does exchange rate variability depress trade flows evidence from error correction models this paper examines the impact of exchange rate volatility on the trade flows of the g 7 countries in the context of a multivariate error correction model the error correction models do not show any sign of parameter instability the results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the g 7 countries assuming market participants are risk averse these results imply that exchange rate uncertainty causes them to reduce their activities change prices or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility this in turn can change the distribution of output across many sectors in these countries it is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series copyright 1993 by mit press

has the european monetary system led to more exports evidence from four european union countries abstract we attempt to investigate whether the exchange rate mechanism erm period has coincided with an increase in intra eu exports we conclude that this has not been the case but it is likely that the elimination of nominal exchange rate variability arising from a single currency will boost intra european union trade

symmetric pass through of tariffs and exchange rates under imperfect competition an empirical test abstract this paper examines the effect of tariffs and exchange rates on u s prices of japanese cars trucks and motorcycles in particular we test whether the long run pass through of tariffs and exchange rates are identical the symmetry hypothesis we find that this hypothesis is easily accepted in our sample we also find that the pass through relation varies across products ranging from about 0 6 for trucks to unity for motorcycles these coefficients have very different implications for trade policy we explain the results based on demand cost and institutional conditions in each industry

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

the commodity terms of trade unit roots and nonlinear alternatives a smooth transition approach market price dynamics for north american oriented strand board markets are examined specifically the role of transactions costs are examined vis a vis the law of one price weekly data for the january 3rd 1995 through april 14th 2006 period are used in the analysis nonlinearities induced by unobservable transactions costs are modeled by estimating smooth transition autoregressions stars results indicate that nonlinearity is an important feature of these markets and that the parity relationships implied by economic theory are generally supported by the star models implications for the efficiency of spatial market linkages are examined by estimating generalized impulse response functions

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

is the sticky price assumption reasonable for exchange rate models abstract the testable implications of sticky price exchange rate models are discussed the empirical examples suggest that the predetermined or sticky price assumption employed in recent asset models of exchange rate determination appears to be appropriate for germany japan the united states and the united kingdom

exchange rate volatility exchange rate regime and trade volume evidence from the uk us export function 1889 1999 abstract this paper investigated the impact of exchange rate volatility and exchange rate regime on the british exports to the united states using data for the period 1889 1999 the empirical findings suggest that neither exchange rate volatility nor the different exchange rate regimes that spanned the last century had an effect on export volume

exchange rate hysteresis large versus small policy misalignments abstract using a monetary model in the spirit of dornbusch 1976 and a sunk cost model of trade hysteresis we show that a sufficiently large policy misalignment can induce hysteresis in the trade balance and thereby alter the steady state real exchange rate hence exchange rate dynamics are path dependent since hysteresis in our model can entail industrial dislocation and the scrapping of sunk assets we suggest that these factors constitute a welfare cost of large policy misalignments that have not been considered formally additionally since the long run exchange rate is path dependent standard empirical tests of exchange rate models may involve a misspecification

effects of exchange rate variations on bilateral trade with a vehicle currency evidence from china and singapore abstract using a testable gravity type bilateral trade model derived from an underlying demand and supply model this paper explores the effects of exchange rate variations on bilateral trade in an exchange rate regime with a vehicle currency the introduction of the vehicle currency allows us to figure out whether variations in the trade volume due to the fluctuation of the bilateral exchange rate are primarily due to changes in demand or in supply or both more specifically in this theoretical framework the appreciation of one country s currency against the vehicle currency is expected to promote its imports but the effect of revaluation of the country s currency against the vehicle currency on its exports is ambiguous moreover high volatility of the exchange rate of one country s currency against the vehicle currency is also expected to depress its import volume from the empirical point of view the decomposition of the bilateral exchange rate of two currencies into the bilateral rates of these two currencies against the vehicle currency provides a new alternative to avoid the econometric problem of potential reverse causality in assessing the effects through compiling a novel monthly bilateral trade dataset between china and singapore over 21 years or 252 months we empirically test the predictions of our model which get robust support from the results

promoting democracy in fragile states field experimental evidence from liberia summary we use a cluster randomized field experiment to study two strategies to promote free democratic expression among rural voters in liberia s 2011 general election the context is one of a fragile state in which destructive legacies of liberia s 1989 2003 civil war continue to dominate people s lives a nine month civic education intervention administered by liberian civil society organization partners provided training on election procedures and a forum for monthly discussion of governance issues a nine month security committee intervention administered in partnership with the united nations peacekeeping mission in liberia provided a forum for villagers and international peacekeepers to discuss security threats and develop violence early warning and reaction procedures with the aim of improving citizens perceptions of security during the election we evaluate these programs effects on actual voter behavior in addition to surveyed attitudes we find that civic education increased enthusiasm for electoral participation produced a coordinated shift from parochial to national candidates and increased willingness to report on manipulation a program combining the two interventions had similar effects the security committees produced a modest reduction in parochial voting the policy implications are that third party actors can play a productive role in helping to overcome barriers to information voter coordination and security

purchasing power parity over two centuries abstract this paper re examines the purchasing power parity hypothesis for the dollar sterling exchange rate using the two centuries of data from lothian and taylor lt 1996 real exchange rate behavior the recent float from the perspective of the past two centuries journal of political economy 104 3 488 509 unlike lt we conclude that the dollar sterling rer is nonstationary implying a rejection of the long run ppp hypothesis the differences in our conclusions are explained by 1 sensitivity of adf unit root tests to the choice of lag length and or 2 the presence of significant time trends in the adf or phillips perron unit root test equations

immigration conflict and redistribution we study how the possibility of a conflict between natives and immigrants shapes income redistribution in democracies conflict erupts when immigrants are given less than what they could obtain by resorting to confrontation that in turn can make natives vote for lower tax rates and lower public spending we show that income redistribution both vertical from the rich to the poor and horizontal from natives to migrants decreases with the level of immigration this is because the threat of conflict intensifies as the migrant population becomes bigger inequality softens the effect of immigration on tax rates but reduces horizontal redistribution despite the threat of conflict the welfare of the native population unambiguously increases with the stock of migrants

ppp strikes back aggregation and the real exchange rate we show the importance of a dynamic aggregation bias in accounting for the ppp puzzle we prove that the aggregate real exchange rate is persistent because its components have heterogeneous dynamics established time series and panel methods fail to control for this using eurostat data we find that when heterogeneity is taken into account the estimated persistence of real exchange rates falls dramatically its half life for instance may fall to as low as eleven months significantly below the consensus view of three to five years

import pricing and the trade balance in a popular model of exchange rate determination abstract this paper extends a popular model of exchange rate determination to include an import pricing relationship that is consistenc with imperfect competition in the importable sector the analysis highlights how import pricing behavior and aggregate macroeconomic relationships interact in determining the dynamics of the exchange rate the price of imports and the trade balance a basic prediction of the analysis is that an increase in the substitutability of imported product varieties in the domestic market will raise the responsiveness of the exchange rate and dampen the responsiveness of the trade account to monetary shocks

endogenous institutions and political extremism abstract the election of extreme political leaders is often associated with changes in political institutions this paper studies these phenomena through a model in which the median voter elects a leader anticipating that he will impose institutional constraints such as constitutional amendments judicial appointments or the implicit threat of a coup that influence the behavior of future political challengers it is typically optimal for the median voter to elect an extreme incumbent when democracy is less fully consolidated when the costs of imposing institutional constraints are intermediate and when the distribution of potential challengers is asymmetric the median voter typically elects a more right wing incumbent when the distribution of potential challengers shifts to the left implications of the model for the consolidation of democracy and institutional constraints are discussed as are several related mechanisms through which politicians ability to affect institutions may lead voters to optimally elect extremists

the empirical role of the exchange rate on the crude oil price formation this paper adopts a novel empirical approach to the crude oil price formation for the purpose of understanding the price reactions of opec member countries to changes in the exchange rate of the us dollar against other major currencies and prices of other members the results are broadly consistent with the view of the absence of a unified opec determined price in the international crude market literature in addition the results also highlight a cross regional dimension of the crude oil market

democracy as an equilibrium observation shows that while democracy is fragile in poor countries it is impregnable in developed ones to explain this pattern i develop a model in which political parties propose redistributions of incomes observe the result of an election and decide whether to comply with the outcome or to launch a struggle for dictatorship democracy prevails in developed societies because too much is at stake in turning against it more income can be redistributed in developed than in poor countries without threatening democracy limits on redistribution arise endogenously so that constitutions are not necessary for democracy to endure a democratic culture characterizes the equilibrium

the control of politicians in divided societies the politics of fear autocrats in many developing countries have extracted enormous personal rents from power in addition they have imposed inefficient policies including pervasive patronage spending i present a model in which the presence of ethnic identities and the absence of institutionalized succession processes allow the ruler to elicit support from a sizeable share of the population despite large reductions in welfare the fear of falling under an equally inefficient and venal ruler that favours another group is enough to discipline supporters the model predicts extensive use of patronage ethnic bias in taxation and spending patterns and unveils a new mechanism through which economic frictions translate into increased rent extraction by the leader these predictions are consistent with the experiences of bad governance ethnic bias wasteful policies and kleptocracy in post colonial africa

votes and violence evidence from a field experiment in nigeria following the wave of democratization during the 1990s elections are now common in low income societies however these elections are frequently flawed we investigate the nigerian general election of 2007 which is to date the largest election held in africa and one seriously marred by violence we designed and conducted a nationwide field experiment based on randomized anti violence grassroots campaigning we find direct effects on violence outcomes from exploring both subject surveying and independent data sources crucially we establish that voter intimidation is effective in reducing voter turnout and that the violence was systematically dissociated from incumbents we suggest that incumbents have a comparative advantage in alternative strategies vote buying and ballot fraud voter intimidation may be a strategy of the weak analogous to terrorism

the quality of political institutions and the curse of natural resources we propose a theoretical model to explain empirical regularities related to the curse of natural resources which emphasises the behaviour and incentives of politicians we extend the standard voting model to give voters political control beyond the elections this gives rise to a new restriction that policies should not give rise to a revolution our model clarifies when resource discoveries might lead to revolutions namely in countries with weak institutions it also suggests that for bad political institutions human capital depends negatively on natural resources while for high institutional quality the dependence is reversed this finding is corroborated in cross section regressions

the effects of real exchange rate risk on international trade abstract by assuming real profit maximization and uncertain prices as well as exchange rates we conclude that it is uncertain percentage changes in the real exchange rate that are risky in international trade empirical estimation of fourteen bilateral trade flows among industrialized countries finds a significant negative effect on trade quantity from such risk in a number of these cases the expectation variable has a positive effect in a larger number of cases significant price effects from the expectation variable are fewer and from risk are negligible

adjustment costs uncertainty and the behavior of the firm this paper examines the effects of demand and cost uncertainty on a firm s investment output and pricing decisions but unlike most earlier studies in which demand and cost are simply not known at the time an output or pricing decision is made here i consider uncertainties over future demand and costs it will be seen that the effects of such uncertainties depend critically on the characteristics of the firm s adjustment costs i treat demand uncertainty in a dynamic context by letting the market demand function shift randomly but continuously through time according to a stochastic process this means that today s demand is known exactly but future demand may be larger or smaller and has a variance that increases with the time horizon likewise uncertainty over factor costs is characterized by treating those variables as stochastic processes i combine this characterization of uncertainty with a dynamic model of the firm in which some factor inputs can be adjusted freely in response to stochastic demand changes but other factors are quasi fixed in that adjustment costs are incurred when they are changed in this model the firm s price and output are random processes but we can examine the firm s behavior in expected value terms of interest is whether the presence of uncertainty should cause competitive or monopolistic firms to invest and produce more or less than they would otherwise how the effects of uncertainty are influenced by the presence of risk aversion and how the use of inventories can alter the impact of uncertainty on capacity and sales of course these questions have been addressed by others in the past among the earliest studies of demand uncertainty are those of edwin mills 1959 1962 and samuel karlin and charles carr 1962 mills examined a single period monopolistic firm that sets both output and price and showed that additive demand uncertainty i e the demand function is of the form q q p u where u is a random variable leads to a lower price if marginal cost is constant so that the firm reduces the expected loss from discarding unsold production karlin and carr confirmed for both the static case and the multiperiod case with inventory carryover that additive uncertainty tends to reduce the price and increase the output of a risk neutral firm while multiplicative uncertainty does the opposite other papers have been concerned with the way in which the error term enters the demand function additively multiplicatively or nonlinearly the implications of choosing price ex ante instead of output the implications of risk aversion and the use of inventories for example agnar sandmo 1971 and david baron 1970 showed that a risk averse competitive firm will produce less when the price is a random variable or subject to an additive error term but a riskneutral firm will not alter its production hayne leland 1972 extended these results to a monopolistic firm whose demand can depend in a general way on a random error term for example q q p u and showed that uncertainty reduces the production of a

violence bribery and fraud the political economy of elections in sub saharan africa post soviet african democratization has introduced elections into contexts that often lack restraints upon the behavior of candidates resulting in the emergence of voter intimidation vote buying and ballot fraud we propose a model of electoral competition where although some voters oppose violence it is effective in intimidating swing voters we show that in equilibrium a weak challenger will use violence which corresponds to a terrorism strategy similarly a nationally weak incumbent will use repression however a stronger incumbent facing local competition will prefer to use bribery or ballot fraud we discuss the applicability of the model to several african elections

the role of local officials in new democracies evidence from indonesia this paper shows that the body of appointed officials that a new democracy inherits from the previous regime is a key determinant of the extent of electoral fraud and clientelistic spending in new democracies i develop a model that predicts that appointed officials have stronger incentives to influence voters during national level elections because of their career concerns i test the implications of the model using data from indonesia s transition to democracy both the pattern of alignment of electoral results between village and district levels and the pattern of subsequent turnover of appointed village heads corroborate the predictions of the model

protests and trust in the state evidence from african countries this paper provides empirical evidence that after protests citizens substantially revise their views on the current leader but also their trust in the country s institutions the empirical strategy exploits variation in the timing of an individual level survey and the proximity to social protests in 13 african countries first we find that trust in political leaders strongly and abruptly decreases after protests second trust in the country monitoring institutions plunges as well both effects are much stronger when protests are repressed by the government as no signs of distrust are recorded even a couple of days before the social conflicts protests can be interpreted as sudden signals sent on a leaders actions from which citizens extract information on their country fundamentals

how effective are sovereign bond backed securities as a spillover prevention device abstract brunnermeier et al 2017 propose the introduction of sovereign bond backed securities sbbs in the euro area it and other papers address how the securitisation would insulate senior security holders from actual default related losses this article generalises the assessment by using the var based diebold yilmaz 2012 spillover index methodology to assess potential attenuation of the spillover of shocks in holding period returns across asset markets from the introduction of sbbs this is made possible by employing sbbs yields estimated from historical euro area member state sovereign bond yields using monte carlo methods as described in schonbucher 2003 the econometric results show that i sbbs tranching protects senior sbbs holders by reducing the spillover of shocks from the higher risk peripheral member states to it ii spillovers from high risk sovereigns to a weighted portfolio are much higher than those to the senior sbbs iii a smaller junior sbbs tranche reduces spillover from it to the senior sbbs and iv rolling window analysis indicates that the spillover of shocks from the junior tranche to the senior tranche declines during a period of financial stress

international deviations from the law of one price the role of search frictions and market share this article examines the size and persistence of international deviations from the law of one price in an industry with search frictions cost differences lead foreign and domestic firms to price differently within countries when local firms are more common in each country there are large and persistent price differences across countries large and persistent changes in international relative costs lead to large and persistent changes in international relative prices dynamic considerations imply that the amount of a cost shock firms pass through to prices is u shaped in the market share of firms receiving the shock

pass through of exchange rates and purchasing power parity abstract in this paper we develop and test two hypotheses about purchasing power parity ppp the first is that changes in the price of traded goods relative to domestic substitutes will affect the ppp relation due to the partial pass through of exchange rates the second is that ppp should hold on forward rather than spot exchange rates due to hedging by firms which implies that the interest rate differential should enter the ppp relation for spot rates using quarterly data for several countries we find support for both these hypotheses though the magnitude of the interest rate effect is very small

union density and political strikes why do trade unions organize antigovernment strikes in some countries but not in others this article argues that there is a curvilinear relationship between union density and political strike activity political strikes are rare in countries with low union density since effective protests require a basic level of organizational capacity they are also rare in countries with high union density since a government that faces a strong union movement has powerful incentives to adjust its policies in order to avoid open confrontation but political strikes are relatively common in countries with moderate levels of union density since it is difficult for governments and unions to find viable compromises when the strength of the unions is not secure the empirical part of the article estimates the relationship between union density and the likelihood of political strikes in two samples of advanced democracies

currency composition of international bonds the emu effect abstract we analyze the impact that the launch of the emu had on the currency denomination of private international bond issues in 1990 2006 using micro level data our stylized model predicts that the introduction of the euro would lead to an increase in the share of euro denominated debt and a decline in the share of dollar denominated debt issued by firms located in countries outside both the united states and the euro area moreover our model predicts that the euro effect would be particularly pronounced for nonfinancial firms our empirical results are consistent with these predictions in addition we find that among nonfinancial firms the impact on new issuers is larger than on seasoned issuers extending the model to allow for differences in issuance volumes across future monetary union countries prior to integration we also predict larger increases in euro denominated issuance among firms from smaller monetary union countries we confirm this prediction for international bond issues by euro area firms

parity reversion persistence in real exchange rates middle income country case this article investigates purchasing power parity ppp in the specific context of middle income countries to circumvent the low power of traditional stationarity tests augmented dickey fuller and phillips perron tests it performs variance ratio and fractional integration tests in addition to perron s test that accounts for potential structural changes in real exchange rate processes beyond estimating half life shocks to ppp this article attempts to explain these estimates using a set of country specific variables as suggested by economic theory the evidence suggests that reversion to parity tends to be faster in high inflation countries and that productivity improvement leads to a higher level of persistence openness to trade tends to reduce the extent of deviations from parity but this result does not appear to be statistically robust evidence shows also that deviations are less persistent under a fixed exchange rate regime and under unrestricted capital mobility

price formation in an open economy theory and evidence for the united kingdom 1951 1991 price formation is an increasingly important part of modern macroeconomics however the empirical literature on price setting is diverse and confused this paper uses cointegration techniques to test theories of price setting on uk aggregate data for 1951 91 we find i domestic prices are determined by both domestic costs and world prices and ii at the macroeconomic level prices are related to marginal cost rather than average or normal cost

exchange rate effects on inputs and outputs in canadian agriculture in a seminal piece of work schuh demonstrates using a single market partial equilibrium model that exchange rates have a large impact on the price received for farm products he argued that the overvalued u s dollar reduced export demand and the domestic price of u s grains since then much of the work on estimating the impact of exchange rate changes on agriculture has implicitly assumed that inputs to the agricultural sector come from the nontraded sector we argue this assumption can result in an error in the estimation of the effects of exchange rates in an examination of the passthrough of changes in the us cdn exchange rate we find the data from 1975 to 1989 are consistent with the hypothesis of a complete passthrough of exchange rates for many important variable inputs to canadian agricultural production this analysis indicates that while exchange rates may have had significant impacts on the return to fixed factors and farm income they have had little effect on grain production in the case of livestock feeding in canada exchange rate devaluations may actually reduce production and reduce the return to fixed factors because inputs especially grain are more tradeable than outputs finally we examine the potential welfare impact on nontradeables such as land from changes in the exchange rate theoretical model

the making of policy institutionalized or not this paper develops a framework for analyzing different policymaking styles their causes and their consequences in latin america finding that lower institutionalization and greater use of alternative political technologies apts are more likely the lower the cost of using these technologies the higher the potential damage they can cause the lower the wealth of the economy and the more asymmetric the distribution of de jure political power moreover strategic complementarity exists in the use of alternative political technologies for instance bribes by the rich and protests by the poor are likely to be countervailing forces and will both occur in polities with weaker political institutions

the short run behaviour of prices and output in the exportables sector the case of german machinery abstract the paper addresses the issues raised by the simultaneity between the supply function and the domestic and foreign demand for exportables analysing the microeconomic foundations of the simultaneous price and output decisions of a firm which operates in the exportables sector of an open economy facing a domestic and a foreign demand for its output a specific characteristic of the model is that it allows for the possibility of price discrimination which is suggested by the observed divergencies in the behaviour of domestic and export prices the famework developed is used to investigate the recent behaviour of prices and output in two industries of the german manufacturing sector

rigging elections with violence in most developing countries even today political parties spend a substantial fraction of their resources in attracting voters through ideological exhortation as well as force in this paper we present a model of political contest between two parties that compete in two distinct arenas though the goal of the contest in both arenas is the same to garner more political support in the first which we call ideological the contest involves no use of force in the second which we call conflictual party activists use violence either to force ideological supporters of the competing party to vote in their favor or restrain them from voting we show that a party with lower initial political support will resort to more political violence ceteris paribus and as the fraction of undecided voters goes up elections will tend to be less conflictual we also show that if there is an incumbency advantage then the resources devoted to creating political unrest increase in equilibrium and political competition is more violent we also provide some historic and journalistic evidence that supports our results

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

the response of the us export prices to changes in the dollar s effective exchange rate further evidence from industry level data the relationship between the dollar s effective exchange rate and the export price indexes for 13 two digit us manufacturing industries is analysed to determine i which industry adjusts its dollar export price to dampen or amplify the effect of the exchange rate fluctuations on the foreign currency price of its exports and ii whether the response of the export price index to appreciation and depreciation of the exchange rate is asymmetric for several industries evidence consistent with dampening the foreign currency price of exports in an asymmetric fashion is found the implications of the results for the price competitiveness of the industries studied is discussed

adjustment costs and pricing to market theory and evidence abstract this paper develops an adjustment cost model of pricing to market the model consists of a monopolist who supplies an identical nondurable good to two foreign markets it is shown that the degree of pricing to market increases with the relative importance of the transitory component in exchange rates customs data from 1978 through 1987 on u s and canadian imports of seven german commodities are used to estimate the model s parameters and test its over identifying restrictions

exchange rate volatility and exports a firm level analysis the relationship between real exports and exchange rate volatility is investigated using panel data analysis at the firm level results indicate that there is no negative or positive relationship between volatility and real exports in addition firm size and level of international activity do not influence the size and significance of the volatility effect on exports however there is some evidence that firms use import revenue to lower their exchange rate exposure

self enforcing democracy author s fearon james abstract if democracy is to have any of the good effects said to justify it it must be self enforcing those who control the government must want to hold regular competitive elections for the highest offices and all parties must be willing to comply with the results i consider a model in which citizens can always protest or rebel against the current ruler but can unseat the ruler only if enough people rebel when individuals privately observe a signal of the government s performance e g their own welfare they face a difficult problem of how to coordinate to pose a credible threat of rebellion necessary to keep the ruler from stealing further if the signals are noisy inefficient rebellions must occur in equilibrium to keep the ruler honest allowing for the possibility of elections makes for equilibria that eliminate both problems the convention of holding elections at particular times provides a public signal for coordinating rebellion in the event that elections are suspended of blatantly rigged the electoral results themselves aggregate private information about the ruler s performance providing the ruler an incentive to stick to the terms int he case of noisy signals of government performance the electoral results act as a cheap talk signal that allows the public to commit to rebel if a losing ruler does not step down avoiding the need for costly rebellions these arguments pose an explanation for self enforcing democracy whereas the several models in the literature do not because they do not explain why anyone would want to use elections to allocate power

bootstrap testing for cointegration of international commodity prices this paper investigates cointegration with respect to nine commodity groups traded on international markets nonparametric bootstrapping is utilized in the testing procedure of the 21 pairs of price series investigated here for 13 the no cointegration null hypothesis is rejected in favour for the cointegration of the series in addition to five out of the remaining eight cases that were not cointegrated a plausible explanation is the prevailing trade policy thus a great majority of the institutionally nonregulated cases turn out to get empirical support for being cointegrated an important statistical finding is that the augmented dickey fuller test for cointegration cradf generally yields p values that are close to the p values obtained by the bootstrap testing but once they differ substantially it is usually an indication of irregular periods e g structural changes in the series the paper conducts also a monte carlo simulation experiment to investigate the power and size properties of the t

export pricing flexible exchange rates and divergence in the prices of traded goods abstract a model of firm pricing where customers adjust slowly to price differences is extended to an exporting firm under flexible exchange rates the foreign currency price the firm sets determines both current net revenue and the rate of investment in market share real exchange rate changes lead to price revisions but the protracted adjustment of customers prompts a smaller price response to transitory changes in the real exchange rate the model accounts for observed variations in traded goods prices across countries and the failure of exporting firms to pass through exchange rate changes but in contrast to static models does not predict frequent reallocation of traded goods production

electoral competition under the threat of political unrest this paper examines how voting and the outcomesof majority rule elections are affected by factors beyond the control of the winning party we present a model that helps to predict how threats against the electoral process ineuence 1 platform choice by political parties 2 which party wins the election and 3 the policy outcomes enally implemented in a democracy where the majority winner sets policy dissatiseed groups including groups outside the electoral process may still be able to interfere with that policy a losing party may organize a coup voters may riot unions may go on strike investors may take their capital abroad terrorists and foreign powers may threaten disruption and loss of life foreign powers may withdraw aid or even impose a trade embargo we analyze the effect of these nonelectoral factors on electoral outcomes we consider a majority rule electoral competition between two political parties with ideal policies lying to either side of the median voter s ideal policy we allow for only a one dimensional policy space but the disruption possibility leads to a twodimensional outcome space as evident in the examples given above the actors threaten

oil currency and the dollar standard a simple analytical model of an international trade currency the u s dollar is the central reference currency for international trade pricing and the main invoicing currency for primary commodities this paper links these two observations within a stylized theoretical framework and shows how to obtain a quantitative estimate of the gain to the u s economy when the dollar is a reference currency with dollar invoicing of primary commodities u s firms bear less exchange rate risk than foreign firms this asymmetry leads to a dollar standard in international goods pricing we then derive a simple analytical formula to calculate the gains and find that they are extremely small

downs meets d aspremont and company convergence versus differentiation in politics and the media abstract media firms have incentives to differentiate their news products to soften price competition when consumers value cognitive consistency between the news they read and the policies they support politicians are induced to propose more polarized policies to conform to a polarized media landscape a stronger commercial motive or a weaker preference for editorial neutrality in the media exacerbates this effect and causes party policies to become more extreme we find that prices for news products are higher when consumers have a demand for cognitive consistency despite the fact that maximal product differentiation does not hold for media firms

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association