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

the european union currencies and the us dollar from post bretton woods to the euro abstract in this paper we study the evolution of the us dollar real exchange rate vis a vis the european union currencies in the floating post bretton woods era both before and after the birth of the euro in the first period we find that most of the persistence shown by this rate is due to the movements of the us dollar during the mid 1980s once these effects are isolated we can conclude that the us dollar real exchange rate exhibits stationarity with those currencies that are closely linked to the german mark however when we include the observations covering the period during which the euro was created we cannot reject the unit root null hypothesis for any currency

a signaling theory of consumer boycotts abstract we present a theory that explains the prevalence of consumer boycotts in our model a firm does not know how concerned consumers are about the firm s misconduct because it is only optimal for the firm to alter its behavior if consumers are very concerned consumers have an incentive to overstate their concern by boycotting the firm we show that free riding problems do not preclude such boycotting in fact in each equilibrium boycotting occurs with positive probability and the firm always caters to the demands of those who boycott should boycotting ensue

does the australian dollar real exchange rate display mean reversion abstract this paper examines the post bretton woods experience of the australian dollar in this period australia moved from a managed to a freely floating exchange rate environment parametric and non parametric techniques are applied to data from a trade weighted index to analyse the time series properties of australia s real exchange rate even allowing for structural breaks there is no evidence of the long run equilibrium relation between the exchange rate and relative prices predicted by the purchasing power parity hypothesis

a reexamination of purchasing power parity a multicountry and multiperiod study abstract this paper re examines the purchasing power parity ppp theory in a multiple exchange rate world owing to a lack of precision in estimating the parameters many authors concluded that ppp did not hold very well in the 1970s using a time series cross sectional estimation procedure we are unable to reject the hypothesis that ppp holds in several currencies simultaneously in addition the parameters are precisely estimated this result follows from the estimation procedure which allows us to exploit the cross sectional variation in the data and the contemporaneous correlation in the deviations from ppp

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

getting ppp right identifying mean reverting real exchange rates in panels abstract recent advances in testing for the validity of purchasing power parity ppp focus on the time series properties of real exchange rates in panel frameworks one weakness of such tests however is that they fail to inform the researcher as to which cross section units are stationary as a consequence a reservation for ppp analyses based on such tests is that a small number of real exchange rates in a given panel may drive the results in this paper we examine the ppp hypothesis focusing on the stationarity of the real exchange rates in up to 25 oecd countries we introduce a methodology that when applied to a set of established panel unit root tests allows the identification of the real exchange rates that are stationary our results reveal evidence of mean reversion that is significantly stronger as compared to that obtained by the existing literature strengthening the case for ppp

the effect of inflation targeting on the behavior of expected inflation evidence from an 11 country panel abstract inflation targets were introduced in the 1990s in australia canada new zealand sweden and the united kingdom change in the behavior of expected inflation in the five targeting countries is measured in a panel that includes six non targeting countries france germany italy the netherlands japan and the united states the level of expected inflation in targeting countries falls after the announcement of targets with controls for country effects year effects ongoing inflation reduction and the business cycle neither the variability of expected inflation nor the average absolute forecast error falls after the announcement of targets with controls for the level and variability of past inflation both targeting and non targeting countries experience unexpected disinflation

quantifying the uncertainty about the half life of deviations from ppp we propose a bayesian framework in which the uncertainty about the half life of deviations from purchasing power parity can be quantified based on the responses to a survey study we propose a prior probability distribution for the half life under the recent float intended to capture widely held views among economists we derive the posterior probability distribution of the half life under this consensus prior and confirm the presence of substantial uncertainty about the half life we provide for the first time a comprehensive formal evaluation of several nonnested hypotheses of economic interest including rogoff s 1996 claim that the half life is contained in the range of 3 to 5 years we find that no hypothesis receives strong support from the data copyright 2002 john wiley sons ltd

temporary boycotts as self fulfilling disruptions of markets abstract this paper demonstrates how equilibrium involving anticipated boycotts and actual boycotts can occur even though consumers are negligible and only care about the price they pay and the timing of purchase the model is a two period durable goods monopoly game with demand uncertainty first a non boycott equilibrium is characterized under regularity assumptions ruling out multiplicative uncertainty there are additional equilibria in which the firm sets a low price in period 0 based on the anticipation that consumers will boycott whenever the price exceeds a threshold also the augmented game with a publicly observed sunspot has equilibria in which boycotts occur on the equilibrium path with positive probability

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

nonlinear adjustment to purchasing power parity in the post bretton woods era abstract this paper models the dynamics of adjustment to long run purchasing power parity ppp over the post bretton woods period in a nonlinear framework consistent with the presence of frictions in international trade we estimate exponential smooth transition autoregressive estar models of deviations from ppp which are obtained using the johansen cointegration method for both consumer price index cpi and wholesale price index wpi based measures and a broad set of us trading partners in several cases we find clear evidence of a mean reverting dynamic process for sizable deviations from ppp with the equilibrium tendency varying nonlinearly with the magnitude of disequilibrium analysis of impulse response functions also supports a nonlinear dynamic structure but convergence to long run ppp in the post bretton woods era is very slow

purchasing power parity evidence from a new panel test this paper uses a recently suggested test for unit roots in panels of time series data maddala and wu oxford bulletin of economics and statistics 61 631 52 1999 to consider the purchasing power parity hypothesis the major innovation of this test is that it allows both the testing of unit root null using the adf test and the stationarity null using the kpss test it is found that the results are inconsistent suggesting that either alternative hypotheses to a unit root may need to be considered or that panel based testing in this particular context may be of limited value

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

do central banks react to house prices we estimate the federal reserve s the bank of england s and the bank of japan s responses to house prices we show that generalized method of moments estimates of a taylor rule augmented with house prices are biased and dispersed we then use full information methods and estimate the policy rule together with a var for the nonpolicy variables these estimates are also biased we propose an alternative approach and estimate a dynamic stochastic general equilibrium model embedded with a monetary rule with a direct response to house prices we find that house prices played a separate role in the reaction functions of these central banks

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

mean reversion in g 10 nominal exchange rates according to conventional wisdom industrial country floating exchange rates contain unit roots sur tests on panels of monthly group of ten g 10 log nominal rates reject the null of unit roots for various samples over the current float with significance levels from 0 5 to 15 on average in out of sample forecasts mean reversion models beat random walks significantly in some forecast periods for monthly data the range of expected usd dem appreciation rates exceeds 15 per year in the mean reversion model mean reversion places strong restrictions on international models over the sample period the g 10 had to run monetary policies consistent with stable long run nominal rates

the ups and downs of capitalism ben bernanke is a leading macroeconomist who has contributed extensively to the literature on business cycles monetary policy the role of financial markets in economic fluctuations inflation targeting and the economics of the great depression he is one of the six economists who form the nber business cycle dating committee a group that determines the dates of recessions in the us in this article interview professor bernanke discusses issues relating to the great depression of the 1930s and problems relating to inflation in the latter half of the twentieth century

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

real exchange rate adjustment in european transition countries abstract in single equation tests real exchange rates show mean reversion for nine of 10 central and eastern european transition countries for the period january 1993 to december 2005 because of the shift from controlled to market economies and accompanying crises failed policy regimes and changes in exchange rate regimes unit root tests for transition countries often require allowance for structural changes accounting for structural breaks gives substantially faster mean reversion speeds than those found for major industrialized countries these fast adjustment speeds are plausible transition countries had perhaps 10 years to make unprecedented adjustments required for accession to the european union a number of papers have applied non linear models to the central and eastern european countries this paper investigates four non linear models and compares them with piece wise linear break models the break models appear superior in detecting mean reversion for the central and eastern european transition countries

short memory and the ppp hypothesis abstract the purchasing power parity ppp puzzle has been framed in recent years in terms of half lives of real exchange rate shocks that exceed 3 years recent studies have attempted to solve that puzzle by adopting nonlinear stochastic models of real exchange rates the notion of half life is fundamentally linear and therefore is inappropriate for those nonlinear models we provide operational algorithms for estimating more general measures of persistence that are appropriate for nonlinear as well as linear models memory in mean and memory in distribution we study three parametric models autoregression threshold autoregression and exponential smooth threshold autoregression our monte carlo simulations suggest that all three models can produce biased estimates of persistence measures depending on the true data generating process in addition the sample size is found to be too small for reliable nonparametric estimation suggesting that we need to impose parametric structure in the empirical application all three parametric models provided general support for the long term ppp hypothesis suggesting that there is no puzzle and questioning the need for recently introduced nonlinear models

the purchasing power parity persistence paradigm abstract rogoff journal of economic literature 1996 34 647 668 describes the remarkable consensus of 3 5 year half lives of purchasing power parity deviations among studies using long horizon data these studies however focus on rejections of unit roots in real exchange rates and do not use appropriate techniques to measure persistence our half life estimates explicitly account for serial correlation sampling uncertainty and most importantly small sample bias calculating confidence intervals as well as point estimates for long horizon and post 1973 data we find that even though most of the point estimates lie within the 3 5 year range univariate methods provide virtually no information regarding the size of the half lives

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

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

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

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

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

the choice of numeraire currency in panel tests of purchasing power parity we investigate the implications of the choice of numeraire currency on panel tests of purchasing power parity under the current regime of flexible exchange rates by conducting panel unit root tests with twenty one different base currencies we show that the conditions necessary for numeraire irrelevancy are not supported empirically and that the choice of numeraire currency can and does matter for ppp the evidence of ppp is stronger for european than for non european base currencies distance between the countries and volatility of the exchange rates are the most important determinants of the results

increasing evidence of purchasing power parity over the current float we conduct unit root tests of real exchange rates with the united states dollar and the german mark as base currencies using samples of data which begin in 1973 and end between 1982 and 1996 we find that as the sample is extended the evidence of ppp strengthens with panel but not univariate methods because of the sharp rise and fall of the dollar in the early 1980s rejections of the unit root null do not monotonically increase with the sample size the evidence of ppp is uniformly stronger when the mark is used as the base currency

bounds tests of the theory of purchasing power parity abstract in this paper we test the absolute and relative purchasing power parity ppp hypotheses during the recent flexible exchange rate period using quarterly data for 21 oecd countries in doing so we use a new econometric technique developed by m h pesaran et al bounds testing approaches to the analysis of long run relationships university of cambridge department of applied economics working paper 9907 this approach is particularly interesting as it is capable of testing the existence of long run relations regardless of whether the underlying variables are stationary integrated or mutually cointegrated

panel unit root tests of purchasing power parity for price indices abstract this paper adopts four panel unit root tests to evaluate ppp over the floating period for six different price indices results generally support ppp albeit the speeds of adjustment differ considerably between price indices and test procedures the degree of contemporaneous and serial correlation as well as heterogeneity of the series in the panel affect stationarity and the speed of mean reversion

the re emergence of ppp in the 1990s abstract in this paper we investigate purchasing power parity ppp in a panel with 17 countries for the period 1972 through 1996 the novel feature of our panel methodology is that results are invariant to the choice of a benchmark on numeraire currency in the panel we allow individual country effects in the relation between prices and exchange rates in this way we can identify the currency pairs for which ppp holds or does not hold we conclude that there is substantive evidence for ppp although not to the same extent for every currency evidence in favor of ppp is strongest for many exchange rates relative to the dmark and weakest for the japanese yen for this currency a trend like variable like productivity growth is missing

are bilateral real exchange rates stationary evidence from lagrange multiplier unit root tests for india the paper examines the stationarity of india s real exchange rate vis a vis 16 of its major trading partner countries for the period 1960 2000 application of the conventional adf unit root test the lagrange multiplier lm unit root test with one structural break and the lm unit root test with two structural breaks provides evidence that india s exchange rate vis a vis 15 out of 16 countries is stationary implying support for purchasing power parity

some new stylized facts of floating exchange rates abstract this paper re examines real exchange rate behavior of oecd currencies under the current float using the more extensive dataset that an additional decade s worth of experience has made available what emerges is a new set of stylized facts which suggest that the problems of the current float were not as commonly believed generic to that system but in fact rather specific being largely confined to one sub period the early and mid 1980s and one currency the us dollar this dollar behavior ranks as one of the important puzzles of the past 25 years

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

a theory of consumer boycotts under symmetric information and imperfect competition this article models strategic interactions between non identical duopolistic firms and a public interest environmental organisation eo that promotes green production practices by threatening consumer boycotts against brown producers the article describes when boycotts are deterred by prior firm commitments to be green and also when a boycott arises in equilibrium despite symmetric information when a boycott arises it is either a small persistent boycott against the small firm in the industry or a large transitory boycott against the large firm in the industry that prompts the target firm to accede to the boycott demands quickly

how entry threats induce slack abstract profits of incumbent firms are often observable to potential entrants and signal profit opportunities in a market incumbents therefore have an incentive to strategically manipulate profit reports since owners of firms typically derive utility only from profits incumbent firms have to balance the benefit of large profits against the possibility of entry it is shown that owners will generally accept below maximum profit performance i e tolerate slack in order to deter entry and furthermore that such entry deterring behaviour is successful even if it is anticipated by rational entrants

evidence on ppp for selected asian countries from a panel cointegration test with structural breaks the goal of this article is to examine evidence for purchasing power parity ppp for a panel of asian countries namely malaysia thailand india pakistan sri lanka and the philippines our main contribution is that for the first time in this literature we use a panel cointegration test developed by westerlund 2006 which allows us to incorporate multiple structural breaks we find that using gregory and hansen s 1996 residual based test for cointegration and pedroni s 1999 panel cointegration test without structural breaks provide weak evidence of cointegration between nominal exchange rates vis a vis the us dollar and relative prices however when we use the lagrange multiplier panel structural break cointegration test we find strong evidence of panel cointegration providing evidence for ppp

environmental groups in monopolistic markets we examine a market in which a monopolistic firm supplies a good the production of the good causes damage to the environment consumers are heterogeneous with respect to their disutility of the environmental damage an environmental group can enter the market and set up a campaign in order to influence consumers preferences we characterize the equilibrium of the resulting entry deterrence game and investigate its properties it turns out that the aggregated environmental damage is lowest if the firm is able to deter entry of the environmental group and moreover the fixed entry cost of the environmental group is small enough

the first year of the eurosystem inflation targeting or not this paper is a brief evaluation of the eurosystem s monetary policy regime after its first year in particular of the extent to which it is similar to inflation targeting as practiced by an increasing number of central banks i examine the eurosystem s goals framework for monetary policy decisions and communication with outsiders criteria for evaluation are whether the goals are unambiguous and appropriate whether the decision framework is efficient in collecting and processing information and reaching decisions that are appropriate relative to the goals and whether the communication is effective in motivating decisions simplifying external evaluation and thereby improving transparency and accountability i also consider whether the actual instrument setting has been appropriate given the informaion available at the times of decision

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

long run purchasing power parity with short run data evidence with a null hypothesis of stationarity abstract we investigate long run purchasing power parity with data from the current floating exchange rate period by using tests where stationarity and cointegration are the null rather than the alternative hypotheses in most cases we cannot reject either the null hypothesis of stationarity of the real exchange rate or the null of cointegration between the nominal exchange rate and the domestic and foreign price levels this constitutes evidence of long run purchasing power parity because using the same tests we can reject the null of stationarity for the nominal exchange rate confirmation of the results is provided by a monte carlo study

the panel purchasing power parity puzzle does long run purchasing power parity ppp hold over the post 1973 floating exchange rate period panel unit root tests provide evidence of ppp that increases with the number of observations the strengthening of the evidence however is highly cyclical when the dollar appreciates at the end of the sample the evidence of ppp strengthens and when it depreciates the evidence weakens while these patterns cannot be explained by the specifications that are normally used to model real exchange rates the strengthening but not the cyclical pattern can be explained by a specifi cation that incorporates ppp restricted structural change

how sure are we about purchasing power parity panel evidence with the null of stationary real exchange rates this article presents evidence on mean reversion in industrial countries real exchange rates in a setup that accounts naturally for cross sectional dependence is invariant to the benchmark currency and actually tests for the null of interest i e purchasing power parity our results are based on the kwiatkowski et al 1992 test for the stationarity null generalized in a multivariate random walk plus noise model by nyblom and harvey 2000

what should central banks do what should be their macroeconomic objectives and operations before turning to the normative question of what central banks hereafter cbs should do we need to deal with the contentious issue of what cbs actually can do in the field of monetary control one might think that this should be a relatively straightforward matter of fact instead there is a yawning chasm of mutual misunderstanding which has persisted for decades between economists and those working in cbs which has bedevilled the subject virtually every monetary economist believes that the cb can control the monetary base hereafter mo and subject to errors in predicting the monetary multiplier the broader monetary aggregates as well after all mo apart from some relatively unimportant qualifications about coins from the mint represents the liabilities of the cb and the cb should be able to control its own liabilities by open market operations hence the normal assumption is that mo is controllable within a narrow margin if the central bank should fail to do so it must be because it has chosen some alternative operational guide for its open market operations e g holding interest rates constant at some level which operational rule is frequently decried as sub optimal assuming that cbs can almost perfectly control mo economists have constructed several simulated schemes of how an optimal rule for so doing might be set up mccallum i993a b provides good recent examples almost all those who have worked in a cb believe that this view is totally mistaken in particular it ignores the implications of several of the crucial institutional features of a modern commercial banking system notably the need for unchallengeable convertibility at par between currency and deposits and secondly that commercial bank reserves at the cb receive a zero or belowmarket rate of interest the first means that fluctuations in the public s demand for cash which are both strongly seasonal and somewhat unpredictable must be accommodated the second means that commercial banks will not willingly hold free reserves at the end of each day assuming for this purpose that a stated reserve ratio has to be held on each day rather than averaged over say a couple of weeks beyond that needed to meet late fluctuations in the demand for cash after the money market has closed or become thin only if interest rates fall to the very low levels of the i930s and or risks of interest rate variability or late in the day cash runs increase would commercial banks increase their desired free reserves thus given the

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

unbiased estimation of the half life to ppp convergence in panel data three potential sources of bias introduce complications for panel data estimation of the half life of purchasing power parity deviations they are bias induced by inappropriate cross sectional aggregation of heterogeneous coefficients small sample estimation bias of dynamic lag coefficients and bias induced by time aggregation of commodity prices all of these biases have been addressed individually in the literature in this paper we address all three biases in arriving at our estimates using an annual panel data set of cpi based real exchange rates for 21 oecd countries from 1973 to 1998 we obtain a point estimate of the unbiased half life of 3 0 years with a 95 confidence interval of 2 3 4 2 years

individual firm and market dynamics of csr activities this paper investigates how firms should plan corporate social responsibility short csr this dynamic analysis starts with a firm s intertemporal optimization problem and proceeds to analyze interactions with other firms which are crucial if csr is profitable for firm a then it is most likely also profitable for competitors b and c and these simultaneous decisions affect the gain each would achieve from trying to advance its own position we find that multiple equilibria exist irrespective of whether interactions with other firms are taken into account interactions can eliminate or create additional steady states and can lead to a situation in which history is insufficient to determine the long run outcome among multiple steady states so that coordination is beneficial

nonlinear trends in real exchange rates a panel unit root test approach abstract we analyze the possibility of nonlinear trend stationarity as the alternative to unit roots in 23 oecd real exchange rates 1974 1998 by adding nonlinear time terms to the cips panel unit root test of pesaran 2007 we follow a thorough bootstrapping approach and propose a technique to adjust statistical significance for the use of multiple tests over several time trend orders the unit root null that all real exchange rates have unit roots is rejected at better than the 0 05 level bootstrapped results from a procedure of chortareas and kapetanios 2009 suggest that the hypothesis that all are stationary is reasonable we argue that nonlinear trend stationarity is the most likely alternative hypothesis for at least some of the real exchange rates because 1 the strongest cips rejection occurs when quadratic trends are specified 2 nonlinear time terms are statistically significant at the 0 10 level 3 the actual cips statistics are more consistent with cips sampling distributions from bootstrapped nonlinear trend stationary processes than from linear trend or mean stationary processes

evidence on the purchasing power parity in a panel of cities evidence is provided on the ppp hypothesis using a sample of 50 spanish cities for a long time period through the application of panel data unit root tests although results suggest non rejection of the ppp short run deviations as measured by half lives indicate that real factors might be causing a slow rate of convergence to a common price index even in highly integrated economies

strategic delay in bargaining this paper analyses a bargaining model with incomplete information in which the time between offers is an endogenous strategic variable we find equilibria involving a delay to agreement that is due to the use of strategic time delay by bargainers to signal their relative strength under some specifications of the parameters delay is present in the unique sequential equilibrium whose beliefs satisfy one intuitive restriction this delay does not vanish as the minimal time between offers becomes small

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null