the influence of csr on firm value an application of panel smooth transition regression on taiwan abstractprevious studies on the relationship between corporate social responsibility csr and firm value generally belong to one of the two opposing schools of thought the social impact hypothesis and the shift of focus hypothesis this study however proposes that the relationship between csr and company value is non linear and neither wholly positive nor negative we employed the corporate social responsibility index crsi to test this hypothesis the panel smooth transition regression pstr model was used to analyse listed taiwanese firms from 2010 to 2012 and calculate the value transition threshold of csr using csri as the transition variable we then applied pstr to determine whether csri shows a two regime non linear relationship as inferred by our model empirical findings show that the threshold value of csri is 13 082 thus we concluded that investment in csr does not contribute to enhancing company value until it exceeds the value transition threshold

customer base analysis partial defection of behaviourally loyal clients in a non contractual fmcg retail setting customer relationship management crm enjoys increasing attention as a countermeasure to switching behaviour of customers because foregone profits of partially defected customers can be significant an increase of the retention rate can be very profitable in this paper we focus on the treatment of a company s most behaviourally loyal customers in a non contractual setting we build a model in order to predict partial defection by behaviourally loyal clients using three classification techniques logistic regression automatic relevance determination ard neural networks and random forests focusing on partial attrition of high frequency shoppers who exhibit a regular visit pattern may overcome the problem of unidentifiability of total defection in non contractual settings classification accuracy pcc and area under the receiver operating characteristic curve auc are used to evaluate classifier performance on a test hold out sample using real life data from an fmcg retailer we show that future partial defection can be successfully predicted i e exceeding the benchmark hurdle of the null model there are no significant differences in terms of performance among alternative classification techniques similar to direct marketing applications we find that past behavioural variables more specifically rfm variables recency frequency and monetary value are the best predictors of partial customer defection this set of variables complements demographic variables confirming findings by other authors about its importance in predicting churn behaviour moreover additional variables listed in decreasing order of importance such as the length of customer relationship mode of payment buying behaviour across categories usage of promotions and brand purchase behaviour are shown to be moderately useful to incorporate in attrition models

are shocks to real effective exchange rates permanent or transitory evidence from pacific island countries in this article we consider the stability of the real effective exchange rates for four pacific island countries using the lee and strazicich 2003a b unit root test which allows one to incorporate at most two structural breaks in the data series our main finding is that for papua new guinea and samoa exchange rates are stable implying that shocks will have a transitory effect on real effective exchange rates while for fiji and the solomon islands we find exchange rates to be unstable implying that shocks will have a permanent effect on real effective exchange rates

an investigation of the effects of exchange rate volatility on exports in east asia abstractthis study investigates the effects of the exchange rate volatility on the export flows of indonesia malaysia republic of korea singapore thailand and the philippines during 1974 2011 towards this goal a trade weighted real effective rather than the bilateral exchange rate and three different measures of volatility i e obtained from an arch model a garch model and a moving average standard deviation measure are used in this study specifically the export flows between six asian countries and the rest of the world are investigated rather than focusing on trade with only one country our findings reveal that the exchange rate volatility has a significant impact on export flows in the short run as well as in the long run for all the countries in the sample the impact in the long run is predominantly negative with the exception of singapore but in the short run the impact varies across countries moreover our results are robust to the alternative measures of volatility used and most of

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

implicit understandings in channels of distribution formal agreements can be used to achieve coordination among channel members these agreements work by exerting explicit control over the members who make the agreements however implicit understandings can be used as a partial substitute for more formal agreements in this paper we show that implicit understandings can develop as channel members learn about each other s behavior we show that this learning leads to the use of the implicit influence each channel member has over the other s behavior the learning leading to an implicit understanding requires some form of experimentation or historical observation this learning results in an oscillating retail price when only one channel member learns the other s behavior both channel members obtain greater profits than when neither member learns and both channel members obtain less profits than when both members learn however the member who does not learn obtains more profits than the member who learns we also show that implicit understandings r

promotion signal proxy for a price cut evidence suggests that some consumers react to promotion signals without considering relative price information we adopt petty and cacioppo s elaboration likelihood model elm to explain this behavior in terms of the elm s peripheral route to persuasion in which the promotion signal is taken as a cue for a price cut experimental results show that low need for cognition individuals react to the simple presence of a promotion signal whether or not the price of the promoted brand is reduced but that high need for cognition individuals react to a promotion signal only when it is accompanied by a substantive price reduction

an empirical examination of institutional investor preferences for corporate social performance this study investigates the pattern of institutional shareholding in the u k and its relationship with socially responsible behavior by companies within a sample of over 500 uk companies we estimate a set of ownership models that distinguish between long and short term investors and their largest components and which incorporate both aggregated and disaggregated measures of corporate social performance csp the results suggest that long term institutional investment is positively related to csp providing further support for earlier studies by johnson and greening 1999 academy of management journal 42 564 576 and graves and waddock 1994 academy of management journal 37 1034 1046 disaggregation of csp into its constituent components suggests that the pattern of institutional investment is also related to the form which csp takes investigation of the impact of investment screens on the selection of stocks suggests that long term institutional investors select primarily through exclusion rejecting those firms which have the worst csp

long memory and mean reversion in real exchange rates in latin america this article examines the long run purchasing power parity ppp hypothesis for 12 latin american real effective exchange rates reers using fractional integration techniques the empirical result

real and nominal effective exchange rates for african countries the real effective exchange rate is an index that is used to measure international competitiveness of a country while the international monetary fund constructs and publishes the index for all industrial and some newly industrialized countries the african nations receive no such attention in this article we construct quarterly indexes of real and nominal effective exchange rates over the 1971i 2004iii period for 21 african countries we hope by publishing this data set more research attention will be given to these countries as an application we test for the stationarity of the real effective rates to show that the purchasing power parity theory holds only in four of our 21 cases

real and nominal effective exchange rates for 22 ldcs 1971 1 1990 4 the international monetary fund constructs and publishes the real and nominal effective exchange rates mostly for developed but not less developed countries this paper employs a method of constructing real and nominal effective exchange rate from the literature to produce quarterly data over the 1971 1990 period for 22 developing nations as an application the stationarity of real effective exchange rates are determined to establish the empirical validity of the purchasing power parity theory ppp the results reveal that ppp fails to hold for most countries

pass through and consumer search an empirical analysis retail price pass through is one of the most important issues facing manufacturers of consumer packaged goods although retailers tend to pass higher wholesale prices through to consumers quickly and completely they often do not pass on trade promotions currently asymmetric pass through is commonly thought to result from retailers exercise of market power alternatively it may be because of consumer search behavior and retailers competitive response we test this theory using a panel threshold asymmetric error correction model applied to wholesale and retail scanner data for ready to eat cereal for a number of retailers in the los angeles metropolitan market we find that consumer search behavior contributes significantly to imperfect pass through by allowing pass through to depend on market power and consumer search costs we find results that are contrary to the conventional wisdom namely market power causes retail prices to fall quickly and rise slowly whereas consumer search behavior causes retail prices to rise quickly and fall slowly precisely the rockets and feathers phenomenon

institutional sources of boundary spanning structures the establishment of investor relations departments in the fortune 500 industrials the authors analyze the coercive and mimetic conditions leading to the establishment of investor relations departments among fortune 500 industrial firms during the 1984 1994 period the results show that antimanagement resolutions brought to a vote by social movement activists significantly contributed to the establishment of investor relations departments intense scrutiny by financial analysts also impelled firms to create such departments whereas social movement activists framed shareholder rights as a problem and compelled organizations to uphold them professional analysts subtly coerced organizations to signal their commitment to investor rights by creating boundary spanning structures that solution was transmitted through board interlocks to other organizations

manufacturer allowances and retailer pass through rates in a competitive environment a commonly held belief has grocery and mass merchandise retailers gaining power relative to the upstream consumer package goods manufacturers one of the major justifications for this belief is that manufacturers are now giving retailers more side payments such as trade allowances slotting allowances etc however a number of researchers have shown that these concessions have not translated into increased profit for the retailer relative to the manufacturer this paper explores via an analytic model why one might see retailers getting concessions from the manufacturer without being able to translate them into high profits we do this by representing the interaction between the channel members as a one period profit maximizing game where manufacturers decide on how large a side payment i e a concession to give to each retailer and retailers decide on how much of this side payment to use to promote the manufacturer s product at the heart of our model is a demand function for each product offering i e a specific brand sold by a specific retailer this demand function is linear in own and other s prices but based on empirical evidence is assumed to be nonlinear in the effects of merchandising activities e g short term price discounts better shelf space advertising etc specifically merchandising effects are modeled with a square root function that also acknowledges most short term promotional effects result in brand or store switching versus increase category volume the model is composed of six parameters these are the inherent popularity of the brand at a particular outlet own price sensitivity cross but within the store price sensitivity customer s sensitivity to within store promotion activities customer s sensitivity to between store promotional activities and the degree to which promotional activities yield incremental product category sales we use our underlying demand formulation to find the equilibrium solution to the full information stackelberg leader game for different store and brand loyalty environments as captured by our six parameters these parameters are chosen based on empirical evidence to span possible market conditions that each channel member might have our findings and modeling efforts should be of interest to analytic channel modelers and scholars interested in the mass merchandising and grocery store industries for a theoretical point of view we build upon the case 4 model of lee and staelin 1997 to allow for promotional activities from a substantive point of view we show that manufacturers will freely give retailers side payments even though they know these retailers will pocket a substantial portion of this concession moreover we identify conditions within our model that lead to larger allowances lower pass through rates and lower retail profits outcomes that are compatible with recent industry trends in addition we highlight the difference in effect on profits prices etc of changes in consumers sensitivity to inter store differences in storewide merchandising activities one of the more counter intuitive results of these analyses is that it is in the manufacturer s best interest to help retailers increase their spatial monopoly by decreasing consumers tendency to cross store shop because of merchandising activities

exchange rate sensitivity of the demand for money in spain 1998 exchange rate sensitivity of the demand for money in spain applied economics vol 30 no 5 pp 607 612

testing for long run purchasing power parity a time series analysis for the greek drachma abstract long run purchasing power parity ppp for six drachma bilateral exchange rates is tested by means of unit root and cointegration tests the results reject long run ppp

comment cross brand pass through fact or artifact cross brand pass through implies that a retailer responds to wholesale promotional support from a target brand by changing the retail prices of competitive brands besanko et al 2005 model a target brand s retail price as a function of its own and other brands wholesale prices using 780 observations 15 price zones 52 weeks and take the many significant coefficients for other brands wholesale prices that they find as evidence of cross brand pass through because price zones do not react independently to wholesale prices when they set a brand s retail price besanko et al s 2005 estimation overstates the number of independent observations by a factor of 15 when we correct for this overstatement of independent observations we find that the number of stable significant coefficients for other brands wholesale prices is lower than one would expect by chance we conclude that there is no evidence of cross brand pass through in the 11 categories analyzed by besanko et al 2005

toward a reconciliation of market power and information theories of advertising effects on price elasticity prior work on the economic effects of advertising has presented conflicting views some authors have suggested that advertising creates market power by artificially differentiating brands and thereby lowering price elasticity others have viewed advertising as an efficient source of information about the existence of substitutes arguing that advertising increases price elasticity the present research proposes a unifying theoretical model in which advertising affects price elasticity through its influence on two mediating constructs the size of the consideration set and the relative strength of preference pretests 1 and 2 examine the effects of advertising on these two constructs results from the main experiment show that in accordance with the theoretical framework the same advertisements that increased price elasticity in some decision environments decreased it in others

asymmetric wholesale pricing theory and evidence asymmetric pricing or asymmetric price adjustment is the phenomenon where prices rise more readily than they fall we offer and provide empirical support for a new theory of asymmetric pricing in wholesale prices wholesale prices may adjust asymmetrically in the small but symmetrically in the large when retailers face cost of price adjustment such retailers will not adjust prices for small changes in their costs manufacturers then see a region of inelastic demand where small wholesale price changes do not translate into commensurate retail price changes the implication is asymmetrica small wholesale price increase is more profitable because manufacturers will not lose customers from higher retail prices yet a small decrease is less profitable because it will not lower retail prices hence there is no extra revenue from greater sales for larger changes this asymmetry in the behavior of wholesale price vanishes as the price adjustment cost is compensated by the increase in retailers revenue resulting from correspondingly large retail price changes we present a formal economic model of a channel with forward looking retailers and cost of price adjustment test the derived propositions on the behavior of manufacturer prices using a large supermarket scanner data set and find that the results are consistent with the predictions of our theory we then discuss the implications for asymmetric pricing channels and cost of price adjustment literatures as well as public policy

shareholder value stakeholder management and social issues what s the bottom line we test the relationship between shareholder value stakeholder management and social issue participation building better relations with primary stakeholders like employees customers suppliers and communities could lead to increased shareholder wealth by helping firms develop intangible valuable assets which can be sources of competitive advantage on the other hand using corporate resources for social issues not related to primary stakeholders may not create value for shareholders we test these propositions with data from s p 500 firms and find evidence that stakeholder management leads to improved shareholder value while social issue participation is negatively associated with shareholder value copyright 2001 john wiley sons ltd

export response to trade liberalization in bangladesh a cointegration analysis this paper investigates the response of bangladesh s aggregate merchandise exports to a real exchange rate based trade liberalization programme during the period 1974 1995 the cointegration and error correction modelling approaches have been applied the empirical results suggest that there exists a unique long run or equilibrium relationship among real quantities of export relative export price and export weighted real effective exchange rate the short term dynamic behaviour of bangladesh s export supply has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant relative export price lagged two quarters real effective exchange rate predicted values of real gdp lagged one quarter and a dummy variable capturing the effects of trade liberalization programme have all emerged as important determinants of an aggregate export supply function for bangladesh the error correction model has also been

flexible fourier stationary test in purchasing power parity for african countries this study applies stationary test with a fourier function proposed by enders and lee 2004 2009 to test the validity of long run purchasing power parity ppp to assess the nonstationary properties of the real exchange rate for 20 african countries we find that our approximation has higher power to detect u shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary nonlinear process we examine the validity of ppp from the nonlinear point of view and provide robust evidence clearly indicate that ppp holds true for almost african countries our findings point out their exchange rate adjustment is mean reversion towards ppp equilibrium values in a nonlinear way

empirical generalizations about the impact of advertising on price sensitivity and price consumers sensitivities to price changes are an important input to strategic and tactical decisions it has been argued that price sensitivities depend on factors such as advertising prior studies on the effect of advertising on consumer price sensitivity have found seemingly conflicting results we analyze the characteristics of previous studies in marketing and generate a set of three empirical generalizations these are 1 an increase in price advertising leads to higher price sensitivity among consumers 2 the use of price advertising leads to lower prices and 3 an increase in nonprice advertising leads to lower price sensitivity among consumers these generalizations have important implications for managers and researchers managers need to coordinate their advertising and pricing decisions to attain maximum profits for researchers our summary and discussion of empirical results provide directions for future

vertical cooperative advertising and pricing decisions in a manufacturer retailer supply chain a game theoretic approach abstract manufacturers can increase the advertising expenditures of their retailers by bearing a fraction of the occurring costs within the framework of a vertical cooperative advertising program we expand the existing research which deals with advertising and pricing decisions in a manufacturer retailer supply chain contemporaneously by means of game theory four different relationships between the channel members are considered firstly three non cooperative games with either symmetrical distribution of power or asymmetrical distribution with one player being the leader in each case and one cooperative game where both players tend to maximize the total profit the latter is complemented by a bargaining model which proposes a fair split of profit on the basis of the players risk attitude and bargaining power our main findings are as follows a in contrast to previous analyses we do not limit the ratio between manufacturer s and retailer s margin which provides more general insights into the effects of the underlying distribution of power within the channel b the highest total profit is gained when both players cooperate this behavior puts also the customers in a better position as it produces the lowest retail price as well as the highest advertising expenditures compared to the other configurations

slotting allowances as a facilitating practice by food processors in wholesale grocery markets profitability and welfare effects slotting allowances which are lump sum transfers paid by food manufacturers to grocery retailers in return for various retail concessions are becoming increasingly common in wholesale grocery markets this article extends the literature on slotting allowances by considering two features that previously have been ignored the role of food processors in determining these pricing arrangements and the effect of slotting allowances on the size and distribution of economic surplus slotting allowances motivated by food processors increase procurement quantities and farm prices and this raises farm surplus increases total producer surplus and improves consumer welfare in the food system

purchasing power parity in less developed and transition economies a review paper abstract the concept of purchasing power parity ppp has been the subject of numerous studies many of which have been unable to prove conclusively this core principle of international finance although industrialized countries have received most of the attention studies that focus on less developed and transition economies have also attained mixed results this study surveys trends in this branch of the literature highlighting the econometric advances that have sought to solve this puzzle while pointing out that more needs to be done to address the reasons that might cause ppp not to hold

coordination via cost and revenue sharing in manufacturer retailer channels abstract the problem of establishing efficiency in a manufacturer retailer channel channel coordination is extensively discussed in the industrial economics the marketing and the operations research literature however studies considering consumer demand to be simultaneously affected by price and non price variables are scarce one subset of models investigates efficient contracts with non linear tariffs but requires mechanisms which are rarely observed in managerial practice the other subset analyses channel efficiency effects of alternative royalty payments but omits to design an efficient contract we contribute to this literature by investigating a contract of royalty payments that is sufficient for channel coordination based on the analysis of the underlying vertical externalities we show that channel coordination requires cost and revenue sharing via a revenue sharing rate and marketing effort participation rates on both manufacturer and retailer level some surprising findings are highlighted there exists a continuum of efficient contracts efficiency requires a retailer s participation of at least 50 in the manufacturer s cost of marketing effort moreover the elimination of double marginalisation is not necessary for channel coordination manufacturer and retailer can choose an efficient contract via bargaining over the wholesale price the main challenge for managers will be to create acceptance of new types of royalty payments based on a trustful manufacturer retailer relationship we also discuss the cases of the apple iphone market launch and of innovative restaurant franchising to further illustrate and underline the relevance of our results

econometric testing of purchasing power parity in less developed countries fixed and flexible exchange rate regime experiences we investigate the purchasing power parity ppp hypothesis for 16 less developed countries ldcs from all over the world during their fixed and flexible exchange rate experiences over the period 1957 01 1999 12 the main contribution of this article to the empirical literature on ppp is that our study is the first to consider ppp hypothesis on alternative exchange rate regimes for ldcs the bilateral exchange rates of ldcs and the united states and their respective price levels are considered three different time series methodologies are employed unit root tests engle granger 1987 cointegration technique and johansen multivariate var methodology 1988 the cointegration techniques improve the results which allows the examination of the more frequent long run relationship between relative prices and nominal exchange rates nevertheless using each of econometric techniques we find only a few and a nearly equal evidence in favour of ppp under the alternative regimes in ldcs hence the main conc

do nominal devaluations lead to real devaluations in ldcs abstract devaluation or depreciation of nominal exchange rate is a policy to boost exports however since any favorable effects of devaluation could be offset by its inflationary effects one must consider real devaluation this note investigates whether nominal devaluation leads to real devaluation by employing a relatively new method of cointegration and error correction modeling

the price elasticity of selective demand a meta analysis of econometric models of sales the author describes a meta analysis of econometric studies that estimated the elasticity of selective sales or market share to price the literature review yielded 367 suitable price elasticities

research note channel structure with knowledge spillovers we study two main questions in this paper 1 how do spillovers of knowledge created by manufacturers investments in process innovation affect channel structure and effort investment incentives 2 what are the interactions between organizational incentives to form joint ventures and strategic alliances with competitors and coordinate decisions vertically with downstream channel members we focus on situations where spillovers are involuntary firms innovative activities are nonoverlapping and firms benefit directly from the results of competitors innovations under these conditions we find that spillovers in process knowledge increase the likelihood of observing decentralized channel structures surprisingly decentralized manufacturers invest more in process innovation than perfectly coordinated manufacturers do when spillovers are large moreover in industries where large spillovers exist horizontal cooperation among manufacturers induces higher levels of process innovation investments than channel coordination does from a public policy perspective however the desirability of such cooperative arrangements among competitors depends on channel structure joint ventures among decentralized manufacturers are more likely to meet the regulators criteria of raising effort investments than cooperation among integrated manufacturers would be investment incentives are best provided when firms share their process knowledge and are buffered from subsequent price competition by independent retailers

real and nominal effective exchange rates for developing countries 1973 1 1997 3 the international monetary fund construct and publish real and nominal effective exchange rate data mostly for developed countries in this paper real and nominal effective rate data for developing countries are constructed application of the kpss test to real effective rate data reveals that ppp holds in most countries

multinational oil companies and the adoption of sustainable development a resource based and institutional theory interpretation of adoption heterogeneity sustainable development is often framed as a social issue to which corporations should pay attention because it offers both opportunities and challenges through the use of institutional theory and the resource based view of the firm we shed some light on why more than 20 years after sustainable development was first introduced we see neither the adoption of this business model as dominant nor its converse that is the total abandonment of the model as unworkable and unprofitable we focus on multinational corporations mncs because they were among the organizations first called to take action in order to illustrate the institutional pressures mncs face and their strategic response to these pressures we analysed four major oil and gas multinationals subject to similar sustainable development pressures climate change biodiversity renewable energy development and social investment we argue that normative and coercive isomorphism does not occur at the global level because sustainable development is largely a stakeholder driven rather than a broad social pressure that is host country interpretation of sustainable development pressures varies across an mnc s subsidiary network based on the analysis of the four major mncs annual reports from 2000 to 2005 we argue that mimetic isomorphism may occur but since it implies the use of complex and intangible resources mimetic processes are slow rare and discretionary

real and nominal effective exchange rates of african countries during 1971q1 2012q4 one of the macro variables that are included in most models is the exchange rate overall performance of a country s exchange rate is measured by changes in nominal or real effective exchange rate reer these rates are constructed and published mostly for industrial countries by international organizations less developed countries have received little attention in this article the two rates are constructed for 21 african countries using quarterly data over the period 1971q1 2012q4 as an application we use the reers to show that even in africa the movements of the real effective rates follow a nonlinear path

a retailer promotion policy model considering promotion signal sensitivity recent research suggests that the signal e g sign or marker with a point of purchase promotion will stimulate a significant sales increase regardless of whether or not that signal is accompanied by a price cut this paper develops a model of retailer profitability that incorporates this promotion signal sensitivity in a field test the profitability of the promotion policy prescribed by this model is compared to the profitability of two other promotion policy setting paradigms a model based policy that does not consider promotion signal sensitivity and one prescribed by industry experts the test results support the proposed model its policy generates 11 more category profit per unit than the model based policy and 12 more than the industry experts implications for retailers and future research are discussed

the corporate social performance financial performance link strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management rather than traditional arenas of strategic management using a greatly improved source of data on corporate social performance this paper reports the results of a rigorous study of the empirical linkages between financial and social performance corporate social performance csp is found to be positively associated with prior financial performance supporting the theory that slack resource availability and csp are positively related csp is also found to be positively associated with future financial performance supporting the theory that good management and csp are positively related 1997 by john wiley sons ltd

coordinating advertising and pricing in a manufacturer retailer channel abstract cooperative advertising is a practice that a manufacturer pays retailers a portion of the local advertising cost in order to induce sales cooperative advertising plays a significant role in marketing programs of channel members nevertheless most studies to date on cooperative advertising have assumed that the market demand is only influenced by advertising expenditures but not by retail price this paper addresses channel coordination by seeking optimal cooperative advertising strategies and equilibrium pricing in a two member distribution channel we establish and compare two models a non cooperative leader follower game and a cooperative game we develop propositions and insights from the comparison of these models the cooperative model achieves better coordination by generating higher channel wide profits than the non cooperative model with these features a the retailer price is lower to consumers and b the advertising efforts are higher for all channel members we identify the feasible solutions to a bargaining problem where the channel members can determine how to divide the extra profits

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

a decision support system for planning manufacturers sales promotion calendars a common event in the consumer packaged goods industry is the negotiation between a manufacturer and a retailer ofthe sales promotion calendar determining the promotion calendar involves a large number of decisions regarding levels of temporary price reductions feature ads and in store displays each executed at the level of individual retail accounts and brand skus over several months or a year though manufacturers spend much of their marketing budget on trade promotions they lack decision support systems to address the complexity and dynamics of promotion planning previous research has produced insights into how to evaluate the effectiveness of promotional events but has not addressed the planning problem in a dynamic environment this paper develops a disaggregate level econometric model to capture the dynamics and heterogeneity of consumer response by modeling the purchase incidence timing choice and quantity decisions of consumers we decompose total sales into incremental and nonincremental baseline plus borrowed the response model forms the basis of a market simulator that permits us to search for the manufacturer s optimal promotion calendar subject to a set of constraints some of them imposed by the retailer via the simulated annealing algorithm calendar profits are the net result of the contribution from incremental sales minus the opportunity cost from giving away discounts to nonincremental sales and the fixed costs associated with implementing promotional events e g retagging features displays incremental sales result from promotion induced switching the acceleration and quantity promotion effects on those switchers increased consumption and the carryover effect from purchase event feedback we applied our approach to the promotion planning problem of a large consumer packaged goods company in a nonperishable staple product category suggested by company executives canned tomato sauce subject to a retailer pass through constant rate of 80 provided to us by the collaborating firm the optimal promotion calendar produced by the modeling system followed a pattern of frequent and shallow temporary price reductions with no feature or display activity we also analyze how that result would change under different retailer pass through scenarios our findings indicated that the manufacturer could substantially improve the profitability of its sales promotion activity and that there would be a concurrent positive effect on retailer profit and volume levels management reported to us that the insights from the use of the system were implemented in their promotion planning process and produced positive results a validation analysis on follow up data for one market showed that promotion activity could be significantly reduced as recommended with no adverse effect on the brand s market share as predicted to generalize the model beyond the specific category where it was implemented we conducted a sensitivity analysis on the profile of the calendar i e frequency depth and duration of deals with respect to changes in market response competitive activity and retailer pass through first we found that the optimal depth frequency and timing of discounts is stable for price elasticities ranging from near zero to around four in absolute magnitude we also found no systematic impact of competitive promotions on the profile of the optimal calendar for example variation in competitive activity did not affect the optimal depth or frequency of discounts lastly we found changes in retailer pass through to have a significant effect on the optimal depth and number of weeks of trade promotion that a manufacturer should offer this emphasizes the importance to manufacturers of having accurate estimates of pass through for purposes of promotion budgeting and planning

competitive response and equilibria this paper investigates the relationship between market share and promotional expenditures the long run using data that span a decade and 91 product categories we find that market shares are stationary for a majority of the products in the data base we find that relative promotional expenditures for the products are offsetting in the long run finally for products whose market shares show a trend it is difficult to discern the impact of relative promotional expenditure on the evolution of market share this result generalizes the empirical finding of bass et al bass f m m m givon m u kalwani d reibstein g p wright 1984 an investigation into the order of the brand choice process marketing sci 3 4 267 287 that offsetting competitive activity plays a role in the maintenance of what appears to be stationary and zero order behavior

note channel of distribution profits when channel members form conjectures it is well known that lower channel profits are achieved in the bilateral manufacturer reseller monopoly if manufacturer and reseller independently optimize their respective profits they take each other s decisions as given i e adopt decision rules that ignore their influence on the other channel member higher profits are achieved if they coordinate their profit maximizing decisions consequently there is an economic justification for 1 vertical integration that by definition prevents conflicting profit objectives or 2 contracts that change channel members incentives to the compatible objectives of shares of total channel profits this paper investigates the possibility that coordination might take place without formal arrangements like vertical integration or contracts the reason for this contention is the casual observation that channel members are often acutely aware of the interdependencies between channel participants we might thus expect that they will form conjectures about other channel members reactions to their own actions we show that rational conjectures lead profit maximizing channel members to adopt modified decisions rules can such conjectural decision making create at least partially channel coordination or cooperation in other words can channel members deviate from the nash equilibrium and thus achieve greater profits the answer given in this paper is a conditional yes

do exchange rates follow a random walk process in middle eastern countries abstract in this note we employ the kpss test in addition to the adf test to determine whether the real effective exchange rates in middle eastern countries follow a random walk process or they are stationary while in most cases the kpss test supported the stationary of the real effective rates thus the ppp the adf test did not the failure to support the ppp by the adf test is said to be due to its low power

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

a game theoretic approach to coordinate pricing and vertical co op advertising in manufacturer retailer supply chains vertical cooperative co op advertising is a marketing strategy in which the retailer runs local advertising and the manufacturer pays for a portion of its entire costs this paper considers vertical co op advertising along with pricing decisions in a supply chain this consists of one manufacturer and one retailer where demand is influenced by both price and advertisement four game theoretic models are established in order to study the effect of supply chain power balance on the optimal decisions of supply chain members comparisons and insights are developed these embrace three non cooperative games including nash stackelberg manufacturer and stackelberg retailer and one cooperative game in the latter case both the manufacturer and the retailer reach the highest profit level subsequently the feasibility of bargaining game is discussed in a bid to determine a scheme to share the extra joint profit

vertical strategic interaction implications for channel pricing strategy this paper examines two strategic pricing decisions within channels using foresight i e price leadership and considering category implications i e product line pricing are price leadership and product line pricing always the best pricing strategies for a channel member if not when does this occur and why by investigating these questions we address some major concerns of both marketing practitioners and scholars interested in channel management issues in addition this study provides an indepth discussion on why previous analytic studies produced answers to these questions that depend upon the choice of the form of demand functions as such this study should significantly resolve the debate among analytic marketing modelers about the right demand specification at the core of our discussion lies the concept of vertical strategic interaction which is defined in terms of the direction of a channel member s reaction to the actions of its channel partner within a given demand structure specifically if a channel member s best reaction is to reduce its margin when its channel partner increases its margin the type of vertical strategic interaction is referred to as vertical strategic substitutability vss if the best reaction is to increase the margin the environment is referred to as vertical strategic complementarity vsc if the best reaction is no margin change it is referred to as vertical strategic independence vsi using a game theoretic approach we demonstrate that these three types of vertical strategic interactions represent a key driving force for optimal decisions on channel price leadership and product line pricing our investigation involves mathematical analyses of an industry model composed of two manufacturers selling competing products both carried by two competing retailers as such the model allows for retailer product line pricing as well as manufacturer and retailer level competition in addition this general model can be used to analyze three more restrictive industry settings often found in the channels literature i e a bilateral monopoly jeuland and shugan jeuland abel steven m shugan 1983 managing channel profits marketing sci 2summer 239 72 two competing manufacturers selling through competing franchised retailers mcguire and staelin mcguire timothy w richard staelin 1983 an industry equilibrium analysis of downstream vertical integration marketing sci 2spring 161 92 and two competing manufacturers selling through one common retailer using product line pricing choi choi s chan 1991 price competition in a channel structure with a common retailer marketing sci 10fall 271 96 unlike many other channel studies most of our analyses are performed without assuming particular functional forms of demand curves thus this paper provides greater assurance that the insights from this stream of research are broadly applicable not only across industry structures but also across demand conditions the paper starts out by defining three different rules for how prices are set the manufacturer uses foresight the retailer uses foresight and neither channel member uses foresight we then show a one to one mapping between the type of vertical strategic interaction and the optimality of channel price leadership specifically a channel member finds it profitable to be a price leader for vss but prefers to be a follower for vsc for vsi channel members are indifferent to the channel price leadership issue as it has no effect on channel member profits we also show that there exist conditions under which a retailer might see a reduction in profits when it changes its policy from non product line pricing to product line pricing such conditions arise when the retailer is not a price leader and the environment is characterized by vss or vsc at a more general level this study suggests not only the value but also the cost to a firm for using superior knowledge i e foresight and or product line pricing in making strategic marketing decisions in this way ignorance can be bliss we also explore the link between demand characteristics and the three types of vertical strategic interaction we show that the type of vertical strategic interaction present in a given environment is closely related with the convexity of the demand curve and the level of demand for a given price interestingly we find that linearity of demand is not a necessary condition for any of the three types of vertical strategic demand function consequently in evaluating the robustness of analytic analyses it may be more important to determine the type of vertical strategic interaction assumed instead of whether the demand is linear or nonlinear finally our results are limited to situations where the channels are not coordinated and the retailer s precommitment to particular pricing policy and decision is credible although such situations still capture a significant portion of reality we acknowledge that the insights from this study might not be applicable in all situations

predicting competitive response to a major policy change combining game theoretic and empirical analyses this research uses procter gamble s value pricing initiative as a context for testing whether actual competitor and retailer response to a major policy change can be predicted using a game theoretic model we first estimate demand functions for p g and competitor brands from the period before value pricing was initiated we then formulate a dynamic manufacturer retailer stackelberg model that includes p g a national brand competitor and a retailer the model takes p g s move as given and prescribes the price and promotion response of the competitors and the retailer we substitute the estimated demand parameters into the model to obtain prescriptions for each competitor and the retailer and see whether these prescriptions are related to the actual response we find that the dynamic game theoretic model calibrated with empirical estimates of demand parameters has significant predictive power we also test the predictive power of two benchmark models the first is based on the reaction function approach of leeflang and wittink leeflang peter s h wittink dick r 1992 diagnosing competitive reactions using aggregated scanner data internat j res marketing9 39 57 and the second is a simplification of our dynamic model where the retailer is not strategic the dynamic game theoretic model performs better than either benchmark

real and nominal effective exchange rates in mena countries 1970 2004 the main purposes of this article are 3 fold first we construct measures of real and nominal effective exchange rates for 14 middle east and north african countries over the 1970 2004 period second we test the validity of the purchasing power parity ppp by applying the adf and kpss tests to the real effective exchange rates finally we employ the bounds testing approach to cointegration and error correction modelling to show that nominal devaluation leads to real devaluation in the short run as well as in the long run in many of the countries

purchasing power parity over two centuries strengthening the case for real exchange rate stability a reply to cuddington and liang cuddington and liang 2000 purchasing power parity over two centuries journal of international money and finance 19 751 755 examine the long span of sterling dollar real exchange rate data of lothian and taylor 1996 real exchange rate behavior the recent float from the perspective of the past two centuries journal of political economy 104 488 509 and claim to reject long run purchasing power parity by fitting time trends or by considering very high order autoregresssive representations this reply demonstrates however that the central claims of lothian and taylor are in fact strengthened by the implications of cuddington and liang s analysis in that while the economic importance of introducing trend terms is slight this leads to a faster estimated speed of mean reversion c 2000 elsevier science ltd all rights reserved jel classification f31 f41 c22

the determination of the real exchange rate the productivity approach abstract this paper explains deviations of exchange rates from purchasing power parity with the differences between countries of the relative growth rates of labor productivity between traded and nontraded sectors two cases are considered germany and japan versus their respective major trading partners the results show that the time series methodology yields a more favorable confirmation of the productivity differential model than the cross section regressions in the literature

are devaluations contractionary in mena countries currency depreciation reduces aggregate supply by raising cost of imported inputs and increases aggregate demand by increasing its net export component depending on the relative strength of the two effects depreciation could be expansionary or contractionary we employ the bounds testing approach to cointegration and error correction modelling to evaluate the effects of exchange rate depreciation on output growth both in the short and in the long run across a sample of mena countries exchange rate fluctuations are found to be important to fluctuations in real output growth in the short run anticipated exchange rate depreciation may induce long run expansionary or contractionary effects on output supply consistent with theory s predictions the expansionary effect of unanticipated depreciation is only transitory on output growth nonetheless unanticipated depreciation is found to have a contractionary effect on output growth in the long run via an increase in the cost of imported inputs

morals or economics institutional investor preferences for corporate social responsibility this article presents the results of a study that analysed whether social responsibility had any bearing on the decision making of institutional investors being that institutional investors prefer socially aligned organizations this study explored to what extent the corporate actions and or social environmental investments influenced their decisions our results suggest that there are specific variables that affect the perceived value of the organization leading to decisions to not only invest but whether to hold or sell the shares and therefore having a consequential impact on the capital market s valuation

cooperative advertising models in supply chain management a review this paper reviews articles on cooperative advertising a topic which has gained substantial interest in recent years thereby we first briefly distinguish five different definitions of cooperative advertising which can be found in operations research literature after that we concentrate on vertical cooperative advertising which is the most common object of investigation it is understood as a financial agreement where a manufacturer offers to pay a certain share of his retailer s advertising expenditures in total we identified 58 scientific papers considering mathematical modeling of vertical cooperative advertising these articles are then analyzed with regard to their general model setting e g the underlying supply chain structure and design of the cooperative advertising program after that we explain the different demand and cost functions that are employed whereupon we distinguish between static and dynamic models the last dimension of our review is dedicated to the game theoretic concepts which are mostly used to reflect different forms of distribution of power within the channel

embedding corporate social responsibility in corporate governance a stakeholder systems approach current research on corporate social responsibility csr illustrates the growing sense of discord surrounding the business of doing good dobers and springett corp soc responsib environ manage 17 2 63 69 2010 central to these concerns is that csr risks becoming an over simplified and peripheral part of corporate strategy rather than transforming the dominant corporate discourse it is argued that csr and related concepts are limited to emancipatory rhetoric defined by narrow business interests and serve to curtail interests of external stakeholders banerjee crit sociol 34 1 52 2008 the paper addresses gaps in the literature and challenges current thinking on corporate governance and csr by offering a new conceptual framework that responds to the concerns of researchers and practitioners the limited focus of existing analyses is extended by a holistic approach to corporate governance and social responsibility that integrates company shareholder and wider stakeholder concerns a defensive stance is avoided by delineating key stages of the governance process and aligning profit centred and social responsibility concerns to produce a business based rationale for minimising risk and mainstreaming csr

institutional interest ownership type and environmental capital expenditures evidence from the most polluting chinese listed firms this study empirically examines whether firms environmental capital expenditures impact institutional investors investment decisions in the chinese market we particularly examine the impact of ownership type on the relationship of environmental capital expenditures and the behavior of different types of institutional investors by classifying institutional investors into two categories short term and long term investors in addition this study further investigates whether environmental capital expenditures related to ownership type increase firm value we find that long term institutional investors tend to invest in state owned firms soes making environmental capital expenditures results also indicate that with governmental backing and encouragement the market value of soes making more environmental capital expenditures is likely to increase however no similar results are found for non soes

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

the profit benefits of category management the practice of category management i e empolying a single decision maker who is responsible for a firm s product line has been advocated as a superior alternative to brand management i e in

channel pass through of trade promotions packaged goods manufacturers spend in excess of 75 billion annually on trade promotions even though their effectiveness has been hotly debated by academics and practitioners for decades one reason for this ongoing debate is that empirical research has been limited mostly to case studies managerial surveys and data from one or two supermarket chains in a single market in this paper we assemble a unique data set containing information on prices quantities and promotions throughout the entire channel in a category our study extends the empirical literature on pass through in three important ways first we investigate how pass through varies across more than 1 000 retailers in over 30 states second we study pass through at multiple levels of the distribution channel third we show how the use of accounting metrics such as average acquisition cost rather than transaction cost yields biased estimates of pass through and therefore overstates the effectiveness of trade promotions we find that mean pass through elasticities are 0 71 0 59 and 0 41 for the wholesaler retailer and total channel respectively more importantly at each level of the channel we observe large variances in pass through estimates that we explain using various measures of cost and competition surprisingly we find that market structure and competition have a relatively small impact on pass through we conclude by showing how the profitability of manufacturer and wholesaler deals can be improved by utilizing detailed effectiveness estimates for example a manufacturer using an inclusive trade promotion strategy might offer a 10 off invoice deal to all retailers on every product this strategy would decrease manufacturer and wholesaler profits for 56 of product store combinations whereas retailers experience a profit boost in 96 of cases manufacturers and wholesalers can avoid unprofitable trade deals for specific products and retailers by utilizing estimates of pass through consumer price elasticity and margins compared to the inclusive strategy such a selective trade promotion strategy would improve deal profitability by 80 and reduce costs by 40

nominal and real effective exchange rates of middle eastern countries and their trade performance indexes of real and nominal effective exchange rates that are published by the imf are mostly for industrial countries none of the middle eastern countries have received any attention on this regard this paper tries to close the gap by constructing such indexes for 11 middle eastern countries over 1971 i 1994 iv period as an application long run response of their trade balance to devaluation is also investigated

supermarket competition the case of every day low pricing every day low pricing edlp strategy has proved to be a successful innovation resulting in higher profits to supermarkets adopting it in competition with promotional pricing promo conventional wisdom attributes this success either to lower costs or to edlp better serving time constrained consumers while discouraging cherry pickers who seek promotions however it is unclear that such cost savings are being fully realized since edlp stores also engage in price promotions also continued existence of promo stores means that costs are not the only factor and they compete effectively without relying just on the cherry pickers furthermore experimental evidence suggests that a supermarket cannot obtain higher profits by merely setting constant low prices leading to the question exactly what makes edlp successful this question is of particular relevance to both academics and practitioners who have been intrigued by the success of this retailing strategy more generally the retailing issues addressed in this paper the economic analysis of competition and the empirical findings should be of interest to the broader community of researchers and managers we investigate the factors contributing to edlp s success by analyzing the competition between supermarkets through a game theoretic analysis of a market consisting of both time constrained consumers and cherry pickers key features of our model are consumers shop and purchase a basket of goods based on price announcements by stores and rational expectations of unannounced prices stores carry more than one good and compete through prices service convenience and appropriate communication strategies and no exogenous cost asymmetries we derive the conditions under which retailers choosing different strategies edlp and promo is a perfect nash equilibrium our analysis shows that the edlp store s offering of constant every day low prices is an equilibrium outcome endogenously determined successful implementation of the edlp strategy involves communication of relative basket prices implying that merely setting constant low prices is not viable we further demonstrate that while time constrained consumers find every day low prices at edlp attractive and cherry pickers the promotions at promo clientele effects are in fact more complicated specifically in equilibrium the promo store offers a higher service level as desired by time constrained consumers and the edlp store a lower service level in keeping with the needs of cherry pickers this choice of service by the two stores results in a cleaner segmentation of the market the higher relative basket price and service at the promo store results in a larger base of time constrained consumers to shop at the promo store and a larger base of cherry pickers to shop at the edlp store even though some cherry pickers continue to visit the promo store to avail of the price specials in this way our results contradict the conventional wisdom on edlp strategy as being mainly geared towards time constrained consumers finally industry profits are higher in an edlp promo equilibrium than when stores adopt identical strategies our analysis and results also offer a more complete characterization of the edlp and promo strategies indeed we show that edlp and promo strategies are positioning strategies rather than merely pricing strategies with different elements price promotions service and communications while the edlp store uses basket prices to attract both segments the promo store uses service and price specials to compete in the time constrained and cherry picking segment respectively given these different approaches of the two stores the communication strategies of the edlp and the promo stores emphasize these differences as well in this way we show as suggested by corstjens and corstjens 1994 that positioning in a retail context involves developing multidimensional strategies appealing to all segments while each element of the strategy may focus on a different consumer segment this is in contrast to the traditional view of segmentation in which different products in a product line for example are designed to appeal to different segments we complete the analysis by examining the data from the trade press and a survey conducted in a major metropolitan area these data while limited in scope support our theoretical results

quantile unit root test and the ppp in africa abstractin this study we apply the quantile unit root test and revisit the purchasing power parity ppp in 20 african countries using real effective exchange rates over the period 1971q1 to 2012q4 while traditional unit root tests fail to reject unit root hypothesis in most of the countries results from quantile unit root test reject unit root null hypothesis in ghana mauritius niger south africa and togo providing support for the ppp at least in these five countries we further estimate the half life based on quantile autoregressive qar model to be about 4 57 7 96 quarters 1 2 year

the decomposition of promotional response an empirical generalization price promotions are used extensively in marketing for one simple reason consumers respond the sales increase for a brand on promotion could be due to consumers accelerating their purchases i e buying earlier than usual and or buying more than usual and or consumers switching their choice from other brands purchase acceleration and brand switching relate to the primary demand and secondary demand effects of a promotion gupta 1988 captures these effects in a single model and decomposes a brand s total price elasticity into these components he reports for the coffee product category that the main impact of a price promotion is on brand choice 84 and that there is a smaller impact on purchase incidence 14 and stockpiling 2 in other words the majority of the effect of a promotion is at the secondary level 84 and there is a relatively small primary demand effect 16 this paper reports the decomposition of total price elasticity for 173 brands across 13 different product categories on average we find that 25 of the elasticity is due to primary demand expansion i e purchase acceleration and 75 to secondary demand effects or brand switching thus while gupta s finding that the majority of promotional response stems from brand switching is supported the average magnitude of the effect appears to be smaller than first thought more important there is ample evidence that promotions have a significant primary demand effect the relative emphasis on purchase acceleration and brand switching varies systematically across categories and the second goal of the paper is to explain this variation as a function of exogeneous covariates in doing this we recognize that promotional response is the consumer s reaction to a price promotion and therefore develop a framework for understanding variability in promotional response that is based on the consumer s perspective of the benefits from a price promotion these benefits are posited to be a function of i category specific factors ii brand specific factors and iii consumer characteristics the framework is formalized as a generalized least squares meta analysis in which the brand s price elasticity is the dependent variable several interesting results emerge from this analysis category specific factors brand specific factors and consumer demographics explain a significant amount of the variance in promotional response for a brand at both the primary and secondary demand levels category specific factors have greater influence on variability in promotional response and its decomposition than do brand specific factors there are several instances where exogenous variables do not affect total elasticities yet significantly affect individual components of total elasticity in fact the lack of a significant relationship between the variables and total elasticity is often due to offsetting effects within two or more of the three behavioral components of elasticity this is particularly true for brand specific factors which typically have no effect on total elasticity yet have important effects on the individual behaviors there is some evidence to suggest that not all promotion related increases in primary demand are due to forward buying in some cases promotions appear to increase consumption we use these results to illustrate how category and brand specific factors work to drive primary and secondary demand elasticities in different directions in short this paper offers an empirical generalization of a key finding on promotional response how elasticities decompose across brand choice purchase incidence and stockpiling and new insights into factors that explain variance in promotional response these findings are likely to be of interest to researchers who are concerned with theory development and the generalizability of marketing phenomena and to managers who plan promotion campaigns

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

towards solving the ppp puzzle evidence from 113 countries several different approaches have been followed by researchers to test the validity of purchasing power parity ppp since the introduction of the unit root tests researchers have applied a battery of these tests to determine whether the real exchange rates are stationary if the answer is in the affirmative ppp is validated while application of the standard augmented dickey fuller test has not provided much support for ppp a test that incorporates nonlinearity in the rates has under both tests however the null of nonstationary is tested against the alternative of stationarity in this article when we switch the null with the alternative and apply kwiatkowski et al 1992 test we provide relatively more support for the theory getting closer and closer towards solving the ppp puzzle

mean reversion in bilateral real exchange rates evidence from the malaysian ringgit this study examines behaviour of the consumer price index cpi based real exchange rates rers of the ringgit against the currencies of malaysia s major trading partners the empirical results which are derived from newly developed tests advocated by lee and strazicich ls 2003 and narayan and popp np 2010 that allow for two breaks in the series provide conflicting results we obtain weaker support for purchasing power parity ppp using the narayan and popp 2010 test by truncating the sampling period into two sub periods we find that ppp holds for majority of the malaysia s bilateral exchange rate vis a vis its major trading partners during the pre crisis period the 1997 currency crisis however has weakened the evidence in favour of ppp hypothesis in the strict sense