euro depreciation and trade asymmetries between germany and italy versus the us industry level estimates abstractsince april 2014 to march 2015 the european central bank expansionary monetary policy instigates a huge depreciation of the euro in terms of dollar according to the mainstream monetary theory these dynamics should make the exports cheaper and at the same time make the imports more expensive has real depreciation of the euro helped in the improvement of european countries trade balances following the main methodologies in the recent literature our study analyses the effects of this depreciation both for italy and germany towards the us we use industry level data at monthly frequency the results are different from each bilateral relationship we find that 11 industries register a long run improvement 8 for italy and 3 for germany the j curve effect is proven just in six cases always for italy the inverted j curve effect is proven in eight cases four for germany and four for italy these results seem to be an indirect demonstration of the structural asymmetries between german and ital

the pricing of currency risk in japan abstract previous work on the pricing of exchange rate risk has primarily focused on us firms and surprisingly found stock returns were not significantly affected by exchange rate fluctuations in this paper we conduct an in depth investigation that examines whether exchange rate risk is priced in the equity market of japan using an intertemporal asset pricing testing procedure that allows risk premia to change through time in response to changes in macroeconomic conditions our multiperiod asset pricing tests show that the foreign exchange rate risk premium is a significant component of japanese stock returns specifically the results suggest that currency risk exposure commands a significant risk premium for multinationals and high exporting japanese firms the currency risk factor is found to be less influential in explaining the behavior of average returns for low exporting and domestic firms however it is shown to exhibit large return volatility that is likely to be perceived by investors who wish to control portfolio risk as an important underlying source of risk furthermore japanese stock returns are found to be related to the relative distress and size factors above and beyond the covariation explained by the currency risk factor

dynamic linkages among equity markets local versus basket currencies this article compares the stability of interrelationships among nine national equity markets by employing basket currencies versus individual base currencies to measure rates of return we show that the average correlations of equity indexes based on basket currencies are much lower than the average correlations of equity indexes based on individual home base currencies additionally empirical directed graph results from using basket currencies are more consistent with each other than the results from using different individual currencies we conclude that basket currencies provide more robust results for studying equity market comovements than individual currencies by implication studies on equity market interrelationships including studies on potential financial contagion between equity markets should use basket currencies to avoid currency dependent results

the effects of devaluation on the trade balance a critical view and re examination of mile s new results abstract in a often cited article miles 1979 claims to have shown empirically the validity of the global monetarist proposition that devaluations do not affect the balance of trade this paper first uses mile s own framework of analysis to reveal serious deficiencies in his methodology and tests that cast doubt on the validity of his results in a respecified trade balance equation we show that devaluations do affect the trade balance in the traditionally predicted direction the pivotal difference between the two specifications arises from our inclusion of relative price effects and longer lag structure for the exchange rate variable

exchange rate sensitivity of u s trade flows evidence from industry data 1 introductionin an effort to boost employment a country could stimulate its exports and discourage its imports and thereby improve its trade balance one policy that has received a great deal of attention in the literature is currency devaluation by making exports cheaper and imports expensive devaluation is said to improve the trade balance the only condition required is that the sum of import and export demand price elasticities exceed unity that condition known as the marshall lerner condition is derived under the assumption of perfectly elastic supply of trade most previous studies that attempted to assess the marshall lerner condition relied on price elasticities that were obtained by estimating aggregate import and export demand functions these studies provided mixed conclusions as far as the effectiveness of devaluation or depreciation is concerned examples include houthakker and magee 1969 khan 1974 goldstein and khan 1976 1978 wilson and takacs 1979 haynes and stone 1983a 1983b warner and krienin 1983 bahmani oskooee 1986 1998 and bahmani oskooee and niroomand 1998 the mixed conclusion could be related to aggregation bias when aggregate trade data are employed in import and export demand functions significant price elasticity with one trading partner could be more than offset by an insignificant price elasticity with another trading partner yielding an insignificant price elasticity because of aggregation bias another body of the literature has emerged in recent years that concentrates on using trade data at the bilateral level examples in this latter group include rose and yellen 1989 cushman 1987 1990 summary 1989 marquez 1990 haynes hutchison and mikesell 1986 eaton 1994 bahmani oskooee and brooks 1999 nadenichek 2000 and bahmani oskooee and goswami 2004 except bahmani oskooee and goswami 2004 all other studies in this second group have estimated bilateral trade elasticities between the united states and her major trading partners and concluded that the real bilateral exchange rate is a significant determinant of bilateral trade balance at least in some cases bahmani oskooee and goswami 2004 who considered the bilateral trade flows between japan and her nine major trading partners found that in most cases japanese exports are not sensitive to the real bilateral exchange rate but her imports are these studies as well as those in the first group estimate price elasticities in demand under the assumption that supply is perfectly elastic and then evaluate the marshall lerner condition involving own price coefficients in demand thus evidence in these studies is limited because it assumes perfectly elastic supply of trade for both exports and imports although there is additional room to expand the literature in the second group by considering the experiences of countries other than the united states and japan in this paper we would like to open another avenue of research by investigating the impact of real depreciation of the dollar on imports and exports of 66 american industries a disaggregation by industry rather than by country disaggregation by industry will avoid problems associated with petroleum imports as does disaggregation by country rose and yellen 1989 1 for this purpose in section 2 we outline the import and export demand functions for each commodity group along with the estimation method in section 3 we present the empirical results section 4 provides our summary and conclusion data definitions and sources are cited in an appendix 2 the models and the methodin formulating any import and export demand function it is a common practice to relate the volume of imports and exports to a measure of income and relative prices the main purpose is to obtain estimates of import and export demand elasticities so that we can better judge the effectiveness of currency devaluation in increasing a country s inpayments and reducing outpayments

educational attainment industrial structure and male earnings through the 1980s between 1979 and 1989 men s average earnings declined and the percentage of men with low earnings increased much of the decline in mean earnings and the increased incidence of low earnings can be accounted for by changes in the returns to education experience and industry of employment changes that we attribute to demand side factors such as changes in technology shifts in industrial employment patterns had a relatively small effect on mean earnings and low earnings rates however their effects were larger among blacks than among whites and hispanics we also find that educational upgrading over the decade kept mean earnings from falling even further and helped to hold down the growth of low earnings especially among blacks

devaluation and the j curve some evidence from ldcs within the international trade literature it is not uncommon to find arguments about whether devaluation will improve the trade balance it is argued that the flows of goods respond only with time lags to changes in the exchange rate the j curve terrn is used to describe the movement over time of the trade balance it may deteriorate at first and improvement may come later this paper presents a method by which one could detect the existence of the j curve the method is applied to four developing countries the empirical evidence supports the pattern of movemnent described by the j curve a major policy option for a country facing a persistent balance of payments deficit is said to be devaluation of its currency within the international trade literature it is not uncommon to find arguments about whether devaluation will improve the trade balance or the balance of payments for example proponents of the elasticities approach describe the necessary and sufficient conditions for an improvement in the trade balance in terms of elasticities of demand and supply referred to as the marshall lerner condition while there is abundant empirical evidence to suggest that these conditions are indeed met at least for industrial countries there have been circumstances under which 2 devaluation has not been successful for example one might wonder why the u s trade balance deteriorated so much in 1972 despite the devaluation of the dollar in 1971 this unfavorable effect of devaluation on the trade balance is termed the j curve phenomenon received for publication august 23 1984 revision accepted for publication november 26 1984 the university of wisconsin milwaukee i would like to thank two anonymous referees for their valuable comments on the initial draft of this paper 1 proponents of the absorption approach e g alexander 1952 describe how devaluation may change the terms of trade increase production and switch expenditures from foreign to domestic goods thus improving the trade balance international monetarists argue that devaluation reduces the real value of cash balances and or changes the relative price of traded and nontraded goods thus improving both the trade balance and the balance of payments 2 for an cstimate of the elasticities see houthakker and magee 1969 and warner and kreinin 1983 the former study provides the elasticities estimates under fixed exchange rates and the latter under floating rates this content downloaded from 157 55 39 17 on wed 31 aug 2016 04 39 37 utc all use subject to http about jstor org terms

determinants of united states trade balance with australia this study explores the determinants of the usa s trade balance ne with australia and tests for long run relationships regression results suggest the most important determinant of ne is the price ratio usa relative to australia followed by the lending rate ratio gdp ratio money supply ratio and the real exchange rate which together explain 93 of the variation in ne f tests suggest ne responds to rising and falling exchange rate regimes symmetrically johansen s cointegration test suggests a significant at 1 long run relationship between ne and its determinants based on engle granger import share is and output growth q are cointegrated at 10 if q shocks precede is shocks suggesting a weak long run relationship between them there is a positive long run relationship between ne and the exchange rate er at 5 if er shocks precede ne shocks results based on the error correction model suggest a positive relationship between expected er and ne and reinforce the cointegration results

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

the j curve in the emerging economies of eastern europe devaluation or depreciation of a currency worsens the trade balance before improving it resulting in a j curve pattern a new definition of the hypothesis implies a short run deterioration combined with the long run improvement by using monthly data over the january 1990 june 2005 period from 11 east european emerging economies most of which are the new european union eu members or the eu candidate countries this article uses the bounds testing approach to cointegration and error correction modelling and finds empirical support for the j curve hypothesis in three countries of bulgaria croatia and russia the results have important implications for policymakers involved in economics in terms of using exchange rate policy as a policy device to achieve real convergence toward eu standards

dynamics of the yen dollar real exchange rate and the us japan real trade balance this paper employs cointegration and error correction models to examine the dynamics of the yen dollar real exchange rate and the us japan real trade balance it uses quarterly data from 1973 i 1993 iv the unit root tests reveal non stationarity in both the variables the adf test fails to affirm any long run association between the yen dollar real exchange rate and the us japan real trade balance also there is evidence of bidirectional short run granger causality between these two variables with mutual feedbacks

firm valuation earnings expectations and the exchange rate exposure effect consistent with previous research we fail to find a significant correlation between the abnormal returns of our sample firms with international activities and changes in the dollar we investigate the possibility that this failure is due to mispricing lagged changes in the dollar are a significant variable in explaining current abnormal returns of our sample firms suggesting that mispricing does occur a simple trading strategy based upon these results generates significant abnormal returns corroborating evidence from returns around earnings announcements as well as errors in analysts forecasts of earnings is also provided it is a widely held view that exchange rate movement should affect the value of a firm standard economic analysis implies that the profitability and value of most u s firms with foreign sales or operations abroad should increase decrease with an unexpected depreciation appreciation of the dollar as expected foreign currency cash flows translate into larger smaller u s

denomination composition of trade and trade balance evidence from turkey the currency denominations of a country s exports and imports are not necessarily the same if this is the case then a change in the exchange rate parity among major currencies will affect the trade balance the empirical evidence provided from turkey where exports are mostly denominated in euros and imports are mostly denominated in usd suggests that an appreciation of the euro against the usd would increase the output in the long run appreciate the local currency and improve the trade balance for the 1985 01 2003 07 period

endogenous markups and the effects of income taxation theory and evidence from oecd countries abstract existing studies on the effects of fiscal policy under imperfect competition typically treat each firm s price cost markup as fixed this paper examines the implications of endogenising the markup in a simple model of income taxation under monopolistic competition it is demonstrated that an increase in income tax reduces the number of firms lessens competition among surviving firms and raises the optimal markups in the new steady state through this channel the effects of income taxation on the key macroeconomic variables as well as on consumer welfare are unambiguously enlarged the simple model prediction is largely supported by cross section regressions with data from oecd countries

bilateral j curve between india and her trading partners india a land of over one billion people and one of the newly emerging industrial powers in the world is going through a slow but steady metamorphism for centuries india has played a major role in the international trade it was not uncommon to see her ships carrying silk and spices across the arabian seas and bringing back machine made textile invasions of india first by mughals and latter by the british through the east india company were all trade oriented india s presence in the world trade is relatively small at this time but is gaining momentum after independence in 1947 india for a brief period experimented with socialism the five year plans were mainly focused towards building infrastructure and development of small scale agriculture based industries the industrial development even though extremely important for growth played a secondary role the foreign investment was encouraged but only in the selected sectors of the economy however threat of nationalization a large bureaucracy corruption lack of understanding of the indian business practices and the requirement that a major share holder must be an indian national discouraged foreign capital investment in india during 1991 1992 india adopted a policy of trade liberalization to attract foreign capital and to encourage non resident indians to invest in their home country government of india established a separate unit within the home ministry whose main function was to expedite processing of applications india also relaxed the requirement that a major partner be an indian national india provided export subsidies to the exporters in terms of cash as well as foreign exchange so that they could import machines and raw materials exports responded to the trade liberalization and increased from 44 041 crores of rupees in 1991 1992 to 141 603 crores in 1998 1999 where one crore is equivalent to ten million in us dollar terms at a current exchange rate of 42 48 rupees per dollar this translates to an increase from 10 37 billion to 33 34 billion over eight years india also anticipates that through a major increase in the information technology mainly software industry her exports will increase to 90 billion by 2005 the trade liberalization has been accompanied by changes in the monetary policies the inflation rate has been reduced from about 12 to 9 per year the interest rates have declined from 14 to 10 and the exchange rate has been allowed to respond to market forces as a result from 1991 1992 to 1998 1999 the rupee has declined from 19 62 rupees per dollar to 42 48 rupees per dollar by december 2000 rupee had further devalued to 46 25 per dollar with a hope that it will further boost india s exports and improve her trade balance however the impact of currency depreciation on the trade balance is not instantaneous indeed there is ample evidence in the literature that after currency depreciation the trade balance worsens in the short run before improving in the long run since this pattern of movement of the trade balance over time resembles the letter j magee 1973 labelled it the j curve phenomenon magee argued that after devaluation contracts that are in transit at old exchange rates dominate the short run response of the trade balance over time new contracts at new prices begin to exert their favourable impact at this stage elasticities may increase leading to an eventual improvement in the trade balance of course the delayed response could also be due to lags in the process of increasing the production of exportables junz and rhomberg 1973 have identified five lags namely recognition lags decision lags delivery lags replacement lags and production lags only after the realization of these lags the trade balance could improve early studies that tried to investigate the impact of currency depreciation on the trade balance relied upon estimating the marshall lerner condition the condition

the black market exchange rate vs the official rate in testing ppp which rate fosters the adjustment process abstract in testing the purchasing power parity theory ppp researchers hardly pay attention to the speed with which the exchange rate adjusts to a change in relative prices in this paper we show that the speed of adjustment is faster when the black market exchange rate is used in testing the ppp as compared to the official exchange rate this could be another reason as to why central banks should unify the two rates

corporate demography and income inequality we examine the relationship between income inequality and corporate demography in regional labor markets and specify two mechanisms through which the number and diversity of employers in a labor market affect wage dispersion vertical differentiation or variation in the ability of organizations of a particular kind to benefit from labor inputs amplifies inequality through quality sorting as the most productive employees in a particular domain pair with the most productive employers increasing horizontal differentiation variation in the kinds of organizations reduces inequality as individuals can more easily find firms interested in their distinctive attributes and talents our analysis of danish census data provides support for each thesis increased numbers of organizations operating within an industry in a region a proxy for vertical differentiation increases wage dispersion in that industry region variation in wages however declines with increased horizontal differentiation among employers th

learning but not earning the impact of job corps training on hispanic youth i introduction job corps jc is a federally funded training program for disadvantaged youth aged 16 24 yr that provides educational and vocational training life skills and job placement services with some exceptions jc participants reside at the corresponding jc facility through this comprehensive approach the goal of jc was to tackle the adverse effects of being raised under low socioeconomic conditions to enable disadvantaged youths obtain and keep well paying jobs from the middle to late 1990s the national job corps study njcs employed a randomized social experiment to evaluate the effectiveness of jc across various dimensions including employment and earnings educational achievement criminal behavior and health outcomes 1 the main finding of the njcs 48 mo after randomization reported in schochet burghardt and glazerman 2001 was that the treatment group earned on average a statistically significant 12 more per week than the control group however this effect was not homogeneous varying from 46 per week for whites and 23 for blacks to 15 for hispanics this last estimate was not statistically significant see their table d 14 2 these differential effects are especially puzzling given similar gains in measurable human capital across the three groups 3 since hispanics represent a significant and growing proportion of the u s population and disproportionately exhibit disadvantaged characteristics it is important to understand the heterogeneous labor market impacts of jc we trace these heterogeneous treatment effects to different local labor market conditions first we note that a higher and statistically significant level of labor market experience is gained by hispanics in the control group relative to the treatment group during the time of the njcs which does not happen among whites or blacks after adjusting for this labor market experience the estimated negative effects of jc for hispanics decrease considerably subsequently we show that the differential labor market outcomes of the three groups is in part due to the distinct local labor market conditions faced on average by each group and importantly due to the differential impact that those labor market conditions have on each group s earnings by randomization status specifically we find that a blacks and hispanics face higher local labor market unemployment rates lur that mitigate the potential gains from jc for them and b jc is able to shield white participants from adverse lur but not blacks and hispanics this study contributes to different strands of literature most labor market program evaluations in the literature generally focus on individuals that have been in the labor market for some time frequently avoiding the inclusion of youths such as in for example heckman et al 1998 and mueser troske and gorislavsky 2007 or doing separate analyses for adults and youths as in for example heckman et al 2000 and heckman and smith 1999 we add to this literature by focusing on young persons and stressing the importance of lock in effects as defined by van ours 2004 local labor market conditions and different early labor market dynamics across racial and ethnic groups recent work in lechner and wunsch 2006 lechner miquel and wunsch 2007 johansson 2001 kluve 2007 and others emphasize that the effects of active labor market programs in europe depend on the state of the economy typically finding a direct relationship between their effectiveness and the unemployment rate for the united states hotz imbens and klerman 2006 present evidence for california pointing to an inverse relationship between the labor market programs and the unemployment rate while most of the previous articles rely heavily on aggregate time series variation of economic conditions e g the unemployment rate we present new evidence for the united states exploiting large cross sectional variation of county specific local unemployment rates

the twin deficits phenomenon evidence from greece this paper explores the relationship between budget and trade deficits in a small open economy using annual data the purpose of the paper is to test empirically the validity and rationale of the keynesian proposition conventional view and the ricardian equivalence hypothesis the econometric methodology is based on cointegration analysis error correction modelling and granger trivariate causality the ecm empirical findings suggest that budget deficit has short and long run positive and significant causal effects on trade deficit

brazil us commodity trade and the j curve currency devaluation or depreciation is said to temporarily worsen a country s trade balance and improve it later an effect that is called the j curve previous research that tested the j curve for brazil used the country s aggregate trade flows with the rest of the world and did not find support for the phenomenon in this article we consider the trade flows between brazil and a major trading partner the united states disaggregating their trade flows by commodity we then test the empirical validity of the j curve for each of the 92 industries that trade between the two countries we find support for the phenomenon in 31 industries therefore disaggregation by industry seems to yield some support for the phenomenon

the exchange rate and the balance of trade the turkish experience in this article we examine the responsiveness of turkey s trade balance to devaluation accompanied by trade liberalisation our results show that the trade balance was responsive to changes in the exchange rate that were brought about by the economic reforms introduced in the 1980s suggesting that exchange rate policy was able to create and maintain a satisfactory balance of trade position in the 1980s and early 1990s

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

on low frequency estimates of long run relationships in macroeconomics abstract a number of recent studies have attempted to test propositions concerning long run economic relationships by means of frequency domain time series techniques that concentrate attention on low frequency comovements of variables the present paper emphasizes that many of these propositions involve expectational relationships that are not inherently related to specific frequencies or periodicities thus the association of low frequency time series test statistics with long run economic propositions is not generally warranted that such an association can be misleading is demonstrated by analysis of examples taken from notable papers by geweke lucas and summers

the joint response of stock and foreign exchange markets to macroeconomic surprises using us and japanese data abstract this paper investigates the joint response of stock and foreign exchange fx market returns to macroeconomic surprises employing a system method of estimation that allows for the cross country and cross market interaction for asset returns and risk premia using us and japanese data we find that us stock markets are asymmetrically responsive to domestic developments in output growth and interest rates but are not influenced by macroeconomic surprises from japan the surprise in the fx market seems to affect stock markets in the us and japan respectively in particular we find that the interest rate surprise in the us and inflation surprise in japan tend to overstate the impact that these surprises would have on the respective stock market the impact of the surprises would appear smaller if macroeconomic developments induced by the fx market were incorporated into the model

local labor markets and welfare spells do demand conditions matter this paper examines the impact of changes in labor market conditions on participation in the aid to families with dependent children afdc program in california transitions off welfare and transi

time intensive r d and unbalanced trade abstract this paper highlights a novel mechanism that generates global imbalances it develops a general equilibrium trade model with one of two countries having a comparative advantage in a sector whose production is characterized by i rapid anticipated demand growth and ii large up front r d costs international funding of the accruing r d costs generates capital inflows in the r d stage which are balanced by subsequent outflows importantly sector level growth does not generate growth differentials between countries typically regarded as rationales of global imbalances additionally it is shown that a trade surplus can coincide with appreciations of the real exchange rate i argue that switzerland s trade surplus which was driven to record heights during 2010 2014 by pharmaceutical exports exemplifies this mechanism calibrating the model to swiss trade flows underpins this argument

anticipated versus unanticipated terms of trade shocks and the j curve phenomenon abstract using a dynamic stochastic general equilibrium dsge model we examine the impact of anticipated and unanticipated terms of trade tot shocks on aggregate output inflation and the trade balance tb this allows us to offer an alternative explanation of the j curve phenomenon we find that an unanticipated tot shock increases real output as well as inflation but the j curve phenomenon may not exist under a certain condition however under the same condition an anticipated tot shock leads to the j curve effect we find that our main result concerning the j curve phenomenon continues to hold even if the assumption of rational expectations about the tot is relaxed further analysis reveals that the presence of a cost channel of monetary policy increases the intensity of the j curve effect assuming plausible parameter values while using a more general model calibration results support our theoretical predictions

asymmetric j curve evidence from industry trade between u s and u k previous research that assessed the impact of exchange rate changes on the trade balance between the u s and u k assumed the effects are symmetric in this paper we add to the literature on the

the j curve a literature review due to lag structure currency devaluation is said to worsen the trade balance first and improve it later resulting in a pattern that resemble the letter j hence the j curve phenomenon since its introduction by magee in 1973 brooking papers on economic activity 1 pp 303 25 a large number of studies have attempted to test the phenomenon using different techniques and different model specifications the results are at best ambiguous and deserve to be collected together for the future generation of researchers and graduate students this paper fills such a vacuum in the literature by reviewing the j curve related empirical papers

is there a j curve abstract if the response of the value of the trade balance to movements in the real exchange rate is described by a j curve then a real depreciation initially worsens a balance of trade deficit only improving it over time this paper investigates whether a j curve can be detected in the last twenty five years of american data no statistically reliable evidence of a stable j curve is detected the model is checked extensively to support this finding

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

trade liberalisation the peso and mexico s commodity trade flows with the united states abstract we assess the effects of real peso devaluations as well as the effects of gatt and nafta on mexico s in payments and out payments with the united states for 102 industries we find that relatively few trade flows are sensitive to changes in the real exchange rate probably due to production sharing and intra industry trade but devaluations affect mexican imports more than exports trade liberalisation has had a larger impact particularly on imports of intermediate goods and exports of certain manufactures many affected export industries are ones that have previously been shown to have economies of scale

income effects on the trade balance in small open economies the objective is to determine the causes of the countercyclicality of the trade balance in five small open economies namely austria france italy spain and switzerland in order to investigate the role of permanent and temporary changes in income in the determination of the trade balance blanchard quah variance decomposition procedure is applied the results of analysis support the conclusion that transitory income shocks are major reasons for the change in the trade balance and that negative correlation between the trade balance and income is primarily due to transitory shocks thus these results are more consistent with intertemporal models with the dichotomous view in which the aggregate demand shocks are responsible for cyclical variations in the trade balance and income and aggregate supply is responsible for the long run growth of the economy

transitory and permanent disturbances and the current account an empirical analysis in the intertemporal framework the intertemporal models of current account determination demonstrate that in the analysis of the current account balance of a country it is important to distinguish between transitory and permanent disturbances in income and relative prices this paper attempts to decompose the observed data on income and real exchange rate into transitory and permanent components and then uses the decomposed series to test the empirical validity of the predictions of the intertemporal models evidence from the united states and japan provide very limited support for the intertemporal models in terms of the effects of transitory and permanent changes in income on current account balance for both us and japan the study finds that permanent changes in real exchange rate have significant effects on the current account balance statistical tests find no evidence of hysteresis in the trading relations of the two countries

on errors in variable biases in estimates of export price elasticities abstract the literature has long suggested that estimates of export price elasticities are biased toward 1 this paper demonstrates that they are either unbiased or biased towards zero depending on estimation method

understanding young women s marriage decisions the role of labor and marriage market conditions using the 1970 1980 1990 censuses the authors investigate the impact of labor and marriage market conditions on the incidence of marriage of young women age 16 24 they first estimate the effects on marriage of personal characteristics and metropolitan statistical area msa indicators separately by race and education group they then regress the first stage msa effects on msa level labor and marriage market conditions and welfare benefits taking account of fixed effects and time trends specific to each msa better female labor markets worse female marriage markets worse male labor markets are found to lower marriage rates fr whites in all education groups results for these variables for blacks are sensitive to estimation technique although stronger results are obtained for an older age group 25 34 while welfare benefits have a negative effect in cross sectional analyses the association becomes considerably weaker in fixed effects specifications

do devaluations improve the trade balance the evidence revisited do devaluations improve the trade balance the evidence revisited this paper reexamines the effectiveness of devaluation in trade balance adjustment the question is addressed in a framework which improves the previous empirical literature in several respects the evidence indicates that devaluations have been a successful tool in inducing trade balance adjustment in particular nominal devaluations are found to result in significant real devaluations that last for at least three years and the real devaluation induces significant trade flows that are distributed over a two to three year period the evidence comes from two different samples 1953 73 and 1975 84 involving twenty seven countries and sixty devaluation episodes 1 introduction do devaluations affect real magnitudes in particular the trade balance a devaluation may effect the trade balance through two channels devaluation of the real exchange rate and a direct effect on domestic absorption the traditional approach stresses the first channel a nominal devaluation is assumed to change the real exchange rate a relative price and thus improve competitiveness in turn if relative prices the terms of trade in a two country two good model affect the trade balance devaluation will be successful in the sense of improving the trade balance ceteris paribus the absorption effect becomes the sole or most important channel in the monetary approach in a world in which all goods and assets are perfect substitutes prices are exogenously given for the small country and wages and prices are flexible in both nominal and real terms a devaluation increases the price level by the same percentage the increase in the price level reduces real balances and thus domestic absorption dornbusch 1973 883 has argued that if such a real balance effect is not present then it might stand to reason that the effects of devaluation are negligible not that there must be other powerful avenues through which it exerts its effects emphasis added the controversy over the effects of devaluation on the trade balance arises because according to frenkel and johnson 1976 42 the monetary approach rejects the emphasis given to the role of relative prices in the analysis of devaluation global monetarists argue that neither of the links in the chain postulated by the traditional approach is likely to hold in practice see laffer 1977 the major disagreement centers on the question of the effectiveness of nominal devaluation to affect the real exchange rate and the importance of the latter in influencing trade flows theoretical arguments have not settled the issue the question is as strongly debated today as it was forty years ago see for example branson 1983 katseli 1983 kaldor 1983 nashashibi 1983 and mckinnon 1981 nor does it seem that the available empirical evidence leads to a consistent answer the best known studies cooper 1971 laffer 1977 salant 1977 miles 1979 gylfason and risager 1984 reach contradictory conclusions 1 cooper and gylfason and risager find that devaluations improve the trade balance or current account while laffer and miles conclude exactly the opposite salant finds that devaluations improve the trade balance but not as often as the overall balance of payments in the face of such diverse findings frenkel 1984 suggests that a reexamination of the issue would be useful indeed himarios 1985 shows that a close examination of miles s widely quoted study reveals serious deficiencies that once addressed lead to opposite results this paper provides new evidence concerning the effectiveness of devaluation in trade balance adjustment the approach differs from past studies in several respects it differs from cooper s laffer s and salant s studies in that it accounts for the effects of other variables that affect the trade balance

on the impact of trade openness on growth further evidence from oecd countries this study attempts to examine empirically the implications of the degree of openness for total and individual factor productivity growth in a group of 19 oecd countries over the last three decades the study combines both time series and cross sectional data the model employed is a generalization of the commonly used growth accounting model based on the concept of an aggregate production function in which the rate of economic growth is a function of capital and labour accumulation and total factor productivity it is explicitly assumed that total factor productivity depends in turn upon the rate of export expansion the model is then estimated using the random coefficients approach while results generally indicate that the relative importance of trade openness on economic growth varies significantly across countries they also indicate that the role of capital and labour accumulation in fostering economic growth varies with the degree of openness cross sectionally as well as across time

trade flows relative prices and effective exchange rates a var on ethiopian data the dynamic response of trade flows to price and effective exchange rate changes is examined via var using quarerly data from ethiopia for the period 1973 i 1985 iv the results show one way granger causality running from prices and exchange rates to imports and exports without significant feedback imports and exports exhibit similar response patterns to unexpected changes in relative prices and exchange rates the responses of imports and exports are larger and the adjustment takes longer when relative prices rather than exchange rates caused a change in international prices in the long run changes in prices account for a larger percentage of the forecast error variances in imports and exports than exchange rate changes it is shown that devaluation may have an initial adverse effect on the trade balance

bilateral j curve between the uk vis a vis her major trading partners currency depreciation is said to worsen the trade balance first before resulting in an improvement yielding a short run pattern labelled the j curve phenomenon while early studies tested the j curve by using aggregate trade data a few recent studies have employed bilateral data mostly between the us and her major trading partners in this paper we extend the literature by considering the experience of the uk we test the phenomenon between the uk and her twenty major trading partners by employing data over 1973q1 2001q3 period in most instances we find no support for the j curve in the short run in the long run only in five cases has the exchange rate had significant impact on the bilateral trade balance

the j curve and nafta evidence from commodity trade between the us and mexico the north american free trade agreement nafta was predicted to have a substantial impact on the us mexico trade especially on specific importing and exporting industries in this article we use annual industry level export and import data from 1962 to 2004 to discern both the short and long run effects of real exchange rate depreciation on the mexico us trade balance as well as the effects of nafta on this trade we find that peso depreciation has a positive long run effect on 24 of 102 mexican industries and a negative short run effect on 19 of 102 industries only a small fraction 7 of 102 industries show any support for the j curve hypothesis nafta has had a significant effect on a significant number of the industries however

trade liberalization and industrial growth in pakistan a cointegration analysis using the framework of an endogenous growth model this study empirically analyses the relationship between trade policies and industrial growth in pakistan during the period 1973 1995 the cointegration and error correction modelling approaches have been applied the empirical results suggest that there exists a unique long run relationship among the aggregate growth function of industrial value added and its major determinants of the real capital stock the labour force real exports the import tariff collection rate and the secondary school enrolment ratio the short term dynamic behaviour of pakistan s growth function of industrial value added has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant

can exchange rate variations or trade policy alter the equilibrium current account abstract paul krugman has pointed out that much work needs to be done before the intertemporal open economy model can replace the open economy is lm model as a guide to policy making the objective here is to take a step in this direction by examining if an exogenous increase in world demand for home goods as via trade policy can improve the equilibrium current account within an open economy intertemporal model in the process the paper explores the theoretical issue as to whether a variation in the real exchange rate can alter the difference between saving and investment the key idea is that uncovered interest parity plus some degree of mean reversion in the real exchange rate imply that a modern version of the laursen metzler harberger effect is operative the result is that a policy induced increase in the trade balance will alter the real exchange rate which in turn increases the difference between home saving and investment and thereby improves the equilibrium current account

currency devaluation and stock market response an empirical analysis abstract we study local stock market reaction to currency devaluation by a country s central bank devaluations appear to be anticipated by the local stock markets and there are significant negative abnormal returns even one year prior to the announcement of the devaluation a negative trend in stock returns persists for up to one quarter following the first announcement and then becomes positive thereafter suggesting a reversal we explore whether changes in macroeconomic variables prior to currency devaluations are related to abnormal stock returns we find that stock returns are significantly lower if the devaluation is larger and if the country is a developing nation furthermore stock markets decline more around devaluations if reserves are lower if the real exchange rate has depreciated over the prior years if the capital account has declined if the current account deficit has gone up or if the country credit rating has deteriorated

why is it so difficult to find an effect of exchange rate risk on trade abstract it is commonly argued that exchange rate risk hampers international trade however the large literature on this subject has not yet provided conclusive evidence this paper analyzes why it is so difficult to obtain a clear answer from time series analyses we use data on bilateral aggregate u s exports to the other g7 countries the results show that as far as the exchange rate is concerned export decisions are mostly affected by the probability distribution of the about one year ahead rate the riskiness of the exchange rate at such a long horizon appears fairly constant over time with only short term fluctuations this makes it difficult to discover the true effect of exchange rate risk on trade from the time series data that are typically available

exchange rates and fiscal policy in a popular model of international trade this paper develops a reinterpretation of the devaluation analysis in a popular model of international trade developed by charles bickerdike joan robinson and lloyd metzler it has come to be known as the elasticity approach 1 that model developed in terms of independent markets for imports and exports has been criticized for its apparent lack of general equilibrium properties the assumptions underlying the model have remained by and large implicit and vary across users and the integration of this analysis with the absorption approach and macroeconomics has never been demonstrated all this is very much recognized and indeed application of the model is consistently accompanied by appropriate partial equilibrium impact effect or upper bound caveats these shortcomings notwithstanding the model continues to enjoy substantial popularity in policy discussions and interpretations of current events in empirical work and in recent textbooks in the field of international economics the brm model is likely to remain the preferred tool in the analysis of trade balance issues along with the foreign trade multiplier model it is therefore interesting and useful to enquire into its formal general equilibrium implications this paper is concerned with one such interpretation involving a nontraded goods sector and a well defined government policy that makes the analysis consistent with the absorption approach while it may well be possible to generate alternative interpretations the present analysis would seem to have the advantage of simplicity while at the same time pointing out the essential properties that would have to be satisfied by alternative treatments in section i a brief review of the brm approach is offered in section ii that approach is interpreted in terms of a simple model with nontraded goods and constant terms of trade the implicit assumptions of the brm model are brought to the f oreground by an explicit consideration of the market for home goods the equilibrium conditions and the role of the relative price of nontraded goods 3 following that analysis section iii considers the subsidiary issues that are raised by variable terms of trade the notion of total elasticities is given an interpretation in section iv where we return to the composite traded good model to explore alternative assumptions about absorption policies

is there a long run relation between the trade balance and the real effective exchange rate of ldcs abstract using quarterly data over 1973 1988 period the cointegration analysis is used and it is shown that the trade balance and the real effective exchange rate of some ldcs are cointegrated in the long run this approach is argued to be a close substitute for testing the marshall lerner condition

vertical product differentiation and the import demand function theory and evidence in this paper we use a model of vertical product differentiation to cast doubt on the general validity of the import demand function as specified in macroeconomic models the empirical importance of our theoretical concerns is then established according to our first hypothesis the share of a good s imports in total imports is non increasing in domestic wages if the country has comparative advantage in high quality varieties of this good the second hypothesis states that the share of a good s imports is increasing in non wage domes tic income if the country has comparative advantage in high quality varieties of this good

the balance of trade and exchange rates theory and contemporary evidence from tourism abstract the purpose of this study is to investigate the effects of exchange rate depreciations and appreciations on the tourism trade balance specifically we employed linear and nonlinear autoregressive distributed lag ardl cointegration techniques to analyze the extent to which currency depreciations and appreciations affect the united states u s bilateral tourism trade with canada mexico and the united kingdom u k the results showed that the depreciation of the u s dollar subsequently improves the u s trade balance with all three trading partners however while the appreciation of the u s dollar deteriorates the u s bilateral tourism trade balance with canada and the u k it does not ultimately affect the u s bilateral tourism trade with mexico in the long term these results provide evidence contradicting the j curve theory supporting the postulations of the ml condition theoretical and policy implications are discussed within the realms of j curve theory marshall lerner ml condition international trade and tourism

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

intertemporal speculation devaluation and the j curve abstract this paper presents a new explanation of why j curves i e the tendency of the trade balance to deteriorate immediately after a devaluation and to improve only as time passes may arise the paper focuses on the consequences of price stickiness if prices are sticky the devaluation leads first to asn increse in the relative price of tradables which tends to improve the trade balance and second to rising prices of tradables following the devaluation which tends to temporarily worsen the trade balance as a result of intertemporal speculation if the latter effect dominates a j curves results

u s bilateral trade balances and the dollar abstract u s bilateral export and import values with seven large trading partners are tested for real exchange rate effects over 1975 1985 the results suggest that dollar devaluation would have the most favorable impact on the u s trade balance in the case of japan and the least favorable in the case of canada

the nafta preference and us mexico trade aggregate level analysis this paper focuses on the us tariff preference afforded to mexico relative to non nafta trading partners and evaluates the trade effects of nafta in a manner consistent with the idea behind a preferential trading agreement the estimation technique exploits the time varying dimension of the tariff preference over 1989 to 2001 this is important because the tariff preference for mexico into the united states market existed prior to nafta further the nafta preference was phased in over time we find that a higher us tariff preference for mexico corresponds to increased us import demand for mexican goods and that a higher mexican tariff preference for the united states corresponds to increased mexican demand for us exports interestingly import demand was more responsive to changes in the tariff preference once nafta was in place than it was on average

local labor market fluctuations and health is there a connection and for whom we examine the relationship between local labor market conditions and several measures of health and health behaviors for a sample of working aged men living in the 58 largest metropolitan areas in the united states we find evidence of procyclical relationships for weight related health and mental health for men with low ex ante employment probabilities separate estimates suggest worsening labor market conditions lead to weight gains and reduced mental health among african american men and lower mental health among less educated males among our findings those related to mental health are most pronounced

the role of exchange rates in a popular model of international trade abstract this paper examines the empirical relationship between the real effective exchange rate and the aggregate real trade balance for five major oecd countries in the post bretton woods era a variety of parametric and non parametric techniques are used there is little evidence that the exchange rate significantly affects the trade balance

the j curve evidence from commodity trade between uk and china in testing the short run j curve effect and the long run effects of currency depreciation on the trade balance many researchers have used either trade data between one country and the rest of the world or between one country and another trading partner both groups are said to suffer from aggregation bias to reduce the bias in this article we consider trade data between one country the us and her trading partner china disaggregated by commodity we use imports and exports of 88 industries 2 digit and 3 digit classifications and cointegration analysis to show that the trade balance of at least 34 of the industries react favourably to real depreciation of the dollar the j curve effect is detected in 22 industries furthermore most of these industries that are sensitive to currency depreciation are durable commodity groupings

exchange rate volatility and intra asia trade evidence by type of goods this paper examines the impact of intra asia exchange rate volatility on intra asia trade in primary goods intermediate goods equipment goods and consumption goods from 1980 to 2009 for asia the evidence shows that as intraregional exchange rate volatility increases intraregional exports in these goods fall this adverse impact is even more pronounced in the subregion of association of southeast asian nations asean 5 comprising asean member countries plus the people s republic of china hong kong china japan the republic of korea and taipei china and especially among intermediate and equipment exports again the impact magnifies in an even smaller subgroup excluding the smaller asean economies these results underline the significant impact of exchange rate volatility on the region s production networks for south asia however exchange rate volatility appears to have a positive impact on exports still caution is warranted given that south asian economies trade relatively little with each other

city structure job search and labour discrimination theory and policy implications we consider a search matching model in which black workers are discriminated against and the job arrival rates of all workers depend on social networks as well as distance to jobs location choices are driven by the racial preferences of households both blacks and whites consciously choosing to trade off proximity to neighbors of similar racial backgrounds for proximity to jobs because of coordination failures in the location choices multiple urban equilibria emerge there is a spatial mismatch equilibrium in which blacks reside far away from jobs and experience high unemployment rates and a spatial match equilibrium in which blacks are closer to jobs and experience lower unemployment rates under some reasonable condition we demonstrate that all workers are better off in the spatial match equilibrium we then consider two policies affirmative action and employment subsidies to the firms which hire black workers we show that the optimal policy requires imposing larger quotas or subsidies in cities in which black workers reside far away from jobs than in cities in which they live closer to jobs

a re examination of exposure to exchange rate risk the impact of earnings management and currency derivative usage abstract in an attempt to explain the weak evidence of priced exchange rate risk we hypothesize that in addition to currency derivative usages earnings management serves as another factor contributing to a reduction in exchange rate exposure our evidence reveals that earnings management activities particularly those undertaken for the purpose of income smoothing significantly reduce firm specific exchange rate exposure and that such role is particularly important if appropriate currency derivative instruments are limited these results complement prior attempts to explain the puzzle of unpriced exchange rate risk the investigation also highlights the importance of recognizing different managerial purposes behind discretionary accruals

explaining exchange rate risk in world stock markets a panel approach using a garch approach we estimate a time varying two factor international asset pricing model for weekly equity index returns of 16 oecd countries a trade weighted basket of exchange rates and the msci world market index are used as risk factors we find significant currency risk exposures in country equity index returns we then explain these currency betas using several country specific macroeconomic variables with a panel approach we find that imports exports credit ratings and tax revenues significantly affect currency risks in a way that is consistent with some economic hypotheses similar conclusions are obtained by using lagged explanatory variables and thus these macroeconomic variables may be useful as predictors of currency risk exposures our results are robust to a number of alternative specifications

industrial shifts skills levels and the labor market for white and black males in this paper we estimate the effects of industrial shifts in the 1970s and 1980s on the wages and employment of black and white males we use micro census data for 52 msa s and estimate effects separately by age and education group the results show that industrial shifts did reduce demand for blacks and for less skilled males in the 1970s and 1980s demand shifts away from manufacturing in particular reduced employment and wages for black and white males while the magnitudes of these effects are fairly small for many groups they can account for one third to one half of the employment decline for less educated young blacks in the 1970s these results imply fairly large effects on the earnings of less skilled males in the 1980s as well authors

estimation of j curves united states and canada delayed reactions to exchange rate changes in trade on current account balances are known to exist in both the united states and canada a model has been constructed to estimate relative price effects for trade with major partners in order to determine the quantitative magnitudes and relevant time delays for both countries adjustments in trade accounts there is a distinct tendency for balances to worsen when exchange depreciation first occurs and then to improve after several quarters have passed there is also a tendency for the balances to worsen again the u s and canadian time profiles of adjustment are found to be similar