the input output approach to instrument selection this article proposes a new method of selecting demand shift instruments for disaggregated industries i use prior information from input output tables to identify industries whose output fluctuations are likely to function as approximately exogenous demand shocks for other industries after motivating this idea theoretically i implement the input output approach using data from the 1977 detailed input output study i conduct a systematic instrument search for over 450 u s manufacturing industries and find over 200 industries possessing plausible instruments i conclude with a brief application showing how input output instruments can be used to estimate the short run supply curve of the cement industry

green goods are they good or bad news for the environment evidence from a laboratory experiment on impure public goods green goods such as recycled paper stationary or carbon neutral flights provide increasingly popular examples of impure public goods motivated by theoretical treatments of green goods as a bundle of private and public characteristics in proportions fixed by the provider we design an experiment with two linked treatments to test how the presence of impure public goods affects behaviour towards public good causes we set parameters such that from a standard economic perspective the presence of the impure public good is behaviourally irrelevant in a treatment where the impure public good provides only small contributions to the public good we observe that on aggregate pro social behaviour is lower in the presence of the impure public good on the contrary in the treatment where the impure public good is more generous towards the public good component at the expense of private earnings individuals are unaffected in their behaviour we observe that impure public goods that are theoretically irrelevant and are mostly self interested may hinder pro social behaviour and look for explanations in social psychology such as the phenomenon of thoughtful anchoring motivated reasoning and reluctant altruism the results from this experiment question the role of green goods in enhancing environmentally friendly behaviours

nonlinear dynamics in deviations from the law of one price a broad based empirical study abstract in this paper we test empirically the validity of the law of one price using data for five major bilateral us dollar exchange rates and nine goods sectors during the recent floating exchange rate regime since the early 1970s using threshold autoregressive models we find strong evidence of nonlinear mean reversion in deviations from the law of one price with plausible convergence speeds consistent with theoretical arguments on international goods markets arbitrage under transactions costs and with an emerging strand of empirical literature these results contribute towards forming a consensus view in favor of discrete regime switching in deviations from the law of one price and the presence of differing nonzero transactions costs across a broad range of goods and countries

unit root tests and the statistical pitfalls of seasonal adjustment the case of u s postwar real gross national product unit root tests applied to the postwar seasonally adjusted quarterly gross national product series strongly support the null hypothesis of the presence of a unit root in the data generating process evidence reported here with seasonally unadjusted data is far less conclusive it is explained why seasonal adjustment procedures may alter the outcome of conventional tests

the effects of military spending on economic activity evidence from state procurement spending the authors use state data from the period 1963 94 to estimate the response of employment growth to military procurement spending the state year panel provides greater variation in both variables than aggregate data there are two main findings first military procurement spending does explain a statistically significant degree of the variation in employment growth across states even in the presence of fixed effects for time and state and other controls second the authors find evidence in support of a nonlinear relationship between procurement spending and employment growth in particular large adverse state procurement shocks have proportionately larger effects on state employment growth rates copyright 1997 by ohio state university press

a multicountry characterization of the nonstationarity of aggregate output the authors compute the scaled varlogram the variances of kth differences scaled by the variance of first differences of the log of annual per capita real aggregate output gdp or gnp as measured by 1 the long series for the united states and united kingdom 2 angus maddison s 1982 long series for twelve countries and 3 the postwar ifs data for thirty two countries simulations show that the scaled varlogram of real output is nearly always more consistent with the data being generated by parsimonious difference stationary than trend stationary univariate processes in fact the data reveal some excess nonstationarity relative to parsimonious arima models the power of the scaled varlogram to discriminate between trend stationary and difference stationary processes is somewhat greater than that of a dickey fuller type f test copyright 1990 by ohio state university press

preference reversals and the independence axiom of all of the paradoxical patterns of behavior reported in laboratory experiments one of the most perplexing for decision theorists is the preference reversal phenomenon a subject in a preference reversal experiment is typically given a choice between a lottery with a high probability of winning a modest amount of money a p bet and a lottery with a low probability of winning a large amount of money a bet the lowest amount of money for which the subject would willingly sell either of these lotteries is also elicited the most common reversal is for a subject to choose the p bet over the bet but to put a higher selling price on the bet preference reversals were first reported by harold lindman 1971 and sarah lichtenstein and paul slovic 1971 in discussing the psychologists discovery of such reversals david grether and charles plott remark the inconsistency is deeper than mere lack of transitivity or even stochastic transitivity it suggests that no optimization principles of any sort lie behind even the simplest of human choices 1979 p 623 this paper offers a simple alternative explanation of documented preference reversals an explanation that does not require the abandonment of the transitivity assumption

do subjects remember the past in many experiments experimenters use the random lottery incentive mechanism and ask many questions to each subject that is at the end of the experiment just one of the questions is picked at random and the subject paid on the basis of their answer to this one question the idea is that subjects should separate the various questions and reply to each as if it were a separate question this procedure is methodologically sound if the subjects preferences obey expected utility eu theory which implies a form of separation but if they do not this incentive mechanism is open to criticism indeed many referees use this argument against the research they argue that subjects do not consider questions separately if the questions are revealed to the subjects one by one then the appropriate alternative hypothesis is that their behaviour evolves with the questions here this hypothesis is tested that the questions already answered affect the answers to the subsequent questions the analysis shows that

multiple equilibria and persistence in aggregate fluctuations this paper explores the impact of incomplete markets and strong complementarities on the time series properties of aggregate activity we consider an economy which consists of a large number of industries whose production functions both are nonconvex and exhibit localized technological complementarities the productivity of each industry at t is determined by the production decisions of technologically similar industries at t 1 no markets exist to coordinate production decisions this feature implies that aggregate output dynamics for the model are quite different from those predicted by the associated arrow debreu economy first multiple stochastic equilibria exist in aggregate activity these equilibria are distinguished by differences in the mean and the variance of output second output movements are persistent as aggregate productivity shocks indefinitely affect real activity by shifting the economy across equilibria as a result the model can exhibit periods of boom and depression this abstract was borrowed from another version of this item

structural break nonlinearity and asymmetry a re examination of ppp proposition in this study we examine the validity of the ppp proposition for 28 european countries for this purpose we propose a new unit root test procedure that allows for both gradual structural breaks a

are asian real exchange rates stationary by applying the newly developed nonlinear stationary test advanced by kapetanios et al journal of econometrics 112 2003 359 in examining the stationary property of 11 asian real exchange rates this paper rejects unit root in 8 us dollar based and 6 japanese yen based rates whereas the augmented dickey fuller adf test has led to no rejection at all

international coordination in the design of macroeconomic policy rules abstract the paper examines international issues that arise in the design and evaluation of macroeconomic policy rules it begins with a theoretical investigation of the effects of fiscal and monetary policy in a two country rational expectations model with staggered wage and price setting and with perfect capital mobility the results indicate that with the appropriate choice of policies and with flexible exchange rates demand shocks need not give rise to international externalities or coordination issues price shocks however do create an externality and this is the focus of the empirical part of the paper using a simple seven country model consisting of canada france germany italy japan the united kingdom and the united states optimal cooperative and non cooperative nash policy rules to minimize the variance of output and inflation in each country are calculated the cooperative policies are computed using standard dynamic stochastic programming techniques and the non cooperative policies are computed using an algorithm developed by finn kydland the central result is that the cooperative policy rules for these countries are more accommodative to inflation than the non cooperative policy rules

modeling the defense growth nexus in guatemala summary the defense growth nexus is investigated empirically using longitudinal data for guatemala and allowing the effect of defense spending on growth to be nonlinear using recently developed econometric methods involving threshold regressions evidence of a level dependent effect of military expenditure on gdp growth is found a positive and significant externality effect of defense spending prevails for relatively low levels of defense spending and becomes negative albeit insignificant for higher levels

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

changes in the behavior of output in the united kingdom 1856 1990 abstract this paper reports evidence of major increases in the persistence of output as well as contributions of low frequency components to the variance of output growth for the united kingdom during 1856 1990 these results are contrary to those obtained by jaeger 1990

smooth breaks and non linear mean reversion post bretton woods real exchange rates the recent literature on purchasing power parity ppp has emphasized the role of two phenomena that may lead to the rejection of the ppp hypothesis structural breaks and non linear adjustment induced by transaction costs these two hypotheses are analyzed separately in the literature we develop tests for unit roots that account jointly for structural breaks and non linear adjustment structural breaks are modeled by means of a fourier function that allows for infrequent smooth temporary mean changes and is hence compatible with long run ppp nonlinear adjustment is modeled by means of an estar model our tests present good finite sample properties the tests are applied to a set of 15 oecd countries rers and are able to reject the null of a unit root in 14 cases the breaks are usually associated with the great appreciation and later depreciation of the dollar in the 1980s and the estar adjustment appears to play an important role

are real gdp levels nonstationary evidence from panel data tests potential nonstationarity of important macroeconomic variables and unit root tests are now a standard procedure in empirical analyses while there are many findings of unit roots in macroeconomic variables using the popular augmented dickey and fuller 1979 test this test has low power against near unit root alternatives recently panel data procedures have been proposed as an avenue to increased power this paper applies panel unit root tests to international real gdp and real gdp per capita data the results overwhelmingly indicate that international real gdp and real gdp per capita levels are nonstationary

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

unemployment equilibria and input prices theory and evidence from the united states the paper develops an efficiency wage model where input prices affect the equlibrium rate of unemployment we show that a simple framework based on only two prices the real price of oil and the real rate of interest is able to explain the main post war movements in the rate of u s joblessnss the equations do well in forecasting unemployment many out of sample and provide evidence that the oil price spike associated with iraq s invasion of kuweit appears to be a component of the mystery recession which followed

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

market experience eliminates some anomalies and creates new ones we report two experiments which investigate whether experience of decision making in repeated markets purges behaviour of preference reversals we investigate two behavioural mechanisms that may be shaping bids in repeated auctions a tendency to adjust bids towards previously observed market prices and a tendency to reduce bids following bad market outcomes we find little support for the former but strong support for the latter also whilst just enough market exposure eliminates the typical preference reversal phenomenon continued exposure fosters the mirror image anomaly therefore although market experience shapes behaviour in our experiments it does not generally promote consistency with standard preference theory

non stationarities in macro economic time series further evidence and implications two sources of non stationarities in the mean of macro economic time series are investigated the empirical evidence for several countries clearly implies that differencing is to be preferred to the assumption of a deterministic linear time trend this result is somewhat weaker with respect to the analogous choice between seasonal differencing and seasonal dummy variables it is recommended that the time series properties of the variables considered in empirical work be carefully checked because the estimated relationships may heavily depend on the chosen detrending procedure les non stationarites dans ies chroniques macro economiques resultats supplmentaires et implications l auteur examine deux sources de non stationarite dans la mnoyenne des chroniques macroeconomiques les resultats d analyses de donnees pour plusieurs pays montrent clairement qu on doit preferer l usage d un processus de differences finies a l emploi d une tendance lineaire deterministe ce resultat est un peu moins robuste pour ce qui est du choix analogue entre l utilisation de differences saisonnieres par rapport a

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

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

the capital crunch neither a borrower nor a lender be the dramatic reduction in the growth rate of bank lending associated with the 1990 91 recession particularly in new england has evoked claims by many observers of a credit crunch however because of the difficulty in determining whether the observed slow credit growth is a demand or supply phenomenon convincing evidence of the practical importance of credit crunches for economic activity remains elusive we overcome this obstacle by examining a cross section of banks in new england that have experienced the same economic downturn effectively controlling for changes in demand we find empirical support for a capital crunch whereby poorly capitalized institutions shrink to satisfy capital requirements this alone is not a sufficient condition for a credit crunch however we find s6me additional evidence that the ca ital crunch may have limited credit availability in new england

e baying for blood noncompetitive flexible pricing in entertainment ticketing some demand side evidence this article gives some exploratory results from estimating a consumer surplus type equation which features a number of economic and demographic variables as regressors we calculate an income elasticity for the maximum surplus that individuals would ever perceive themselves to be getting by being allowed to buy at a set price the results also show that those who attend the cinema are significantly less inclined to generate a surplus in flexible price events markets whilst young adults offer to pay quite a large amount more for their heavily desired entertainment this suggests that part of the burden of a shift in ticket pricing methods may be borne by the parents of young adults

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

do rational demand functions differ from irrational ones evidence from an induced budget experiment various studies e g becker 1962 ariely et al 2003 have noted anomalies concerning the relationship between observed demand and the preferences presumed to motivate it we re examine these findings using experimental choice data after separating our subjects choices into rational and irrational subsets based on consistency with the axioms of revealed preference we estimate and compare demand coefficients mirroring ariely et al s coherently arbitrary choice both rational and irrational demand estimates exhibit negative price and positive endowment coefficients however a comparison of the full set of demand coefficients indicates significant differences between the two yielding an observable artefact of the preference hypothesis relaxing the goodness of fit of the revealed preference test afriat 1987 varian 1994 does not alter our findings

two views of the geographic distribution of unemployment this paper investigates the extent to which equilibrium and disequilibrium explanations can account for unemployment rate differentials between cities it shows that shocks that disturb the steady state relationship among the unemployment rates of metropolitan areas tend to be eliminated by mobility within a single year it also shows that high unemployment areas tend to be those with attractive climates and amenities high wages and high unemployment insurance it argues that the main effect of government programs that create jobs in high unemployment areas will be to lure additional job seekers to those areas

debt deficits and inflation an application to the public finances of india abstract the paper studies the solvency of the indian public sector and the eventual monetization and inflation that would be implied by stabilization of the debt gnp ratio in the absence of changes in the primary deficit the nonstationarity of the discounted public debt suggests that indefinite continuation of the pattern of behavior reflected in the historical time series process is inconsistent with the maintenance of solvency this message is reinforced by the recent behavior of the debt gnp ratio and of the ratio to gnp of the sum of the primary budget surplus and seigniorage our estimates of the base money demand function suggests that even maximal use of the inflation tax would not be sufficient to restore solvency measures to reduce the primary deficit are therefore unavoidable

the nonstationarity of aggregate output some additional international evidence in this paper the stationarity of aggregate output is examined using the scaled variogram for a sample of twelve countries it is argued that if the true data generating process of output is stationary around a deterministic trend with a change in mean and or growth rate the results of previous studies are biased once the authors allow for a one time exogenous shock the conclusions are indeed less clear cut and for some countries even reversed copyright 1994 by ohio state university press

nonlinearities in real exchange rate determination do african exchange rates follow a random walk in this article we aim at modelling the long run behaviour of the real effective exchange rates reer for a pool of african countries not much attention has been paid to this group of countries in particular to the existence of nonlinearities in the long run path of such a variable controlling for two sources of nonlinearities i e asymmetric adjustment to equilibrium and nonlinear deterministic trends allows us to gain some insight about the behaviour of the african reer we find that these sources of nonlinearities help us to explain the apparent unit root behaviour found applying linear unit root tests for most of the countries

short run models and long run forecasts a note on the permanence of output fluctuations suppose that real gnp falls 1 percent lower than one would have expected from its past history how much should one change one s forecast of gnp for ten or twenty quarters ahead that is the question which has recently been addressed by campbell and mankiw 1987 and clark 1987 both of these papers estimate a parsimonious representation of the time series and then compute the implied long run response of gnp to an innovation while clark estimates that the long run impact of an innovation is less than two thirds of the initial impact campbell and mankiw present evidence that shocks persist and even grow over time the goal of this paper is to develop tests of the goodness of fit of specific time series models which are powerful against alternatives that imply different long run impulse responses with postwar quarterly data these tests favor models in which innovations are largely temporary over models in which innovations persist

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

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

output and unemployment dynamics in the united states 1950 1985 for us data over 1950 1985 the stochastic components of gnp growth and the unemployment rate appear to be stationary and there is substantial feedback between these variables the unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the business cycle a bivariate var model is used to describe output unemployment dynamics to estimate the degree of persistence of output innovations and to decompose output into trend and cycle the bivariate results are interpreted using a restricted var and it is shown that a closely related cyclical measure can be obtained directly from the okun s law equation

a measure of the u s output gap abstract an autoregressive distributed lag regression of the unemployment rate on output growth is structurally stable over the 1890 1986 period inverting this equation yields a measure of the output gap which is not subject to the spurious detrending problem

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

assessing the regional economic impacts of defense activities a survey of methods defense activities exercised in a specific region may alter the region s economic performance an accurate assessment of the potential economic impacts of defense activities is a valuable undertaking to enable regional planners to prepare for changes the variety in the methods among others input output models economic base models keynesian regional multipliers fixed effects estimators and case study approaches inspired by geography sociology and political science can pose a dilemma we detail the historical and theoretical background of each method as well as select exemplary cases where these methods were applied by examining old and new methods we aim to construct a typology that could be valuable to all stakeholders in this sense defense economics can also contribute to the allied social sciences by outlining evaluation methods that may be applicable to other fields

the unit root hypothesis for aggregate output may not hold after all new evidence from a panel stationarity test with multiple breaks author affiliation diego romero avila pablo de olavide university department of economics carretera de utrera km 1 41013 seville spain dromtor upo es acknowledgment the author would like to thank seminar participants at pablo de olavide university and dg economics of the european central bank and two anonymous referees for useful comments and suggestions 1 introductionsince the seminal work by nelson and plosser 1982 researchers have paid considerable attention to the presence of stochastic trends in macroeconomic variables that work also changed the way macroeconomists think about secular trends and short run fluctuations in business cycles since the existence of a unit root in output purports that shocks are permanent short run fluctuations cannot be explained by the traditional view as deviations around a deterministic trend that represents the secular component of the series instead the trend function itself can fluctuate as a result of permanent shocks king et al 1991 found that supply factors are important in explaining economic fluctuations but may not be the lone source of short run fluctuations campbell and mankiw 1987 stressed that demand shocks may also be the source of permanent shocks to output the existence of a high degree of persistence in output has important implications in macroeconomics for example the keynesian view that most shocks to output are transitory and output fluctuations are temporary deviations from the secular trend is inconsistent with a unit root in output on the contrary the real business cycle view conceives fluctuations as largely the result of real permanent shocks essentially of a technological nature this has important implications for economic policy since stabilization policies lose their effectiveness when variations of output are mainly permanent thus running counter to the keynesian view much of the empirical literature has focused on the nonstationarity properties of real u s gross national product gnp to cite a few studies perron and phillips 1987 schwert 1987 campbell and mankiw 1987 and perron 1988 fail to reject the null hypothesis of a unit root in real u s gnp these results have not gone unchallenged christiano and eichenbaum 1990 and rudebusch 1993 highlighted the low power of standard unit root tests of the augmented dickey and fuller 1979 type to distinguish between the trend stationary and unit root behavior in aggregate output the development of cross country data sets such as the long gross domestic product gdp series provided by maddison 1989 and the penn world table pwt constructed by summers and heston 1990 has allowed researchers to provide international evidence on the unit root behavior in aggregate output for instance wasserfallen 1986 found a unit root in gnp series for some organization for economic co operation and development oecd countries over the postwar era kormendi and meguire 1990 confirmed the existence of a unit root in output for twelve oecd countries over the period 1870 1985 1 however the seminal work of perron 1989 uncovered the fact that nonstationarity may conceal the existence of stationarity with structural change showing that standard unit root tests tend to misinterpret trend stationarity with a structural break as a unit root by exogenously imposing a structural break in real u s gnp perron 1989 was able to strongly reject the unit root hypothesis however zivot and andrews 1992 provided slightly less evidence of a unit root in real u s gnp using a test that allowed for a structural break that was endogenously determined from the data in an international context zelhorst and de haan 1994 1995 found evidence for oecd countries that over long time periods where the presence of structural change becomes more likely the null of a unit root in output tends to be rejected in favor of regime wise stationarity

identifying the effect of unemployment on crime abstract in this paper we analyze the relationship between unemployment and crime using u s state data we estimate the effect of unemployment on the rates of seven felony offenses we control extensively for state level demographic and economic factors and estimate specifications that include state specific time trends state effects and year effects in addition we use prime defense contracts and a state specific measure of exposure to oil shocks as instruments for unemployment rates we find significantly positive effects of unemployment on property crime rates that are stable across model specifications our estimates suggest that a substantial portion of the decline in property crime rates during the 1990s is attributable to the decline in the unemployment rate the evidence for violent crime is considerably weaker however a closer analysis of the violent crime of rape yields some evidence that the employment prospects of males are weakly related to state rape rates

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

univariate time series behaviour of the real exchange rate evidence from colonial india this paper empirically examines the long run behaviour of the real exchange rate in colonial india between the british pound and the indian rupee using a battery of unit root tests the unit root tests based on the kpss test the gph fractional integration test and the non linear kss test indicate that the real exchange rate series is stationary and mean reverting which tends to support the validity of the purchasing power parity ppp hypothesis in the long run

do real exchange rates follow a nonlinear mean reverting process in developing countries in an effort to fight relatively high inflation many developing countries try to manage their nominal exchange rates through official intervention in addition developing countries tend to have high transportation costs tariffs and nontariff barriers these factors are among the sources of generating nonlinearity in real exchange rates and hence some nonlinear adjustment toward purchasing power parity ppp in developing countries in this paper we employ monthly real effective exchange rate reer data of 88 developing countries and test the null of nonstationarity versus an alternative of linear stationarity by the means of a conventional unit root test and compare the results with those obtained from a new test in which the null is the same but the alternative hypothesis is nonlinear stationarity the latter test supports the ppp theory in more developing countries compared with the former test suggesting that nonlinear adjustment toward ppp in developing countries is an important phenomenon reported country characterizations indicate that reversion in reer occurs more often for high inflation countries and for countries with high flexibility in their exchange rates

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

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

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

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

mergers stock prices and industrial production further evidence abstract economic theory has been developed to correlate mergers and stock prices and mergers and industrial production this study tests for significant relations among annual mergers stock prices and industrial production and examines whether multiple time series models can forecast annual mergers more accurately than a univariate merger model we do not find that the mean square forecasting error of the multivariate time series model is significantly less than the mean square forecasting error of the univariate merger model the stock price series does not aid in forecasting mergers

asymmetric effects of exogenous tax changes abstract we study whether output responds symmetrically to tax increases and decreases in postwar us data using the identification strategy in romer and romer 2010 we find evidence of important asymmetries the output response to a tax increase is statistically insignificant but output shows a significantly positive and permanent increase following a tax decrease we show that this asymmetry appears to be driven by individual income tax changes and is transmitted to the economy through asymmetric response in aggregate consumption to tax increases and tax decreases we also present a simple model that rationalizes our empirical findings and illustrates how asymmetric output and consumption responses to sign based tax changes can be generated by plausible consumption adjustment costs

an investigation into adequate data for estimating annual earnings time series models abstract the purpose of this study is to examine the stability of corporate earnings per share eps time series models as the length of the time series are altered evidence is found to support the stationarity of corporate eps data furthermore outlier analysis is employed and supports the long run stability of corporate earnings series

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

the climacteric in late victorian britain and france a reappraisal of the evidence the paper investigates the question of whether the trend rate of growth of gdp slowed down in britain or france in the nineteenth century we establish that real gdp belongs to the trend stationary process class of time series in each case rather than the difference stationary process and using kalman filter techniques analyse trends in a model incorporating time varying parameters without specifying breakpoints in advance we find contrary to the literature that neither country experienced a climacteric our results suggest that economic historians have been prone to exaggerated views of variations in trend economic growth

does gnp have a unit root a re evaluation abstract stock and watson 1986 test the hypothesis that real per capita gnp has a unit root by using a test statistic due to phillips 1985 which incorporates a non parametric correction for the serial correlation induced by system and error dynamics the version of this test that is used by stock and watson does not accomodate the presence of a drift and to compensate they detrend the series by extracting a 1 5 annual trend growth we use a version of this class of non parametric tests developed by phillips and perron 1986 which allows for an estimated drift and reassess the stock and watson findings

incentives in experiments a theoretical analysis experimental economists currently lack a convention for how to pay subjects in experiments with multiple tasks we provide a theoretical framework for analyzing this question assuming statewise mo

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

does output have a unit root new international evidence in this paper unit root tests for per capita output of 12 oecd countries are performed using traditional unit root tests it follows that the unit root hypothesis cannot be rejected except for the us however following the approach of perron 1989 which takes shifts in mean and or trend into account the null hypothesis of a unit root can be rejected in most countries in our sample in contrast to perron a method suggested by christiano 1992 is used to determine the break date endogenously

quantile unit root test and ppp evidence from 23 oecd countries abstractapplication of six different univariate unit root tests to real effective exchange rates of 23 oecd countries supports their stationarity or purchasing power parity theory ppp only in five countries a result consistent with previous research that is known as ppp puzzle however descriptive statistics of each effective rate reveals a clear sign of non normal distribution to account for this we use quantile unit root test which allows impact of different shocks to be realized at different quantiles when we applied this new test to the same rates number of countries in which ppp is supported increased to 16 apparently incorporating effects of shocks improves testing efficiency and provides more support for the ppp and reduces the severity of the puzzle

international evidence on the size of the random walk in output this paper contributes three extensions of cochrane s work on measuring the relative stability of long term growth it estimates variance ratios for nine oecd countries over the period 1871 1985 presents an improved approximation to the distribution of the variance ratio and considers the comovements of long growth cycles across countries the evidence indicates that the relative stability of long term growth found by cochrane is unique to the united states relative to the united states most countries have more variable dynamics at low frequencies and smoother dynamics at frequencies traditionally associated with business cycles

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

sectoral shocks and metropolitan employment growth abstract in this paper we study the sources of industry employment growth in each of five metropolitan statistical areas msas the objective is to understand the relative importance of aggregate disturbances versus local sectoral shocks in generating observed employment fluctuations at the msa level the empirical evidence presented in this paper derives from structural vector autoregressions svars estimated for each of the five msas estimations use monthly employment data covering nine one digit industrial categories for the period 1951 1 1999 8 as well as two variables that capture the influences of aggregate i e national shocks on msas we find that within msa industry shocks explain considerably more of the forecast error variance in industry employment growth than do aggregate shocks sectoral shocks account for between 87 and 94 of the 36 month ahead forecast error variance among individual local sectors shocks to msa specific government manufacturing and service sector employment growth are the predominate sources of variability

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

local and aggregate fiscal policy multipliers abstract using a newly constructed panel of state level defense contracts this paper studies the effect of defense spending on the u s macroeconomy summing observations across states we estimate aggregate income and employment multipliers comparing these to local multipliers estimated with the panel provides evidence that local multiplier estimates may be reliable indicators of fiscal policy s aggregate effects furthermore evidence of small positive spillovers is found across several specifications we estimate income and employment multipliers between zero and 0 5 this result is reconciled with the greater than one multipliers found in nakamura and steinsson 2014 by analyzing the korean war years impact on the estimation

regional income fluctuations common trends and common cycles this paper investigates trend and cycle dynamics in per capita income for the major u s regions during the 1956 1995 period cointegration and serial correlation common features information are used in jointly decomposing the series into trend and cycle components we find considerable differences in the volatility of regional cycles controlling for differences in volatility we find a great deal of comovement in the cyclical response for all regions but the far west possible sources underlying differences in regional cycles are explored such as the share of a region s income accounted for by manufacturing defense spending as a proportion of a region s income oil price shocks and the stance of monetary policy somewhat surprisingly we find that the share of manufacturing in a region seems to account for little of the variation in regional cycles relative to national cycles but manufacturing share differentially affects trend growth for four of the seven regions studied

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

testing okun s law theoretical and empirical considerations using fractional integration abstractfull employment remains at the center of any economic policy following okun s conclusion regarding the trade off relation between unemployment and real gross national product growth new s

smooth structural breaks and the stationarity of the yen real exchange rates this article examines and solves an interesting paradox in the literature that the tests for purchasing power parity ppp based on the yen real exchange rates rers refute the ppp hypothesis more often than those with other major currency based rers and the evidence is sensitive to the sample period used using a new empirical methodology accounting for both nonlinearity and multiple smooth temporary breaks in the data we show that the puzzling finding is due to the failure to take into account the long but temporary large rise and fall in the yen rers the results illustrate that the yen rers in the post bretton woods period are likely mean reverting with linear or nonlinear adjustment toward large long swing type of infrequent smooth temporary changes around constant equilibrium values supporting the validity of ppp and resolving the paradox

towards solving the ppp puzzle evidence from 113 countries several different approaches have been followed by researchers to test the validity of purchasing power parity ppp since the introduction of the unit root tests researchers have applied a battery of these tests to determine whether the real exchange rates are stationary if the answer is in the affirmative ppp is validated while application of the standard augmented dickey fuller test has not provided much support for ppp a test that incorporates nonlinearity in the rates has under both tests however the null of nonstationary is tested against the alternative of stationarity in this article when we switch the null with the alternative and apply kwiatkowski et al 1992 test we provide relatively more support for the theory getting closer and closer towards solving the ppp puzzle

testing ppp in the non linear star framework abstract we apply the standard adf test and a new test that incorporates non linearity in time series to the real effective exchange rates of 23 industrial countries the new test provides support for ppp in more countries than the adf test