learning to believe in sunspots a number of authors have shown that competitive economies may possess sunspot equilibria that is rational expectations equilibria in which purely extrinsic uncertainty affects equilibrium prices and allocations 2 such results demonstrate that it does not require a lack of faith in the rationality of market participants to believe that competitive markets may be subject to purely speculative fluctuations driven solely by expectations 3 the mere existence of sunspot equilibria as solutions to a system of marketclearing conditions however might not be judged sufficient to indicate that competitive markets with rational participants could ever be subject to speculative instability the sunspot equilibria represent states of affairs in which agents act differently in the case of different realizations of the sunspot variable and it is rational for each agent to do so but it might be thought unlikely that the beliefs of all the participants in the market could ever come to be coordinated so as to bring about an equilibrium of that kind it is rational to believe that sunspots convey information about future states of affairs once the economy is in a sunspot equilibrium but why would rational agents ever begin to believe in such a thing so as to create the conditions under which the belief is rational in order to address such a question one must go beyond the mere statement of the conditions for equilibrium and discussion of what states of affairs satisfy them one must specify an explicit dynamic process according to which the beliefs of agents adjust when out of equilibrium any exercise of this kind is necessarily unsatisfactory as there is no univocal meaning for the postulate of rational behavior outside of an equilibrium it may well be the case that

the monetary approach to exchange rate determination under rational expectations the dollar deutschmark rate abstract this paper reformulates the monetary approach after ascertaining that a money demand function with a partial adjustment mechanism had more empirical support than a money demand function which assumed instantaneous stock adjustment the resulting exchange rate equation is estimated by two rational expectations techniques the parameter estimates are reasonable and are robust to the estimation technique used to different specifications of the driving processes and to changes in the estimation period the structural model outperforms the random walk model and its own unconstrained equivalent a pure time series equation in outof sample forecasts

enlargement and the european geography of the information technology sector the information technology sector in europe comprising the production of computer hardware and software is disproportionately located on the continent s western periphery the vast bulk of computers sold in europe in the 1990s were assembled either in ireland or scotland while ireland also accounted for over 40 per cent of all packaged software and 60 per cent of all business software sold in europe as the sector in both these locations is largely foreign owned the question arises as to whether eu enlargement might impact on the geography of the sector by diverting information technology fdi from the western to the new eastern periphery this issue is explored in the present paper by analysis of five individual sub segments computer assembly and electronic components r d mass market packaged software and the remainder of the software sector the paper deems it likely that computer assembly operations will continue the shift seen in recent years from ireland and scotland to central and eastern europe the production of electronic components such as microchips represents a growing share of activity in most eu locations as well as in the cee countries analysis suggests that this pattern of geographically dispersed growth will resume once the consequences of the collapse of the high tech bubble are played out the distribution of r d activity across europe and globally is also considered unlikely to be much affected by enlargement as for software as long as localisation activities remain important ireland the eu location in which most of this activity is carried out seems set to be able to compete strongly given the attractiveness of its english language environment and other attributes to the young continental europeans upon which this activity relies most software services remain largely non tradable however this sector will grow in the accession states as computer penetration rates converge on the eu average but without displacing activity from the incumbent eu member states for firms already competing in the tradable niche software segment on the other hand enlargement cannot but be beneficial because of its impact on the size of the market into which they sell

stability of a uk money demand equation a bayesian approach to testing exogeneity the paper analyses an m3 demand for money equation for the united kingdom attention is paid to the policy change that occurred in 1971 with the introduction of the measure known as competition and credit control classical and bayesian single equation instrumental variables procedures are developed to investigate the exogeneity of the short term interest rate and the constancy of the parameters of the underlying relationships the parameters of the short term equation have changed as well as the exogeneity status of the interest rate variable but the parameters of the long term equation appear to be less affected by the policy change

on the local uniqueness of the fixed price equilibria a number of recent works have addressed the problem of describing the allocation of resources in an economy where prices are fixed at a value that may not achieve equilibrium of supply and demand in the classical sense it seems that by and large through the works of benassy 1975 dreze 1975 malinvaud younes 1977 and younes 1975 agreement has been reached as to the properties that an allocation should possess when transactions take place at given arbitrary fixed prices the purpose of this paper is to present a result in comparative statics which applies in this approach in the framework of an exchange economy a necessary and sufficient condition for the local uniqueness of the fixed price allocation in a neighbourhood of a competitive equilibrium is established under this condition in a neighbourhood of the competitive allocation the fixed price equilibrium is locally a continuous function of the price system a prerequisite for most studies in comparative statics this condition can be related to the stability of the quantity adjustment process associated with fixed price equilibria in a neighbourhood of the competitive equilibrium as is suggested by samuelson s principle of correspondence stability implies local uniqueness while the converse is not true finally it is shown that the fixed price equilibria are both locally unique and stable when the commodities are substitutes for the rationed consumers the paper is organized as follows section 2 presents the model and results the main proofs are gathered in section 3 while an appendix gives the properties of the derivatives of the consumer s demands the mathematical tools involved are first a generalization of the inverse function theorem for lipschitzian functions due to clarke 1976 and second the identity of sylvester for determinants gantmacher 1966 pp 32 33

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

labor hoarding superior information and business cycle dynamics abstract in this paper we test whether a labor hoarding environment with basic and augmented laws of motion provide an adequate explanation for observed business cycle dynamics the basic law of motion assumes that the information set used by economic agents to forecast future forcing variables includes only the history of forcing variables augmented laws of motion assume that the information set is superior and include both forcing and hidden exogenous variables we show that the labor hoarding environment with the basic law of motion fails to replicate observed business cycle facts while the environment with augmented laws of motion successfully matches these facts

are farrowing intentions rational forecasts this paper tests whether quarterly data on hog farmers sow farrowing intentions released in hogs and pigs are rational forecasts of actual farrowings the empirical results show that neither one nor two quarter ahead intentions are rational forecasts econometric methods and the implications of the empirical results for the rational expectations hypothesis are also discussed

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

the dynamic effects of money combining short run and long run identifying restrictions using bayesian techniques this paper proposes a bayesian approach to incorporating specification and identification uncertainty into a var analysis of the dynamic effects of money supply shocks on the macroeconomy the approach follows poirier 1991 in averaging over discrete model specifications in forming posterior densities of the dynamic responses to such shocks two distinct means of identifying money supply shocks are considered here one that imposes contemporaneous restrictions and one that imposes long run monetary neutrality i estimate bounds on dynamic responses that account for specification and parameter uncertainty and find strong evidence of short run real effects of money on the economy including a liquidity effect for both long term and short term interest rates furthermore some results differ substantially across identifying restrictions if model uncertainty is ignored

the behaviour of u k export prices of manufactured goods 1970 1983 this paper examines the importance of expectations in the determination of u k export prices export prices are found to depend upon expectations of total domestic unit costs and foreign prices the non linear restrictions implied by the forward looking model are found to hold and it performs adequately relative to a backward looking error feedback model the law of one price is rejected and the evidence is consistent with imperfect competition in export markets

estimation of linear rational expectations models in the presence of deterministic terms abstract hansen and sargent 1981b discussed instrumental variables procedures for estimating linear rational expectations models under the assumption that all variables have zero unconditional means this note points out two implications if variables instead have nonzero unconditional means first there are additional restrictions beyond those noted by hansen and sargent 1981b and second imposing these restrictions results in more efficient estimates of the parameters that are the focus of hansen and sargent 1981b explicit formulas are given for the restrictions generated by some commonly assumed deterministic terms

rational expectations and export price movements in the uk abstract a forward looking model of the determination of uk export prices is examined where the latter are determined by expectations of domestic costs and world prices the model performs well statistically the cross equation rationality restrictions are accepted by the data and the parameters are stable

selection criteria for models with non uniqueness abstract three objections are considered to the use of mccallum s rules for picking the minimal state set solution in rational expectations models with multiple equilibria it is shown that these difficulties can be resolved using the concept of expectational stability as a selection criterion

convergence rates to purchasing power parity for traded and nontraded goods this article estimates the speed of the adjustment coefficient in structural error correction models we use a system method for real exchange rates of traded and nontraded goods by combining a single equation method with hansen and sargent s instrumental variables methods for linear rational expectations models we apply these methods to a modified version of mussa s model our results show that the half lives of purchasing power parity deviations for the rates of traded goods are less than 1 year and are shorter than those for general price and for nontraded goods in most cases implying a faster adjustment speed to parity

an econometric model of canadian monetary policy over the 1970s the last decade has witnessed the emergence of the bank of canada as a key participant in the arena of policy formation indeed the high profile of the governor and the bank has given rise to a considerable amount of discussion and debate over canadian monetary policy in both the popular media and academic journals i to a large extent this analysis has been essentially descriptive being based upon casual observations rather than a tightly formulated econometric model from the viewpoint of understanding the canadian economy over the 1970s there is a growing need to establish empirically the mechanisms of monetary policy in canada and to determine its impact upon such macroeconomic variables as real output the purpose of this paper is to specify and to estimate a simple model of canadian monetary policy over the seventies the model s focus is upon several prominent institutional details that are special to the operation of canadian monetary policy accordingly the model reflects the practice of the bank of canada in setting nominal interest rates and allowing the nominal money supply to be demand determined this modeling necessarily leads to an examination of the role and effects of the money targets adopted by the bank of canada since 1975

a new approach to assessing the technological complexity of different categories of r d with examples from singapore abstract this paper attempts to develop a set of generic questions the answers to which allow any given r d activity to be correctly classified in one or another conventional r d box basic applied development etc such systematic pigeon holing allows latecomer countries to gauge the distance of their r d activity from the world frontier and how policies may be designed to overcome the hurdle that divides applied research and developmental research

keynesian unemployment as a nash equilibrium with endogenous wage price setting an example abstract a simple 3 good 1 consumer 1 firm model of fixed price quantity constrained equilibrium is developed a game is then defined on the set of globally unique equilibria the consumer sets the money wage the firm sets the money price of output money is numeraire nash solutions of the game exist and may involve keynesian unemployment but never involve classical unemployment or repressed inflation

a disequilibrium rational expectations model with walrasian prices and involuntary unemployment a fixprice non walrasian temporary equilibrium which co exists with the walrasian equilibrium at walrasian temporary equilibrium prices has been called unsatisfactory by hahn if consumers live and work for two periods expectations of future unemployment easily in particular with normal goods generate unsatisfactory keynesian unemployment equilibria if these expectations reflect serial correlation in unemployment assuming that the choice of temporary equilibrium walrasian or keynesian is governed by an extraneous serially correlated random variable sunspots a long run equilibrium of an overlapping generations model is presented which has persistent walrasian prices rational expectations and intermittent phases of keynesian unemployment and walrasian full employment

efficiency testing revisited a foreign exchange market with bayesian learning abstract the paper re examines the efficiency hypothesis in the foreign exchange market the traditional efficiency testing equations are reviewed and a more general model is developed that incorporates bayesian revisions of devaluation expectations a number of properties regarding the pattern of the coefficients in efficiency testing equations are established the empirical estimation of the model by using data from the emerging foreign exchange market in greece confirms the properties of the theoretical model

weak instrument robust tests in gmm and the new keynesian phillips curve we discuss weak instrument robust statistics in gmm for testing hypotheses on the full parameter vector or on subsets of the parameters we use these test procedures to reexamine the evidence on the new keynesian phillips curve model we find that u s postwar data are consistent with the view that inflation dynamics are predominantly forward looking but we cannot rule out the presence of considerable backward looking dynamics moreover the phillips curve has become flatter recently and this is an important factor contributing to its weak identification

macroeconomics and a bit more reality macroeconomics in its widest sense is a topic which is too diverse to be usefully discussed in a single article i will therefore take a very narrow view of what might be included under this general title and focus my attention on my own main area of interest the development and use of large macro econometric models this is an area which has a long tradition and literature stemming form the pioneering work of tinbergen i937 and the cowles commission klein i950 an extensive survey of the development of modelling may be found in bodkin klein and marwah i99i macroeconometric modelling grew rapidly in importance during the late i950s and the i960s going on to achieve a very influential role inmacroeconomic policy making during the i970s its failure to deliver the detailed economic control which it had seemed to promise then led to a barrage of attacks ranging from disillusion and sceptiscism on the part of policy makers to detailed and well argued acadeinic criticism of the basic methodology of the approach perhaps the most powerful and influential of these academic arguments came from sims i980 in his article macroeconomics and reality sims argued on three quite separate grounds against the basic process of model identification which lies at the heart of the cowles commission methodology firstly that economic theory gives rise to identification restrictions which are typically more complex than those traditionally applied in macroeconometric models in particular he said that theory normally implies complex cross equation restrictions which require system estimation and which cannot be imposed on a single equation basis secondly that traditional identification conditions are often met simply because of the presence of dynamics in the models sims argued that this identification is spurious and technically invalid as purely dynamic terms cannot help in structural identification in the conventional sense finally he said that the importance of expectations effects and the interaction of policy regimes and agents expectations make identification very difficult sims argued that any one of these problems would form a challenging but feasible research agenda but that doing all of these at once would be a programme which is so challenging as to be impossible in the short run he then proposed a methodology based on vector auto regressive var models

manufacturing stocks and forward looking expectations in the uk this paper derives a model of the stocks plan based on optimal behavior by the firm when facing adjustment costs with forward looking expectations formation estimates of the model are reported for manufacturing using three alternative expectations mechanisms for determining expected sales time series published forecasts derived from national institute published forecasts and rational expectations the latter uses a submodel dependent on weakly exogenous variables single equation and whole model comparisons are made of the stocks equation estimated with forward expectations versus a traditional backward looking model these favor the forward looking model copyright 1986 by the review of economic studies limited

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

does history matter only when it matters little the case of city industry location when will an industry subject to agglomeration economies move from an old high cost site to a new low cost site it is argued that history in the form of sunk costs resulting from the operation of many firms at a site creates a first mover disadvantage that can prevent relocation it is demonstrated that developers of industrial parks can partly overcome this inertia through discriminatory pricing of land over time and empirical evidence is provided that they actually engage in such behavior it is also shown that other aspects of developer land sale strategy can be a source of information on the nature of interfirm externalities

a lagrange multiplier test of the restrictions for a simple rational expectations model the lagrange multiplier test of the restrictions for a simple but common class of rational expectations model is developed for these kinds of models the value of this test will never exceed the likelihood ratio the difference is usually small because monte carlo evidence suggests that it performs similarly to the likelihood ratio and wald tests in small samples however an economic example suggests that larger differences are possible

data revisions and the expenditure components of gdp the constant price components of the expenditure estimate of gdp for the united kingdom undergo an extensive process of revision as new information comes to light this study is concerned with three central themes the authors assess whether the preliminary vintages efficiently incorporate information available at the time of their compilation whether there is any evidence for the nonstationarity of data revisions and how to construct constant price time series when there are several changes of base copyright 1991 by royal economic society

structural error correction models a system method for linear rational expectations models and an application to an exchange rate model this paper develops a system instrumental variable method to estimate the speed of adjustment coefficient in the long run equilibrium of structural error correction models for a class of linear rational expectations models this method is applied to an exchange rate model with sticky prices in which the speed of adjustment coefficient governs the half life of the real exchange rate compared to single equation methods the system method gives smaller half life estimates with sharper standard errors

chinese electronics export taiwanese contract manufacturing the win win outcome along the evolving global value chain the ascent of china as the world s top exporter is unusual in its rapidity andhigh tech content with a major portion in process trade by chinese classification forming part of the evolving global value chain with chronology andeconomic analysis applied to notions in frequent business usage but not economicsliterature this study shows the global value chain arose from the microelectronicrevolution known as moore s law evolved under the time tomarketimperative and caused widespread outsourcing in america and europe with final stage production mostly in china by taiwanese contract manufacturers the insight gained may help to assess future trends

monetary aggregates as monetary targets a statistical investigation in this paper the authors analyze statistical properties of the monetary base m1 and m2 for the postwar u s data record the authors are specifically interested in answering three policy related questions first to what extent do these monetary aggregates contain information useful for predicting movements in prices and real output second how do the aggregates rank as to their predictive usefulness third how do these aggregates rank as to the stability of their relationship to the macroeconomy copyright 1992 by ohio state university press

a new approach for estimating and testing the linear quadratic adjustment cost model under rational expectations and i 1 variables abstract in this paper we propose a simple method for estimating and testing the linear quadratic adjustment cost lqac model in the presence of i 1 processes we specify the lqac model as an exact rational expectations model and we assume that the dgp for the observable variables belongs to the class of cointegrated error correction ecm models by deriving the restrictions implied by the lqac model on the parameters of the ecm we propose an alternative econometric technique for the lqac model in contrast to existing procedures we explicitly account for situations where the cointegration rank of the ecm is greater than the number of control variables i e one the method is applied to the demand for labor in denmark

expectations of exchange rates and differential inflation rates further evidence on purchasing power parity in efficient markets the paper tests the null hypothesis of ex ante purchasing power parity the empirical evidence obtained is inconsistent with the null for major industrialized countries over the current floating exchange rate regime expected nominal exchange rate changes appear to deviate systematically from expected inflation rate differentials over the same holding period even though real exchange rate changes appear to be serially uncorrelated this supports the presence of time varying risk premia in foreign exchange markets and real determinants of exchange rate movements as suggested by equilibrium theories of international asset markets this paper tests the hypothesis that the expected change in the exchange rate of two countries equals the expected differential in their inflation rates over the same holding period this relationship is an ex ante version of the classical relative purchasing power parity ppp that holds under some versions of efficient foreign exchange and international commodity markets it has important implications for the efficacy of government policies in open economies and has been the focus of numerous empirical studies the ex ante ppp eppp differs from the traditional ppp proposed by cassel 4 in the explicit treatment of uncertainty as formulated by roll 32 the eppp is based on the constraint that in efficient markets the net return to speculators engaging in intertemporal speculation on goods in the foreign country is anticipated to be zero 1 an immediate implication of eppp is that innovations in real exchange rates or deviations from ppp follow a martingale process in sharp contrast to the well documented empirical rejections of the conventional ppp strong support for the martingale property of eppp exists in the literature 2 the proposition that the differences in the expected price relatives of two countries are exactly accounted for by the expected change in exchange rates over the same period is inconsistent with a number of theoretical observations in the extant literature in particular the eppp model assumes that the expected real interest rate differential between each pair of countries is intertemporally constant in order to rule out commodity and financial arbitrage in a world of

globalization of production insights from the hard disk drive industry abstract rapid change in the geographical location of production raises important questions regarding the welfare development potential and competitive position of different countries and regions this paper explores in detail the geography of economic activity in a specific industry the hard disk drive hdd component of the computer industry firms in the hdd industry are breaking the production system into ever smaller distinct steps and spreading the physical location of these steps around the world firms from the united states dominate the industry our findings suggest that globalization has enabled us firms to sustain their dominant position in the industry preserve employment in the united states and possibly expand it and increase employment worldwide most notably in southeast asia

the demand for money a dynamic rational expectations model macroeconomic modelling generally has widely adopted the use of forwardlooking variables in behavioural relationships studies of the demand for money being something of an exception the aim of this paper is to provide preliminary empirical results of a model which explicitly incorporates expectations of the future into the demand function for narrow money the approach adopted is the modelling of the demand for money within a multi period costs of adjustment framework under the assumption of rational expectations agents are assumed to pursue a target or long run level of money balances which is itself a function of prices income and interest rates this results in an empirical specification which consists of both backwardlooking and forward looking components the model is estimated using uk data for the period i963i i983iii the remainder of the paper is divided into four sections in section i we outline the framework in which our model is derived in the following section we discuss the econometric techniques used and in section iii we present our empirical results a final section concludes

an econometric analysis of fluctuations in aggregate labor supply and demand the paper contains a simple equilibrium model of the labor market the supply function allows for intertemporal substitution in response to real wage fluctuations and the demand function allows for adjustment costs on employment the supply and demand functions both solve quadratic partial adjustment problems driven by rational expectations about future real wages the market equilibrium also solves a partial adjustment problem driven by rational expectations about future preference and technology shocks two related issues are emphasized the identification of dynamic labor supply and demand functions and the theoretical interpretation of serial correlation in employment and real wages when the supply and demand shocks are assumed to be ar 1 processes which are not causally related the model delivers a simple structure for the equilibrium process for employment and real wages which is a restricted var 2 this simple structure facilitates the interpretation of summary statistics on the time series properties of observed employment and real wage series the supply and demand functions can both be locally identified using only employment and real wage data an illustrative application is presented using u s manufacturing data for the period 1948 1971

price risk in supply equations an application of garch time series models to the u s broiler market that risk considerations figure prominently into agents decisions is now widely recognized by both theoretical and applied economists for example much research has focused on extending neoclassical production theory to include agents that maximize expected utility of returns under price and or output uncertainty 37 4 25 35 12 31 concurrent with this theoretical research on risk has been a growing literature on the empirical effects of risk on economic decisions examples include the studies on the role of risk in aggregate agricultural production and

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

who profits from innovation in global value chains a study of the ipod and notebook pcs in an era when new ideas are brought to the market by global value networks of specialists rather than by one company a key question is who captures the most value from innovation in such a structure and why this paper addresses the question of who benefits from innovation in global value chains by looking at specific computer and electronics products we apply a novel industry studies methodology for measuring the distribution of financial value across the supply chains for two models from apple s ipod family and notebook pc models from lenovo and hewlett packard hp these are all examples of globally innovated products combining technologies from the u s japan and other countries and assembled in china our analysis shows that the gross margins of apple for its high end ipod products are generally higher than those earned by hp and lenovo for notebook pcs although not so high as to be considered supernormal a key reason for the difference is that apple s control of the core software proprietary standards and complementary infrastructure of the ipod enables it to retain greater profits whereas a large share of the pc industry profits are siphoned off to microsoft and intel who control key technical standards consistent with teece 1986 our results confirm the importance of stages of technical evolution appropriability regimes and complementary assets as determinants of profiting from innovation on the other hand we find that manufacturing has become commoditized and is no longer a key to profiting from innovation in final electronic products also contrary to recent suggestions in the literature we find no evidence of a causal link between product and industry architectures instead there is a vast electronics industry architecture that can easily support product level value chain configurations ranging from modular to integrated

an evaluation of the investment environment in international logistics zones a taiwanese manufacturer s perspective abstract with the rapid development of international logistics the role of international logistics zones has become increasingly important this study evaluated the importance of investment environment factors namely political infrastructure cost and market factors for firms intention to invest in international logistics zones a structural equation modeling sem approach was employed to analyze respondents foreign direct investment fdi intention results indicated that market cost and infrastructure factors have a positive effect on firms intention to invest in international logistics zones the influence of political factor on firms investment intention was not supported in this study theoretical and practical implications of the findings for firms foreign direct investment in international logistics zones are discussed

on macroeconomic equilibrium with stochastic rationing the purpose of this paper is to apply the ideas of stochastic rationing mechanisms to a simple disequilibrium macroeconomic model it has been shown that effective demands with stochastic rationing as opposed to those derived from deterministic constraints the clower benassy or dreze effective demand are consistent with the maximization of expected utility and are also capable of producing unsatisfied demand and supply in a quantity constrained equilibrium the well known regime classification of quantity constrained equilibria i e keynesian unemployment classical unemployment repressed inflation and underconsumption is shown to be relevant in a macroeconomic framework with stochastic rationing comparative statics of quantity constrained equilibria are worked out for different regimes

instrumental variables procedures for estimating linear rational expectations models abstract this paper illustrates how to use instrumental variables procedures to estimate the parameters of a linear rational expectations model these procedures are appropriate when disturbances are serially correlated and the instrumental variables are not exogenous we compare our procedures to some alternative estimators that estimate free parameters from restrictions implied by the euler equations the procedures are applicable to a variety of linear rational expectations models several examples of which we cite

expected life time utility and hedging demands in a partially observable economy this paper analyzes the expected life time utility and the hedging demands in an exchange only representative agent general equilibrium under incomplete information we derive an expression for the investor s expected life time utility and analyze his hedging demands for intertemporal changes in the stochastic unobservable growth of the endowment process and the changing quality of information regarding these changes the hedging demands consist of two components which could work in opposite directions so that a conservative consumer may end up having positive hedging demands our results are qualitatively different from those prevailing under constant growth cf brennan m j 1998 the role of learning in dynamic portfolio decisions european finance review 1 295 306 ziegler a 2003 incomplete information and heterogeneous beliefs in continuous time finance springer berlin chapter 2

real time prediction with u k monetary aggregates in the presence of model uncertainty a popular account for the demise of the u k s monetary targeting regime in the 1980s blames the fluctuating predictive relationships between broad money and inflation and real output growth yet ex post policy analysis based on heavily revised data suggests no fluctuations in the predictive content of money in this paper we investigate the predictive relationships for inflation and output growth using both real time and heavily revised data we consider a large set of recursively estimated vector autoregressive var and vector error correction models vecm these models differ in terms of lag length and the number of cointegrating relationships we use bayesian model averaging bma to demonstrate that real time monetary policymakers faced considerable model uncertainty the in sample predictive content of money fluctuated during the 1980s as a result of data revisions in the presence of model uncertainty this feature is only apparent with real time data as heavily revised data obscure these fluctua

generalized method of moments and macroeconomics we consider the contribution to the analysis of economic time series of the generalized method of moments estimator introduced by hansen we outline the theoretical contribution conduct a small scale literature survey and discuss some ongoing theoretical research

catastrophic walrasian equilibrium from the non walrasian viewpoint a three good macroeconomic example a walrasian equilibrium is catastrophic from the non walrasian viewpoint if some small deviation from the walrasian prices produces only non walrasian equilibrium allocations a long way from the walrasian allocation a precise account of this phenomenon is given for a class of three good single household private ownership production economies

the dynamics of agriculture supply a reconsideration this paper presents a dynamic rational expectations equilibrium model for a given crop the dynamic supply equation is derived from the farmer optimization problem and the equilibrium movements of commodity price production and land allocations are solved analytically it is shown that the observed dynamics of agriculture supply which are usually explained and measured with the nerlovian supply response model can be explained and measured at least as well by the rational expectations equilibrium model however interpretation of the results is different and the paper defines explicitly the dynamic supply elasticities and presents an econometric method for consistent estimators for the parameters

who captures value from science based innovation the distribution of benefits from gmr in the hard disk drive industry abstract we analyze the discovery of giant magneto resistance gmr and its development and commercialization by the global disk drive industry to answer the question of who captures the benefits from innovation in a global innovation system we assess the returns to the scientists firms and countries associated with gmr we find that the french and german scientists that discovered gmr and their labs benefited by receiving the nobel prize and small licensing fees the firm that first commercialized the technology ibm captured profits from selling hard disk drives and magnetic heads using gmr other hard disk drive and head manufacturers based in the u s and japan were able to quickly assimilate the technology and catch up with ibm france and germany reaped limited returns due to the lack of domestic firms with the absorptive capacity to commercialize gmr the u s and japan benefited from the success of their firms in commercializing gmr as did other countries which were part of the global value chains of those companies consumers and firms that incorporated hard drives in their products ultimately benefited from cheaper hard drives with greater capacity these findings illustrate the importance of absorptive capacity at the firm and national level in capturing benefits from innovation they also show that the benefits to first mover firms can be short lived in a competitive industry with open transfer of knowledge and limited appropriability regimes finally they show that the location of jobs and wages associated with innovative products depends on the structure of the global value chains of leading firms

regulatory taxation of fossil fuels theory and policy abstract research on energy taxation is often based on purely theoretical deductions this paper stays closer to the real world using empirical data and interpreting results in a political economic setting of risk and uncertainty economic growth in developing countries will boost energy demand increasing the risk of shortages of oil and natural gas half way through the next century and of coal towards the year 2100 furthermore there is mounting evidence that emissions of co 2 trigger harmful climate changes a timely introduction of regulatory taxes will reduce demand for fossil fuels and accelerate the introduction of sustainable technology the empirical results presented show moreover that such taxes may claim a substantial part of the rent on energy extraction for the energy importing countries it is argued that optimal control and the avoidance of displacement effects require a tax affecting marginal use with exceptions to safeguard competitive positions exceptions may be scaled down as the jurisdiction is enlarged

econometric evaluation of the exchange rate in models of the uk economy in june 1972 sterling s fixed parity against the dollar was abandoned and macroeconomic modellers could no longer treat the exchange rate as an exogenous variable a considerable research effort ensued as modellers sought to integrate exchange rate systems into their econometric models none of the resulting systems performed well however and the exchange rate equations often had to be overridden or subjected to heavy residual adjustment in forecasting and policy analysis exercises in the first instance these difficulties came as no surprise given the short series of data available for the floating regime and the uninformative nature of the fixed regime the difficulties have persisted however in an analysis of the historical tracking performance of a recent vintage of the main uk macroeconometric models fisher and wallis i990 find that no model has a particularly good static simulation record with respect to the exchange rate nor are these difficulties purely local ones in his international survey isard i 988 concludes that empirical modeling of exchange rates over the past decade has been largely a failure this paper evaluates the exchange rate mechanisms embodied in current large scale models of the uk economy and develops a new specification that is econometrically preferable the models considered are those of the london business school lbs national institute of economic and social research niesr liverpool university research group in macroeconomics lpl bank of england be and her majesty s treasury hmt as deposited with

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

south africa s international cost competitiveness and exports in manufacturing abstract the new south african government has embraced globalization with mixed results to date controversies center on south africa s international cost competitiveness and whether south african exports respond to changes in competitiveness we measure competitiveness by relative unit labor costs we find that south african relative unit labor costs declined in the 1990s but are still high relative to other developing countries econometric analysis reveals a strong effect of relative unit labor costs on exports

expectational stability and the multiple equilibria problem in linear rational expectations models linear models involving expectations of future endogenous variables generally have multiple rational expectations equilibria this paper investigates the stability of solutions in the disequilibrium sense of whether given a small deviation of expectations functions from some rational expectations equilibrium the system returns to that solution under a natural revision rule weak and strong local stability are distinguished stability conditions are calculated for a simple general linear model and applied to two macroeconomic examples in some cases there is a unique stable equilibrium in other cases a continuum of equilibria forms a weakly but not strongly stable class

an empirical analysis of participation in us government farm programmes factors affecting the participation of individual kansas farms in government programmes are considered a sample drawn from over 1600 kansas farms for nine years is used in the context of a simultaneous equation tobit regression to investigate the effects of various factors on the probability and expected level of participation in farm programmes the results suggest that differences in farm sizes incomes types and farming practices influence participation in government programmes small sole proprietor livestock operations with low debt levels receive the lowest levels of support conversely large corporate crop farms receive the highest levels of government support

a forward looking model of the exchange rate this paper outlines a simple framework for testing some of the underlying concepts which form the basis of a number of recent models of exchange rate determination it estimates a structural exchange rate equation with explicit forward expectations using the wickens errors in variables method the paper finds a strong rejection of the simple open arbitrage model in favour of a more complex model