income adjustments and the role of consumers durables in some leading consumption functions in a seminal study davidson et al i978 hereafter dhsy introduced the error correction form of the consumption function this has proved to be robust to new data and different time periods see hendry i983 and has formed the basis of the consumption equations in several macroeconometric models see davis i 984 in subsequent studies hendry and von ungern sternberg i 98i hereafter hus and von ungern sternberg i 98 i modified the dhsy equation in a number of ways one of particular interest herein was to redefine the income measure to net out the effect of gains or losses due to inflation on liquid assets we consider here two related potential improvements to these widely used consumption functions one concerns the appropriate definition of income if there are not only liquid assets which suffer a value loss under certain conditions but also durable goods which depreciate the other is related to this and concerns an appropriate specification of the steady state consumption function whether static or dynamic for non durables which we take to include services which recognises the existence of durable consumption goods it is argued that if care is not taken the dhsy equation implies a misspecification which leads to an over estimate of the mean lag relating the consumption of non durables to income

stock flow consistent accounting a macroeconomic perspective the quotations at the head of this article indicate the widespread perception of the importance of asset revaluations to those who directly and indirectly through life assurance and pension funds own corporate equity although it is clear to economic commentators that such a decline in stock prices effects a revaluation to the stock of wealth and hence to the associated stream of income conventional national income accounting frameworks are poorly suited to capturing such changes primarily because they are not constructed on the principle of stock flow consistency the concern of this article is with the implications of stock flow consistency for the organisation and analysis of data at a macroeconomic level the concept of stock flow consistency is not new but to our knowledge no systematic presentation of the macroeconomic accounting implications in a relatively unconsolidated model exists although useful references are buiter i983 and coutts et al i988 it is important to fill this gap since much empirical work including for example that embodied in macroeconomic models of the united kingdom and united states implies broad acceptance of the conceptual basis of the national income and flow of funds accounts various studies have considered particular aspects of enforcing stock flow consistency on national income accounting practice see for example siegel i979 and miller i985 recent work on the personal sector has made use of a stock flow concept of income due to hicks i 939 see jump ig80 and in particular on the consumption function see hendry and vonungern sternberg i 98i and patterson i 986 and pesaran and evans i984 found a significant role for capital gains and losses on personal sector share holdings in determining aggregate consumption expenditures the question of how to define income is fundamental to our approach to stock flow consistency this concern can be traced back to haig i 92i and hicks i939 both of whom recognised the difficulties which arise in defining income in a dynamic world which involves stocks and flows the definitions of income offered by hicks i939 especially chapter i4 are by now well known

computer automation of general to specific model selection procedures abstract disputes about econometric methodology partly reflect a lack of evidence on alternative approaches we reconsider econometric model selection from a computer automation perspective focusing on general to specific reductions embodied in pcgets starting from a general congruent model standard testing procedures eliminate statistically insignificant variables with diagnostic tests checking the validity of reductions ensuring a congruent final selection since jointly selecting and diagnostic testing has eluded theoretical analysis we study modelling strategies by simulation the monte carlo experiments show that pcgets recovers the dgp specification from a general model with size and power close to commencing from the dgp itself

ownership based entry mode strategies and international performance this study examines the relationship between ownership entry modes and performance the ownership entry modes examined are the wholly owned modes of acquisition and new venture entry and the non wholly owned mode of joint venture entry a theoretical relationship is developed for international entry modes that is based on the contingency characteristics of resource requirements and organizational control factors this model suggests that different entry modes have different performance outcomes based upon their resource and organizational control demands the theoretical model although developed using the eclectic theoretical approach is based largely on concepts and relationships previously delineated in contingency theory our hypotheses suggest that new ventures should outperform joint ventures and joint ventures should outperform acquisitions an empirical test using a sample of 321 japanese firms entering the north american market provides supporting evidence

a symmetric safety valve abstract how to set policy in the presence of uncertainty has been central in debates over climate policy concern about costs has motivated the proposal for a cap and trade program for carbon dioxide with a safety valve that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level we find two significant problems both stemming from the asymmetry of an instrument that mitigates only against a price increase one is that most important examples of price volatility in cap and trade programs have occurred not when prices spiked but instead when allowance prices collapsed second a single sided safety valve may have unintended consequences for investment we illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one sided approach

a managerial decision model of international cooperative venture formation this paper develops a model of international cooperative venture formation that is centered on the decisionmaking process of mne executives central issues for managerial decisions are developed from the organizational studies literature a framework delineating the sequence and criteria used in the decision to form international cooperative ventures is developed from these defined issues and from existing models propositions pertaining to the venture formation decision process are outlined

testing liquidity constraints in 10 asian developing countries an error correction model approach an error correction model is used to estimate the fraction of consumers who are liquidity constrained in 10 asian developing countries our estimates of the fraction of consumers who are liquidity constrained range between 0 25 and 0 98 we further investigate whether financial liberalization has resulted in the reduction of liquidity constraints in these countries however the results find support for this only in the cases of south korea sri lanka and taiwan

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

annual consumption functions a scottish uk comparison 1971 1985 holden d r and mcgregor p g 1990 annual consumption functions a scottish uk comparison 1971 1985 reg studies 24 247 259 this paper investigates the performance of a number of recently proposed consumption functions using annual scottish and uk data for the period 1971 to 1985 whilst the exercise is atheoretical in the sense that no attempt is made to tie estimated models to specific theories the influences considered do reflect an underlying conviction that a full understanding of consumption functions ultimately necessitates an integrated framework for modelling household behaviour in this context a number of recent models may be treated as non competing and separate investigation of non durable and durable expenditures may be helpful in evaluating competing explanations of recent consumption behaviour data coherent models of non durable expenditures are obtained although such specifications proved elusive for durables overall there was some supporting evidence for the intuitive sy

interpreting econometric evidence the behaviour of consumers expenditure in the uk abstract the dynamic models of consumers expenditure proposed by davidson et al 1978 and hendry and von ungern sternberg 1979 are re appraised in the light of hall s 1978 analysis of the empirical implications of the life cycle permanent income hypothesis in particular that the series for consumption should obey a random walk apart from trend in an attempt to reconcile the conflicting findings monte carlo experiments are used to demonstrate that if the davidson et al model were actually correct the hall model would appear to give a good description of the data and would probably not be rejected all the models are re estimated with new data for the uk and these data do reject a modified random walk specification in conclusion we discuss the issue of income exogeneity and comment on questions of model selection and interpretation

the variable rate of growth effect in the life cycle saving model the rate of growth in real gnp g affects the aggregate saving rate positively in life cycle saving models this rate of growth effect is invariably estimated as the coefficient of g in the saving function we show that other determinants of the saving rate influence the rate of growth effect in other words the rate of growth effect is not constant specifically the real rate of return on financial assets and the population dependency ratio determine the timing of saving over the life cycle and hence alter the rate of growth effect the dependency ratio also has an effect on the saving rate which is independent of g because it together with the foreign saving rate determines the level of saving over the life cycle

housing markets consumption and financial liberalisation in the major economies abstract this paper analyses the implications of relaxing credit restrictions in housing finance markets a theoretical model of the interaction of financial and housing markets and forward looking agents is developed the effects of financial liberalisation in the model are analysed and evidence from the u s a and u k on the impact of easing credit restrictions is presented estimates are also made of the degree to which credit restrictions may bind on households in those countries where the range of mortgage products on offer is still more limited than in the u k and u s a simulations are undertaken to gauge the effect on consumption saving and bequests of wealth of possible future convergence in national systems of housing finance

disequilibrium buffer stocks and consumers expenditure on non durables the authors examine the importance of a disequilibrium real balance effect on non durable consumers expenditure in the u k using cointegration techniques and the johansen procedure they first establish a desired long run demand function for liquid assets depending on income wealth and a set of interest rates deviations of liquidity from this desired level cause changes in consumption via intertemporal substitution but via its effect on disequilibrium liquidity consumption is modeled in an error correction framework and is also found to depend on income and financial wealth both the disequilibrium liquidity and wealth terms may be picking up the effects of financial liberalization e g mortgage leak on consumption as funds released will be temporarily held in financial assets they also find some evidence that changes in the distribution of income have an independent effect on aggregate consumption copyright 1991 by mit press

on forecasting uk consumption this paper is concerned with the search for the appropriate methodology for constructing an econometric model for forecasting aggregate consumption forecasts of the various national income categories such as consumption investment exports etc is an important pre requisite of macroeconomic policy it is such forecasts welded within the framework of a macroeconomic model which provide the policy makers with the information on which to base economic policy ideally a good forecasting model should have the properties of 1 being parsimonious in the use of information especially current information on endogenous variables 2 be simple to manipulate and 3 should work well in the econometric sense a fourth criterion namely being strongly founded in economic theory is more open to dispute for example the time series forecasting models developed by box and jenkins need not rely on economic theory at all without pushing the point too far one could argue that at least to economists economic theo

inflation and savings international evidence on inflation induced income losses the fall in the average propensity to consume a p c in the i970s in most industrialised countries has been the subject of much debate it has been ascribed to a wide variety of causes most important it has been widely interpreted as a typical example of a situation in which economic forecasting has failed simply because it did not take into account the psychological effects of rapid changes in the economic environment given the inability of economists to predict sudden changes in consumer expectations these would naturally set severe limits to the usefulness of economic forecasting this paper takes a different approach to the problem it contends that the true fall in the a p c has been considerably lower than indicated by the statistics the argument runs roughly as follows the increase in the rate of inflation has led to a net transfer of real resources away from the personal sector this transfer was due to the fall in the real value of net monetary assets held by the personal sector and issued by the public and business sectors of the economy consumers considered this fall as negative income and adjusted their expenditure accordingly the definition of personal sector disposable income used in the national accounts statistics does not include such a correction in inflationary periods this leads to a large overestimate of true personal sector disposable income given this overestimate of the denominator it is hardly surprising that measured c y should fall when the rate of inflation rises the simplicity of this theory indicates that it can quite easily be subjected to empirical testing the tests proposed in this paper are based on a novel specification of the consumption function developed by davidson et al i978 henceforth dhsy this function has a solid theoretical foundation good statistical properties and allows both shortand long run phenomena to be easily incorporated in an acceptable manner simple theoretical considerations indicate roughly how one should go about measuring true income this corrected measure of income can be incorporated into the consumption function to be estimated in such a way that the coefficient of the correction term is endogenously determined in the regression the statistical properties of the resulting regressions are the evidence leading to a rejection or tentative acceptance of the theory

aggregate consumption of non durables and services and the components of wealth some evidence for the united kingdom the growth of spending on consumer goods in the united kingdom in recent years has been a severe test of previously well established consumption functions this paper assesses the performance of a dominant standard consumption function which relies on income and net liquid assets it turns out that this has not been able to track the growth in consumer spending however developments of this consumption function which find a role for the components of personal sector wealth perform rather well with satisfactory diagnostic statistics and an estimated equation standard error of around 0 4

complying with the kyoto protocol under uncertainty taxes or tradable permits the kyoto protocol allocates tradable emission allowances aaus to developed countries but they are free to choose a set of policy instruments to comply with these targets we compare two different policy instruments a tax and purely domestic tradable permits for the european union the us and japan information on abatement costs and international permit price is imperfect and stems from nine global economic models for a country party to the protocol the benefit of emission reduction is that it can sell more or has to buy less aaus we show that in this context permits entail a slightly lower expected cost than a tax for the us and japan whereas both instruments yield an almost equal outcome for europe applying weitzman s framework prices vs quantities res 1974 in this context we show the importance of the positive correlation between costs and benefits technology shocks that lead to low abatement costs in one country generally lead to low abatement costs in other countries too thereby leading to a low international permit price in the true up period

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

testing for exogeneity an application to consumption behavior the exogeneity status of the income variable in a belgian aggregate consumption function is examined using a combination of classical and bayesian methods the incomplete structure of the proposed model requires the use of an incidental parameter for which the general instrumental variables approach is adopted the data evidence is found not to reject strong exogeneity

seasonal fluctuations and the life cycle permanent income model of consumption this paper examines a new possible explanation for the recent rejections of the life cycle permanent income model of consumption the treatment of seasonal fluctuations the paper shows that when the seasonal fluctuations in consumption purchases are included in an analysis of the life cycle permanent income model there is no evidence in the aggregate data against the model the estimates of the parameters of agents utility functions obtained with seasonally unadjusted data are plausible and the unadjusted data do not reject the overidentifying restrictions on the model

the impact of order and mode of market entry on profitability and market share market share performance and profitability of overseas business activities has long been an important issue in international business in this study we explore the impact of order and mode of market entry into an overseas market we find that early entrants have significantly higher market shares and profitability than late followers we also find that equity joint ventures have a higher profitability than either wholly owned operations or contractual joint ventures a significant interaction exists between order and mode of market entry as expected firm efficiency and size affect the performance of firms these results are based on the business activities of a sample of 14 466 foreign firms in china in 1995

an error correction system for integrated consumption and portfolio allocation decisions abstract in this paper i show how an error correction system arises for the determination of consumption and portfolio allocation decisions the influential work of hendry and von ungern sternberg hus is extended to provide equations for consumption and the disaggregation of wealth into n 1 components

consumption saving and rational expectations some further evidence for the u k this paper examines implications of the rational expectations permanent income framework for quasi savings using u k data the residual from a cointegrating regression between income and consumption provides the quasi savings series that is used in conjunction with differenced income in a bivariate vector autoregression with associated restrictions and exclusion tests a further implication is that savings should granger cause labor income changes incomes and consumption are found to be cointegrated in levels as a robust result and the bivariate system performs well however savings granger cause labor income changes with a perverse positive sign and exclusion restrictions fail copyright 1989 by royal economic society

foreign direct investment in the united states an analysis by country of origin given the large size and rapid growth of foreign direct investment in the united states this subject is a central concern of u s firms and u s government policymakers this study explores the factors that contribute to the explanation of fdi in the united states by country of origin of investment evidence from the past twelve years shows that the main significant positive influences are home country s exports to the united states and home country market size significant negative influences include the home country s imports from the united states the cultural and geographic distances of the home country from the united states and the exchange rate fx

a systems approach to the relationship between consumption and wealth the single equation approach to the determination of consumption due to hendry and von ungern sternberg hus is extended to a multi equation system which links decisions on consumption and the components of wealth the original hus approach has proved to be a very durable one being applicable to a number of countries and macroeconomic models this approach is extended to allow a role for rates of return as well as income and it is shown how this extension results in an error correction system the empirical analysis used is based on johansen s maximum likelihood extension of the co integration approach of engle and granger

global strategy and multinationals entry mode choice this paper makes a case directed towards establishing the importance of global strategic considerations in choosing multinationals entry mode specifically it is our contention that beyond the environmental and transaction specific factors well established in the literature to affect the entry mode decision we should also consider the strategic relationship a multinational envisages between its operations across borders in reaching this decision after incorporating various global strategic variables into an eclectic framework of the factors influencing the entry mode choice this paper tests both the validity of the overall framework and the importance of each entry mode determinant in differ entiating among entry modes this is done based on ninety six multinational managers responses to a survey questionnaire concerning their entry mode decision experiences the results suggest that an express incorporation of global strategic variables into an analysis of the entry mode decision is warranted

monetary economic myth and econometric reality few of the main macro economic forecasting systems can produce sensible forecasts without the tender loving care of their proprietors many econometric equations in com mon use show significant deterioration in the accuracy with which they characterise data as time passes and many economists are sceptical about empirical evidence feeling it lacks credibility monetary relationships have the dubious distinction of being among the leaders in this field as witnessed by the very large mispredictions of m1 models in the usa over what is now known as the missing money period 1973 76 as well as during the recent great velocity decline 1979 82 in the uk models of m1 and m3 demand experienced large structural breaks following the competition and credit control regu lation changes and the move to floating exchange rates perhaps it is no surprise that goodhart s law should have been formulated with respect to money demand equations

joint venture formation of very large multinational firms large firms differ from smaller firms in many aspects in this research note we investigate the relationship between the size of firm and the characteristics of equity joint ventures ejvs empirically we found that very large firms are more likely to have a higher equity stake in their ejvs seek alignment with other foreign firms engage in global industries and invest in large scale ejvs than smaller firms they are also less affected by the risk conditions of the host country empirical testing is based on a sample of 1 298 foreign ejvs in the people s republic of china between 1981 and 1998 interesting differences also exist among firms that are based in the u s japan and europe

dynamic models of portfolio behavior more on pitfalls in financial model building in an important article in this review william brainard and james tobin have emphasized the role played by the wealth constraint in systems of asset demand equations the wealth constraint gives rise to consistency conditions which must be satisfied by the demand functions when such a system is specified and estimated as brainard and tobin caution care must be taken to ensure that unrealistic coefficients are not inadvertently imposed on omitted equations by failure to recognize the consistency conditions noting that the wealth constraint applies out of as well as in portfolio equilibrium brainard and tobin focus attention on systems in which actual and desired stocks of assets differ they specify a multivariate stock adjustment model wherein the desired change in holdings of any asset depends in general upon all asset stock disequilibria the existence of such stock disequilibria can be implicitly rationalized on the basis of costs of adjustment which impinge on the rate of change of at least some assets in this framework they show that the stock adjustment coefficients must also satisfy certain consistency conditions to ensure that the wealth constraint is satisfied an important feature of their analysis is that the total change in wealth savings plus capital gains is treated as exogenous to the financial sector and the asset flow demands described above are conditional upon the exogenously given change in wealth this strategy of separating the portfolio balance decision from the consumption saving decision is one that tobin has explicitly used and justified in his 1969 article especially pp 15 16 and is one that has been widely and effectively used in modern macroeconometric models the central argument of the present paper is that this separation of flow allocation and stock allocation decisions is not legitimate in the presence of adjustment costs attached to changing the level of individual asset holdings the existence of adjustment costs means that there is no portfolio balance problem per se in the sense of allocation of a given level of wealth but rather a longer run problem of determining an optimal time path for each asset and for the level of consumption thus a natural extension of the brainard tobin model is to treat saving and portfolio decisions in an integrated fashion 2 note that the brainard tobin model is perfectly consistent with any model of savings behavior and hence no logical con queen s university and cowles foundation for research in economics yale university i am grateful to adrian pagan gordon sparks and james tobin for helpful discussions and especially to gary smith who as well as patiently discussing many of the issues provided detailed comments on earlier drafts of this paper this research was partially supported by a national science foundation grant to the cowles foundation and by a canada council grant to the author remaining mistakes and opinions are my own i this also has implications for the common practice in macro economic models of leaving the bond market as implicit care must be taken to ensure that silly behavior is not inadvertently attributed to bondholders william silber tobin and alan blinder and robert solow have initiated research which reintroduces the bond market into macroeconomic models 21t appears to be a fairly general result that the existence of adjustment costs leads to integrated behavior m ishaq nadiri and sherwin rosen have established a similar result for the theory of the firm and robin mukherjee and edward zabel have recently shown that the separation theorem prominent in the finance literature on the mean variance approach to optimal consumption portfolio behavior fails to hold when transactions costs are introduced in my 1975 paper appendix i have argued that the integration of saving and portfolio balance decisions also applies in continuous time models even though such models are characterized by separate stock and flow budget constraints

prices versus quantities versus hybrids in the presence of co pollutants we investigate the optimal regulation of a pollutant given its abatement interaction with another pollutant under asymmetric information about firms abatement costs we take a policy relevant second best approach by assuming that the co pollutant is regulated exogenously but perhaps not efficiently our focus is on optimal policy choice in this setting and we derive rules for determining whether a pollutant should be regulated with an emissions tax an emissions market or a market with price controls given the regulation of its co pollutant we find that the policy choice for a pollutant is unaffected by its interaction with a co pollutant that is controlled with a fixed number of tradable permits because changes in emissions of the primary pollutant do not affect aggregate emissions of the co pollutant however when a co pollutant is controlled with a tax the policy choice for the primary pollutant must account for its effect on expected co pollutant damage through changes in the variance of co pollutant emissions consequently standard conclusions about the environmental policy choice problem must be modified in this case our results have important implications for designing policies for greenhouse gases under uncertainty

consumption and income some simple excercises with panel data this paper reports on the performance of simple versions of the rational expectations permanent income hypothesis of hall 1978 and the error correction approach of davidson et al 1978 in explaining nondurable consumption expenditure from austrian panel data paying particular attention to the characterization of nondurability we examine the parameter restrictions implied by the respective models and then select favoured dynamic consumption income relationship our findings suggest that the models receive limited support only for the narrowest category of nondurables food consumed at home particularly for broader categories the strength of model rejections and the complex dynamic paths observed imply that the models provide an inadequate description of consumption at the micro level

real interest rates and macroeconomic activity while standard discussions of the transmission mechanism of monetary policy tend to assume a strong and negative link between real interest rates and real macroeconomic activity and this appears to some extent to be borne out by simulation of large scale macroeconometric models the empirical evidence suggests that the link between real interest rates and macroeconomic aggregates such as consumption and investment is in fact somewhat tenuous the weak link between interest rates and aggregate consumption may be explained at a theoretical level while the apparently weak link between interest rates and investment is more puzzling although it may be related to neglect of issues such as uncertainty and the irreversibility of investment in empirical studies similarly evidence on the link between real interest rates and economic growth is mixed and this may be related to non linearities in the relationship the survey highlights the need for further research in this area

performance and survival of joint ventures with non conventional ownership structures the international joint venture jv literature has focused on two parent jvs formed between one foreign and one local firm yet other types of jvs exist this paper identifies four distinct forms of jvs based on the jv partners nationality and equity affiliation these are i jvs that are formed between affiliated home country based firms ii jvs that are formed between unaffiliated home country based firmsl iii jvs that are formed between home country based and local firms and iv jvs that are formed between home country and third country based firms our analysis of 737 japanese jvs in asia demonstrates that the conventionally assumed form of jv represented only 30 percent of the total further each of the four jv forms significantly differed in terms of incidence performance and survival likelihood

innovation and the evolution of market structure this paper examines the association between innovation and the evolution of market structure a dynamic model of market concentration is applied to seventy three u k industries 1970 79 and the results are found to be consistent with the hypothesis that innovation is deconcentrating the results reported here and those contained in earlier work combine to suggest that innovation and changes in market concentration interact in a relatively rapid mutually reinforcing but rather weak spiral of increased innovation and decreasing concentration copyright 1990 by blackwell publishing ltd

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

carbon markets and technological innovation this paper examines the effects of firm level innovation in carbon abatement technologies on optimal cap and trade schemes with and without price controls we characterize optimal cap and trade regulation with a price cap and a price floor and compare it to the special cases of pure taxation and a simple emissions cap innovation shifts the tradeoff between price and quantity based instruments towards quantitybased emissions trading schemes more specifically an increase in innovation effectiveness lowers the optimal emissions cap and leads to relaxed price controls unless the slope of the marginal environmental damage curve is small because of the decrease in the emissions cap innovation in abatement technologies can lead to a higher expected carbon price so as to provide sufficient incentives for private r d investments the expected carbon price decreases once innovative technologies are widely used

an investigation of the long run properties of aggregate non durable consumers expenditure in the united this paper estimates the effects of the modeling of nondurable consumption in the light of the five years of new data since the publication of the paper by j e h davidson et al 1978 and the development of the new cointegration technique of r f engle and c w j granger 1987 existing models are found to be inadequate on two grounds they fail parameter stability tests and they do not contain a suitable equilibrium specification the paper uses the cointegration approach to search for an encompassing model that is both stable and cointegrates the main finding is that the analysis must be extended to allow for differential income effects caused by changing higher rate income tax bands copyright 1989 by royal economic society

the effect of national culture on the choice of entry mode characteristics of national cultures have frequently been claimed to influence the selection of entry modes this article investigates this claim by developing a theoretical argument for why culture should influence the choice of entry two hypotheses are derived which relate culture to entry mode choice one focusing on the cultural distance between countries the other on attitudes towards uncertainty avoidance using a multinomial logit model and controlling for other effects the hypotheses are tested by analysing data on 228 entries into the united states market by acquisition wholly owned greenfield and joint venture empirical support for the effect of national culture on entry choice is found

interfirm diversity organizational learning and longevity in global strategic alliances organizational theorists have correctly argued that the emergence and maintenance of robust cooperation between global strategic alliance partners is related to the diversity in the partners characteristics yet previous research has failed to systematically delineate the important dimensions of interfirm diversity and integrate the dimensions into a unified framework of analysis this paper develops a multilevel typology of interfirm diversity and focuses on organizational learning and adaptation as critical processes that dynamically moderate diversity s impact on alliance longevity and effectiveness

aggregate consumption and the distribution of income in the united kingdom an econometric analysis blinder i975 explained this omission by arguing that with the ascendancy of the friedman 1957 and modigliani and brumberg i954 models of consumer behaviour the view that income distribution affected aggregate consumption fell into disrepute in academic circles it was supplanted by the view that marginal and perhaps even average propensities to consume are constant over the income distribution pp 447 8 the life cycle model as is well known derives the aggregate consumption function from the hypothesis that the consumer chooses the time path of consumption which maximises lifetime utility subject to the constraint that the present discounted value of all consumption plus the present discounted value of the bequest if any is equal to lifetime disposable resources a consequence of such a hypothesis is that consumption at each instant is proportional to lifetime disposable resources with the constant of proportionality dependent only on age length of life the rate of interest and tastes in their empirical work friedman and modigliani may also have had to ignore income distribution due to lack of data however blinder 1975 went on to show that even under the life cycle hypothesis provided that the marginal utility of bequests say f was different

econometric issues in macroeconomic models with generated regressors the paper critically reviews the literature on the econometric issues raised by the use of generated regressors gr in empirical models the economic rationale for the use of gr is considered with examples being drawn from several macroeconomic examples including new classical macroeconomic ncm models which postulate monetary neutrality various estimation methods are discussed for models which include surprise or unexpected terms and the strengths and weaknesses of each approach are investigated drawing upon the work of mcaleer and mckenzie 1991 situations where the typically inefficient two step estimation 2se method will be efficient are highlighted problems of model misspecification and measurement errors are also investigated an empirical section highlights some of the dangers of using uncorrected 2se estimation results through a careful consideration of many recent attempts to test the ncm monetary neutrality hypothesis copyright 1993 by blackwell publishers ltd

soft and hard price collars in a cap and trade system a comparative analysis we use a stochastic dynamic framework to compare price collars price ceilings and floors in a cap and trade system with uncertainty in the level of baseline emissions and costs we consider soft collars which provide limited volume of additional emission allowances a reserve at the price ceiling and hard collars which provide an unlimited supply of additional allowances thereby preventing allowance prices from exceeding the price ceiling conversely allowances are removed from the market if prices fall to the floor we find that increasing the size of the reserve strictly lowers expected net present values of compliance costs however there is a diminishing effect as the allowance reserve is expanded most of the expected cost savings are achieved with a modest reserve consequently a rather limited soft price collar could provide considerable assurance about cost while preventing the possibility that emissions could spiral out of control

enforcement and price controls in emissions trading this paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms abatement costs the analysis highlights how an enforcement strategy can cause abatement cost risk to be transmitted to enforcement costs via the price of permits when this occurs accommodating the effect of abatement cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second best optimal values however it is possible to design an enforcement strategy that shields enforcement costs from abatement cost risk by tying sanctions directly to permit prices this enforcement strategy stabilizes enforcement effort the optimal permit supply and price controls are independent of enforcement costs and the policy produces the second best optimal outcome

cooperative strategies between foreign firms in an overseas country in this paper we study the cooperative strategies between two firms in an overseas country in part 1 we examine the circumstances under which foreign firms would cooperate with another foreign firm in a third country market drawing upon existing literature we develop and test a set of hypotheses using a longitudinal data set from china the types of cooperative arrangements include all the major modes of operation in part 2 we further investigate what types of operation and level of control exist among the cooperative arrangements between two foreign firms in china we used a sample of 483 cooperative arrangements between two firms from hong kong the u s japan germany or britain this study offers interesting insight as to why foreign firms form cooperative arrangements in an overseas country and what types of cooperative arrangements these firms prefer

equity joint ventures and the theory of the multinational enterprise this paper extends the internalization approach to the theory of the multinational enterprise mne to include an expanded role for equity joint ventures using the transaction cost paradigm of williamson this paper explains why joint ventures may sometimes be preferred over wholly owned subsidiaries also presented is empirical work on joint venture performance in developing countries which demonstrates that under certain conditions joint ventures can be the optimal mode of foreign direct investment

cultural differences in conducting intra and inter cultural negotiations a sino canadian comparison a study on conflict resolution strategies of canadian and chinese peoples republic of china executives was conducted responses to two types of joint project conflicts task related and person related with potential partners from their own culture or from the other culture were examined neither group of executives altered its strategy when negotiating across cultures chinese executives were more likely to avoid conflicts but recommended more negative strategies discontinue negotiation withdraw negotiation when conflict emerged person related conflicts were found to generate more negative responses than task related conflicts especially for chinese executives both canadian and chinese executives preferred to negotiate with canadians than with chinese

net liquid assets and net illiquid assets in the consumption function some evidence for the united kingdom abstract this note reports details of estimating consumption equations for the united kingdom which separate net wealth into net liquid assets and net illiquid assets the estimation framework is related to that in the influential article by hendry and von ungern sternberg 1981 but recognises the importance of defining income to allow not only for inflation induced losses but also for depreciation provisions the empirical results provide some support for a role for both liquid and illiquid assets in determining consumption decisions

carbon markets 15 years after kyoto lessons learned new challenges abstract carbon markets are substantial and they are expanding there are many lessons from market experiences over the past eight years there should be fewer free allowances better management of market sensitive information and a recognition that trading systems require adjustments that have consequences for market participants and market confidence moreover the emerging market architecture features separate emissions trading systems serving distinct jurisdictions and a variety of other types of policies exist alongside the carbon markets this situation is in sharp contrast to the top down integrated global trading architecture envisioned 15 years ago by the designers of the kyoto protocol and raises a suite of new questions in this new architecture jurisdictions with emissions trading have to decide how whether and when to link with one another stakeholders and policymakers must confront how to measure the comparability of efforts among markets as well as relative to a variety of other polic

housing equity withdrawal and the average propensity to consume this study explains the behaviour of the average propensity to consume for durable and non durable expenditure in the uk during 1980 91 explicit attention is paid to the role of housing wealth and in particular equity withdrawal which has become more prominent as a result of financial deregulation long run relationships are estimated using the johansen procedure and from this reasonable short run equations are obtained the results indicate positive impact from housing equity withdrawal on the average propensity to consume

modelling the dynamic relationship between wages and prices in finland the purpose of this paper is to discuss finnish wage price dynamics with emphasis on the collective wage bargaining mechanism the results indicate that the dynamics of the system can be adequately described by means of a linear difference model with a rather sparse amount of lags completed by error correction mechanisms to ensure proper long term behavior specification of the collective wage bargaining procedure turns out to be a very important part of the model building another noteworthy feature is the stabilization period in 1968 69 during which a different data generating mechanism was in operation the results do not provide any evidence in favor of the argument that wage indexation prior to stabilization would have had a sizeable effect on the wage price mechanism in finland

on a fundamental advantage of permits over taxes for the control of pollution we extend the tax versus permits literature by considering permit supply functions and pollution tax functions that are generalizations of the usual constant permit supply and constant pollution tax rate in our model pollution is not uniformly mixed and the regulator is uncertain about the polluting firms abatement costs we determine the optimal permit supply functions and the optimal pollution tax functions using these functions we show that permits lead unambiguously to lower total expected costs than taxes we analyze the magnitude of this difference for a simple model of climate change by relating the optimal permit supply functions to weitzman am econ rev 68 683 691 1978 we provide a new interpretation of his results

the consumption function in macroeconomic models a comparative study 1984 the consumption function in macroeconomic models a comparative study applied economics vol 16 no 6 pp 799 838

influences on foreign equity ownership level in joint ventures in china this study examines the determinants of foreign equity ownership in joint ventures in china drawing upon duning s ownership locational and internalization paradigm and the literature on bargaining power eleven variables that impact foreign ownership preferences and concessions are examined these variables are advertising intensity foreign capital input country risk of china ejv investment amount ejv contractual duration cultural distance competitive intensity local partner state ownership local partner alignment foreign partner alignment and ejv location the empirical findings are largely consistent with the hypotheses the empirical findings are largely consistent with the hypotheses further interesting differences were found among u s european and japanese firms with respect to the impact of these determinants

a note on correlated uncertainty and hybrid environmental policies this note examines the effects of correlated uncertainty between abatement costs and pollution damage on hybrid emissions control policies in particular i show how correlated uncertainty affects the structure and performance of control policies that combine permit trading with price controls moreover i show how correlated uncertainty affects the choice between a simple emissions tax versus a hybrid policy under correlated uncertainty constant marginal damage is no longer necessary or sufficient for a tax to be an optimal policy

estimating the household consumption function in saudi arabia an error correction approach abstractwe estimate a micro founded life cycle consumption model for saudi arabia over the period 1970 2017 using error correction model procedures dynamic adjustments are significant and both in

financial performance and survival of multinational corporations in china this study investigates the impact of entry timing mode of entry market focus and location advantages on the financial performance and survival of multinational corporations mncs in china three major results were found first mncs that entered china in an earlier year had a higher level of profit than those that entered in a later year second equity joint ventures ejvs had a higher profit level than cooperative operations or wholly foreign owned subsidiaries third mncs that utilized well the location advantages in china had a higher profit we also found that ejvs were more likely to survive compared to cooperative operations while wholly owned subsidiaries did not differ from ejvs the findings are based on a 2 year study of about 1000 mnc operations in china copyright 1999 john wiley sons ltd

developed country mnes investing in developing economies progress and prospect this study reviews research from 1970 through 2016 on developed country multinational enterprises dmnes entering and competing in developing economies to identify the current state of knowledge of this research and push it further we review the literature using bibliometric and qualitative content analyses covering leading journals and books we articulate frontier issues that are understudied yet critical to both theorization and practice of dmnes in developing economies we discuss the findings and conclusions from prior research along five key areas 1 entering developing economies 2 organizing local activities 3 managing alliances and joint ventures 4 competing in dynamic environments and 5 dealing with institutions governments and society we offer prospective insights into future agenda that have important implications for mne strategies and decisions and propose frontier directions that encompass strategic localization reverse transfer and adaptation co evolution with local business ecosystems reorganizing and restructuring and strategic responses to institutional and market complexity

an empirical examination of government expenditures and the ex ante crowding out effect for the british economy the conventional macroeconomic view that consumers make their consumption decisions without regard for goods provided by the government has been examined in the literature moreover the line of research that questions this conventional view argues that this separation does not have a firm theoretical backing if consumers take government expenditures into account when maximizing their utility functions then the effects of fiscal policy actions will tend to appear weaker than those suggested by most conventional analyses the examination of this issue should therefore have far reaching political as well as economic implications within the context of traditional fiscal policies this paper will empirically examine the ex antecrowding out effect of government expenditures upon private consumption expenditures for the british economy an aggregate consumption function is derived and estimated in the context of a simultaneous equations model based on intertemporal consumption theory the empirical results sho

alternative approaches to cost containment in a cap and trade system we compare several emissions reduction instruments including quantity policies with banking and borrowing price policies and hybrid policies safety valve and price collar using a dynamic model with stochastic baseline emissions the instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options based on simulation analysis with the model parameterized to values relevant to proposed us climate mitigation policies we find that restrictions on banking and borrowing including the provision of interest rates on the borrowings can severely limit the value of the policy depending on the regulator chosen allowance issuance path although emissions taxes generally provide the lowest expected abatement costs a cap and trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax but with lower emissions variance than a tax consistently a price collar is more cost effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline

savings in new zealand during inflationary times measurement determinants and implications real rates of return predominantly as a result of in model of saving behavior is constructed to test the role creased price inflation and slow rates of economic growth for instance deane 1980 stated that inflation taxation and interest rate variables play in determining saving the estimation results are then the behaviour ofsaven in times of inflation is still one of the unsolved used to identify the implications for future economic mysteries of economics to the surprise of economists in the early growth in new zealand in terms of saving assuming 1970s when inflation was accelerating sharply in most western nations consumers saved a higher than expected percentage of the stressed in the literature their income p 377 that of releasing factors for capital formation

second best instruments for near term climate policy intensity targets vs the safety valve abstract current proposals for greenhouse gas emissions regulations in the united states mainly take the form of emissions caps with tradable permits since weitzman s 1974 3 study of prices vs quantities economic theory predicts that a price instrument is superior under uncertainty in the case of stock pollutants given the general belief in the political infeasibility of a carbon tax in the us there has been recent interest in two other policy instrument designs hybrid policies and intensity targets we extend the weitzman model to derive an analytical expression for the expected net benefits of a hybrid instrument under uncertainty we compare this expression to one developed by newell and pizer 2006 6 for an intensity target and show the theoretical minimum correlation between gdp and emissions required for an intensity target to be preferred over a hybrid in general we show that unrealistically high correlations are required for the intensity target to be preferred to a hybrid making a hybrid a more practical instrument in practice we test the predictions by performing monte carlo simulation on a computable general equilibrium model of the us economy the results are similar and we show with the numerical model that when marginal abatement costs are non linear an even higher correlation is required for an intensity target to be preferred over a safety valve

modelling consumers expenditure the purpose of this paper is to model the dynamics of consumers response to changes in the relevant variables wealth and inflation effects on aggregate consumption expenditure are investigated real capital losses or gains due to inflation are accounted for in providing a more appropriate definition of income in a situation of rising prices empirical results for italy show that once the dynamic structure of the model is carefully specified consumption expenditure can be explained in terms of a limited number of variables income and wealth some evidence is found moreover in favour of redefining income while additional inflation effects appear to be not significant

the hierarchical model of market entry modes in this study we propose and test a hierarchical model of market entry modes entry modes can first be viewed as equity based versus non equity based within equity based modes the choice is between wholly owned operations and equity joint ventures while within non equity based modes the choice is between contractual agreements and export empirically we demonstrate that there are factors that exert substantial influences at the equity versus non equity level but rather weak influences at the lower level of choice hierarchy the empirical results are based on a sample of over 10 000 foreign entry activities into china between 1979 to 1998 the findings provide supportive evidence for the hierarchical model of market entry modes

testing the stochastic implications of the life cycle permanent income hypothesis using uk regional time series data this paper applies exclusion tests of the pure life cycle permanent income hypothesis lcpih to time series data on each of the eleven standard regions of the uk data are annual and extend from 1975 to 1994 the results obtained suggest that there are considerable differences in consumption behaviour across the regions theory has indicated that a departure of consumption behaviour from that predicted by the lcpih can occur because of a change in unemployment consequently a comparison is undertaken of the empirical results obtained for the eleven regions and the respective unemployment movements following this comparison it is possible to conclude that the contrasting unemployment experiences of the regions of the uk have contributed significantly to yet cannot account for fully the observed differences in consumption behaviour

econometric modelling of the sterling effective exchange rate the exchange rate is recognised as a particularly tricky subject for modelling and prediction the problems of unobservables such as expectations of simultaneity and of policy changes both overt and covert in the sample period to which models must be fitted may account for the disappointing results of recent attempts to test theories of exchange rate determination this paper develops an appropriate empirical model to deal with these problems it allows consideration of the proper interpretation of theoretical assumptions and determination of how far modelling for ex ante prediction can succeed the exchange rate is recognised as a particularly tricky subject for modelling and prediction the problems of unobservables such as expectations of simultaneity and of policy changes both overt and covert in the sample period to which models must be fitted may account for the disappointing results of recent attempts to test theories of exchange rate determination see for example the pessimistic conclusions of hacche and townend 1981 the aim of this paper is to develop an appropriate empirical model for these purposes to consider in particular the proper interpretation of theoretical assumptions and to determine how far in this case modelling for ex ante prediction can succeed the core of the model is the view of the exchange rate as a price determined in an efficient market with low transactions costs and well informed transactors in this view the observed rate represents a market equilibrium apart from random deviations and where equilibrium is contingent upon an expected future state of the world the expectations are assumed rational in the sense of being unbiased relative to a given information set the implications of strong and weak forms of rationality in which the information set is either relatively wide or narrow must however be carefully distinguished under the most extreme rationality hypothesis it will not be possible to improve on a simple modified random walk model for ex ante prediction and so the role of additional lagged variables is an important empirical issue compare for example the life cycle model of consumption as in hall 1978 and see also davidson and hendry 1981 although there has been a good deal of investigation of exchange market rationality e g frenkel 1981 levich 1978 hacche and townend 1981 baillie lippens and macmahon 1983 the evidence remains inconclusive another important issue which the paper seeks to understand separate from although related to the rationality question is the volatility of the exchange rate relative to the variables which might be expected to explain it explanation in terms of a linear short run equilibrium model e g the overshooting hypothesis does not account convincingly for the very large shifts periodically observed in response to apparently minor stimuli a theoretical justification for a nonlinear econometric framework is developed and this model is found to dominate the linear alternative on goodness of fit criteria

on some estimates of an asian savings function abstract recent empirical studies have led many economists to argue that a number of countries in asia could stimulate savings if they permitted higher rates of interest and accepted less foreign aid this paper critically examines the econometric basis of these claims for this purpose the model specifications found in past work are encompassed within a more general model so that they may be replicated and tested as restricted forms