covered interest rate arbitrage in the interwar period and the keynes einzig conjecture keynes 1923 conjectured that deviations from covered interest rate parity would not be arbitraged unless a profit of at least a half of one percent on an annualized basis was available and that larger deviations would still be moderately persistent because of less than perfect elasticity of supply of arbitrage funds this two part conjecture was given further emphasis by other writers on this period notably einzig 1937 we apply nonlinear econometric techniques to a previously unexploited weekly data base for the 1920s london and new york markets and find strong support for the conjecture

threshold effects in price transmission the case of brazilian wheat maize and soya prices recent studies into price transmission have recognized the important role played by transport and transaction costs threshold models are one approach to accommodate such costs we develop a generalized threshold error correction model to test for the presence and form of threshold behavior in price transmission that is symmetric around equilibrium we use monthly wheat maize and soya prices from the united states argentina and brazil to demonstrate this model classical estimation of these generalized models can present challenges but bayesian techniques avoid many of these problems evidence for thresholds is found in three of the five commodity price pairs investigated

competitive tension the awareness motivation capability perspective this paper investigates competitive tension or the strain between a focal firm and a given rival that is likely to result in the firm taking action against the rival drawing on the awareness motivation capability perspective we show how perceived competitive tension as constructed from managers and industry stakeholders competitor assessments is influenced by the independent and interactive effects of three factors relative scale rival s attack volume and rival s capability to contest our results provide a new avenue for studying competitors and the relationship between competitor analysis and interfirm rivalry in science there is a steady state in which opposing forces hold each other in check until the build up of tension turns the static relationship into dynamic interplay the point when the steel cable snaps the steam chamber s pressure valve opens or one psychological force overwhelms the other in business practice a similar phenomenon exists when tension that one opponent imposes on another triggers rivalrous actions competitor analysis is central to strategy and organization research hitt ireland hoskisson 2005 porter 1980 previous research has explored a number of important issues including conjecture variation amit domowitz fershtman 1988 competitor identification porac thomas 1990 and blind spots zajac bazerman 1991 and has made advances in such areas as theoretical integration of competitor analysis and interfirm rivalry chen 1996 fundamental questions such as who a focal firm s competitors are and how much competition the firm faces from each rival have been implicitly or explicitly addressed by a variety

where does price discovery occur for stocks traded in multiple markets evidence from hong kong and london using a sample of hong kong listed stocks that are also traded on the london stock exchange we document the following results first london market makers use hong kong s closing prices as the benchmark for setting the opening prices in london second trading in the london market plays only a limited role in price discovery in the hong kong market third the stock returns from london trading are closely correlated with those of the hong kong market the above findings are consistent with the explanation that london trading is predominantly liquidity driven but not information driven

a model of target changes and the term structure of interest rates abstract we investigate the effects of short term rate targeting by the federal reserve on the term structure of interest rates and make contributions at two levels using a new series of interest rate targets made available by the federal reserve bank of new york we develop a family of models that highlight the implications of discrete changes in interest rate targets for the term structure of interest rates we show that spreads between short term rates and the overnight federal reserve funds rate are mainly driven by expectations of changes in the target not by the transitory dynamics of the overnight rate around the target hence the bias in tests of the expectations hypothesis that we document can be mainly attributed to the erroneous anticipation of future changes in monetary policy our modeling assumptions and newly available data make it possible to extract a series of market expectations of the next target change which are compared with a series of realized target changes

was there a peso problem in the u s term structure of interest rates 1979 1982 during the period following october 1979 through 1982 the u s federal reserve allowed interest rates to fluctuate widely in contrast to its previous policy of targeting these rates in the 1970s the policy was abandoned in 1982 in favor of an operating procedure that reduced the variation in interest rates this paper implements an estimation method to identify from the term structure of eurodollar returns the market s beliefs that the federal reserve may revert to interest rate targeting the model is not rejected and gives plausible estimates of the probability of a switch in monetary regimes copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

strategic goals perceived uncertainty and economic performance in volatile environments an untested proposition in the normative strategic management literature is that strategists should make decisions based on accurate assessments of their external environments empirical organization theory literature holds the assumption that high levels of perceived uncertainty are detrimental to performance both literatures assume goal consensus to be important to effectiveness this study investigated the relationship between top management perceptions of uncertainty corporate goal structures and industry volatility in explaining economic performance in 20 firms findings suggested that attempts to avoid true environmental uncertainty and to seek high levels of goal congruence may be dysfunctional

aid policy and growth in post conflict societies countries emerging from civil war attract both aid and policy advice this paper provides the first systematic empirical analysis of aid and policy reform in the post conflict growth process it is based on a comprehensive data set of large civil wars and covers 27 countries that were in their first decade of post conflict economic recovery during the 1990s the authors first investigate whether the absorptive capacity for aid is systematically different in post conflict countries they find that during the first three post conflict years absorptive capacity is no greater than normal but that in the rest of the first decade it is approximately double its normal level so ideally aid should phase in during the decade historically aid has not on average been higher in post conflict societies and it has tended to taper out over the course of the decade the authors then investigate whether the contribution of policy to growth is systematically different in post conflict countries and in particular whether particular components of policy are differentially important for this they use the world bank policy rating database the authors find that growth is more sensitive to policy in post conflict societies comparing the efficacy of different policies they find that social policies are differentially important relative to macroeconomic policies however historically this does not appear to have been how policy reform has been prioritized in post conflict societies

a three gap model of foreign transfers and the gdp growth rate in developing countries abstract a simplified macroeconomic framework is developed for the fiscal gap which is considered to be an important stumbling block for adjustment with growth in highly indebted developing countries distinctive characteristics of a fiscally constrained economy are compared with those of economies constrained either by the availability of savings or foreign exchange tentative implications for external conditionality accompanying debt relief measures are derived

aid policies and growth a nonlinear reassessment the association between foreign aid and growth has been controversial for decades and the evidence is quite mixed with results sensitive to data samples and modelling approaches we reassess the re

on the empirics of foreign aid and growth the present paper re examines the effectiveness of foreign aid theoretically and empirically using a standard olg model we show that aid inflows will in general affect long run productivity the size and direction of the impact may depend on policies deep structural characteristics and the size of the inflow the empirical analysis investigates these possibilities overall we find that aid has been effective in spurring growth but the magnitude of the effect depends on climate related circumstances finally we argue that the collier dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate the usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since rosenstein rodan in 1943 advocated for aid to eastern and south eastern europe browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years in the first edition of leading issues in economic development meier 1964 dedicated a full 18 page section to the issue of foreign aid he started out asking how much aid by the time of the sixth edition meier 1995 the treatment of foreign aid had been cut into half and the questions in focus were why official assistance and does aid work in the 2000 edition meier and rauch 2000 foreign aid is not even listed in the index

term premiums in bond returns abstract this paper examines expected returns on u s treasury bills and on u s government bond portfolios expected bill returns are estimated from forward rates and from sample average returns both estimation methods indicate that expected returns on bills tend to peak at eight or nine months and never increase monotonically out to twelve months reliable inferences are limited to treasury bills and thus to maturities up to a year the variability of longer term bond returns preempts precise conclusions about their expected returns

non linearity between finance and growth abstract we present a simple model which establishes a non linear and possibly non monotonic relationship between financial development and economic growth applying a threshold regression model to king and levine s q j econ 109 1993 83 data set we find evidence consistent with the theoretical model

being good while being bad social responsibility and the international diversification of us firms this paper contributes to the discussion on international diversification and corporate social responsibility csr by suggesting that firms can be simultaneously socially responsible and socially irresponsible to test our assertions we analyze data from 222 publicly traded us firms from 1993 to 2003 the findings support our hypotheses and have significant implications for the way in which we conceptualize csr

alternative estimators of cointegrating parameters in models with nonstationary data an application to us export demand this article presents monte carlo simulations which compare the empirical performance of two alternative single equation estimators of the equilibrium parameters in a dynamic relationship the estimators considered are stock and watson s dynamic ordinary least squares dols estimator and bewley s transformation of the general autoregressive distributed lag model the results indicate that the bewley transformation produces a lower mean square error as well as superior serial correlation properties even with lower truncation lags for the lagged variables included in the estimation equation an application is then provided which examines the nature of the equilibrium relationship between aggregate us exports world trade and the us real exchange rate this confirms that estimation of the equilibrium parameters of this relationship by the bewley transformation produces results which are superior to estimation by dols

how smooth is price discovery evidence from cross listed stock trading abstract the adjustment to parity can be nonlinear for a cross listed pair convergence may be quicker when the price deviation is sufficiently profitable we propose a threshold error correction model ecm to gauge the market respective information shares of canadian listings traded on the toronto stock exchange tsx and the new york stock exchange nyse since dynamics may alternatively be gradual we further generalize the threshold framework to a smooth transition ecm the empirical implications are as follows first the tsx and the nyse appear to have integrated over time second parity convergence accelerates upon discounts on the cross listings on the nyse third we find a larger feedback from the nyse if the price gap exceeds the threshold required arbitrage return fourth informed traders tend to cluster on the nyse upon discounts on the cross listings fifth information share and threshold are affected by the relative degree of private information market friction and liquidity measures firm level characteristics and aggregate risks

is purchasing power parity overvalued the purpose of this paper is to re examine the hypothesis of long run purchasing power parity among industrial countries under the current float using the panel data approach we propose a new finite sample panel data unit root test procedure that allows for a general serial correlation structure and arbitrary contemporaneous correlation in model innovations across countries this procedure is then applied to the recently developed panel data unit root tests of im pesaran and shin 1996 and of maddala and wu 1999 the test results show sufficient evidence against the unit root null for most samples by comparing our results with the existing ones in the literature we found that the method of assuming a restrictive serial correlation structure tends to weaken evidence against the unit root null

common stochastic trends in international stock markets abstract this paper presents evidence concerning the number of common stochastic trends in the equity markets of the u s japan england germany and canada monthly and quarterly data from january 1974 through august 1990 on morgan stanley s capital international indices are used to compute johansen 1990 tests for common trends the results indicate the presence of a single common trend driving these countries stock markets estimates of the factor loadings suggest that this trend is most important in the japanese market and least important in the canadian market to interpret this evidence the paper demonstrates that under weak conditions the unit root and cointegration structure of stock prices should mirror the unit root and cointegration structure of their dividend payments the paper tests this prediction by constructing national dividend series from capital international s dividend yield data as well as by using gnp data as with stock prices the evidence points to a single common trend although the stochastic properties and relative importance of this trend differs somewhat from the trend in stock prices

the interest elasticity of savings in developing countries the existing evidence abstract this paper presents a critical analysis of some of the most recent empirical work on the interest elasticity of savings in developing economies supported by a set of empirical results the paper argues that a the real interest elasticity of savings is not easily detected using the existing empirical models which generally yield insignificant interest rate parameters in the seventies b the existing models suffer from serious defects that make if very difficult to interpret the estimated parameters

collaboration in the boardroom behavioral and performance consequences of ceo board social ties empirical research has typically rested on the assumption that board independence from management enhances board effectiveness in administering firms the present study shows how and when a lack of social independence can increase board involvement and firm performance by raising the frequency of advice and counsel interactions between ceos and outside directors hypotheses were tested with original survey data from 243 ceos and 564 outside directors on behavioral processes and dynamics in management board relationships

binding constraint on economic growth under export oriented industrialization and globalization the two gap model of economic growth implies that different constraints on economic growth namely the savings and the foreign exchange availability are binding at different times this article estimates these varying binding constraints in 16 countries in east and southeast asia and latin america and explores their differences across countries regions and periods i show that the east and southeast asian countries which are recognized to be successful in export oriented industrialization are less constrained by the foreign exchange availability with reinforced export capacity than the latin american countries which had carried some inertia of import substituting industrialization policy until the 1980s in addition the economic growth turns out to be more constrained by the domestic savings in recent years which can be a reflection of capital account liberalization policies typically implemented in the late 1980s and 1990s and or a diminishing return to export led growth in either case this mi

quantitative implications of a debt deflation theory of sudden stops and asset prices abstract this paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with key features of the sudden stop phenomenon foreign traders incur costs in trading assets with domestic agents and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings when this constraint does not bind standard productivity shocks cause typical real business cycle effects when it binds the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity with high leverage and a liquid market the shocks force fire sales of assets and fisher s debt deflation mechanism amplifies the responses of asset prices consumption and the current account precautionary saving makes these sudden stops infrequent in the long run

a resource based perspective on corporate environmental performance and profitability drawing on the resource based view of the firm we posited that environmental performance and economic performance are positively linked and that industry growth moderates the relationship with the returns to environmental performance higher in high growth industries we tested these hypotheses with an analysis of 243 finns over two years using independently developed environmental ratings results indicate that it pays to be green and that this relationship strengthens with industry growth we conclude by highlighting the study s academic and managerial implications making special reference to the social issues in management literature

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

price transmission foreign exchange rate risks and global diversification of adrs the purposes of this article are to reinvestigate how returns of major american depository receipts adrs from different countries are related to the underlying stock returns and to identify the determinants of adr risk premiums we use different types of error correcting terms in vector error correction models to examine information flows between adrs and the underlying foreign stocks general method of moments estimation of conditional international asset pricing model of dumas and solnik 1995 is applied to investigate adr return premiums we find that stock returns are more affected by disequilibrium between adr and stock prices in an inefficient way for us investors foreign exchange rate risk premiums and world market risk premium beyond us index are priced in adrs returns ex ante surprisingly it is shown that the exchange rate of new taiwan dollar and the interest rates of brazil and taiwan play important roles in determining adr risk premiums across countries

price indices and nonlinear mean reversion of real exchange rates author affiliation jyh lin wu institute of economics national sun yat sen university kaohsiung 804 taiwan jlwu2 mail nsysu edu tw and the department of economics national chung cheng university chia yi 106 taiwan ecdjlw ccu edu tw corresponding authorpei fen chen department of international business and trade shu te university kaohsiung taiwan cpf mail stu edu tw acknowledgment we thank two anonymous referees for interesting and constructive comments on an earlier version of the paper any remaining errors are ours 1 introduction are price indices crucial for the existence of a nonlinear mean reversion of real exchange rates do prices or exchange rate adjustments dominate when deviations from purchasing power parity ppp occur is the half life implied by a nonlinear model reasonable the purpose of this article is to address the above three questions for the uk and new zealand over the period of recent float the ppp hypothesis has been one of the most intensive research issues in empirical international finance over the past two decades the rationale behind it is a simple arbitrage hypothesis which results in a linear adjustment of deviations from ppp and the stationarity of real exchange rates empirically existing evidence based on unit root tests provide mixed results for ppp abuaf and jorion 1990 mark 1990 o connell 1998a theoretically there are several reasons for the nonlinear adjustment of deviations from ppp such as the existence of market frictions or transaction costs sercu uppal and van hulle 1995 in addition models of pricing to market and exchange rate pass through give rise to impediments to goods arbitrage krugman 1987 froot and klemperer 1989 the implication is that the speed of adjustment of deviations from ppp depends on the magnitude of the deviations on the other hand the adoption of a price index is crucial in examining ppp several authors have argued that the consumer and producer price indices cpi and ppi respectively do not correspond to their theoretical counterparts and contain measurement errors and aggregation biases cheung and lai 1993 imbs et al 2005 in addition the commodity basket for cpi and ppi includes nontradable goods which impart a nonstationary component to real cpi or ppi exchange rates engel 1999 recently xu 2003 argues that the price index of traded goods tpi is the appropriate one for ppp since it reflects the behavior of arbitrage better than the cpi or ppi the purpose of this article therefore is to examine the nonlinear dynamics of tpi based real exchange rates several authors have applied a smooth transition autoregressive star model to capture the nonlinear dynamics of real exchange rates as it allows for a smooth adjustment between regimes michael nobay and peel 1997 taylor peel and sarno 2001 there are several reasons for us to apply a band threshold autoregressive tar instead of a star type model in our empirical analysis first our empirical evidence fails to reject the unit root hypothesis against the hypothesis of a nonlinear star stationary process based on the test provided by kapetanios shin and snell 2003 1 second the plots of cpi ppi and tpi based real exchange rates in figure 1 show that the tpi based real rate has the largest variation among these three real rates third our empirical evidence rejects the null hypothesis of linearity against tar type nonlinearity and supports the hypothesis that real exchange rates are tar type stationary figure 1 plots of real exchange rates for the uk and new zealand figure omitted see article image several empirical studies have applied a threshold type process to examine the nonlinear mean reversion of real exchange rates obstfeld and taylor 1997 o connell 1998b taylor 2001 sarno taylor and chowdhury 2004

international transmission of stock market movements this paper investigates the international transmission mechanism of stock market movements by estimating a nine market vector autoregression var system using simulated responses of the estimated var system we i locate all the main channels of interactions among national stock markets and ii trace out the dynamic responses of one market to innovations in another generally speaking a substantial amount of multi lateral interaction is detected among national stock markets innovations in the u s are rapidly transmitted to other markets in a clearly recognizable fashion whereas no single foreign market can significantly explain the u s market movements also the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

nonlinear mean reversion in the term structure of interest rates abstract the expectations hypothesis implies that the yield curve provides information on the future change in the short term interest rate however transaction costs exist in the financial market which prevent investors from realizing the arbitrage opportunity when the arbitrage does not fully cover the transaction costs the purpose of this paper is to assess the effect of transaction costs on the predictability of the term structure by using the threshold vector error correction model which allows for the nonlinear adjustment to the long run equilibrium relationship a significant amount of threshold effect is found and the adjustment coefficients are regime dependent the empirical result supports the nonlinear mean reversion in the term structure of interest rates

how does probability of innovation change with firm age this paper looks at the probability of introducing innovations by manufacturing firms at different stages of their lives once differences related to activity and size are controlled for we examine how the probability of innovation varies over entry post entry ages and advanced ages of mature firms we also measure the association between exit from the market and pre exit innovation results show that the probability of innovating widely varies by activity and that small size per se broadly reduces the probability of innovation but also that entrant firms tend to present the highest probability of innovation while the oldest firms tend to show lower innovative probabilities some sets of firms with intermediate ages also present a high probability of innovation and exiting firms are clearly associated to lower levels of introducing process innovations

empirics of health aid education and infant mortality a semiparametric study the present article uses semiparametric regression to capture the impact of foreign aid given for health purposes on the infant mortality rate imr of poor developing countries after controlling for other covariates we also investigate whether education general awareness helps lower imr directly or helps improve effectiveness of health aid in reducing imr in addition the study investigates whether various disaggregated components of health aid for example aid that goes for infectious disease control or nutrition help lower imr we find that although adult education awareness always lowers imr the overall effect of health aid remains insignificant our conclusion is robust to various disaggregated components of health aid as well we also check if health aid has improved prenatal care for expecting mothers but our conclusion regarding the overall ineffectiveness of aid remains unchanged interestingly we find that total health aid as well as nutrition aid may lower imr only after education ex

regime switching analysis of adr home market pass through abstract we model and estimate adrs home market pass through and pricing to market using a regime switching approach which nests the two regimes in a conditional capital asset pricing model and treats any changes in these two regimes probabilistically our results from the 1998 to 2006 data show that the pricing to market regime dominates adrs from china and japan whereas the home market pass through regime dominates adrs from argentina and germany when their respective home markets are volatile

nonlinear adjustments in deviations from the law of one price for wholesale hog prices this article applies the band threshold autoregression band tar model to investigate whether the law of one price loop holds in taiwanese wholesale hog markets during the period from may 1987 through december 2003 we find evidence of a nonlinear mean reversion in deviations from the loop for relative hog prices our empirical study confirms the presence of thresholds and provides strong evidence in support of the view that the regional hog markets have been tightly integrated in taiwan and that the wholesale hog market in taiwan is an efficient market economy furthermore the estimated half lives from the nonlinear generalized impulse response analysis are as short as four months

price transmission dynamics between adrs and their underlying foreign securities abstract this paper extends previous research by considering three pricing factors for american depository receipts adrs the price of the underlying shares in the local currency the relevant exchange rate and the us market index using both a vector autoregressive var model with a cointegration constraint and a seemingly unrelated regression sur approach we examine the relative importance of and the speed of adjustment of adr prices to these underlying factors our results show that while the price of the underlying shares is most important the exchange rate and the us market also have an impact on adr prices while the bulk of the shocks to the pricing factors are reflected in the adrs within the same calendar day there are indications that the adjustments are not completed until the following day curiously the adrs appear to initially overreact to the us market index but underreact to changes in underlying share prices and exchange rates

evolution in dynamic linkages across daily national stock indexes abstract this article investigates how dynamic linkages among the daily rates of return of eight national stock indexes have evolved since 1972 a dynamic simultaneous equations model is estimated to describe the contemporaneous and lead lag relationships across national equity markets over three different years 1972 1980 and 1987 results reveal growing market interdependence within the same geographical region over time while there are many significant intermarket relationships within the same 24 hour period there are few significant lagged responses across markets beyond 24 hours this suggests a high degree of international market efficiency furthermore japan s market influence has been growing to rival that of the usa

modelling the demand for loans to the private sector in the euro area this article studies the determinants of loans to the private sector in the euro area using the johansen methodology the study identifies one cointegrating relationship linking real loans gdp and interest rates this relationship implies that in the long run real loans are positively related to real gdp and negatively to real short term and long term interest rates both the signs and the magnitude of the coefficients suggest that the cointegrating vector describes a long run demand equation the short run dynamics of the demand for euro area real loans is subsequently modelled by means of a vector error correction model vecm a number of specification tests performed on the vecm produce satisfactory results with tests of stability of the model parameters showing no signs of structural breaks during the sample period 1980 1 1999 2 all of this suggests that developments in real loans to the private sector in the euro area can be reasonably explained by the model

some new filter rule tests methods and results mechanical trading rules seem to have more potential than previous tests found fama and blume 1966 looking at the dow 30 of the late 1950s found no profits for the best vipercent rule after adjusting for transactions costs fifteen of these stocks looked profitable in their sample however for the same rule the surviving fourteen show statistically significant profits for 1970 1982 for transactions costs obtainable by floor traders the test used here assumes constant risk premia or more generally that risk premia are on average approximately the same on days in as for the total period

arima and cointegration tests of ppp under fixed and flexible exchange rate regimes real exchange rates between the united states and its major trading partners were calculated for the bretton woods and flexible exchange rate periods unit root tests indicate that purchasing power parity performed poorly in both periods tests for cointegration reveal limited instances in which it is possible to estimate the deviations from ppp as an error correcting model the estimated error correcting models indicate that foreign but not u s prices responded to deviations from ppp frenkel s 1981b finding that purchasing power parity ppp worked better during the 1920s than the 1970s caused considerable controversy for example davutyan and pippenger 1985 contend that the socalled collapse of ppp is a result of an increase in the relative importance of real versus monetary shocks they argue that the 1970s as opposed to the 1920s was characterized by real supply shocks and the international coordination of monetary policies the argument is that ppp did not fail rather there was an increase in the volatility of those factors giving rise to deviations from ppp hakkio 1984 reestimated ppp over the 1920s and 1970s using cross country tests i e sure estimates to improve the efficiency of his estimates he was able to support the hypothesis that ppp worked better in the 1970s than in the 1920s on the other hand papers by adler and lehman 1983 dornbusch 1980 frenkel 1981a junge 1985 and krugman 1978 report findings contrary to the ppp hypothesis moreover kenen and rodrik 1986 find that the volatility of real exchange rates has increased throughout the flexible rate period this paper tries to shed some light on the importance and persistence of the observed deviations from purchasing power parity under alternative exchange rate systems while it is interesting to compare ppp in the 1920s versus the 1970s it is equally useful to compare the 1960s versus the 1970s and 1980s if real supply shocks and lack of monetary coordination are characteristic of the latter period ppp should perform better in the 1960s to illustrate the issues involved consider the following econometric model of relative purchasing power

searching for threshold effects in the evolution of budget deficits an application to the spanish case abstract in this paper we use recent developments on threshold autoregressive tar models that allow us to derive endogenously threshold effects in the evolution of the spanish budget deficit specifically a mean reverting dynamic behaviour of the budget deficit should be expected once such threshold is reached

the relation between savings and growth cointegration and causality evidence from asia the direction of causality between savings and growth remains unclear even though it is of critical importance for development policy in this paper granger causality analysis is undertaken for seven asian countries using the vecm engle and granger and var procedures we find that in most cases the direction of causality runs primarily from growth or income to savings although in some countries there is also evidence of a feedback effect from savings to income and growth thus development policy should focus less on promoting high savings rates and more on promoting high growth rates estimation of the savings functions are presented using engle and granger s static ols and stock and watson s dynamic ols dols procedures where appropriate the high savings rates in asia are found to be due to the high rate of growth of income per capita declining shares of dependent population and some special institutional features such as the high central provident fund rates in singapore interest rates ar

aid policies and growth in developing countries a new look at the empirics the relationship between foreign aid and economic growth has been the subject of much controversy a recent theme suggesting that aid promotes growth but only in a good policy environment has ratcheted up that debate in this paper we assess the importance of policy and aid in generating growth when the aid policy and growth relationship is nonlinear this allows us to examine the varying effects of aid and policy in different data segments which we do without imposing any particular structure on the underlying relationship we find that policy is an important determinant of growth we also find partial corroboration of the view that aid is growth enhancing in a good policy environment and some evidence of diminishing returns to aid these findings suggest that nonlinearities if not appropriately addressed fail to capture the detailed underlying dynamics and thereby mask some key features of the aid policy growth relationship

the correlates of entrepreneurship in three types of firms the objective of the research was to discover the chief determinants of entrepreneurship the process by which organizations renew themselves and their markets by pioneering innovation and risk taking some authors have argued that personality factors of the leader are what determine entrepreneurship others have highlighted the role played by the structure of the organization while a final group have pointed to the importance of strategy making we believed that the manner and extent to which entrepreneurship would be influenced by all of these factors would in large measure depend upon the nature of the organization based upon the work of a number of authors we derived a crude typology of firms simple firms are small and their power is centralized at the top planning firms are bigger their goal being smooth and efficient operation through the use of formal controls and plans organic firms strive to be adaptive to their environments emphasizing expertise based power and open communications the predictiveness of the typology was established upon a sample of 52 firms using hypothesis testing and analysis of variance techniques we conjectured that in simple firms entrepreneurship would be determined by the characteristics of the leader in planning firms it would be facilitated by explicit and well integrated product market strategies and in organic firms it would be a function of environment and structure these hypotheses were largely borne out by correlational and multiple regression analyses any programs which aim to stimulate entrepreneurship would benefit greatly from tailoring recommendations to the nature of the target firms

the behavior of interest rates implied by the term structure of eurodollar futures this paper considers an equilibrium model of the term structure that is determined by two stochastic factors a short term interest rate and a target level to which the short rate is expected to revert a kalman filter technique that uses a time series cross section of eurodollar futures prices is developed to estimate the parameters of the model the term structures of spot libor and eurodollar futures volatility are compared to that predicted by the model the empirical results indicate that the two factor specification represents a significant improvement over its one factor version copyright 1996 by ohio state university press

the savings growth nexus for the malaysian economy a view through rolling sub samples the purpose of this study is to re investigate the savings growth nexus for the malaysian economy using bounds testing approach to cointegration and toda and yamamoto 1995 and dolado and lutkepohl 1996 tydl granger causality test this study covered the sample period from 1971 q1 to 2008 q4 the cointegration results suggest that the variables are moving together in the long run and the tydl granger causality results indicate that the relationship between savings and economic growth is bilateral in addition the rolling sub samples tydl granger causality test exhibited a relatively stable causal relationship running from savings to economic growth in malaysia particularly before the onset of asian financial crisis in 1997 1998

threshold cointegration and purchasing power parity in the pacific nations the paper uses a threshold cointegration methodology to explore the properties of long run purchasing power parity ppp in the pacific nations using japan and the usa as base countries it is shown that long run ppp holds for most asian countries but that the adjustment mechanism is asymmetric in contrast to symmetric error correction models it is found that asymmetric adjustments of nominal exchange rates play an important role in eliminating deviations from long run ppp

the dynamic relationship between the prices of adrs and their underlying stocks evidence from the threshold vector error correction model this paper sets out to estimate the dynamic relationship that exists between the prices of adrs and their underlying stocks in both the short run and the long run using a number of recent developments of the threshold cointegration framework the empirical results support the notion of nonlinear mean reversion of the prices of adrs and their underlying stocks

on aid growth and good policies this study provides a critical analysis of the growth regressions in burnside and dollar 2000 first we analyse the relationship between aid and government expenditure in a modified neo classical growth model one of the main results of the analysis is that while good policies spur growths they may at the same time reduce the effectiveness of foreign aid second we show that the econometric results in burnside and dollar emphasising the crucial role of interaction between aid and good policies in the growth process are fragile as they are extremely data dependent finally we demonstrate that the burnside and dollar data lend support to the idea that the association between aid and growth can be approximated by decreasing returns to aid this finding conforms well to regression results in other recent studies

an empirical test of the efficiency of the adr market abstract this study examines the weak form efficiency of foreign equities american depository receipts traded in the u s the results of serial correlation and runs tests on a sample of listed and nasdaq adrs for the years 1974 1978 were consistent with weak form efficiency

the impact of competitors firm power divergence on chinese smes environmental and financial performance competitor pressure is one of the major reasons that a sme engages in environmentally friendly or damaging activities extant research has argued that environmental strengths and concerns have mirror opposite relationships with stakeholder antecedents as well as with performance outcomes we suggest this argument does not reflect the reality building on stakeholder management and red queen theories we hypothesize that environmental strengths and concerns have differential relationships with competitors firm power exchange and financial performance for chinese smes results of ten interviews a pretest and a large scale field study indicate that competitors firm power divergence has a positive relationship with environmental strengths yet the link between this divergence and environmental concerns does not exist further environmental strengths mediate the relationship between competitors firm power divergence and financial performance of chinese smes

the anarchy of numbers aid development and cross country empirics the recent literature contains many stories of how foreign aid affects economic growth aid raises growth in countries with good policies or with difficult economic environments or outside the tropics or on average but with diminishing returns the diversity of the results suggests that many are fragile seven important aid growth papers are tested for robustness using 14 minimally arbitrary tests deriving mainly from differences among the studies themselves this approach investigates the importance of potentially arbitrary specification choices while minimizing the arbitrariness in testing choices all of the results appear fragile especially to sample expansion

aid policies and growth comment in an extraordinarily influential paper craig burnside and david dollar 2000 p 847 find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies but has little effect in the presence of poor policies this finding has enormous policy implications the burnside and dollar 2000 henceforth bd result provides a role and strategy for foreign aid if aid stimulates growth only in countries with good policies this suggests that 1 aid can promote economic growth and 2 it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies international aid agencies public policy makers and the press quickly recognized the importance of the bd findings this paper reassesses the links between aid policy and growth using more data the bd data end in 1993 we reconstruct the bd database from original sources and thus 1 add additional countries and observations to the bd data set because new information has become available since they conducted their analyses and 2 extend the data through 1997 thus using the bd methodology we reexamine whether aid influences growth in the presence of good policies given our focus on retesting bd we do not summarize the vast pre bd literature on aid and growth we just note that there was a long and inconclusive literature that was hampered by limited data availability debates about the mechanisms through which aid would affect growth and disagreements over econometric specification see gustav f papanek 1972 robert cassen 1986 paul mosley et al 1987 peter boone 1994 1996 and henrik hansen and finn tarp s 2000 review since bd found that aid boosts growth in good policy environments there have been a number of other papers reacting to their results including paul collier and jan dehn 2001 carljohan dalgaard and hansen 2001 patrick guillaumont and lisa chauvet 2001 hansen and tarp 2001 robert lensink and howard white 2001 and collier and dollar 2002 these papers conduct useful variations and extensions some of which had already figured in the pre bd literature such as introducing additional control variables using nonlinear specifications etc some of these papers confirm the message that aid only works in a good policy environment while others drive out the aid policy interaction term with other variables this literature has the usual limitations of choosing a specification without clear guidance from theory which often means there are more plausible specifications than there are data points in the sample we differentiate our paper from these others by not deviating from the bd specification thus we do not test the robustness of the results to an unlimited number of variations but instead maintain the bd methodology this paper conducts a very simple robustness check by adding new data that were unavailable to bd thus we expand the sample used over their time period and extend the data from 1993 to 1997 easterly department of economics new york university 269 mercer street new york ny 10003 center for global development and national bureau of economic research e mail william easterly nyu edu levine department of finance carlson school of management university of minnesota 321 19th avenue south minneapolis mn 55455 and national bureau of economic research e mail rlevine csom umn edu roodman center for global development 1776 massachusetts avenue nw washington dc 20036 e mail droodman cgdev org we are grateful to craig burnside for supplying data and assisting in the reconstruction of previous results without holding him responsible in any way for the work in this paper thanks also to francis ng and prarthna dayal for generous assistance with updating the sachs warner openness variable and to three anonymous referees craig burnside and henrik hansen for helpful comments 1 see for instance the world bank 1994 2001 2002 the u k department for international development 2000 president george w bush s speech march 16 2002 the announcement by the white house on creating the millennium challenge corporation white house 2002 as well as a washington post editorial february 9 2002 a financial times column by alan beattie march 11 2002 and the economist march 16 2002

hostile environmental jolts transaction set and new business abstract in this exploratory study we examine empirically the effects of environmental jolts on the evolution of the set of relationships that entrepreneurs have with their customers and suppliers which we call the transaction set we believe that understanding how turbulence in the environment affects the ability of entrepreneurs to hold on to their existing relationships or to add new relationships is fundamental to understanding the evolution and growth of an organization from a start up to a stable wealth creating enterprise in the long run using longitudinal data spanning 7 to 10 years from five start up firms we investigate three questions on the connection between environmental jolts and changes in the transaction set of the firm first do environmental jolts during the early life of the firm induce significant reductions in the set of relationships of a new small firm second are entrepreneurs able to add new relationships in greater numbers than the exit of old relationships following a jolt and third do start ups enjoy a honeymoon period when environmental jolts do not induce significant reductions in the set of relationships after a jolt our study yielded several findings that may be of interest to entrepreneurs academics and incubator managers first environmental jolts have a significant impact on the exits of relationships from the transaction set of a new small firm but not necessarily on the entry of new relationships into the set thus although liabilities of newness and small size seem to affect the ability of entrepreneurs to hold on to their existing relationships during environmental jolts these jolts do not seem to affect the entrepreneur s ability to add ties at least in the very early life of the firm second the level of reduction after environmental jolts seems to be less severe during the early life and greatest during the adolescent period further entries of new relationships decrease with each succeeding jolt one implication of our findings is that environmental selection pressures are more severe after an incubation period called the honeymoon period a second implication of our findings is the way in which liability of adolescence manifests itself the honeymoon does not provide incubation against exits of relationships rather the incubation manifests itself in the form of the willingness of new customers and suppliers to join the entrepreneur s transaction set even during a jolt however this goodwill shown by new customers and suppliers decreases with each succeeding jolt thus making the firm very vulnerable to failure during its adolescent phase of life we believe our study emphasizes the role that chance plays in the early survival and growth of firms firms lucky to avoid hostile jolts after their honeymoon period will be in a better position to grow rapidly other things being equal despite sound management and superior exercise of enterprise jolts appear in the life of firms in a stochastic often unpredictable fashion although it is not clear that firms who have superior enterprise ability or slack are more likely to succeed than those who don t what is clear is that the ability to survive and grow is seriously affected with each succeeding jolt whatever the ability if our findings and our inference from the findings are general they have an important public policy implication for new small companies conventional wisdom holds that given liabilities of newness and small size incubator environments are best provided to start up firms we would recommend a different strategy incubator environments are best provided not at the start up stage to new business but at the adolescent stage incubators should be provided to companies that show during the honeymoon phase that their ideas and products have merit and that they can attract customers and investors to their venture it is during the adolescent stage that firms are most vulnerable to environmental disturbances and where ability may not be a sufficiently good discriminator between survival and failure

positive time preference the case for positive time preference is absolutely compelling unless there is an infinite time horizon with the expectation of unending technological advance combined with what we call drastically diminishing marginal utility this finding holds both in the positive and normative senses a corollary is that savings are interest elastic

why good firms do bad things the effects of high aspirations high expectations and prominence on the incidence of corporate illegality recent high profile corporate scandals involving prominent high performing firms cast doubt on assertions that the costs of getting caught decrease the likelihood such high performers will act illegally we explain this paradox by using theories of loss aversion and hubris to examine a sample of s p 500 manufacturers results demonstrate that both performance above internal aspirations and performance above external expectations increase the likelihood of illegal activities the sample firms prominence enhanced the effects of performance above expectations on the likelihood of illegal actions prominent and less prominent firms displayed different patterns of behavior when their performance failed to meet aspirations

price transmission and asymmetric adjustment in the spanish dairy sector asymmetric threshold vector error correction models are applied to monthly price data to analyse price relationships and patterns of transmission among farm and retail markets for a variety of dairy products in spain the results suggest that asymmetries affect a conspicuous part of the raw milk processed in spain implications for the organizational structure of spanish dairy markets are offered

dynamic hedge ratio for stock index futures application of threshold vecm this study represents one of the first papers in stock index futures arbitrage literature to investigate the effects of arbitrage threshold on stock index futures hedging effectiveness by using threshold vector error correction model hereafter threshold vecm moreover in contrast to prior studies focusing on examining case studies involving mature stock markets this study not only adopts us s p 500 stock market as the sample but also adds an analysis of one emerging stock market hungarian bsi and examines the differences between them finally this investigation employs a rolling estimation process to examine the impact of arbitrage threshold behaviours on the setting of futures hedging ratio the empirical findings of this study are consistent with the following notions first arbitrage behaviour reduces co movement between futures and spot markets and increases the volatility of both futures and spot markets second this article denotes the outer regime of futures spot market for the case of hung

expectations and the treasury bill federal funds rate spread over recent monetary policy regimes this paper shows that the spread between the 3 month treasury bill and the federal funds rate has significant predictive power for the future change in the federal funds rate during the volatile nonborrowed reserves operating regime but it has less and no predictive power during the borrowed reserves regime and the federal funds targeting regime respectively these findings suggest that treasury bill rates forecast future federal funds rates most accurately when the federal reserve follows a well defined rule that does not smooth the impact of shocks on the federal funds rate

aid growth and devolution summary this paper examines whether the degree of fiscal decentralization in aid receiving countries matters in explaining aid effectiveness the decentralization theorem predicts that the devolution of powers should increase aid effectiveness since local decision makers are better informed about local needs thereby decentralization may also have reverse effects e g through coordination problems excessive regulation administrative costs and local capture we use panel data for up to 60 countries and find that aid contributes to economic growth in centralized developing economies whereas it is less effective or even harmful in decentralized countries the cases of indonesia the philippines and uganda support our findings our results imply that donor countries should carefully consider how the two development instruments foreign aid and decentralization interact

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

exchange rate expectations and the pricing of chinese cross listed stocks abstract i show that the price discounts of chinese cross listed stocks american depositary receipts adrs and h shares to their underlying a shares indicate the expected yuan us dollar exchange rate the forecasting models reveal that adr and h share discounts predict exchange rate changes more accurately than the random walk and forward exchange rates particularly at long forecast horizons using panel estimations i find that adr and h share investors form their exchange rate expectations according to standard exchange rate theories such as the harrod balassa samuelson effect the risk of competitive devaluations relative purchasing power parity uncovered interest rate parity and the risk of currency crisis

vegetable oil market and biofuel policy an asymmetric cointegration approach abstract the present paper analyses the long run relationship between vegetable oil prices and conventional diesel prices in the eu for the period 2005 2007 we applied recent developments in the threshold cointegration approach to investigate the presence of asymmetric dynamic adjusting processes between the prices of rapeseed oil sunflower oil and soybean oil and the price of a mineral oil diesel the results presented suggest a two regime threshold cointegration model only for the rapeseed oil diesel price pair thus the rapeseed oil price adjusts rapidly to its long run equilibrium determined by fossil diesel prices but this adjustment is asymmetric it differs if the divergence between the two prices is above or below a critical threshold consequently rapeseed oil appears particularly exposed to external shocks deriving from global political scenarios suggesting the reassessment of the high quota 80 of eu biodiesel represented by this vegetable oil

the red queen effect competitive actions and firm performance we investigate the red queen effect as a contest of competitive moves or actions among rivalrous firms the results from a multi industry study of over 4 700 actions confirms the existence of red q

sustainable development and entrepreneurship past contributions and future directions this article discusses the emerging research concerned with sustainable development and entrepreneurship which is the focus of this special issue of the journal of business venturing entrepreneurship has been recognized as a major conduit for sustainable products and processes and new ventures are being held up as a panacea for many social and environmental concerns however there remains considerable uncertainty regarding the nature of entrepreneurship s role and how it may unfold we begin with an overview of sustainable development and the role of entrepreneurship and outline recent contributions exploring this role we then summarize the papers presented in this special issue and conclude with suggestions for further research

why are latin america s savings rates so low an international comparative analysis abstract this paper presents a theoretical and empirical assessment of the determinants of savings rates with special emphasis on latin american savings rates the study is based on international comparisons using data from 36 countries for 1970 1992 a distinction is made between private and public savings the later are endogenously determined by economic and political variables per capita income growth is the most important determinant of private and public savings public savings are lower in countries with higher political instability public savings crowd out private savings but less than proportionately low latin american savings are due to the magnitudes of their determinants rather than structural differences

aid and growth regressions this paper examines the relationship between foreign aid and growth in real gdp per capita as it emerges from simple augmentations of popular cross country growth specifications it is shown that aid in all likelihood increases the growth rate and this result is not conditional on good policy there are however decreasing returns to aid and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables when investment and human capital are controlled for no positive effect of aid is found yet aid continues to impact on growth via investment we conclude by stressing the need for more theoretical work before this kind of cross country regressions are used for policy purposes

using threshold cointegration to estimate asymmetric price transmission in the swiss pork market this paper employs threshold cointegration tests that allow for asymmetric adjustment towards a long run equilibrium relationship to examine the relationship between producer and retail pork prices in switzerland the short run adjustments are also examined with asymmetric error correction models that are compared to the conventional symmetric error correction models the results indicate that price transmission between the producer and retail levels is asymmetric in the sense that increases in producer prices that lead to declines in marketing margins are passed on more quickly to retail prices than decreases in producer prices that result in increases in the marketing margins

spatial market integration in the presence of threshold effects a large body of research has evaluated price linkages in spatially separate markets much recent research has applied models appropriate for nonstationary data such analyses have been criticized for their ignorance of transactions costs which may inhibit price adjustments and thus affect tests of integration this analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs we evaluate daily price linkages among four corn and four soybean markets in north carolina nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks our results confirm the presence of thresholds and indicate strong support for market integration though adjustments following shocks may take many days to be complete in every case the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored a large amount of empirical research has evaluated the extent to which spatially separate markets are integrated though the term is used loosely in the literature tests of market integration usually consider the extent to which shocks are transmitted among spatially separate markets the integration of markets can have important implications for price discovery and the operation of the market since persistent deviations from integration may imply riskless profit opportunities for spatial traders

aid and performance a reassessment two visions of aid effectiveness and allocation are compared the first corresponding to the new aid paradigm argues that aid is only effective if domestic policies are appropriate the second in contrast argues that aid effectiveness depends on the external and climatic environment the worse this environment or the more vulnerable the recipient countries the greater the effectiveness of aid cross sectional econometric tests related to gdp growth on two 12 year pooled periods clearly favour the second view the two views can be reconciled through the principle of performance based aid allocation where performance is defined as outcomes adjusted for the impact of environmental factors performance can then be measured in several manners which are subject to comparison one approach would lead one to allocate more aid the worse the external environment is for a given policy and the better the policy is for a given environment

spatial market arbitrage and threshold cointegration goodwin and piggott reported that corn and soybean prices in spatially separated markets in north carolina exhibited threshold cointegration and that commodity prices in different markets may persistently diverge here a multivariate approach is used to test for threshold cointegration and nonlinear cointegration the results suggest that departures from the law of one price do not persist indefinitely goodwin and piggott gp examined daily corn and soybean prices across spatially separated markets in north carolina and reported that bivariate pairings of prices were threshold cointegrated gp used a twothreshold model in which price differences across markets could persist indefinitely they concluded that empirical models should consider threshold effects in order to adequately characterize spatially integrated markets the purpose of this article is to extend the gp analysis in several directions gp employed the techniques of martens kofman and vorst which involve a multistepped search for thresholds in the residuals of a cointegrating regression this single equation search process is subject to potential misspecification so it is interesting to determine whether the direct multivariate test of threshold cointegration of hansen and seo provides confirmatory evidence in addition gp allowed two thresholds to affect each commodity pair without directly testing for the number of thresholds the second extension uses hansen tests to determine the number of thresholds two thresholds imply no arbitrage bounds that allow persistent departures from the law of one price one threshold is consistent with the traditional view that price differentials are fleeting as arbitrageurs drive excess returns to zero the final extension recognizes that spatially integrated markets might follow a nonlinear relationship that depends on transactions costs peter s sephton is professor school of business queen s university kingston ontario canada the author would like to thank nick piggott for providing his dataset and the dean s research fund in the school of business for financial assistance two anonymous referees provided helpful comments sufficiently large deviations from the law of one price should lead to a reduced price dispersion a direct test of nonlinear cointegration demonstrates that price differences tend to be resolved over time background