median unbiased estimation of structural change models an application to real exchange rate persistence measuring deviations from purchasing power parity has been the subject of extensive investigation the most common practice in empirical research for measuring real exchange rate persistence is to estimate univariate autoregressive ar time series models and calculate the half life defined as the number of periods for a unit shock to a time series to decay by 50 in the presence of structural change there are two potential biases in the parameter estimates of ar models 1 a downward small sample median bias and 2 an upward bias which occurs when structural change is present and ignored we conduct a variety of monte carlo simulations and demonstrate that the existence of structural change causes a substantial increase in the small sample bias documented in andrews 1993 we then propose an extension of median unbiased estimation which explicitly accounts for structural change and apply these methods to estimate half lives of several long horizon real exchange rates analysed by lothian and tayl

world war ii as reflected on capital markets abstract historical events are reflected in asset prices we analyze government bond prices of five european countries traded on the swiss bourse during wwii apart from the official outbreak of wwii loss and gain of national sovereignty influenced the capital market

the cost of fear the welfare effect of the risk of violence in northern uganda although the effects of insecurity are believed to be important these have never been directly measured previous estimates of the costs of conflict have only captured the joint effect of violence and insecurity the distinction is important for understanding the origins of the costs and for policy design spatially disaggregated measures of insecurity are created based on the spatial temporal variation in the placement of violence these are used to generate the first estimates of the relative causal contributions of the risk and experience of violence the article also provides the first micro data based counterpart to the cross country literature on the costs of conflict

confidence intervals for half life deviations from purchasing power parity existing point estimates of half life deviations from purchasing power parity ppp around 3 5 years suggest that the speed of convergence is extremely slow this article assesses the degree of uncertainty around these point estimates by using local to unity asymptotic theory to construct confidence intervals that are robust to high persistence in small samples the empirical evidence suggests that the lower bound of the confidence interval is between four and eight quarters for most currencies which is not inconsistent with traditional price stickiness explanations however the upper bounds are infinity for all currencies so we cannot provide conclusive evidence in favor of ppp either

the effect of immigration on unskilled native workers evidence from a natural experiment this study exploits the natural experiment provided by the start of the second intifada to measure the effect of immigration on the wage and employment of unskilled native workers it finds that immigration has no effect on the wage or employment of unskilled jewish workers the wage and employment of the least skilled israeli arab workers with zero to five years of schooling are adversely affected by immigration the slightly more skilled arab workers with six to 11 years of schooling in contrast are positively affected by immigration suggesting a complementarity effect with this group different explanations are proposed

turning points in the u s civil war views from the grayback market this paper introduces a new high frequency time series of confederate money prices taken from the newspapers of richmond and leading cities in the eastern confederacy the new grayback series is tested for turning points the empirical analysis suggests that turning points in the confederate grayback market were different from those identified in the union greenback market by willard et al 1996 it appears that war did not always have symmetric effects on northern and southern money prices jel codes n20 n40

political news and stock prices the case of saddam hussein contracts abstract this paper studies the association between the market s expectations of saddam hussein s fall from power as reflected in saddam contract prices and stock prices oil prices and exchange rates during the war a rise in the probability of saddam s fall which also indicated a speedy end to the war was positively and significantly associated with stock prices strengthened the dollar against the euro and lowered oil prices before the war a rise in the probability of saddam s fall which may also have indicated the probability of a costly war breaking out lowered stock prices which adjusted gradually to this information

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

emerging market spreads then versus now we analyze yield spreads on sovereign bonds issued by emerging markets using modern data from the 1990s and newly collected historical data on bonds traded in london during 1870 1913 a previous era of global capital market integration we show that spreads today comove across emerging markets to a significantly higher degree than they did in the historical sample moreover sharp changes in spreads in the 1990s tend to be mostly related to global events whereas they were primarily related to country specific events in 1870 1913 although we find that fundamentals comove somewhat more strongly today than they did in the past we conjecture that today s investors pay less attention to country specific events than their predecessors did

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

sovereign debt guarantees and default lessons from the uk and ireland 1920 1938 abstract we study the daily yields on irish land bonds listed on the dublin stock exchange during the years 1920 1938 we exploit irish events during the period and structural differences in land bonds to tease out a measure of investors credibility in a uk sovereign guarantee using ireland s default on intergovernmental payments in 1932 we find a premium of about 43 basis points associated with uncertainty about the uk government guarantee we discuss the economic and political forces behind the irish and uk governments decisions pertaining to the default our finding has implications for modern day proposals to issue jointly guaranteed sovereign debt further in view of all the historical circumstances it is not equitable that the irish people should be obliged to pay away these moneys eamon de valera 12 october 1932

assassinations evaluating the effectiveness of an israeli counterterrorism policy using stock market data since the outbreak of the intifada in september 2000 the israeli government has extensively employed a policy of assassinating members of palestinian terrorist organizations theoretically the net effect of an assassination on future terrorism is indeterminate because it embodies two conflicting effects the assassination of a terrorist hurts his organization s capabilities but may increase the motivation for future attacks our indirect empirical evaluation of the effectiveness of assassinations for isreali counterterrorism is based on israeli stock market reactions to news of such operations we rely on the fact that terrorism has had significant adverse effects on the israeli economy and claim that the stock market should react positively to news about effective counterterrorism measures but negatively to news about counterproductive ones we find that the market does not react to assassinations of low ranked members of palestinian terrorist organizations the market does react strongly however to the assassinations of senior leaders of terrorist organizations it declines following assassinations targeting senior political leaders but rises following assassinations of senior military leaders to the extent that these reactions reflect expectations regarding future levels of terrorism they imply that the market perceives the first type of assassinations as counterproductive but the second as an effective measure in combating terrorism

the appeal of neoclassical economics some insights from keynes s epistemology neoclassical economics continues to hold a particularly strong appeal for economists in spite of concerns about its internal logic and applicability to policy issues this appeal can be understood in terms of keynes s system of logic which established grounds for rational belief when knowledge is in general uncertain mainstream methodology limits economic theory to those elements of the economic process which can in practice be represented by a closed formal system a high degree of certainty can be achieved within those limits keynes s more general epistemology supports a methodology which can increase knowledge beyond those limits and thus extend the applicability of economics if this approach is to be pursued economics education needs to be broadened c 1995 academic press limited copyright 1995 by oxford university press

counting the cost of the intifada consumption saving and political instability in israel in this paper we investigate some of the ways in whichshort term variations in the magnitude of politicalinstability can impact on macroeconomic performance takingthe example of israel since 1987 several indicators ofpolitical instability are found to have a significant impacton aggregate consumption and savings and explain a large partof poor israeli savings performance over recent years

do panels help solve the purchasing power parity puzzle although rogoff described the remarkable consensus of 3 to 5 year half lives of purchasing power parity ppp deviations among studies using long horizon data recent works using panel methods with post 1973 data report shorter half lives of 2 to 2 5 years but these studies do not use appropriate techniques to measure persistence we extend median unbiased estimation methods to the panel context calculate both point estimates and confidence intervals and provide strong evidence confirming rogoff s original claim although panel regressions provide more information on the persistence of real exchange rate shocks than univariate regressions they do not help solve the ppp puzzle

macroeconomic consequences of terror theory and the case of israel abstract this paper analyzes the effect of terror on the economy terror endangers life such that the value of the future relative to the present is reduced hence due to a rise in terror activity investment goes down and in the long run income and consumption go down as well governments can offset terror by putting tax revenues into the production of security facing a tide in terror a government that acts optimally increases the proportion of output spent on defense but does not fully offset the tide thus when terror peaks the long run equilibrium with an optimizing government is of lower output and welfare next we show that this theory of terror and the economy helps to understand changes in trend and business cycle of the israeli economy the estimates show that terror has a large impact on the aggregate economy continued terror at the level of the death toll by about the same size as due to car accidents is expected to decrease annual consumption per capita by about 5 in 2004 had israel not suffered from terror during the last 3 years we estimate that the output per capita would have been 10 higher than it is today

german debt traded in london during the second world war a british perspective on hitler two series of german bonds issued in 1924 and 1930 traded on the london stock exchange throughout hitler s 1933 45 regime in germany we isolate both structural breaks and turning points in these bond series major turning points follow hider s reintroduction of conscription in 1935 the outbreak of war in 1939 and the d day invasion of june 1944 the german bonds sustained downward trend after 1935 suggests that bondholders recognized the risks posed by hitler s programme bond prices recovered during the war however and appear to have anticipated the overthrow of hitler and the postwar settlement of foreign bondholders claims german bonds even in peace time were distinctly dubious investments and the fact of war has entirely justified the distrust with which they have long been regarded

the evolution of purchasing power parity abstract a large body of literature in international finance has attempted to estimate the speed of convergence between countries aggregate price indices to those levels predicted by purchasing power parity ppp this paper takes a novel approach by considering how this speed of convergence itself has evolved over time using a dynamic common correlated effects dcce framework from chudik and pesaran 2015 applied to a panel of countries real exchange rates over the years 1960 2015 we find an average half life of around 3 years moreover we show that the estimated half life fell by about 2 years over the course of the past five decades suggesting that the so called ppp puzzle rogoff 1996 may abating over time our results also serve to contextualize past estimates by demonstrating a high degree of sample selection sensitivity in this literature furthermore we propose explanations for the observed increase in the speed of international price adjustments focusing primarily on the increasingly tradable nature of the composition of the u s consumer price index cpi we build a measure of tradability of the cpi and show that despite an increase in the proportion of services in the average consumer s basket the cpi has become more tradable over time thus offering a potential explanation for the observed increase in adjustment speed

small investment and large returns terrorism media and the economy the study investigates the role of the media in the impact of terrorism on the economy a unique data set of the newspaper articles that reported terrorist attacks during 2002 is used to evaluate their impact on the tel aviv stock exchange an econometric analysis is performed in order to understand how a newspaper decides to cover a terrorist attack i e the number of articles positioning of articles whether to include photos and the size of headlines it was found that media coverage is an important channel through which terrorism produces economic damage the findings also showed that the economic damage caused by terrorist attacks increases monotonically with the amount of media coverage it was also found that the economic impact of the media coverage diminishes over time

asset market perspectives on the israeli palestinian conflict this paper locates turning points in the israeli palestinian conflict since the late 1980s using asset market data from israel and the palestinian authority pa we find that major escalations in violence such as the outbreak of the intifada in 2000 lead to significant declines in asset prices in both israel and the pa conversely major peace initiatives such as the oslo accords in 1993 and the road map plan in 2003 lead to substantial increases in asset prices on both sides of the conflict an additional novel finding is that asset markets respond positively to the success of politicians who favour a negotiated settlement to the conflict

wars and markets how bond values reflect the second world war historical events are reflected in asset prices based on a unique data set we analyse government bond prices of germany and austria traded on the swiss bourse during the second world war some war events generally considered crucial are clearly reflected in government bond prices this holds in particular for the official outbreak of the war and the loss and gain of national sovereignty other events to which historians attach great importance are not reflected in bond prices most prominently germany s capitulation in 1945 the analysis of financial markets provides a fruitful method for evaluating the importance contemporaries attached to historical events

exchange rates and casualties during the first world war abstract i estimate two factor models of swiss exchange rates during the first world war i have data for five of the primary belligerents britain france italy germany and austria hungary at the outbreak of the war these nations suspended convertibility of their currencies into gold with the promise that after the war each would restore convertibility at the old par however once convertibility was suspended the value of each currency depended on the outcome of the war from these exchange rates i extract a common trend and a common factor movements in the common trend are consistent with the quantity theory of money the common factor contains information on contemporaries expectations about the war s resolution this common factor and its innovations are correlated with time series on soldiers killed wounded and taken prisoner

turning points in the civil war views from the greenback market in early 1862 the united states government began issuing greenbacks a legal tender currency that was not convertible into gold the government promised to redeem the greenbacks in gold eventually but speculators understood that the probability of redemption depended on union army military fortunes and political developments that affected the total cost of the war to serve the speculative interest in gold a market emerged for the purpose of trading greenbacks for gold dollars because the market price of a greenback reflected the public s perceptions of future war costs the movement of these prices provides unique insights into how people at the time perceived various events we use daily quotations of the gold price of greenbacks to identify a set of dates during the civil war that market participants regarded as turning points in some cases these dates coincide with events familiar from conventional historical accounts of the war in other instances however market participants reacted strongly to events that historians have not viewed as very significant this abstract was borrowed from another version of this item

purchasing power parity under the gold standard 1 introduction long run purchasing power parity lrppp a mainstay of international economic theory has proved difficult to back up empirically many attempts have been made using various time series of data yet results continue to be mixed a standout exception to these mixed results is presented by diebold husted and rush 1991 whose work has been interpreted as very strong evidence of lrppp because of their across the board rejection of the unit root for a large sample of real exchange rates baillie 1996 p 51 cites diebold husted and rush as reestablishing purchasing power parity as a meaningful long run concept despite the substantial mixed results of other studies these mixed results are usually attributed to the power problems associated with standard unit root tests especially for small samples diebold husted and rush 1991 overcome these shortcomings by loosening the structure of the model to allow a longmemory process diebold husted and rush 1991 model real exchange rate behavior using autoregressive fractionally integrated moving average arfima models in doing so they reject the unit root for 16 real exchange rates from the gold standard era in favor of a fractionally integrated alternative hypothesis a long memory process is essentially a stationary one but where the autocorrelations take far longer to decay than the exponential rate associated with the autoregressive moving average arma class baillie 1996 p 6 this observation implies that purchasing power parity ppp holds but in some cases only in the extreme long run we agree with diebold husted and rush 1991 that the structure of standard unit root tests is overly restrictive however we offer a different solution to this problem from standard unit root tests one must conclude that either all deviations from ppp are permanent or all deviations dissipate over time however there is a third possibility that has both theoretical and empirical support unit root tests do not allow the possibility that while most deviations dissipate a few remain as permanent shocks real exchange rates may show substantial mean reversion but to a changing mean rather than to the constant ppp value this idea which we call quasi purchasing power parity qppp draws support from the balassasamuelson theory which asserts that productivity shocks can have permanent effects on real exchange rates samuelson 1994 p 202 criticizes economists who tried to use ppp as a guide even when substantive microeconomic changes had taken place between the previous putative equilibrium period and the new status quo he cites an example from the 1980s when the actual yen dollar exchange rate was 150 yen per dollar according to ppp the equilibrium exchange rate was 200 yen per dollar yet the rate proceeded to drop to 110 yen per dollar and below in qppp terms this situation would represent not a lack of mean reversion but evidence of an equilibrium that had shifted away from ppp this is a form of the penn effect whereby a rich country in comparison with a poor one will be estimated to be richer than it really is if you pretend that the simplified cassel version of purchasing power parity is correct samuelson 1994 p 201 we assert that this penn effect can occur not just between rich and poor countries but between any two countries if one of these countries is affected by a permanent external shock qppp also supports engel s 1996 p 1 proposition that the real exchange rate evolves as the sum of two processes a stationary but persistent component and a non stationary component it is generally held that while the exchange rate deviates from its long run equilibrium value in the short run it eventually converges to that equilibrium value in the long run the question then is what is that long run equilibrium value some argue it is the ppp level while others argue that there is a complex set of factors determining the long run value including such things as the relative labor productivities at home and abroad engel 1996 p

modelling political instability and economic performance israeli investment during the intifada i construct a model of investment in israel that incorporates both standard economic factors and indicators of political instability and unrest the model is used to estimate both the extent to which the intifada has depressed israeli investment in different kinds of capital good and the size of the corresponding peace dividend

additional evidence of long run purchasing power parity with restricted structural change we investigate two alternative versions of purchasing power parity ppp reversion to a constant mean in the spirit of cassel and reversion to a constant trend in the spirit of balassa and samuelson using long span real exchange rate data for industrialized countries we develop unit root tests that both account for structural change and maintain a long run mean or trend with conventional tests previous research finds evidence of some variant of ppp for 9 of the 16 countries with the unit root tests in the presence of restricted structural change we find evidence of ppp for five additional countries