target zones and interest rate variability abstract for narrow exchange rate bands and for reasonable parameter values the interest rate differential s asymptotic unconditional variability is increasing in the width of the exchange rate band whereas for wide exchange rate bands it is slowly decreasing in the exchange rate band the interest rate differential s instantaneous conditional variability is decreasing in the width of the exchange rate band a narrow target zone differs from a completely fixed exchange rate regime in that the interest rate differential s instantaneous standard deviation is high and even increases when the zone narrows

effects of packers inventory and market power on price adjustments in the u s beef industry this study examines effects of packers inventory and market power on their price adjustment behaviour in the u s beef industry econometric model used in the study allows inventory and market pow

exchange rate target zones a survey of the literature this work selectively reviews the literature on exchange rate target zones and their theoretical and empirical methodologies and examines whether they can be used to clarify to what extent this type of exchange rate regime could contribute to greater exchange rate stability we discuss the main contributions of the first and second generations of exchange rate target zone models in an attempt to reconcile the poor empirical performance of the krugman model with the reality of exchange rate target zone regimes this line of research integrates target zones with alternative underlying economic models such as imperfect credibility intra marginal interventions and sticky price models it was thus possible to understand the correlations observed between the exchange rate its fundamentals determinants and the interest rate differential and to explain the fact that the statistical distribution of the exchange rate is hump shaped rather than u shaped this implies that the initial emphasis of target zone models on nonlinearities honeymoon effect smooth pasting and marginal interventions has vanished exchange rate target zones are better described as similar to managed floating regimes with intra marginal interventions with some marginal interventions when the exchange rate reaches the edges of the floating band

currency substitution and exchange rate volatility in the european community abstract some proponents of a european monetary union worry that capital mobility and currency substitution will result in unmanageable exchange rate volatility during the transition to monetary union in this paper we analyze stylized models of exchange rate fluctuation in response to monetary disturbances we find that if monetary policies within the community are convergent higher currency substitution either reduces or does not significantly change the volatility of exchange rates unless there are anticipations of a final realignment

realignment risk and currency option pricing in target zones abstract this paper extends the krugman target zone model by including a realignment mechanism various properties of that realignment mechanism are discussed the movement of the exchange rate is governed both by a wiener process on fundamental and by a poisson jump process with endogenous realignment size the realignment mechanism is such that except in cases where a speculative attack occurs no jump in fundamental is needed to accompany the jump in the exchange rate a risk neutral valuation of currency options is constructed some properties of option values under realignment risk are illustrated by numerical results

are poor people credit constrained or myopic evidence from a south african panel credit constraints are an almost ubiquitous assumption in development economics yet direct evidence for credit constraints is limited and many observations consistent with credit constraints are equally compatible with myopic non forward looking consumption or precautionary saving using household panel data and a source of widely anticipated income in south africa this paper tests and rejects the standard consumption model with perfect capital markets then myopic consumption and precautionary saving are tested as alternative explanations for the observed jumps in expenditure the standard model with credit constraints cannot be rejected in favour of myopic consumption or precautionary saving

learning about intervention target zones abstract this paper provides a framework for evaluating how market participants beliefs about foreign exchange target zones change as they learn about central bank intervention policy we generalize the standard target zone model to allow for intra marginal intervention intra marginal intervention implies that market participants beliefs about the target zone can be determined from their beliefs about the likelihood of intervention we then estimate a daily probability of intervention model for the period following the louvre accord we find that the market s views of intervention target zones would have varied quite a bit over time even over this relatively stable period

target zones and exchange rates an empirical investigation this paper develops an empirical model of exchange rates in a target zone the distribution of exchange rate changes is conditioned on a latent jump variable where the probability and size of a jump vary over time as a function of financial and macroeconomic variables when there is no jump the target zone is credible and exchange rate changes are constrained to remain within the target zone band the paper revisits the empirical evidence from the european monetary system regarding the conditional distribution of exchange rate changes the credibility of the system and the size of the foreign exchange risk premia in contrast to some previous findings we conclude that the french franc deutschmark rate exhibits considerable nonlinearities realignments are somewhat predictable and the credibility of the system did not increase substantially after 1987 moreover our model implies that the foreign exchange risk premium becomes large during speculative crises

consumer response to the timing of income evidence from a change in tax withholding in 1992 the income tax withholding tables were adjusted so that withholding was reduced a typical worker received an extra 28 80 in take home pay per month in march through december 1992 to be offset by a lower tax refund in 1993 the change in withholding amounted to 0 5 percent of gdp president bush who proposed this change in his state of the union address intended that it provide a temporary stimulus to demand but the policy change involved only the timing of income so under the life cycle permanent income model it would be predicted to have a negligible effect on consumption and aggregate demand this paper reports consumers responses to the change in withholding the results are based on a survey taken shortly after it went into effect forty three percent of consumers report spending the extra take home pay substantially more than the zero percent predicted by the standard models but substantially less than the one hundred percent upon which the policy was predicated the decision to save the income is not explained by expected income growth therefore while behavior of many households is not fully consistent with the life cycle permanent income model liquidity constraints do not appear to account for this behavior this abstract was borrowed from another version of this item

speculative currency attacks with endogenously induced commercial bank crises abstract to date all models of exchange rate crises ignore the existence of a commercial banking sector however if deposit money internal drain is used to purchase foreign exchange external drain then an external drain may give rise to a banking crisis the paper illustrates how an internal drain alters the dynamics of a speculative attack when it results in a cash payments restriction by interrupting the external drain such a restriction postpones devaluation and reduces the size of the initial devaluation the us internal and external drains of 1893 are discussed to provide motivation and support for the model

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

on the mean reverting properties of target zone exchange rates a cautionary note abstract we estimate a franc mark target zone model and find a very limited honeymoon effect monte carlo experiments calibrated with the estimates caution against the use of standard linear tests for non mean reversion as indirect tests of the target zone model

a nonlinear approach to us gnp a univariate nonlinear model is estimated for us gnp that on many criteria outperforms standard linear models the estimated model is of the threshold autoregressive type and contains evidence of asymmetric effects of shocks over the business cycle in particular the nonlinear model suggests that the post 1945 us economy is significantly more stable than the pre 1945 us economy

work organization employment security and macroeconomic stability abstract there is substantial evidence that both training and worker participation in decision making are more effective when employers avoid layoffs when one company s choice to avoid layoffs affects the relative costs of layoffs for other firms there is an externality and multiple equilibria are possible if all firms lay off workers in recessions then recessions will be deeper deep recessions in turn raise the costs of firms that have high levels of training participation and employment security on the other hand if all firms have no layoff policies then recessions will be shallower lowering the costs of such policies in three data sets training and participation are more common in companies with high levels of job security

reading a target zone in keynes s indian currency and finance the gold exchange standard in india 1893 1913 was characterized by a narrow target zone for the exchange rate a wide annual range for the international interest rate differential and negative seasonal autocorrelation in interest rates these properties are consistent with a standard target zone model in which fundamentals are negatively autocorrelated on a markov chain

the response of expenditures to anticipated income changes panel data estimates standard models of intertemporal allocation predict that the time path of expenditures should be independent of the time path of income recently two papers parker 1999 and souleles 1999 have suggested that u s households have a high marginal propensity to spend within year anticipated income changes we use an expenditure survey panel from spain to re examine this issue we exploit two important features of the spanish data first we have quarterly panel data that follows households for more than four quarters second we use the fact that workers are exogenously sorted into one of two payment schemes some receive the same amount each month of the year and others receive an extra payment in june and december the extra payment is large and predictable we examine the detailed pattern of expenditures over the year to see whether they differ between the two groups we fail to find even weak differences we complement this with a conventional euler equation analysis of excess sensitivity our predicting equation for quarterly earnings growth is much better than usual and is likely to give a powerful test of the hypothesis that predictable changes in income do not lead to changes in expenditure patterns the results of this analysis confirm the graphical analysis we find no evidence of excess sensitivity we conclude that households in normal times do smooth consumption over the year we suggest a reconciliation of our results with those of parker and souleles

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

optimal central bank intervention in the foreign exchange market abstract we consider a currency with exchange rate dynamics modeled as a geometric brownian motion the objective of the central bank is to keep this exchange rate as close as possible to a given target so there is a running cost associated to the difference between the exchange rate and the target additionally there are also fixed and proportional costs associated with each intervention the objective of this paper is to find the optimal level of intervention and the optimal sizes of the interventions so as to minimize the total cost we solve this problem by applying the theory of stochastic impulse controls journal of economic literature classification numbers c61 d81 f31 g15

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

tests for unit root versus threshold specification with an application to the purchasing power parity relationship we consider modeling the real exchange rate by a stationary three regime self exciting threshold autoregressive setar model with possibly a unit root in the middle regime this representation is consistent with purchasing power parity in the presence of trading costs our main contribution is to provide statistical tools for testing unit root versus a setar first we show that a setar with a unit root in the middle regime is stationary and mixing under reasonable assumptions second we derive analytically the asymptotic distribution of our unit root test under the null using monthly real exchange rate data our test rejects the null of unit root against a threshold process for five european series

are consumers forward looking evidence from fiscal experiments how changes in current and future income affect consumer spending is a perennial question in macroeconomics and public finance theoretical constructs such as the permanent income hypothesis are of limited assistance in resolving this issue because they neglect borrowing constraints and other market imperfections that can significantly affect the marginal propensity to spend out of current income recent empirical work has also proven inconclusive since whether consumption responds to income fluctuations by more or less than the permanent income hypothesis predicts turns critically upon whether disposable income follows a random walk or is stationary around a longrun trend see john campbell and angus deaton 1987 this controversy is unlikely to be resolved conclusively because it is notoriously difficult to distinguish a stationary but highly persistent time series from one that is nonstationary these difficulties suggest the importance of searching for natural experiments income shocks with predictable and well understood effects on future income to test models of consumer behavior changes in federal tax and transfer policy during the last two decades provide several episodes of this type analyzing the effects of these tax changes is also central to understanding the role of fiscal policy in affecting national saving this paper examines two aspects of consumer response to tax changes section i argues that consumption responds to temporary income tax shocks by more than the permanent income hypothesis would suggest results from the 1975 tax rebate in particular suggest that a 1 increase in transitory income raises spending by about 20 cents section ii examines consumption responses to tax announcements although the results are not conclusive they suggest that some consumers do not adjust consumption in anticipation of tax changes the final section sketches some implications for analyzing fiscal policy

the linkage between speculative attack and target zone models of exchange rates in this paper we generalize the target zone exchange rate as model formalized by krugman 1988b to include finite sized interventions in defense of the zone the main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting condition usually invoked as a terminal condition this abstract was borrowed from another version of this item

price barriers in the dow jones industrial average this study tests the popular claim that the djia s movements around key reference points affect investor sentiment and thus price behavior it is found that the djia s rise and fall is indeed restrained by support and resistance levels at multiples of 100 e g 2800 2900 3000 etc but that having broken through a 100 level the djia then moves by more than otherwise warranted a monte carlo study and comparisons with other indices confirm the significance of these findings this suggests that some agents may trade on the basis of the djia but does not necessarily suggest that the market is inefficient

consumption and habits evidence from panel data the purpose of this paper is to test for the presence of habit formation in consumption decisions using household panel data we use the test proposed by meghir and weber 1996 and estimate the within period marginal rate of substitution between commodities which is robust to the presence of liquidity constraints to that end we use a spanish panel data set in which households are observed up to eight consecutive quarters this temporal dimension is crucial since it allows us to take into account time invariant unobserved heterogeneity across households fixed effects and therefore to investigate if the relationship between current and past consumption reflects habits or heterogeneity our results confirm the importance of accounting for fixed effects when analyzing intertemporal consumption decisions allowing for time non separabilities once fixed effects are controlled for and a proper set of instruments is used the results yield supporting evidence of habit formation in the demand system of food at home transport and services

3rd of tha month do social security recipients smooth consumption between checks this paper examines the response of consumption expenditures to the monthly receipt of social security checks since the amount and arrival date of these checks are known to the recipients the basic life cycle permanent income hypothesis lcpih predicts that consumption should not respond to the receipt of these checks using daily diary data from the consumer expenditure survey this paper finds evidence that both the dollar amount and probability of expenditures increase immediately following the receipt of this check most relevant to testing the lcpih categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date the response is found primarily amongst households for whom social security is the primary source of income however the magnitude of the estimated responses are relatively small and do not suggest that the utility losses are large from this non smoothing behavior this abstract was borrowed from another version of this item

price transmission and asymmetric adjustment in the u s beef sector the u s livestock sector has experienced numerous structural changes in recent years for example the meatpacking industry has experienced many mergers and acquisitions leading to significant increases in industry concentration in particular the four firm concentration ratio for steer and heifer slaughter a frequently cited statistic and an important indicator of industry concentration increased from 35 7 in 1980 to 79 8 in 1997 usda there have also been significant regional shifts in livestock production and changes in marketing practices with decreased use of public markets in many areas for some products traditional auction markets have been largely replaced by contract production and sales cattle inventories have also trended downward over the last two decades this has been accompanied by decreases in the number of producers and in some cases with significant increases in the scale of operations the vertical transmission of shocks among various levels of the market is an important characteristic describing the overall operation of the market of course price is the primary mechanism by which various levels of the market are linked the extent of adjustment and speed with which shocks are transmitted among producer wholesale and retail market prices is an important factor reflecting the actions of market participants at alternative market levels the nature speed and extent of adjustments to market shocks may also have important implications for marketing margins spreads and mark up pricing practices an extensive literature has examined mar

oil price mean reversion and zone readjustments observing opec s short term price output ceiling behavior during the late 1980s and 1990s one can conclude that it attempts to stabilize the market price within a range of its announced target price by controlling the output ceiling if the price moves within four to five dollars below the target price it usually reduces the output ceiling and assigns new quotas to its member countries to keep the price close to the target price in reality opec established a band for the market price positioned round the target price by basically choosing suitable upper and lower limits for the output or at least in soft markets it places tolerance zone below the target price in order to restrict the discrepancy between the market price and the target price the lower limit is particularly needed because it sets a price floor and ensures that the market price stays above the significantly lower marginal cost of oil production if the limits of these zones are backed by a perfectly credible intervention policy they can generate an expectations process that should turn the market prices around even before any intervention takes place while opec in some sense observes the target zones for its prices thosemore zones are neither well defined nor vigorously defended it can not always or may not be willing to maintain the price within the limits of the desired zone by cutting the output ceiling it must sometimes readjust the target price and output ceiling and thus create a new target zone to reflect the market s new fundamentals this is particularly true now because opec is losing market share to the other oil producers and is contemplating to shift the current band actual readjustments in the target price can be so large as in 1980 and 1985 that the newmarket price must jump as well they can occur when both the market price is near the limits of the band as well as when it is inside the band but still further away from those limits less

playing with the band dynamic effects of target zones in an open economy this paper applies techniques of regulated brownian motion to a model of a small open economy to investigate how bands on fundamental driving variables affect the realization of the nominal exchange rate the real exchange rate prices and output the author shows that these bands mitigate the relationship between exogenous fundamentals and endogenous variables through their effects on expectations he also considers the effects of changing the width of the band and finds greater stabilization of endogenous variables with more narrow bands on exogenous fundamentals copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

social security benefits consumption expenditure and the life cycle hypothesis this paper examines the impact of changes in social security benefits on aggregate consumption expenditure under the null hypothesis there should be no contemporaneous effect at the monthly frequency because increases in benefits have always been announced at least 6 weeks prior to payment the paper develops overwhelming evidence contrary to the null that benefits have affected aggregate spending the results have strong implications for several important issues including ricardian equivalence government policy irrelevance and the excess sensitivity of consumption to changes in income

did japan s shopping coupon program increase spending abstract in march 1999 31 million shopping coupons worth 20 000 yen each were distributed to japanese families with children and to the elderly the coupons expired after six months and could only be used within the recipient s local community we use variation in the number of children across families and in the number of recipients across prefectures to measure the effect of the coupons on spending we find that coupons had a positive effect on spending on semi durables but no effect on spending on nondurables or services the marginal propensity to consume on semi durables was 0 1 0 2 when the coupons were distributed in march the results using regional variation provide stronger evidence that spending did not fall after the coupons had been redeemed

paycheque receipt and the timing of consumption this article examines the consumption response to monthly paycheque receipt since the amount and arrival date of paycheques are known in advance the receipt of a paycheque does not coincide with the receipt of new information under the basic rational expectations life cycle permanent income hypothesis household consumption should not respond to paycheque arrival using data from the uk s family expenditure survey this article finds that household consumption is excessively sensitive to paycheque receipt the results cannot be explained by any underlying monthly expenditure fluctuations common to all households the presence of liquidity constraints as measured by wealth and age can account for the excess sensitivity results

monetary contracting between central banks and the design of sustainable exchange rate zones abstract an exchange rate system is a contract which commits central banks to intervene in the foreign exchange market the design features of the system include the rules of intervention the limits placed on exchange rates and the crisis scenario describing possible transitions to new regimes this paper considers the various trade offs one faces in designing an exchange rate system one of these pertains to the amount of reserves which the central banks must have on hand in order to forestall a speculative attack and make the system sustainable the amount of reserves needed depends crucially on the assumed crisis scenario

exchange rates under ems target zones an econometric investigation this study tests krugman s model on exchange rate target zones using four old ems exchange rates those of the currencies of belgium france italy and the netherlands against the deutsche mark vast theoretical literature is available but there are very few empirical studies testing the main results of krugman s model namely the honeymoon effect smooth pasting and the overall s curved relationship between fundamental and exchange rate the present study supports the honeymoon effect but does not find any evidence in support of smooth pasting or of an s curved relationship between the exchange rate and fundamentals for the belgian franc french franc and italian lira against the deutsche mark the dutch guilder very closely follows movements in the german mark throughout the period 1981 90 end of month exchange rates and euro currency interest rates data are used

econometric models of asymmetric price transmission abstract in this paper we review the existing empirical literature on price asymmetries in commodities providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models type of asymmetries and empirical findings relative to the previous literature this paper is novel in several respects first it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices second this paper presents an extension of the traditional distinction between long run and short run asymmetries to new categories of asymmetries such as contemporaneous impact distributed lag effect cumulated impact reaction time equilibrium and momentum equilibrium adjustment path regime effect regime equilibrium adjustment path each empirical study is then critically discussed in the light of this new classification of asymmetries third this paper evaluates the relative merits of the most popular econometric models for price asymmetries namely autoregressive distributed lags partial adjustments error correction models regime switching and vector autoregressive models finally we use the meta regression analysis to investigate whether the results of asymmetry tests are not model invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment the main results of our survey can be summarized as follows i each econometric model is specialized to capture a subset of asymmetries ii each asymmetry is better investigated by a subset of econometric models iii the general significance of the f test for asymmetric price transmission depends mainly on characteristics of the data dynamic specification of the econometric model and market characteristics overall our empirical findings confirm that asymmetry in all its forms is very likely to occur in a wide range of markets and econometric models

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

target zone models with price inertia solutions and testable implications many recent papers suggest that the basic flex price target zone model does not perform well empirically this paper investigates the testable implications of a sticky price target zone model and finds that to a limited extent it has a better empirical performance than the simplest flex price model however in terms of nominal variables the sticky price model is found to be observationally equivalent to the flex price model when the latter is extended to include intramarginal intervention and realignments copyright 1994 by royal economic society

further evidence of excess sensitivity of consumption nonseparability among goods and heterogeneity across households the standard theoretical framework for analysing households intertemporal decisions is the life cycle permanent income model among its implications testing the model allows to analyse the response of consumption to fiscal policy however the empirical literature with microdata has yielded mixed results this article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households for that purpose we test a rational expectations permanent income model with household data drawn from the spanish family expenditure survey this survey contains detailed information on total expenditure and the income presents large exogenous quarterly changes due to an institutional feature the article shows that assuming separability among commodities biases the test against the model when separability is not imposed we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not for those

target zones for exchange rates and policy changes abstract we extend a target zone model to allow for occasional changes in the stochastic process driving fundamentals a key implication is that seeming speculative attacks may be triggered by market perceptions that macroeconomic policy has switched say from tight to loose this fundamental based explanation for large exchange rate changes accompanied by no discernible contemporaneous change in the fundamental is an alternative to theories based on self fulfilling expectations without relying on intra marginal intervention this model is better able to reproduce empirical exchange rate distributions with more mass at the center and less at the edges of the band

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

an empirical investigation of the determinants of asymmetric pricing abstract this article empirically investigates the cause of asymmetric pricing retail prices responding faster to cost increases than decreases using daily price data for over 11 000 retail gasoline stations i find that prices fall more slowly than they rise as a consequence of firms extracting informational rents from consumers with positive search costs premium gasoline prices are shown to fall more slowly than regular fuel prices which supports theories based upon competition with consumer search further testing also rejects focal price collusion as an important determinant of asymmetric pricing

does consumption respond to predicted increases in cash hand availability evidence from the italian severance pay abstract we examine whether italian household consumption exhibits excess sensitivity to severance pay a sizable lump sum that workers receive at job termination we find no evidence of excess sensitivity of non durable expenditure to this anticipated cash in hand change

the sensitivity of tests of the intertemporal allocation of consumption to near rational alternatives suppose a consumer sets consumption equal to income each period rather than following the optimal permanent income decision rule how much utility does he lose this paper finds that the answer is typically less than 10 cents 1 per quarter in environments specified by popular tests on aggregate data it includes calculations of the costs of excess sensitivity and excess smoothness to income and interest rate changes and the costs of ignoring information it concludes that the theory does not make predictions for aggregate tests that are robust to small costs such as information or transactions copyright 1989 by american economic association

target zones and forward rates in a model with repeated realignments abstract this paper studies the term structure of forward premia in a target zone with imperfect credibility the relationship between spot and forward exchange rates which reflects the possibility of realignments of the band is studied for various intervention policies with different degrees of credibility forward market data is used to estimate the implied credibility of the french german target zone during the ems parameter estimates accord with the experience of the ff dm exchange rate during the 1980s although spot exchange rates display little sensitivity to anticipated intervention forward data can be used to detect the effects of intervention on exchange rate dynamics

consume now or later time inconsistency collective choice and revealed preference this paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit an empirical application to household level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level for our particular short panel data set simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98 4 of the sample to be rationalised by a model that assumes exponential discounting at the individual level we also find that couples characterized by lower divergence in spousal discount rates are older more likely to have children and wealthier which we take as indications of experiencing higher match quality

random perturbations of deterministic equilibria abstract this paper examines whether a small random deviation from a non random policy process will destabilize the equilibrium exchange rate the results focus on exchange rate dynamics when the government maintains a target zone or makes unanticipated deviations from a policy rule with rational expectations small random shocks do not create large deviations from the policy rule exchange rate if agents are approximately rational large deviations between exchange rates are possible

analysis of exchange rate target zones using a limited dependent rational expectations model with jumps this article examines the exchange rate determination in a target zone regime when the bounds can be fixed for an extended period but are subject to occasional jumps in this case the behavior of the endogenous variable is affected by the agents expectations about both the occurrence and the size of the jump empirical results using data for the franc mark exchange rate provide support for the nonlinear model with time varying realignment probability and indicate that the agents correctly anticipated most of the observed changes in the central parity

the term structure of interest rate differentials in a target zone theory and swedish data abstract the term structure of interest rate differentials is derived in a model of a small open economy with a target zone exchange rate regime for given time to maturity the interest rate differential is decreasing in the exchange rate and for given exchange rate the interest rate differential s absolute value and its instantaneous variability are both decreasing in the time to maturity devaluation realignment risks are incorporated and imply upward shifts of the interest rate differentials several implications of the theory are found to be broadly consistent with data on swedish exchange rates and interest differentials for the period 1986 1989

intramarginal intervention in the ems and the target zone model of exchange rate behavior abstract exchange rate data produced by the european monetary system ems contradict important predictions made by the standard target zone model we show that the contradictions reflect a misinterpretation of policies pursued by the ems countries they intervened intramarginally to keep exchange rates will within their bands not at the edges of the bands to keep rates from crossing them in the basle nyborg agreement of 1987 however they agreed to make fuller use of the band and exchange rates behave differently thereafter the effect appears clearly in the behavior of the french franc and less decisively in the behavior of the italian lira we conclude by examining and rejecting other explanations for the observed difference in exchange rate behavior

competitive runs the case of a ceiling on aggregate investment abstract decentralized investment decision in markets with limits on aggregate investment give rise to endogenous and repeated runs sudden switches of asset holdings by large groups of small agents this paper studies a model of recurrent runs in a competitive market with stochastic returns and adjustment costs the properties of the model are discussed using examples from models of investment in exhaustible resources of capital controls of runs on banks limited reserves

spatial market integration in the presence of threshold effects a large body of research has evaluated price linkages in spatially separate markets much recent research has applied models appropriate for nonstationary data such analyses have been criticized for their ignorance of transactions costs which may inhibit price adjustments and thus affect tests of integration this analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs we evaluate daily price linkages among four corn and four soybean markets in north carolina nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks our results confirm the presence of thresholds and indicate strong support for market integration though adjustments following shocks may take many days to be complete in every case the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored a large amount of empirical research has evaluated the extent to which spatially separate markets are integrated though the term is used loosely in the literature tests of market integration usually consider the extent to which shocks are transmitted among spatially separate markets the integration of markets can have important implications for price discovery and the operation of the market since persistent deviations from integration may imply riskless profit opportunities for spatial traders

the foreign exchange risk premium in a target zone with devaluation risk abstract the foreign exchange risk premium in an exchange rate target zone is derived when the exchange rate is heteroskedastic within the band and there is a separate devaluation risk the risk premium is then the sum of two separate risk premia arising from uncertainty about exchange rate movements within the band and from uncertainty about devaluations both real and nominal risk premia are considered real and nominal risk premia from movements within the band are very small real and nominal risk premia from devaluations are larger but still relatively small proportions of the interest rate differential

retail price responses to changes in wholesale prices in the us beef industry differences among quality grades and primal cuts abstractthis study examines the transmission of wholesale prices to retail prices for differentiated beef products specifically we study vertical price movement for products differentiated by quality grades and primal cuts in the us beef industry our study considers two quality grades united states department of agriculture usda choice and usda select and three primal cuts chuck round and sirloin using threshold based autoregressive and error correction models and non linear impulse response functions we explore if characteristics of price adjustment differ by quality attributes of the products results show that there exists the rocket and feather effect in the adjustment of retail prices of most beef grades and cuts in response to changes in wholesale prices and such asymmetric adjustment effect is more pronounced for higher quality grade choice than lower quality grade select evidence of similar price adjustment is found from the high quality cut sirloin our results underscore th