mean reversion in real exchange rates evidence and implications for forecasting abstract the stationarity of real exchange rates over the recent flexible exchange rate period is an issue that has long bedeviled researchers in international finance using a constrained multivariate framework this paper provides the strongest evidence yet that real exchange rates were mean reverting over the 1973 93 period we also investigate shifts in long run real exchange rates which may be important for the purpose of forecasting out of sample forecasting shows that the random walk model is outperformed by a mean stationary model especially at long horizons in addition there are substantial forecasting benefits from using a multivariate approach

real exchange rates under the recent float unequivocal evidence of mean reversion standard multivariate tests of long run ppp may reject nonstationarity when a single real exchange rate series is stationary we apply a test where the null hypothesis is violated only when all series are stationary and reject nonstationarity for real dollar rates

spatial sustainability trade and indicators an evaluation of the ecological footprint the search for frameworks and indicators of sustainable development has taken a prominent place in this journal however some specific aspects have received little or no attention notably the spatial dimension and the role of international trade in indicator development moreover many sustainable development indicators comprise implicit valuations weighting schemes and policy objectives which are insufficiently recognised as such this contribution tries to highlight these issues by means of a review of a recently proposed indicator for ecological economic analysis namely the ecological footprint that has been developed by wackernagel and rees its concept and calculation procedure are criticised on a number of points and it is concluded that the ecological footprint is not the comprehensive and transparent planning tool as is often assumed in explaining our position we will argue that spatial sustainability and regional sustainable development have not been precisely discussed so far neither in the literature on trade and environment nor in that on sustainable development we will defend the view that trade can contribute positively and negatively to environmental unsustainability consequently indicators and models are needed that allow for analysing interactions and trade offs between such opposite effects 1999 elsevier science b v all rights reserved

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

purchasing power parity in the long run a cointegration approach this paper utilizes cointegration analysis to examine purchasing power parity relationships over a long time horizon the results indicate that the exchange rate is cointegrated strongly with the wholesale price index ratio and somewhat weakly with the consumer price index ratio the cointegrating coefficient between the exchange rate and the price ratio is close to one when cointegration is confirmed the hypothesis that the real exchange rate follows a random walk is rejected in most cases finally a new test for common trends finds no such common trends in exchange rates or price ratios copyright 1990 by ohio state university press

the great appreciation the great depreciation and the purchasing power parity hypothesis abstract although there has been much recent work on purchasing power parity ppp neither univariate nor panel methods have produced strong rejections of unit roots in us dollar real exchange rates for industrialized countries during the post 1973 period we investigate the hypothesis that these non rejections can be explained by one episode the large appreciation and depreciation of the dollar in the 1980s by developing unit root tests which account for this event and maintain long run ppp using panel methods we can strongly reject the unit root null for those countries that adhere to the typical pattern of the dollar s rise and fall

litigation and settlement in patent infringement cases a patent grants its owner the right to sue intruders that have been identified the patentholder must then supervise the market and react in case of infringement his reaction may be to go to court to settle or to accept entry we investigate how intensive the monitoring effort should be and how it will influence the entry decision in a simultaneous game even if the penalty paid by the infringer in case of a finding of liability is high the patentholder may prefer a settlement to a trial the likelihood of entry may increase with the penalty in sequential games regardless who plays first entry occurs comparatively less often than in the simultaneous game

purchasing power parity across mexican cities a panel data analysis this article presents three different unit root tests for panel data the main objective is to find the level of internal integration market through the purchasing power parity ppp evidence based in the balassa samuelson approach thus eight kinds of markets as tradable and nontradable goods for 16 main mexican cities during a 21 year period have been contrasted while two tests showed the ppp validity for seven markets the other rejected it the results obtained moreover feed the present controversy about which test is most appropriate to test the ppp as soon as it is highlighted new elements emerge to explain the half life analysis

the response of exchange rates to permanent and transitory shocks under floating exchange rates abstract using the joint behavior of inflation and real exchange rates we develop an empirical model to uncover the sources of the fluctuations in the real dollar exchange rates of four major industrial countries under the current float this model allows us to construct two time series for each country pair one representing the permanent component of each real exchange rate and the other the purely transitory component over the period as a whole transitory shocks played a relatively small but statistically significant role real dollar exchange rates therefore did not simply evolve in response to permanent shocks instead there are instances in which temporary shocks made a substantial contribution we conclude that the random walk model though an approximate statistical description of real exchange rate behavior is a poor guide to model structure jel f31

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

unit roots and the real exchange rate before world war i the case of britain and the usa abstract unit root and cointegration tests indicate that the dollar pound real exchange rate was stationary during the us greenback and gold standard periods purchasing powwer parity ppp performed about equally well in the two periods and better than in recent years deviations from ppp were corrected by changes in british prices and us gold dollar prices greenback prices did not adjust the similarity of the adjustment parameters in the two periods suggests that expectations of a return to gold were embedded in the greenback price of gold

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

border region panel evidence on ppp deviations this article examines prices for 32 identical menu items sold by restaurant franchises operating on both sides of the border between el paso in the us and ciudad juarez in mexico from july 1997 to june 2008 the relationship between real exchange rate rer volatility and the degree of price convergence is examined within a panel data context the city pair and goods selected provide a unique experiment in which distance tradability and industry considerations are set aside and the extent of rer volatility is the only factor to influence price convergence we find nonmonotonic relationships between mean reversion and rer volatility very fast adjustments for both low and high volatility panels of goods between 1 and 2 months and slower half lives between 3 and 4 months at moderate levels of uncertainty these figures are however substantially smaller than the 6 or 7 months reported in previous research for general us mexico goods suggesting the very strong price convergence observed along the us m

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

are real exchanges rate series really persistent evidence from three commonwealth of independent states countries this article sets out to examine the degree of persistence in the real exchange rates of kazakhstan kyrgyzstan and russia and tests the validity of purchasing power parity ppp using monthly data covering 1995 01 2013 12 period the sum of autoregressive ar coefficients is used in order to examine persistence of the real exchange rate series and grid bootstrap method is employed for the confidence intervals the tests performed suggest two results 1 covering the full sample and sub sample periods excluding kyrgyzstan in 1995 01 1998 07 and russia in 2008 09 2013 12 periods disregarding the structural breaks in the data generating process there is high persistency in real exchange rates 2 there is evidence in support of ppp covering the full sample for every country except for kyrgyzstan in 1995 01 1998 07 and russia in 2008 09 2013 12 periods

real exchange rate behavior abstract using random simulations with artificial data with identical sample characteristics to the long sample exchange rate data employed by lothian and taylor lothian j r and taylor m p 1996 the recent float from the perspective of the past two centuries journal of political economy 104 488 509 we show that standard unit root tests have extremely low power over sample sizes corresponding to the recent float the probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans

parity reversion in the asian real exchange rates new evidence from the local persistent model this article investigates the time series properties of 13 asian real exchange rates rers vis a vis the us dollar the half life point estimates drawn from the local persistent model are all less than 2 years with a finite upper bound there is no evidence to indicate that the asian financial crisis has altered the speed of the purchasing power parity ppp adjustments we find that the persistence of rers over the last three decades remains unchanged in majority of the cases given the fairly rapid speed of adjustments and their corresponding confidence intervals we conclude that the ppp puzzle does not exist in these countries

real exchange rates under alternative nominal exchange rate systems abstract the paper develops an equilibrium model of the determination of exchange rates the relative price of nontraded goods and the current account the focus is on the effects of various real and nominal disturbances and the conditions under which the nominal exchange rate system is neutral with respect to real variables in the economy the model demonstrates an assymetry in the roles of trade and nontraded goods in affecting exchange rates an econometric investigation of the raltion between the exchange rate system and the variability of real exchange rates provides some evidence against the neutrality hypothesis

real exchange rates and macroeconomics a selective survey the paper discusses real exchange rate issues of industrial and of developing countries for real exchange rates among the key industrial countries we ask what is the best conceptual framework to shed light on this question we look at alternative theoretical approaches and at empirical evidence on the relation among interest rates expectations and depreciation the discussion of developing countries real exchange rates focuses on the link between real exchange rates real wages and the profitability of capital the model highlights the discrepancy between the mobility of capital including in the long run physical capital and

environment versus growth a criticism of degrowth and a plea for a growth in recent debates on environmental problems and policies the strategy of degrowth has appeared as an alternative to the paradigm of economic growth this new notion is critically evaluated by considering five common interpretations of it one conclusion is that these multiple interpretations make it an ambiguous and rather confusing concept another is that degrowth may not be an effective let alone an efficient strategy to reduce environmental pressure it is subsequently argued that a growth i e being indifferent about growth is a more logical social aim to substitute for the current goal of economic growth given that gdp per capita is a very imperfect indicator of social welfare in addition focusing ex ante on public policy is considered to be a strategy which ultimately is more likely to obtain the necessary democratic political support than an ex ante explicit degrowth strategy in line with this a policy package is proposed which consists of six elements some of which relate to concerns raised by degrowth supporters

real and nominal exchange rates in the long run an empirical investigation abstract this paper reports on econometric tests of the hypothesis that purchasing power parity holds as a long run relationship using data on eight industrialized countries during the flexible exchange rate period the empirical work proceeds by i testing whether nominal exchange rates and relative price levels are co integrated and ii conducting impulse response analysis of long run exchange rate and relative price level changes to explain the data keynesian models suggest that shocks during the estimation period were due principally to exogenous shifts in aggregate demand while equilibrium models suggest that monetary factors have been relatively more important

evidence of purchasing power parity for the floating regime period abstract this paper investigates the ppp hypothesis within industrialized countries for the post bretton woods period via two panel unit root tests the df gls sur and the adf sur tests respectively developed by lopez a panel unit root with good power in small samples econometric reviews in press and levin et al 2002 unit root tests in panel data asymptotic and finite sample properties journal of econometrics 108 1 1 24 both approaches allow for data specific serial and contemporaneous correlation while both tests provide ppp evidence for the post 1973 period the more powerful df gls sur test demonstrates consistently stronger results especially for the 1973 1998 period

currency fluctuations in the post bretton woods era the international monetary landscape that has emerged since the felling of bretton woods is characterized by a hybrid exchange rate system that lies somewhere between the textbook polar cases of a gold standard and a pure float this system has relatively flexible exchange rates between major countries active central bank intervention in the market for the major currencies and predominantly fixed exchange rates relative to the dollar or to some basket of currencies for less developed countries and newly industrializing nations the majority of research on currency markets since the early 1970s has focused on the characteristics of flexible exchange rates under this hybrid regime my thesis is that this research has been unsuccessful the proportion of monthly or quarterly exchange rate changes that current models can explain is essentially zero even after the fact forecasts that use actual values instead of forecasted values of the explanatory variables cannot explain major currency movements over the post bretton woods era this result is quite surprising since exchange rate changes would be entirely unpredictable only in very special cases of the theoretical models discussed as the discussion below will argue it is not a general implication of market efficiency that exchange rates follow a random walk process 1

long memory and nonlinear mean reversion in japanese yen based real exchange rates abstract the extraordinary difficulty in uncovering parity reversion in yen based real exchange rates has often been ascribed to a missing trend variable this study identifies an alternative explanation and shows that the puzzling behavior of real yen rates may stem from long memory dynamics which undermine unit root tests in their ability to detect mean reversion the long memory findings are consistent with the long swings in yen exchange rates during the current float further analysis also reveals evidence of non monotonic reversion toward parity

productivity differentials the relative price of non tradables and real exchange rates abstract this paper reconciles the apparent contradiction between recent panel unit root tests of real exchange rates and the productivity differential model proposing an alternative view that explains the coexistence of such findings real exchange rates and the relative price of non tradables reflect the gradual adjustment of mean reverting and endogenously competing factors supply and demand shocks as well as traded goods arbitrage granger causality and variance decomposition results indicate substantial simultaneity and feedback effects between real exchange rates the relative price of non tradables and productivity differentials

across time and regimes 212 years of the us uk real exchange rate i introduction this paper examines the behavior of the real exchange rate under different nominal exchange rate regimes using monthly data on the us uk exchange rate over the period 1794 2005 the 212 yr series encompasses five floating and four fixed exchange rate periods and includes a new monthly exchange rate series for the periods that precede the classical gold standard figures 1 and 2 show the behavior of the real and nominal exchange over the entire sample three key stylized facts emerge from the analysis a real exchange rate volatility is higher when the nominal exchange rate is floating b the contribution of price level changes to real exchange rate movements has decreased over time and c the persistence of real exchange rate has been considerably higher in the postwar period the real exchange rate is the price of output in one country relative to another that is the real exchange rate is given by q e p sup p where p and p sup are home and foreign price indexes and e is the nominal exchange rate that is the home price of foreign currency a key question that can be examined with a series that includes multiple regimes is whether real exchange rate behavior is invariant to the nominal exchange rate regime that is whether the properties of q depend on whether e is fixed or floating mussa 1986 demonstrates that short term volatility of the real exchange rate is lower when the nominal exchange rate is fixed mussa s study relies on postwar data from oecd countries most of which had fixed exchange rates until bretton woods collapsed in the early 1970s and floated thereafter as grilli and kaminsky 1991 hereafter gk note relying on such limited evidence is not sufficient to establish general validity of the proposition that real exchange rate volatility is higher under floating regimes to remedy this gk examined the us uk real exchange rate using monthly data beginning in 1885 their study encompassed three fixed rate periods the classical gold standard the interwar gold exchange standard and bretton woods and three floating periods two interwar intervals and the post bretton woods float they conclude that the nominal exchange rate regime is not as crucial to the behavior of the real exchange rate as previous analyses have suggested the behavior of the real exchange rate varies substantially across historical periods but not nominal exchange rate arrangements 192 in their analysis the bretton woods period was characterized by a unique degree of stability they argue that the commonly held belief that floating exchange rates lead to higher real exchange rate volatility is an artifact of the unusual stability of the 1950s and 1960s figure 1 omitted figure 2 omitted the additional data used in this study encompass two additional floating rate periods and one additional fixed rate period gk are surely correct that real exchange rate behavior varies across different time periods due to the evolution of institutions for example decreasing transaction costs development of the financial system and increasing nominal rigidity comparing historically adjacent fixed and floating regimes provides a rough way to control for long run historical changes in order to see whether the nominal regime matters for the real exchange rate of all the periods examined bretton woods clearly has the lowest real exchange rate volatility however mussa s conclusion that real exchange rate volatility is higher in floating periods does not appear to be an artifact of this stability examining the entire 212 yr period a consistent pattern emerges every nominal regime switch from fixed to floating is associated with an increase in real exchange rate volatility and every switch from floating to fixed is associated with a decrease although there is a consistent relationship between the real exchange rate volatility and the nominal exchange rate regime the source and persistence of real exchange rate movements have evolved considerably over time

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

a real options perspective on the future of the euro abstract a break up of the eurozone is no longer regarded as implausible this will be a costly and irreversible decision in conditions of continuing uncertainty therefore it is amenable to analysis in the real options framework we do so by solving as an n dimensional optimal stopping problem with country specific shocks and convergence of member economies we compare a complete break up with individual country departures in calibrated solutions for a symmetric case we find a non negligible but small option value furthermore we find a new theoretical result on the non monotonicity of abandonment threshold with respect to volatility

purchasing power parity and cointegration the greek evidence from the 1920s abstract this paper presents empirical evidence which supports the purchasing power parity ppp hypothesis for three bilateral exchange rates involving the greek drachma during the 1920s using the technique of cointegration of economic time series the results are obtained for a period of high money supply growth and a high and variable rate of inflation which gave rise to large differentials in price movements between greece and the other countries the speed at which long run ppp was reached following a shock was 50 per cent per month confirming the results of other studies of ppp over the 1920s and explaining the supportive evidence for long run ppp even though data over a short period were used jel f31

purchasing power parity in the long run a test of the dollar pound exchange rate 1890 1978 this paper tests the purchasing power parity ppp hypothesis by analyzing t he long run tendency of the dollar pound exchange rate using data sin ce 1890 two different models are considered 1 a na ive model and 2 a modified monetary model the conditions of propor tionality and symmetry cannot be rejected when using the naive model the final results using the monetary model however indicate that t he existence of permanent deviations from ppp cannot be ruled out copyright 1987 by ohio state university press

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

nominal exchange rate prediction evidence from a nonlinear approach abstract in this paper we employ a nonlinear error correction model to explain the dynamics of exchange rates starting from a stylized monetary model of exchange rates we found that the nonlinear error correction model is superior to a range of alternative forecasts including random walks and the conventional time varying parameters model even when forecast horizons are short

allocation distribution and scale towards an economics that is efficient just and sustainable abstract the practical policy of issuing tradeable permits for depletion and pollution requires for its implementation the clear separation of the three basic economic goals of efficient allocation equitable distribution and sustainable scale economic theory needs to catch up with policy in recognizing that scale issues cannot be reduced to either allocation or distribution

does ecologically unequal exchange occur the hypothesis of ecologically unequal exchange posits that low and middle income developing nations maintain an ecological deficit with wealthy developed nations exporting natural resources and high impact commodities thereby allowing wealthy economies to avoid operating ecologically impactful industries at home in this survey we assess the footprint of consumption of 187 countries using eight indicators of environmental pressure in order to determine whether or not this phenomenon occurs we use input output analysis with a new high resolution global multi region input output table to calculate each trading pair s balance of trade in biophysical terms of ghg emissions embodied water and scarcity weighted water content air pollution threatened species human appropriated net primary productivity total material flow and ecological footprint we test three hypotheses that should be true if ecologically unequal exchange occurs one the inter regional balance of trade in biophysical terms is disproportional to the balance of trade in financial terms we find this is true though not strongly so two exports from developing nations are more ecologically intensive than those from developed nations we find this is true three high income nations disproportionately exert ecological impacts in lower income nations we find this is false high income nations are mostly exporters not importers of biophysical resources

purchasing power parity and the behavior of prices and nominal exchange rates across exchange rate regimes abstract the evidence presented in this paper shows that purchasing power parity as a long run proposition is indeed a very useful approximation we see this quite clearly in the panel data for three historical periods examined here the classical gold standard era from 1870 to 1914 the interwar period from 1921 to 1939 and the period after world war ii from 1959 to 1998 price level behavior across countries differs in the way that ppp suggests when monetary arrangements differ and is highly similar when monetary arrangements are themselves similar inflation rates adjusted for exchange rate changes in general are highly correlated and bear a one to one relation to one another within and across the three periods and the varied monetary regimes that prevailed

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

looking through the dataquadrate characterizing the human environment relationship through economic hedonic ecological and demographic measures abstract this paper introduces the concept of plotting four dimensional data in two dimensions without loss of information namely the dataquadrate concept here objects are represented as quadrates instead of points in a practical 4 axis cartesian coordinate system this procedure helps us imagine and analyze complex relations where four different non negative variables influence processes this tool is of high utility for analyzing specific human environment issues here we analyze a monetary measure gross domestic product gdp a hedonic measure subjective wellbeing a limiting measure ecological footprint and a demographic measure human population our system adds new insights to the de growth debate discussed in a journal of cleaner production special issue vol 18 2010 and systematically illuminates lots of confusing paradoxes such as the downward sloping part of the environmental kuznets curve the jevons paradox and the easterlin paradox in this paper all these phenomena are analyzed for the usa and for china in 1990 and in 2007 by utilizing such methodology when mitigating environmental problems we are not limited to negative restrictive messages but are enabled to create new strategic ways of problem solving about how to optimize the human celestial footprint the ratio of human wellbeing to human environmental load

temporal aggregation and purchasing power parity persistence this paper uses a unique new monthly us uk real exchange rate series for the january 1794 december 2009 period to reexamine the academic debate over purchasing power parity ppp the consensus view described by rogoff 1996 is that ppp holds in the long run but short run deviations are very persistent with half lives ranging from 3 to 5 years most of the literature using long time series relies on the annual data developed by lee 1976 and lothian and taylor 1996 which were both constructed from underlying higher frequency data sources estimates of purchasing power parity persistence using these series may therefore be subject to temporal aggregation bias we find evidence of aggregation bias which indicates the half life of ppp deviations has been overestimated in much of the previous literature we also find that estimates of the half lives are further reduced once we account for the harrod 1933 balassa 1964 samuelson 1964 effect the result of aggregation bias appears to be robust even when considering the case that real exchange rates exhibit nonlinear dynamics

what can us city price data tell us about purchasing power parity abstract we study the dispersion of absolute price levels for us cities since 1918 by absolute price levels we mean price indices that measure the cost of a given consumption basket at each point in time we find strong evidence that city price levels converge over time and that the dispersion of price levels is lower for us cities than between oecd countries we argue that price level convergence for us cities will produce bilateral real exchange rate nonstationarity in this case however nonstationarity is not evidence against purchasing power parity ppp rather it is the consequence of improved market integration

purchasing power parity and the theory of general relativity the first tests we implement novel tests of general relative purchasing power parity ppp defined as a long run unit elasticity of the nominal exchange rate with respect to relative national prices allowing for potentially permanent real exchange rate shocks the finite sample properties of the estimators used are analyzed through monte carlo analysis allowing for country heterogeneity cross sectional dependence and non stationary disturbances application to panel data sets of industrialized and developing economies reveals that inflation differentials are on average reflected one for one in long run nominal exchange rate depreciation i e that general relative ppp holds

is the netherlands sustainable as a global scale inner city intenscoping spatial sustainability is the netherlands sustainable or not the answer inherently involves addressing the issues of system boundaries statistical units and a vision of sustainability as an analytical answer we offer the intenscope is a two dimensional graphical tool based on dimensionless percentages of triple rate ratios which overcomes several limitations of sustainability analyses first it is not sensitive to the size of statistical units so an area with twice the amount of resources of another with double the population and double the total consumption would have the same triple ratio of population biocapacity consumption second the is is sensitive to anomalies which may originate either from the use of arbitrary statistical units e g the boundaries of a city or those which may indicate truly unsustainable practices to judge spatial sustainability we use ecological footprint data from which we construct a plausible country plot based on the is despite the relative nature of is analyses the employed consumption biocapacity ratio inherently refers to the absolute limit of sustainability we cannot continually use more resources on a global scale than nature provides us with the analysis introduces some associations of human preferences and attributions of settlement types which may help to elaborate sustainability policies based on voluntary action

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

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

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

purchasing power parity and the role of traded goods evidence from eu states in this paper the debate on purchasing power parity ppp is considered by providing results with disaggregated price data from european countries the disaggregation of the price data is important because it allows for the consideration of goods that are likely tradable e g fruits with goods that are not tradable e g hotel rooms the european focus is important because these results are able to shed light on the effect of the type of exchange rate regime member of exchange rate mechanism erm or not

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

deviations from purchasing power parity under different exchange rate regimes do they revert and if so how abstract we propose an empirical model for deviations from long run purchasing power parity ppp that simultaneously accounts for three key features i adjustment toward ppp may occur via nominal exchange rates and relative prices at different speeds ii different exchange rate regimes may generate regime shifts in the structural dynamics of ppp deviations iii nonlinear reversion toward ppp in response to shocks this empirical framework encompasses and synthesizes much previous empirical research using over a century of data for the g5 countries we provide evidence that long run ppp holds the relative importance of nominal exchange rates and prices in restoring ppp varies over time and across different exchange rate regimes and reversion to ppp occurs nonlinearly at a speed that is fairly consistent with the nominal rigidities suggested by conventional open economy models

a nonparametric measure of convergence towards purchasing power parity it has been claimed that the deviations from purchasing power parity are highly persistent and have quite long half lives under the assumption of a linear adjustment of real exchange rates however inspired by trade cost models nonlinear adjustment has been widely employed in recent empirical studies this paper proposes a simple nonparametric procedure for evaluating the speed of adjustment in the presence of nonlinearity using the largest lyapunov exponent of the time series the empirical result suggests that the speed of convergence to a long run price level is indeed faster than what was found in previous studies with linear restrictions copyright 2006 john wiley sons ltd

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

capital controls and the real exchange rate do controls promote disequilibria abstract the consensus view is that capital controls can effectively lengthen the maturity composition of capital inflows and increase the independence of monetary policy but are not generally effective at reducing net inflows and influencing the real exchange rate this paper studies the adjustment dynamics of the real exchange rate towards its long run equilibrium and presents empirical evidence that capital controls increase the persistence of misalignments allowing the speed of adjustment to vary according to the intensity of restrictions on capital flows it is shown that the real exchange rate converges to its long run level at significantly slower rates in countries with capital controls this result is stronger when the exchange rate is undervalued and is independent of confounding factors such as the exchange rate regime and other forms of heterogeneity affecting the speed of adjustment i also find evidence that controls on capital inflows have greater effects than controls on outflows in addition while the combination of capital controls with a fixed or managed exchange rate regime significantly increases the persistence of misalignments controls appear to loose traction under more flexible exchange rate arrangements

purchasing power parity price indices and exchange rate forcasts abstract this paper addresses the issue of using aggregate price indices for purchasing power parity ppp tests and the fitness of ppp as a model for exchange rate forecasting compared with consumer price index cpi and wholesale price index wpi the price index of traded goods tpi appears to be a more appropriate price index for both ppp tests and exchange rate forecasting it performs better in the tests and provides superior exchange rate forecasts both within and out of sample while the half life of the estimated deviations from ppp is about two years for the cpi and wpi based real exchange rates it is only one year for the tpi based real exchange rates

real exchange rates and real interest differentials implications of nonlinear adjustment in real exchange rates abstract this paper investigates the relationship between real exchange rates and real interest differentials while sticky price exchange rate theories predict a relationship empirical evidence on the hypothesized link has proved elusive our conjecture is that the empirical difficulty is due to a failure to recognize nonlinearity in real exchange rate adjustment when we introduce threshold nonlinearity into a traditional model to take account of a transaction cost induced band of inaction for price adjustment only outside the band will the real exchange rate exhibit mean reversion and bear an association with real interest differentials our estimated nonlinear models provide evidence supporting this view

mean reversion in real exchange rates a modified dickey fuller test which is approximately uniformly most power invariant is employed to examine mean reversion in real exchange rates results from this test provide a wider and more significant support for mean reversion than the standard dickey fuller test

central bank intervention exchange rate regime and the purchasing power parity motivated by the argument that central bank intervention leads to non linear exchange rate adjustment processes we examine purchase power parity ppp by applying quantile unit root tests to the exchange rates of the new taiwan dollar ntd vis a vis seven asian currencies we show that exchange rate regime matters in determining whether ppp holds while ppp holds overwhelmingly during the period when the ntd is under the fixed exchange rate regime it is present only for some exchange rates during the managed floating rate regime for exchange rates exhibiting mean reversion the reversion occurs mainly when the shocks are large in contrast to conclusion in the literature our test results show little evidence of asymmetric mean reversion between positive and negative shocks

long term trend and short run dynamics of the canadian dollar an error correction modelling approach using quarterly data for 1972 2000 the paper examines the long term and short term movements of the us canadian exchange rate it is found that the standard purchasing power parity condition fails to explain movements of the canadian dollar the explanatory power of the model increases significantly when resource commodity prices are added to the equation short term movements in the canadian dollar are influenced by the interest rate differential between canada and the usa

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

population matters in ecological economics abstract it is an axiom of ecological economics that resource depletion and environmental pollution depend on the number of people and how many goods and services each consumes modified by the technological efficiency of production the paper reviews some studies quantifying the contribution of human numbers to environmental impact it warns against playing this factor off against that of high consumption in rich countries it asks whether from the environmental point of view complacency about either present or predicted population size is warranted the answer depends both on fertility and mortality assumptions and on constraints such as resource and food availability the concept of cultural carrying capacity would aid societies in determining their optimal population when account is taken not only of subsistence but of quality of life a population control toolkit for both rich and poor societies is sketched and some controversial coercive policy possibilities analysed

the effects of railroad development on price convergence among the states of the usa from 1866 to 1906 this study examines the effects of the reduced transaction costs on the price behaviours in the second half of the nineteenth century where declines in transaction costs were mainly caused by railroad development during this period it employs a panel test introduced by levin and lin 1992 on the convergence of wheat and corn prices using a panel of 48 us states from 1866 to 1906 the results show that by decreasing transportation costs railroads played an important role in price convergence among states of the usa for wheat and corn during the postbellum period

transactions costs and nonlinear adjustment in real exchange rates an empirical investigation eolquilibrium models of real exchange rate determination in the presence of transactions costs imply a nonlinear adjustment process toward purchasing power parity ppp conventional cointegration tests which ignore the effect of transactions costs may be biased against the long run ppp hypothesis our results using both monthly data for the interwar period and annual data spanning two centuries clearly reject the linear framework in favor of an exponential smooth transition autoregressive process the systematic pattern in the estimates of the nonlinear models provides strong evidence of mean reverting behavior for ppp deviations and helps explain the mixed results of previous studies

ecological footprint inequality across countries the role of environment intensity income and interaction effects recently white 2007 analysed the international inequalities in ecological footprints per capita ef hereafter based on a two factor decomposition of an index from the atkinson family atkinson 1970 specifically this paper evaluated the separate role of environment intensity ef gdp and average income as explanatory factors for these global inequalities however in addition to other comments on their appeal this decomposition suffers from the serious limitation of the omission of the role exerted by probable factorial correlation york et al 2005 this paper proposes by way of an alternative a decomposition of a conceptually similar index like theil s 1967 which in effect permits clear decomposition in terms of the role of both factors plus an inter factor correlation in line with duro and padilla 2006 this decomposition might in turn be extended to group inequality components shorrocks 1980 an analysis that cannot be conducted in the case of the atkinson indices the proposed methodology is implemented empirically with the aim of analysing the international inequalities in ef per capita for the 1980 2007 period and amongst other results we find that indeed the interactive component explains to a significant extent the apparent pattern of stability observed in overall international inequalities

a re examination of the exchange rate interest differential relationship evidence from germany and japan abstract this paper presents empirical evidence which links the exchange rate interest differential relation over the recent floating rate period using johansen s cointegration test we find a long run relationship between real exchange rates and expected real interest differentials in addition empirical evidence is provided to show that our error correction framework leads to real exchange rate forecasts that are superior to those generated by a random walk forecasting model moreover this superiority in out of sample predictability is supported statistically by the test of diebold and mariano

covariate selection for testing purchasing power parity this article employs hansen s 1995 covariate augmented dickey fuller cadf test to reexamine the issue of purchasing power parity ppp using post bretton woods exchange rate data for 20 industrialized countries instead of just using a single covariate as in the literature we implement the test by using bai and ng s 2002 method to choose suitable stationary covariates our empirical results show that the real exchange rates generally display long run mean reversion and support ppp as contrasted with those obtained in amara and papell 2006 that less rejections of unit root hypothesis are made with the same test the panel unit root test suggested by chang 2004 is also performed to justify our results

patent litigation as an information transmission mechanism patent litigation reveals important information about the validity of the contested patent to other potential entrants this paper explores the implications of such informational externalities for entry dynamics in the presence of multiple potential entrants the nature of the entry game can be one of either waiting or preemption depending on the degree of patent protection therefore the payoffs for the patentee and the initial imitator are discontinuous in the degree of patent protection furthermore strengthening intellectual property rights is not necessarily desirable for the patentee the analysis may also help explain the apparently puzzling practice of delaying patent suits copyright 1998 by american economic association

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

testing long run purchasing power parity under exchange rate targeting abstract the present paper exploits the idea that empirical estimates of the long run ppp relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate this tends to bias tests of long run ppp against its acceptance the validity of the theoretical arguments is assessed by drawing on the experience of two european union countries greece and france for the post bretton woods period estimation biases due to the omission of policy effects are found to be significant only in the case of greece for france our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the french authorities