the hyperinflation model of money demand revisited in this paper we propose a test of the hyperinflation model of money demand which is valid under any assumption concerning agents expectations subject only to the restriction that forecasting errors are stationary it is also demonstrated that highly efficient parameter estimates can be obtained and restrictions on them tested under the same weak assumption finally it is shown how these first stage estimates can be utilized to test the stronger assumption of rational expectations the arguments are illustrated by analysis of the classic data on european hyperinflations previously analyzed by cagan 1956 barro 1970 and abel dornbusch huizinga and marcus 1979 copyright 1991 by ohio state university press

intrinsic bubbles the case of stock prices several puzzling aspects of the behavior of united states stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends the authors call bubbles of this type intrinsic bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors intrinsic bubbles provide a more plausible empirical account of deviations from present value pricing than do the traditional examples of rational bubbles their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods copyright 1991 by american economic association

regime switching and the in stability of the price rent relationship evidence from the us present value models of house prices assert that in the absence of self fulfilling bubbles a house price is equal to the present discount value of all future rents which implies a linear relationship between house price and rent and hence a stable price to rent ratio using a markov switching error correction model we re examine this relationship in the us housing market and find two distinctive regimes one with a long run relation between house price and rent predicted by the present value models and the other in which the relation is nonlinear furthermore we find evidence that deviations of house prices from the present value models predictions are caused by the overreaction of house prices to movements in rents rather than speculative bubbles attributable to extraneous factors

detecting periodically collapsing bubbles a markov switching unit root test this paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals as this is essentially a problem of identifying the collapsing periods from the expanding ones we propose using a generalization of the dickey fuller test procedure which makes use of the class of markov regime switching models the potential of the new methodology is illustrated via simulation and an empirical example is given copyright 1999 john wiley sons ltd

periodically expanding discounted debt a threat to fiscal policy sustainability this paper models the behaviour of discounted us debt using a markov switching time series model the significance of modelling fiscal policy within this framework derives from the implications it has for long term sustainability the two regime framework used in this paper identifies periods where the present value of us federal debt is expanding versus periods when it is collapsing using an updated data series from hamilton and flavin 1986 a test is conducted to establish if the expanding periods pose a threat to the long run sustainability of fiscal policy for the usa it is found that they do not copyright 2005 john wiley sons ltd

tempered stable and tempered infinitely divisible garch models abstract in this paper we introduce a new garch model with an infinitely divisible distributed innovation this model which we refer to as the rapidly decreasing tempered stable rdts garch model takes into account empirical facts that have been observed for stock and index returns such as volatility clustering non zero skewness and excess kurtosis for the residual distribution we review the classical tempered stable cts garch model which has similar statistical properties by considering a proper density transformation between infinitely divisible random variables we can find the risk neutral price process thereby allowing application to option pricing we propose algorithms to generate scenarios based on garch models with cts and rdts innovations to investigate the performance of these garch models we report parameter estimates for the dow jones industrial average index and stocks included in this index to demonstrate the advantages of the proposed model we calculate option prices based on the index

unobserved rational expectations and the german hyperinflation with endogenous money supply a kalman filtering technique is employed to test the convergent expectation hypothesis in the great german hyperinflation when the money supply is endogenously determined after converting the model structure to a state space form the parameters are estimated via minimization of a gaussian likelihood function the result is then used in a filter smoother combination to yield smoothed estimates of the state variable associated with the arbitrary constant of the rational expectations solution bo th para metric and nonparametric tests lead us to reject the null hypothesis of convergent expectations copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on rational bubbles and fat tails this paper addresses the statistical properties of time series driven by rational bubbles a la blanchard and watson 1982 using insights on the behavior of multiplicative stochastic processes we demonstrate that the tails of the unconditional distribution emerging from such bubble processes follow power laws exhibit hyperbolic decline more precisely we find that rational bubbles predict a fat power tail for both the bubble component and price differences with an exponent smaller than 1 the distribution of returns is dominated by the same power law over an extended range of large returns although power law tails are a pervasive feature of empirical data these numerical predictions are in disagreement with the usual empirical estimates it therefore appears that exogenous rational bubbles are hardly reconcilable with some of the stylized facts of financial data at a very elementary level

some evidence of speculative bubbles in the foreign exchange markets the authors propose that the poor performance of portfolio models is due to their exclusion of speculative bubbles they suggest a new unce rtainty bubble solution as opposed to a risk bubble solution discr etion is minimized because the trend of the bubble is an exact functi on of the structural parameters for three exchange rates the bubble augmented portfolio model passes the usual statistical tests and per forms better than its var equivalent in out of sample dynamic simulat ion when the model was reestimated with the bubbles removed and wit h ordinary dummies in place of the constrained trend the parameter e stimates were invariably insignificant copyright 1987 by ohio state university press

testing for rational bubbles with exogenous or endogenous fundamentals the german hyperinflation once more abstract the presence of rational price bubbles during the german hyperinflation is tested under two different structural assumptions on the money process if the money supply is constrained to be exogenous to the current inflation rate the hypothesis of no bubble can be rejected however this is no longer found to be true when a feedback rule from inflation to money creation is allowed the analysis contradicts previous results presented in the literature

do rice prices follow a random walk evidence from markov switching unit root tests for asian markets this study revisits the issue of mean reversion in the import rice prices of six asian countries over the period between 1995 and 2015 augmented dickey fuller tests with a conventional linear regression model support the presence of a unit root in the levels of the price data however when regressions allow for markov switching in coefficients and variances to capture periodic shifts in levels and volatilities there is strong evidence against the unit root null hypothesis in favor of stationarity over much of the observation period

are there bubbles in the sterling dollar exchange rate new evidence from sequential adf tests there has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets this paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles we find strong evidence of explosive behavior in the nominal sterling dollar exchange rate however this explosive behavior should not be simply interpreted as evidence of rational bubbles as we show that it might be driven by the relative prices of traded goods

the debate about the revived bretton woods regime a survey and extension of the literature this paper surveys the literature dealing with the thesis put forward by dooley folkerts landau and garber dfg that the present constellation of global exchange rate arrangements constitutes a revived bretton woods regime dfg also argue that the revived regime will be sustainable despite its large global imbalances while much of the literature generated by dfg s thesis points to specific differences between the earlier regime and revived regime that render the latter unstable we argue that an underlying similarity between the two regimes renders the revived regime unstable specifically to the extent that the present system constitutes a revived bretton woods system it is vulnerable to the same set of destabilizing forces including asset price bubbles and global financial crises that marked the latter years of the earlier regime leading to its breakdown we extend the markov switching model to examine the relation between global liquidity and commodity prices we find evidence of commodity price bubbles in both the latter stages of the earlier bretton woods regime and the revived regime

exchange rate bubbles fundamental value estimation and rational expectations test abstract we propose a model of periodically collapsing bubbles which extends the van norden 1996 model and nests it by considering a non linear specification for the bubble size in the survival regime and the endogenous determination of the level of the fundamental value of the stochastic process they allow us to test for rationality in the formation of expectations and remove the arbitrariness of exogenously setting the level of the fundamental value this general model is applied to the exchange rate of the brazilian real to the us dollar from march 1999 to february 2011 the futures market exchange rate is used as a proxy of its expected future value and three different structural models are considered for the determination of the fundamental value the first two imply that the exchange rate satisfies either purchasing power parity ppp or a modified version of it the third structural model is a version of the monetary model of exchange rate determination fitted to the period under consideration we obtain the maximum likelihood estimate of the parameters of the models explore the properties of the errors test its restricted versions and compare the three specifications for the fundamental we find that the models we propose fit well the data and are useful in the heuristic interpretation of the exchange rate movements of the period finally we select the structural models that display the best performance according to several criteria

estimation of linear rational expectations models in the presence of deterministic terms abstract hansen and sargent 1981b discussed instrumental variables procedures for estimating linear rational expectations models under the assumption that all variables have zero unconditional means this note points out two implications if variables instead have nonzero unconditional means first there are additional restrictions beyond those noted by hansen and sargent 1981b and second imposing these restrictions results in more efficient estimates of the parameters that are the focus of hansen and sargent 1981b explicit formulas are given for the restrictions generated by some commonly assumed deterministic terms

when will occur the crude oil bubbles abstract in this paper we apply a recursive unit root test to investigate whether there exist multiple bubbles in crude oil price the method is best suited for a practical implementation of a time series and delivers a consistent date stamping strategy for the origination and termination of multiple bubbles the empirical result indicates that there exist six bubbles during 1986 2016 when the oil price deviate from its intrinsic value based on market fundamentals specifically oil price contains the fundamentals and bubble components the dates of the bubbles correspond to specific events in the politics and financial markets the authorities should actively fight speculative bubbles or just observe their evolutions and speculation activities may decrease which is favour of the stabilisation of the staple commodities including crude oil price these findings have important economic and policy implications to recognise the cause of bubbles and take corresponding measures to reduce the impact on the real economy cause of the fluctuation of crude oil price

sizing the government is there such a thing as an optimal government size we investigate the so called armey curve which claims an inverted u shaped relationship between government size and economic performance using non parametric data envelopment analysis dea the dea scores are linked to control variables such as initial per capita income openness population density urbanization country size and family size for 23 oecd countries we estimate the country specific efficiency scores which reveal the extent to which a country uses excess public resources to achieve the observed growth rate of gdp

semiparametric tests for double unit roots in this article i argue that if an explosive root is considered a serious alternative to an 1 2 process then joint testing for the number of unit roots along the lines of hasza and fuller is preferable instead of prior differencing as suggested by dickey and pantula a semiparametric equivalent of the hasza fuller test that permits rather general assumptions about the innovation process is developed the test is a straightforward generalization of the phillips z test for a single unit root through monte carlo simulations the different tests are compared and the article is completed by an empirical application examining the purchasing power parity for several latin american countries for which both explosive and double unit roots may be a possibility

speculative bubbles in u k house prices some new evidence in this article we test the view widely held among both academics and practitioners that speculative bubbles have characterized the time series behavior of u k house prices in recent times we motivate our empirical analysis using a stylized overlapping generations model which generates a housing demand function of the form assumed by a large literature illustrating how rational bubbles may arise as a solution to the house price determination equation employing two recently developed econometric techniques specifically designed to test for rational bubbles we then provide empirical evidence for the existence of bubbles in u k house prices over the sample period 1983 2002 a widely held view among academics and practitioners is that the time series behavior of house prices of several major industrialized countries may have been characterized by explosive bubbles which are not present in the underlying fundamentals and which therefore may drive an explosive wedge between house prices and their fundamental determinants in particular with regard to the united kingdom a large empirical literature has studied the determinants of the two booms experienced by house prices in the early 1970s and late 1980s providing some tentative evidence in support of the view that speculation on expected future house prices might have been an important force driving actual house prices see inter alia hendry 1984 muellbauer and murphy 1997 renaud 1997 teraisvirta 1998 more recently concerns of an ongoing house price bubble in the united kingdom have been repeatedly raised by the press and policymakers these concerns are well summarized in the following quote it will be different this time those are the most dangerous words in investment and in economic policy the u k is yet again in an unbalanced expansion behind it lies explosive household

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

misspecification versus bubbles in hyperinflation data monte carlo and interwar european evidence abstract this paper analyzes some new tests of the cagan hyperinflation money demand model which have several advantages relative to those in the literature they do not confound specification error with rational bubbles can be implemented with a linear procedure and are frequently able to detect periodically collapsing bubbles which have challenged existing tests after a monte carlo analysis the tests are applied to data from hyperinflations in austria germany hungary and poland evidence of misspecification is found for austria germany and hungary while the model without a rational bubble component appears to fit the data for poland

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

cointegration and cagan s model of hyperinflation under rational expectations when money and prices are integrated of order two philip cagan s 1956 model of hyperinflation will give rise to two different levels of cointegration in most of the literature on the german hyperinflation one of these cointegrating relationships has been ruled out a priori by assuming that velocity shocks follow a random walk using data from the german hyperinflation the author finds this assumption to be unjustified based on a straightforward extension of the cointegrated var approach suggested by john y campbell and robert j shiller 1987 a method to evaluate the cagan model under rational expectations and no bubbles is proposed and implemented to the german data copyright 1993 by ohio state university press

financial market models with levy processes and time varying volatility abstract asset management and pricing models require the proper modeling of the return distribution of financial assets while the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution alternative models for describing return distributions have been proposed since the 1960s with the strongest empirical and theoretical support being provided for the family of stable distributions with the normal distribution being a special case of this distribution since the turn of the century specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions more specifically subclasses of the tempered stable distribution have been proposed in this paper we propose one such subclass of the tempered stable distribution which we refer to as the kr distribution we empirically test this distribution as well as two other recently proposed subclasses of the tempered stable distribution the carr geman madan yor cgmy distribution and the modified tempered stable mts distribution the advantage of the kr distribution over the other two distributions is that it has more flexible tail parameters for these three subclasses of the tempered stable distribution which are infinitely divisible and have exponential moments for some neighborhood of zero we generate the exponential levy market models induced from them we then construct a new garch model with the infinitely divisible distributed innovation and three subclasses of that garch model that incorporates three observed properties of asset returns volatility clustering fat tails and skewness we formulate the algorithm to find the risk neutral return processes for those garch models using the change of measure for the tempered stable distributions to compare the performance of those exponential levy models and the garch models we report the results of the parameters estimated for the s p 500 index and investigate the out of sample forecasting performance for those garch models for the s p 500 option prices

ruling out divergent speculative bubbles abstract the growth in the empirical literature on testing for divergent in mean speculative bubbles indicates that existing theoretical arguments for ruling out such price paths are not sufficiently compelling here we strengthen the case for ruling out explosive or implosive bubbles a priori by filling in two gaps first we demonstrate why divergent stochastic bubbles arising from purely extrinsic uncertainty as in blanchard 1979 cannot be equilibria in a monetary optimizing model second we show why existing arguments for ruling out implosive price bubbles are insufficient in some cases and we provide stronger arguments

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

rational bubbles during poland s hyperinflation implications and empirical evidence abstract it has been argued that the polish hyperinflation at the end of the eighties was too excessive to be attributed to market fundamentals only in this paper a range of indirect non structural and structural tests for rational exploding deterministic and stochastic bubbles are carried out we adopt a new strategy based on the work of hall and sola 1993a which allows for the possibility of switching regimes in the time series properties of the data to allow for both indirect tests and structural tests for the presence of stochastic bubbles

does purchasing power parity hold sometimes regime switching in real exchange rates standard unit root tests are not very powerful in drawing conclusions regarding the validity of purchasing power parity ppp rather than asking whether ppp holds throughout the whole sample period we examine in this study if ppp holds sometimes by employing hamilton type 1989 markov regime switching models when at least one of multiple regimes is stationary ppp holds locally within the regime there are indeed various reasons that we should expect that the persistence of real exchange rates changes over time employing five real exchange rates spanning more than 100 years we find herein strong evidence that the strength of ppp varies during the sample periods and that there exist stationary regimes in which ppp holds throughout the article we also make comparisons to previous markov regime switching estimation results by kanas 2006 on the same data series the new markov switching model selection criterion of smith et al 2006 which is devised especially for discriminating markov regime s

multiple bubbles in the european union emission trading scheme abstract the european union emission trading scheme eu ets is the first large scale co 2 emission trading system in the world carbon allowances are financial assets potentially vulnerable to the behavior of traders and investors in fact the carbon price has been quite volatile since the inception of the market and it has recently hit very low values however to date no work exists to evaluate whether volatility and price spikes are due to episodes of speculation and price bubbles our paper fills this gap we use the recent approaches developed by phillips and yu 2010 phillips et al 2011 and phillips et al 2015a 2015b who propose a recursive right sided unit root approaches to detect and date stamp mildly explosive behaviors and carbon market exuberance we complement this methodology by using the wild bootstrap procedure by goncalves and kilian 2004 to control for the heteroschedasticity of carbon price data analyzing the eu ets front month contract price from 2005 to 2014 we find different episodes of price bubbles these episodes are not explained by similar behavior of the fundamentals but seem related to energy and environmental policy announcements our results can provide insightful policy implications in the context of the actual carbon market reform as well as the implementation of stricter financial regulations rules to co 2 trading

tax rates and tax evasion evidence from missing imports in china tax evasion by its very nature is difficult to observe we quantify the effects of tax rates on tax evasion by examining the relationship in china between the tariff schedule and the evasion gap which we define as the difference between hong kong s reported exports to china at the product level and china s reported imports from hong kong our results imply that a one percentage point increase in the tax rate is associated with a 3 percent increase in evasion furthermore the evasion gap is negatively correlated with tax rates on closely related products suggesting that evasion takes place partly through misclassification of imports from higher taxed categories to lower taxed ones in addition to underreporting the value of imports

tax evasion under behavioral structures abstract we study the strategic interactions between the fiscal authority and the taxpayer regarding tax evasion and auditing we fit this interaction into a bayesian game and introduce the concept of behavioral consistency which helps reducing the number of available strategies and models the stylized fact according to which the choice to evade is subject to behavioral patterns

allowance price drivers in the first phase of the eu ets abstract in the first phase of the eu emissions trading scheme eu ets the price per ton of co 2 initially rose to over 30 the price then collapsed to essentially zero by mid 2007 by deriving a structural model of the allowance price under the assumption of efficient markets i examine the extent to which this variation in price can be explained by marginal abatement costs i then gradually relax the model by allowing for delayed adjustment of price to fundamentals as well as by introducing lagged lhs variables the pattern of results suggests that while prices were not initially driven by marginal abatement costs this inefficiency was largely corrected after the accounting of 2005 emissions in april 2006

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

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

testing for rational inflationary bubbles the case of argentina brazil and israel in this paper it is examined whether the existence of rational bubbles can explain the dynamics of the price level during the argentine brazilian and israeli high inflations in the first half of the 1980s based on the cagan 1956 money demand model the west 1987 specification test finds evidence of rational inflationary bubbles in the three countries when the money supply is assumed to be exogenous however if endogeneity of money is taken into account there is no evidence of rational bubbles

a test for speculative bubbles in the sterling dollar exchange rate 1981 84 the u s dollar price of the u k pound sterling is tested for a speculative bubble defined as a period with a nonzero median in excessreturns a nonparametric procedure is developed which controls for data mining over the period of flexible exchange rates and finds a negative bubble in the excess return to holding sterling rather than dollar assets during the period 1981 84 possible interpretations arebootstrap equilibria rational bubbles nonsym metric fundamentals and nonrational expectations copyright 1986 by american economic association

how corruption may corrupt abstract the incidence of corruption appears to vary strongly across societies even for comparable activities the model highlights how the profitability of bureaucratic corruption may be related to its frequency and points toward a few mechanisms that can be used in explaining the stylized facts of varying incidence of corruption there might be multiple self fulfilling equilibria levels of corruption even when both supply and demand of corrupt acts are considered

trading rules from forecasting the collapse of speculative bubbles for the s p 500 composite index many recent studies documented the presence of speculative bubbles defined as systematic and increasing deviations of actual prices from fundamentals in asset prices however thus far the usefulness of such models has been examined in the literature only from a statistical perspective in this paper we employ two regime switching models of periodically partially collapsing speculative bubbles and examine the risk adjusted profits of trading rules formed using inferences from them use of trading rules derived from an augmented model incorporating market volume leads to higher risk adjusted returns than those obtained employing existing models or a buy and hold strategy

cvar sensitivity with respect to tail thickness abstract the sensitivity of a risk measure with respect to the parameters of the hypothesized distribution is a useful tool in investigating the impact of marginal rebalancing decisions on the portfolio return distribution and also in the analysis of the asymptotic variability of the risk estimator we calculate the relative importance of the conditional value at risk cvar sensitivity with respect to tail thickness and scale of the portfolio return distribution in the case of regularly varying tails and in the case of exponential and faster than exponential decay we discuss the implications for asset return modeling and the asymptotic variability of the risk estimator

multi country tests for price level bubbles abstract flood and garber 1980 have examined data from the german hyperinflation to test for a price level bubble in this paper we extend this research to other episodes of hyperinflation by testing for a simultaneous bubble across countries we implement the conceptual experiment proposed by flood and garber to derive asymptotic distributions for the test statistics

regime switching properties of the optimal seigniorage hypothesis the case of taiwan the optimal seigniorage hypothesis argues that the government will attempt to minimize the sum of social costs arising from the rate of inflation and taxation which results in the testable prediction that inflation and rate of tax revenue will be positively correlated this article empirically examines the regime switching properties of this theory using quarterly data from taiwan over 1961 2000 sampling periods it finds that the optimal seigniorage hypothesis is weakly supported and its explanatory power for the long run inflation behaviour is weak

crypto currency bubbles an application of the phillips shi yu 2013 methodology on mt gox bitcoin prices the creation of bitcoin heralded the arrival of digital or crypto currency and has been regarded as a phenomenon since its introduction it has experienced a meteoric rise in price and rapid growth accompanied by huge volatility swings and also attracted plenty of controversies which even involved law enforcement agencies hence claims abound that bitcoin has been characterized by bubbles ready to burst any time e g the recent collapse of bitcoin s biggest exchange mt gox this has earned plenty of coverage in the media but surprisingly not in the academic literature we therefore fill this knowledge gap we conduct an econometric investigation of the existence of bubbles in the bitcoin market based on a recently developed technique that is robust in detecting bubbles that of phillips et al 2013a over the period 2010 2014 we detected a number of short lived bubbles most importantly we found three huge bubbles in the latter part of the period 2011 2013 lasting from 66 to 106 days with the

red signals current account deficits and sustainability abstract this paper proposes a method to asses the potential problems of sustainability of a country s sovereign debt we claim that the relevant variables used for this analysis are typically subject to changes that are associated with changes in macroeconomics policies we propose a procedure for identifying periods under which the current account accumulates at a non stationary rate our approach is based on imposing identifying restrictions on markov switching type models empirical applications of the procedure to argentina brazil japan uk and usa are examined and discussed

robustness and local linearisation in economic models this paper discusses the importance of nonlinear dynamics from a theoretical and an empirical point of view it stresses the need for global as opposed to local analysis and develops the important concept of robustness using this concept the paper argues that much modern macroeconomics can be dismissed on methodological grounds alone the paper also deals with the empirics of hyperinflation and with the detection of chaos in financial markets

pitfalls in testing for explosive bubbles in asset prices a number of studies e g robert j shiller 1981 olivier j blanchard and mark watson 1982 kenneth d west 1988 have argued that dividend and stock price data are not consistent with the market fundamentals hypothesis in which prices are given by the present discounted values of expected dividends these results have often been construed as evidence for the existence of bubbles or fads related arguments have been made with respect to gold bonds and foreign exchange a major problem with such arguments e g james hamilton and charles whiteman 1985 is that apparent evidence for bubbles can be reinterpreted in terms of market fundamentals that are unobserved by the researcher behzad t diba and herschel i grossman 1984 1988b and hamilton and whiteman 1985 have recommended the alternative strategy of testing for rational bubbles by investigating the stationarity properties of asset prices and observable fundamentals 1 in essence the argument for equities is that if stock prices are not more explosive than dividends then it can be concluded that rational bubbles are not present since they would generate an explosive component to stock prices 2 using unit root tests autocorrelation patterns and cointegration tests to implement this procedure diba and grossman 1988b p 529 state that the analysis supports the conclusion that stock prices do not contain explosive rational bubbles this paper shows that the above battery of tests is in fact unable to detect an important class of rational bubbles the point is demonstrated by constructing rational bubbles that appear to be stationary when unitroot tests are applied even though they are explosive in the relevant sense simulations show that when such bubbles are present stock prices will not appear to be more explosive than dividends on the basis of these tests even though the bubbles are substantial in magnitude and volatility the presence of rational bubbles in actual stock prices thus remains an open question