do the foreign exchange rates really follow a random walk an empirical question revisited abstract the random walk behavior of nominal exchange rates using daily weekly and monthly data and of real exchange rates using monthly data is investigated for seven major currencies and fails to be confirmed but fails less frequently for the post 1979 period

mean reversion in real exchange rates evidence and implications for forecasting abstract the stationarity of real exchange rates over the recent flexible exchange rate period is an issue that has long bedeviled researchers in international finance using a constrained multivariate framework this paper provides the strongest evidence yet that real exchange rates were mean reverting over the 1973 93 period we also investigate shifts in long run real exchange rates which may be important for the purpose of forecasting out of sample forecasting shows that the random walk model is outperformed by a mean stationary model especially at long horizons in addition there are substantial forecasting benefits from using a multivariate approach

forecasting foreign exchange rates with an intrinsically nonlinear dynamic speed of adjustment model forecasting foreign exchange rates is an important but difficult process therefore it is important to use a superior forecasting model the paper takes up this criterion and proposes to describe and forecast foreign exchange rates by developing an intrinsically nonlinear model with variable and dynamic speeds of adjustment it is found that the speed of adjusting the random or expected to the equilibrium rate is very slow implying that fiscal policy statistically insignificat and monetary policy statistically significant may be ineffective to induce changes in the adjustment speed we also find that the nonlinear dynamic model improves forecasting performance implying that nonlinearities in the sense of functional forms are exploitable for improved point forecasting of foreign exchange rates

who benefits from local job growth migrants or the original residents bartik t j 1993 who benefits from local job growth migrants or the original residents reg studies 27 297 311 this paper surveys research on whether the new jobs resulting from growth in a local economy e g a metropolitan area go to inmigrants or the original local residents the empirical evidence suggests that around one quarter of the new jobs from local growth increases the labour force participation rates of local residents in the long run these long run effects may occur because local growth provides residents with valuable employment experience research also suggests that minorities benefit most from growth and that higher wage industries provide greater employment benefits for local residents bartik t j 1993 qui est ce qui beneficie de la croissance d emploi locale les migrants ou la population autochtone reg studies 27 297 311 cet article etudie la recherche effectuee dans le but d evaluer si les nouveaux emplois dus a la croissance d une economic locale par exemple une

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

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

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

sources of real exchange rate fluctuations empirical evidence from four pacific basin countries in international finance the competing hypothesis that the logarithms of real exchange rates appear to be well described as random walks during a period of floating rate has found some support studies by adler and lehmann 2 hakkio 12 and mark 18 are examples of work supporting this view if a real exchange rate process has been approximated to be non stationary it implies there is little tendency for the real exchange rate to be mean reverting and also that deviations from the purchasing power parity ppp are permanent modern models of exchange rate determination suggest that real shocks can induce permanent changes in the real exchange rate stockman 21 pointed out that according to the equilibrium approach the behavior of real exchange rates since the collapse of bretton woods could reflect not the importance of sluggish price level adjustment but rather the influence of real shocks with significant permanent components moreover the evidence in campbell and clarida 5 and huizinga 13 suggests that real exchange rates contain both permanent and transitory components with most of their variation explained by the permanent components however recent studies employing long run data or more powerful tests tend to confirm the ppp hypothesis studies by abuaf and jorion 1 kim 16 whitt 22 and diebold husted and rush 7 are four such examples their evidence shows that real exchange rates are stationary which implies that the behavior of real exchange rates are influenced by transitory nominal disturbances hence the validity of ppp remains at issue identifying the sources of exchange rate fluctuations is important not only for establishing the validity of ppp but also for achieving successful exchange rate stabilization attempts to stabilize exchange rate changes that are due to economic fundamentals could be futile and even harmful to the economy in addition measuring the relative importance of permanent and transitory shocks on exchange rates is essential for exchange rate modeling if exchange rates are dominated by real shocks then the equilibrium approach offered by stockman 21 is appropriate in analyzing the behavior of exchange rates conversely if the evidence suggests the contrary then the disequilibrium approach of dornbusch 8 should be considered as an alternative as a consequence

a new contribution to the paris metro pricing proposal using the concept of the paris metro pricing we will show that when the distribution of the capacity between sub networks leads to any loss of technical effectiveness and when a traditional condition on the hazard rate is checked it is always optimal for the monopolist to subdivide his main network in as many sub networks as there are different types of net surfers

economic surprises and the behaviour of asset prices some analyses and further empirical results this paper examines the implications of serial correlation in asset prices for market efficiency and announcement effect tests the impact of four types of economic surprise is examined after allowing for observed serial correlation in three asset price series

exchange rate volatility and u s monetary policy an arch application this paper examines the effect of shifts in u s monetary policy regimes on the stochastic process that generates foreign exchange rates to account for the observed behavior of the data record the author models nominal dollar exchange rates as univariate autoregressive conditional heteroskedastic processes he then tests the stability of this process across u s monetary policy regimes for four of the currencies in the sample accounting for regime shifts improves the fit of the model regime shifts also appear to diminish the degree of persistence of variance making it less likely that exchange rates are integrated in variance copyright 1989 by ohio state university press

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

real exchange rates in the short medium and long run abstract this paper uses long horizon autocorrelations and variance ratio statistics to test for long term mean reversion in real exchange rates unlike most previous tests of this hypothesis the tests do reject a random walk for monthly data in the post bretton woods era however the statistics indicate that positively correlated innovations rather than mean reversion are the source of the rejection tests using annual data for the twentieth century also reject the random walk in this case however the rejection can be attributed to mean reversion and confirms that ppp is a long term phenomenon

an empirical examination of long run purchasing power parity as theory of international commodity arbitrage an empirical analysis of long run purchasing power parity ppp as a theory of international commodity arbitrage between uk and us prices and the sterling us dollar exchange rate for the period 1975 1980 is presented econometric techniques concerning the cointegration of economic time series are applied to a sample of 35 manufactured commodities which in 1977 constituted approximately a quarter of the net output of all manufacturing industry in great britain our results are extremely unfavourable to the ppp hypothesis as a stable long run proportionality between exchange rates and disaggregated prices

why does trend growth affect equilibrium employment a new explanation of an old puzzle that the employment rate appears to respond to changes in trend growth is an enduring macroeconomic puzzle this paper shows that in the presence of a return to experience a slowdown in productivity growth raises reservation wages thereby lowering aggregate employment the paper develops new evidence that shows this mechanism is important for ex

the foreign exchange market a random walk with a dragging anchor this paper explores some anomalies in the foreign exchange market it is hard to find evidence of either short term overshooting or of longer term reversion to an equilibrium the forward exchange rate contains virtually no information on future spot rates discussions with practitioners indicate that longer term speculation based on fundamentals is strictly limited and survey data and other evidence suggest that expectations and speculation are based on a variety of models the interplay between speculation based on fundamentals and on a random walk or chartist approach influences the outcome this endorses the prior model of j a frankel and k a froot copyright 1988 by the london school of economics and political science

black white wage inequality employment rates and incarceration the observed gap in average wages between black men and white men inadequately reflects the relative economic standing of blacks who suffer from a high rate of joblessness the authors estimate the black white gap in hourly wages from 1980 to 1999 adjusting for the sample selection effect of labor inactivity among working age men in 1999 accounting for labor inactivity including prison and jail incarceration leads to an increase of 7 20 in the black white wage gap adjusting for sample selectivity among men ages 22 30 in 1999 increases the wage gap by as much as 58 increasing selection bias which can be attributed to incarceration and conventional joblessness explains about two thirds of the rise in black relative wages among young men between 1985 and 1998 apparent improvement in the economic position of young black men is thus largely an artifact of rising joblessness fueled by the growth in incarceration during the 1990s

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

does the exchange rate follow a random walk a monte carlo study of four tests for a random walk abstract several authors have urged that real and nominal exchange rates follow a random walk conditions under which the exchange rate follows a random walk are reviewed in this paper many of these do not appear to hold therefore the empirical evidence presents a puzzle some evidence suggets the exchange rate follows a random walk while other evidence suggests the opposite should be true this paper attempts to reconcile the evidence it is argued that the tests for a random walk have low power monte carlo evidence on four tests for a random walk is presented that suppors this claim

relative ppp in the medium run abstract this paper tests the relative purchasing power parity rppp hypothesis on month by month post 1972 data and still obtains regression coefficients that are close to unity two methodological aspects have contributed to this encouraging result firstly although all rppp tests are vis a vis the usa we nevertheless exploit our a priori knowledge about the implications of these usd based equations on ppp relations between cross rates so in a sense we use all information implicit in all cross rates too secondly we selected an instrumental variable that is specifically designed to cope with lead and lag effects in non traded vs traded goods inflation our estimates indicate that most lead and lag effects seem to occur within a six month window jel f31

intermetropolitan variation in the labour force participation rates of white and black men in the united states we decompose the variance in black and white male labour force participation rates across us metropolitan areas in 1990 into three effects that due to variation in labour force participation within labour force categories across metropolitan areas local labour market effects that due to variation in the distribution of those categories across metropolitan areas labour force structure effects and that due to the covariation between these two effects variation in labour force participation rates within labour force categories local labour market effects accounts for 56 per cent of the variance in labour force participation rates across metropolitan areas for white men but over 75 per cent for black men variation in the frequency of membership in each labour force category is a relatively unimportant factor for both groups the covariance between labour force effects and local effects is negligible for black men but accounts for 25 per cent of the intermetropolitan variance in white male participa

imperfect information and the comovement of the exchange rate and the interest rate a signal extraction approach this paper analyzes the joint determination of the exchange rate and the interest rate in a signal extraction framework in principle a given disturbance should generate a systematic relationship between the exchange rate and the interest rate as two endogenous variables in the context of any specified economic model when expectations matter however the introduction of imperfect information would weaken the comovement between the two endogenous variables that results from a given disturbance this simple point is demonstrated in a flexible price model of a small economy

market efficiency and cointegration an application to the sterling and deutschemark exchange markets abstract the assumption that the foreign exchange market is efficient that is that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate is a property often imposed in theoretical international macroeconomic models although a vast empirical literature has evolved to test market efficiency we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency we ffind evidence inconsistent with market efficiency for both germany and the united kingdom

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

the employment of black men trends in wages and employment of black men are contradictory wages are rising and employment is falling the article first describes employment trends using data from the five decennial censuses 1940 80 noting that education is becoming a more important determinant of participation next it is shown that ratios of average wages have not been severely biased by falling participation of those who would earn the least if they worked the final question asks whether falling participation of black men results from deteriorating job opportunities or from falling labor supply falling supply appears to dominate

interest rates inflation and taxes the foreign connection abstract in this note it is shown that the existence of taxes on nominal interest receipts in an international setting introduces a non neutrality in that a change in expected inflation in one country must change at least one expected real interest rate or the path of the real exchange rate

does responsive pricing smooth demand shocks using data from a unique pricing experiment we investigate vickrey s conjecture that responsive pricing can be used to smooth both predictable and unpredictable demand shocks our evidence shows that increasing the responsiveness of price to demand conditions reduces the magnitude of deviations in capacity utilization rates from a pre determined target level a 10 increase in price variability leads to a decrease in the variability of capacity utilization rates between 2 and 6 we discuss implications for the use of demand side incentives to deal with congestible resources

the real interest rate a multi country empirical study how real interest rates behave over time is critical to our understanding of many macroeconomic issues and much recent research has pursued this question very little of the research however has focused on real interest rates outside the united states this paper is an empirical exploration of real interest rate movements in seven oecd countries from 1967 ii to 1979 ii further research is needed on real rates in other countries for several reasons not only are measures of foreign real rates of interest in their ownright but extending an analysis of real rates to other countries also has the following additional benefits it can generate more powerful statistical tests of propositions previously tested on u s data and yield information on whether results found for the u s hold up in other countries this study pursues several questions that have arisen naturally from this earlier work is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries does the real rate decline with increased inflation and money growth in other countries besides the united states how reliable is the fisher effect in which nominal interestrates reflect changes in expected inflation are movements in nominal interest rates a reliable indicator of movements in real rates what kind of variationsin real interest rates are there in different countries have real rates declined from the 60s to the 70s for other countries besides the u s this abstract was borrowed from another version of this item

some evidence on the efficiency of the sterling dollar and sterling franc forward exchange rates in the interwar period abstract we present new evidence on the time series properties of spot and forward exchange rates for the sterling dollar and sterling franc exchange rates in the interwar period unlike previous researchers we examine the stationarity of the data our results are consistent with the hypothesis that the forward rates for both currencies exhibited a time varying risk premium but that this was non stationary for the former rate and stationary for the latter

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

incarceration and racial inequality in men s employment to estimate employment population ratios for black and white men with an adjustment for incarceration a factor overlooked by most research on employment inequality the authors combine data from sur

the optimal product mix for a monopolist in the presence of congestion effects a model and some results the paper develops a model of product differentiation in which the quality of a product may be negatively affected by the number of consumers buying it as it is the case for any good affected by congestion it is shown that for any positive degree of heterogeneity among the consumers a monopolist will always find it more profitable to differentiate i e to sell more than one quality of the product at different prices

nominal exchange rates and unit roots a reconsideration abstract this paper provides empirical evidence that nominal exchange rates are stationary and are not random walks other studies using classical tests suggest that exchange rates contain unit roots thereby supporting the random walk hypothesis the apparently permanent nature of shocks to exchange rates has been interpreted to mean that disequilibrium models such as the dornbusch overshooting model are not useful in explaining exchange rate behavior this paper applies a new statistical test for unit roots proposed by sims and based on bayesian posterior odds ratios the results favor exchange rate stationarity for several countries jel f31

long run purchasing power parity during the recent float abstract this paper examines the relevance of long run purchasing power parity ppp which allows for measurement errors during the recent floating exchange rate period previous empirical studies generally fail to find support for long run ppp over this period in this paper in this paper the cointegration property of exchange rates and prices is examined using maximum likelihood procedure and we find significant evidence favorable to long run ppp further tests for symmetry and proportionality indicate that these two conditions are not generally with the data the results support the hypothesis of long run ppp with measurement errors in prices

exchange rate volatility international trade and the value of exporting firms abstract increased exchange rate volatility positively affects the value of exporting firms via the price and volume impacts of exchange rates and also makes an exporting strategy more attractive relative to the direct investment investment in export production capacity could therefore be a positive function of exchange rate volatility firms would also be more willing to sustain losses i e to engage in dumping before they abandon their export markets the effect on the volume and value of trade is ambiguous

labor market dropouts and trends in the wages of black and white men there is continuing debate over whether and to what degree estimations of black white wage convergence are biased because they leave labor market dropouts out of the picture if a high proportion of blacks become discouraged and cease searching for jobs and if those dropouts have on average poor job prospects the average wage of black workers who remain in the labor market will be an upwardly biased estimate of the average wage across the population this paper introduces a simple method of imputing wages to non workers when non workers are accounted for in the calculations real wage growth for prime age black men over the 1969 98 period is reduced approximately 40 and black white wage convergence is reduced by approximately one third the author finds that a source of bias as important as falling employment rates is the growing gap between wages of workers and potential wages of non workers

modelling weekly data on uk interest and exchange rates this paper examines the short term dynamic relationships existing between four variables of major interest to market analysts in the uk long and short interest rates the dollar sterling exchange rate and the sterling effective exchange rate the sample period investigated is from july 1985 to december 1988 both interest and exchange rates are found to be first order integrated processes but they are not cointegrated this is inconsistent with the term structure of interest rates but is consistent with exchange markets being efficient a vector autoregression is developed and analysed through two alternative sets of structural restrictions on the contemporaneous correlations between the series the predominant relationship between the interest rates runs from long to short rates thus confirming the rejection of the term structure hypothesis there are negative contemporaneous relationships between interest and exchange rates while the lagged relationship runs from interest to exchange rates so that

the emergence persistence and recent widening of the racial unemployment gap census data show that the ratio of black to white unemployment rates currently in excess of 2 1 was small or nonexistent before 1940 widened dramatically during the 1940s and 1950s and widened again in the 1980s the authors decompose changes in the unemployment gap over the years 1880 1990 to identify the separate contributions of changes in observable worker characteristics and shifts in labor demand nearly all of the widening of the gap during the 1940s and 1950s can be attributed to regional shifts of workers and declining demand in markets where black workers were concentrated after 1970 improvements in the relative educational status of black workers would have narrowed the unemployment gap slightly but demand shifts adverse to black workers more than canceled out these gains

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

mean reversion in real exchange rates a modified dickey fuller test which is approximately uniformly most power invariant is employed to examine mean reversion in real exchange rates results from this test provide a wider and more significant support for mean reversion than the standard dickey fuller test

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

cointegration tests of purchasing power parity in africa abstract despite two decades of implementing economic reforms there is still a significant gap between official and black market exchange rates in africa african policy makers continue to implement exchange rate policies based largely on the assumption that purchasing power parity ppp holds this paper examines whether there is empirical support for ppp in africa we used johansen s cointegration technique and error correction modeling on annual data for black market exchange rates and cpi in 30 countries covering 1960 97 we found strong support for the ppp doctrine as a useful guide for exchange rate policy reform in africa

on unit roots and real exchange rates empirical evidence and monte carlo analysis this paper presents some empirical evidence that real exchange rate series contain a unit root in their time series respresentation which cancels out on first differencing using the augmented dickey fuller test the power of this test is also tested using monte carlo methods and it is found to be quite powerful against a range of stationary local alternatives the findings imply the absence of any tendency of the nominal exchange rate to converge on purchasing power parity even in the long run

the black white difference in youth employment evidence for demand side factors the 1980 census reveals a serious lag in the employment performance of young black men relative to young white men with census data we test for demand side causes of this lag using both aggregate data for 94 standard metropolitan statistical areas smsas and disaggregate or individual data from the 1 in 100 public use sample variation across smsas in the employment and wages of white youth provides indicators of the demand conditions for black youth and we estimate that feasible increases in these demand factors would lead to about a 25 increase in the employment of black youth

exchange risk exposure and the option to trade rather than impeding trade increased exchange rate uncertainty may on average create trade as it implies a higher probability that ex post deviations from commodity price parity will exceed tariffs and transportation costs we demonstrate such an effect in a small country short term model under the alternative assumptions of perfect competition and of a monopolist trader producer the proofs rely on the fact that such firms exposures can be replicated and hedged by standard options under partial monopoly scenarios the effect of volatility is ex ante unclear though jel f31