arch and bilinearity as competing models for nonlinear dependence in this article we consider whether the wide acceptance of autoregressive conditional heteroscedasticity arch models may be at the expense of other nonlinear processes such as bilinear models we first propose a joint test for arch and bilinearity a nonnested test is then suggested to determine whether nonlinear dependence should be attributed to arch or bilinearity the tests are then applied to three series when generalized arch garch models are taken as the null hypothesis we fail to reject it for all the data series when bilinearity is taken as the null however it is rejected in two cases moreover an out of sample forecasting exercise shows that the garch model is superior the results therefore indicate a strong preference for the garch model

retaliation bargaining and the pursuit of free and fair trade that domestic political economic factors are important determinants of a nation s trade barriers has been empirically well established however the question of how effective strategically retaliatory trade barriers are in deterring foreign protectionism has received far less systematic empirical attention in this article we use bilateral nontariff barrier ntb data between the united states and five developed partner countries japan france germany italy and the united kingdom to systematically examine the effectiveness of strategic retaliation we employ a simultaneous tobit model where the home and foreign ntb levels are determined endogenously in a bilateral game the model provides estimates of deterrence coefficients that is the reduction in foreign trade barriers as a result of u s retaliation which we use to characterize the nature of bilateral ntb games our hope is that the empirical results presented here which have realistic though controversial implications will inform u s trade policy

detecting multiple breaks in financial market volatility dynamics the paper evaluates the performance of several recently proposed tests for structural breaks in the conditional variance dynamics of asset returns the tests apply to the class of arch and sv type processes as well as data driven volatility estimators using high frequency data in addition to testing for the presence of breaks the statistics identify the number and location of multiple breaks we study the size and power of the new tests for detecting breaks in the conditional variance under various realistic univariate heteroscedastic models change point hypotheses and sampling schemes the paper concludes with an empirical analysis using data from the stock and fx markets for which we find multiple breaks associated with the asian and russian financial crises these events resulted in changes in the dynamics of volatility of asset returns in the samples prior and post the breaks copyright 2002 john wiley sons ltd

constructing bounds on per capita income differentials across countries the results of purchasing power parity ppp based comparisons of income across countries can be quite sensitive to the choice of index number formula tighter bounds on per capita income differentials can be constructed either by assuming homothetic preferences or by estimating a demand system both approaches are used to construct bounds on per capita income differentials across the oecd countries the paper concludes by discussing the strengths and weaknesses of each approach

outliers and garch models in financial data abstract we propose to extend the additive outlier ao identification procedure developed by franses and ghijsels franses p h ghijsels h 1999 additive outliers garch and forecasting volatility international journal of forecasting 15 1 9 to take into account the innovative outliers ios in a garch model we apply it to three daily stock market indexes and examine the effects of outliers on the diagnostics of normality

breaks and outliers when modelling the volatility of the u s stock market this study analyses volatility persistence of the u s stock market after taking into account the role of breaks and outliers by employing a wavelet based algorithm it identifies several outliers which are comfortably associated with major events such as the black monday and the asian crisis there is also evidence of clustering of breaks and a substantial variation in the properties of the identified segments

comparative studies of national incomes and prices income comparisons between persons or groups of persons in different countries are a special field of inquiry mainly because there are different currency units for the most part the other theoretical and empirical problems encountered in international income comparisons are similar to those of within nation comparisons between different persons at the same time or different groups of persons either interspatially or what is more common intertemporally e g constant price series of national income the qualifications mainly and for the most part are included because some writers hold that international comparisons are complicated or even invalidated by differences in consumption patterns sometimes differences in tastes are held to underlie these variations in consumption patterns variations that are often much larger between countries than those found between regions within a country or between different periods in the same country this essay focuses in its methodological aspects on these special problems the basic problems that are common to international and within nation comparisons are left to the standard literature on national accounts 2 we turn now to the currency unit problems and reserve the question of tastes for a later section

group cost of living indexes when households have different consumption patterns whose cost of living should an actual price index represent this issue was first raised by j l nicholson and s j prais in the 1950 s both made essentially the same point official price indexes give each household s consumption pattern an implicit weight proportional to its total expenditures see nicholson p 540 prais calls such an index plutocratic and both nicholson and prais suggest an alternative democratic price index which gives all households equal weight a group cost of living index is an index that measures the impact of price changes on the welfare of a group or population of households to define such an index requires an explicit or implicit concept of the welfare of a group and hence requires interpersonal comparison and distributional judgments since group indexes such as the consumer price index play an important role in our perception of inflation and the formation of macro economic policy and are used to escalate wages and social security benefits they have significant effects on government decisions and economic welfare despite their intellectual interest and practical importance however until recently they have been virtually ignored by index number theorists the theory of the cost of living index cli provides a generally accepted framework for measuring the impact of price changes on the welfare of a particular household this paper extends the cli concept to groups and discusses which questions require group indexes and which do not i begin by introducing some notation and terminology in the context of household clis a household s cli is the ratio of the expenditures required to attain a particular base indifference curve in two price situations suppose there are n goods and s households and denote the preference ordering of the rth household by r r the base indifference curve can be identified by a goods collection xro which lies on it the expenditure function er p xr rr shows the minimum expenditure required to attain the base indifference curve at prices p the cli of the rth household ir pa pb xrorr is the ratio of the minimum expenditure required to attain the base indifference curve at prices pa comparison prices to that required at prices pb reference prices except in very special cases the value of the cli depends on the base indifference curve at which it is evaluated as successively higher base indifference curves are specified one would expect the prices of luxuries to become more important relative to the prices of necessities hence it is convenient to regard the cli as a function of the base indifference curve rather than as a single number corresponding to a particular base thus instead of offering guidance in choosing an appropriate base indifference curve theory suggests that there is no need to choose to construct the exact cli an investigator needs to know the household s preferences lacking this knowledge he rnust fall back on indexes which require less information and which are upper bounds on the exact index the laspeyres index jr papbxrb is the ratio of the cost of purchasing the reference period consumption basket at comparison prices to its cost

bounded influence estimator for garch models evidence from foreign exchange rates previous research indicates that the maximum likelihood estimates of generalized autoregressive conditional heteroscedasticity garch models on foreign exchange rates under various distributional assumptions are sensitive to the presence of outliers the advantage of the proposed bounded influence estimator bie is that it limits the influence of a small subset of data and is asymptotically normal the bie provides more consistent and robust estimates than maximum likelihood estimator mle and semi parametric estimator both of which tend to underestimate volatility persistence due to outliers it is thus robust to outliers and model misspecification results of bie estimates of garch models on the exchange rate series of five major currencies indicate that bie offers an efficient mechanism for down weighting outlying observations and is a competitive alternative to mle

the social cost of living index abstract household cost of living indexes reflect household preferences analogous indexes for groups of households require a corresponding concept of group preferences in this paper i investigate the social cost of living index a group index based on the bergson samuelson social welfare function i first define the index and examine its properties under the assumption that the investigator constructing it expresses his distributional judgments in an explicit bergson samuelson social welfare function i then examine the maximizing society and the independent society two cases in which the index can be constructed from the information contained in the market demand functions in these two cases a laspeyres index i e the fixed weight index based on the reference consumption pattern is an upper bound on the exact social cost of living index in general however the assumptions required to place bounds on the social cost of living index are much more likely to be satisfied than those required to place analogous bounds on a household s cost of living index

what impact does the choice of formula have on international comparisons in this paper an empirical comparison of a number of alternative multilateral index number formulae is undertaken the magnitude of the effect of choosing one formula over another is ascertained using an appropriate cross sectional data set constructed under the auspices of the eurostat oecd purchasing power parity programme to this end a new indicator is proposed that facilitates the measurement of the difference between two sets of bloc consumption shares each computed using a different multilateral comparison method jel classification c31 c43 c81 e31 f31 o57 quel impact est ce que le choix des formules a sur les comparaisons internationales ce memoire propose une comparaison empirique d un certain nombre de formules de nombres indices multilateraux on tente de jauger la magnitude de l impact du choix d une formule plutot qu une autre en utilisant une base de donnees transversales appropriee construite sous l egide du programme de parite du pouvoir d achat eurostat ocde on propose un nouvel indicateur qui facilite la mesure de la difference entre deux ensembles de patterns de consommation chacun calculea l aide d une methode de comparaison multilaterale differente

the treatment of quality in the cost of living index abstract this paper develops the implications of cost of living index theory for measuring the impact of changes in the availability and prices of goods on a household s welfare it considers both the goods approach which treats each variety as a separate entity and two characteristics approaches l characteristics and h characteristics l characteristics are lancaster s linear and additive specification h characteristics are houthakker s heterogeneous specification in which the household consumes only a single variety of each product the paper concludes by discussing the implications of the theory for actual index number construction and relating it to the literature on quality and hedonic indexes

a restricted domain multilateral test approach to the theory of international comparisons this article develops a novel multilateral test approach to the problem of international comparisons many of the associated tests are justified as reasonable using the fact that they are direct analogues to properties of the cost of living index further support is bestowed upon the new approach by showing that it is equivalent to an extended version of diewert s 1986 multilateral test approach finally a number of alternative multilateral comparison formulas are evaluated and the relative superiority of two of them is established

ideology interests and the american executive toward a theory of foreign competition and manufacturing trade policy faced with a formidable competitiveness problem the american government chief executive appeared to offer a series of ad hoc responses in the 1980s contrarily this article suggests that executive responses to foreign economic challenges follow a predictable pattern pointing to the interactive effects of ideology and interest this article argues that both the degree and type of executive response be it in the form of market opening strategies of temporary or permanent forms of protectionism or of adopting a laissez faire approach can be predicted based on two factors whether a sector is characterized as high tech and whether it is considered to be competitive a major implication of this argument is that the u s chief executive has used trade policy as a surrogate for industrial policy but in so doing the strategic considerations associated with industrial policies have been bypassed the major effect is that the executive fails to intervene only in the realm of an infant industry policy the area most likely to generate a dynamic economy the product of this combiantion of protectionist policies is a stagnant economy that we term compromise protectionism

the common scaling social cost of living index if preferences or budgets are heterogeneous across people as they clearly are then individual cost of living indexes are also heterogeneous thus any social cost of living index faces an aggregation problem in this article we provide a solution to this problem that we call a common scaling social cost of living index cs scoli in addition we describe nonparametric methods for estimating such social cost of living indexes as an application we consider changes in the social cost of living in the u s between 1988 and 2000

large shocks small shocks and economic fluctuations outliers in macroeconomic time series summary we analyse fifteen post world war i1 us macroeconomic time series using a modified outlier identification procedure based on tsay 1988a large shocks appear to be present in all the series we examined furthermore there are three basic outlier patterns i outliers seem to be associated with business cycles 2 outliers are clustered together both over time and across series 3 there appears to be a dichotomy between outlier behaviour of real versus nominal series also after controlling for outliers much of the evidence of non linearity in many of the time series is eliminated

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

rocks hard places and the new protectionism textile trade policy choices in the united states and japan why have advanced industrial countries responded with different types of protectionist policy to postwar international competition and the resulting societal pressure for state action in contrast to the across the board tariff wars of the 1930s postwar protectionism is a patchwork of tariffs unilateral and nonunilateral quotas administrative restrictions state subsidies and production cartels arguments based on international economic structure international regimes statist approaches and domestic structure all appear to have difficulty in accounting for divergent trade policy choices this article introduces a more nuanced identification and integration of the international and domestic sources of the new protectionism an examination of textile trade policy in the united states and japan reveals that when state policymakers face conflicting international constraints and domestic pressure over the use of overt types of protectionist policy the greater the domestic pressure the more overt the policy response

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

the consumer price index a research agenda and three proposals this paper argues that dealing with current concerns about the cpi within the framework of economic theory requires developing the theory of the cost of living index under more general assumptions than have thus far been standard it examines three neglected but critical issues that should rank high on the research agenda because of their practical implications for index number construction whose cost of living index why shop and what is a good it concludes by discussing the intersection between the technical problems of constructing the cpi and the political problems of indexing taxes and transfers

aggregate price indices new goods and generics this paper examines the appropriate treatment in the cost of living index of the appearance of new varieties of old goods existing theory here applies to individual households thus we first show in what sense laspeyres and paasche indices for groups of households can be considered approximations to theoretically desirable group indices and then go on to the case of new goods we apply our results to the case of the introduction of generics in pharmaceuticals and show that proper treatment can make a considerable difference

cost of living indexes and demographic change the consumer price index cpi although not without problems is the most often used mechanism for adjusting contracts for cost of living changes in the us the us bureau of labor statistics lists several problems associated with using the cpi as a cost of living index where the proportion of 2 worker families is increasing population is shifting and work week hours are changing this study shows how to compute cost of living indexes which are inexpensive to update use less restrictive assumptions about consumer preferences do not require statistical estimation and handle the problem of increasing numbers of families where both the husband and wife work this study attempts to how widely in fact the cpi varies with alternative true cost of living varies with alternative true cost of living indexes although in the end this de facto cost of living measure holds up quite well in times of severe price inflation people change their preferences by substitution necessitating a flexible cost of living index that accounts for this fundamental economic behavior

estimating garch volatility in the presence of outliers garch volatilities depend on the unconditional variance which is a non linear function of the parameters consequently they can have larger biases than estimated parameters using robust methods to estimate both parameters and volatilities is shown to outperform maximum likelihood procedures

free trade fair trade strategic trade and protectionism in the u s congress 1987 88 what conditions led the one hundredth congress of the united states to enact fair trade and strategic trade policies into law during 1987 88 political partisanship is an important force with democrats supporting and republicans opposing all types of trade intervention otherwise the coalitions of support for and opposition to the various trade policies differ particularly in the senate in that body international business is associated with support for fair trade policies and with opposition to classical protectionism while domestic u s business is associated with support for classical protectionism liberalism is strongly associated with support for fair and strategic trade policies but is not associated with classical protectionism in the house of representatives the long standing protectionist coalition remains an influence few forces in support of free trade remain in u s politics changing international market conditions rapidly affect the making of u s trade policy

volatility persistence in crude oil markets financial market participants and policy makers can benefit from a better understanding of how shocks can affect volatility over time this study assesses the impact of structural changes and outliers on volatility persistence of three crude oil markets brent west texas intermediate wti and organization of petroleum exporting countries opec between january 2 1985 and june 17 2011 we identify outliers using a new semi parametric test based on conditional heteroscedasticity models these large shocks can be associated with particular event patterns such as the invasion of kuwait by iraq the operation desert storm the operation desert fox and the global financial crisis as well as opec announcements on production reduction or us announcements on crude inventories we show that outliers can bias i the estimates of the parameters of the equation governing volatility dynamics ii the regularity and non negativity conditions of garch type models garch igarch figarch and hygarch and iii the detection of structural breaks in volatility and thus the estimation of the persistence of the volatility therefore taking into account the outliers on the volatility modelling process may improve the understanding of volatility in crude oil markets

structural vector autoregressions with nonnormal residuals in structural vector autoregressive svar modeling sometimes the identifying restrictions are insufficient for a unique specification of all shocks in this paper it is pointed out that specific distributional assumptions can help in identifying the structural shocks in particular a mixture of normal distributions is considered as a possible model that can be used in this context our model setup enables us to test restrictions which are just identifying in a standard svar framework the results are illustrated using a u s macro data set and a system of u s and european interest rates

getting prices right what should be done much of the profession accepts that the cpi likely overstates the rate of increase of the cost of living it is less clear that there are sound and feasible steps that the bls can adopt to improve matters in the short run there are unresolved conceptual and identification problems in the measurement of quality superlative price indexes are not feasible and feasible approximations are not superlative and may not even be better the need for a single index that aggregates over heterogeneous consumers with different incomes tastes and needs casts serious doubt on the cost of living approach

testing for arch in the presence of additive outliers in this paper we investigate the properties of the lagrange multiplier lm test for autoregressive conditional heteroskedasticity arch and generalized arch garch in the presence of additive outliers ao s we show analytically that both the asymptotic size and power are adversely affected if ao s are neglected the test rejects the null hypothesis of homoskedasticity too often when it is in fact true while the test has difficulty detecting genuine garch effects several monte carlo experiments show that these phenomena occur in small samples as well we design and implement a robust test which has better size and power properties than the conventional test in the presence of ao s applications to the french industrial production series and weekly returns of the spanish peseta us dollar exchange rate reveal that sometimes apparent garch effects may be due to only a small number of outliers and conversely that genuine garch effects can be masked by outliers

between free trade and protectionism strategic trade policy and a theory of corporate trade demands conventional theories of the political economy of trade argue that industries in import competing businesses favor protectionism while multinational firms and export dependent corporations advocate unconditional free trade however many multinational industries have recently advocated strategic trade policies that is they are willing to support free trade at home only if foreign markets are opened or foreign governments reduce subsidies to their firms if demands for strategic trade policy were adopted by the united states they could represent a threat to the general agreement on tariffs and trade gatt and the multilateral trading system this article seeks to explain the emergence of these new corporate trade demands and thereby broaden theories of the political economy of trade the article begins with the widely supported position that multinational and export oriented firms prefer unconditional free trade building on concepts from theories of industrial organization and international trade the article then hypothesizes that rising economies of scale and steep learning curves will necessitate that these firms have access to global markets via exports if growing dependence on world markets is combined with foreign government subsidies or protection the trade preferences of firms will shift from unconditional free trade to demands that openness at home be contingent on openness overseas the manner in which firm demands then get translated into industry demands will vary with the industry s structure if the industry consists of firms with symmetric strategies it will seek strategic trade policy but if the industry is highly segmented it will turn toward protectionism the article concludes with a preliminary test of these hypotheses in four brief studies of the politics of trade in the semiconductor commercial aircraft telecommunications equipment and machine tool industries

large shocks in the volatility of the dow jones industrial average index 1928 2013 we determine the events that cause large shocks in volatility of the djia index over the period 1928 2013 using a new semi parametric test based on conditional heteroscedasticity models we find that these large shocks can be associated with particular events financial crashes elections wars monetary policies etc we show that some shocks are not identified as extraordinary movements by the investors due to their occurring during high volatility episodes especially the 1929 1934 1937 1938 and 2007 2011 periods

world product and income international comparisons of real gross product the volume reports on the third phase of the united nations international comparison project icp the main results provide comparisons of real gross domestic product gdp per capita for thirty four countries in 1975 quantity and price comparisons are given also for personal consumption capital formation and public consumption and further subdivisions of final expenditures on gdp are estimated

a lagrange multiplier test for garch models abstract this paper extends the lagrange multiplier lm test to testing noise disturbances against garch disturbances in the linear regression model the resulting lm test for the garch alternative is identical to the lm test for an arch alternative

working to improve the consumer price index he recent report of the advisory commission appointed by the u s senatefinance committee begins with one overarching recommendation thebls should establish a cost of living index coli as its objective in mea suring consumer prices u s senate 1996 p 2 this seems basically right to us indeed the bls has long said that the cost of living framework guides operationaldecisions about the construction of the index gillingham 1974 u s bureau oflabor statistics 1984 1988 1992 1997a putting things slightly differently if thebls staff or other technical experts knew how to produce a true cost of living indexon a monthly production schedule that would be what we would produce althoughwe have no fundamental disagreement with the commission about what the objec tive of the cpi program ought to be we may disagree to some extent about theapproaches and methods that are appropriate and feasible in working toward thatobjective this is a point to which we will return below our rst purpose in the present paper is to comment on the advisory com mission s report and the recommendations it contains