u s european interest rate linkage a time series analysis for western germany switzerland and the united states the authors investigate whether there was an international linkage of interest rates between the united states west germany and switzerland during the period of flexible exchange rates 1974 84 euro market rates and bond market rates are considered during the two subperiods of falling and increasing u s dollar dm exchange rates 1974 to 1978 and 1979 to 1984 spectral analysis and granger causality tests are applied and trivariate autoregressive models are estimated it is shown that a strong linkage exists during the second period but during the first subperiod there was no or only a weakly pronounced linkage copyright 1987 by mit press

shocking the eurozone abstract in this paper the monetary transmission mechanism within the european monetary union is investigated the impulse response functions and forecast error variance decompositions of a structural vector error correction model svecm are compared with those of a new keynesian theoretical model the identifying restrictions of the svecm are directly derived from the theoretical model two permanent shocks are identified one having only nominal and one having only real effects the three transitory shocks comprise a short term interest rate shock an aggregate demand shock and a money demand shock the main conclusions are that permanently reducing the inflation objective depresses output in the first year but has no real effects in the long run regarding output variability the results indicate that aggregate demand shocks are most important during the first year after which aggregate supply shocks dominate

german dominance in the ems evidence from interest rates abstract the paper presents an empirical analysis of german dominance and asymmetries in the ems based on a dynamic system of equations explaining national money market interest rates the hypothesis of strict german dominance of the ems is rejected however there are some noticeable asymmetries in the ems germany is a relatively strong player and has been the least dependent country in the early phase of the system since 1983 german independence has diminished in contrast france throughout and italy in the early phase of the ems have been relatively weak players in the system

theory based measurement of the saving investment correlation with an application to norway i introduction the findings of feldstein and horioka 19c 0 have led to numerous theoretical and empirical papers on the close correlation between domestic saving and domestic investment and its supposed implications for international capital mobility feldstein and horioka 1980 317 state that with perfect world capital mobility there should be no relation between domestic saving and domestic investment saving in each country responds to the worldwide opportunities for investment while investment in that country is financed by the worldwide pool of capital however in a cross country regression using period averaged saving and investment figures for sixteen oecd countries they obtain a significant coefficient close to unity and conclude that capital is rather immobile this result constitutes the feldstein horicka puzzle as it contradicts the widely held perception that capital is highly mobile across countries subsequent empirical work confirmed the close correlation though its implication for the degree of capital mobility is a moot point see tesar 1991 this paper contributes to the understanding of the puzzle on both theoretical and empirical counts first we present a theory based econometric specification for estimating saving investment correlations second we discuss the possible usefulness of the estimates for detecting capital mobility third we provide empirical results for the interesting case of norway we argue that feldstein and horioka s basic idea that the saving investment correlation contains information about international capital mobility is correct but that the interpretation of the estimated correlation value must be altered substantially in view of the results derived from modern macroeconomic models our research is motivated by the observation that various regression equations have been used to measure the saving investment correlation but that none of them has a firm theoretical foundation this in turn raises questions about the interpretation and comparability of the existing empirical results we propose an econometric specification that is founded in intertemporal general equilibrium models in which agents optimize under intertemporal budget constraints we show that time series studies have estimated misspecified equations and that cross section studies are seriously flawed because they neglect dynamics as a result the puzzle may turn out to be an artifact caused by measurement errors however the significance of reliable measurement of saving investment correlations goes beyond solving the feldstein horioka puzzle because they represent stylized facts open economy models should explain norway serves as a suitable example to cement our methodological arguments with empirical evidence thanks to its system of capital controls which were phased out during the 1970s and 1980s the oil discoveries and its small size we demonstrate that the failure to take structural breaks into account seriously distorts the picture making a strong case for careful diagnostic testing our main empirical result is that the feldstein horioka puzzle does not exist for norway the paper proceeds as follows in section ii we briefly summarize the state of the discussion regarding feldstein and horioka s findings in section iii we derive our specification from the theory compare it to the previous specifications and discuss how to make inferences about capital mobility in section iv we sketch major developments in the post war norwegian economy notably the abolition of capital controls and the emergence of the important oil sector section v presents the empirical results section vi summarizes and concludes ii the feldstein horioka puzzle many authors have confirmed feldstein and horioka s result of a high and stable correlation of saving and investment for oecd countries both in cross country studies and in time series studies

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

the fuelwood market in greece an empirical approach abstract wood has been since ancient times the basic household heating medium nowadays wood remains the primary energy source in rural areas of developing countries mainly in africa in greece the domestic demand of fuelwood is relied mainly on the fuelwood domestic supply especially during the post war period the domestic supply satisfies adequately the domestic demand eliminating the role of imports the present study surveys the long run relationship between the fuelwood prices of different forest species in order to determine the role of the special market conditions in their price formation in addition the error correction model is estimated in order to survey the direction of the granger causality among the prices of the fuelwood forest species the implementation of the impulse response analysis and the variance decomposition confirmed that coniferous and beech fuelwood producer price may account for the volatility of the oak fuelwood producer price this result may contribute greatly to the conservation of oak forest an important carbon storage forest ecosystem

exchange rates policy convergence and the european monetary system in this paper we use a recently developed multivariate cointegration technique to analyze the degree of policy convergence of ems member relative to that of some non ems countries interestingly we find convergence for the nominal and real exchange rates and money supplies of the ems members but not for the non ems countries we also provide some evidence to support the german leadership hypothesis in the context of intra ems monetary policy convergence which accords with anecdotal evidence on the modus operandi of the ems

oil price fluctuations and singapore economy this study finds that the impact of an oil price shock on the singapore economy is marginal both impulse response and variance decomposition analysis provide reasonable grounds to believe that the impact only had an insignificant adverse effect on singapore s gross domestic product gdp inflation and unemployment rates further analysis on two oil vulnerability measures supports the finding the declining trend of oil intensity in singapore since 1989 and the declining shares of the singapore s expenditure on oil consumption as a percentage of its nominal gdp this study identifies however that the impact of an oil price shock on the singapore economy should not be considered negligible even though it is small

are real interest rates equal across countries an empirical investigation of international parity conditions this paper conducts empirical tests of the equality of real interest rates across countries the empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative ppp or the unbiasedness of forward rate forecasts and ex ante relative ppp the evidence suggests that it is worth studying open economy macroeconomic models which allow 1 domestic real rates to differ from world rates 2 time varying risk premiums in the forward market or 3 deviations from ex ante relative ppp the relationship of real interest rates across countries is of central importance to our understanding of open economy macroeconomics in some models where there is costless international arbitrage in goods and financial assets real interest rates for comparable securities should be equal across countries this has been a feature of much of the early research in the monetary approach to exchange rates e g frenkel 11 and bilson 2 on the other hand finance theory indicates that risk premia may well differ for comparable securities denominated in different currencies solnick 27 roll and solnick 26 stulz 28 fama and farber 7 hansen and hodrick 17 and dornbusch 6 and more recent theoretical models in the exchange rate literature such as dornbusch 5 frankel 10 and mussa 24 depend on real rates differing between countries in the short run the proposition that real rates are equal across countries is worth studying

international asset pricing with time varying risk premia abstract recent empirical evidence that forward exchange rates are biased predictors of future spot rates can also be interpreted as evidence against the hypothesis of a constant risk premium consequently reconciliation of this evidence with efficient international capital markets requires the existence of time varying risk premia this paper modifies kouri s 1977 asset pricing model to allow time varying exected returns on assets eliminates the assumption of a risk free real asset and derives the characteristics of the risk premia in the forward market as well as the equilibrium yield relationships among the equities and riskless nominal bonds of all countries

the role of macroeconomic instability in public and private capital accumulation and growth the case of turkey 1963 1999 this study investigates the empirical relationship s between macroeconomic instability public and private capital accumulation and growth in turkey over the period 1963 1999 time series econometric techniques such as cointegration and impulse response analysis are used the results of this paper suggest that the chronic and increasing macroeconomic instability of the turkish economy has seriously affected her capital formation and growth furthermore the turkish experience indicates that chronic macroeconomic instability seems to be a serious impediment to public investment especially to its infrastructural component and shatters or even reverses the complementarity between public and private investment in the long run

dynamics of real interest differentials an empirical investigation abstract linear dynamic stochastic processes are derived for the ex ente real interest differentials from those followed by the ex post processes under the assumption of rational expectations the technique is used to test the equality of ex ante real rates between u s and a number of oecd countries the evidence against the short run equality of ex ante real rates is overwhelming in the long run the rates are co integrated but not always equal it takes approximately six months for the differentials to converge to their long run values

the interdependence of the term structure of eurocurrency interest rates abstract this paper investigates the interdependence of the term structure of eurocurrency interest rates our results suggest that when the central banks of switzerland and west germany increased their intervention in foreign exchange markets after the october 1979 monetary policy regime change in the usa a significant relationship developed between short term eurodollar interest rates and long term euromark and swiss eurofranc interest rates common cross country exchange rate expectation errors are exploited to improve the efficiency of the estimates using zellner s seemingly unrelated regressions

inflation and real interest rates on assets with different risk characteristics given the importance of ex ante real interest rates to economic decision making it is no surprise that much empirical research focuses on them 1 several recent studies find that the ex ante real returns for short term u s treasury securities are not constant and are negatively correlated both with inflation and with nominal interest rates this paper examines the extent to which these findings hold for assets of longer maturity are robust with respect to the choice of price index and are stable over time we expand the set of assets studied to include those of longer maturity both publicly and privately issued for two reasons first their ex ante real returns may differ substantially from that of a short term nominally riskless security second because longer maturity assets have risk characteristics closer to capital their ex ante real returns are potentially more relevant for investment and savings decisions we explore the use of various price indices because the index used in most studies the consumer price index severely overstates inflation during the 1970s as a result of its inappropriate treatment of residential housing costs 2 this overstatement casts doubt on an important finding of previous studies that there are long stretches of time during the 1970s when ex ante real rates are significantly negative given the existence of holding costs for the goods relevant to most price indices and the absence of a riskless real return no arbitrage conditions are violated by a negative ex ante real rate however its persistence is problematical because asset holders are typically assumed to have a positive rate of time preference which ensures a positive ex ante real rate in the long run we find that before 1979 a negative relationship of ex ante real rates both with inflation and with nominal interest rates appears for the longer maturity assets as well as the short term nominally riskless asset indeed the relationship grows

international linkage of interest rates the case of japan and the united states 1 r r xl 1 r1 x where r is the current yen interest rate on bonds with a term to maturity of length 1 r is the dollar interest rate on bonds with a term to maturity of length 1 and xl is the expected average rate of appreciation of the dollar against the yen over the time period 1 further suppose that purchasing power parity holds even in the short run then x1 will be determined by the difference in the expected rates of inflation between japan and the united states as

assessing the impact of us ethanol on fossil fuel markets a structural var approach abstract despite the growing importance of biofuels the effect of biofuels on fossil fuel markets is not fully understood we develop a joint structural vector auto regression var model of the global crude oil us gasoline and us ethanol markets to examine whether the us ethanol market has had any impact on global oil markets the structural var approach provides a unique method for decomposing price and quantity data into demand and supply shocks allowing us to estimate the distinct dynamic effects of ethanol demand and supply shocks on the real prices of crude oil and us gasoline ethanol demand in the us is driven mainly by government support in the form of tax credits and blending mandates shocks to ethanol demand therefore reflect changes in policy more than any other factor in contrast ethanol supply shocks are driven by changes in feedstock prices a principle finding is that a policy driven ethanol demand expansion causes a statistically significant decline in real crude oil prices while an ethanol supply expansion does not have a statistically significant impact on real oil prices this suggests that even though us ethanol market is small the influence of us biofuels policy on the crude oil market is pervasive we also show that ethanol demand shocks are more important than ethanol supply shocks in explaining the fluctuation of real prices of crude oil and us gasoline

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

a multivariate cointegration analysis of interest rates in the eurocurrency market abstract a multivariate cointegration methodology is utilized to analyze relations among interest rates on us dollars uk pounds german marks french francs and japanese yen in the eurocurrency market over a period with major capital market deregulations and increasingly globalized money market trading three major results appear it is appropriate to model these interest rates as a multivariate cointegrated system no interest rate may be excluded from the cointegrating relations a recursive cointegration approach indicates that the number of cointegration vectors increases in the later part of the sample period consequently this study supports the hypothesis of a substantial increase in euromarket interest rate comovements jel e40 f02 1997 elsevier science ltd

stochastic trends and economic fluctuations in a small open economy in this paper we describe how restricted vector autoregressions can be employed to examine the sources of macroeconomic fluctuations we show how cointegration restrictions can be used to identify a var system with common stochastic trends subject to transitory and permanent changes in average growth and how we may investigate the system s responses to permanent shocks i e to innovations to the trends theoretical cointegration vectors are derived from a small open economy growth model for terms of trade real gdp real consumption and real investments applying these methods to swedish annual data 1875 1986 we find that permanent real supply shocks account for most of the fluctuations in gdp even in the short run

cointegration and the us term structure abstract using the maximum likelihood analysis of cointegration developed by johansen 1988 1991 we test the cointegration implications of the expectations hypothesis of the term structure on a sample of us pure discount yields by using this approach we are able to analyze systems of more than two interest rates simultaneously as opposed to most previous studies which examine interest rates only in pairs one of the main results is that for the period 1952 1987 the cointegration implications generally seem to hold

wind power implementation the nature of public attitudes equity and fairness instead of backyard motives abstract public attitudes anywhere in europe show moderate to strong support for the implementation of renewable energy nevertheless planning wind power developments appears to be a complicated matter in most countries the problems that have to be dealt with during decision making processes on the siting of wind turbines are usually referred to as mere communication problems however public attitudes towards wind power are fundamentally different from attitudes towards wind farms this gap causes misunderstandings about the nature of public support for renewables in particular where planners easily assume support for renewables can be generated by information campaigns emphasising the environmental benefits whereas opposition to renewable energy schemes can be explained by a selfish not in my backyard attitude both explanations used by planners authorities and unfortunately by many scholars are falsified furthermore policies that still take this common knowledge for granted can have negative consequences for the implementation rates of renewables visual evaluation of the impact of wind power on landscape values is by far the dominant factor in explaining why some are opposed to wind power and others are supporting it moreover feelings about equity and fairness appear the determinants of backyard motives instead of selfishness

linkage in ems term structures evidence from common trend and transitory components abstract we test for the link among selected ems term structures during 1979 1995 by decomposing each term structure into its common trend and transitory components we find that ems common trends move together over time that the german trend is not the driving source of the shared co movements and that the transitory components spread are more loosely linked in recent years perhaps due to widened exchange rate bands our findings refute arguments that germany plays a dominant role in setting policy and raise doubts that it will play a dominant role if and when emu takes place

fiscal policy in good and bad times in this paper we analyze whether the effect of fiscal policy differs across the business cycle to tackle this question we use a regime switching error correction framework where nonlinearities are only modeled in the short run and have no impact on the long run equilibrium regime specific shocks to government revenue and government purchases are identified using sign restrictions linear combinations of the impulse responses of these basic shocks are used to construct a deficit spending shock and a deficit financed tax cut shock we find that active spending policies have a stronger impact in recession with multipliers exceeding unity and should be preferred to deficit financed tax cuts

a turbine is not only a turbine the role of social context and fairness characteristics for the local acceptance of wind power to gain acceptance for renewable energy production sites it is not sufficient to develop the appropriate technology without taking the social context and fairness concerns into account using a factorial survey experiment we investigate the influence of both on the local acceptance of wind turbine developments in germany and poland two countries differing in installed wind power capacity respondents were surveyed with hypothetical situations describing the construction of wind farms varying in the opportunity to participate in the planning process participatory justice the distribution of turbines across regions distributive justice and ownership among other characteristics we find higher acceptance levels in poland than in germany respondents in both countries are willing to accept new turbines in their vicinity if they can participate in decision making the turbines are owned by a group of citizens and if the generated electricity is consumed in the region instead of being exported overall participatory justice is more important than distributive justice confirming previous results we also find that respondents who already have turbines in their vicinity show higher acceptance levels than those who are not yet affected thus the negative externalities are likely to be overestimated in the planning and implementation process

japan s financial deregulation and linkage of the gensaki and euroyen deposit markets summary this paper examines whether japan s financial deregulation weakened the linkage between the euroyen and gensaki markets it defines and analyses the linkage of the two markets in terms of the persistence and predictability of yield spreads as well as cross market causality by using johansen tests and an error correction model this paper shows first cross market causality before and after deregulation and second one common trend in interest rates substantial gensaki euroyen yield spreads and a slower response of the one month gensaki euroyen yield spread to a shock after deregulation

us and canadian livestock prices market integration and trade dependence cointegration of canadian and us livestock prices points to the existence of market integration in the period january 1996 to december 2004 trade flows of livestock and beef products were nonexistent between canada and the united states for many months in 2003 and 2004 suggesting market segmentation this lack of trade in beef and livestock was due to livestock beef import bans by both countries due to bovine spongiform encephalopathy it was also determined that canada s trade dependence in livestock and beef is cointegrated with canadian and us livestock prices however as the trade dependence variable is shocked the effects on canadian and us prices are opposite although one would expect that in an integrated market the price responses to an exogenous shock would be similar or statistically identical this result reinforces the case against the use of price cointegration analysis in determining presence or absence of market integration empirical results in this article raise some very difficult q

dissecting the ppp puzzle the unconventional roles of nominal exchange rate and price adjustments the conventional view as expounded by sticky price models is that price adjustment determines the ppp reversion rate this study examines the mechanism by which ppp deviations are corrected nominal exchange rate adjustment not price adjustment is shown to be the key engine governing the speed of ppp convergence moreover nominal exchange rates are found to converge much more slowly than prices with the reversion being driven primarily by nominal exchange rates real exchange rates also revert at a slower rate than prices as identified by the ppp puzzle j econ lit 34 1996 647 c 2003 elsevier b v all rights reserved

domestic and foreign price links in an aggregate supply framework the case of greece abstract using price and wage equations an aggregate supply relationship is derived which relates domestic to foreign prices and output it is shown that among all parameters only the degree of wage indexation matters to the question of whether the nominal exchange rate can affect competitiveness cointegration results support the existence of a long run relationship among the variables of the model which is in conformity with the relationship derived in the theoretical part of the paper empirical analysis a does not confirm relative purchase power parity for greek wholesale price indices and b does not contradict the hypothesis that greek producer prices are homogeneous of degree one in foreign prices

what drives natural gas prices a structural var approach abstract in this study we develop a structural vector autoregressive model var for the german natural gas market our setup allows us to analyze the determinants of the natural gas price in a comprehensive framework in particular we illustrate the usefulness of our approach by disentangling the effects of different fundamental influences on gas prices during three recent supply interruptions the russian ukrainian gas dispute of january 2009 the libyan civil war in 2011 and the withheld russian exports in february 2012 our results show that the natural gas price is affected by temperature storage and supply shortfalls in the short term while the long term development is closely tied to both crude oil and coal prices capturing the economic climate and the substitution relationship between the different energy commodities

the common trend and transitory dynamics in real exchange rate fluctuations this study examines the behaviour of both common trend ct and transitory components of real exchange rate rer fluctuations under the current float the ct component is in most cases found to be sizeable albeit its relative importance can vary considerably across major currencies and its estimate can be sensitive to whether or not long run purchasing power parity ppp is imposed on the data further analysis suggests that both ct and transitory innovations are linked much more to interest rate changes than to productivity changes accordingly it is interest rate not productivity disturbances that drive the highly persistent rer

testing the expectations hypothesis when interest rates are near integrated nominal interest rates are unlikely to be generated by unit root processes using data on short and long interest rates from eight developed and six emerging economies we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated if the null hypothesis of no cointegration is rejected we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis the results show support for cointegration in 10 of the 14 countries we consider and the cointegrating vector is similar across countries however the parameters differ from those suggested by theory we relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia

a pension promise to oneself saving for retirement is not hopeless well run db pension plans provided retirement income for generations when plans failed it is because they broke the rules the same applies to individuals by understanding a set of rules on how much to save and how to invest and then sticking to those rules that is by making a pension promise to oneself retirement income goals can be met fulfilling this promise requires more saving than most people are accustomed to

testing for a break in the persistence in yield spreads of emu government bonds this study tests for a break in the persistence of emu government bond yield spreads examining data from france italy and spain and using german interest rates as a kind of benchmark the results reported here provide evidence for breaks between 2006 and 2008 the persistence of the yield spreads against german government bonds has increased signicantly after this period this could be a sign of higher sovereign credit risk and possibly even redenomination risk caused by the debt crisis in the euro area we nd long memory behavior before and after the breakpoints and empirical evidence for positive excess kurtosis and garch eects when persistence

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

the impact of food scares on price adjustment in the uk beef market abstract this paper considers the impact of food scares predominately concerns relating to bse on uk beef prices at retail wholesale and producer levels over the 1990s acknowledging the co movement that exists between prices in the meat marketing chain we use a co integrating framework the results of which show the importance of publicity regarding the safety of food in the transmission of beef prices in the uk the food publicity index that we use has a marked negative impact on the prices at all levels a result that is consistent with the effect of an inward shift in the demand function moreover the extent of price decline varies between the marketing stages entailing that the price spreads rise in response to an increase in the negative publicity about food safety while not a formal test of market power these observations are consistent with recent theoretical results demonstrating that market power exacerbates price changes in the upstream sectors for a given change in the retail demand function the implication of these varying price changes is that the food safety concerns also cause the marketing margins between the stages to widen the uk s competition commission has recently investigated the abuse of market power in the food sector inspired largely by this specific issue

dynamic linkages among real interest rates in international capital markets abstract short run and long run dynamic linkages among weekly real interest rates for g 10 countries are examined using a variety of time series tests these tests give special attention to the time series properties of nominal interest rates ex ante expected rates of inflation and real interest rates term structure information is used to recover a theoretically consistent measure of ex ante expected inflation in sample and out of sample granger causality tests are also examined to evaluate lead lag relationships among real interest rates the results provide strong support for well integrated markets particularly in the long run the results imply leadership roles for the us in international asset markets

common trends and common cycles in regional crime this paper uses the vahid and engle journal of applied econometrics 8 341 360 1993 common trend common cycle approach to model the dynamics of regional crime rates in england over the period

international real interest rate equalization a multivariate time series approach this paper investigates the dynamic behaviour of monthly ex post real interest rates from several countries over the period 1980 to 1991 it is found that real interest rates are stationary over this period and that deviations from real interest parity are significant in the short run but disappear in the long run the latter evidence is established using the concept of co dependent time series proposed by gourieroux and peaucelle 1989 for the analysis of multivariate stationary time series

the term structure of interest rates in the new and prospective eu countries this article uses cointegration and common trends techniques to investigate empirically the expectations hypothesis of the term structure of interest rates for the 10 new eu countries along with bulgaria and romania the empirical results support the expectations theory of the term structure for all countries except malta by decomposing each term structure into its transitory and permanent components we also analyse short run and long run interdependence among the term structures of interest rates in these countries our results indicate only weak linkages among the term structures of the 10 new eu countries and strong linkages between bulgaria and romania joined the eu in 2007

planning of renewables schemes deliberative and fair decision making on landscape issues instead of reproachful accusations of non cooperation abstract the main issues related to successful implementation policies concern the socio economic institutions that are conditional to planning in the energy policy domain but also in the domain of spatial planning successful investments and the siting of renewable power plants eventually determine the success rate of national efforts in establishing renewable capacity central planning usually has several objectives and these often have a detrimental effect on the goal of renewable energy application current problems related to implementation decisions concerning wind power schemes are an example to those who will be faced by other renewable power plants notably biomass regarding community acceptance of wind power schemes the visual evaluation of the impact of wind power on the values of the landscape is by far the most dominant factor in explaining opposition or support type of landscape fully overshadows other attitudinal attributes as well as other visual and scenic factors such as the design of wind turbines and wind farms and the number and the size of turbines planning regimes and decision making practices that really enhance the implementation processes of renewable energy require strong ecological modernization this means institutional changes that create involvement and trust of actors at the actual implementation level local opposition cannot be explained by the egotistical motives of local residents when the inclination to behave according to supposed backyard motives is investigated the scale to measure this phenomenon appears to indicate commitment to equity issues and fairness of decision making hence for wind power local involvement to represent the local values of site specific landscapes is crucial for other renewables the source specific features are different but conflicts can be expected as well because the fairness of implementation decisions will be equally significant

valuing swiss default free callable bonds abstract a model to price the call features embedded in swiss riskless callable bonds is developed the model accounts for the time dependent variance of bond returns the specific exercise conditions of this long term non traded call option and the incompleteness of the swiss bond market empirical results show that the call feature s price is particularly sensitive to the riskless rate and variance specifications illiquidity explains some cross sectional call pricing biases found in this study but the underpricing of ordinary versus callable bonds cannot be excluded

local acceptance of renewable energy a case study from southeast germany the european 20 20 20 goals as well as national targets for the next decade require a substantial increase in installed renewable capacity in germany while public support for such measures is high on an abstract level the situation in the local context is often very different here the impact of renewable energy might cause resistance empirical research shows that a community ownership model can have a positive effect on local acceptance our study explores whether such an effect can also be demonstrated in a community co ownership model the question is relevant since larger projects exceed the financial possibilities of most communities leaving them with only co ownership as an option the research design is based on a comparative case study utilizing a questionnaire based survey the results of the survey clearly show that a significant difference in local acceptance exists between the two cases the residents of zschadras where a community co ownership model exists are consistently more positive towards local renewable energy and also towards renewable energy in general the results provide evidence that the co ownership model is a means to reconcile local acceptance with an increased use of renewable energy in germany

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

timber price dynamics following a natural catastrophe catastrophic shocks to existing stocks of a renewable resource can cause long run price shifts with timber these long run price shifts may be accompanied by a short run price drop due to salvage hurricane hugo damaged 20 of southern pine timber in the south carolina coastal plain in 1989 to estimate the short and long run effects of the hurricane on the prices of timber stocks we estimated an intervention model of the residuals of cointegration of south carolina sawtimber and pulpwood stumpage prices with prices of similar products from other regions modeling revealed a 30 negative price spike due to salvage and a long run enhancement effect leading to prices that are 10 to 30 higher than they would have been had hugo not occurred

making retirement income last a lifetime to enable investors to spend down the assets in their defined contribution accounts more easily the authors propose a decumulation benchmark comprising a laddered portfolio of tips for the first 20 years consuming 88 percent of available capital and a deferred life annuity purchased with the remaining 12 percent this portfolio can be used directly by the investor akin to indexing or as a benchmark for evaluating the performance of a more aggressive strategy

monetary transmission in spain a structural cointegrated var approach this paper analyses the monetary policy channels in spain using a cointegrated structural var approach which explicitly accounts for endogenous policy reactions in a small open economy evidence is found of one cointegrating relation which is identified as a long run money demand function in addition stability tests are applied to this relationship to assess whether there has been a change of monetary regime the impulse responses for the non monetary shocks as well as the absence of the puzzles traditionally found in the empirical literature suggest that the model specification identifies the monetary policy shocks correctly thus according to our results a monetary contraction causes a weak downward response in the price level as well as an increase in both short and long run nominal interest rates a decrease in aggregate output and an exchange rate appreciation

interest rate linkages within the european monetary system further analysis j costas karfakis and demetrios m moschos 1990 examine the interest rate linkages within the european monetary system ems concluding that the german interest rate plays a dominate role within the ems the authors reexamine the interest rate linkages within the ems with the addition of the interest rate of the united states their results suggest that both the united states and german interest rates play an important but not dominant role in ems interest rate linkages copyright 1993 by ohio state university press

are central bank policy rates in africa cointegrated evidence from a fractional cointegration approach we analyse bilateral linkages between central bank policy rates in africa and the us the uk japan canada china and the eurozone using fractional integration and cointegration univariate analys

interest rate linkages in the eurocurrency market contemporaneous and out of sample granger causality tests abstract this paper examines linkages among major eurocurrency interest rates during 1994 2002 eurocurrency interest rate causal linkages are found to be much stronger with additional allowance for contemporaneous causality test results than the inference based solely on granger causality tests the impact of u s interest rates is clearly not dominant in the eurocurrency markets while the japanese interest rates are found to be quite influential german interest rates both cause and are caused by several other eurocurrency interest rates by contrast interest rates on the new currency the euro do not have a substantial influence on other eurocurrency interest rates which underscores its emerging status

linkages among interest rates in the united states germany and norway the johansen multivariate cointegration methodology is used to analyze relationships among short term and long term interest rates in the united states germany and norway a variance decomposition approach is applied to estimate the proportion of each interest rate s forecast error variance attributable to innovations in the other interest rates impulse response functions are plotted to illustrate the speed with which interest rate events are transmitted between capital markets the analyses illustrate that us interest rates have a significant influence on both german and norwegian interest rates while the reverse effect is modest norway is also strongly exposed to german interest rate movements which reflects the consequences of a small country linking its currency to the value of european currencies

willingness to accept local wind energy development does the compensation mechanism matter wind power development projects often include compensation for the affected communities but little is known about the efficacy of the alternative compensation mechanisms this study addresses this question by examining the relative potential of private and public compensation we conduct a choice experiment ce that investigates household preferences of compensation for the local siting of a hypothetical wind park households chose among different alternatives where each alternative was characterized by three varying attributes the number of turbines the level of private compensation and the level of public compensation results indicate the wind park imposes welfare losses to local residents and non local recreational users with about 35 of these losses corresponding to non use values findings show that households prefer public compensation to private compensation with household s willingness to accept being lower with public compensation than private compensation this finding suggests that estimates of local resistance to wind development depends on the compensation mechanism

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

some evidence on the international inequality of real interest rates abstract this paper undertakes econometric tests of the hypothesis that ex ante real interest rates are equal across countries with highly integrated capital markets the issue is of practical importance because the violation of real rate equality is a necessary condition for monetary policy to influence the open economy through the real interest rate channel although an empirical literature concerning real rate equality already exists previous investigators have focused on pre tax real rates this paper contributes to the literature by attempting to incorporate the effects of taxation into the analysis

a systematic framework for analyzing the dynamic effects of permanent and transitory shocks this paper proposes a systematic framework for analyzing the dynamic e ects of permanent and transitory shocks on a system of n economic variables we consider a two step orthogonolization on the residuals of a vecm with r cointegrating vectors the rst step separates the permanent from the transitory shocks and the second step isolates n r mutually uncorrelated permanent shocks and r transitory shocks the decomposition is computationally straightforward and entails only a minor modi cation to the choleski decomposition commonly used in the literature we then show how impulse response functions can be constructed to trace out the propagating mechanism of shocks distinguished by their degree of persistence in an empirical example the dynamic responses to the identi ed permanent shocks have properties similar to shocks to productivity the real interest rate and money growth even though no economic

international expected real interest rates new tests of the parity hypothesis and u s fiscal policy effects abstract this paper investigates the links among expected real interest rates across countries and also those between international expected real interest rates and u s fiscal policy we analyze the cross sectional mean of international ex post real interest rates as an estimator for the mean international expected real interest rate our results strongly reject the international expected real interest rate parity hypothesis reveal that u s budget deficits have no independent effects on international real rates given the impact of u s government defense spending and suggest that forces other than u s fiscal policy account for the post 1980 rise in international real rates

trade connections and interest rate linkages among asean japan and the usa an empirical analysis in the existing literature there have been only a limited number of efforts at empirically evaluating the degree of economic connections among asean countries the present study intends to fill this gap the study is conducted through an investigation of regional trade connections and interest rate linkages the results indicate that both the degree of trade interdependence and the interest rate linkages among asean nations are comparable to those among eec and nafta countries singapore plays a key role in asean economic relations different from eec and nafta asean appears to be heavily dependent on japan and the usa the two super economic powers outside the association

the only spending rule article you will ever need after examining an array of approaches to determining a spending rule for retirees the authors propose the annually recalculated virtual annuity each year one should spend at most the amount that a freshly purchased annuity with a purchase price equal to the then current portfolio value and priced at current interest rates and number of years of required cash flows remaining would pay out in that year investors who behave in this way will experience consumption that fluctuates with asset values but they can never run out of money

international interdependence and business cycle transmission between turkey and the european union 1 introduction because of globalization and the asian financial crisis interest in the international linkages and economic comovements between different regions of the world has recently heightened one economic relationship of particular interest is the relationship between turkey and its european neighbors this relationship is important because of turkey s european orientation and because of turkey s long held ambition of joining the european union eu in view of this situation we examine the linkages and comovements of outputs prices interest rates and money supplies between turkey and europe the main question we address here is do the turkish and european economies move together through time that is are their business cycles synchronized three related questions are how or why does this synchronization or comovement take place is there any evidence of business cycle transmission between the european economies and turkey have these comovement relationships changed over time to address these questions we gathered statistics on macroeconomic variables trade linkages capital flows and historical economic events for most of the analysis germany turkey s largest trading partner is used as a proxy for the eu nations because of the limited period of availability of the quarterly data we examine the relationship using both annual and quarterly data using annual data for 1956 1998 and quarterly data for a shorter period from the first quarter of 1981 through the fourth quarter of 1998 we calculate correlations between macroeconomic variables for turkey and germany and perform principal components analysis tests of cointegration and granger causality and a structured vector autoregression svar impulse response analysis using the method of bernanke 1986 and sims 1986 the synchronization issue is investigated through the use of the graphs correlations and principal components analysis the transmission issue is investigated through the use of the granger causality tests and svar impulse response analysis our results show that the business cycle patterns of turkey and europe are quite different indeed in some cases they appear to be almost 180 out of phase in many cases the correlations between the real growth rate of turkey and those of the eu countries are statistically insignificant principal components analysis reveals a large difference between fluctuations in turkey and those in the eu countries associated regressions also show a surprisingly insignificant relationship between the real gdp growth rates for turkey and the eu and between those for turkey and germany however the svar impulse response analysis reveals a modest positive transmission from germany to turkey our conclusion is that although turkey and europe will obviously both benefit from participation in a free trade relationship with each other see harrison rutherford and tarr 1997 because of the absence of synchronization between turkey and the eu it appears that turkey would incur serious stabilization costs if it were to participate in the european monetary union in addition to the transaction benefits of participating in an optimal currency area there are economic stability losses incurred by a country joining an optimal currency area economic costs arise because a country joining an optimal currency area loses its ability to implement an independent exchange rate and monetary policy for income and unemployment stabilization see krugman and obstfeld 2000 hence countries out of sync with the rest of the countries in the group will be continuously affected by inappropriate monetary policy turkish business cycle fluctuations do not display the similarity with european business fluctuations that would make it beneficial for turkey to be a part of the european monetary union at this time 1 on the other hand dissimilarity in business cycles might make it profitable for european investors to invest in turkey for purposes of diversification

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

cointegration tests of the fisher hypothesis with variable trends in the world real interest rate after seventy years the fisher hypothesis has proven to be one of the most durable and influential theories in economics yet after years of debate and testing the empirical accuracy of the proposition remains in question the fisher hypothesis simply states that a one point increase in inflation leads to a one point increase in the nominal interest rate leaving real interest rates unchanged this relationship does not rule out the possibility of other variables influencing the real interest rate or variable trends in the real interest rate arising from sources other than inflation this paper merges the literature on real interest rate parity with tests of the fisher hypothesis to control for variable trends in the real interest rate

price convergence in us cities a cointegration approach with two structural breaks this article investigates how the price indices of major cities of the us respond to the shock from a city and from monetary policy we find that the crisis of bretton woods system in 1968 and the oil crisis in 1974 should be incorporated as structural breaks in monetary policy variables and price indices using cointegration technique with structural break in our aggregated data we find that the average half life is 1 75 years which is closer to what some of others found in disaggregated data and that the interest rate is an effective tool for controlling cities price in short run

international evidence on the sources of macroeconomic fluctuations abstract this paper examines the causes of macroeconomic fluctuations in five economies germany japan sweden the united kingdom and the united states using a bivariate var model for output and inflation the results demonstrate that both demand and supply shocks are important sources of business cycle fluctuations moreover at the business cycle frequency there are strong similarities between germany the united kingdom and the united states where more than 50 percent of the forecast error variance in both output and inflation are due to supply shocks on the other hand in japan and sweden over 90 percent of the error variance in output and less than 20 percent of the error variance of inflation are due to supply shocks

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

a money demand system for euro area m3 in order to assess the importance of monetary and financial developments for key macroeconomic variables in the euro area a money demand system for m3 is estimated adopting a structural cointegrating var approach while maintaining a good statistical representation of the data long run relationships are based on economic theory by using generalized response profiles the dynamics of the money demand system is investigated without any further identifying assumptions error bounds of the profiles are derived using bootstrap simulations

stock market returns in an emerging financial market turkish case study increased globalization in financial markets implies that the percentage of all shares under foreign ownership in domestic stock markets has been rising the recent speculative attacks on the foreign exchange market in november 2000 followed by february 2001 led turkey into a deep economic crisis real stock returns as an important indicator for a forthcoming or pending financial crisis using net capital flows have already been established in gazioglu 2003 in this article we explore the effects of capital inflows and outflows to real exchange rates and the real stock market returns before and after the financial crisis we investigate the relationship between real exchange rate real stock returns and capital flows we decompose the foreign flows into real assets and liabilities in order to investigate the possible long term effect of inflows and outflows empirical investigation shows that the long term relationship only appears between the real exchange rates and the real bank liabilities owned

convergence to the long run equilibrium the case of natural gas markets abstract intuitively the persistence of a shock may last longer in futures contracts with a longer maturity estimation of the speed with which different contract lengths converges to the long run equilibrium following a shock provides a means for comparing the informational efficiency of the contracts standard empirical investigation of the response of a market to a shock utilizes impulse response analysis however this analysis is problematic since there is not a unique variance covariance decomposition pesaran and shin pesaran m h shin y 1996 cointegration and speed of convergence to equilibrium j econ 71 117 143 introduced an alternative to the standard impulse response analysis the persistence profile by estimating the one step ahead forecast error for the entire system the persistence profile provides a unique measure of the effect of the shock this paper empirically estimates persistence profiles for the natural gas futures market the findings indicate that the persistence of a shock does increase with the contract length

on some international parity conditions an empirical investigation abstract this paper investigates weak semi strong and strong forms of the following international parity conditions a uncovered interest parity b the hypothesis of equal ex ante real interest rates and c ex ante purchasing power parity the main results are as follows using data which roughly cover the 1975 1984 decade we find little evidence in favor of the strong form of the parity conditions under consideration however most test results are consistent with the weak forms finally regarding the semi strong forms the results are mixed

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

capital market integration in the pacific basin region an impulse response analysis abstract we examine the extent of capital market integration in a group of pacific basin countries following the deregulation of their markets and explore whether the financial influence of japan in the region has overtaken that of the us looking at long run comovements of real interest rates through the use of cointegration and using impulse response analysis to examine the speed of adjustment of real interest rates to long run equilibrium following a shock in one of the markets which is another indicator of the degree of capital market integration we find that these countries are closely linked with world financial markets and more so with japan than with us

measuring global money market interrelationships an investigation of five major world currencies abstract this paper extends the study of global money market integration in two primary directions first a technique which combines stationarity and cointegration tests as a basis for constructing an error correction model is applied to assess the existence of long run equilibrium relationships between money market series second analysis for the increasingly significant asian offshore markets of singapore and hong kong is added to traditional european and national markets analysis major findings are 1 the error correction model is an appropriate technique for identifying causality relationships and 2 major domestic markets and included offshore markets are partially segmented

origins and consequences of changes in u s corporate taxation 1981 1998 foreign direct investment hat u s corporate tax policy is partly determined by partisan and organizational forces as well as by domestic economic forces is a standard theoretical view scholars find that democratic presidential administrations have differed from republican administrations in that the former tended to increase the tax burdens of corporate taxpayers other studies report that increasing business political activity has had an ameliorating effect on business tax burdens on the economic side corporate tax policy is counter cyclical investment inducing and linked with growth and investment in long run structural relationships in at least two important ways however the structure of the american economy differed in the 1980s and 1990s from earlier periods first the u s economy internationalized with the oil shocks of the 1970 s serving as globalization s annunciation second economic agents became increasingly sophisticated in anticipating how governments would respond to economic events and how these government policies would in turn affect economic events the rational expectations revolution led president reagan among others to conclude that traditional u s macroeconomic policies were ineffective some scholars argue that these structural shifts changed the dynamics of u s corporate tax policy they theorize that in open economies like the

the multi market analysis of a housing price transmission model in this article we examine dynamic relationships among housing prices from four firsttier cities in china from december 2000 to may 2010 and present an equilibrium model of housing price in multi markets by explicitly incorporating and modelling endogenous price series in competing housing markets our empirical model is able to capture the existence of long run equilibrium relationships and important short run dynamics and price structures such as price leadership price transmission lag and asymmetric price responses such multi market analysis has generalized implications and can easily be applied to analyse the pricing dynamics among other real estate markets in the world our major contribution lies in two aspects first we employ an error correction model ecm with directed acyclic graphs dag to study the price dynamics in the four largest and key housing markets in china second we uncover a price transmission among these housing markets in china and provide an insightful understanding of price adjustment across markets the revealed effective price transmission and high correlation among these different markets actually is not a good thing for a stable financial system and for the defence against price bubbles in the housing market

the real interest rate a multi country empirical study how real interest rates behave over time is critical to our understanding of many macroeconomic issues and much recent research has pursued this question very little of the research however has focused on real interest rates outside the united states this paper is an empirical exploration of real interest rate movements in seven oecd countries from 1967 ii to 1979 ii further research is needed on real rates in other countries for several reasons not only are measures of foreign real rates of interest in their ownright but extending an analysis of real rates to other countries also has the following additional benefits it can generate more powerful statistical tests of propositions previously tested on u s data and yield information on whether results found for the u s hold up in other countries this study pursues several questions that have arisen naturally from this earlier work is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries does the real rate decline with increased inflation and money growth in other countries besides the united states how reliable is the fisher effect in which nominal interestrates reflect changes in expected inflation are movements in nominal interest rates a reliable indicator of movements in real rates what kind of variationsin real interest rates are there in different countries have real rates declined from the 60s to the 70s for other countries besides the u s this abstract was borrowed from another version of this item

impulse response analysis of cointegrated systems abstract impulse response or dynamic multiplier analysis of vector autoregressive systems with cointegrated variables is considered the asymptotic distribution of the responses estimated with johansen s 1988 maximum likelihood procedure is derived the results are illustrated with an analysis of a west german money demand system the investigation shows that a direct interpretation of the cointegration relations may be difficult or misleading thereby the virtue of impulse response analysis for applied work is illustrated

a long run view of german dominance and the degree of policy convergence in the ems i introduction when the european monetary system ems was established in march 1979 the member countries agreed to gradually move to a european monetary union emu at the maastricht summit on december 9 10 1991 the member nations signed an agreement outlining the requirements and a timetable for monetary union building upon the framework specified in the 1989 delors report the maastricht agreement outlines a three stage transition to a common european monetary policy 1 the achievement of a high degree of monetary policy convergence among the member countries is crucial if a common monetary policy is to be initiated the ems already provides a framework in which monetary policy actions can be coordinated but have member nations actually coordinated their actions or have they conducted independent policies some have claimed that the bundesbank has dominated monetary policy in the ems one explanation is that by tying domestic monetary policy to that of germany other countries policymakers enhance their own credibility for instance giavazzi and pagano 1988 have argued that because the bundesbank is known to follow a consistent credible anti inflation policy tying policy to that of germany should enhance one s reputation a natural question to ask therefore is to what degree have monetary policies in the ems converged to that conducted by germany a finding of complete convergence among ems monetary policies would imply that the member countries have converged to one common monetary policy in studies examining the credibility hypothesis which clearly is linked to the notion of monetary policy convergence fratianni and von hagen 1990c and burdekin westbrook and willett 1993 rejected this hypothesis 2 to consider the prospects for the success of emu one must know whether and to what degree there has been a transmission of policy actions within the ems the question of whether germany has set the direction of monetary policy for the ems is a natural focus and has been the subject of recent study fratianni and von hagen 1990a 1990b 1990c von hagen and fratianni 1990 and kutan 1991 1992 all reject the hypothesis that german monetary policy actions dominate the monetary policy decisions of other ems countries 3 while germany is found to be an important player in setting monetary policy its actions are not independent of other members in contrast to this conclusion karfakis and moschos 1990 and macdonald and taylor 1991 argue that non german ems members policies are related closely to german policy changes and that german policy actions do not respond to those taken by the central banks of other ems countries this study tests for policy convergence among ems countries within a long run framework using cointegration procedures using both short term interest rates and the monetary base as measures of monetary policy our aim is to determine the number of shared common stochastic trends among ems monetary policies and test whether a complete convergence of policies has been achieved in the ems rejection of complete convergence a finding of two or more shared common trends indicates that some countries policies are set independently at least in the long run if this is true then the notion that the bundesbank dominates ems policy is rejected such a result also suggests that any credibility gain from tying policy to that of germany is probably outweighed by other considerations such as domestic growth or international competitiveness looking ahead our results indicate that ems monetary policies have not converged we also investigate the short run connection among policy measures using a longer sample than in previous work our results from this analysis indicate that while german policy actions influence monetary policy in other ems countries in the short run there is substantial policy interaction among ems members the format of the paper is as follows section ii discusses some methodological issues concerning the use of interest rates and the monetary base as indicators of policy actions

european monetary union a cointegration analysis this paper employs systems based cointegration techniques developed by johansen 1988 1995 to determine which european union countries would form a successful economic and monetary union emu based on long run behavior of the nominal convergence criteria laid down in the maastricht treaty the original 12 european union countries are analyzed together nominal exchange rates real exchange rates longterm interest rates and government budget deficits are each analyzed for co movements among the 12 countries and various subgroups of them the results suggest that not all of the 12 original countries of the european union could possibly form a successful emu over time unless several countries made significant adjustments

the international price transmission in stock index futures markets i introduction numerous studies have investigated market linkages and price transmission mechanisms in major international equity markets employing the analytical framework of the vector autoregression var or its variant the error correction model ecm 1 studies such as von furstenberg and jeon 1989 eun and shim 1989 and koch and koch 1991 focus on the short run dynamic pattern of price transmission others like taylor and tonks 1989 and francis and leachman 1998 are primarily interested in the long run pattern of price transmission more recently an increasing number of studies explore both long and short run patterns of price transmission included in this last set are the works of malliaris and urrutia 1992 arshanapalli and doukas 1993 masih and masih 2001 and bessler and yang 2003 among others this study extends the examination of international price transmission to stock index futures markets the article contributes to the existing literature in three aspects first a relatively new empirical framework is applied to allow for inferences of price transmission at three different time horizons instantaneous the short run and the long run building on recent advances in statistical analysis of causal modeling using directed acyclic graphs dags as in spirtes et al 2000 pearl 1995 2000 and swanson and granger 1997 this study is able to explore the contemporaneous causal pattern underlying the correlations among market innovations the existence of strong contemporaneous correlations among market innovations has been well documented in the united states and international stock markets by agmon 1972 eun and shim 1989 koch and koch 1991 housbrouk 1995 and bessler and yang 2003 it is also well recognized by agmon 1972 849 and eun and shim 1989 246 that contemporaneous correlations among market innovations reflect the phenomenon that new information in one market is transmitted and shared by other markets in contemporaneous time due to immediate response to price changes between markets however more in depth analysis on exactly how instantaneous price transmission among market innovations is conducted in international equity markets has not yet been well addressed in the existing literature although bessler and yang 2003 touch on the issue the necessity of imposing constraints in the spirit of the block recursive structure noted by koch and koch 1991 in the dag analysis of var innovations is proposed and discussed thoroughly in this study second innovation accounting analysis is more thoroughly explored in the study innovation accounting tools i e impulse response analysis and forecast error variance decomposition have been commonly used to summarize the dynamic pattern of price transmission among international financial markets the importance of the factorization of innovations i e var residuals in yielding sound inference has been well acknowledged theoretically by bernanke 1986 sims 1986 and swanson and granger 1997 the application of the dag technique as discussed in swanson and granger 1997 and explained in the next section is further key to innovation accounting analysis in this study the instantaneous price transmission pattern between market innovations as identified by the dag analysis provides a data determined solution to the basic problem of orthogonalization of residuals from the ecm and thus is critical to impulse response analysis or forecast error variance decompositions swanson and granger 1997 argue that compared to the choleski decomposition the dag based structural decomposition is sensible but not subjective because it allows for the properties exhibited by the data although several recent studies such as those by bessler and yang 2003 bessler et al 2003 haigh and bessler forthcoming and yang 2003 have used the dag based structural decomposition in a similar setting the study is the first attempt responding to the suggestion by swanson and granger 1997 364 of investigating the empirical implications of the dag based contemporaneous causal modeling