price convergence in us cities a cointegration approach with two structural breaks this article investigates how the price indices of major cities of the us respond to the shock from a city and from monetary policy we find that the crisis of bretton woods system in 1968 and the oil crisis in 1974 should be incorporated as structural breaks in monetary policy variables and price indices using cointegration technique with structural break in our aggregated data we find that the average half life is 1 75 years which is closer to what some of others found in disaggregated data and that the interest rate is an effective tool for controlling cities price in short run

real exchange rates under the recent float unequivocal evidence of mean reversion standard multivariate tests of long run ppp may reject nonstationarity when a single real exchange rate series is stationary we apply a test where the null hypothesis is violated only when all series are stationary and reject nonstationarity for real dollar rates

interrupted work careers depreciation and restoration of human capital the quantitative effects and even the existence of a human capital depreciation phenomenon have been a subject of controversy in the recent literature prior work however was largely cross sectional and the longitudinal dimension if any was retrospective using longitudinal panel data on married women in nls we have now established that real wages at reentry are indeed lower than at the point of labor force withdrawal and the decline in wages is greater the longer the interruption another striking finding is a relatively rapid growth in wages after the return to work this rapid growth appears to reflect the restoration or repair of previously eroded human capital the phenomenon of depreciation and restoration is also visible in data for immigrants to the united states however while immigrants eventually catch up with and often surpass natives returnees from the nonmarket do not fully restore their earnings potential

a reexamination of purchasing power parity a multicountry and multiperiod study abstract this paper re examines the purchasing power parity ppp theory in a multiple exchange rate world owing to a lack of precision in estimating the parameters many authors concluded that ppp did not hold very well in the 1970s using a time series cross sectional estimation procedure we are unable to reject the hypothesis that ppp holds in several currencies simultaneously in addition the parameters are precisely estimated this result follows from the estimation procedure which allows us to exploit the cross sectional variation in the data and the contemporaneous correlation in the deviations from ppp

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

reciprocated unilateralism in trade reforms with majority voting this paper shows how unilateral liberalization in one country can increase the voting support for reciprocal reduction in trade barriers in a partner country when trade policies are determined simultaneously in the two countries we show the possibility of multiple political equilibria one in which the countries are both protectionist and another in which they trade freely with each other starting with trade protection in both countries a unilateral reform in one country is shown to bring about a free trade equilibrium that obtains majority support in both countries

the return of the reciprocitarians us trade policy today we are always willing to be trade partners but never trade patsies president ronald reagan state of the union message washington 1987

convergence in price levels across us cities abstract this paper empirically tests for convergence in consumer price indices across 17 major cities in us over the 1918 2008 period by using the novel ols estimator introduced by bao y dhongde s 2009 testing convergence in income distribution oxford bulletin of economics and statistics 71 295 302 we find overwhelming evidences in support of price level convergence over time

purchasing power parity across mexican cities a panel data analysis this article presents three different unit root tests for panel data the main objective is to find the level of internal integration market through the purchasing power parity ppp evidence based in the balassa samuelson approach thus eight kinds of markets as tradable and nontradable goods for 16 main mexican cities during a 21 year period have been contrasted while two tests showed the ppp validity for seven markets the other rejected it the results obtained moreover feed the present controversy about which test is most appropriate to test the ppp as soon as it is highlighted new elements emerge to explain the half life analysis

purchasing power parity evidence from a new panel test this paper uses a recently suggested test for unit roots in panels of time series data maddala and wu oxford bulletin of economics and statistics 61 631 52 1999 to consider the purchasing power parity hypothesis the major innovation of this test is that it allows both the testing of unit root null using the adf test and the stationarity null using the kpss test it is found that the results are inconsistent suggesting that either alternative hypotheses to a unit root may need to be considered or that panel based testing in this particular context may be of limited value

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

real exchange rate behavior abstract using random simulations with artificial data with identical sample characteristics to the long sample exchange rate data employed by lothian and taylor lothian j r and taylor m p 1996 the recent float from the perspective of the past two centuries journal of political economy 104 488 509 we show that standard unit root tests have extremely low power over sample sizes corresponding to the recent float the probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans

job queues and the union status of workers this paper develops a model of the determination of the union status of workers that allows for the possibility of queuing for union jobs the empirical results derived using a sample from the university of michigan panel study of income dynamics are supportive of the queuing hypothesis the no queue model can be rejected using a likelihood ratio test this suggests that a simple probit or logit model for union status is misspecified because it is not based on any consistent behavioral theory an important implication of the model is that because most new entrants to the labor market prefer union jobs but cannot get them and because accrual of nonunion seniority makes workers progressively less likely to desire union jobs the union status of workers is largely determined by their success in being selected from the queue early in their working life

the economic impacts of minimum wage laws a new look at an old question this article uses a radically different methodology to address the question of the impact of minimum wage laws on employment and earnings the methodology uses the adult wage structure which exists prior to a change in the federal minimum wage to identify the members of the subminimum wage population this allows the parameterization of the disemployment effects of the minimum wage amendment on the subminimum population and the spillover employment effects on the above minimum population the members of the subminimum population are found to experience considerably reduced employment probabilities and annual hours worked conditional on employment some evidence of above minimum spillover effects is also found the paper evaluates the impact of the minimum on the earnings distribution and concludes that the burden of the minimum wage falls most severely on females this effect on adult females is surprisingly neutral with respect to race the greatest beneficiaries of the minimum among the adult populati

mean reversion of the current account evidence from the panel data unit root test abstract theoretically the modern intertemporal model of current account determination implies the stationarity of the current account however the empirical finding in the literature indicates nonstationary current account balances based on conventional unit root tests applying the panel data unit root test of im pesaran and shin we find support for the mean reverting property of the current account this in turn lends support to the intertemporal approach to the current account the policy implication of our findings is that current account deficits in major industrial countries are sustainable

protection for sale in a developing country democracy vs dictatorship for a genuine small open economy that has experienced both dictatorship and democracy we find support for the predictions of the grossman helpman 1994 protection for sale model in contrast to previous studies we use various protection measures including tariffs the direct measure of the theoretical model and perform both single year and panel regressions using turkish industry level data the government s weight on welfare is estimated to be much larger than that on contributions more importantly we find that this weight is generally higher for the democratic regime than for dictatorship

purchasing power parity in brazil a test for fractional cointegration the purpose of this paper is to test the validity of the purchasing power parity ppp doctrine in brazil historical data for the period 1855 1996 are considered the period 1855 1990 is also analysed in order to compare the results with those obtained by zini and cati 1993 using the conventional cointegration analysis this article uses fractional cointegration analysis a flexible methodology which allows for more subtle forms of mean reversion the tests performed are those of geweke and porter hudak 1983 and of hurvich and ray 1995 the critical values for both tests are generated by simulation because they are non standard the empirical results do not support the absolute ppp hypothesis but the relative ppp holds in the long run

what s the point of reciprocal trade negotiations exports imports and gains from trade this paper explains why trade policy makers may prefer reciprocal trade negotiations rtn to unilateral tariff reductions utr for economic reasons it answers puzzles like why wto reciprocity and strengthens the unnecessarily weak case made for the wto by those who downplay or dismiss benefits from foreign tariff reductions ftr rtn is superior to utr because it provides economic benefits that utr cannot namely ftr benefits which are clearer than potentially important utr benefits whereas each policy offers efficiency gains any terms of trade effect of utr generally detracts from these gains while any terms of trade effect of ftr is typically beneficial especially for a small price taking country with this benefit augmenting ftr s efficiency gains moreover benefits from reductions in foreign barriers may come from several sources they are not solely the result of terms of trade improvement or economies of scale the two benefits already noted in the literature though often dismissed for example with foreign ntb elimination possible home benefits are shown even with rising costs and terms of trade deterioration rtn is also superior to utr because by eliminating protection in either ntb or tariff form rtn provides an escape from not only a terms of trade prisoners dilemma but many other previously unrecognised prisoners dilemmas including one in international rent transfers and several others with no economies of scale or terms of trade motivation of course if superior rtn is not an option utr may well be desirable if reciprocity is an option but only in a narrower cu or fta form such reciprocity may still be superior to utr or it may be inferior theory cannot unambiguously rank these

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

the purchasing power parity persistence paradigm abstract rogoff journal of economic literature 1996 34 647 668 describes the remarkable consensus of 3 5 year half lives of purchasing power parity deviations among studies using long horizon data these studies however focus on rejections of unit roots in real exchange rates and do not use appropriate techniques to measure persistence our half life estimates explicitly account for serial correlation sampling uncertainty and most importantly small sample bias calculating confidence intervals as well as point estimates for long horizon and post 1973 data we find that even though most of the point estimates lie within the 3 5 year range univariate methods provide virtually no information regarding the size of the half lives

the effects of the minimum wage on the employment and earnings of youth the employment and earnings effects of the minimum wage are estimated by parameterizing a hypothesized relationship between underlying market employment and wage relationships versus observed wage

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

reciprocated unilateralism in trade policy abstract using the menu auction approach to endogenous determination of tariffs and allowing additionally for lobby formation itself to be endogenous this paper analyzes the impact of unilateral trade liberalization by one country on its partner s trade policies we find that such unilateral liberalization may induce reciprocal tariff reductions by the partner country intuitively unilateral liberalization by one country has the effect of increasing the incentives for the export lobby in the partner country to form and to lobby effectively against the import competing lobby there for lower protection

who determines mexican trade policy using a political economy approach the authors analyze the pattern of protection in mexico s manufacturing sector during the period of trade policy reforms 1985 89 when mexico experienced significant trade liberalization and an important inflow of foreign direct investment they take into account the potential effect of foreign direct investment on endogenous tariff formation it turns out that the data support this analytic approach in which the formulation of trade policy reflects political support and in which the presence of foreign direct investment in the sector strongly affects the pattern of tariff protection before and after reform in mexican manufacturing especially sectors with heavy foreign direct investment received greater protection in import competing sectors although the move toward greater openness was associated with a reduction in the influence of industrial and foreign investor lobbying

minimum wages and labor market prospects of women in recent years the field of labor economics has witnessed growth of interest in causes and consequences of female labor force participation principal areas of research include determinants of female wages and labor supply many empirical issues remain unresolved and research continues to focus on the likely ranges of such parameters as the own wage elasticity of hours supplied the cross elasticity with respect to spouse s income the rate of return to female schooling and the issue of self selection in observed earnings of working women one area which remains relatively unexplored is the impact of minimum wage legislation on employment prospects of females the issue of minimum wages is of special interest in the case of women first the proportion of labor force nonparticipation by females exceeds that of males consequently institution of an effective minimum wage plays to a larger audience of nonparticipating females than males it is likely that a significant portion of the positive labor supply response to minimum wages is in the form of previously nonparticipating females second as is well known female wages tend to be lower than those of males owing in part to 1 lower levels of female schooling and experience 2 intermittent life cycle patterns of labor supply and human capital accumulation 3 sorting of females into occupations that are conducive to intermittent behavior and 4 as several researchers suggest gender discrimination consequently women are more likely than men to experience wages that fall short of the legal minimum this study examines the consequences of minimum wages on female employment prospects of special interest is the likelihood of successful job search for women whose wages in the absence of legislation would be below the minimum it is commonly argued that minimum wages in competitive labor markets have the effect of hindering employment prospects of low wage workers this study based on a sample of microdata from the public use sample of the 1980 census proposes a simple framework in which this issue can be addressed in the context of a conventional model of labor supply

bounds tests of the theory of purchasing power parity abstract in this paper we test the absolute and relative purchasing power parity ppp hypotheses during the recent flexible exchange rate period using quarterly data for 21 oecd countries in doing so we use a new econometric technique developed by m h pesaran et al bounds testing approaches to the analysis of long run relationships university of cambridge department of applied economics working paper 9907 this approach is particularly interesting as it is capable of testing the existence of long run relations regardless of whether the underlying variables are stationary integrated or mutually cointegrated

panel unit root tests of purchasing power parity for price indices abstract this paper adopts four panel unit root tests to evaluate ppp over the floating period for six different price indices results generally support ppp albeit the speeds of adjustment differ considerably between price indices and test procedures the degree of contemporaneous and serial correlation as well as heterogeneity of the series in the panel affect stationarity and the speed of mean reversion

endogenous lobby formation and endogenous environmental protection with unilateral tariff reduction this paper studies how one country s decision to liberalize trade affects the political economic structure that determines environmental policy in another country by constructing a political economy model in which the formation of lobby groups and environmental policy are endogenously determined we show that unilateral tariff reductions by a large country importing a polluting good will generate a lobby group with a relatively lower cost of organization in a small country exporting that good a formulated lobby demands an inefficient environmental policy and hence the small country s environmental regulations become less efficient then we show that when a lobby already exists unilateral tariff reductions result in the formation of a rival lobby and consequently make the small country s environmental policy more efficient

the perversity of preferences gsp and developing country trade policies 1976 2000 industrial countries maintain special tariff preferences namely the generalized system of preferences gsp for imports from developing countries critics have highlighted the underachieving nature of such preferences but developing countries continue to place the gsp at the heart of their agenda in multilateral negotiations what effect do such preferences have on a recipient s own trade policies the authors develop and test a simple theoretical model of a small country s trade policy choice using a dataset of 154 developing countries from 1976 through 2000 they find that countries removed from the gsp adopt more liberal trade policies than those remaining eligible the results corrected for endogeneity and robust to numerous alternative measures of trade policy suggest that developing countries may be best served by full integration into the reciprocity based world trade regime rather than continued gsp style special preferences

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

price and monetary convergence in currency unions the franc and rand zones abstract theory suggests that a currency union will impose significant macroeconomic disciplines on its members the law of one price for example should lead to convergence of price levels at least for what may be regarded as tradeable goods likewise arbitrage would imply convergence of interest rates this paper looks at the two main surviving currency unions the franc and rand zones in africa to see whether and to what extent these generally accepted propositions find confirmation in the data each of the african currency unions has a dominant or core member france in the case of the franc zone and the republic of south africa rsa in the case of the rand zone our focus is on the small members in the periphery and for them there is the additional presumption that inflation and interest rates will be imported from the core despite some rather wide short run divergences and although convergence is slow we find that in the long run consumer price inflation is largely determined in the core the limited evidence available suggests that uncontrolled interest rates also converge to core country levels jel f31

a theory of trade policy leadership abstract this paper constructs a two country model of bilateral trade negotiations in the presence of political uncertainty to demonstrate that unilateral trade liberalization may be an optimal policy for a large country the political uncertainty is due to producer opposition to trade agreement ratification in the foreign country unilateral liberalization by the home country has a salutary effect on negotiations because it mitigates the pain of potential ratification failure on the foreign country it also promotes foreign ratification because it effectively punishes foreign import competing producers for lobbying against an agreement these benefits are shown to outweigh up to a point the terms of trade cost that the home country must suffer when it actually liberalizes unilaterally in equilibrium therefore we see a pattern in which the home country unilaterally liberalizes for several periods until ratification in the foreign country succeeds at which point foreign country finally reciprocates we also demonstrate that contrary to the standard optimal tariff result there may be an inverse relationship between the home country s monopoly power and its optimal unilateral tariff

growth inflation and the exchange rate regime abstract according to the balassa samuelson effect growth and inflation are positively correlated in economies with pegged currencies this paper shows that the costs of inflation on long term growth are underestimated in samples that include countries and periods with fixed exchange rate regimes

endogenous lobby formation and endogenous protection a long run model of trade policy determination this paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions under certain conditions free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare moreover greater inequality in asset distribution results in a greater number of lobbies and in most cases more protection for each of these lobbies furthermore industries with higher levels of capital stock fewer capitalists more inelastic demand and smaller geographical dispersion are the ones that get organized

cross country growth regressions problems of heterogeneity stability and interpretation the paper discusses the issues of heterogeneity and stability of cross country growth regressions that have been used to study the problem of convergence almost all studies use pooled regressions the paper considers the issue of pooling under heterogeneity using a hierarchical bayesian method and estimates growth regressions for different panels studied in earlier papers and different regimes the conclusion is that the convergence rates are higher than those obtained from pooled regressions under the assumption of homogeneity and that there is instability over time in the relationships

new panel unit root tests of ppp abstract we use the new panel unit root tests im k s pesaran m h shin y 1995 testing for unit roots in heterogenous panels wp 9526 dae university of cambridge revised march 1997 to analyse the stationarity of real exchange rates for the g10 economies and switzerland our results for monthly data 1973 96 indicate mean reversion in real exchange rates and a half life of under three years for one off shocks

structural reforms and labor market outcomes international panel data evidence this paper explores the impact of structural reforms on a comprehensive set of macro level labor market outcomes including the unemployment rate the average wage index and overall and female employment levels and labor force participation rates together these outcome variables capture the overall health of the labor market and the aggregate welfare of workers yet there seems to be no other comprehensive empirical investigation in the existing literature of the impact of structural reforms at the cross country macro level on labor market outcomes other than the unemployment rate data were collected from a variety of sources including the world bank world development indicators the international monetary fund international financial statistics and the international labor organization key indicators of the labor market the resulting dataset covers up to 88 countries the majority being developing for 10 years on either side of structural reforms that took place between 1960 and 2001 after documenting the average trends across countries in the labor market outcomes up to 10 years on either side of each country s structural reform year the authors run fixed effects ordinary least squares as well as instrumental variables regressions to account for the likely endogeneity of structural reforms to labor market outcomes overall the results suggest that structural reforms lead to positive outcomes for labor unlike related literature the paper does not find conclusive evidence on unemployment redistributive effects in favor of workers along the lines of the stolper samuelson effect may be at work

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

evidence on the purchasing power parity in a panel of cities evidence is provided on the ppp hypothesis using a sample of 50 spanish cities for a long time period through the application of panel data unit root tests although results suggest non rejection of the ppp short run deviations as measured by half lives indicate that real factors might be causing a slow rate of convergence to a common price index even in highly integrated economies

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null