some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

unraveling the complex interrelationships between exchange rates and fundamentals abstract this research investigates the intrinsic characteristics of currency values by fundamentally decomposing investor expectations on 16 currencies the results on 195 exchange rates over several decades indicate investors perceive countries to be more likely to choose devaluation solutions to bop problems when inflation is lower and when an alternative drop in real income growth is more painful in addition empirical support is provided for the hypothesis that forward rates often appear biased because the distributional expectations incorporated into them include for a country with a current account deficit a small probability of a large spot decline that does not actually occur in most finite samples

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

liquidity and exchange rates abstract we present a two country extension of lucas s 1988a work on cash in advance constraints in asset markets in the model there is temporary separation between the goods and asset markets and money is used for transactions in both we first find that the exchange rate level depends on the share of money used for asset transactions a greater share appreciates the currency second stochastic open market operations increasing the domestic bonds supply appreciate the domestic currency third the liquidity effects of bond supply shocks cause an excess volatility of nominal exchange rates even when their fundamental value is constant

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

pollution claim settlements under private information abstract the classical problem of resolving a nuisance dispute between a pollution generating firm and nearby residents is modelled here as a mechanism design problem we assume that the designer of the mechanism is the firm that it is uncertain about the actual losses suffered by residents and that the initial assignment of property rights is one where each resident is entitled to prevail we derive a profitmaximizing scheme under the individual rationality and incentive compatibility constraints and examine its properties it is shown that the outcomes it yields are sometimes inefficient moreover when many residents are affected by pollution and the degree of uncertainty with respect to the losses they suffer is large these inefficiencies become rampant

public good provision with constitutional constraint this article studies the public good provision problem in which the principal faces a constitutional constraint in the sense that in order for a public good provision mechanism to be implemented it must first be approved by agents under a prespecified voting rule i find that as long as the voting rule is not the unanimity rule the principal can propose a mechanism such that first best efficiency of provision of the public good is achieved i also consider various constraints such as prohibition of discriminatory mechanisms and the existence of vote buying and discuss optimal voting rules in these situations

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

liquidity models in open economies theory and empirical evidence abstract this paper presents an overview of recent theoretical and empirical research on liquidity models in open economies this is a class of optimizing models where money has effects on real asset prices and economic activity without relying on the ad hoc assumption of price wage stickiness the non neutrality of money derives from a temporary segmentation between goods and asset markets after surveying the theoretical literature on liquidity models we present empirical evidence based on var econometric techniques for the seven major industrial countries such evidence is shown to be consistent with the main implications of the liquidity models

forward discount puzzle and liquidity effects some evidence from exchange rates among the united states canada and japan this paper empirically examines whether the interaction between foreign exchange markets and monetary markets can help to resolve the forward discount puzzle following the monetary models of lucas 1990 and fuerst 1992 we define as liquidity effects the negative impact of monetary injection on nominal interest rates temporary deviations from the standard euler equation the liquidity effect identified by these models weakens the linkage between current forward rates and expected future spot rates and improves on the standard rational expectations model that predicts a one to one correspondence between the two using time series of exchange rates among the united states canada and japan this paper shows that the liquidity measure identified above has an impact on forward premiums and that once the liquidity effect is taken into consideration the unbiased prediction of the forward discount rate is recovered to some extent in a theoretically consistent manner

estimating the effects of monetary shocks an evaluation of different approaches abstract this paper compares several methods for estimating the effects of monetary innovations on key macroeconomic variables and subsequently clarifies issues related to the use of instrumental variables in the identification of structural impulse responses in particular we make explicit the property that a measure of monetary policy must satisfy in order to identify the effects of monetary shocks within our framework we find that none of the currently popular methods of identifying the effects of monetary shocks are supported by the data we also indicate how current approaches can be combined to provide unbiased estimates of the effects of monetary disturbances

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

accounting for forward rates in markets for foreign currency absteract forward and spot exchange rates between major currencies imply large standard deviations of both predictable returns from currency speculation and of the equilibrium price measure the intertemporal marginal rate of substitution representative agent theory with time additive preferences cannot account for either of these properties we show that the theory does considerably better along these dimensions when the representative agent s preferences exhibit habit persistence but that the theory fails to reproduce some of the other properties of the data in particular the strong autocorrelation of forward premiums since the advent of flexible exchange rates in the early 1970s a large body of statistical work has established that forward rates for major currencies are not optimal predictors of future spot rates relevant evidence is reported in studies by baillie lippens and mcmahon 1983 bekaert 1991 bilson 1981 boothe and longworth 1984 cumby 1988 cumby and obstfeld 1984 fama 1984 gregory and mccurdy 1984 hansen and hodrick 1983 hodrick and srivastava 1984 and korajczyk and viallet 1990 a more complete list of references is provided by hodrick 1987 these papers indicate that returns from speculation in forward and spot currency markets are predictable and that the predictable components vary considerably over time a number of alternative explanations have been offered for the predictable variation in foreign currency market excess returns kaminsky 1988 korajczyk 1985 and krasker 1980 suggest that infrequent extreme events may make returns appear predictable in small samples the so called peso problem lewis 1989 argues that rational learning following infrequent changes in the process governing equilibrium prices can explain part of the ex post predictability of currency returns froot and frankel 1989 and froot and thaler 1990 examine the hypothesis that market forecasts of future spot

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

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

momentary exchange rate locked in a triangular mechanism of international currency this study uses two way quoted data on major and nonmajor currencies to test the exchange rate dynamics particular attention is paid to the arbitrage and the spread in triangular foreign exchange trades there is only one possible triangle when a bilateral exchange rate equals its trilateral rate otherwise any third currency would potentially create arbitrage opportunities empirical testing evidence supports that small but possibly exploitable profitable arbitrage has significantly occurred over the very short haul of uncertainty and turbulence in other words we are convinced that the bilateral exchange rate could be diverged from one common currency side of the trilateral basket rates until markets function efficiently this helps in better explaining foreign exchange rate movements in addition we find that the currency correlating decreases slightly but the volatility increases over time as we expected

media capture in a democracy the role of wealth concentration abstract since objective news coverage is vital to democracy captured media can seriously distort collective decisions the current paper develops a voting model where citizens are uncertain about the welfare effects induced by alternative policy options and derive information about those effects from the mass media the media might however secretly collude with interest groups in order to influence the public opinion in the case of voting over the level of a productivity enhancing public bad it is shown that an increase in the concentration of firm ownership makes the occurrence of media bias more likely although media bias is not always welfare worsening conditions for it to raise welfare are restrictive

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

would economic democracy decrease the amount of public bads the general argument of those who believe that economic democracy decreases the amount of public bads is that with economic democracy the people would make decisions rather than a small class of capitalists an attempt is made to evaluate and analyze this argument several possibilities emerge and the situation is found to be more subtle than implied by this popular argument copyright 1993 by the editors of the scandinavian journal of economics

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

efficient mechanisms for public goods with use exclusions constrained efficient provision of an excludable public good is studied in a model where preferences are private information the provision level is asymptotically deterministic making it possible to approximate the optimal mechanism with a mechanism that provides a fixed quantity of the good and charges fixed user fees for access in general the fixed fees involve third degree price discrimination but if names are uninformative about preferences the analysis provides a justification for average cost pricing copyright 2004 wiley blackwell

public goods participation constraints and democracy a possibility theorem abstract it is well known that ex post efficient mechanisms for the provision of indivisible public goods are not interim individually rational however the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided this paper instead considers majority voting with uniform cost sharing as the relevant status quo efficient mechanisms may then exist which also satisfy all agents interim participation constraints in this case ex post inefficient voting mechanisms can be replaced by efficient ones without reducing any individual s expected utility intuitively agents with a low willingness to pay have to contribute more under majority rule than under an efficient mechanism with a balanced budget although this possibility theorem is not universal in the sense of schweizer 2006 an asymptotic possibility is obtained for certain type distributions

mass media competition political competition and public policy if better informed voters receive favourable policies then mass media will affect policy because mass media provide most of the information people use in voting this paper models the incentives of the media to deliver news to different groups the increasing returns to scale technology and advertising financing of media firms induce them to provide more news to large groups such as taxpayers and dispersed consumer interests and groups that are valuable to advertisers this news bias alters the tradeoff in political competition and therefore introduces a bias in public policy the paper also discusses the effects of broadcast media replacing newspapers as the main information source about politics the model predicts that this change should raise spending on government programmes used by poor and rural voters

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

public good provision with many participants for a nonexcludable public good with benefit and cost functions independent of the number of participants this paper studies second best allocations under bayesian interim incentive compatibility and interim individual rationality as the number of participants becomes large second best provision levels converge in distribution to first best levels if the latter are bounded second best provision levels become large in absolute terms but small relative to first best levels if benefit and cost functions are isoelastic in contrast for an excludable public good the ratio of second best to first best levels is bounded away from zero