production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

mixed markets and crime abstract this paper specifies and solves a two stage game theoretic model of a mixed market for crime control in the first stage of the model private targets and the government choose levels of policing in the second stage criminals choose targets and the severity of the crimes that they commit the paper s key results are as follows first private policing can both divert crime to targets that lack private protection and also increase the severity of the crime that these less protected targets suffer second an increase in private policing reduces the aggregate expenditure on traditional policing this is an instance of a political incentive externality where private policing affects the objective function of the government specifically it reduces the level of traditional policing that is consistent with the samuelson condition for efficient provision of a public good third the substitution of private for public policing carries with it a change in the technology of policing in effect private policing leads to a shift from enforcement and punishment towards monitoring and target hardening this in turn may lead to an increase in the severity of crime fourth the mixed policing equilibrium is inefficient and in some situations mixing may reduce the utility of all targets

burglary and income inequality abstract in a model where risk neutral agents have differing legal incomes which may be supplemented by burglary we study the effects of income distribution on the level of burglary assuming that a detected burglar is incarcerated for a fixed term and assuming that burglars choose target houses using the signal of house quality we show how increases in income inequality may increase the level of crime in particular increases in relative differential inequality unambiguously increase burglary crime corollaries are that a more regressive income tax increases the level of crime and that richer neighborhoods may have lower crime rates

agglomeration city size and crime this paper analyzes the relationship between crime and agglomeration where the land labor product and crime markets are endogenously determined our main theoretical findings are the following i better accessibility to jobs decreases crime in the short run but may increase crime in the long run ii the per capita crime rate increases with city size iii when allowing for endogenous policing lower commuting costs make the impact of police on crime more efficient

is there really a gap between aggregate productivity and technology the important contribution by basu and fernald 2002 shows that in practice there is a statistically significant gap between aggregate productivity and technology that can be attributed to inefficient product and labour markets this is important as it implies that the solow residual is an imperfect index for aggregate technology change we take a related approach and find that when we control for capacity utilization time varying markup and account for externalities between industries by employing a superior system estimator the gap between the aggregate productivity and technology is shown to narrow considerably

time varying risk premia volatility and technical trading rule profits evidence from foreign currency futures markets abstract this paper re examines the efficiency of foreign currency futures markets by evaluating the role of time varying risk premia and volatility in explaining technical trading rule profits the results show that large parts of the technical rule profits can be explained by the time varying risk premia estimated from a general model for the conditional capm the bootstrap distributions for the profits under the null model average one third to one half of the actual profits and enclose the actual profits well within the 90 confidence intervals time varying conditional volatility explains an additional 10 of the profits

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

superior forecasts of the u s unemployment rate using a nonparametric method we use a nonlinear nonparametric method to forecast unemployment rates this method is an extension of the nearest neighbor method but uses a higher dimensional simplex approach we compare these forecasts with several linear and nonlinear parametric methods based on the work of montgomery et al 1998 and carruth et al 1998 our main result is that due to the nonlinearity in the data generating process the nonparametric method outperforms many other well known models even when these models use more information this result holds for forecasts based on quarterly and on monthly data

changing a decision taken under uncertainty the case of the criminal s location choice in this paper we analyse the allocation of criminal activity over the metropolitan area over time at each period of time the criminal must choose in which area to commit his her next offence the criminal s expectations regarding his her utility as a function of the probability to be apprehended are updated in the process of work we find general conditions under which the criminal determines his optimal location strategy a direct policy implication of our model suggests that spillover effect is the result of changing police activities

the optimal extraction rate of a natural resource under uncertainty abstract the objective of this paper is to derive the optimal rate of depletion of non renewable natural resource by a monopolist under uncertainty conditions on the evolution of the reserve stock of that natural resource

exchange rates forecasting local or global methods exchange rates forecasters usually assume that local methods nearest neighbour dominate the global ones neural networks or genetic programming for example in this article first we use different generalizations of the standard nearest neighbours to predict the dynamic evolution of the yen us and pound sterling us exchange rates one period ahead second we compare our results with those employing global methods such as neural networks genetic programming data fusion and evolutionary neural networks finally we find out the existence of predictable structures periods ahead our results reveal a slightly but significant forecasting ability for one period ahead which is lost when more periods ahead are considered and no important predictive differences between local and global methods have been found

gated communities and the economic geography of crime abstract this paper analyzes gated communities in a geographic model of crime there are four major results first gating always diverts crime to other communities but has an overall deterrent effect on crime as long as it does not impact legitimate employment opportunities second gating expenditures may be strategic substitutes or strategic complements the latter possibility may help explain why gated communities appear to spread like a contagion third the nash equilibrium level of gating expenditures is inefficiently large fourth gating may actually increase the overall level of crime if it either affects employment opportunities or it influences the selection among multiple equilibrium crime rates

testing nonlinear forecastability in time series theory and evidence from the ems abstract this paper proposes a procedure based on nearest neighbour predictors for testing the existence of nonlinear forecastable dependencies in time series an empirical application to ems exchange rates illustrates the performance of the test

strategic exploitation of a common resource under environmental risk abstract we study the effect of environmental risk on the extraction of a common resource using a dynamic and non cooperative game in which an environmental event impacts the renewability and the quality of the resource we show that the anticipation of such an event has an ambiguous effect on extraction and the tragedy of the commons a risk of a reduction in the renewability induces the agents to extract less today while a risk of a deterioration in the quality has the opposite effect moreover when environmental risk induces conservation the tragedy of the commons is worsened

the behaviour of productivity growth rates and price cost margins during contractions and expansions panel data on thirteen two digit us manufacturing industries were analysed using a random coefficients approach to determine the behaviour of total factor productivity growth rates and price marginal cost ratios during recessions and expansions results show 1 productivity growth is procyclical it decreases during recessions and increases during expansions in addition the decrease during recessions is greater than the increase during expansions 2 the price marginal cost ratio is very asymmetric it decreases during recessions but shows no significant movement during an expansion the lower price marginal cost ratio during a recession implies that the elasticity of output with respect to labour decreases thus not only does the level of productivity fall but the productivity of labour relative to capital also falls these characteristics are consistent with labour hoarding

the extraction of natural resources from two sites under uncertainty abstract a firm with two sites of natural resources cannot make extractions from both simultaneously a policy is examined whereby once the work of extraction is commenced on one resource the firm does not change to the other regardless of new information

quality of the business environment versus quality of life do firms and households like the same cities this paper develops a new measure of the quality of business environment that complements existing measures of the quality of life an annual panel of these measures is constructed and analyzed for 37 cities from 1977 to 1995 findings indicate that many cities attractive to firms are unattractive to households and vice versa in addition the size of a city s workforce increases with improvements in the quality of the business environment in contrast cities most likely to be dominated by retirees are those that are less attractive to firms additional specifications support theoretical arguments that retirees are drawn to cities in which local attributes are capitalized into lower wages rather than higher rents

chaotic behaviour in exchange rate series first results for the peseta u s dollar case abstract we test for the presence of deterministic chaos on daily data for the spot and forward spanish peseta u s dollar exchange rates the finding of a chaotic behaviour in the series allows us to make short run predictions which in general outperform those from the random walk model

long run technical change and multifactor productivity growth in us manufacturing this study utilizes a translog cost function to produce econometric estimates of the separate influences of technical change versus scale efficiency in contributing to multifactor productivity growth within the us manufacturing sector the analysis generates two digit industry specific parameters that capture the effects of output versus time related shifts in the cost function over the 1949 1991 period thus initial evidence concerning the relative importance of technical progress versus scale cannot be provided as a source of productivity gains within two digit industries the parametric estimates of total factor productivity growth are compared with existing divisia measures to explore the shortcomings of the growth accounting technique these long run patterns hold implications for the productivity convergence hypothesis traced to knowledge spillovers between industries