on the link between exchange rate regimes capital controls and monetary policy autonomy in small european countries 1979 2000 we investigate international monetary policy transmission under different exchange rate and capital account regimes in eleven small open economies during the 1980s and 1990s we find no systematic link between ex post monetary policy autonomy and exchange rate regimes capital controls appear to have provided a degree of temporal insulation from foreign monetary policy shocks though not strict autonomy the results are consistent both with short term autonomy for small countries even under fixed exchange rates and an open capital account and with long term dependence under flexible exchange rates and an independent stability target results also indicate that euro area market interest rates are significantly more responsive to the development of the corresponding us rate than were the previous national rates

u s european interest rate linkage a time series analysis for western germany switzerland and the united states the authors investigate whether there was an international linkage of interest rates between the united states west germany and switzerland during the period of flexible exchange rates 1974 84 euro market rates and bond market rates are considered during the two subperiods of falling and increasing u s dollar dm exchange rates 1974 to 1978 and 1979 to 1984 spectral analysis and granger causality tests are applied and trivariate autoregressive models are estimated it is shown that a strong linkage exists during the second period but during the first subperiod there was no or only a weakly pronounced linkage copyright 1987 by mit press

the american business cycle continuity and change in recent decades the american economy has experienced the worst peace time inflation in its history and the highest unemployment rate since the great depression these circumstances have prompted renewed interest in the concept of business cycles which joseph schumpeter suggested are like the beat of the heart of the essence of the organism that displays them in the american business cycle some of the most prominent macroeconomics in the united states focuses on the questions to what extent are business cycles propelled by external shocks how have post 1946 cycles differed from earlier cycles and what are the major factors that contribute to business cycles they extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations seven papers address specific aspects of economic activity consumption investment inventory change fiscal policy monetary behavior open economy and the labor market five papers focus on aggregate economic activity in a number of cases the papers present findings that challenge widely accepted models and assumptions in addition to its substantive findings the american business cycle includes an appendix containing both the first published history of the nber business cycle dating chronology and many previously unpublished historical data series

underestimating the real growth of gdp personal income and productivity economists have long recognized that changes in the quality of existing goods and services along with the introduction of new goods and services can raise grave difficulties in measuring changes in the real output of the economy but despite the attention to this subject in the professional literature there remains insufficient understanding of just how imperfect the existing official estimates actually are after studying the methods used by the us government statistical agencies as well as the extensive previous academic literature on this subject i have concluded that despite the various improvements to statistical methods that have been made through the years the official data understate the changes of real output and productivity the official measures provide at best a lower bound on the true real growth rate with no indication of the size of the underestimation in this essay i briefly review why national income should not be considered a measure of well being describe what government statisticians actually do in their attempt to measure improvements in the quality of goods and services consider the problem of new products and the various attempts by economists to take new products into account in measuring overall price and output changes and discuss how the mismeasurement of real output and of prices might be taken into account in considering various questions of economic policy

business cycle affiliations in the context of european integration we study affiliations for the countries of the european economic and monetary union emu with germany and the usa using various business cycle measures derived from quarterly real gdp these measures are hodrick prescott and baxter king filtered series and annual growth rates by using rolling contemporaneous and maximum over a short lead lag interval correlations we document increasing correlations of emu countries with germany with these typically being largest during the 1990s we also document a strong leading role for the usa in relation to these countries in the period since 1993 thereby correcting the fallacy that the european business cycle was disjointed from the usa for most of the 1990s

economic measurement progress and challenges the national income accounts together with the source data which they use form the core of our economic measurement system the development of the concepts and measurements of national income are among the most important achievements of modern economics replacing the older notions of national wealth of the physiocrats and mercantilists for example is national income and product confined to market activity the appropriate fundamental concept yes but we ask a lot of national income and product accounting it is used most importantly to gauge economic progress how much better off are we than our parents or grandparents is the economy growing adequately slowly or rapidly in recent years and are we at a cyclical turning point the information requirements of course will differ depending on the question gaps in inventory measurement may be an appropriate resource claimant to those interested in cyclical issues whereas finding identifying and incorporating new products and quality change more rapidly may be far more significant to long term economic growth we also tend to have a survivor selection bias in our concern with the speed with which new ideas and concepts are incorporated into the national accounts and other data series superlative indexes hedonic regression methods for quality change and many others were much more obvious after some years of diffusion throughout the profession than at their inculcation as a result the gap between major suggested improvements and their adoption by statistical agencies can be extensive often decades erwin diewert 1999 should national accounts be extended to nonmarket activity nonmarket work time is perhaps the most important area for supplemental information natural resources and the environment are close behind william d nordhaus and edward kokkenlenberg 1999 r d capital environmental capital human capital and other intangibles are high priority items but should be dealt with in the form of satellite accounting so i applaud the bea s recent initiatives in this direction i come to this conclusion for a variety of reasons not to suggest that technological capital and human capital are less important than tangible capital in fact perhaps quite the opposite they are all complementary boskin and lawrence lau 2000 but the issues in definition classification and measurements are still more problematic for these items than for traditional items and therefore i believe they should not be added directly to the national income and product accounts nipa in short my own view is that substantial improvements can and should be made in the traditional domain of the national accounts improvements in the core national accounts should not be sacrificed to a proliferation of satellite accounts in principle we should do both and sufficient resources should be provided to accomplish these tasks

the erm and monetary integration in the european union an investigation of long run relationships this paper investigates the integration of eu money supplies for the erm period 1979q1 93q4 an estimating equation is derived from a simple equilibrium model of the eu money markets estimation is undertaken using the johansen maximum likelihood cointegration procedure the results show that those eu members with relatively low exchange rate premia against the dm are those whose variations in the money supply have been most sensitive to those of germany

german dominance in the ems evidence from interest rates abstract the paper presents an empirical analysis of german dominance and asymmetries in the ems based on a dynamic system of equations explaining national money market interest rates the hypothesis of strict german dominance of the ems is rejected however there are some noticeable asymmetries in the ems germany is a relatively strong player and has been the least dependent country in the early phase of the system since 1983 german independence has diminished in contrast france throughout and italy in the early phase of the ems have been relatively weak players in the system

the fundamental determinants of interest rate differentials in the erm the paper analyses the sources of persistent interest rate differentials vis a vis germany that have existed in belgium denmark france ireland italy and the netherlands in a target zone system like the erm interest rate differentials mainly reflect devaluation expectations which are measured here by raw 1 month euromarket interest rate differentials drift adjusted 1 month differentials and differentials in long term government bond yields the role of a large set of fundamental macroeconomic variables that may have affected these devaluation expectations is investigated within a vector autoregressive var setting by means of granger causality tests impulse response functions and variance decompositions we find no evidence that fundamentals are more relevant to drift adjusted devaluation risk than for unadjusted interest rate differentials a significant impact of inflation budget deficits and unemployment becomes evident for almost all erm participants

dominant interest and inflation differentials within the ems a comment abstract in a recent article in this review koedijk and kool 1992 k k have argued that the ems has not functioned as a dm zone they use a modified version of the principal components analysis to show that deviating movements in inflation and interest rates have always existed and still exist between germany and the netherlands on the one hand and belgium france and italy on the other they conclude that germany has in practice not dominated the ems bloc and that the participating countries have enjoyed some freedom in setting their monetary policy in this comment we challenge their conclusion we use cluster analysis to show that the ems has gradually evolved into a dm zone we also disagree with another conclusion of k k that the united kingdom in practice always belonged to the dm group indeed we show that this is only true for a few years

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

why exchange rate bands monetary independence in spite of fixed exchange rates abstract the paper argues that the reason real world fixed exchange rate regimes usually have finite bands instead of completely fixed exchange rates between realignments is that exchange rate bands counter to the textbook result give central banks some monetary independence even with free international capital mobility the nature and amount of monetary independence is specified informally and in a formal model and quantified with swedish krona data altogether the amount of monetary independence appears sizable for instance an increase in the swedish krona band from zero to about 2 percent may reduce the krona interest rate s standard deviation by about a half

are economists traditional trade policy views still valid recent analysis of trade policies under imperfectly competitive market conditions as well as in situations where trade in high technology products is important have raised doubts whether economists should continue their traditional opposition to trade taxes and subsidies this paper evaluates the new theoretical arguments for interventionist trade policies by comparing them with the traditional arguments for and against free trade investigating the empirical evidence supporting the conditions assumed in the new models appraising the realism of the behavior assumptions of these models and the sensitivity of their conclusions to changes in these assumptions and considering the political economy implications of these conclusions the general conclusion is that there are serious practical difficulties with the interventionist arguments of the new trade theorists as they themselves recognize just as there are with such traditional arguments for trade intervention as the terms of trade case for protection however the new industrial organization approach to trade theory has already provided valuable insights into trade behavior in international markets and promises to provide many more as more realistic behavior models are developed this abstract was borrowed from another version of this item

unit roots and granger causality in the ems interest rates the german dominance hypothesis revisited abstract the aim of this paper is twofold first it shows that a sufficient conditions for unit roots found in ar systems to persist in var systems amount to granger non causality in any direction among the variables involved this implies that a necessary condition for the disappearance of one unit root in a var system implies granger causality in at least one direction b for first order models with non explosive variables granger causality is also sufficient for cointegration and c causality and cointegration inference are strongly affected by the omission of an important causing variable second our new analytical framework allows us to formulate and test several new variations of the so called german dominance hypothesis in a unified cointegrating framework which we define as strong semi strong and weak types 1 and 2 german dominance in addition we allow for the possibility that the dominant player may lie outside the ems so that we introduce and test the us dominance hypothesis

dynamics of intra ems interest rate linkages anumber of previous studies have questioned the dominant role of germany within the european monetary system ems these conclusions are often based on empirical findings that the interest rates of ems member countries are not affected by german interest rates even in the long run in this study we demonstrate that intra ems interest rate differentials vis a vis germany exhibit mean reverting behavior characterized by long memory dynamics in a system incorporating six ems countries and one non ems country the u s a estimates from a fractional error correction model suggest the presence of short run intra ems monetary policy interdependencies but validate the german dominance hypothesis in the long run

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

capital market integration over the past decade the case of the us dollar abstract this study investigates changing capital market integration over the decade 1973 83 as measured by the relationship between eurodollar and domestic us dollar yields the findings reveal that capital market integration has increased appreciably since the end of 1981

beyond spreads measuring sovereign market stress in the euro area abstract we develop a novel composite indicator to measure sovereign bond market stress in the euro area the indicator integrates yield and liquidity spreads along with volatility into an overall measure of sovereign market stress an application to the spillover literature suggests that stress mainly originates from a few countries but that spillover patterns also vary over time

interest rate linkages within the european monetary system further analysis j costas karfakis and demetrios m moschos 1990 examine the interest rate linkages within the european monetary system ems concluding that the german interest rate plays a dominate role within the ems the authors reexamine the interest rate linkages within the ems with the addition of the interest rate of the united states their results suggest that both the united states and german interest rates play an important but not dominant role in ems interest rate linkages copyright 1993 by ohio state university press

exchange rates policy convergence and the european monetary system in this paper we use a recently developed multivariate cointegration technique to analyze the degree of policy convergence of ems member relative to that of some non ems countries interestingly we find convergence for the nominal and real exchange rates and money supplies of the ems members but not for the non ems countries we also provide some evidence to support the german leadership hypothesis in the context of intra ems monetary policy convergence which accords with anecdotal evidence on the modus operandi of the ems

real exchange rate monetary policy and the u s economy evidence from a favar model this paper examines the effects of exchange rate depreciation to the u s economy in a factor augmented vector autoregression model using monthly data of 148 variables for the post bretton woods period of 1973 2017 exchange rate shock is identified to reflect exogenous disturbances to the foreign exchange market and movements in exchange rate that are not accounted for by changes in the u s monetary policy we find that depreciation is expansionary and inflationary to the broad u s economy the current account improves over time conforming to the j curve theory and monetary policy is leaning against the wind jel e3 e5 f31 f32 f41

the international transmission of eurodollar and us interest rates a cointegration analysis abstract the relationship between us and eurodollar certificate of deposit cd rates for the period 1981 1988 is examined using an error correction model results indicate that there is a structural change in the cd rates in the earlier sub period 1981 1983 there exists unidirectional causality leading from the domestic to the external markets in the more recent sub period 1984 1988 however significant reverse causality is observed these results are likely due to expansion in the size of the eurodollar market and an increase in the volume of eurodollar futures trading

interest rate linkages in the eurocurrency market contemporaneous and out of sample granger causality tests abstract this paper examines linkages among major eurocurrency interest rates during 1994 2002 eurocurrency interest rate causal linkages are found to be much stronger with additional allowance for contemporaneous causality test results than the inference based solely on granger causality tests the impact of u s interest rates is clearly not dominant in the eurocurrency markets while the japanese interest rates are found to be quite influential german interest rates both cause and are caused by several other eurocurrency interest rates by contrast interest rates on the new currency the euro do not have a substantial influence on other eurocurrency interest rates which underscores its emerging status

mundell s trilemma policy trade offs within the middle ground abstract mundells s trilemma makes strong categorial predictions on monetary policy trade offs where a small economy either has to adopt floating exchange rates or a closed capital account to establish interest rate autonomy however the trilemma is silent about a functional description of respective trade offs for intermediate middle ground policies accounting for the entire space of such policies we study monetary autonomy in an unrestricted and continuous manner for 20 mostly developed economies evidence suggests that interest rate dependence almost linearly increases with the fx stability indicator under financial openness thereby full independence would require an intensity of fx volatility which policymakers might hardly accept however this strong trade off can be relaxed efficiently by a moderate reduction of financial openness hence such a policy might offer some protection against the global financial cycle and leaves a considerable scope to combine a domestic monetary policy with a reduced fx rate variability

the effects of monetary policy using structural factor analysis the traditional vector autoregression var method is widely used to trace out the effects of monetary policy innovations on the economy however this method suffers from the curse of dimensionality so that in practice vars are estimated on a limited number of variables leading to a potential missing information problem in this article we use the method of structural factor analysis to evaluate the effects of monetary policy on key macroeconomic variables in a data rich environment this methodology allows us to extract information on monetary policy and its impact on the economy from a much larger data set than is possible with the traditional var method we propose two structural factor models one is the structural factor augmented vector autoregressive sfavar model and the other is the structural factor vector autoregressive sfvar model compared to the traditional var both models incorporate information from hundreds of data series series that can be and are monitored by the central bank in

do euro exchange rates follow a martingale some out of sample evidence abstract traditional autocorrelation and variance ratio tests are based on serial uncorrelatedness rather than martingale difference as such they do not capture potential nonlinearity in mean which could lead to misleading inferences in favor of the martingale hypothesis this paper employs various parametric and nonparametric nonlinear models as well as several model comparison criteria to examine the potential martingale behavior of euro exchange rates in the context of out of sample forecasts the overall evidence indicates that while martingale behavior cannot be rejected for euro exchange rates with major currencies such as the japanese yen british pound and us dollar there is nonlinear predictability in terms of economic criteria with respect to several smaller currencies

policy credibility in the erm evidence from six countries using an arch approach the issue of credibility and capital mobility in the ems is re examined using an alternative methodology as well as a longer sample period than previous studies in particular the dynamic relationship between interest rate differentials and the exchange rate risk premium is emphasized the relationship between the premium and credibility is then used in order to identify patterns of credibility in erm countries credibility in the case of italy has declined post 1985 as indicated by the rising exchange rate risk premium for denmark france and ireland credibility seems to be increasing up to the currency crisis period and for belgium and holland credibility increased early in the period and remained high during the rest of the period

monetary interdependence among g 3 countries this paper uses vector autoregressions to investigate the interdependence of the monetary policies of the central banks of germany japan and the united states granger sims causalities and innovation accounting mechanisms suggest that tri lateral linkages are strong and complex the results imply that the influence of foreign central banks policies limit each central bank s capacity to determine an independent domestic policy

linkages among interest rates in the united states germany and norway the johansen multivariate cointegration methodology is used to analyze relationships among short term and long term interest rates in the united states germany and norway a variance decomposition approach is applied to estimate the proportion of each interest rate s forecast error variance attributable to innovations in the other interest rates impulse response functions are plotted to illustrate the speed with which interest rate events are transmitted between capital markets the analyses illustrate that us interest rates have a significant influence on both german and norwegian interest rates while the reverse effect is modest norway is also strongly exposed to german interest rate movements which reflects the consequences of a small country linking its currency to the value of european currencies

monetary policy shocks what have we learned and to what end this paper reviews recent research that grapples with the question what happens after an exogenous shock to monetary policy we argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules the literature has not yet converged on a particular set of assumptions for identifying the effects of an exogenous shock to monetary policy nevertheless there is considerable agreement about the qualitative effects of a monetary policy shock in the sense that inference is robust across a large subset of the identification schemes that have been considered in the literature we document the nature of this agreement as it pertains to key economic aggregates

reflections on agricultural r d productivity and the data constraint unfinished business unsettled issues sixty years ago t w schultz introduced the idea of the productivity residual to agricultural economics 1956 schultz s main message was that growth in conventional inputs accounted for little of the observed growth in agricultural output and that there was work to be done by agricultural economists to understand and ultimately eliminate this unexplained residual called productivity thus was launched the economics of agricultural productivity as a sub field within agricultural economics along with the economics of agricultural r d and innovation and related government policy much progress has been made in the decades since still critical issues remain unresolved this matters because agricultural innovation and productivity matter and so do the related policies that rest to some extent on our established understanding of the economic relationships in this paper i review some unsettled issues related to economic models and measures applied to agricultural r d and productivity and some unfinished business in terms of economic and policy questions that are not yet well answered before doing that i present some evidence on agricultural productivity and why it matters next with a nod to factology i present available productivity measures from the u s department of agriculture usda and international science and technology practice and policy instepp center and compare them in the context of translog cost function models in subsequent sections i use these and other data to develop new evidence related to two contentious questions a do farmers benefit from public agricultural r d b has u s agricultural productivity growth slowed in recent decades the answers are revealed within

cointegration market integration and market efficiency abstract this paper uses a standard dynamic general equilibrium asset pricing model to study the relationship among the concepts of efficient markets integrated markets and cointegrated prices within this setting we show that these concepts are independent of one another and any zero one two or three of these characteristics can emerge in equilibrium depending upon taste endowment and technology parameters in particular the results of tests of cointegration among asset prices have no implications about market efficiency or market integration without additional restrictions on the economy or economies

the relationship between interest rate differentials and macroeconomic variables a panel data study for european countries abstract based on panel data regressions the relationship between 12 month interest rate differentials and macroeconomic variables is analyzed for nine european countries relative to germany stationarity properties of the variables are examined by tests developed for panel data models the distribution of the test statistic is not normal and is bootstrapped from the sample at hand all significant regression coefficients are estimated with the predicted sign in particular the inflation differential the real income growth differential relative labor costs and the current account have a strong effect on the interest rate differential hence the results indicate that governments have some scope for influencing the interest rate differential by conducting the appropriate macroeconomic policy these results are considerably more optimistic compared to earlier studies where interest rate differentials are frequently measured at 1 month and 3 months maturity included also is an analysis of whether the erm countries have gained more credibility in exchange rate policy through the exchange rate system

the international financial market and us interest rates abstract this paper examines the linkages between the eurodollar and us domestic financial markets it is shown that using weekly data allows the isolation of significant fluctuations being transmitted between markets in both directions in particular financial markets in the us are affected significantly by foreign events it is impossible to reach precise conclusions about the causes of historical variation in the rates however this paper provides evidence that at most 40 of the variation in eurodollar interest rates over the 1975 1978 period can be traced to domestic us sources and that between about one fifth and two thirds of the variation in domestic rates can be traced to foreign sources

deficits explicit debt implicit debt and interest rates some empirical evidence author affiliation zijun wang private enterprise research center allen building room 3028 texas am e mail z wang neo tamu edu corresponding author andrew j rettenmaier private enterprise research center allen building room 3028 texas am e mail a rettenmaier tamu edu acknowledgment we are grateful to kent kimbrough editor and two anonymous referees for their comments which significantly improved the paper financial support from the lynde and harry bradley foundation and the national center for policy analysis ncpa is acknowledged 1 introductionthe effect of government borrowing on interest rates has been a controversial issue for about three decades the federal deficits of the 1980s and the early 1990s caused speculation as to whether higher interest rates would follow the current deficits have renewed interest in the link to higher interest rates since the influential work of barro 1974 much of the discussion has focused on whether the ricardian equivalence hypothesis holds bernheim 1987 barth et al 1991 seater 1993 elmendorf and mankiw 1999 and engen and hubbard 2005 provide excellent reviews of the literature on the topic recent contributions include cebula 1997 gale and orszag 2003 laubach 2003 and ardagna caselli and lane 2004 among others although empirical evidence obtained in earlier studies is mixed as argued by gale and orszag 2003 major macroeconometric models imply an economically significant connection between changes in deficits and long term interest rates empirical evidence assembled by recent studies seems to lean toward the existence of the relationship but there is still no consensus about the magnitude of the effect a missing piece in the debate is a formal investigation of the effect of the implicit debt as embodied in unfunded obligations of social security and medicare theoretically it could be argued that because the ricardian equivalence proposition assumes that households are rational and make decisions for long horizons then like the often discussed public debt explicit debt the implicit debt computed based on 75 year 100 year or infinite horizons might also have a role to play in the determination of interest rates the point we raise here is not new in his 1996 paper reflections on ricardian equivalence barro writes t he basic invariance proposition for intergenerational transfers is that the government s transfers implied by budget deficits or pay as you go social security would be fully undone if family members were connected through voluntary transfers based on altruism p 2 more recently gokhale and smetters 2005 also note that social security s pay as you go financing may crowd out private saving and hence increase interest rates p 12 1 therefore it is problematic to test the ricardian equivalence hypothesis without considering the effect of the implicit debt empirically the explicit debt although large in absolute amount about 4300 billion by the end of 2004 is only a part of the federal government s total obligations according to the office of the chief actuary of the social security administration the social security program alone carries unfunded obligations ranging from about 3700 to 11 200 billion in present values at the beginning of 2004 under various assumptions these numbers are even larger if the trust fund balances are subtracted in particular projected old age survivors and disability insurance payroll tax income will begin to fall short of outlays in 2017 which means that social security will require transfers from general revenues in the next decade social security trustees 2005 while previous studies have investigated the effect of social security wealth on saving and consumption e

measuring global money market interrelationships an investigation of five major world currencies abstract this paper extends the study of global money market integration in two primary directions first a technique which combines stationarity and cointegration tests as a basis for constructing an error correction model is applied to assess the existence of long run equilibrium relationships between money market series second analysis for the increasingly significant asian offshore markets of singapore and hong kong is added to traditional european and national markets analysis major findings are 1 the error correction model is an appropriate technique for identifying causality relationships and 2 major domestic markets and included offshore markets are partially segmented

the exchange rate a shock absorber or source of shocks a study of four open economies abstract the paper provides svar estimates for the uk canada sweden and denmark making explicit a monetary policy reaction function and taking account of exchange rate targeting practices it examines the role of the exchange rate as shock absorber as opposed to a source of its own and destabilizing shocks we find that in all countries but the uk real shocks are predominantly symmetric relative to the neighbor implying little need for the exchange rate to act as shock absorber the shocks arising in the exchange market appear to have played a more important role in denmark than in the other countries

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

the structure of interdependence in international stock markets abstract this study investigates the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs dag the dag representation provides a structure of causality among these markets in contemporaneous time building on this contemporaneous structure and the estimated error correction model innovation accounting techniques are applied the results show that the japanese market is among the most highly exogenous and the canadian and french markets among the least exogenous in our nine market study the us market is highly influenced by its own historical innovations but it is also influenced by market innovations from the uk switzerland hong kong france and germany the us market is the only market that has a consistently strong impact on price movements in other major stock markets in the longer run

taylor rules and the deutschmark dollar real exchange rate we explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate the interest rate rule in conjunction with some standard assumptions implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials the weights are functions of the parameters of the interest rate rule an initial look at german data yields some support for the model

fractional cointegration analysis of eu convergence traditional cointegration tests do not provide strong evidence of convergence between eu countries in this study fractional cointegration analysis is used to test for convergence between eu members fractional cointegration between inflation and between long term interest rates is found the results indicate that there is nominal convergence but that the equilibrium errors display long memory fractional cointegration analysis gives no evidence of real convergence in output

interest rate linkages within the european monetary system new evidence incorporating long run trends abstract this paper shows that the rejection of the existence of bivariate long run relationships between the interest rates within the european monetary system ems by previous studies may stem from the under specification of deterministic variables in the models and failure to capture the changes in the trend behavior of the data the present study applies the johansen cointegration tests in models with alternative trend specifications to four german other ems interest rate pairs for 1979 1998 with three sub sample periods corresponding to different degrees of ems monetary integration in contrast to the findings of past studies the results of this study lend support to the hypothesis that the interest rates of ems countries move together more closely over time converging from a wide dispersion toward the central level

on risk rationality and the predictive ability of european short term adjusted yield spreads abstract in this paper a rolling vector error correction model vecm is proposed to construct measures of the market s time varying conditional expectations of the 3 month money rates starting 13 weeks hence for several major ems member countries vecm based predictions provide the basis for computing ex ante out of sample estimates of the term premia these term premia are then used to adjust the yield spreads as a prelude to investigating their ability to predict future interest rates the source s of the yield spread bias are discussed while the expectations hypothesis is resoundingly rejected using the standard test specification yield spreads adjusted for time varying term premia are found to possess substantial predictive ability and in many instances the expectations hypothesis is not rejected the robustness of the results across the different european money markets and sample periods is highly encouraging the test results underscore the importance of incorporating into the test specification the equilibrium cointegrating constraints if they exist jel g15 1997 elsevier science ltd

how to solve the price puzzle a meta analysis the short run increase in prices following an unexpected tightening of monetary policy constitutes a frequently reported puzzle yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed we collect about 1 000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results our ndings indicate publication selection in favor of the intuitive response of prices to a tightening the estimates depend systematically on study design when misspecications are

sources of bias and solutions to bias in the consumer price index four sources of bias in the consumer prices index cpi have been identified the most discussed is substitution bias which creates a second order bias in the cpi three other changes besides prices changes create first order effects on a correctly measured cost of living index coli i explain in this paper that a pure price based approach of surveying prices to estimate a coli cannot succeed in solving the 3 problems of first order bias i discuss economic and econometric approaches to measuring the first order bias effects as well as the availability of scanner data that would permit implementation of the techniques

identifying monetary policy in a small open economy under flexible exchange rates abstract previous empirical study on the effects of monetary policy shocks in small open economies has generated puzzling dynamic responses in various macroeconomic variables this paper argues that these puzzles derive from an identification of monetary policy that is inappropriate for such economies to remedy this it is proposed that a structural model be estimated to explicitly account for the features of the small open economy such a model is applied to canada with tightly estimated results overall the dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the exchange rate as a transmission mechanism

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

regional land markets and trade induced inequities leger l a 1994 regional land markets and trade induced inequities reg studies 28 109 118 regional policies can be used to redress trade induced inequities in a small open economy a ricardo viner general equilibrium trade model is used in which interregional migration of labour is costly increasing relocation costs arise from the operation of markets for essential services in particular residential land these create distributional inequities and suggest the possibility of manipulation population density in regional land use to effect both redistribution and a move to greater productive efficiency leger l a 1994 les marches fonciers regionaux et les inegalites provoquees par les echanges reg studies 28 109 118 dans une petite economie ouverte depourvue de terrains a b tir les politiques regionales servent a corriger les inegalites provoquees par les echanges on se sert d un modele d echanges du type ricardo viner reposant sur la notion de l equilibre general et qui suppose que le cout

imperfect factor mobility and the distribution of income abstract when labor is imperfectly mobile between industries workers may have a special interest in commercial policies that increase the price of the output of the industry in which they are employed this proposition is investigated in a two good model in which the degree of labor mobility is measured by the elasticity of a convex input transformation curve the existence of such a transformation curve is justified by a model in which individual workers have differing relative and absolute efficiencies in different industries the results are extended to the case of many industries

a note on euroyen and domestic yen interest rates abstract this study examines interest rate transmission between the london euroyen market and the japanese domestic cd market the results which span 1984 through the beginning of 1993 indicate that these two interest rate series are cointegrated in the earlier part of the sample period causality is strongest from the euroyen market to domestic yen interest rates however strong feedback effects are observed in both directions in more recent years the use of both vector autoregressive modeling and cointegration analysis for forecasting is supported over random walk models

the real time predictive content of money for output abstract data on monetary aggregates are subject to periodic redefinitions presumably in part to improve their link to measures of output money data are also revised on a regular basis taking these data imperfections into account we reassess the evidence on the marginal predictive content of m1 and m2 for real and nominal output in particular first by using the latest version of the data that is available and then using sequences of historical time series that would have been available to forecasters in real time we are able to provide a comprehensive assessment of whether money is useful for predicting output we conclude that the generally significant marginal predictive content of m1 or m2 for output that is found using a recently revised data set is not duplicated in a real time setting although m2 is shown to remain useful when 1 year ahead forecasts are constructed using fitted vector autoregressive models

using extraneous information to analyze monetary policy in transition economies abstract empirical macroeconomics is plagued by small sample size and large idiosyncratic variation this problem is especially severe in the case of the transition economies we utilize a mixed estimation method incorporating prior information from oecd country data to estimate the parameters of a reduced form transition economy model an exactly identified structural var model is constructed to analyze monetary policy in the transition economies the oecd information increases the precision of the impulse response functions in the transition economies the method provides a systematic way to analyze monetary policy in the transition economies where data availability is limited

unit roots and persistence in the nominal interest rate a confirmatory analysis applied to the oecd this paper investigates the stochastic properties of long term and short term nominal interest rates for the oecd over the post war era for that purpose we employ univariate unit root tests as well as panel unit root and stationarity tests that explicitly allow for cross sectional dependence overall we find overwhelming evidence that the nominal interest rate contains a unit root which may be driven by a stochastic common factor the computation of half lives through impulse response functions also points to a high degree of persistence this has important implications for the cointegration analysis of the fisher equation the uncovered interest parity and the term structure jel classification

the multiscale causal dynamics of foreign exchange markets abstract this paper relies on wavelet multiresolution analysis to investigate the dependence structure and predictability of currency markets across different timescales it explores the nature and direction of causality among the exchange rates with respect to the us dollar of the most widely traded currencies namely euro great britain pound and japanese yen the timescale analysis involves the estimation of linear nonlinear and spectral causal relationships of wavelet components and aggregate series as well as the investigation of their out of sample predictability moreover this study attempts to probe into the micro foundations of across scale causal heterogeneity on the basis of trader behavior with different time horizons the examined period starts from the introduction of the euro and covers the dot com bubble the financial crisis of 2007 2010 and the eurozone debt crisis technically this paper presents an invariant discrete wavelet transform that deals efficiently with phase shifts dyadic length and boundary effects it also proposes a new entropy based methodology for the determination of the optimal decomposition level and a wavelet based forecasting approach overall there is no indication of a global causal behavior that dominates at all timescales in the out of sample analysis wavelets clearly outperform the random walk for the volatility series moreover the synergistic application of wavelet decomposition and artificial neural networks provided with an enhanced predictability in many forecast horizons for the returns these results may have important implications for market efficiency and predictability

taking the pulse of the economy measuring gdp national income and product accounts best known by one of their principle aggregates gross domestic product gdp are produced by virtually every nation in the world simon kuznets and richard stone both later to become nobel prize winners led the creation of the national accounts for the united states and the united kingdom respectively so what exactly does gdp measure how is it constructed why do the gdp and other national accounts estimates sometimes present a different picture of the economy than other economic indicators this article is intended to help answer these questions by providing a broad overview of the measurement techniques used in estimating gdp and the national accounts in the united states in the united states the gdp and the national accounts estimates are fundamentally based on detailed economic census data and other information that is available only once every five years the challenge lies in developing a framework and methods that take these economic census data and combine them using a mosaic of monthly quarterly and annual economic indicators to produce quarterly and annual gdp estimates for example one problem is that the other economic indicators that are used to extrapolate gdp in between the five year economic census data such as retail sales housing starts and manufacturers shipments of capital goods are often collected for purposes other than estimating gdp and

transmission of u s monetary policy to europe and asymmetry in the european monetary system abstract this paper deals with the issues of the transmission of interest rates changes from the united states to europe and of the degree of asymmetry of the european monetary system i e of the extent of german leadership in determining the monetary policy of the ems zone if the transmission from the u s and the asymmetry of the ems are strong countries like france have almost no degree of freedom since both the short term and long term interest rates result from foreign influences and policies the authors try to answer those questions by estimating a model for the determination of the short term and long term interest rates in france and germany and of the dm exchange rate it appears that the assumption of asymmetrical functioning of the ems is confirmed that the dependence of long term rates on short term rates is weak in european countries and that the overall impact of changes in u s interest rates on european rates is limited

optimal monetary policies and policy interdependence in the world economy the literature on strategic policy interactions has focused on the implications of alternative strategic policy interactions cooperative versus noncooperative for equilibrium macroeconomic policies given the state of the world economy this paper asks how changes in world economic conditions alter equilibrium policies given the nature of policy interdependence among nations the paper considers a world economy comprised of two countries operating under a system of flexible exchange rates both governments act noncooperatively and choose the rate of growth of their money supply so as to maximize the utility of their country s residents given the rate of growth of the other country s money supply the resulting nash equilibrium rates of growth of the home and foreign money supplies are determined and the dependence of international differences in money growth and inflation rates on international differences in technology jel e52 e60 f41 f42 the international transmission of monetary and fiscal policies has been studied a great deal by economists however policy interdependence how one country s policies depend on the policies enacted by other countries has only recently begun to be explored hamada s 1976 paper was one of the first major contributions in this regard hamada considered a world economy comprised of n countries operating under a fixed exchange rate system in which policymakers set domestic credit growth so as to maximize an objective function depending on inflation and the rate of accumulation of international reserves using this framework hamada demonstrated that in equilibrium optimal domestic credit policies are generally not pareto efficient when they are chosen noncooperatively but are pareto efficient when they are set cooperatively in subsequent work hamada 1979 1985 has elaborated on this and various other aspects of cooperative and noncooperative monetary policies under both fixed and flexible exchange rates many others have followed hamada s lead by comparing the properties of cooperative and noncooperative monetary policies eichengreen 1985 for instance considers discount rates as the instrument of monetary policy and examines issues of leadership and cooperation during the interwar years under the gold standard oudiz and sachs 1985 have used simulation methods to

does the dm dominate the euro market an empirical investigation starting point is the german dominance hypothesis according to which germany has a dominant position within the ems this makes it impossible for other member countries to pursue their own monetary policies using monthly data of three month euro market rates from 1980 to 1988 for the u s germany the u k the netherlands france and italy we test this hypothesis in a multivariate cointegration framework we find that germany has a strong position in europe which is not restricted to the ems concerning long run development one might speak of a dominant position however there are short run relations between european countries which are not linked to relations with germany copyright 1993 by mit press

measuring monetary policy interdependence abstract this paper measures the degree of monetary policy interdependence between major industrialized countries from a new perspective the analysis uses a special data set on central bank issued policy rate targets for 14 oecd countries methodologically our approach is novel in that we separately examine monetary interdependence due to 1 the coincidence in time of when policy actions are executed from 2 the nature and magnitude of the policy adjustments made the first of these elements requires that the timing of events be modeled with a dynamic discrete duration design the discrete nature of the policy rate adjustment process that characterizes the second element is captured with an ordered response model the results indicate there is significant policy interdependence among these 14 countries during the 1980 1998 sample period this is especially true for a number of european countries which appeared to respond to german policy during our sample period a number of other countries appeared to respond to u s policy though this number is smaller than that suggested in preceding studies moreover the policy harmonization we find appears to work through channels other than formal coordination agreements

does the euro dominate central and eastern european money markets the so called german dominance hypothesis gdh claimed that bundesbank policies were transmitted into other european monetary system ems interest rates during the pre euro era we reformulate this hypothesis for the central and eastern european cee countries that are on the verge of accessing the eurozone we test this euro dominance hypothesis edh in a novel way using a global vector autoregressive gvar approach that combines country specific error correction models in a global system we find that euro area monetary policies are transmitted into cee money market rates providing evidence for monetary integration between the eurozone and cee countries our framework also allows for introducing global monetary shocks to provide at least tentative empirical evidence regarding the effects of the recent financial crisis on monetary integration in europe

dominant interest and inflation differentials within the ems abstract this paper investigates nominal interest and inflation behavior in the ems between march 1979 and september 1989 using a modified version of principal components analysis neither over the whole period nor after march 1983 has the ems functioned as a dmark zone deviating movements in inflation and interest rates between ems countries still persist most important is the division between germany the netherlands and the united kingdom on the one hand and belgium france and italy on the other differences in deflationary policies between countries inside and outside the ems appear to be the most important determinant of this result

a multivariate cointegration analysis of interest rates in the eurocurrency market abstract a multivariate cointegration methodology is utilized to analyze relations among interest rates on us dollars uk pounds german marks french francs and japanese yen in the eurocurrency market over a period with major capital market deregulations and increasingly globalized money market trading three major results appear it is appropriate to model these interest rates as a multivariate cointegrated system no interest rate may be excluded from the cointegrating relations a recursive cointegration approach indicates that the number of cointegration vectors increases in the later part of the sample period consequently this study supports the hypothesis of a substantial increase in euromarket interest rate comovements jel e40 f02 1997 elsevier science ltd

technical change and the von neumann coefficient of uniform expansion abstract we study technical change for multi product technologies to examine its effect on economic growth for 27 oecd organization for economic cooperation and development countries during 1951 2014 we review the malmquist index and reexamine von neumann s model of an expanding economy we estimate the coefficient of uniform expansion via dea data envelopment analysis and use it to measure technical change via a solow residual and an alternative von neumann technical change index which equals the difference between the growth rates of the slowest growing output and the fastest growing input we also exploit a property of constant returns to scale in order to examine technical change of the average technology during 2005 2014 the solow residual shows relatively fast technical change in contrast the malmquist average technology and alternative von neumann technical change indexes show negative or stagnant technical change

dynamics and causality in industry specific volatility abstract this paper presents comprehensive empirical evidence on the dynamics and causality within 30 us industry specific volatilities during july 1963 and june 2008 we find that linear trends are present in 17 of the 30 industry volatilities granger causality tests reveal that the industry of business supplies and the industry of finance are the most important lead indicators of industry volatilities to uncover contemporaneous causal relationships in the market we implement an emerging data driven method of directed acyclic graphs the results suggest that volatility shocks originating from business supplies machinery and consumer goods industries are sources of risks that affect most other industries by contrast volatilities in the two traditionally important industries oil and autos do not appear to have a substantial influence on other large industries in the contemporaneous time finally business equipment and services both containing information technology components are the most important driving forces of the industry volatility surge in the late 1990s

convergence of interest rates around the pacific rim this article applies the panel data unit root tests provided by im pesaran and shin discussion paper 1997 to examine the interest rate convergence of small open asian countries with major financial centres with monthly data from 1988 1 to 1997 6 it was found that the nominal interest rates of these countries converge to the us rates rather than to japan s this finding is consistent with the view that the monetary authorities of non japan asian economies pegged their exchange rates overwhelmingly to the dollar rather than the yen before the financial crisis of 1997

a long run view of german dominance and the degree of policy convergence in the ems i introduction when the european monetary system ems was established in march 1979 the member countries agreed to gradually move to a european monetary union emu at the maastricht summit on december 9 10 1991 the member nations signed an agreement outlining the requirements and a timetable for monetary union building upon the framework specified in the 1989 delors report the maastricht agreement outlines a three stage transition to a common european monetary policy 1 the achievement of a high degree of monetary policy convergence among the member countries is crucial if a common monetary policy is to be initiated the ems already provides a framework in which monetary policy actions can be coordinated but have member nations actually coordinated their actions or have they conducted independent policies some have claimed that the bundesbank has dominated monetary policy in the ems one explanation is that by tying domestic monetary policy to that of germany other countries policymakers enhance their own credibility for instance giavazzi and pagano 1988 have argued that because the bundesbank is known to follow a consistent credible anti inflation policy tying policy to that of germany should enhance one s reputation a natural question to ask therefore is to what degree have monetary policies in the ems converged to that conducted by germany a finding of complete convergence among ems monetary policies would imply that the member countries have converged to one common monetary policy in studies examining the credibility hypothesis which clearly is linked to the notion of monetary policy convergence fratianni and von hagen 1990c and burdekin westbrook and willett 1993 rejected this hypothesis 2 to consider the prospects for the success of emu one must know whether and to what degree there has been a transmission of policy actions within the ems the question of whether germany has set the direction of monetary policy for the ems is a natural focus and has been the subject of recent study fratianni and von hagen 1990a 1990b 1990c von hagen and fratianni 1990 and kutan 1991 1992 all reject the hypothesis that german monetary policy actions dominate the monetary policy decisions of other ems countries 3 while germany is found to be an important player in setting monetary policy its actions are not independent of other members in contrast to this conclusion karfakis and moschos 1990 and macdonald and taylor 1991 argue that non german ems members policies are related closely to german policy changes and that german policy actions do not respond to those taken by the central banks of other ems countries this study tests for policy convergence among ems countries within a long run framework using cointegration procedures using both short term interest rates and the monetary base as measures of monetary policy our aim is to determine the number of shared common stochastic trends among ems monetary policies and test whether a complete convergence of policies has been achieved in the ems rejection of complete convergence a finding of two or more shared common trends indicates that some countries policies are set independently at least in the long run if this is true then the notion that the bundesbank dominates ems policy is rejected such a result also suggests that any credibility gain from tying policy to that of germany is probably outweighed by other considerations such as domestic growth or international competitiveness looking ahead our results indicate that ems monetary policies have not converged we also investigate the short run connection among policy measures using a longer sample than in previous work our results from this analysis indicate that while german policy actions influence monetary policy in other ems countries in the short run there is substantial policy interaction among ems members the format of the paper is as follows section ii discusses some methodological issues concerning the use of interest rates and the monetary base as indicators of policy actions

european integration and asymmetry in the ems abstract the empirical literature offers conflicting views of german dominance in the european monetary system we examine the validity of the german dominance hypothesis gdh by analyzing the responses of european central banks and money markets to monetary innovations originating both in europe european asymmetry and abroad international asymmetry our results reconcile the conflicting views in the literature the gdh is confirmed when the analysis is conducted with intervention rates before german unification results support european asymmetry with short rates before 1990 but not international asymmetry after 1990 the gdh is not supported by either set of rates

stationary time varying risk premia in forward foreign exchange rates abstract there is mounting evidence that forward foreign exchange rates contain time varying risk premia however this evidence is from tests for which statistical inference is based on asymptotic distribution theory furthermore it is uncertain whether risk premia evolve as stationary or nonstationary processes this paper applies two exact small sample pointwise most powerful invariant statistical tests to determine 1 whether forward exchange rates contain time varying risk premia and 2 whether the time varying risk premia are stationary or nonstationary these tests finds strong evidence that forward exchange rates contain stationary time varying risk premia during the recent float evidence from the interwar float is mixed

the international price transmission in stock index futures markets i introduction numerous studies have investigated market linkages and price transmission mechanisms in major international equity markets employing the analytical framework of the vector autoregression var or its variant the error correction model ecm 1 studies such as von furstenberg and jeon 1989 eun and shim 1989 and koch and koch 1991 focus on the short run dynamic pattern of price transmission others like taylor and tonks 1989 and francis and leachman 1998 are primarily interested in the long run pattern of price transmission more recently an increasing number of studies explore both long and short run patterns of price transmission included in this last set are the works of malliaris and urrutia 1992 arshanapalli and doukas 1993 masih and masih 2001 and bessler and yang 2003 among others this study extends the examination of international price transmission to stock index futures markets the article contributes to the existing literature in three aspects first a relatively new empirical framework is applied to allow for inferences of price transmission at three different time horizons instantaneous the short run and the long run building on recent advances in statistical analysis of causal modeling using directed acyclic graphs dags as in spirtes et al 2000 pearl 1995 2000 and swanson and granger 1997 this study is able to explore the contemporaneous causal pattern underlying the correlations among market innovations the existence of strong contemporaneous correlations among market innovations has been well documented in the united states and international stock markets by agmon 1972 eun and shim 1989 koch and koch 1991 housbrouk 1995 and bessler and yang 2003 it is also well recognized by agmon 1972 849 and eun and shim 1989 246 that contemporaneous correlations among market innovations reflect the phenomenon that new information in one market is transmitted and shared by other markets in contemporaneous time due to immediate response to price changes between markets however more in depth analysis on exactly how instantaneous price transmission among market innovations is conducted in international equity markets has not yet been well addressed in the existing literature although bessler and yang 2003 touch on the issue the necessity of imposing constraints in the spirit of the block recursive structure noted by koch and koch 1991 in the dag analysis of var innovations is proposed and discussed thoroughly in this study second innovation accounting analysis is more thoroughly explored in the study innovation accounting tools i e impulse response analysis and forecast error variance decomposition have been commonly used to summarize the dynamic pattern of price transmission among international financial markets the importance of the factorization of innovations i e var residuals in yielding sound inference has been well acknowledged theoretically by bernanke 1986 sims 1986 and swanson and granger 1997 the application of the dag technique as discussed in swanson and granger 1997 and explained in the next section is further key to innovation accounting analysis in this study the instantaneous price transmission pattern between market innovations as identified by the dag analysis provides a data determined solution to the basic problem of orthogonalization of residuals from the ecm and thus is critical to impulse response analysis or forecast error variance decompositions swanson and granger 1997 argue that compared to the choleski decomposition the dag based structural decomposition is sensible but not subjective because it allows for the properties exhibited by the data although several recent studies such as those by bessler and yang 2003 bessler et al 2003 haigh and bessler forthcoming and yang 2003 have used the dag based structural decomposition in a similar setting the study is the first attempt responding to the suggestion by swanson and granger 1997 364 of investigating the empirical implications of the dag based contemporaneous causal modeling

dynamic linkages among real interest rates in international capital markets abstract short run and long run dynamic linkages among weekly real interest rates for g 10 countries are examined using a variety of time series tests these tests give special attention to the time series properties of nominal interest rates ex ante expected rates of inflation and real interest rates term structure information is used to recover a theoretically consistent measure of ex ante expected inflation in sample and out of sample granger causality tests are also examined to evaluate lead lag relationships among real interest rates the results provide strong support for well integrated markets particularly in the long run the results imply leadership roles for the us in international asset markets