the hyperinflation model of money demand revisited in this paper we propose a test of the hyperinflation model of money demand which is valid under any assumption concerning agents expectations subject only to the restriction that forecasting errors are stationary it is also demonstrated that highly efficient parameter estimates can be obtained and restrictions on them tested under the same weak assumption finally it is shown how these first stage estimates can be utilized to test the stronger assumption of rational expectations the arguments are illustrated by analysis of the classic data on european hyperinflations previously analyzed by cagan 1956 barro 1970 and abel dornbusch huizinga and marcus 1979 copyright 1991 by ohio state university press

urbanization openness emissions and energy intensity a study of increasingly urbanized emerging economies this paper analyses the impact of urbanization and trade openness on emissions and energy intensity in twenty two increasingly urbanized emerging economies we employ three second generation heterogeneous linear panel models as well as recently developed nonlinear panel estimation techniques allowing for cross sectional dependence the empirical results show that population density and affluence increase emissions and energy intensity while renewable energy seems to be dormant in these emerging economies but non renewable energy increases both co2 emissions and energy intensity in addition openness significantly reduces both pollutant emissions and energy intensity whereas urbanization significantly increases energy intensity but it is insignificant in increasing emissions this may be in part due to the recent increasing trend in adopting cleaner technologies in these increasingly urbanized developing economies

optimal inflation tax under precommitment theory and evidence the authors develop and test the orthogonality conditions implied by a dynamic model of the inflation tax a distinguishing feature of the analysis is that the welfare loss from inflation the money demand function and the time path of inflation are jointly derived from first principles of government and private sector intertemporal optimization quarterly data for argentina brazil and israel are used in implementing the model although the overidentifying restrictions of the model are not rejected in most cases there are several data points characterized by higher rates of inflation than the optimal rates under precommitment copyright 1992 by american economic association

money demand and seigniorage maximizing inflation conventional estimates of the seigniorage maximizing inflation rate often make use of the cagan form which implies a constant semielasticity of money demand with respect to inflation this paper shows that the elasticity of substitution in transactions between money and bonds determines how the inflation semielasticity of money demand changes as inflation rises allowing for a variable semielasticity estimates of seigniorage maximizing inflation for a panel of eleven high inflation countries are lower than those obtained by using the cagan form estimates based on the correct measure of the opportunity cost of money also differ sharply from those obtained when using conventional inflation measures copyright 1995 by ohio state university press

the divergence of bank lending rates from policy rates after the financial crisis the role of bank funding costs abstract after the global financial crisis policy rates were cut to near zero levels yet bank lending rates did not fall as much as the decline in policy rates would have suggested if the crisis represents a structural break in the relationship between monetary policy and lending rates how should central banks view the post crisis transmission this poses a major puzzle for monetary policymakers using a new weighted average cost of liabilities to measure banks effective funding costs we show a model of interest rate pass through with dynamic panel data methods solves this puzzle and has many other advantages over traditional approaches it confirms central banks should focus on the cost and composition of bank liabilities as many are now doing to better understand and steer the dynamics of lending rates

budget deficits stability and the monetary dynamics of hyperinflation hyperinflationary processes usually occur in countries with extremely large budget deficits in models of inflationary finance with rational expectations e g buiter 1987 large budget deficits cannot lead to hyperinflation the purpose of this paper is to reconcile the standard theoretical model with the stylized facts it shows that by introducing a lag in the adjustment of the money market into the standard inflationary finance model large budget deficits are indeed the main reason for hyperinflation the paper also provides an explanation for the ineffectiveness of moderate reductions in the deficit in reducing inflation and argues that fiscal lags can be destabilizing copyright 1989 by ohio state university press

the impact of r d expenditures on co2 emissions evidence from sixteen oecd countries abstract this study analyzes the impact of research and development r d expenditures on co2 emissions in 16 organisation for economic co operation and development oecd countries for the period between 1981 and 2014 the estimates of long run regression models show that the expected average effect of r d expenditures on co2 emissions is negative growth of r d investments by 1 reduces co2 emissions by 0 09 0 15 on average however estimated country specific regressions indicate that the long run effect of r d expenditures on co2 emissions can be both positive and negative and they vary from 0 79 in denmark to 0 52 in belgium in other words in most cases viewed from a long term perspective higher r d expenditures reduce co2 emissions but this does not apply to about 40 of countries in addition the estimation of the short run time varying coefficient panel data models indicated that r d impact can be positive negative but also neutral insignificant for many years such findings suggest a conclusion that the effect of r d investments on co2 emissions cannot be characterized as negative in advance as pointed out by numerous analysis but must be empirically estimated the practical significance of this study is reflected in the fact that it directs decision makers to concentrate their efforts on promoting r d programs such as those in the us and germany which are directly focused on reducing co2 emissions and increasing the use thereof

modelling long run comovements in equity markets a flexible approach abstract international equity markets linkages are characterized by nonlinear dependence and asymmetries we investigate shifts in long run comovements in stock markets by means of an interrupted markov switching cointegration specification this flexible approach allow us to study to what extent documented changes in global integration are permanent or whether market linkages are subject to changes using an illustrative sample from 1980 to 2012 for usa uk and hong kong stock price indices we find evidence of interrupted cointegration across these markets between may 1997 and april 2002 which is consistent with the decoupling of stock prices from fundamentals during the dot com bubble

the long run relationship between productivity and capital abstract using panel cointegration techniques we show a cointegrating relationship exists between capital and productivity in 446 manufacturing industries panel dols and fmols estimates reveal that innovations to productivity increase and granger cause capital movements

global imbalances and the intertemporal external budget constraint a multicointegration approach abstract this paper analyzes the external solvency of a group of 23 oecd countries for the period 1970 2012 the empirical strategy adopted underlines the increasing importance of the financial channel for the external adjustment as proposed in gourinchas and rey 2007 we unify the traditional approaches to testing for external sustainability considering the stock flow system created by the variables representing the external relationships of an open economy external sustainability is tested using several types of cointegration and multicointegration tests the results obtained point to weak sustainability in the flows analysis whereas some degree of strong sustainability is found for up to six countries in the stock flow approach among these countries we find both non european economies such as japan and new zealand and euro area members especially those with more restricted access to financing in the international markets

the determinants of australian trade union membership summary this paper investigates the determinants of trade union membership in australia using the engle and granger 1987 theory of co integrated economic variables applying the theory of co integration yields a model of union membership which can be interpreted as distinguishing between long run and business cycle determinants of union membership the principal long run determinant of union membership is found to be the level of employment disaggregated by industry classification business cycle variables the real wage and the change in unemployment are also shown to influence movements in union density these findings are consistent with recent studies which have attributed the decline in union membership in australia since the early 1980s to the changing composition of employment and movements in the rate of unemployment

modelling money demand in germany in this paper an empirically stable money demand model for m3 in germany is presented the sample period 1975 94 includes german unification it is shown that this development has not substantially destabilized money demand parameter stability is extensively tested and not rejected applying encompassing tests this model encompasses two recent models but is not encompassed by them exogeneity of the explanatory variables is discussed and tested along the definitions given in engle hendry and richard 1983 there is evidence that inflation and long term interest rates are super exogenous with respect to the parameters of the demand for m3 model this result and the empirical long run money demand function presented in this paper may affect the applicability of the so called p star concept for german m3 1998 john wiley sons ltd

stock grants as a commitment device abstract a large and increasing fraction of the value of executives compensation is accounted for by security grants however in most models of executive compensation the optimal allocation can be implemented through a sequence of state contingent cash payments security awards are redundant in this paper we develop a dynamic model of managerial compensation where neither the firm nor the manager can commit to long term contracts we show that in this environment if stock grants are not used then the optimal contract collapses to a series of short term contracts when stock grants are used however nonlinear intertemporal schemes can be implemented to achieve better risk sharing and higher firm value

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

seigniorage operating rules and the high inflation trap there may be both a high and a low inflation equilibrium when the government finances the deficit through seigniorage under rational expectations the high inflation equilibrium is stable and the low inflation equilibrium unstable under adaptive expectations or lagged adjustment of money balances with rational expectations the low inflation equilibrium may be stable adding bond financing dual equilibria remain if the government fixes the real interest rate but a unique equilibrium is attained when the government sets a nominal anchor for the economy the existence of dual equilibria is thus a result of the government s operating rules

the environmental kuznets curve in the oecd 1870 2014 carbon dioxide co2 emissions play an important role in global warming consequently studying the relationship between co2 emissions and economic development is important especially when viewed from a historical perspective we test the environmental kuznets curve ekc hypothesis for a panel of 20 oecd nations dating back to the first globalization boom in the nineteenth century utilising recently developed panel data estimators that account for cross sectional dependence and parameter heterogeneity for the period 1870 to 2014 we find support for the ekc hypothesis for the panel as a whole with three of our preferred four estimators with turning points in income per capita that lie between 18 955 and 89 540 in 1990 us country specific results however only provide mixed support for the ekc hypothesis specifically we find evidence of an ekc for nine of the 20 countries with five exhibiting a traditional inverted u shaped relationship three exhibiting an n shaped relationship and one an inverted n shaped relationship

an econometric study of co2 emissions energy consumption income and foreign trade in turkey abstract this study attempts to empirically examine the dynamic causal relationships between carbon emissions energy consumption income and foreign trade in the case of turkey using the time series data for the period 1960 2005 this research tests the interrelationship between the variables using the bounds testing to cointegration procedure the bounds test results indicate that there exist two forms of long run relationships between the variables in the case of first form of long run relationship carbon emissions are determined by energy consumption income and foreign trade in the case of second long run relationship income is determined by carbon emissions energy consumption and foreign trade an augmented form of granger causality analysis is conducted amongst the variables the long run relationship of co2 emissions energy consumption income and foreign trade equation is also checked for the parameter stability the empirical results suggest that income is the most significant variable in explaining the carbon emissions in turkey which is followed by energy consumption and foreign trade moreover there exists a stable carbon emissions function the results also provide important policy recommendations

long run estimates of money demand new evidence from east asian countries and the presence of structural breaks conventionally the money demand function is estimated using a linear regression of the logarithm of money demand on a number of variables in this article we aim to estimate the long run properties of money demand specification for a number of east asian economies and within a panel framework with the presence of structural breaks various country specific coefficients are allowed to capture inter country heterogeneities consistent with theoretical postulates it is found that a the demand for money in the long run positively responds to real income and inversely to the interest rate spread inflation the real effective exchange rate and the us real interest rate b the long run income elasticity is greater than unity and c both the currency substitution and capital mobility hypotheses hold the empirical findings in this article can provide useful policy guidelines to the east asian countries central banks in their quest for price stability if one of the primary objectives of these countries

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

the impact of economic growth on co2 emissions in azerbaijan abstract this paper investigates the relationship between the economic growth and co2 emissions in azerbaijan a cointegration analysis is conducted over the period 1992 2013 for getting more robust results johansen ardlbt dols fmols and ccr methods are employed to explore cointegration and estimate long run coefficients we use cubic quadratic and linear specifications and conclude that the last one is an adequate representation for the impact of the economic growth on co2 emissions in azerbaijan the results from the different cointegration methods are consistent with each other and show that the economic growth has a positive and statistically significant impact on the emissions in the long run implying that the ekc hypothesis does not hold for azerbaijan the income elasticity of co2 emissions using different methods is found to be between 0 7 and 0 8 moreover we find that any short run imbalance can be adjusted towards the long run equilibrium path within less than one year the paper concludes that measures to increase energy efficiency carbon pricing instruments in production and international domestic trade activities and nationwide social awareness programs to instruct about the negative consequences of pollution can be considered as relevant environmental policies aimed at reducing carbon emissions

electricity consumption employment and real income in australia evidence from multivariate granger causality tests this paper examines the relationship between electricity consumption employment and real income in australia within a cointegration and causality framework we find that electricity consumption employment and real income are cointegrated and that in the long run employment and real income granger cause electricity consumption while in the short run there is weak unidirectional granger causality running from income to electricity consumption and from income to employment

the role of natural gas consumption and trade in tunisia s output this paper examines the impact of natural gas consumption real gross fixed capital formation and trade on the real gdp in case of tunisia over the period of 1980 2010 we used auto regressive distributed lag ardl bounds testing approach to test the existence of long run relationship between the variables the vector error correction method vecm granger approach is applied to test the direction of causal relation between the series our findings indicate the existence of long run relationship among the variables natural gas consumption real gross fixed capital formation and trade add in economic growth natural gas consumption real gross fixed capital formation and real trade granger cause real gdp these findings open up new insights for policy makers to formulate a comprehensive energy policy to sustain economic growth for long run

residential electricity demand dynamics in turkey abstract this article provides fresh empirical evidences for the income and price elasticies of the residential energy demand both in the short run and long run for turkey over the period 1968 2005 using the bounds testing procedure to cointegration the computed elasticities of income and price are consistent with the previous studies and as expected the long run elasticities are greater than the short run elasticities an augmented form of granger causality analysis is implemented among residential electricity income price and urbanization in the long run causality runs interactively through the error correction term from income price and urbanization to residential energy but the short run causality tests are inconclusive the parameter stability of the short run as well as long run coefficients in the residential energy demand function are tested the results of these tests display a stable pattern

uncovering the interrelationship between the u s stock and housing markets a bootstrap rolling window granger causality approach abstractthe purpose of this study is to investigate the time varying interrelationship between the housing market and the stock market in the u s during the period of 1890 2013 by employing a rolling window subsample with a bootstrap granger causality test the rolling window allows for structural changes in the economy over time whereas previous studies have not identified a causal relationship between the u s housing price index and the sp500 stock price index this new analysis is the first to identify certain periods wherein either the wealth effect or the investment effect can be observed

the evolution of price elasticity of electricity demand in south africa a kalman filter application abstract in south africa the electricity mismatch of supply and demand has been of major concern additional to past problems the 2008 electricity crisis made the solution crucial after its damaging consequences to the economy the disagreement on the need and consequences of the continuous electricity price hikes worsens the situation to contribute to the recent electricity debate this paper proposes a time varying price elasticity of demand for electricity the sensitivity of electricity consumption to price fluctuations changes throughout the years the main purpose of this study is the estimation of the price elasticity of electricity in south africa during the period 1980 2005 by employing an advanced econometric technique the kalman filter apart from the decreasing effect of electricity prices to consumption 71 8 in the 1990s and 94 5 in the 2000s in average our results conclude to an important finding the higher the prices for example in the 1980s the higher the sensitivity of consumers to price fluctuations thus further increases of the electricity prices may lead to changes in the behaviour of electricity consumers focusing their efforts on improving their efficiency levels by introducing demand side management techniques or even turning to other sources of cheaper energy

intertemporal substitution imports and the permanent income model abstract we examine the importance of intertemporal substitution in u s import consumption using a model of permanent income that allows for random preference shocks and additive separability the latter feature allows us to take two estimation approaches in the first approach we show that there is a cointegrating restriction imposed by the first order conditions of the model which allows us to estimate the intertemporal elasticity of imported and domestic goods consumption in the second approach we estimate the euler equations using generalized method of moments this approach however requires us to place some restrictive assumptions on the model that are not required for the first estimation approach thus the two different approaches allow an assessment of the severity of these restrictive assumptions which are often imposed in the literature

a long march perspective on tobacco use in canada in this paper we present a model of tobacco demand in canada with a view to establishing if price and tax policy on the one hand or educational regulatory and demographic influences on the other have been primarily responsible for the substantial drop in consumption since 1980 we address some methodological and econometric issues that have escaped the attention of some analysts to this point using data for the period 1972 2000 we find that non price developments have had a strong deterrent effect and that the price elasticity of demand is now lower than even the recently obtained low estimates propose these findings have strong public policy content jel classification i12 c13 c22 une perspective de longue haleine sur l usage du tabac au canada dans ce memoire on presente un modele de la demande de tabac au canada en vue d etablir laquelle des deux strategies d une part la politique de prix et d imposition de taxes et d autre part les influences de l education de la reglementation ainsi que les changements demographiques a ete davantage responsable de la chute importante dans la consommation du tabac depuis 1980 le texte examine certains problemes methodologiques et econometriques qui ont jusqu ici echappea l attention des analystes a l aide de donnees pour la periode 1972 2000 on montre que les facteurs qui n ont rien a voir avec le prix ont eu un fort effet dissuasif et que l elasticite de la demande par rapport au prix est maintenant plus faible que les faibles elasticites suggerees par certaines etudes recentes ces resultats ont une grande importance pour la politique publique

repeated moral hazard and recursive lagrangeans dynamic agency models with endogenous state variables or many agents are numerically intractable or at least very difficult to solve this problem prevented researchers from analizying an important class of economic problems e g extensions of the basic unemployment insurance framework models of international risk sharing in production economies with private information and optimal executive compensation schemes in this paper i show how to solve these models by building a general theoretical framework for the analysis of repeated moral hazard problems the main contribution is the extension of the recursive

global economic activity and crude oil prices a cointegration analysis abstract this paper empirically investigates the cointegrating relationship between crude oil prices and global economic activity the kilian economic index is used as an indicator of global economic activity based on a supply demand framework and the cointegration theory we find that real futures prices of crude oil are cointegrated with the kilian economic index and a trade weighted us dollar index and crude oil prices are influenced significantly by fluctuations in the kilian economic index through both long run equilibrium conditions and short run impacts we also develop an empirically stable data coherent and single equation error correction model ecm which has sensible economic properties empirical results based on the ecm show that the adjustment implied by a permanent change in the kilian economic index is a relatively drawn out process

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

cointegration in panel data with structural breaks and cross section dependence summary the power of standard panel cointegration statistics may be affected by misspecification errors if structural breaks in the parameters generating the process are not considered in addition the presence of cross section dependence among the panel units can distort the empirical size of the statistics we therefore design a testing procedure that allows for both structural breaks and cross section dependence when testing the null hypothesis of no cointegration the paper proposes test statistics that can be used when one or both features are present we illustrate our proposal by analysing the pass through of import prices on a sample of european countries copyright 2013 john wiley sons ltd

the effects of macroeconomic stability on foreign trade an analysis for spain 1986 2000 two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade the reduction of its volatility and the current trend towards price stability the objective of this study is to analyse the effects of the process of nominal convergence required of the european member states for the fulfilment of monetary integration on foreign trade flows the case of spain which is especially interesting in this context is studied for the period 1986 to 2000 the results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants income and prices how it has caused a significant structural change in the real exchange rate and finally how it has laid the explanatory bases for transactions in the twenty first century with the single currency the euro

the balassa samuelson hypothesis in the developed and developing countries revisited abstract this paper aims at examining the balassa samuelson bs hypothesis in 20 developed and 20 developing countries respectively given the cross sectional dependence and structural breaks we develop a new panel cointegration technique which allows for multiple heterogeneous unknown breaks and non stationary factors the empirical results show that the bs hypothesis holds in the developed countries implying that higher productivity growth leads to a real appreciation but they are cointegrated up to a number of cross sectional unobserved stochastic trends as factors are non stationary however we find little evidence to support the bs hypothesis in the developing countries and a further research is needed for the reason

the classic european hyperinflations revisited testing the cagan model using a cointegrated var approach the cagan model of hyperinflation under rational expectations no bubbles and stationary velocity shocks has the implication that real balances cointegrate with money growth in a re examination of the classic european hyperinflations i find support for this cointegrating property which gives evidence against the assumption made in most previous studies that velocity shocks follow a random walk based on a cointegrated var model i reject statistically for four of the six hyperinflations the exact rational expectations cagan model but at the same time i find evidence of a substantial forward looking element in agents demand for real balances in the sense that a large part of the predictable movement in money growth is incorporated in agents demand for money

intertemporal substitution in import demand and habit formation to study non durable import demand we extend previous work done by clarida 1994 and ceglowski 1991 by considering a two good version of the lifecycle model in which we introduce time non separability in the households preferences the model is estimated using quarterly data for the usa and france using the information contained in the observed stochastic and deterministic trends we derive a cointegration restriction used to estimate curvature parameters of the instantaneous utility function the remaining parameters are estimated in a second step by gmm the constancy of the different parameters is investigated in both the long and the short run habit formation turns out to be an important factor of import demand c 1998 john wiley sons ltd

exploring consumption based asset pricing model with stochastic trend forcing processes using canadian data the consumption based asset pricing model is studied defined in terms of nondurable and durable goods consumption a two stage estimation procedure is used which takes account of the presence of common stochastic trends in the forcing processes this method yields more reasonable estimates of the preference parameters than the previous studies did and the asset pricing equation is not rejected by the data moreover the preference specification adopted in this paper allows a number of useful economic information to be obtained the additive separability assumption and the cobb douglas functional form of the utility function are ruled complements in the sense of edgeworth and pareto

incentives ceo compensation and shareholder wealth in a dynamic agency model abstract m jensen and k murphy 1990 j polit econ 98 225 264 argue that the observed pay performance sensitivity of ceo compensation is too low to be consistent with formal agency theory this paper uses a dynamic agency model to offer a resolution of the jensen and murphy puzzle we show that the dynamic agency model can predict either a positive or a negative pay performance sensitivity depending on the parameter values of the model and the distribution of the ceos initial expected discounted utilities for a large variety of parameter values and for properly chosen distributions of initial ceo expected discounted utilities our model is capable of generating data where the pay performance sensitivity is significantly positive but very small as in jensen and murphy s data the key to our result is a compensation rigidity that is created endogenously by the optimal dynamic contract journal of economic literatureclassification numbers c63 d82 g30

cointegration and cagan s model of hyperinflation under rational expectations when money and prices are integrated of order two philip cagan s 1956 model of hyperinflation will give rise to two different levels of cointegration in most of the literature on the german hyperinflation one of these cointegrating relationships has been ruled out a priori by assuming that velocity shocks follow a random walk using data from the german hyperinflation the author finds this assumption to be unjustified based on a straightforward extension of the cointegrated var approach suggested by john y campbell and robert j shiller 1987 a method to evaluate the cagan model under rational expectations and no bubbles is proposed and implemented to the german data copyright 1993 by ohio state university press

an application of cointegration theory in the estimation of the almost ideal demand system for food consumption in bulgaria abstract the almost ideal demand system is applied to consumption in bulgaria it is argued that the conventional estimation of the almost ideal model should be done within the framework of contemporary time series methodology in this paper the canonical cointegrating regression procedure of park is applied it is argued that the results of the almost ideal demand system that are presented are consistent with both theory and casual observation of consumer behaviour in bulgaria

financial markets and wages we study a labor market equilibrium model in which flrms sign optimal long term contracts with workers firms that are flnancially constrained ofier an increasing wage proflle they pay lower wages today in exchange of higher wages once they become unconstrained and operate at a larger scale in equilibrium constrained flrms are on average smaller and pay lower wages in this way the model generates a positive relation between flrm size and wages using data from the national longitudinal survey of youth nlsy we show that the key dynamic properties of the model are supported by the data jel classiflcation g31 j31 e24

fiscal deficit sustainability of the spanish regions carrion i silvestre j l fiscal deficit sustainability of the spanish regions regional studies the fiscal deficit of the spanish autonomous communities is investigated using non stationary panel data analysis the paper considers the two main approaches in the literature first assessing whether there is a long run relationship between the revenues and expenditures of the autonomous communities and second focusing on the use of fiscal rules the paper shows that it is possible to relate these approaches in a unified framework

executive compensation and principal agent theory the empirical literature on executive compensation generally fails to specify a model of executive pay on which to base and test hypotheses regarding its determinants in contrast this paper analy

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

does urbanization increase pollutant emission and energy intensity evidence from some asian developing economies abstractthis paper aims to investigate the effects of urbanization on pollutant emissions and energy intensity in selected asian developing countries after controlling for the effects of disaggrega

the effect of emergency liquidity assistance ela on bank lending during the euro area crisis abstract we examine the impact of emergency liquidity assistance ela on bank lending in eleven euro area countries during the financial crisis with the intensification of the crisis ela took on a pivotal role in some countries however assessments of the quantitative impact of ela in the literature are non existent we estimate a structural panel model for the determination of bank lending which includes the amount of ela received by each bank allowing us to investigate the direct effect of ela on lending our model corrects a mis specification found in the prototype model used in the literature we then undertake a var analysis which allows us to address the effect of ela on gdp finally we examine spillover effects among banks indicating that ela generated positive spillovers to other banks

adjustment costs and import demand behavior evidence from canada and the united states abstract in this paper we examine whether adjustment costs are a significant source of the observed sluggish adjustment of canadian and us import demand we use a simple model of a utility maximizing domestic consumer under the assumption of integrated forcing variables to examine the importance of adjustment costs this formulation of the problem allows us to exploit the recently developed theory of cointegration to estimate the structural parameters of the model using a two step methodology moreover the formulation incorporates an element of forward looking behaviour into the decision process a feature that is important if one assumes adjustment costs are a significant source of persistence in import demand adjustment the empirical results from a euler equation imply that adjustment costs in canada and the united states are important

declining discount rates and the fisher effect inflated past discounted future uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the expected net present value enpv framework despite being controversial this approach has influenced both the inter agency working group on cost benefit analysis and the uk government s guidelines on discounting we first clarify the theoretical basis of the enpv approach then rather than following previous work which used a single series of u s treasury bond returns we treat nominal interest rates and inflation as co integrated series and estimate the empirical term structure of discount rates via the fisher effect this nests previous empirical models and is more flexible it also addresses an irregularity in previous work which used data on nominal interest rates until 1950 and real interest rates thereafter as we show the real and nominal data have very different time series properties this paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting the policy implications are discussed in the context of the social cost of carbon nuclear decommissioning and public health

commodity currencies and the real exchange rate abstract this paper examines whether the real exchange rates of commodity exporting countries and the real prices of their commodity exports move together over time using international monetary fund imf data on the world prices of 44 commodities and national commodity export shares we construct new monthly indices of national commodity export prices for 58 commodity exporting countries over 1980 2002 evidence of a long run relationship between national real exchange rate and real commodity prices is found for about one third of the commodity exporting countries the long run real exchange rate of these commodity currencies is not constant as would be implied by purchasing power parity based models but is time varying being dependent on movements in the real price of commodity exports

rights based management and alaska pollock processors supply using data from the alaska pollock fishery this study investigates the link between the implementation of rights based management and processors price responsiveness in a multiproduct fishery the analysis is based on cointegration with structural breaks to provide empirical evidence of a change in the long run relationship between processors production product prices and whole fish deliveries the results indicate that the endogenously determined structural breaks happened near the time when this fishery implemented individual fishing quotas furthermore the estimation of the cointegrating vector indicates that the processors of this fishery are significantly more price responsive after the change in management copyright 2008 oxford university press

us deficit sustainability a new approach based on multiple endogenous breaks recent empirical work has questioned the consistency of us fiscal policy with an intertemporal budget constraint empirical results have tended to indicate that the deficit process has undergone at least one structural shift during recent decades with the deficit becoming either unsustainable or sustainable in only a weak sense in the post shift period in this paper we re examine sustainability using a new approach based on a cointegration model with multiple endogenous breaks a bayesian methodology is applied incorporating markov chain monte carlo simulators in contrast to previous analyses we find evidence of a sustainable deficit process over the 1947 1992 period despite the occurrence of breaks during the 1970s and 1980s copyright 2000 john wiley sons ltd

german monetary unification and the stability of the german m3 money demand function abstract this paper employs quarterly data from the whole of germany to test the stability of m3 demand for money the methodology is based on an application of the cusum and cusumsq in the context of error correction modeling and cointegration the results reveal some instability in m3 money demand function

nonlinear equilibrium correction in u s real money balances 1869 1997 several theoretical models of money demand imply nonlinear functional forms for the aggregate demand for money characterized by smooth adjustment toward long run equilibrium in this paper we propose a nonlinear equilibrium correction model of u s money demand that is shown to be stable over the sample period from 1869 to 1997

instability in cointegration regressions a brief review with an application to money demand in portugal this study addresses some modelling questions related to the possibility of structural change in models with nonstationary variables focusing on cointegration issues some methodological aspects are discussed attempting to integrate coherently the several steps of the modelling strategy these range from unit root to cointegration testing and to testing for instability in the cointegration vector an empirical example with portuguese data tries to illustrate the usefulness of this approach where a simple money demand function is estimated using an error correction model ecm if a break is explicitly allowed in the cointegration vector the forecasting performance of the ecm improves

is health care a luxury the debate revisited with new evidence from emerging economies abstractthis paper studies the long run relationship between health care expenditure and income using a panel data set of emerging economies over the period 1995 2012 the results show that expenditure on health care and income are non stationary and cointegrated after controlling for cross sectional dependence and unobserved heterogeneity among different countries we find that the income elasticity of health care is less than 1 indicating that health care is a necessity and not a luxury government expenditure and out of pocket expenditure turn out to be important determinants of health care expenditure among non monetary factors results show that old age dependency and female education seem to have significant bearings on health care expenditures policy recommendations suggest that government should increase spending on health care in emerging economies since higher incomes may not automatically translate into higher health care spending by the people of these countries

on the optimality of resetting executive stock options the practice of resetting strike prices on underwater executive stock options has drawn criticism for weakening managerial incentives our model shows that although the anticipation of resetting can negatively affect initial incentives resetting can still be an important value enhancing aspect of compensation contracts even from an ex ante standpoint in fact we find that some resetting is almost always optimal the relative advantages of resetting diminish with greater ability of managers to influence the resetting process greater relative importance of external factors on stock performance and lower costs of replacing incumbent managers

african terms of trade and the commodity terms of trade close cousins or distant relatives this paper examines whether there is a relationship between the commodity terms of trade the price of primary commodities relative to the price of manufactures and the net barter terms of trade of 42 sub saharan african countries for most countries there is little evidence of a stable long run relationship between the two terms of trade series accordingly the practice in the literature of proxying for movements in any given country s terms of trade by using an aggregate index of relative commodity prices is inappropriate and is likely to engender misleading policy conclusions

risk aversion performance pay and the principal agent problem this paper calculates numerical solutions to the principal agent problem and compares the results to the stylized facts of ceo compensation the numerical predictions come from parameterizing the models of grossman and hart and of holmstrom and milgrom while the correct incentives for a ceo can greatly enhance a firm s performance providing such incentives need not be expensive for many parameter values ceo compensation need increase only by about 10 for every 1 000 of additional shareholder value for some values the amount is 0 003 cents

is the budget deficit too large some further evidence i introduction since the early 1980s the u s federal government has run unprecedented peacetime deficits the size of these deficits became a major issue in recent u s presidential elections for example during the 1992 elections ross perot successfully used his simple charts and tables to convey the notion that the size of the deficit was too large economists look at the deficit issue from a different perspective instead of emphasizing the size of the deficit at any particular point in time they are more concerned with the intertemporal solvency condition the present value of debt in the long run this condition focuses on the long run paths of interest inclusive expenditures and revenues unless these two variables trend together over the long run the government will have an incentive to default on the debt losing the confidence of investors from the standpoint of the intertemporal solvency condition are recent deficits too large do they represent boundless growth of government debt as an empirical proposition boundless growth of the debt corresponds to non stationarity of the deficit or the first difference of the debt recent developments in time series econometrics have provided ways to examine the intertemporal solvency condition for example hamilton and flavin 1986 and trehan and walsh 1991 apply stationarity tests to the u s federal deficit similarly hakkio and rush 1991 test for cointegration between interest inclusive expenditures and revenues while bohn 1991 tests for the cointegration of debt non interest expenditures and revenues hakkio and rush s results suggest that the deficit is too large for intertemporal solvency and thus the government has an incentive to default on its debt they conclude that over the period 1950 through 1989 interest inclusive expenditures and revenues are cointegrated but not one to one this suggests that although the present discounted value of the debt tends to zero the undiscounted value of the debt will be unbounded moreover they find that interest inclusive expenditures are not cointegrated with revenues over the period 1964 to 1989 the government debt appears to drift upward without bound overall hakkio and rush s results suggest that the government will have an incentive to default on the debt at some point in the future 1 we look at the issue from a different point of view we believe that a discrete break in the fiscal process occurred in the early 1980s as a result of several policy changes such as the 1981 economic recovery and tax act during the first reagan administration this reagan era change is modeled as a one time upward shift in the constant component of the deficit as mccallum 1984 shows a constant interest inclusive deficit does not imply boundless growth of government debt and should not provide an incentive to inflate away the debt as did previous research we conduct tests for the cointegration of interest inclusive expenditures and revenues as well as stationarity tests on the deficit 2 however we allow a shift in the intercept term of the cointegration and stationarity tests to capture the break in the fiscal process our results show that when the break is included expenditures and revenues are cointegrated with a coefficient not statistically different from unity i e that the deficit is stationary this contradicts the conclusions of hakkio and rush of course the way we choose the break date may be crucial to our analysis our initial choice of break date is based on prior information this is the approach used by perron 1989 who tests the u s gnp with a break chosen using prior information christiano 1992 criticizes perron 1989 on the a priori choice of the break date he suggests that the break date should be chosen using a formal pre test procedure moreover any statistical inference that follows must take this pre test procedure into account

housing and the great depression this article considers the structural stability of the relationship between the real housing price and real gdp per capita for an annual sample that includes the great depression we test for structural change in parameter values using a sample of annual us data from 1890 to 1952 the article examines the long run and short run dynamic relationships between the real housing price and real gdp per capita to determine whether these relationships experienced structural change over the sample period we find that temporal granger causality exists between these two variables only for subsamples that include the great depression for the other subsample periods as well as for the entire sample period no relationship exists between these variables

does human capital matter for energy consumption in china this article investigates the dynamic relationship between human capital and energy consumption using chinese provincial data over the period 1990 2010 considering for cross sectional dependence and parameter heterogeneity across space and over time we identify a significant and negative human capital energy consumption relationship in china specifically we find that a 1 increase in human capital reduces energy consumption by a range between 0 18 and 0 45 furthermore this negative relationship can be attributed to stronger accumulation of post school human capital in eastern china this finding suggests that energy conservation in china could be achieved by improving post school human capital components such as on the job training experience and learning by doing

repeated moral hazard and one sided commitment abstract this paper considers a repeated unobserved endowment economy with a restriction that agents can walk away from insurance contracts at the beginning of any period and contract with another insurer one sided commitment an equilibrium is derived characterized by a unique market determined insurance contract with the property that agents never want to walk away from it the paper shows that trade or insurance still occurs and that a non degenerate long run distribution of consumption exists a numerical example shows that this distribution is nearly log normal journal of economic literature classification numbers d30 d31 d80 d82

empirical analysis of the exchange rate channel in japan abstract this paper analyzes the significance of the exchange rate channel one of the transmission mechanisms of monetary policy it is important to evaluate this channel for japan because yen depreciation has been proposed as a policy to move the economy out of a liquidity trap our results suggest that in the past monetary expansion resulted in yen depreciation in the long and short run however there is no evidence to support the view that yen depreciation facilitated economic growth therefore we conclude that use of the exchange rate as a mechanism to boost the real economy was in our sample period at least premature

import demand in heterogeneous panel data with cross sectional dependence we investigate the long run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period 1985 q1 2018 q3 to estimate world elasticit

testing for the cointegrating rank of a var process with structural shifts tests for the cointegrating rank of a vector autoregressive process are considered that allow for possible exogenous shifts in the mean of the data generation process the break points are assumed to be known a priori it is proposed to estimate and remove the deterministic terms such as mean linear trend term and a shift in a first step then systems cointegration tests are applied to the adjusted series the resulting tests are shown to have known limiting null distributions that are free of nuisance parameters and do not depend on the break point the tests are applied for analyzing the number of cointegrating relations in two german money demand systems

are benefits from oil stocks diversification gone new evidence from a dynamic copula and high frequency data abstract oil is perceived as a good diversification tool for stock markets to fully understand this potential we propose a new empirical methodology that combines generalized autoregressive score copula functions with high frequency data and allows us to capture and forecast the conditional time varying joint distribution of the oil stocks pair accurately our realized garch with time varying copula yields statistically better forecasts of the dependence and quantiles of the distribution relative to competing models employing a recently proposed conditional diversification benefits measure that considers higher order moments and nonlinear dependence from tail events we document decreasing benefits from diversification over the past ten years the diversification benefits implied by our empirical model are moreover strongly varied over time these findings have important implications for asset allocation as the benefits of including oil in stock portfolios may not be as large as perceived

self exciting effects of house prices on unit prices in australian capital cities this paper examines the long and short run relationship between australian house and unit prices across all capital cities over the period december 1995 to june 2015 we find that house and unit prices are cointegrated and based on the results of granger causality and generalised impulse responses that house prices significantly influence unit prices across all cities however bi directional causality responses exists only for major capital cities with the exception of brisbane we also for the first time apply self excited threshold models to explore the complex interplay between house and unit prices in australia we find that when the market for units is self excited or bullish the positive effects of house prices on unit prices are noticeably larger than otherwise there is a varying degree of herd mentality in the australian property market with sydney and darwin being the most and least excitable capital cities respectively

reassessing forest products demand functions in europe using a panel cointegration approach abstractin a panel of european countries we analyse paper products sawnwood and wood panels consumption data with this object we use a classical demand model where national consumption depends

is the euro effect on trade so small after all new evidence using gravity equations with panel cointegration techniques in this paper we present new evidence on the aggregate effect of the euro on trade using data for 26 oecd countries for the period 1967 2008 we strive to fill the gaps present in the previous literature through a second generation panel cointegration tests and estimators that account for both cross section dependence in the data and discontinuities in the deterministic and the cointegrating vector in the time dimension this approach allows us to put the adoption of the euro by emu members in historical perspective we argue that the creation of the emu is best interpreted as a progression of policy changes once we control for all of them the euro effect decreases considerably but is still significant

tax and spend or spend and tax empirical evidence from greece spain portugal and ireland the paper examines empirically the relationship between government revenues and expenditures in four european countries greece spain ireland and portugal in relative terms all four may be considered as the poorest members of the european union yet they present a fairly diverse picture as far as their macroeconomic performance and fiscal position is concerned the empirical findings from cointegration and causality tests that are reported here indicate that in the case of greece and ireland tax and spending decisions are taken simultaneously by the fiscal authority the tax and spend hypothesis is supported in the case of spain while absence of any causal ordering between government expenditure and tax revenues has been established for portugal

estimating long run economic equilibria with stochastic trends an asymptotic theory is provided to analyze a menu of currently existing estimators of cointegrated systems we study in detail the single equation ecm seecm approach of hendry our theoretical results lead to prescriptions for empirical work such as specifying seecm s nonlinearly and including lagged equilibrium relationships rather than lagged differences of the dependent variable as covariates simulations support these prescriptions and point to problems of overfitting not encountered in the semiparametric approach of phillips and hansen 1990

does option compensation increase managerial risk appetite this paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls under the manager s optimal policy the option ends up either deep in or deep out of the money as the asset value goes to zero volatility goes to infinity however the option compensation does not strictly lead to greater risk seeking sometimes the manager s optimal volatility is less with the option than it would be if he were trading his own account furthermore giving the manager more options causes him to reduce volatility managers with convex compensation schemes play an important role in financial markets this paper solves for the optimal dynamic investment policy for a risk averse manager paid with a call option on the assets he controls the paper focuses on how the option compensation impacts the manager s appetite for risk when he cannot hedge the option position on one hand the convexity of the option makes the manager shun payoffs that are likely to be near the money under the optimal policy the manager either significantly outperforms his benchmark or else incurs severe losses furthermore in examples of optimal trading strategies asset volatility goes to infinity as asset value goes to zero yet option compensation does not strictly lead to greater risk seeking as asset value grows large or if the evaluation date is far away the manager moderates asset risk for example if the manager has constant relative risk aversion crra asset volatility converges to the merton constant as asset value goes to infinity in some situations the manager actually chooses a lower asset volatility than he would if he were investing on his own because the leverage inherent in his option magnifies his exposure to the asset volatility in addition with all constant or decreasing absolute risk averse utility functions from the hyperbolic absolute risk averse hara class giving the manager more options causes him to reduce asset volatility in the crra case for example the manager targets a fixed volatility for his personal

the residential demand for electricity in australia an application of the bounds testing approach to cointegration this paper reports estimates of the long and short run elasticities of residential demand for electricity in australia using the bounds testing procedure to cointegration within an autoregressive distributive lag framework in the long run we find that income and own price are the most important determinants of residential electricity demand while temperature is significant some of the time and gas prices are insignificant our estimates of long run income elasticity and price elasticity of demand are consistent with previous studies although they are towards the lower end of existing estimates as expected the short run elasticities are much smaller than the long run elasticities and the coefficients on the error correction coefficients are small consistent with the fact that in the short run energy appliances are fixed

functional form of the demand for real balances in cagan s hyperinflation model this paper uses recent advances in the development of testable implications of the cagan model of hyperinflation it extends the range of candidate functional forms of the demand for real balances in hyperinflations to include nonstandard versions in which the absolute inflation elasticity is a decreasing function of inflation these nonstandard functional forms are of interest because they are known to have desirable theoretical properties this paper finds empirical justification for a nonstandard form that performs at least as well as the traditional semilogarithmic functional form

self enforcing wage contracts we examine long term wage contracts between a risk neutral firm and a risk averse worker when both can costlessly renege and buy or sell labour at a random spot market wage a self enforcing contract is one in which neither party ever has an incentive to renege in the optimum self enforcing contract wages are sticky they are less variable than spot market wages and positively serially correlated they are updated by a simple rule around each spot wage is a time invariant interval and the contract wage changes each period by the smallest amount necessary to bring it into the current interval