bargaining over governments in a stochastic environment in this paper i structurally estimate a stochastic bargaining model of government formation in a multiparty parliamentary democracy and i conduct policy experiments to evaluate the effects of changes in the bargaining procedure i show that the model fits well data on the duration of negotiations and government durations in postwar italy also i show that changes in the proposer selection process would not affect either the duration of negotiations or government durations whereas the imposition of a strict deadline would in general reduce the incentives to delay agreement as well as government durations

opportunistic timing and manipulation in australian federal elections in many parliamentary systems election timing is an important decision made by governments in order to maximize their expected remaining life in power governments can also introduce policy or economic actions to enhance their popular standing and thus their chance of being re elected on the other hand an oppositions natural objective is to gain power and they will also apply controls through their own policies to reduce the governments chance of being re elected in this paper we employ a dynamic programming approach to determine the optimal timing for governments and oppositions to best utilize their limited resources at each decision branch the optimal control is interpreted as a nash cournot equilibrium of a zero sum political game which in certain states admits mixed strategy solutions we perform a case study on the australian federal election for house of representatives

the political reliability of italian governments an exponential survival model italian cabinets governi fall from power in a seemingly haphazard pattern thus defying most deterministic analyses of their durability this analysis views italian government longevity as essentially indeterminate or stochastic and it applies the theory of political reliability to explain the probability that an italian government will be in power at time t after it was formed an exponential survival model r e kt with constant government breakdown rate k 021 per week is developed estimated tested and discussed it is shown that italian governments have a half life of approximately 32 8 weeks after which their political reliability drops below 50 and their mean duration is 47 7 weeks so the probability that an italian government will survive as long as the average is only 36 8 theoretical aspects of the model are also discussed together with characteristic features of exponential political reliability such as lifetime density political mortality and government downfall rate as well as the systems reliability and crisis process characteristic of italian governments

structural analysis of cointegrating vars this survey uses a number of recent developments in the analysis of cointegrating vector autoregressions vars to examine their links to the older structural modelling traditions using autoregressive distributed lag ardl and simultaneous equations models sems in particular it emphasizes the importance of using judgement and economic theory to supplement the statistical information after a brief historical review it sets out the statistical framework discusses the identification of impulse responses using the generalized impulse response functions reviews the analysis of cointegrating vars and highlights the large number of choices applied workers have to make in determining a specification in particular it considers the problem of specification of intercepts and trends and the size of the var in more detail and examines the advantages of the use of exogenous variables in cointegration analysis the issues are illustrated with a small u s macroeconomic model

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

a comparison of autoregressive univariate forecasting procedures for macroeconomic time series the actual performance of several automated univariate autoregressive forecasting procedures applied to 150 macroeconomic time series are compared the procedures are the random walk model as a basis for comparison long autoregressions with three alternative rules for lag length selection and a long autoregression estimated by minimizing the sum of absolute deviations the sensitivity of each procedure to preliminary transformations data periodicity forecast horizon loss function employed in parameter estimation and seasonal adjustment procedures is examined the more important conclusions are that akaike s lag length selection criterion works well in a wide variety of situations the modeling of long memory components becomes important for forecast horizons of three or more periods and linear combinations of forecasts do not improve forecast quality appreciably

does real u k gdp have a unit root evidence from a multi century perspective we employ linear and nonlinear unit root tests to examine the stationarity of five multi century historical u k series of real output compiled by the bank of england three series span 1270 to 201

cross sectional heterogeneity and the persistence of aggregate fluctuations abstract the microevidence indicates that small firms grow faster than big firms i argue that this relationship between the expected growth rate of a firm and its size may provide a microfoundation for the well known high degree of persistence of shocks to aggregate output the logic goes as follows almost any shock tends to temporarily alter firms incentive to invest in growth thereby leading to a reallocation of firms across size categories if small firms grow faster than big ones the impact effect of the shock on aggregate output is gradually absorbed but as fast growing small firms become big and start to grow at the lower rate of big firms the rate at which the shock is absorbed decreases over the adjustment path as a result shocks are absorbed yet at a very low decreasing rate which induces long memory in aggregate output i argue that this transmission mechanism may reconcile the microevidence with the observed degree of aggregate persistence it requires changes in neither the number of firms in the market nor the rate of technological progress it is merely the result of the cross sectional heterogeneity that we observe in real economies

further evidence regarding nonlinear trend reversion of real gdp and the cpi abstract this paper examines whether the cpi and real gdp for the us exhibit nonlinear reversion to trend as recently concluded by beechey and osterholm beechey m and osterholm p 2008 revisiting the uncertain unit root in gdp and cpi testing for nonlinear trend reversion economics letters 100 221 223 the wild bootstrap is used to correct for non normality and heteroscedasticity in a nonlinear unit root test the use of wild bootstrapped critical values affects test conclusions in some cases results also are sensitive to the sample period examined

a structural model of government formation in this paper we estimate a bargaining model of government formation in parliamentary democracies we use the estimated structural model to conduct constitutional experiments aimed at evaluating the impact of institutional features of the political environment on the duration of the government formation process the type of coalitions that form and their relative stability

unit root and trend breaks in per capita output evidence from sub saharan african countries abstractthis article examines the nonstationary properties of per capita real output in 28 sub saharan african ssa countries covering the period 1960 2014 the sequential testing approach proposed by kejriwal and lopez 2013 econometric reviews 32 8 892 927 is used to categorize ssa countries into growth shift level shift and linear trend hypotheses based on the presence or not of breaks in slope and or level of the trend function the break dates are associated to major historical or economic events such as sociopolitical crisis commodity price fluctuations on international market the discovery and the exploitation of mineral deposits or unfavourable environmental and climatic conditions the empirical evidences of appropriate unit root tests fail to reject the unit root hypothesis in all the countries suggesting that a shock would have a permanent effect on growth process and stabilization policies may be implemented in dealing with income fluctuations

electoral uncertainty and the macroeconomy the evidence from canada the partisan advantage and incumbency advantage versions ofthe rational partisan business cycle model are tested bothmodels assume agents form weighted averages of partisaninflation rates during an election period and differ only inhow the weights are formed which alters the form of businesscycles the partisan advantage assumes fixed weightsdesignated for both major parties in each election whereasthe incumbency advantage model assumes fixed weights forwhichever is the incumbent and opposition party in eachelection the symmetric representation assumes each electionis a toss up strongest support is found for a temporarysymmetric effect on the level of output but none of themodels are supported for temporary electoral changes in growthor unemployment rates

comparative economic voting britain france germany italy likelihood of a vote for the incumbent coalition in contrast personal economic circumstances no matter how measured demonstrate nonexistent to weak effects on vote choice overall economic conditions emerge as a relatively important vote determinant when a more properly specified general multi equation model of the vote is estimated economics shows itself to be as powerful as traditional factors used to explain the western european vote in particular economic variables exceed the impact of partisan identification in britain and roughly equal it in germany moreover the economic variables exercise more influence than the social cleavages of class and religion everywhere except italy

constitutional power and competing risks monarchs presidents prime ministers and the termination of east and west european cabinets some european constitutions give cabinets great discretion to manage their own demise whereas others limit their choices and insert the head of state into decisions about government termination in this article we map the tremendous variation in the constitutional rules that govern cabinet termination and test existing expectations about its effects on a government s survival and mode of termination in doing so we use the most extensive government survival data set available to date the first to include east and west european governments our results demonstrate that constitutional constraints on governments and presidential influence on cabinet termination are much more common than has previously been understood and have powerful effects on the hazard profiles of governments these results alter and improve the discipline s understanding of government termination and durability and have implications for comparative work in a range of areas including the survival and performance of democracies electoral accountability opportunistic election calling and political business cycles

potential pitfalls in determining multiple structural changes with an application to purchasing power parity we investigate the empirical performance of the bai and perron multiple structural change tests and show that the use of their critical values may cause severe size distortions in persistent series to correct these size distortions while maintaining a good power we implement the bai structural change test and extend it in two directions developing a new procedure to choose the number of breaks and a restricted version that specifically models breaks that imply mean or trend reversion using our new methodologies we reconcile the results of unit root tests with those of tests for structural change when testing for long run purchasing power parity

the political theory of the business cycle two strands of recent empirical work pose a challenge for the macro theorist when brought together one is the rational expectations interpretation of the business cycle the other is the political theory of the business cycle this paper attempts a reconciliation of these two strands in a theory where national political parties have to satisfy the preference of their own supporters as well as the floating voter the implications are that party voters evaluate government performance with respect to expected inflation and output and their variances and that parties will pursue different feedback rules

median unbiased estimation in df gls regressions and the ppp puzzle using median unbiased estimation recent research has questioned the validity of rogoff s remarkable consensus of 3 5 year half lives of deviations from ppp these half life estimates however are based on estimates from regressions where the resulting unit root test has low power we extend median unbiased estimation to the df gls regression of elliott rothenberg and stock 1996 we find that median unbiased estimation based on this regression has the potential to tighten confidence intervals for half lives using long horizon real exchange rate data we find that the typical lower bound of the confidence intervals for median unbiased half lives is just under 3 years thus while previous confidence intervals for half lives are consistent with virtually anything our tighter confidence intervals now rule out economic models with nominal rigidities as candidates for explaining the observed behavior of real exchange rates therefore while we obtain more information using efficient unit root tests on longer term data this information moves us away from solving the ppp puzzle

the case for trend stationarity is stronger than we thought in dejong and whiteman 1991a we concluded that 11 of the 14 macroeconomic time series originally studied by nelson and plosser 1982 supported trend stationarity phillips 1991 criticizes this inference claiming that our procedure is biased against integration and that our results are sensitive to model and prior specification however phillips alternative models and priors bias his results in favour of integration despite these biases phillips own findings indicate that the data provide the greatest relative support to trend stationarity this result is similar to our own 1989 1990 1991b findings concerning the sensitivity of our results the trend stationarity inference is remarkably robust

some evidence on the effect of the separation of spending and taxing decisions it is often argued that separation of public spending and taxing decisions engenders in the voter overoptimistic hopes that someone else will bear the cost of public services thereby inducing an increase in the size of government but are perceived tax prices systematically and persistently reduced by separation although in stock markets all agents expectations may be unbiased they may or may not be unbiased in political markets this paper analyzes the separation created in federal states when the central government finances local expenditures evidence from a dynamic decisive voter model is presented that indicates that the separation introduced by federal grants to canadian provinces did in fact reduce the perceived tax price of provincial public services and raise provincial expenditures the results suggest also that the effect of separation diminished over time

the great depression and output persistance the persistence of shocks to aggregate output has been the subject of continuing investigation since nelson and plosser 1982 suggested they are largely permanent recent literature reaches mixed conclusions largely due to disagreement about how to treat the great depression we estimate output persistence based on a parametric bootstrap of a markov switching model for gdp 1870 1994 in which the economy can switch in and out of a turbulent state our results suggest that real shocks persist indefinitely if we drop the maintained assumption of homoskedasticity in favor of a markov switching representation of the great depression

coalition governments and comparative constitutional design abstract in this paper we present a structural approach to the study of government formation in multi party parliamentary democracies the approach is based on the estimation of a stochastic bargaining model which we use to investigate the effects of specific institutional features of parliamentary democracy on the formation and dissolution of coalition governments we illustrate our methodology by presenting the results of two counterfactual experiments of comparative constitutional design

on real interest rate dynamics and regime switching abstract we find evidence of regime switching dynamics in the usa and the uk real interest rates over the period 1881 2003 for the uk there is a regime in which the real interest rate displays a relatively stronger mean reversion and a regime in which it displays a relatively weaker mean reversion the former regime is characterized by a relatively larger error in the estimation of the reversion parameter and higher volatility for the usa the two regimes differ in volatility the probability of transition from one regime to another is found to be significantly related to the inflation rate regime and to the political regime the results highlight the importance of regime switching in the dynamics of the real interest rate as well as the role of inflation and political regimes in explaining this switching

markov switching models and the unit root hypothesis in real us gdp abstract i find that real us gdp is better characterized as a trend stationary markov switching process than as having a regime dependent unit root i examine the effects of both assumptions on the analysis of business cycle features and their implications for the persistence of the dynamic response of output to a random disturbance

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

preference voting in italy votes of opinion belonging or exchange intraparty preference voting is a potentially important possibility for voters in many proportional representation systems especially the italian system three hypotheses that preference voting is

the uncertain trend in u s gdp abstract several recent papers conclude that gdp is trend stationary implying that all shocks are transitory we re examine the evidence in light of test size distortion due to data based lag selection and departures from the maintained hypothesis of temporal homogeneity and find both effects trigger false rejections of the unit root hypothesis when it is true and signal the presence of permanent shifts in trend that did not occur trend stationarity is not supported by the more homogeneous post war data but if imposed implies cycles of implausible duration and pattern 1997 output was 8 below trend

aggregation persistence and volatility in a macro model we introduce firm heterogeneity into the standard monopolistically competitive real business cycle rbc model the fundamental equilibrium path is derived and the time series properties of aggregate gdp are studied analytically although firms productivities are subject to temporary shocks the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset this aggregate gdp turns out to have very different properties from log linear time series models such as auto regressive ar models and their extensions it displays very strong persistence which ends abruptly with a sudden change of tendency giving its autocorrelation function acf an s shape although persistent it is mean reverting unlike the everlasting memory of unit root processes its volatility is of a greater order of magnitude than that of any of its components so small micro shocks can generate large macro fluctuations it is also characterized by long asymmetric cycles of random lengths increased monopoly power tends to reduce the amplitude and increase the

does policy stability increase the constitutional court s independence the case of italy during the first republic 1956 1992 in this paper we consider thesentences of constitutional illegitimacy bythe italian constitutional court in thefirst republic 1956 1992 as a measure ofits independence from politicians we focuson the court s incidental review and testwhether the court s independence increaseswhen there is more policy stability namelywhen politicians are less able to changethe policy status quo by legislation wefollow tsebelis 2002 in assuming thatlegislative policy change is less likelywhen either the number and or ideologicaldistance of veto players increases as aproxy for the size of the veto players pareto set we use either the number ofparties in government or the number ofparties forming a constitutional majorityin parliament or the number of effectiveparties in parliament or measures ofideological distance based on laver andhunt 1992 by controlling for the court sdegree of internal cohesion cointegrationanalysis shows that there is a stable andpositive long run relationship between thecourt s independence and proxy measures ofthe degree of policy stability

on political business cycles with endogenous election dates abstract the pattern of policy generated cycles which result in the nordhaus model is examined under different hypotheses regarding election date determination

the empirical analysis of fiscal illusion this paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion after placing these hypotheses within a common theoretical framework the paper attempts to evaluate empirical research into the revenue complexity hypothesis the revenue elasticity hypothesis the flypaper effect renter illusion and debt illusion

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

excessive deficits sense and nonsense in the treaty of maastricht maastricht s fiscal rules willem buiter giancarlo corsetti and nouriel roubini the maastricht treaty on economic and monetary union in the ec has specified limits on both government debt and fiscal deficits satisfying these criteria is necessary for getting into emu once inside violating these limits will also incur penalties the fiscal requirements especially the debt criterion are much tougher than is required to ensure public sector solvency trying to attain these targets will force the ec initially into substantial deflation and recession failure to correct for real growth inflation and the business cycle makes the nominal deficit a poor basis for any policy or target ambiguity about how fiscal targets will in fact be interpreted might provide a way out but cannot today be relied upon to do so supranational fiscal rules are sometimes claimed to be justified by externalities in national fiscal policies we find this justification wanting both in theory and empirically a better case might be built on the imposition of external commitments to offset domestic political distortions that systematically induce excessive deficits even so we conclude that the fiscal convergence criteria on balance are harmful and should be disregarded or applied very loosely to avoid the risk of serious fiscal overkill

a note on the meaning of cabinet durability cabinet durability is widely but not very plausibly regarded as an indicator of regime stability the alternative and more convincing interpretation is that it reflects executive dominance in executive legislative relationships

the costs of coalition coalition theories and italian governments governments in italy both change and remain the same from 1946 to 1992 the christian democratic party always held governing power but almost no cabinet stayed in office more than a few years and many governments collapsed after only a few months how can instability coexist with stability in this way how can governments break up at such low cost and with so little effect on alternation these questions are rooted in but not resolved by the available game theoretic literature on coalitional behavior my answer is that politicians purposive actions can reduce the costs of coalition i argue that the costs of making breaking and maintaining coalitions depend on political institutions and on the array of parties and voters in policy space institutional and spatial conditions structure politicians opportunities and attempts to lower costs under some conditions as i show coalitions are cheap and politicians can easily make coalitions even cheaper the inference is that this framework comprehends both italy s extremes and the degrees of stability found in other parliamentary democracies

political business cycles and endogenous elections empirical research of political business cycles pbcs may suffer from endogeneity bias when incumbent governments have discretion to call for an early election using an instrumental variable iv routine on data from japan and the u k we find strong evidence to support the notion that election timing is a function of the economy rather than the macroeconomy being driven by elections as assumed in pbc in single equation regressions no evidence of political cycles are found but hausman tests suggest elections are endogenous in our regressions a monetary cycle in japan and an inflation cycle in the u k are uncovered through iv estimation

searching for a break in gnp it has been suggested that existing estimates of the long run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in postwar u s gross national product data this article shows that the statistical evidence does not warrant abandoning the no trend break null hypothesis a key part of the argument is that conventionally computed p values overstate the likelihood of the trend break alternative hypothesis this is because they do not take into account that in practice the date is chosen based on pretest examination of the data

do recessions permanently change output abstract this paper examines whether negative innovations to gnp are more or less persistent than positive innovations we find that once we allow for the impulse response of gnp to be asymmetric negative innovations to gnp are observed to be much less persistent than positive ones in particular the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters while the effect of a positive shock is estimated to be persistent and amplified over time our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations

is the trend in post ww ii us real gdp uncertain or non linear abstract this paper examines the presence of deterministic trend and or absence of a unit root in the log of post ww ii us real gdp evidence favoring non linear deterministic trend and trend stationarity unit root absence is found contradicting recent unit root and trend uncertainty findings

size distortions of tests of the null hypothesis of stationarity evidence and implications for the ppp debate abstract tests of the null hypothesis of stationarity against the unit root alternative play an increasingly important role in empirical work in macroeconomics and in international finance we show that the use of conventional asymptotic critical values for stationarity tests may cause extreme size distortions if the model under the null hypothesis is highly persistent this fact calls into question the use of these tests in empirical work we illustrate the practical importance of this point for tests of long run purchasing power parity ppp under the recent float we show that the common practice of viewing tests of stationarity as complementary to tests of the unit root null will tend to result in contradictions and in spurious rejections of long run ppp while the size distortions may be overcome by the use of finite sample critical values the resulting tests tend to have low power under economically plausible assumptions about the half life of deviations from ppp thus the fact that stationarity is not rejected cannot be interpreted as convincing evidence in favor of mean reversion only in the rare case that stationarity is rejected do size corrected tests shed light on the question of long run ppp

model evaluation based on residual analysis of two similar models models that may appear to have different properties may in fact produce residuals that differ only in subtle ways by analysing the relationships between model residuals the problems in distinguishing between models can perhaps be discovered as illustrated by the econometric examples considered regressing residuals gives the long memory residual which is the difference between two models but this difference is very subtle and deeply hidden which explains why the traditional standard technique does not find this difference

purchasing power parity and markov regime switching we revisit the evidence on ppp in the twentieth century allowing for markov regime switching in the adf regression using lopez et al s 2005 extension of taylor s 2002 original data set our results are 1 for most countries there are periods over which the real exchange rate is stationary and ppp holds and periods over which the real exchange rate is non stationary and ppp does not hold namely regime dependent stationarity thus real exchange rate stationarity is a stochastic event itself 2 the probability that the real exchange rate is stationary is less than 50 for most countries 3 there is evidence of non stationarity during both the bretton woods and the recent float periods for the majority countries the comparative performance of ppp is slightly better during bretton woods than the recent float

output growth and its volatility the gold standard through the great moderation this study examines the relationship between u s output growth and its volatility over the period 1876 i to 2012 ii we adjust the data for outliers and structural breaks we employ generalized autoregressive conditional heteroskedasticity garch and exponential garch egarch specifications normality and homoskedasticity appear only in the garch or egarch model that corrects for the outliers when including the break in the mean equation high volatility persistence remains after also accommodating the breaks in the variance equation the integrated garch effect proves spurious either for the symmetric or the asymmetric model finally our empirical results suggest that the finding of higher output growth volatility stimulating output growth and higher output growth reducing its volatility obtained from the symmetric garch in mean garch m model also proves spurious as a result of the emergence of an asymmetric effect our more appropriately specified asymmetric egarch m model suggests positive volatility in mean and level effects in the long period real gross national product series

examining trends of criteria air pollutants are the effects of governmental intervention transitory despite its growth in other areas of economics time series econometric methods have not beenwidespread in the area of environmental andresource economics we illustrate one use oftime series methods by examining the time pathof us nitrogen oxide nox emission dataover the period 1900 1994 the analysishighlights that proper time series methods canaid in optimal regulatory policy as well asdeveloping empirical verification of theoriesput forth to explain economic phenomena inaddition several interesting results emerge first we find that the emissions seriescontains both a permanent and random component second if one attributed all of the emissionsreductions to regulatory policy interventionanalysis suggests that the 1970 clean air act caa did not merely have transitory effects but permanently influenced the noxemission path in terms of total regulatoryimpact an upper bound on the emissions saveddue to the 1970 caa is in the range of27 48

the rational timing of parliamentary elections this paper presents a rational choice model for the timing of parliamentary elections in political systems where the government has the option of calling an early election the optimal timing of elections involves the government weighing the benefits of calling an election versus the costs and is modelled mathematically as an optimal stopping problem the model implies that the timing of elections depends upon time left in the government s term the degree of electoral uncertainty the volatility of government popularity the government s time rate of discount and institutional constraints such as the length of term and whether the government is likely to be forced from power by a vote of no confidence

who surfs who manipulates the determinants of opportunistic election timing and electorally motivated economic intervention in this paper i develop a career concerns model of government policy choice within a dynamic optimal stopping framework to predict the degree of surfing opportunistic timing and manipulation politically motivated economic intervention under alternate institutional structures and voter characteristics among other results i find that the likelihood of opportunistic elections rises with exogenous economic performance with longer maximum term lengths with future electoral uncertainty and with economic volatility but diminishes in the value of office holding manipulation increases with the maximum term length and with the value of office holding but decreases with exogenous economic performance and with economic volatility the model suggests that single party governments should be highly opportunistic in calling elections and that countries that allow opportunistic election timing should experience less economically distortionary political intervention than their fixed timing counterparts

the great depression and output persistence a reply to papell and prodan in a letter to this journal papell and prodan 2004a hereafter pp conduct unit root tests for annual u s real gdp 1870 1998 that allow for off setting level shifts in the trend following papell and prodan 2004b pp report p values of about 0 01 from a parametric bootstrap of their regression equation under homoskedasticity but 0 05 if the bootstrap is instead based on the unobserved components representation of murray and nelson 2002 hereafter mn which was designed to incorporate into the null the heteroskedastic turmoil of the great depression and wwii pp reach two conclusions first contrary to mn the evidence favors the alternative hypothesis of a trend stationarity for longrun u s gdp with off setting level shifts during the depression wwii period since this structural change is restricted to be transitory an implication of their model is that there were no permanent shocks to gdp from 1870 to 1998 second pp conclude that rejection of the unit root in favor of trend stationarity with offsetting level breaks is not subject to the mn critique that heteroskedasticity matters we consider pp s second point first it seems to us that there is a very great difference between a p value of 0 01 under homoskedasticity and 0 05 under heteroskedasticity as measures of the strength of the evidence against the unit root hypothesis though many economists may regard 0 05 as sufficient for rejection some may care whether the probability of a type 1 error is 1 in 100 or 1 in 20 in that sense the mn critique does matter

the core and the stability of group choice in spatial voting games the core of a voting game is the set of undominated outcomes that is those that once in place cannot be overturned for spatial voting games a core is structurally stable if it remains in existence even if there are small perturbations in the location of voter ideal points while for simple majority rule a core will exist in games with more than one dimension only under extremely restrictive symmetry conditions we show that for certain supramajorities a core must exist we also provide conditions under which it is possible to construct a structurally stable core if there are only a few dimensions our results demonstrate the stability properties of such frequently used rules as two thirds and three fourths we further explore the implications of our results for the nature of political stability by looking at outcomes in experimental spatial voting games and at belgian cabinet formation in the late 1970s

economic trends and government survival in west european parliamentary democracies in this study i investigate the linkage between trends in key economic indicators inflation unemployment and growth in gross domestic product and government survival in 16 postwar european parliamentary democracies the partial likelihood method which allows for variation in indicator values over the lifetimes of individual governments constitutes the basic analytic tool the findings reveal overall causal roles for both inflation and unemployment as well as important differences in these roles between socialist and bourgeois governments and between pre oil crisis and post oil crisis eras most significant the introduction of these indicators to the analysis helps to resolve the debate between two rival explanations of governmental stability the bargaining complexity hypothesis and the ideological diversity hypothesis in favor of the latter

inflation unemployment and government collapse a poisson application as democracies enter an era of economic retrenchment the political costs associated with economic decline have come under close scrutiny by students of comparative politics and public policy of particular concern is the linkage between inflation unemployment and the collapse of incumbent governments the present study provides an initial application of an alternative approach to measuring this linkage across 8 european democracies and offers significant evidence linking political costs for cabinet governments with rising prices and the growing unemployment by utilizing the poisson method of determining probabilities of discrete events increasing probabilities of government collapse are significantly associated with rising inflation and unemployment in european democracies between january 1958 and december 1979 subsequent use of the sanders and herman s 1977 and warwick 1979 analyses of cabinet stability provides a useful means to disaggregate the nation sample of the study into four discrete s

fractional beta convergence abstract unit roots in output an exponential 2 rate of convergence and no change in the underlying dynamics of output seem to be three stylized facts that cannot go together this paper extends the solow swan growth model allowing for cross sectional heterogeneity in this framework aggregate shocks might vanish at a hyperbolic rather than at an exponential rate this implies that the level of output can exhibit long memory and that standard tests fail to reject the null of a unit root despite mean reversion exploiting secular time series properties of gdp we conclude that traditional approaches to test for uniform conditional and unconditional convergence suit first step approximation we show both theoretically and empirically how the uniform 2 rate of convergence repeatedly found in the empirical literature is the outcome of an underlying parameter of fractional integration strictly between 1 2 and 1 this is consistent with both time series and cross sectional evidence recently produced

re examining long run purchasing power parity abstract our results complement the recent findings of real exchange rates as stationary processes applying a battery of unit root tests can be problematic since the tests are sensitive to the specifics of the time series process the novelty of our approach is in emphasizing the information content of the data to distinguish between the competing processes stationary and non stationary arima processes are fitted to the us uk real exchange rate series covering 134 years artificial data are generated and the small sample distributions of the chosen test statistics are computed under each of the two hypotheses the values of the actual sample statistics seem to come rather from the stationary than from the non stationary process

revisiting the uncertain unit root in gdp and cpi testing for non linear trend reversion we test for the presence of a unit root in u s gdp and cpi allowing for non linear trend reversion under the alternative hypothesis in contrast to most previous results we find evidence in favour of trend stationarity for both variables

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

trends and random walks in macroeconomic time series a re examination in their 1982 article c r nelson and c i plosser provided evidence supporting the existence of an autoregressive unit root in a variety of macroeconomic time series the author reexamines their evidence using small sample distributions for various unit root test statistics these distributions are calculated from specific null and alternative models including median unbiased models that correct for ols coefficient bias estimated from the data contrary to earlier assertions the null and alternative models of many macroeconomic series provide very different characterizations of persistence but cannot be distinguished with unit root tests copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

additional evidence of long run purchasing power parity with restricted structural change we investigate two alternative versions of purchasing power parity ppp reversion to a constant mean in the spirit of cassel and reversion to a constant trend in the spirit of balassa and samuelson using long span real exchange rate data for industrialized countries we develop unit root tests that both account for structural change and maintain a long run mean or trend with conventional tests previous research finds evidence of some variant of ppp for 9 of the 16 countries with the unit root tests in the presence of restricted structural change we find evidence of ppp for five additional countries

personal income taxes elasticities and fiscal illusion hunter and scott 1987 suggest an alternative methodology for testing whether high state income tax elasticities may be consistent with larger public sectors due to the presence of fiscal illusion examining state choices of income tax reductions in the period 1976 1983 they find evidence consistent with the idea that the public obtains desired income tax reductions when such high elasticities would otherwise lead to a substantial overexpansion in the public sector

statutory changes in state income taxes an indirect test of fiscal illusion empirical studies of fiscal illusion have focused on the relationship between tax structure and government revenue or tax structure and the growth of government revenue the premise is that tax structures which tend to conceal revenue sources are prone to fiscal illusion and should therefore have a positive effect on tax revenue unfortunately the results of these studies can at best only be characterized as mixed for example oates 1975 and craig and heins 1980 found a significant and positive relationship between tax elasticity and government revenue at the state and city level while dilorenzo 1982 found a negative relationship between tax elasticity and tax revenue for county governments these contradictory findings may be in part the result of attempts to isolate the effects of fiscal illusion on the very complicated political process of setting and passing government budgets in this paper we propose a voting model as an alternative to fiscal illusion as an explanation of the relationship between income elastic taxes and tax revenue the premise is simple the effect of rising nominal income on progressive income taxes is that the individual s real tax burden rises as the growth of real disposable income falls the more progressive the income tax system the more pronounced this effect should the growth in real taxes exceed the individual s increased demand for public goods a tax cut would be demanded however there is a positive cost for the individual of informing the government of the desired tax cut and spending reduction it is only when the value of the increased disposable income exceeds the cost of securing the tax cut that voters will petition for a tax reduction we test the elasticity hypothesis by estimating the effect of income tax progressivity on the probability of a state enacting a statutory income tax reduction fiscal

a unified model of cabinet dissolution in parliamentary democracies the literature on cabinet duration is split between two apparently irreconcilable positions the attributes theorists seek to explain cabinet duration as a fixed function of measured explanatory variables while the events process theorists model cabinet durations as a product of purely stochastic processes in this paper we build a unified statistical model that combines the insights of these previously distinct approaches we also generalize this unified model and all previous models by including 1 a stochastic component that takes into account the censoring that occurs as a result of governments lasting to the vicinity of the maximum constitutional interelection period 2 a systematic component that precludes the possibility of negative duration predictions and 3 a much more objective and parsimonious list of explanatory variables the explanatory power of which would not be improved by including a list of indicator variables for individual countries

the past present and future of macroeconomic forecasting he reports of the death of large scale macroeconomic forecasting models are not exaggerated but many observers interpret the failure of the early models as indicative of a bleak future for macroeconomic forecasting more generally such is not the case although the large scale macroeconomic forecasting models didn t live up to their original promise they nevertheless left a useful legacy of lasting contributions from which macroeconomic forecasting will continue to benefit they spurred the development of powerful identification and estimation theory computational and simulation techniques comprehensive machinereadable macroeconomic databases and much else moreover past failures do not necessarily imply a bleak future we learn from our mistakes just as macroeconomics has benefitted from rethinking since the 1970s so too will macroeconomic forecasting understanding the future of macroeconomic forecasting requires understanding the interplay between measurement and theory and the corresponding evolution of the nonstructural and structural approaches to forecasting nonstructural macroeconomic forecasting methods attempt to exploit the reduced form correlations in observed macroeconomic time series with little reliance on economic theory structural models in contrast view and interpret economic data through the lens of a particular economic theory structural econometric forecasting because it is based on explicit theory rises and falls with theory typically with a lag structural keynesian macroeconomic forecasting based on postulated systems of decision rules enjoyed a golden age in the 1950s and 1960s following the advances in keynesian theory in the 1930s and 1940s

expectations and informal rules in coalition formation why do informal rules emerge alongside and at variance with the formal constitutional constraints that shape bargaining over coalition governments the presence of informal rules at odds with formal rules appears as an anomaly within both institution free and institution focused theories of coalitions the author argues that politicians create informal rules in order to alter formal institutions that do not function to their benefit the costs of a formal change in institutions offer incentives to politicians to invent informal rules as alternatives to such change and repeated interactions teach politicians what to expect and then invent the author s emphasis on the manipulability of rules echoes long standing themes in the study and practice of politics

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

restricted structural change and the unit root hypothesis i introduction an important issue in economics involves the long run response of macroeconomic and financial aggregates to shocks and disturbances in a classic paper nelson and plosser 1982 argued that contrary to the traditional view current shocks have permanent effects on the long run level of macroeconomic time series using statistical techniques developed by dickey and fuller 1979 they found evidence in favor of unit roots for 13 out of 14 long term annual macro series the only exception being the unemployment rate they conclude that these series behave more like a random walk than like transitory deviations from a steadily growing trend 1 nelson and plosser s findings of a unit root have been called into question on a number of grounds rudebusch 1992 1993 demonstrates that unit root tests have low power against estimated trend stationary alternatives moreover he shows that if trend stationary models are correct difference stationary models do not yield good approximations to the medium term dynamic response perron 1989 questions the ability of unit root tests to distinguish unit root from stationary processes that contain segmented or shifted trends incorporating an exogenous break point and specifying 1929 as the break date he found evidence of broken trend stationarity for 10 out of the 13 series perron s analysis was disputed by several papers most notably christiano 1992 banerjee lumsdaine and stock 1992 and zivot and andrews 1992 these authors argued that it is inappropriate to specify the break date as known as it is not reasonable to believe that the choice has been made independently of the data 2 they suggest that an appropriate procedure is to select the break date endogenously in particular zivot and andrews 1992 using a data dependent algorithm to determine the break point and finite sample critical values reject the unit root null at the 5 significance level for only 3 out of 13 nelson plosser series real gross national product gnp nominal gnp and industrial production 3 once this is done there is again little evidence against the unit root hypothesis allowing for two endogenous breaks lumsdaine and papell 1997 reexamined the unit root hypothesis for the nelson plosser data using finite sample critical values they rejected the unit root null for five series the three series found by zivot and andrews plus per capita real gnp and employment therefore finding more evidence against unit roots than zivot and andrews these studies reject the unit root hypothesis in favor of broken trend stationarity for macroeconomic aggregates but not for prices or financial variables this seems to confirm not only the common practice of macroeconomists to model movements in real gnp as stationary fluctuations around a linear deterministic trend blanchard 1981 kydland and prescott 1980 but also previous analyses which had advanced the unit root hypothesis for the velocity of money gould and nelson 1974 and stock prices samuelson 1973 results of the previous studies show that for many of the aggregate time series the estimated breaks coincide with world wars or the great depression standard macroeconomic theory however argues that while these events have long lasting transitory effects they do not have permanent effects on aggregate variables the decline in output associated with the great depression has generally been interpreted as a temporary response to a significant reduction in the money stock friedman and schwartz 1963 and the substantial increase in output that occurred during world war ii is described as the result of the huge temporary increase in government purchases caused by the war barro 1981 murray and nelson 2000 studying long term real gross domestic product gdp data argued that the fluctuations of 1930 1946 seem to have had a temporary effect on the level of output and lead to rejections of the unit root hypothesis when it is true

nonlinear trends in real exchange rates a panel unit root test approach abstract we analyze the possibility of nonlinear trend stationarity as the alternative to unit roots in 23 oecd real exchange rates 1974 1998 by adding nonlinear time terms to the cips panel unit root test of pesaran 2007 we follow a thorough bootstrapping approach and propose a technique to adjust statistical significance for the use of multiple tests over several time trend orders the unit root null that all real exchange rates have unit roots is rejected at better than the 0 05 level bootstrapped results from a procedure of chortareas and kapetanios 2009 suggest that the hypothesis that all are stationary is reasonable we argue that nonlinear trend stationarity is the most likely alternative hypothesis for at least some of the real exchange rates because 1 the strongest cips rejection occurs when quadratic trends are specified 2 nonlinear time terms are statistically significant at the 0 10 level 3 the actual cips statistics are more consistent with cips sampling distributions from bootstrapped nonlinear trend stationary processes than from linear trend or mean stationary processes

economic dynamics and government stability in postwar italy in this paper i estimate a duration model of the italian government the main finding of the paper is that the downfall probability of an italian government depends on both political and economic factors in particular the higher the inflation rate and the higher the number of workhours lost in strikes both at the time a government forms and during its tenure in office the more likely it is for a government to collapse this result has important consequences for the validity of political theories of the business cycle

non renewable resource prices deterministic or stochastic trends in this paper we examine temporal properties of 11 natural resource real price series from 1870 to 1990 recent studies by ahrens and sharma trends in natural resource commodity prices deterministic or stochastic j environ econom manage 33 1997 59 74 berck and roberts natural resource prices will they ever turn up j environ econom manage 31 1996 65 78 and slade grade selection under uncertainty least cost last and other anomalies j environ econom manage 15 1988 189 205 among others find that many non renewable resource prices have a stochastic trend we revisit this issue by employing a lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend contrary to previous research we find evidence against the unit root hypothesis for all price series our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks we additionally show that both pre testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy overall the results in this paper are important in both a positive and normative sense without an appropriate understanding of the dynamics of a time series empirical verification of theories forecasting and proper inference are potentially fruitless

optimal electoral timing exercise wisely and you may live longer using insights from option pricing in finance we explore the electoral timing problem in a flexible term democracy we assume that politic ally heterogeneous voters continuously learn over time about the evolving party merits this yields a mean reverting stochastic process for the support of the parties the incumbent sees its poll support and must call an election within five years o f the last election we assume that it wishes to maximize its expected total time in office so that this resembles the optimal exercise rule for an american financial o ption we characterize how the renewable election option behaves as waiting and stopping values interact we then calibrate our model to the labour tory rivalry in the u k with polling data from 1943 2005 and the 16 elections after 1945 excluding three elections essentially forced by weak governments our maximizing story explains when the elections were called quite well we also measure the value of election options finding that over the long run they should more than double the expected time in power of a fixed term electoral cycle