third country effects on the exchange rate abstract predictive regressions for bilateral exchange rates are typically run on variables from the associated bilateral pairs of countries these regressions characteristically have low explanatory power which leaves room for an omitted variables interpretation we test whether these omitted variables are from third countries when third country macro factors are added to bilateral exchange rate regressions they enter significantly and increase the adjusted r 2 a three country exchange rate model illustrates potential channels for third country spillovers to affect the bilateral rate

the grocery stores wage distribution a semi parametric analysis of the role of retailing and labor market institutions abstract how and why has the wage distribution in u s grocery stores changed between 1984 and 1994 unlike other industries in this time period the important change in the wage distribution is not risinginequality but that real wages fell across the entire wage distribution changes in labor market institutionsexplain more than half of the change in the wage distribution in grocery stores specifically the decline inthe real value of the minimum wage explains little of the decline in the mean real wage but much of thechange in the shape of the distribution between 1984 and 1994 and 95 percent of the decline at the lowest10th percentile the decline in union coverage in grocery stores and the narrowing of the union nonunionwage gap explain much of the decline above the 25th percentile a third institutional change the use ofpart time employees is not associated with changes in grocery industry wage outcomes one might think that the major changes in operations and technologies that occurred during thisperiod are at least contributing factors but we find quite the contrary if average store size weeklyoperating hours and the use of scanning technology had remained at their lower 1984 levels the real wagedecline would have been even greater than that actually seen and for the entire wage distribution changesin grocery retailing prevented an even greater decline in real wages again unlike many other industries skill biased technological change does not appear important for grocery industry wage outcomes the basis of our analysis is a statistical technique which combines nonparametric kernel densityestimation with a parametric re weighting applied to current population survey data supplemented withsecondary data sources on the grocery industry

new evidence on the monetary approach of exchange rate determination in mexico 1994 2007 a cointegrated svar model abstract we provide empirical evidence supporting the validity of both short and long run versions of the monetary approach of exchange rate determination for the mexican peso u s dollar exchange rate from 1994 to 2007 using a cointegrated svar model we estimate not only the long run relationship between the variables of the monetary model for the exchange rate but also the very short run effects which have been often ignored in previous empirical work we show that there are robust short and long run relationships between the mexican monetary aggregates and the exchange rate which ultimately responds to what bilson s variant of maer predicts

the handbook of international macroeconomics preface 1 introduction rick van der ploeg amsterdam 2 quantity constrained models of open economies neil rankin warwick 3 imperfect competition and open economy macroeconomics huw d dixon york 4 relative price movements in dynamic general equilibrium models of international trade david backus nyu patrick kehoe pennsylvania and finn kydland carnegie mellon 5 international fiscal policy coordination and competition assaf razin and efraim sadka tel aviv 6 capital taxation in the world economy a lans bovenberg tilburg 7 history of the international monetary system implications for research in international macroeconomics and finance barry eichengreen berkeley 8 on inflation unemployment and the optimal exchange rate regime george alogoskoufis athens 9 macroeconomic policy speculative attacks and balance of payments crisis pierre richard agenor and robert p flood imf 10 continuous time models of exchange rates and intervention giuseppe bertola princeton 11 stylized facts of nominal exchange rate returns casper g de vries leuven 12 partial versus general equilibrium models of international capital market equilibrium 13 sovereign debt kenneth kletzer santa cruz 14 growth and external debt daniel cohen cepremap 15 growth and deficits in an interdependent world index

unemployment insurance and male unemployment duration in canada a model of unemployment duration is estimated with weekly micro data on canadian men entitlement provisions in the unemployment insurance program and demand conditions are found to have a significant effect on the probability of leaving unemployment the probability of a worker leaving unemployment declines with the duration of unemployment holding unemployment insurance entitlement constant when entitlement is allowed to vary the probability of leaving first falls and then generally rises with unemployment duration these results are robust with respect to allowing for person specific unobserved heterogeneity and alternative specifications of duration dependence

the impact of the potential duration of unemployment benefits on the duration of unemployment abstract this paper examines the impact of the potential duration of unemployment insurance ui benefits on unemployment in the united states first we use a large sample of household heads to examine differences in the unemployment spell distributions of ui recipients and nonrecipients sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for ui recipients around the time of benefits exhaustion such increases are not apparent at similar points of spell duration for nonrecipients second our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of ui recipients by 0 16 to 0 20 weeks

fundamentals and exchange rate prediction revisited this paper measures latent fundamental exchange rates with independent component based rates constructed from a cross section of exchange rates and then uses their deviations from exchange rates to forecast empirical results indicate that the independent component based model and its taylor rule and purchasing power parity augmented models are superior to the random walk in predicting exchange rates these results are robust to several scenarios and are likely to be observed if the us sources and the recursive scheme are applied our results reveal that information regarding the third moment of exchange rate changes is helpful to explain exchange rate movements

modeling the ecu against the u s dollar a structural monetary interpretation the proposal that a reformed international monetary system be designed around currency blocs has gained some popularity of late in europe the formation of the euro formalizes the existence of a dm based currency block little academic research has been conducted however on the properties of composite currencies such as the euro in this article we examine the properties of the precursor to the euro namely the ecu against the u s dollar using a monetary framework the article has several novel features our modeling strategy involves starting with underlying equilibrium conditions rather than a final reduced form uses divisia money rather than the more conventional simple sum money interprets in an economic sense the long run relationships and produces an appealing forecasting performance

the monetary exchange rate model as a long run phenomenon abstract pure time series based tests fail to find empirical support for monetary exchange rate models in this paper we apply pooled time series estimation on a forward looking monetary model resulting in parameter estimates which are in compliance with the underlying theory based on a panel version of the engle and granger engle r f granger c w j 1987 co integration and error correction representation estimation and testing econometrica 55 251 276 two step procedure we find that the residuals of the panel based estimated monetary model are stationary this indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model

exchange rate predictability the main goal of this article is to provide an answer to the question does anything forecast exchange rates and if so which variables it is well known that exchange rate fluctuations are very difficult to predict using economic models and that a random walk forecasts exchange rates better than any economic model the meese and rogoff puzzle however the recent literature has identified a series of fundamentals methodologies that claim to have resolved the puzzle this article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up to date thorough empirical analysis overall our analysis of the literature and the data suggests that the answer to the question are exchange rates predictable is it depends on the choice of predictor forecast horizon sample period model and forecast evaluation method predictability is most apparent when one or more of the following hold the predictors are taylor rule or net foreign assets the model is linear and a small number of parameters are estimated the toughest benchmark is the random walk without drift

financial amplification of foreign exchange risk premia abstract theories of financial frictions in international capital markets suggest that financial intermediaries balance sheet constraints amplify fundamental shocks we present empirical evidence for such theories by decomposing the u s dollar risk premium into components associated with macroeconomic fundamentals and a component associated with financial intermediary balance sheets relative to the benchmark model with only macroeconomic state variables balance sheets amplify the u s dollar risk premium we discuss applications to financial stability monitoring

constructing historical euro zone data existing methods of reconstructing historical euro zone data by aggregation of the individual countries aggregate data raises numerous difficulties especially due to past exchange rate changes the approach proposed here is designed to avoid such distortions and aggregate exactly when exchange rates are fixed we first compute growth rates within states aggregate these then cumulate this euro zone growth rate to obtain the aggregated levels variables the aggregate of the implicit deflator plice index coincides with the implicit deflator of our aggregate nominal and real data we apply the method to euro zone m3 gdp and prices over the previous two decades 1 background with the introduction on 31 december 1998 of the irrevocably fixed euro exchange rates eleven countries of the european union entered a new monetary union from that date onwards monetary policy for these countries is set by the newly formed european central bank ecb the governing council of the ecb bases its monetary policy on medium term assumptions regarding real gdp growth and the trend decline in the velocity of circulation of m3 ecb 1999a p 40 therefore the construction of historical data for aggregate m3 and gdp for the euro zone is of practical relevance to policy makers in addition any econometric model for euro zone countries requires such historical data this paper describes an approach to doing so from the aggregate data of the individual member states a number of previous reconstructions are noted but as these have important drawbacks an approach related to that in t6rnqvist 1936 is proposed and its properties are discussed although there have been many important contributions to index number theory see section 4 few are directly relevant to the problem confronted here where we wish to use the national aggregates from member states not the individual item data usually input into index calculations to construct a euro zone aggregate moreover the inherently non stationary nature of those national aggregates both from unit roots inducing integrated time series

job search and the duration of layoff unemployment this paper derives an optimal job searching strategy for workers on layoff and an optimal recall policy for firms when each side anticipates the other side s actions correctly it shows that workers search for an alternative job only if the probability of recall falls below a critical level and that firms may recall before the recovery of demand depending on the costs of laying off and hiring workers and the probability of losing workers on layoff through the use of optimal job searching and recall policies the paper derives expressions for the duration of layoff unemployment and discusses briefly their comparative static properties

does the euro follow the german mark evidence from the monetary model of the exchange rate abstract this paper investigates whether german or synthetic european pre emu data provides the appropriate empirical basis for evaluating euro dollar exchange rate behavior monetary exchange rate equations are estimated for both data sets over the pre emu period and out of sample forecasts are evaluated to assess their ability to explain the euro dollar exchange rate from 1999 to 2004 while forecast accuracy tests confirm the usefulness of synthetic european data for euro exchange rate analysis forecasts based on the german pre emu experience cannot even beat a random walk our results indicate that the euro does not simply follow the german mark but that it has its origins in the other pre emu currencies as well

learning to forecast the exchange rate two competing approaches this paper compares two competing approaches to model foreign exchange market participants behavior statistical learning and fitness learning these learning mechanisms are applied to a set of predictors chartist and fundamentalist rules we examine which of the learning approaches is best in terms of replicating the exchange rate dynamics within the framework of a standard asset pricing model we find that both learning methods reveal the fundamental value of the exchange rate in the equilibrium but only fitness learning creates the disconnection phenomenon and only statistical learning replicates volatility clustering none of the mechanisms is able to produce a unit root process but both of them generate non normally distributed returns

banking on currency forecasts how predictable is change in money abstract the paper examines the predictive performance of four structural exchange rate models using both parametric and nonparametric techniques error correction versions of the models are fit so that plausible long run elasticities can be imposed on the fundamental variables of each model a variety of model evaluation statistics are reported our findings confirm that fundamental exchange rate models forecast no better than a random walk model for short term prediction horizons for longer horizons error correction terms can explain exchange rate movements significantly better than a no change forecast for a subset of the models and currencies we consider

the taylor rule and forecast intervals for exchange rates in this paper we examine the meese rogoff puzzle from a different perspective out of sample interval forecasting while most studies in the literature focus on point forecasts we apply semiparametric interval forecasting to a group of exchange rate models forecast intervals for 10 oecd exchange rates are generated and the performance of the empirical exchange rate models are compared with the random walk our contribution is twofold first we find that in general exchange rate models generate tighter forecast intervals than the random walk given that their intervals cover out of sample exchange rate realizations equally well our results suggest a connection between exchange rates and economic fundamentals economic variables contain information useful in forecasting distributions of exchange rates we also find that the benchmark taylor rule model performs better than the monetary ppp and forward premium models and its advantages are more pronounced at longer horizons second the bootstrap inference framework proposed in this paper for forecast interval evaluation can be applied in a broader context such as inflation forecasting

exchange rate predictability and monetary fundamentals in a small multi country panel in this paper a panel of vector error correction models based on a common long run relationship is utilized to test whether the euro exchange rates of canada japan and the united states have a long run link with monetary fundamentals we use both exchange relationships relative to the full emu area with synthetic aggregates for the pre emu period and relative to germany solely compared to existing cointegration frameworks our approach provides more evidence that the aforementioned exchange rates are consistent with a rational expectations based monetary exchange rate model based on a common long run relationship albeit with a long run impact of relative income that is higher than predicted by the theory as a next step we analyze the out of sample fit of this common long run exchange rate model relative to naive random walk based forecasts these forecasting evaluations indicate that the monetary fundamentals based common longrun model is superior to both random walk based forecasts and standard cointegrated var model based forecasts especially at horizons of 2 to 4 years

margins of imports forward looking firms and exchange rate movements abstract this paper presents theory and evidence on firms import responses to current and future exchange rates along both intensive and extensive margins the paper first builds a dynamic heterogeneous firm model to study how firms adjust their import decision by taking into account both current and future exchange rates in the model individual firms pay a fixed sunk cost and face a probability of failure when searching for foreign intermediate suppliers the impact of future exchange rate on import is different from that of current exchange rate spot exchange rate appreciation would increase both the intensive margin import value of individual firm and the extensive margin the number of importing firms while future exchange rate appreciation increases the extensive margin rather than the intensive margin of imports the model predictions are strongly supported by an empirical analysis using disaggregated data on china s imports from the united states and forward rates between us dollar usd and chinese yuan cny on the non deliverable exchange market

taylor rules and exchange rate predictability in emerging economies abstract this study demonstrates the relationship between exchange rate determination and an endogenous monetary policy represented by taylor rules we fill a gap in the literature by focusing on a group of fifteen emerging economies that adopted free floating exchange rates and inflation targeting beginning in the mid 1990s because of the limited span of the time series which is a common obstacle to studying emerging economies we employ panel data regressions to produce more efficient estimates following the recent literature we use a robust set of out of sample statistics incorporating bootstrapped and asymptotic distributions for the diebold mariano statistic the clark and west statistic and theil s u ratio by evaluating different specifications for the taylor rule exchange rate model based on their out of sample performances we find that a present value forward looking specification shows strong evidence of exchange rate predictability

testing for cointegration power versus frequency of observation further monte carlo results abstract this paper studies the effects of increasing the frequency of observation and the data span on the johansen cointegration tests the ability of the tests to detect cointegration depends more on the total sample length than the number of observations

unemployment benefit duration and incentives in britain how robust is the evidence abstract recent years have seen considerable advances in the econometric treatment of micro data in models of unemployment duration this paper examines the evidence from such models concerning the effects of unemployment benefits on incentives to work in britain widely accepted results of a small but significant benefit effect are reproduced using a sample of 1 231 unemployed men however these results are only found when benefit receipt is assumed to follow a hypothetical pattern which is shown to be unrealistic and over generous when more realistic calculations of benefits are used no benefit effect is found the paper also argues that search theory is of little help in determining the choice between competing functional forms and explanatory variables results concerning benefits are shown to be sensitive to the latter