the crisis of intellectual monopoly capitalism the last three decades have witnessed the emergence of a new species of capitalism in spite of marked differences between its national varieties a common characteristic of this species can be found in the global monopolisation of knowledge this monopolisation involves hierarchical relations among firms and between capital and labour because the capital of some firms includes the exclusive ownership of much of the knowledge used in production since the 1994 trade related aspects of intellectual property rights agreements the growing commoditisation of knowledge has extended the role of closed science and closed markets at the expense of open science and open markets the intrinsic long term dynamics of this species of capitalism is increasingly characterised by financialisation inequality and stagnation in order to exit from the current crisis we must change many features of intellectual monopoly capitalism and rely on an eclectic approach that draws insights from liberal keynesian and marxian traditions

political risk national defense and the dollar the federal reserve board s trade weighted real exchange rate index is highly correlated with the u s defense budget share of gnp this paper provides evidence that the correlation is not spurious political risk associated with holding wealth in the united states varies inversely with u s military security and due to the soviet military threat to the west is a major argument in foreign asset demand functions

the crash of the knowledge economy this paper advances the hypothesis that some of the roots of the present crisis are to be found in the present institutions of the knowledge economy while protectionism is seen as a possible dangerous outcome of the crisis the extent of protectionism inherent to the strengthening and globalisation of intellectual property rights iprs associated in particular with the signing of the trade related aspects of intellectual property rights agreement is not generally perceived as one of its possible causes indeed iprs have acted as super tariffs they have particularly raised the cost of investments for countries that had neither abundant cheap labour nor high amounts of intellectual property resources moreover iprs may have later exerted negative effects even on ip rich firms as the proliferation of conflicting rights has led firms to increasingly inhibit each other s investments the resulting investment strike has manifested itself as a saving glut and has mainly affected the usa in a situation aggravated by inadequate regulations if intellectual monopolies are one of the causes of the crash the remedies should not only focus on monetary policy financial regulations or even on standard keynesian policies aggregate demand stimulus should be coupled with policies that decrease the level of intellectual monopolisation of the economy

nationalism development and integration the political economy of ernest gellner in this paper we show how in gellner we can find a stimulating analysis of the institutional equilibria that characterise agrarian and industrial society and the conditions that make possible institutional change from one equilibrium to another this allows a convincing account of the reasons why some countries industrialised before others and why nationalism had such an uneven impact on the development of market economies we consider the relation between gellner s analysis and other theories of organisation and point out how gellner can help to solve some paradoxes that arise in these theories we also argue that joining gellner s contribution to the analysis of the positional nature of status and power reinforces his conclusion about the necessary stagnation of agrarian societies and the necessary over accumulation of different forms of capitalism we conclude by examining the implications of his analysis for the process of globalisation and its challenge to national states

an equilibrium theory of nominal and real exchange rate comovement abstract this study develops a quantitative equilibrium theory to offer an explanation of one of the most puzzling aspects of empirical exchange rate behavior the high degree of nominal and real exchange rate comovement technology shocks coupled with the accomodative response of monetary policy to output fluctuations are primarily responsible for the covariation between nominal and real exchange rates shocks to the marginal efficiency of investment also play an important role

the economic consequences of extending the use of fair value accounting in regulatory capital calculations a discussion abstract when the federal reserve following basel iii proposed removing the accumulated other comprehensive income aoci filter that shields regulatory capital from unrealized gains and losses on available for sale afs debt securities it triggered fierce opposition the topic is at the heart of the debate about the role of fair value accounting for financial stability chircop and novotny farkas 2016 investigate banks stock price reaction and investment behavior around news events up to the announcement of the final decision i focus on the question of whether their evidence is sufficiently strong to convince either side in the debate

working life well being and welfare reform motivation and institutions revisited summary this article revisits the relation between economic institutions and motives to work it proposes moving away from a dominant polemical focus on the impact of a single source of security income support towards a multi factorial analysis based on control over working life as a source of well being and motivation to work drawing on surveys of two urban constituencies in sao paulo brazil it is found that income security supports an aristotelian principle of work motivation as individual development however labour market institutions and opportunity levels affect this link implications include a need to consider the distribution of economic control as a key aspect of both human and economic development

labor markets as gendered institutions equality efficiency and empowerment issues abstract labor markets are gendered institutions operating at the intersection of the productive and reproductive economies participation in labor markets does not automatically empower women reduction in gender differentials in earnings may be the result of harmonizing down rather than up discrimination against women may persist because in the absence of institutional changes it is profitable it is important to distinguish between static and dynamic and micro and macro efficiency labor market regulation has an important role to play in the institutional transformation needed to reconcile goals of efficiency and equality

the role of intangible assets in explaining the investment profit puzzle starting around the early 2000s and especially after the 2008 crisis the rate of capital accumulation for us nonfinancial corporations has slowed down despite relatively high profitability indicating a weakening of the link between profitability and investment while the literature mostly focuses on financialisation and globalisation as the reasons behind this slowdown i suggest adding another layer to these explanations and argue that in conjunction with financialisation and globalisation we need to pay attention to the increased use of intangible assets by nonfinancial corporations in the last two decades intangibles such as brand names trademarks patents and copyrights play a role in the widening of the profit investment gap as the use of these assets enables firms to increase market power and profitability without necessarily generating a corresponding increase in fixed capital investment after discussing the ways nonfinancial corporations use intangible assets i look at large corporations in the usa and find the following i the ratio of intangible assets to the capital stock increased in general this increase is highest for firms in high technology healthcare nondurables and telecommunications ii industries with higher intangible asset ratios have lower investment to profit ratios iii industries with higher intangible asset ratios have higher markups and profitability iv the composition of the nonfinancial corporate sector has changed and the weight of high technology and healthcare firms has increased but this increase did not correspond to an equal increase in their investment share the decline in the investment share of durables nondurables and machinery is matched by an increase in the investment share of location specific industries with low intangible asset use most notably firms in energy extraction in general these firms have steadier markups and higher investment to profit ratios v yet intangible intensive industries profitability has increased faster than their share of investment or total assets all in all these findings are in line with the suggestion that the increased use of intangible assets enables firms to have high profitability without a corresponding increase in investment

the behavior of flexible exchange rates evidence and implications for predicting currency price movements furthermore variations in nominal exchange rates are dominated by changes in real rates past rate changes will not be useful for predicting inflation or vice versa changes in money supplies real incomes interest rates and current or trade accounts appear not to be systematically related to changes in exchange rates in the absence of any systematic component that could be exploited for forecasting purposes what means are available for controlling exchange rate risk hedging can be used with some effect but the optimal hedging policy is still a matter of debate given the relatively low correlations between euromarket interest rates and returns on common stock indexes and relative changes in exchange rates diversification across international markets offers considerable potential for risk reduction

endogenous risk in a portfolio balance rational expectations model of the deutschemark dollar rate abstract a portfolio balance model of the dm s rate under rational expectations is specified in which systematic risk induced deviations from uncovered interest parity are allowed this leads to a reduced from containing a potentially time varying risk premium which we approximate and estimate using an arch in mean approach the maximum likelihood estimator and a lagrande multiplier test for arch in mean are developed the estimation results indicate a small but non negligible time varying risk premium

conformity replication of design and business niches conformity affects the choice and design of organizations conformists replicate successful strategies play along with the rules of the game and display inert behavior conformity leads to the dominance of one mode the combined impact of conformity and inertia and the existence of employment costs switching costs and network externalities may exclude equally or superior efficient modes from replacing the incumbent mode the first mover unable to overcome these barriers to entry efficient maverick organizations are forced into niches this is illustrated with respect to niches formed by labor managed firms and ethnic businesses

currency fluctuations in the post bretton woods era the international monetary landscape that has emerged since the felling of bretton woods is characterized by a hybrid exchange rate system that lies somewhere between the textbook polar cases of a gold standard and a pure float this system has relatively flexible exchange rates between major countries active central bank intervention in the market for the major currencies and predominantly fixed exchange rates relative to the dollar or to some basket of currencies for less developed countries and newly industrializing nations the majority of research on currency markets since the early 1970s has focused on the characteristics of flexible exchange rates under this hybrid regime my thesis is that this research has been unsuccessful the proportion of monthly or quarterly exchange rate changes that current models can explain is essentially zero even after the fact forecasts that use actual values instead of forecasted values of the explanatory variables cannot explain major currency movements over the post bretton woods era this result is quite surprising since exchange rate changes would be entirely unpredictable only in very special cases of the theoretical models discussed as the discussion below will argue it is not a general implication of market efficiency that exchange rates follow a random walk process 1

an econometric model of canadian monetary policy over the 1970s the last decade has witnessed the emergence of the bank of canada as a key participant in the arena of policy formation indeed the high profile of the governor and the bank has given rise to a considerable amount of discussion and debate over canadian monetary policy in both the popular media and academic journals i to a large extent this analysis has been essentially descriptive being based upon casual observations rather than a tightly formulated econometric model from the viewpoint of understanding the canadian economy over the 1970s there is a growing need to establish empirically the mechanisms of monetary policy in canada and to determine its impact upon such macroeconomic variables as real output the purpose of this paper is to specify and to estimate a simple model of canadian monetary policy over the seventies the model s focus is upon several prominent institutional details that are special to the operation of canadian monetary policy accordingly the model reflects the practice of the bank of canada in setting nominal interest rates and allowing the nominal money supply to be demand determined this modeling necessarily leads to an examination of the role and effects of the money targets adopted by the bank of canada since 1975

gender awareness in modeling structural adjustment abstract the macroeconomic models underpinning the design of structural adjustment programs are gender blind this paper discusses strategies for introducing gender analysis into these models and evaluates the strengths and weaknesses of the models from a gender perspective it concludes that besides being blind to gender the models are also blind to the waste of resources and impoverishment that stems from deficient aggregate demand undemocratic decision making and directly unproductive expenditures that buttress male power this waste is however likely to be diminished by moves to more egalitarian systems of gender relations entailing changes in the structure of entitlements and the social matrix in which macroeconomic processes are embedded

loan loss provisioning rules procyclicality and financial volatility interactions between loan loss provisioning regimes and business cycle fluctuations are studied in a dynamic stochastic general equilibrium model with credit market imperfections with a specific provisioning system provisions are triggered by past due payments with a dynamic system both past due payments and expected losses over the whole business cycle are accounted for and provisions are smoothed over the cycle numerical experiments with a parameterized version of the model show that a dynamic provisioning regime can be highly effective in mitigating procyclicality of the financial system the results also indicate that the combination of a credit gap augmented taylor rule and a dynamic provisioning system with full smoothing may be the most effective way to mitigate real and financial volatility associated with financial shocks

politics and exchange rate forecasts abstract standard exchange rate models perform poorly in out of sample forecasting when compared to the random walk model we posit part of the poor performance of these models may be due to omission of political factors we test this hypothesis by including political variables that capture party specific election specific and candidate specific characteristics surprisingly we find our political model outperforms the random walk in out of sample forecasting at 1 12 month horizons for the pound dollar mark dollar pound mark and the trade weighted dollar mark and pound exchange rates

estimation and empirical properties of a firm year measure of accounting conservatism we estimate a firm year measure of accounting conservatism examine its empirical properties as a metric and illustrate applications by testing new hypotheses that shed further light on the nature and effects of conservatism the results are consistent with the measure c score capturing variation in conservatism and also predicting asymmetric earnings timeliness at horizons of up to 3 years ahead cross sectional hypothesis tests suggest firms with longer investment cycles higher idiosyncratic uncertainty and higher information asymmetry have higher accounting conservatism event studies suggest increased conservatism is a response to increases in information asymmetry and idiosyncratic uncertainty

property rights asset specificity and the division of labour under alternative capitalist relations is the division of labor under capitalism because of transaction and technological efficiency or because of inefficient capitalist property rights the answer of this paper is that under classical capitalism there is an inefficient division of labor because of underinvestment in asset specific labor which can be improved by expanding workers rights in two different ways defining company workers and unionized capitalism an implication of the analysis is that markets far from being the selection mechanism where efficient institutions evolve may imply the reproduction of inefficient property rights and be shaped by them copyright 1991 by oxford university press

empirical models of the exchange rate separating the wheat from the chaff various popular exchange rate models a standard monetary model a portfolio balance model and sticky price models are estimated and evaluated using u s canadian data for the 1970s nonnested hypothesis tests demonstrate that none are correctly specified the data suggest 1 the exchange rate persistence observed is not fully explained by any of the models 2 the small durbin watson statistics indicate longer lags are required 3 the current account is a useful explanatory variable 4 the portfolio balance model fits the data well but has potentially serious problems measuring the stock of foreign assets this abstract was borrowed from another version of this item

testing interest rate parity and rational expectations for canada and the united states the purpose of this paper is to examine the joint hypothesis of interest rate parity and rational expectations for canada and the united states using monthly data two approaches to testing are considered 1 the substitution method and 2 testing the cross equation non linear rational expectations restrictions from solving the interest rate parity equation it is demonstrated that standard application of the substitution method requires the assumption that the interest rate parity equation holds deterministically tests for unit roots in the spot exchange rate and interest rate differentials are also investigated

geopolitics and the dollar abstract in this paper coefficients relating the real dollar exchange rates of 11 industrialized democracies to us defense expenditures are found to be a function of geopolitical national security variables these findings support the hypothesis that safe haven investment decisions have affected real dollar exchange rates over the 1973 86 period

does managerial sentiment affect accrual estimates evidence from the banking industry abstract we examine whether managerial sentiment is associated with errors in accrual estimates using public banks we find 1 managerial sentiment is negatively associated with loan loss provision estimates 2 future charge offs per dollar of provision are positively associated with sentiment when the provision is estimated and 3 the effects of sentiment are greater for firms with more uncertain charge offs results are similar for private banks suggesting accrual manipulation related to capital market incentives is unlikely to explain the results although economic fundamentals explain most of the variation in the provision we find sentiment has an incremental and economically meaningful effect

terms of trade and real exchange rates the canadian evidence abstract this paper presents empirical evidence linking the canada us real exchange rate with the terms of trade using recently developed econometric methods for nondashstationary data we find that the real exchange rate is cointegrated with terms of trade variables and that causality runs from the terms of trade to the exchange rate we then construct a simple exchange rate equation that satisfies several specification tests and performs better than a random walk in post sample forecasting experiments the results suggest that much of the variation in the real exchange rate is attributable to movements in the terms of trade and that the influence of monetary factors is secondary

exchange rate models and exchange rate expectations an empirical investigation a non parametrictest of popular modern exchange rate models under alternative expectation specifications is presented it is found that there is little difference in the predictive success of the alternative exchange rate models however there are significant differences in the performance of a model depending upon the expectations mechanism specified our most important finding is that the flexible price monetary model the portfolio balance model and a hybrid model under extrapolative and adaptive expectations mechanisms provide statistically significant information about the direction of exchange rate movements by contrast the same models when employing static regressive and rational expectation mechanisms do not provideany satistically significant information

earnings management behaviors under different monitoring mechanisms the case of islamic and conventional banks abstract we investigate the impact of organizational religiosity on the earnings quality of listed banks in the middle east and north africa region we analyze islamic banking institutions which operate within strict religious norms and extended accountability constraints and compare them with their conventional counterparts during 2008 2013 we find that islamic banks are less likely to manage earnings and that they adopt more conservative accounting policies based on these findings we argue that religious norms and moral accountability constraints in these organizations have a significant impact on financial reporting quality and agency costs which have implications for both regulators and market participants

do delays in expected loss recognition affect banks willingness to lend abstract banks can decrease their future capital inadequacy concerns by reducing lending the capital crunch theory predicts that lending is particularly sensitive to regulatory capital constraints during recessions when regulatory capital declines and external financing frictions increase regulators and policy makers argue that the current loan loss provisioning rules magnify this pro cyclicality exploiting variation in the delay in expected loss recognition under the current incurred loss model we find that reductions in lending during recessionary relative to expansionary periods are lower for banks that delay less we also find that smaller delays reduce the recessionary capital crunch effect these results hold across management quality partitions

state ownership and the evolution of italian corporate governance state ownership pyramidal groups family trust and a minor role for banks and other financial institutions in the corporate governance of both large and small enterprises are the structural features of italian capitalism today this paper offers a critical analysis of state ownership by analysing the evolution of italian corporate governance since the second world war it concludes that full or majority state ownership of corporations can be effective in separating ownership and control during stages of powerfully accelerating growth and when shifts in the sectoral balance are needed that state owned enterprises must not be burdened with special social objectives and that the system is bound to degenerate without a functioning political market to guarantee democratic changes of parties and power and if the mission culture of public managers is eroded

unstable money demand and the monetary model of the exchange rate in this paper the authors investigate the importance for the monetary model of exchange rate determination of j frankel 1979 of allowing unrestricted dynamics and of accounting for shifts in the demand for money due to financial innovation based on estimation and simulation results for the canada u s bilateral exchange rate over the 1970 85 period the aut hors find strong evidence in favor of a generalized approach to dynamic specification but find that the shif t adjustment of official money supply data has only minor implications for the empirical results moreover neither modification is sufficient to generate a monetary model that is well supported by the data

comovements of budget deficits exchange rates and outputs of traded and non traded goods i introduction the total united states budget deficit was roughly zero at the beginning of 1981 after some ups and downs the deficit reached 140 billion in early 1985 and remained high compared to deficit levels experienced in peacetime years prior to 1981 during the period 1981 1985 the u s dollar appreciated sharply relative to foreign currencies in both nominal and real terms the current account of the u s balance of payments moved from a surplus of 6 0 billion in 1981 into a series of large recurrent deficits reaching an annual rate of 120 billion by mid 1985 the simultaneous occurrence of these events suggests that budget deficits cause a country s currency to appreciate which in turn reduces the country s international competitiveness stories are reported in the popular financial press and conventional wisdom is used to link these events using the identities of national income accounts it is shown that budget deficits must crowd out domestic spending by raising the domestic saving investment gap in addition the deficits can be financed by the rest of the world through the generation of a deficit in the current account of the balance of payments typically it is argued that the rise in the rate of interest and real appreciation of the dollar are necessary in order to bring about the saving investment gap and the current account deficit needed to finance the large u s budget deficits this paper attempts to provide an alternative structural explanation of these comovements in exchange rates and government budget deficits my model expands on previous work to include fiscal policy considerations in a stochastic setup it shows that within a simple two country cash in advance constraint model it is possible to have a positive correlation between increases in the budget deficit and exchange rate appreciation additionally it is possible to have a negative correlation between exchange rate appreciation and a reduction in domestic traded goods production the implication then is that the usual twin deficits argument about the linkages between budget deficits exchange rates and trade deficits is only one of a number of possible explanations of the correlations that appear in the data of the 1980s the model i have used in this paper is as far as i know the first international general equilibrium monetary asset pricing model with endogenous budget deficits most of the explanations that relate exchange rates and the federal government s budget deficit or the trade deficit are based on a particular disequilibrium theory of exchange rates the model of this paper however is based on an equilibrium model of exchange rates it is based on simple economic principles it uses the national accounts definition of the government s nominal budget deficit as an increase in the dollar value of the government s holdings of money and bonds a change in the domestic productivity of traded goods and the money supply yields a change in both the nominal price of bonds and the government budget deficit a change in the supply of domestically produced traded goods also yields changes in their relative price the real exchange rate repeated disturbances to the supply of traded goods and the money supply create a correlation between budget deficits and real exchange rates recently branson and love 1988 and ceglowski 1989 among others blame the real exchange rate as the primary cause of u s industries weak performance in the 1980s it is important to realize the real exchange rate itself is an endogenous variable its behavior as i will show is a result of underlying economic changes hence it is incorrect to blame decreased u s competitiveness on the real exchange rate moreover most popular models which presume a relationship between budget deficits and real exchange rates attribute no role to the monetary sector this paper demonstrates the importance of bringing both monetary and real sectors into the model in order to analyze such relationships

exchange rate overshooting in turkey abstract exchange rate overshooting is said to be a short run phenomenon however when a currency like turkish lira depreciates from 13 to almost 400 000 lira per dollar over three decades one wonders whether it has overshot its long run value as well in this paper we employ a relatively new method of error correction modeling to show how one could test for overshooting in the short run as well as in the long run

econometric approaches to empirical models of exchange rate determination abstract this paper identifies four principal econometric approaches to the estimation and testing of asset market models of exchange rate determination the traditional static reduced form approach the error correction and co integration dynamic reduced form approaches the simultaneous equations approach and large scale multi equation macroeconometric simulation models each of these econometric approaches is evaluated with respect to its theoretical validity and the comparative properties of the empirical results obtained this leads to the conclusion that although there may be little to choose between the different theoretical exchange rate models there may be grounds for favouring a multi equation simultaneous estimation procedure for this class of models

alternative evidence and views on asymmetric loan loss provisioning abstract based on a linear provision charge off association and v shaped scatterplots of these variables against nonperforming loan changes basu et al 2020 argue that nonperforming loan changes mis measure credit quality and linear provision models are mis specified they conclude that residual asymmetry controlling for charge offs results from loan heterogeneity and the real estate crisis using additions to nonaccruals to measure credit quality we find a linear association with provisions that controlling for charge offs induces misspecification and no evidence of provision asymmetry these results highlight the importance of basing hypotheses and causal models on theoretical underpinnings rather than on plots subject to known fallacies

forecast performance of exchange rate models revisited this paper re evaluates the performance of reduced form exchange rate models by updating the messe rogoff study 1983 this paper confirms earlier tests showing that simple monetary models do not perform well but it finds more positive results for other monetary models that incorporate more dynamic econometric specifications a simple error correction monetary model out forecasts a random walk almost half of the time

efficiency and a simple model of exchange rate determination abstract a monetary model has no intrinsic dynamics so the intertemporal behavior of exchange rates spot and forward depend entirely upon the time processes of the exogenous variables for typical values of interest elasticities of money demand only if all shocks are permanent do exchange rates follow random walks recently changes in relative outputs and money supplies in the canadian us context have evidenced serial correlation so that shocks are not exclusively permanent ones none the less exchange rates have followed a random walk this suggests that the monetary model is an inappropriate specification and that models which pay attention to the choice of currency of denomination deserve greater attention

stabilization of the canadian dollar 1975 1986 the authors extend their earlier work on canadian intervention in the foreign exchange market in three ways 1 use daily data from 1975 to 1986 to see if results for the 1950s hold during the current float 2 extend their original model to include both stock and flow versions of the foreign exchange market and 3 compare estimates using published canadian holdings of u s dollars to estimates using actual intervention which is confidential canadian authorities continue to lean against the wind but their lagged response is longer and more variable published data effectively reflect intervention

a positive theory of the predatory state while the distinction between public and private goods is essential in developing a normative theory of non predatory states the focus of this article is on a positive theory of predatory states since the predatory relationship between the state and its subjects depends on the power of the state to grab or to appropriate coercively and the subject s ability to escape or hide the boundaries of the state are decided by the nature of the assets that can be taken more or less easily accordingly i will introduce a new distinction between captive and fugitive assets that positively captures the frontiers of a state space the us railroading in the nineteenth century provides an illustration regarding the explanatory power of an asset appropriating perspective of the state compared to a public goods approach

news sentiment and overshooting of exchange rates abstractin a globalized world the volume of international trade is based on both import and export prices thereby making a country s economy highly dependent on exchange rates in order to study exchange rate movements one frequently exploits the so called dornbusch overshooting model however the model is controversial from a theoretical point of view it explains exchange rate movements by a number of fundamental variables but ignores how novel information in the form of news can enter the market as a remedy this article adjusts for information dissemination by performing a multivariate analysis to compare the classical overshooting model with an extended variant that includes news sentiment our results show that news sentiment has a substantial explanatory power of 11 of the exchange rate forecasting error variance in addition we also find statistical evidence that a shock in news sentiment may lead to overshooting

long term trend and short run dynamics of the canadian dollar an error correction modelling approach using quarterly data for 1972 2000 the paper examines the long term and short term movements of the us canadian exchange rate it is found that the standard purchasing power parity condition fails to explain movements of the canadian dollar the explanatory power of the model increases significantly when resource commodity prices are added to the equation short term movements in the canadian dollar are influenced by the interest rate differential between canada and the usa

competence and contract in the theory of the firm abstract the coase williamson response to the question why do firms exist is based on the idea that transaction costs in viable firms are lower than they would be if production was coordinated through the market the explanatory focus of this argument is on the diminution of costs related to transactions between given individuals however this ignores the possibility of activities which are in principle non contractible including aspects of the process of production further the reliance on comparative statics in transaction cost theory downplays the distinctive kind and rate of human learning that takes place within firms this paper argues that work on organizational learning and cultural transmission reinforces a competence based explanation of the existence and relative efficiencies of firms and this approach can also provide answers to the original question posed by coase accordingly the development of a research program involving a conjoint evaluation of both competence based and transaction cost approaches is proposed

real exchange rates and macroeconomics evidence and theory since the early 1980s a large body of research has thrown doubt on the relevance of macroeconomic models for understanding exchange rates the authors argue that a balanced reading of recent literature in exchange rate economics gives a more optimistic assessment many studies have established the pertinence of long run purchasing power parity ppp and the explanatory power of macroeconomic fundamentals in real exchange rate fluctuations a reasonably strong case can be made for a traditional macroeocnomic interpretation of real exchange rates which emphasizes short run price stickiness but long run ppp but a central new ingredient in this interpretation is the presence of international commodity market segmentation and persistent deviations from the law of one price an example is given of a dynamic general equilibrium model that can reproduce some of the observed features of real exchange rate fluctuations

the out of sample forecasting performance of exchange rate models when coefficients are allowed to change abstract this study examines the out of sample forecasting performance of models of exchange rate determination without imposing the restriction that coefficients are fixed over time both fixed and variable coefficient versions of conventional structural models are considered with and without a lagged dependent variable while our results on fixed coefficient models support most of the meese and rogoff conclusions we find that when coefficients are allowed to change an important subset of conventional models of the dollar pound the dollar deutsche mark and the dollar yen exchange rates can outperform forecasts of a random walk model the structural models considered are the flexible price frenkel bilson and sticky price dornbusch frankel monetary models and a sticky price model which includes the current account hooper morton

u s military expenditure and the dollar u s military expenditure and the dollar i introduction many recent contributions have tried to explain fluctuations in the real exchange rate of the dollar against major currencies most of all the japanese yen and the deutsche mark among these ayanian 1987 studies whether political risk is one fundamental variable to which the value of the dollar can be anchored he argues that an increase in military expenditure in the united states should increase the foreign demand for dollar denominated assets based on a safe haven argument and appreciate the dollar ayanian claims that this kind of relationship exists between the fed real exchange rate index and defense expenditure as a percentage of gnp for 1973 85 this paper applies techniques recently developed in the nonstationary time series literature we believe this to be the correct way to analyze problems related to the real exchange rate the use of a longer time period and a slightly different specification of the real exchange rate equation shows that ayanian s safe haven argument can indeed be justified by the data the rest of this paper is organized as follows section ii describes the essential features of the methodology used to analyze the relationship between the real exchange rate and expenditure on military defense the third section discusses the choice of the data and the sample period section iv reports results and section v concludes ii nonstationary time series econometrics the work of nelson and plosser 1982 showed that a large number of economic time series can be described in terms of nonstationary stochastic processes of the form y sub t mu alpha y sub t 1 u sub t where mu is a constant drift a 1 and u is an error term if u is an identically and independently distributed series then y sub t is a random walk in general such a representation is known as an integrated process of order one or i 1 phillips 1986 gave a theoretical foundation to some of the findings of granger and newbold 1974 and showed that a spurious relation can emerge when an i 1 process is regressed against another i 1 process thus two nonstationary series may not interact with each other even if the coefficients of the regression are significant according to the traditional t test in fact in this case the usual t ratio does not have a limiting distribution but actually diverges as the sample size increases see phillips 1986 the correct econometric methodology for i 1 variables has recently been explored in engle and grager 1987 under the name of cointegration consequently it is of considerable importance to decide whether a series is i 0 sup 1 or i 1 before doing any empirical work phillips 1987 and phillips perron 1986 developed tests of nonstationarity that generalize the original test used in the nelson plosser study the dickey fuller or the augmented dickey fuller test and other tests proposed in dickey fuller 1981 the new test is more general in that it allows for some degree of autocorrelation and heteroskedasticity in the evolution of the error term u if the hypothesis of nonstationarity can be rejected then standard econometric procedures can be applied if not the theory of cointegration may provide useful information about the relationship between the variables under study two variables x and y are cointegrated if they are individually of order i 1 but can be linearly combined in a way that the residuals from such linear combination are of order i 0 that is stationary this means that each series taken by itself has a tendency to drift apart but that there is some relationship between the two which link one to the other this linear combination can be interpreted as a long run equilibrium relationship moreover granger and engle 1987 showed that if x and y are i 1 and are cointegrated there will always exist an error correction representation of these variables of the following form delta x

asymmetric loan loss provision models abstract large net loan charge offs are frequently associated with large decreases in nonperforming loans and large increases in loan loss provisions inducing a v shaped relation between loan loss provisions and nonperforming loan changes failure to model the asymmetry attributable to net loan charge offs can change inferences about the presence of earnings management and the effects of delayed loan loss recognition in prior papers that assumed linearity future researchers should either include net loan charge offs in linear models of loan loss provisions or explicitly model the asymmetry induced by omitting net loan charge offs

cultural globalisation institutional diversity and the unequal accumulation of intellectual capital national economies used to be characterised by cultural standardisation and social protection globalisation pushes cultural standardisation beyond the boundaries of national states and induces a global dilution of the standards of social protection at the same time if national economies specialise according to their comparative institutional advantage global economic integration may help promote institutional diversity and variety in welfare policies however the institution of a global system of intellectual property rights may seriously limit the biodiversity of capitalism and imply a global revenge of a new international form of taylorism the overall result may be a very unequal accumulation of intellectual capital paradoxically the modern global economy may end up sharing some aspects of the agrarian societies that have been displaced by modern nation states