international evidence on output inflation tradeoffs a bootstrap analysis abstract a bootstrap analysis of existing data on international output inflation tradeoffs is performed in contrast to some previous empirical work the results of the bootstrap analysis strongly support lucas 1973 rational expectations model of the natural rate hypothesis

the credibility of policy announcements greek evidence this paper by using error correction ec methodology along with chow stability tests examines whether three cases of policy announcements in greece over the 1975 1995 period have been considered credible or not by the public focusing on the phillips curve trade off the empirical findings reveal that two out of three policy announcements are characterized as credible by private agents

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

the changing relationship between aggregate price and output the british experience over the past two and a half decades great britain has exhibited the most noticeable increase in inflation variability among the ten major noncommunist industrialized countries in addition there has been an apparent worsening in the output inflation tradeoff this paper attempts to identify and empirically assess possible causes of the deterioration in the british output inflation tradeoff in the context of a new classical type model supply side shocks can cause an increase in the inflation rate and a decrease in real output and it is estimatedthat such shocks interacted with inflation variability to reduce real output roughly 3 3 percent between the period 1957 1968 and the period 1969 1980 also contributing to the deterioration in the output inflation tradeoff it is estimated that the decline in the natural rate of real output due to inflation variability as hypothesized by milton friedman amounted to about 2 3 to 2 5 percent between these two subperiods this abstract was borrowed from another version of this item

networks of foreign affiliates evidence from japanese micro data the paper provides evidence on the investment patterns of japanese multinational enterprises mnes across countries and industries and analyses the main drivers of japanese fdi location strategies using detailed micro data on japanese parents and affiliates statistics the main stylised facts point to the high degree of concentration of the activity of japanese multinationals and differences in size and productivity depending on parents and affiliates main industry groups the breakdown of affiliate sales by destination markets reveals that japanese mnes establish services affiliates primarily to maximise the proximity to local customers while foreign affiliates in manufacturing sectors tend to engage more with third countries yet some economies emerge as strategic gateways to other destinations in the region the econometric analysis further analyses the drivers of japanese mnes expansion abroad in search of new markets production efficiency and regional or global platforms important factors shaping japanese fdi decisions include firm characteristics and host market specificities such as market size proximity labour costs technology and trade policy barriers the largest and most productive parents are more likely to invest in fdi export platforms particularly in host countries with efficient customs procedures and more favourable services trade and investment regulation distance and comparative advantage in terms of skills and digital infrastructure play a stronger role in intra firm trade while the size of the domestic market and the local regulatory environment are important attractive points for affiliates that sell mostly locally overall the paper stresses the importance of better integration into global production networks and the policy priorities to attract and maximise the benefits of fdi inflows

inflation dynamics and the output inflation trade off international panel data evidence we explore the impact of inflation and its variability on the output inflation trade off using a unified single step approach in a panel data context a limitation of earlier empirical approaches is that they focus on either cross country or country by country time series analyses this paper employs a dynamic heterogeneous panel data specification and uses an all encompassing estimation framework that accounts for parameter heterogeneity cross sectional dependence dynamics and non stationarity our sample covers 60 countries from 1970 to 2010 while inflation variability reduces the trade off for specific periods and country groups an unambiguous and more pronounced negative relation emerges between the inflation rate and the responsiveness of real output to nominal shocks the findings are in line with the new keynesian view of a negative association between the rate of inflation and the output inflation trade off as well as with the observed flattening of the phillips curve over the past decades

the output inflation tradeoff and central bank reform evidence from new zealand the 1989 reserve bank of new zealand act provides a natural experiment in which the effects of institutional change on economic relationships can be studied the act set price stability as the single objective of monetary policy and gave the bank great independence reforms of this nature may lead to a greater short run output inflation tradeoff by altering optimal stabilisation policy and wage indexation allowing for environments where learning about the new regime is assumed to be rapid as well as slow we find that a large rise in the new zealand tradeoff has occurre d since implementation of the act

anticipated inflation the frequency of transactions and the slope of the phillips curve this paper examines the effects of expected inflation on the responsiveness of output to nominal disturbances in the framework of a localized markets model the mechanism described in the theoretical part of the paper is that expected inflation has a positive effect on the transaction frequency which in turn increases the flow of price information across markets more information implies less misperception of monetary shocks as relative shifts in excess demand resulting in lower sensitivity of real output to these socks the empirical implication of this proposition namely that expected inflation reduces the coefficient of nominal shocks in an output equation is tested first using data across countries and then with time series data from the united states the first test uses lucas s and alberro s estimates of phillips curve coefficients from different countries and the corresponding average inflation rates the second test involves data from the post world war ii period it uses nominal rates of return on treasury bills and corporate bonds as measures of anticipated inflation and barro s estimates of unanticipated money in general results in both tests provide support stronger than expected for the implication of the theory this abstract was borrowed from another version of this item

the american put option valued analytically an analytic solution to the american put problem is derived herein the hedge ratio and other derivatives of the solution are presented the formula derived implies an exact duplicating portfolio for the american put consisting of discount bonds and stock sold short the formula is extended to consider put options on stocks paying cash dividends a polynomial expression is developed for evaluating these formulae values and hedge ratios for puts on both dividend and nondividend paying stocks are calculated tabulated and compared with values derived by numerical integration and binomial approximation as with european options evaluating an analytic formula is more efficient than approximating the stock price process or the partial differential equation by binomial or finite difference methods finally applications of this american put solution are discussed

real government size automatic feedback rules and the measured effectiveness of fiscal policy this paper argues that as intervention fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter cyclical activities of government defining intervention as an optimal policy rule that responds automatically to privately unanticipated variations in output a general equilibrium model is built to separate the supply side effects of desired changes in the size of government from demand side interventions designed to stimulate aggregate demand the model is tested using the results of a public choice investigation of the real size of government ferris and west 1996 that exercise produces a measure of desired size and through its residual an implicit measure of intervention the paper tests the prediction that increases in desired size increase aggregate supply and that ex post measures of fiscal intervention can be recovered and tested for their effect on aggregate output the test uses citibase

new evidence on the output inflation trade off from developing economies the case of the cfa franc zone this aim of this paper is to give a contribution to the debate on whether output inflation trade offs are negatively influenced by the mean of inflation as postulated by new keynesians or by the variability of inflation as postulated by neo classical economists to remove any concerns about the arbitrariness of the choice of the sample the analysis will focus on a group of countries belonging to the same currency union the franc zone the results do not provide conclusive evidence on either theory as it was found that there existed a negative relation between the output inflation trade offs and the mean of inflation on the one hand and the variability of inflation on the other

the time varying parameter model for modeling changing conditional variance the case of the lucas hypothesis the main econometric issue in testing the lucas 1973 hypothesis in a time series context is estimation of the forecast error variance conditional on past information the conditional variance may vary through time as monetary policy evolves and agents are obliged to infer its present state under the assumption that a monetary policy regime is continuously changing a time varying parameter model is proposed for the monetary growth function based on kalman filtering estimation of recursive forecast errors and their conditional variances the lucas hypothesis is tested for the u s economy 1964 1 1985 4 using monetary growth as aggregate demand variable the lucas hypothesis is rejected in favor of friedman s 1977 hypothesis the conditional variance of monetary growth affects real output directly not through the coefficients on the forecast error term in the lucas type output equation

the valuation of american options on bonds abstract we value american options on bonds using a generalization of the geske johnson geske r johnson h 1984 journal of finance 39 1151 1542 gj technique the method requires the valuation of european options and options with multiple exercise dates it is shown that a risk neutral valuation relationship rnvr along the lines of black scholes black f scholes m 1973 journal of political economy 81 637 659 model holds for options exercisable on multiple dates even under stochastic interest rates when the price of the underlying asset is lognormally distributed the proposed computational procedure uses the maximized value of these options where the maximization is over all possible exercise dates the value of the american option is then computed by richardson extrapolation the volatility of the underlying default free bond is modeled using a two factor model with a short term and a long term interest rate factor we report the results of simulations of american option values using our method and show how they vary with the key parameter inputs such as the maturity of the bond its volatility and the option strike price

adaptive expectations and the variance hypothesis abstract it is shown that lucas variance hypothesis on output inflation tradeoff is consistent even with adaptive price expectations hence empirical evidence of the model need not support the rational expectations natural rate hypothesis

the variability of output inflation tradeoffs abstract this paper examines the nature of the variability of the output inflation tradeoff in the united states canada and the united kingdom a stochastic coefficient regression specification is used to allow for the possibility that the tradeoff varies continuously over time where our estimates show evidence of variability in the terms of the output inflation tradeoff we examine the extent to which such variability might be associated with period by period variation in the variance of inflation and aggregate demand along lines suggested by the new classical models of robert lucas

the influence of unanticipated money growth on real output some cross country estimates two major propositions can be deduced from the theories of the business cycle developed in 4 14 15 161 1 monetary growth affects real output only if it is unanticipated 2 the impact on output of unanticipated monetary growth declines the more unpredictable monetary growth becomes proposition 1 has been tested on u k data in 2 3s on u s data in 5 6 7 and on canadian data in 19 the best known but somewhat informal test of proposition 2 is contained in 15 on data from a cross section of eighteen countries l in this paper we apply the method described in 3 to test proposition 1 using data from a range of countries furthermore we develop and discuss a formal method of testing proposition 2 and apply that method to the same data our main conclusion is that neither proposition can be decisively rejected

a test of strategic interaction in monetary policy beginning with an example provided by kydland and prescott 29 a large literature has evolved concerning strategic interaction between the public and a monetary authority in the conduct of monetary policy we undertake a direct test of a fundamental assumption of the strategic monetary policy literature monetary policy games suppose that the monetary authority and the public are aware of the strategic interdependence between them that is these models suppose that the monetary authority chooses an inflation rate that is a function of the public s expected inflation rate and that the public is sophisticated enough to realize that the inflation rate chosen by the monetary authority is a function of its beliefs below we extend cukierman and meltzer s 18 model of ambiguity and credibility in monetary policy to nest other models we then use a novel data set that permits a test of the assumption of strategic awareness for agents in the u s we find support for our extension of the cukierman and meltzer model the new data brought to bear is the federal reserve s forecast of inflation conditional on the monetary policy it chose throughout the sample period the federal open market committee fomc met from eight to twelve times per year to consider various short term monetary policies data on the forecasted paths for the inflation rate growth rate in output and unemployment rate associated with the different monetary policies under consideration is available for some of their meetings it seems reasonable to suppose that the chosen monetary policy satisfies revealed preference in the forecasts of these variables that it and the rejected monetary policies imply therefore in referring to the data we use the terms inflation rate forecast by the federal reserve and inflation rate chosen by the federal reserve interchangeably since theories of time consistent monetary policy have always been cast in the latter terminology the data are especially well suited to a direct test of the theory section i briefly reviews the theoretical literature on monetary policy games and empirical

financial crises and cross border banking new evidence the surge in cross border banking prior to global financial crises took place not only in the interbank market but also in the retail market e g between banks and their private customers abroad we utilize confidential data to estimate for the first time the effects of banking currency and twin crises on the geography of cross border deposits and loans we show that each crisis type has its own specific effects that these effects themselves lead to sustained increases in cross border banking and that they are different for cross border loans and deposits respectively

on the market risk involved in the public financial system in japan a theoretical and numerical investigation abstract treating the postal savings system and the fiscal investments and loans program in japan as an integrated financial institution this paper analyzes the market risk involved in this system for this purpose the paper pays particular attention to options embedded in both assets and liabilities this paper finds that 1 the current rule for determining interest rates on the postal savings account well reflects the values of the embedded put options and 2 due to the flexible options the system tends to entail high market risks in particular as spot rates go up the duration of liabilities becomes extremely short with anticipation of early withdrawal

financial services global perspectives the purpose of this paper is to discuss the issues related to the deregulation of the financial services sector and the role of multilateral negotiations which has opened up opportunities for the expansion of international financial services the paper analyses various categories of international financial services and highlights those factors that contribute to an increase in the competitiveness of financial institutions in their attempt to increase the supply of international financial services the paper also analyses the complementary role of fdi and trade in international financial services and discusses some of the benefits of fdi in financial services that have led to a more efficient and more competitive financial services industry in the host countries

the travels of a bank deposit in turbulent times the importance of deposit insurance design for cross border deposits we examine the impact of the existence on an explicit deposit insurance di scheme and its design features on bilateral cross border deposits cbd in a gravity model setting we find that both the absolute quality of a country s di and its relative quality vis a vis other countries di generally affect depositor behavior however during systemic banking crises cross border depositors primarily seek countries with the best di schemes similarly during the 2008 2009 great financial crisis the emergency actions taken by the governments which supply and maintain these safe havens have led to substantial relocations of cbd jel f34 g18

inflation and economic growth a multi country empirical analysis the world eocnomy is currently adjusting to a low inflation regime which has implicastions for the cross country distribution of world growth opportunities in contrast to previous related work which assumes unidirectional causality this paper uses the granger methodology to examine both the direction and pattern of causality between inflation and economic growth in 70 countries using annual data over the period 1960 89 among the conclusions are that first the relationship between inflation and growth is non uniform across countries 40 of countries studied reveal no causality one third exhibit unidirectional causality and about one fifth of countries show bidirectional causality second a vast majority of countries which show either uni or bi directional causality beong to the industrial group and third the low world inflation regime will on balance redistribute real growth opportunities benefit away from the developing countries towards the industrialized countries

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

a disequilibrium model of rational expectations for the u k so far the new classical model and the policy ineffectiveness proposition have been tested essentially within an equilibrium framework and disequilibrium methods of estimation have been used to estimate the labor market models in this paper the authors develop an aggregate goods market model for the united kingdom in which the new classical rational expectations hypothesis and the disequilibrium approach are integrated their estimates of the model show that the structural parameters are well determined and price adjustment in the united kingdom is very sluggish therefore the new classical policy ineffectiveness proposition is not valid for the united kingdom copyright 1991 by royal economic society

evidence on inflation output trade off in developing and industrial countries this paper subjects lucas s output inflation trade off study to further empirical investigation the cross country study divides the 111 countries covered into 90 developing countries and 21 advanced countries lucas s proposition is that volatility of aggregate demand growth should reduce the impact of aggregate demand growth on the cyclical output and the implication of this is that there is no output inflation trade off in line with the natural rate theory we employ annual data over periods that fall between 1958 and 1985 in order to conduct the test our findings suggest that lucas s proposition is valid for developed economies but not for developing economies

price and output responsiveness to nominal changes under differential information abstract the paper considers how changes in nominal income are transmitted into price and output changes within a setting where the traditional assumption of instantaneous market clearing costless coordination is given up in favour of a more realistic setting where price decisions are made by numerous agents firms acting independently on their private decentralized information the responsiveness of firm specific prices is considered and it is shown how absolute or nominal price rigidity can be explained building this into a theory of the general price level it is proved that heterogenously perceived nominal changes affect the price level less than proportionally moreover it is shown how a phillips curve relation between inflation and output can be rationalized within the model finally the issue of relative price variability is considered and related to misallocation of economic resources under differential information

does exchange rate pegging enhance credibility evidence from the european monetary system the european monetary system ems has been credited with immediately enhancing the credibility of onetary policy among its member countries however there is little empirical evidence to support this view this study provides evidence from exchange rate data that political actions taken to support the ems enhanced rate arangement further empirical results were sensitive to the specification of the estimating equations and varied dramatically if risk premia discounts were absent from estimating equations

the changing responsiveness of wages to price level shocks explicit and implicit indexation the article provides evidence for the u s over the period 1961 84 that the responsiveness of nonunion wages to price level shocks changes through time much as the degree of indexation in union contracts does suggesting that there exists implicit as well as explicit indexation when coupled with the result from previous research that indexation responds positively to inflation uncertainty the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity in the context of a rational expectations model with long term wage contracts a decline in the effectiveness of an activist monetary policy could result

the reeded edge and the phillips curve money neutrality common knowledge and subjective beliefs abstract i present a simple two person auction model in which a seller and a buyer make bids in terms of money however the value of a unit of money is uncertain i show 1 a monetary revaluation has purely nominal effects if and only if it is common knowledge 2 if seller and buyer have identical beliefs making the value of money common knowledge maximizes total gains from trade 3 if seller and buyer are equally well informed and have identical beliefs then monetary revaluations have no net effect 4 when the seller knows the value of money but the buyer does not the expected utilities of both seller and buyer are proportional to 1 1 2 where is the standard deviation of the value of money expressed as a fraction of the mean and 5 when beliefs are subjective monetary policy can improve total gains from trade as in friedman s explanation of the phillips curve and an optimal level of inflation can be determined journal of economic literature classification numbers c78 e52

on error correction models specification interpretation estimation abstract error correction models ecms have proved a popular organising principle in applied econometrics despite the lack of consensus as to exactly what constitutes their defining characteristic and the rather limited role that has been given to economic theory by their proponents this paper uses a historical survey of the evolution of ecms to explain the alternative specifications and interpretations and proceeds to examine their implications for estimation the various approaches are illustrated for wage equations by application to uk labour market data 1855 1987 we demonstrate that error correction models impose strong and testable non linear restrictions on dynamic econometric equations and that they do not obviate the need for modelling the process of expectations formation with the exception of a few special cases both the non linear restrictions and the modelling of expectations have been ignored by those who have treated ecms as merely reparameterisations of dynamic linear regression models or vector autoregressions

sargan s wage equation a theoretical and empirical reconstruction sargan s 1964 wage equation is respecified within the feedback control framework to which it belongs and confronted with quaterly british data the amended version clearly out performs the original and a version estimated over 1967 i 1974 iv yields acceptable predictions through 1975 i 1977 iv

the nature of transactions in the u s aggregate goods market abstract a model to estimate the proportion of transactions taking place in the new classical disequilibrium and keynesian markets is developed to estimate the aggregate u s goods market our results show that more than 14 of the transactions take place in the new classical equilibrium markets and the rest in the keynesian markets

what makes the output inflation trade off change the absence of accelerating deflation in japan it is standard to model the output inflation trade off as a linear relationship with a time invariant slope we assess empirical evidence for two sets of theories that allow for endogenous variation in the slope of the short run phillips curve at an empirical level we examine why large negative output gaps in japan in the late 1990s did not lead to accelerating deflation but instead coincided with stable albeit moderately negative inflation our results suggest that this episode is most convincingly interpreted as reflecting a gradual flattening of the phillips curve we find that this flattening is best explained by models with endogenous price durations these models imply that in any economy where trend inflation is substantially lower or substantially higher today than in past decades time variation in the slope of the phillips curve has become too important to ignore

inflation and relative price variability in yugoslavia abstract granger causality tests show that inflation granger causes relative price variability but the feedback relationship cannot be excluded

the lucas hypothesis on the phillips curve further international evidence abstract this paper is a further attempt to test the lucas hypothesis on the phillips curve by making cross country comparisons that hypothesis posits that nominal shocks affect real aggregates only if individuals mistake them for what they are not movements in real variables the existence of a trade off between output and inflation is conditional on economic agents misinterpreting the price movements they observe countries with widely fluctuating exogenous shocks will have a more vertical phillips curve as their inhabitants sharpen their instrumental to differentiate between real and nominal shocks hence cross country comparisons provide fertile grounds to test this hypothesis if it holds true we should find a positive correlation between phillips curve slopes and the standard deviations of the exogenous shocks the evidence presented here confirms lucas s findings

credibility and changes in policy regime this paper addresses the issue of credibility from an econometric perspective it develops a rational expectations model of inflation in which the dynamics are driven by the level of government spending and by the effect of past inflation rates on the value of real taxes government expenditure is modeled as an exogenous autoregressive process subject to discrete changes in regime the regimes are defined by whether the level of spending is or is not consistent with the rate of inflation targeted by the government as part of a stabilization program in making their money demand decision the agents need to construct probability inferences regarding the state of the expenditure process credibility is quantified by the agents inferred probability that the joint observation of inflation the nominal interest rate and government spending is generated by the reformed expenditure regime in an application to israel results indicate that the failed stabilization program of november 1984 was less than fully c

banking across borders abstract the international linkages between banks play a crucial role in today s global economy existing models explain these links largely on the basis of portfolio theory in which banks diversify lending these models have found limited empirical support and do not speak to several relevant dimensions of the data they do not explain heterogeneity in the degree to which banks operate through foreign affiliates fund their activities abroad or matter for local lending in foreign countries this paper proposes a complementary theory of banking across borders that is based on elements of international trade theory in the model banking across borders arises because countries differ in their relative factor endowments and in the efficiency of their banking sectors based on these differences the pattern of foreign bank asset and liability holdings emerges endogenously this parsimonious model provides a rationale for the observed heterogeneity in foreign bank activities and is consistent with key patterns in the data

a note on the location choice of multinational banks the case of japanese financial institutions abstract there are many studies investigating the location choice of foreign direct investment fdi of us banks nigh et al journal of international business studies 17 1986 59 72 find that the choice does not depend on local banking opportunity this paper examines what factors affect the location choice of japanese multinational financial institutions our results are consistent with previous studies analyzing us banks in that the fdi of the manufacturing industry is an important determinant of the location choice of japanese financial institutions however our results differ from nigh et al in that japanese financial institutions choose their locations at least partially based on the local banking opportunity in the host countries

intracountry evidence on the lucas variance hypothesis intracountry evidence on the lucas variance hypothesis i introduction seventeen years ago lucas 1973 developed an aggregate supply model that challenged the efficacy of neo keynesian macroeconomic stabilization policy and significantly altered the development of macroeconomic models employing a multimarket stochastic equilibrium model lucas assumed that individual suppliers decide how much to produce based on perceived relative prices their expectations of future prices and demand are formed rationally using all available information about specific and economy wide prices and quantities changes in market specific prices however reflect both changes in the general price level and changes in relative prices individual suppliers cannot distinguish between the two because they have instantaneous information about their own specific prices but only lagged information about the general price level thus a current unanticipated increase in the general price level and nominal aggregate demand will be partly perceived by suppliers as an increase in the relative price and relative demand for their goods and they will temporarily increase output a highly volatile general price level and nominal aggregate demand result in less general relative price confusion and a fading of the short run output inflation tradeoff that is the lucas model suggests an inverse relationship between the output inflation tradeoff and the variability of the rate of inflation and the rate of change of nominal aggregate demand lucas used a sample of eighteen countries to see whether the terms of the output inflation tradeoff vary across countries in the way predicted by the natural rate theory 1973 330 he estimated the following reduced form supply function over the 1952 67 period y sub ct pi delta pi delta chi sub t lambda y sub c t 1 1 where y sub ct is detrended real gnp delta chi sub t is the change of the natural logarithm of nominal gnp delta is the average rate of demand expansion lambda is the speed of adjustment with lambda less than to 1 and pi is the response of real gnp to changes in nominal gnp with 0 is not less than or equal to pi is not less than or equal to 1 since the estimated tradeoff coefficients were found to be greater for a group of sixteen stable countries than for two highly volatile countries lucas argued that the behavior of the estimated pi values across countries is in striking conformity with the natural rate hypothesis 1973 332 empirical studies by albero 1981 attfield and duck 1983 fernadez 1977 hanson 1980 hercowitz 1983 and koskela and viren 1980 have generally provided cross country evidence supporting luca s variance hypothesis froyen and waud 1980 however presented in addition to cross country evidence limited intracountry evidence for 1 the relationship between the output inflation tradeoff and the variances of the rate of change of nominal income and the price level and 2 the relationship between the variance of the inflation rate and the variance of the rate of change of nominal income they examined these relationships on a cross country basis for each of ten industrialized countries for the 1956 76 period the 1957 66 and 1967 76 subperiods were used to make intracountry comparisons in individual countries their cross country and intracountry results support the hypothesis that the output inflation tradeoff and the variance of the inflation rate are inversely related their evidence however does not suggest that the variance of the rate of change of nominal income is negatively correlated with the tradeoff and positively correlated with the variance of the inflation rate 1 it is assumed in luca s paper and all other cross country studies that the slope of the supply curve gamma and the variance of the specific market price from its economy wide average tau

price dynamics in uk manufacturing a microeconomic view this paper examines the response of prices to cost and demand shocks in seventy five three digit and four digit industries in the united kingdom during the 1980s the results suggest that prices responded sluggishly to costs but virtually not at all to demand the short run response to materials and fuel shocks was much larger than the response to unit labor cost shocks and some of this difference persisted into the long run prices responded more sluggishly to cost and demand shocks when aggregate inflation was lower and finally pricing dynamics were more sluggish in less competitive industries copyright 1992 by the london school of economics and political science

a test of price sluggishness in the simple rational expectations model u k i950 i980 a recurrent feature of the empirical output and price equations derived from simple rational expectations models is that the effects of nominal shocks persist for a long period of time in barro s i977 a unemployment equation unanticipated monetary growth influences unemployment with lags of up to 2 years in his price equation barro i 98 i unanticipated money has a lag of up to 5 years in the price equation fitted to uk data by attfield et al i 98i real money balances influence prices with a one year lag and unanticipated monetary growth influences them with a 2 year lag of course the existence of lags is neither necessary nor sufficient for the negation of the neutrality proposition of rational expectations models lucas i975 sargent 1979 and blinder and fischer i98i have provided rationales for the existence of lags in the supply equation and demonstrated their consistency with the neutrality proposition similarly the work of attfield et al i98i has indicated that lagged adjustments in the demand for money are also consistent with neutrality in both cases the combination of lagged adjustments with perfectly flexible market clearing prices yields all the neutrality propositions of the models of lucas and others however it is also the case that traditional keynesian type models with sluggish price adjustment imply lags in output and price equations the final equations with keynesian type lags may look very similar to the equations derived by lucas barro and others but their implications about the effectiveness of policy may be very different in the model with sluggish price adjustment supply is not equal to demand so some other rule will have to be found to determine employment and output anticipated monetary policy may be able to influence real economic variables if the employment and output rules are not specifically designed to offset the effects of anticipated policy for this reason a strong test of the neutrality proposition should be able to differentiate between different sources of lags and be able to identify them empirically if the test consists merely of a reduced form equation that identifies the lags and a rationalisation of them that is consistent with the neutrality proposition it can provide only weak evidence which may also be consistent

devaluations and income distribution in latin america although the adoption of floating exchange rates by industrial countries may have reduced their foreign trade preoccupations most developing countries ldcs retain some form of fixed rates and have to confront with seemingly increasing frequency the dilemmas raised by large balance of payment deficits in spite of the clamor that arises over the allegedly negative impact on real wages and income distribution of the typical stabilization package of exchange rate devaluation and domestic contraction little rigorous study of the problem has been attempted since diaz alejandro s pathbreaking work of over two decades ago 12 in this article we present a model in which devaluations and domestic contraction2 lower the real wage and worsen the distribution of income and test that hypothesis for nine latin american countries for the theoretical presentation of our argument we construct a pair of aggregate supply curves one modeling labor supply along classical lines the other utilizing what is called the new classical macroeconomics the demand side is composed alternatively of a straightforward function representing changing domestic demand or of formulations of devaluations utilizing either of two markedly different assumptions about what happens to the money supply although these models have different implications about what happens to aggregate output 47 they all agree as to the effects on real wages a brief argument is then presented as to why changes in real wages should determine changes in labor s share of output or the functional distribution of income empirical tests support our hypotheses we also discuss the relation between labor s share and the size distribution of income and the broader question of intersectoral income redistribution due to these demand shifts we end the paper with some concluding remarks on related issues

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

the determinants of us banking activity abroad abstract the banking industry provides an excellent example of the internationalization of world business and economic interdependencies across countries analysis of the past growth of international banking operations can also prove useful to banks interested in augmenting their current business or expanding their international coverage and to banks who anticipated future competition in their markets from new or strengthened foreign competitors this study provides the most comprehensive examination of the development of us bank branches in other countries is presented and tested in order to facilitate the understanding of the expansion of international banking

disinflation credibility and price inertia a danish exposition this paper analyses the disinflationary policy pursued in denmark since october 1982 focusing on the phillips curve trade off and the credibility of this disinflationary policy the overall conclusion confirms no significant indication of the disinflationary policy being credible

unanticipated monetary growth output and the price level u k 1946 1977 abstract this paper develops and estimates using annual data from 1946 1977 a three equation model of the u k economy in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in money supply expectations of monetary growth are assumed to be muth rational the model was estimated using efficient procedures and tests of the over identifying restrictions were generally favourable to model specification some features of the price equation are unsatisfactory and the results in this section must be considered tentative

fdi versus exports evidence from german banks abstract we use a new bank level dataset to study the fdi versus exports decision for german banks we extend the literature on multinational firms in two directions first we simultaneously study fdi and the export of cross border financial services second we test recent theories on multinational firms which show the importance of firm heterogeneity helpman e melitz m j yeaple s r 2004 export versus fdi american economic review 94 1 300 316 our results show that fdi and cross border services are complements rather than substitutes heterogeneity of banks has a significant impact on the internationalization decision more profitable and larger banks are more likely to expand internationally than smaller banks they have more extensive foreign activities and they are more likely to engage in fdi in addition to cross border financial services

unemployment and macroeconomics this paper discusses some issues in the theory of unemployment proposes a framework for the analysis of unemployment and applies the framework to the analysis of the rise in unemployment in britain after 1979 the framework is based on bilateral monopoly in the labor market and the explanation for the rise in unemployment in britain rests primarily with a demand side shock which caused the rise in 1980 81 and supply side persistence which has kept unemployment up since then copyright 1989 by the london school of economics and political science

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

exporting financial institutions management via foreign direct investment mergers and acquisitions we test the relevance of the new trade theory and the traditional theory of comparative advantage for explaining the geographic patterns of international m as of financial institutions between 1985 and 2000 the data provide statistically significant support for both theories we also find evidence that the u s has idiosyncratic comparative advantages at both exporting and importing financial institutions management