping or last second bidding behavior in these auctions second we summarize several methods proposed to quantify the distortions caused by asymmetric information in these markets most notably due to the winner s curse third we explore research about the role of reputation mechanisms installed to help combat these distortions finally we discuss what internet auctions have to teach us about auction design

art as a wartime investment conspicuous consumption and discretion the financial underperformance of art as an investment is well documented in contrast to studies conducted on peace time periods this paper shows that the art market in occupied france during wwii significantly outperformed all alternative investments bonds equities as well as currencies exchanged on the black market other than gold this suggests that art may be a good hedge against low probability disasters the paper further demonstrates that motives to purchase art consumption and investment vary over time in his theoretical model mandel 2009 attributes art s low return to the utility derived from conspicuous consumption in occupied france during wwii conspicuous consumption was impossible for artworks deemed degenerate by the nazis the price evolution of degenerate versus non degenerate artworks confirms the importance of conspicuous consumption in artworks pricing eventually the paper defines the concept of discretion the ability to store a large amount of value in small and easily transportable goods during wartime illegal activities and the risk of being forced to flee the country increased the interest for discreet assets as shown by the better performance of small and thus discreet artworks in comparison to large ones

long term comovements in international markets for paintings we study steady state relationships between prices for paintings obtained by three groups of painters impressionist modern and contemporary european masters other minor european painters contemporary us painters at public auctions in new york london and paris between 1962 and 1991 the analysis is carried out by estimating vector autoregressive models using the recent techniques developed by johansen the results show that the various markets move closely together and are even in new york led by what happens to the group of european great masters whose prices are not influenced by other prices we also examine the relation between art and stock markets we find that there is no long run relation between these two assets though in the short run financial markets do influence art markets

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

the effect of answering practices on the relationship between cbi survey data and official data 1983 the effect of answering practices on the relationship between cbi survey data and official data applied economics vol 15 no 2 pp 213 224

selling online versus live a seller choosing between auctioning online and live faces a tradeoff lower transaction costs online against more rents left with the bidders we model this tradeoff and apply the theory to auctions of art the crucial parameter for whether the seller does better online than live is not the expected price but the valuation uncertainty

an international comparison of prices and exchange rates a new test of purchasing power parity abstract this paper introduces a new approach based on divisia index numbers to test ppp with both short run and long run data for all major currencies simultaneously the short run results indicate that the predictions of ppp do not hold up at all well on the other hand however the long run data are quite consistent with the ppp hypothesis the results also identify five years as a broad measure of the length of the long run insolar as ppp is concerned

currency fluctuations in the post bretton woods era the international monetary landscape that has emerged since the felling of bretton woods is characterized by a hybrid exchange rate system that lies somewhere between the textbook polar cases of a gold standard and a pure float this system has relatively flexible exchange rates between major countries active central bank intervention in the market for the major currencies and predominantly fixed exchange rates relative to the dollar or to some basket of currencies for less developed countries and newly industrializing nations the majority of research on currency markets since the early 1970s has focused on the characteristics of flexible exchange rates under this hybrid regime my thesis is that this research has been unsuccessful the proportion of monthly or quarterly exchange rate changes that current models can explain is essentially zero even after the fact forecasts that use actual values instead of forecasted values of the explanatory variables cannot explain major currency movements over the post bretton woods era this result is quite surprising since exchange rate changes would be entirely unpredictable only in very special cases of the theoretical models discussed as the discussion below will argue it is not a general implication of market efficiency that exchange rates follow a random walk process 1

a re assessment of the relationship between real exchange rates and real interest rates 1974 1990 abstract this paper uses cointegration techniques and error correction models to re examine the link between real exchange rates and real interest rate differentials the results show that real exchange rates and real interest rates are nonstationary however they are not cointegrated with each other on the other hand the dynamic models indicate that there might be a long run relationship between these variables but this cannot be verified the final conclusion is that there is little empirical evidence in support of a systematic relationship and this result is robust across exchange rates time periods and measures of expected inflation

russian voting and the initial economic shock of hyperinflation this paper addresses the issue of economicvoting in transitional democracies using data from the russianfederal elections it argues that the shock of inflation thatfollowed the fundamental economic reform has a lastinginfluence on voters specifically it shows that in russia where inflationary policy led to hyperinflation and thewidespread loss of personal savings the magnitude of savingslost at that time continues to explain a significant portionof the variation in the regional support for the communistparty in parliamentary and presidential elections

how auctions work for wine and art interview auctioneers and even to buy a little wine in the meantime i have also had the opportunity with john abowd 1988 to observe and collect data on the auction sale of impressionist and contemporary paintings this paper reports on some of the empirical regularities that i and others have observed in the actual operation of the auction markets for these items in view of the rich and diverse array of theoretical literature on auctions it seems high time economists began to spell out precisely what facts it is meant to explain 2

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

borders and big macs i measure the extent of international market segmentation using local national and international big mac prices i show that the bulk of time series price volatility observed across the united states arises between neighboring locations using these data i provide new estimates of border frictions for 14 countries i find that borders generally introduce only small price wedges far smaller than those observed across neighboring locations when expressing these wedges in terms of distance equivalents i find that border widths are small in relation to price variations observed across the united states this suggests that international markets are well integrated

how did japanese investments influence international art prices we test the luxury consumption hypothesis of ait sahalia parker and yogo 2004 using a unique international art price import export flow and stock market data set we find that the demand for art by japanese collectors is positively correlated with art prices and japanese stock prices this correlation is magnified during the bubble period of the japanese economy the mid 1980s to the early 1990s and gains even further strength for works of art typically favored by japanese collectors our results suggest that japanese investors or japanese asset markets indeed affect international art prices especially during the bubble period and its aftermath

art market inefficiency art is often used as an investment vehicle given the importance of market efficiency in finance we use a large auction based index to test whether the art market is weakly efficient evidence reveals that returns on artworks exhibit high positive auto correlation we attribute this result to price truncation resulting from unobservable reserve prices in auctions we conclude that the art market is not efficient mainly because price formation is opaque to outsiders who lack information on unsold artworks

a new approach to forecasting exchange rates abstract building on purchasing power parity theory this paper proposes a new approach to forecasting exchange rates using the big mac data from the economist magazine our approach is attractive in three aspects firstly it uses easily available big mac prices as input these prices avoid several potential problems associated with broad price indexes such as the consumer price index used in conventional ppp studies secondly this approach provides real time exchange rate forecasts at any forecast horizon these high frequency forecasts could be appealing to those who want up to date exchange rate forecasts finally as our forecasts are obtained through a simulation procedure estimation uncertainty is made explicit in our framework that provides the entire distribution of exchange rates not just a single point estimate using exchange rates of six major currencies to illustrate the approach we compare the big mac forecasts with those derived from a random walk and the cpi and find some support for our approach especially at longer term horizons

art as an investment the market for modern prints repeat sales of modern prints at auction are used to estimate a semiannual index of prices for the period 1977 92 as in other studies of art as an investment prints do not compare favorably to traditional financial assets there is substantial noise in auction prices but little or no support for the proposition that some artists command higher prices in certain countries or that masterpieces outperform the market one puzzle is the continuing tendency for prices realized at certain auction houses to exceed those realized at others notably at sotheby s relative to christie s in new york copyright 1993 by american economic association

the rate of return on investment in wine joyce p jacobsen is wine an investment alternative to stocks and bonds first we review prior studies regarding the pecuniary rate of return to wine and other alternatives to financial assets next we calculate the rate of return to holding red bordeaux wine from 1986 to 1996 using a repeat sale regression finally we contrast the financial performance of wine both on an aggregate basis and for various portfolios to that of other asset classes we conclude that wine does not yield greater returns than financial assets especially when the volatility of returns and transaction costs are taken into account jel d44 g12 c43 investments in art and other collectibles are generally deemed profitable but empirical examinations of the relative attractiveness of noncapital good tangible assets relative to financial instruments have shown that art and other collectibles are not sound investments from a financial point of view there is a large body of literature that calculates the rate of return on alternative asset classes and concludes with few exceptions that nonfinancial assets are not good financial investments however in the case of wine the evidence is mixed collectors often maintain that the pecuniary rate of return on investments in wine is comparable to or exceeds investments in stocks and bonds and economists have not reached a consensus vis a vis the relative attractiveness of wine in this article we consider 1 how investment grade wine compares to other alternative asset classes and 2 whether wine might be a viable investment alternative to stocks or bonds first we consider the results drawn from empirical investigations regarding the relative attractiveness of paintings and other collectibles as investments next we review prior econometric evidence regarding the pecuniary rate of return to wine finally we calculate the return on wine from 1986 to 1996 using a repeat sale regression and contrast wine s financial performance both for an aggregate portfolio and for selected submarkets to that of other asset classes i most investments in collectibles cannot be justified as purely monetary there is a virtual consensus in the economic literature of the arts that financial assets dominate less traditional tangible assets as investments because art and other collectibles embody a compensating differential in the form of a user benefit burton and jacobsen 1999 offer a survey of this literature that finds that most quantitative examinations of the markets for art and other collectibles have concluded that the high risk low return characteristics of noncapital good tangible assets effectively proscribe retaining them as financial investments a seminal study by baumol 1986 for example estimated the real annual rate of return on paintings over the period 1652 to 1961 to be only 0 55 frey and pommerehne 1989 who subsequently extended baumol s data set up through 1987 and expanded it by including sales from more countries also concluded that paintings were relatively unattractive investment instruments yielding only about 1 4 between 1635 and 1949 and 1 6 between 1950 and 1987 on an annual inflation adjusted basis more recent studies have only confirmed that investments in other forms of art and collectibles compare unfavorably to investments in traditional financial assets especially when the rate of return is risk adjusted 1 pesando 1993 for example constructed a price index of modem prints over 1977 to 1992 and estimated that the average real annual rate of return on an aggregate print portfolio was only 1 51 well below the concomitant real return on stocks moreover pesando noted that the risk as measured by the standard deviation of real returns associated with investing in prints was comparable to or even exceeded investments in stocks or long term bonds ii but what about wine

exchange rate misalignment and growth old and new econometric evidence several studies have tried to identify the relationship between growth and misaligned or overvalued currencies many works easterly 2001 and fajnzylber et alii 2002 find negative correlations between exchange rate misalignment and growth for a long list of developing countries since the seventies the more overvalued the currency the smaller the per capita growth rates even after controlling the regressions for several types of variables the studies cannot reject the statistical significance of overvalued exchange rates in explaining growth this paper presents new econometric evidence for the exchange rate levels and growth relation based on a panel data study for 58 developing countries from 1960 until 1999 using ppp deviation measures our main contribution here is to estimate growth regressions with a real exchange rate index that deals with changes in real gdp per capita levels we use a new overvaluation index that takes into account variations in real per capita incomes adjusting thus our exchange rate estimates for the so called balassa samuelson effect by correcting traditional real exchange rate annual estimates for gdp per capita increases we intend to control our whole series for appreciations due to productivity increases as many authors do for some specific years

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

a prism into the ppp puzzles the micro foundations of big mac real exchange rates we match big mac prices with prices of its ingredients as a unique prism to study real exchange rates rers this approach has several advantages first the levels of the big mac rer can be measured meaningfully second as the exact composition of a big mac is known the contributions of its tradable and non tradable components can be estimated relatively precisely third the dynamics of the rer can be studied in a setting free of several biases inherent in cpi based rers finally a large cross country dimension allows us to overturn the engel result on what drives rers in most economies the exchange rate is the single most important relative price one that potentially feeds back into a large range of transactions obstfeld and rogoff 2000

volatility of price indices for heterogenous goods with applications to the fine art market price indices for heterogeneous goods such as real estate or fine art constitute crucial information for institutional or private investors considering alternative investment decisions in times of financial markets turmoil classical meanvariance analysis of alternative investments has been hampered by the lack of a systematic treatment of volatility in these markets in this paper we propose a hedonic regression framework which explicitly defines an underlying stochastic process for the price index allowing to treat the volatility parameter as the object of interest the model can be estimated using maximum likelihood in combination with the kalman filter we derive theoretical properties of the volatility estimator and show that it outperforms the standard estimator we show that extensions to allow for time varying volatility are straightforward using a local likelihood approach in an application to a large data set of international blue chip artists we show that volatility of the art market although generally lower than that of financial markets has risen after the financial crisis of 2008 09 but sharply decreased during the recent debt crisis

auctions and the price of art the value of most important works of art is established by public auction either directly by an actual sale or indirectly by reference to other sales how the auction system works is thus a critical determinant of how the public s preferences are translated into the evaluation of artistic work the auction system is central in the determination of the incentives for artistic work and the efficiency of the auction system is a key determinant of the cost of creating and distributing works of art this paper contains a review of the burgeoning new research of the last decade that has been designed to shed light on how the art auction system actually works what it indicates about price formation and how well it performs we begin our discussion in section 2 with a short description of the mechanics of the auction system and then organize the remainder of our discussion around two major topics the first topic concerns how auction prices can be used to determine and compare overall price movements within the art market and other markets and the second topic concerns how the auction mechanism influences prices we

are art auction estimates biased this article considers whether presale auction estimates are unbiased predictors of price when no sales are considered utilizing a newly constructed sample of over 500 works by eight early twentieth century american artists unbiased presale auction estimates in predicting price while expected are generally not supported in previous work but these studies excepting one do not include no sales in the calculations in order to study the question we employ a standard approach that uses an inverse mills ratio arising from a sample selection probit to correct for selection bias we find that controlling for selection bias presale auction estimates appear to be biased downward and we offer possible reasons for this result

more on output expectations in manufacturing two misspecifications in a recent study of cbi survey data are corrected and the relationship between firms expectations of output change and their subsequent perception of the same change ex post and the utility of output expectations in forecasting are examined

vested interest and biased price estimates evidence from an auction market this study employs a new data set from art auctions to examine the relationship between auctioneer presale price estimates and the long term performance of artworks we find that the price estimates for expensive paintings have a consistent upward bias over a long period of 30 years high estimates at the time of purchase are associated with adverse subsequent abnormal returns moreover the estimation error for individual paintings tends to persist over time these results are consistent with the view that auction house price estimates are affected by agency problems and that

burgernomics the economics of the big mac standard abstract in the course of ppp research much of the debate over the validity has been over the choice of an appropriate basket for making purchasing power comparisons the different compositions of goods and services in these baskets across countries have resulted in arguments against their usefulness for ppp purposes this problem is augmented by the existence of productivity differentials in traded and non traded goods across countries therefore we consider the use of the big mac as the international monetary standard as being a more palatable alternative it is produced locally in over 80 countries around the world with only minor changes in recipe and thus has the flavour of the perfect universal commodity our results indicate that the big mac index is surprisingly accurate in tracking exchange rates over the long term which is consistent with previous ppp research findings we subsequently enhance our ppp comparisons by taking into account the productivity differentials between countries and excluding non traded goods from the big mac index to derive the no frills index

the world real interest rate stochastic index number perspectives abstract in a recent paper gagnon and unferth 1995 is there a real world interest rate j int money finance 14 845 855 test the hypothesis of real interest rate equality by regressing real interest rates for all major countries on dummy variables for each country and each period we show that this model can be interpreted as an application of the stochastic approach to index numbers this approach leads to estimates of and standard errors for the real rate for the world as a whole which have appealing index number interpretations and foundations we also extend gagnon and unferth s approach by weighting countries to recognise their differing importance in the world economy in terms of relative gdp and trade weighting does not lead to appreciable changes in the results however when the wpi which gives more prominence to goods entering into international trade is used as the deflator our results indicate that real rates are equalized internationally

the market value of rarity abstract most theories of demand assume that consumers value the characteristics of products but are unconcerned with how many other consumers also consume the product however several theories of demand argue that consumers can value the exclusivity of possessing a rare object we test this implication on a particular collectible rare coins our paper examines the case of coins of a given type and identical quality that have mintages in different quantities this allows us to exclude the common case in which rarity or price itself is an indicator of quality for our sample rarer coins command higher prices rarity in the form of original mintage more strongly influences the market price than does collectibility as represented by the rarest coins of each mint mark or year we also point out that here may be other goods such as automobiles for which rarity may influence market demand

reputation price and death an empirical analysis of art price formation i introduction art prices are often claimed to substantially increase when the artist dies these claims appear to be largely based on anecdotal evidence they are promulgated by hearsay and sometimes cleverly insinuated by art dealers who attempt to convince naive customers that it is justified to mark up the artwork of recently deceased artists this study provides a theory guided empirical analysis of the so called death effect on art prices the analysis employs hedonic price regressions and makes use of a dataset which exceeds the sample size of traditional studies in cultural economics by an order of magnitude thereby shedding a new light on previous investigations of art price formation even though the literature on art auctions art price indices and rates of return in the visual arts market is by now quite voluminous see respectively ashenfelter and graddy 2006 ginsburgh mei and moses 2006 frey and eichenberger 1995 the death effect has not received much attention so far to be sure there are a few empirical studies which allow for a death effect but these studies do so in a rather cursory and off hand manner by merely including in their regressions a dummy variable that distinguishes between works of art created by living and late artists see e g agnello 2002 worthington and higgs 2006 the first investigation that has squarely addressed death induced changes in art prices is by ekelund ressler and watson 2000 these authors go some way in providing a theoretical underpinning of the death effect by pointing out that artists produce durable goods under market conditions of monopolistic competition thus given rational actors in the art market the coase conjecture applies coase 1972 even though artists have in principle some discretion in setting prices they cannot exert market power because they are unable to credibly commit to not lowering their prices in the future by spoiling the market with an inflationary increase in production during an artist s lifetime prices will therefore settle well below the monopoly price death of course is the ultimate device to commit to discontinuing production art prices thus increase when the artist dies because her oeuvre all of a sudden becomes scarcer than originally anticipated after having laid this theoretical foundation ekelund ressler and watson proceed to empirically identify the death effect with the help of a hedonic price regression their data consists of a panel of auction records relating to the work of 21 latin american artists who died near or during the observation period 1977 1996 the prices are shown to peak in the years immediately following an artist s death thus lending support to the existence of a death effect from a theoretical point of view the main concern with this pioneering analysis relates to the artists age at death since the probability of dying increases with age the information of an old artist s death is not very surprising and should therefore already be largely reflected in the price implying a small death effect the death of an old artist moreover causes a relatively small reduction in the anticipated size of her oeuvre which again translates into a relatively small price increase when her death is made public assuming rational expectations one would therefore expect the death effect to decrease with the artist s age at death a formal rendering of this argument is shown by itaya and ursprung 2008 who investigate the death effect in an infinite horizon dynamic general equilibrium setting it therefore stands to reason that the death effect depends on the age at death neglecting this relationship in empirical investigations may of course give rise to a seriously misspecified econometric model a recent study by maddison and jul pedersen 2008 acknowledges that the prices of an artist s works should depend on the expected total supply which in turn depends on the artist s conditional life expectancy at the time of sale

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

fishing quota markets abstract in 1986 new zealand responded to the open access problem by establishing the world s largest individual transferable quota itq system using a 15 year panel dataset from new zealand that covers 33 species and more than 150 markets for fishing quotas we assess trends in market activity price dispersion and the fundamentals determining quota prices we find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased we also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices ecological variability and market interest rates controlling for these factors our results show a greater increase in quota prices for fish stocks that faced significant reductions consistent with increased profitability due to rationalization overall this suggests that these markets are operating reasonably well implying that itqs can be effective instruments for efficient fisheries management

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

buying beauty on prices and returns in the art market this paper investigates the price determinants and investment performance of art we apply a hedonic regression analysis to a new data set of more than one million auction transactions of paintings and works on paper based on the resulting price index we conclude that art has appreciated in value by a moderate 3 97 per year in real u s dollar terms between 1957 and 2007 this is a performance similar to that of corporate bonds at much higher risk a repeat sales regression on a subset of the data demonstrates the robustness of our index next quantile regressions document larger average price appreciations and higher volatilities in more expensive price brackets we also find variation in historical returns across mediums and movements finally we show that measures of high income consumer confidence and art market sentiment predict art price trends this paper was accepted by wei xiong finance

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

on the rate of return in the art market survey and evaluation abstract existing estimates of rates of return on single art objects and whole collections are surveyed and critically evaluated the psychic benefits from art are in the few cases they are considered at all derived from the difference to financial returns on other markets this paper discusses determinants of psychic benefits and suggests rental fees and willingness to pay studies as a possible way to analyze and estimate the psychic benefits from art

pigs in cyberspace a natural experiment testing differences between online and offline club pig auctions we find sale prices and net revenues received by sellers in the midwestern club pig market are higher at traditional face to face auctions than at comparable internet auctions the comparison overcomes endogenous selection issues that commonly plague such analyses by using data from sellers that allocated pigs to both markets based on exogenous differences in dates between online and offline auctions auction theory suggests that the higher prices and net revenues from traditional auctions are attributable to remaining differences in auction format and buyer characteristics copyright 2011 oxford university press

an econometric model of u k manufacturing employment using survey data on expected output a model of u k manufacturing employment is estimated in which output expectations data are derived from confederation of british industry cbi survey information the output expectations terms are highly significant and equations including them encompass more traditional models that use current and lagged output in addition the equations also successfully predict the sharp falls in manufacturing employment that occurred after 1979 one interesting implication of these equations is that the decline in cyclically adjusted productivity around 1975 and the subsequent improvement around 1980 can be largely explained in terms of a prolonged period of over optimistic output expectations by u k firms

professors and hamburgers an international comparison of real academic salaries in recent years academic staff unions and associations have argued for higher salaries for academics on the grounds that existing salaries have not kept pace with inflation are well below commercial salaries and most glaringly are much lower than the salaries of their overseas counterparts however most international comparisons are made based on exchange rate conversions which is inappropriate since purchasing power differentials are only reflected in exchange rates in the long term furthermore the volatility of exchange rates makes such conversions highly inaccurate in this chapter we provide a comparison of real academic salaries by converting the nominal salaries in each country to their purchasing power equivalents using the big mac index our results show that real academic salaries are highest in hong kong and singapore relative to the developed countries while hong kong tax and social security deductions are lowest furthermore real salary levels combined with intrinsic considerations such as the quality of life indicate that canada and new zealand are unattractive places for visiting migrating academics while australia and the us are relatively attractive we suggest that our findings could be of use to policy makers and academic unions in salary negotiations as well as academics making relocation decisions

the art of benchmarking picasso prints and auction house performance the influence of the auction house on the price of comparable art objects is an issue in the economics of arts literature the standard approach has been to run hedonic price regressions including the auction house as a dummy variable the approach in this paper is to apply benchmarking tools developed in the efficiency and productivity literature directly to the auction house as a unit new performance indices are developed based on a dea benchmarking technique to analyse auction houses the new indices discriminate well between auction houses by allowing one to identify both contemporaneous and inter temporal performances additional best performance results are obtained for specific attributes

the impact of reserve prices on the perceived bias of expert appraisals of fine art we examine whether the expert appraisals provided to bidders before major art auctions are unbiased indicators of market value despite a strong grounding in theory this aspect of optimal auction design has been frequently challenged in previous empirical research particularly in the market for fine art we adopt a valuation benchmark that incorporates sellers reservation prices as well as high bids and recognize latent censoring due to works that fail to make reserve although the auction houses never divulge sellers reserve prices which are therefore unobservable we exploit the fact that they can be observed indirectly via their impact on buy in rates using the set of french impressionist paintings brought to auction from 1985 to 2001 we estimate the distribution of seller reserve prices establish their link to a proper valuation benchmark and isolate the selection bias due to bought in works on the perceived market value of fine art works brought to auction after controlling for the impact of reservation prices and considering all works brought to auction and therefore all works appraised we find no evidence of bias in the experts pre sale estimates

the auction market for modern prints confirmations contradictions and new puzzles using a large data set with 80 214 repeat sales we find that the real return on a diversified portfolio of modern prints sold at auctions worldwide averaged a modest 1 51 during the period 1977 2004 we address several issues regarding the performance of modern prints as investments the selection bias arising from the self interest of auction houses the impact of an ever expanding universe of auction houses on investment returns the masterpiece effect or whether more expensive works of art outperform the market as a whole and the differences in returns that arise due to random fluctuations in collector tastes jel z11 g11 g14

reputation in an internet auction market i introduction without transmission of credible information asymmetries may lead to underproduction of goods or even market failure reputation mitigates inefficiencies associated with information asymmetries by providing an informative signal of quality 1 the difficulty in quantifying reputation means that few studies can analyze empirically the role of reputation in markets our analysis of a quantified market observed measure of reputation provides direct evidence of the effect of a seller s reputation on the terms of a onetime real world transaction thereby contributing empirical support to a fundamental economic principle this study empirically examines person to person transactions within the internet market known as ebay in this virtual market of unseen participants and products buyers and sellers face the risks of repudiation as the counter party may deny the agreement after the fact buyers assume risks associated with lack of seller integrity and asymmetric information about the particular product as the buyer is typically required to send payment before the seller ships the product in addition for many ebay transactions the cost of enforcing a contract is high relative to the transaction s value resulting in a practical absence of legal enforcement 2 by providing a history of trade execution information ebay benefits market participants by reducing information asymmetries while achieving substantial transaction cost economies market participants relate personal experiences which ebay uses to calculate a numerical reputation measure for each user market participants in turn can use this reputation measure to assess counter party risk and adjust bidding behavior accordingly in a sample of 460 auctions held between january 1998 and july 1998 we find a positive relation between prices and ebay s reputation measure higher reputation sellers experience higher auction prices ceteris paribus our findings suggest that repeat players are rewarded for building reputation consistent with the belief that the high reputation seller s value of future transactions outweighs the value of taking advantage of the buyer in the current transaction buyers are willing to pay more to a higher reputation seller this article contributes to the literature not only by providing quantitative support of long accepted reputation theories but also by illustrating the use of nontraditional markets as a natural laboratory for experiments this article is an example of how a newly formed electronic market can provide the elements necessary for analytical research we find that ebay transactions for this item exhibit characteristics similar to transactions in more conventional markets namely 1 prices are higher when there is less quantity supplied when fewer of the items are available the same day 2 prices are lower during periods of lower demand times less likely to have high traffic 3 sellers with higher shipping and handling costs receive lower prices and 4 sellers failing to provide information about shipping and handling fees i e larger information asymmetries receive fewer bids dramatic innovations in online market structure and increasing availability of online market data should enable researchers to examine directly other traditionally non quantifiable economic ideas this article is organized as follows section ii describes how reputation can be used to facilitate transactions in the presence of asymmetric information section iii describes the ebay market summarizes the listing and bidding processes and discusses the reputation mechanism for this market section iv presents the price and reputation descriptive statistics associated with a consistently auctioned item and reports the empirical findings of how this item s highest bid price varies with the level of the seller s reputation we conclude in section v with a discussion of ebay s continued attempts to add value to the market through recent structural changes

auctions versus negotiations which is the more profitable way to sell a company an auction with no reserve price or an optimally structured negotiation with one less bidder we show under reasonable assumptions that the auction is always preferable when bidders signals are independent for affiliated signals the result holds under certain restrictions on the seller s choice of negotiating mechanism the result suggests that the value of negotiating skill is small relative to the value of additional competition the paper also shows how the analogies between monopoly theory and auction theory can help derive new results in auction theory jel d44 g34 there are close analogies between standard price theory and the theory of auctions in an absolute english auction in which the price rises continuously until only one bidder remains and the seller is required to accept the final bid the sale price equals the lowest competitive price at which supply equals demand in the theory of optimal auctions the seller is treated as a monopolist who can choose any

auctions market efficiency and the trade in second hand and antique silver using a new large unique database relating to silver goods sold at two major uk auction houses we show that the scrap value of silver plays a significant role in determining the realised prices of items sold at silver auctions however although scrap silver can be sold for cash at guaranteed prices almost immediately arbitrage opportunities are extremely limited just over 6 of silver goods sell below scrap value but once the buyer s premium is allowed for the opportunity for profit is tiny

art as an investment and conspicuous consumption good ments art is also a consumption good art owners take pleasure in its intrinsic value e g for aesthetic pleasure or as a storehouse of an artist s deftness and to the extent that it is a luxury good they derive additional enjoyment from the signal of wealth that owning a masterpiece transmits it is the mixture of pecuniary and nonpecuniary payoffs to ownership that makes artworks both compelling to purchase and difficult to value i exploit this insight to explain why the measured risk premium of a portfolio of artworks is low compared to other risky assets in a consumption based pricing model an asset s risk premium is a function of the covariance of its returns with agents marginal utility of consump tion agents need to be compensated if the asset pays off in a period of already high utility as a luxury good relative art demand is an increasing function of wealth therefore positive shocks to income increase the demand price and returns to art in periods of high consumption utility implying a high risk premium this intuition is at odds with empirical studies that quantify the average financial returns of paintings relative to more traditional investment vehicles these studies find that art 1 often underperforms relative to equities and bonds while there have been

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices