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

testing the stationarity of interest rates using a sur approach abstract using data on average yields to maturity of german bonds with different time to maturity it is shown that the time series contain a unit root if the standard augmented dickey fuller test is applied separately to each series to improve the power of the test we carried out a recently developed approach estimating the regressions for each time to maturity jointly using a seemingly unrelated regressions approach

promotion of the agricultural sector and political power in austria in most industrialized countries farmers as a small and well orgnized group are ableto influence government decisions to get rent creating proposals enacted two different viewsare presented to explain why the chicagoan view efficient redistribution hypothesis and the virginian view inefficient outcome of political bargaining a vertically structuredempirical model of the austrian farm sector is employed to test both hypotheses quantitativeresults of the welfare transfers from consumers taxpayers to farmers and agribusiness firmsare derived and the political weights of these groups are presented

forecasting real exchange rates abstract considerable evidence supports the view that real exchange rates do not have unit roots but rather show mean reversion this is the first paper to present systematic results on if and how this mean reversion is useful for forecasting real rates longer time horizons improve the performance of the estimated forecast models relative to the benchmark driftless random walks longer estimation periods particularly improve performance relative to the benchmark the forecasting ability in simple statistical models seems genuine but the models resolve only a small part of the uncertainty regarding the revolution of real exchange rates

economic development institutional change and the political economy of agricultural protection an econometric study of belgium since the 19th century this empirical study uses 100 years of annual data on 11 agricultural commodities from belgium to measure the impact of structural changes coinciding with economic development and changes in political institutions on agricultural protection the analysis shows that changes in agricultural protection are caused by a combination of factors governments have increased protection and support to farmers when world market prices for their commodities fell and vice versa offsetting market effects on producer incomes other economic determinants were the share of the commodities in total consumer expenditures negative effect and in total output of the economy positive effect with belgium a small economy there was no impact of the trade position changes in political institutions have affected agricultural protection democratic reforms which induced a significant shift in the political balance towards agricultural interests such as the introduction of the one man one vote system led to an increase in agricultural protection the integration of belgian agricultural policies in the common agricultural policy in 1968 coincided with an increase in protection ceteris paribus both institutional factors related to changes in access to and information about the decision making at the eu level and structural changes in the agricultural and food economy may explain this effect

mean variance portfolio selection of cointegrated assets abstract this paper considers the continuous time mean variance portfolio selection problem in a financial market in which asset prices are cointegrated the asset price dynamics are then postulated as the diffusion limit of the corresponding discrete time error correction model of cointegrated time series the problem is completely solved in the sense that solutions of the continuous time portfolio policy and the efficient frontier are obtained as explicit and closed form formulas the analytical results are applied to pairs trading using cointegration techniques numerical examples show that identifying a cointegrated pair with a high mean reversion rate can generate significant statistical arbitrage profits once the current state of the economy sufficiently departs from the long term equilibrium we propose an index to simultaneously measure the departure level of a cointegrated pair from equilibrium and the mean reversion speed based on the mean variance paradigm an empirical example is given to illustrate the use of the theory in practice

unit roots and purchasing power parity another kick at the can lopez et al 2005 demonstrated that single equation unit root tests cannot provide conclusive evidence of whether real exchange rates are stationary because inference depends critically on the lag lengths used to construct the test statistics a result reinforced by a recent work by sweeney 2006 the purpose of this article is to revisit the issue first demonstrating the necessary conditions under which this approach of testing for purchasing power parity ppp is appropriate

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

some neglected social costs of government spending in farm programs economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending recent literature suggests that the marginal opportunity cost of a dollar of u s federal government spending is more likely to be in the range of 1 20 to 1 50 this implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates in addition the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending

institutional forces and organizational culture in china effects on change schemas firm commitment and job satisfaction this paper examines the effects of institutional forces on change schemas of senior managers mid level managers and front line workers of different types of firms in china we postulate that several socio economic forces including regional economic prosperity firm type state owned and foreign invested within firm ranks and organizational cultures are at work the cognitive differences among people in local and foreign firms operating in similar contexts are examined through a survey of 3 960 managers and workers we test hypotheses that relate various institutional forces on how individuals perceive evaluate and infer future changes that challenge them we also examine the effects of individual change schema on firm commitment and job satisfaction two indicators that may mediate future changes in these firms

mean reversion in g 10 nominal exchange rates according to conventional wisdom industrial country floating exchange rates contain unit roots sur tests on panels of monthly group of ten g 10 log nominal rates reject the null of unit roots for various samples over the current float with significance levels from 0 5 to 15 on average in out of sample forecasts mean reversion models beat random walks significantly in some forecast periods for monthly data the range of expected usd dem appreciation rates exceeds 15 per year in the mean reversion model mean reversion places strong restrictions on international models over the sample period the g 10 had to run monetary policies consistent with stable long run nominal rates

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

real and nominal exchange rates in the long run an empirical investigation abstract this paper reports on econometric tests of the hypothesis that purchasing power parity holds as a long run relationship using data on eight industrialized countries during the flexible exchange rate period the empirical work proceeds by i testing whether nominal exchange rates and relative price levels are co integrated and ii conducting impulse response analysis of long run exchange rate and relative price level changes to explain the data keynesian models suggest that shocks during the estimation period were due principally to exogenous shifts in aggregate demand while equilibrium models suggest that monetary factors have been relatively more important

glocal understandings female readers perceptions of the new woman in chinese advertising research in international advertising has often taken a dichotomized approach as exemplified by the global standardization vs localization debate it is assumed under the standardization approach that the globalization process will absorb different national cultures into a global commercial culture such that standardized advertising should be preferred the current research argues that the dichotomization approach may have oversimplified the way consumers read and interpret ad images we postulate that consumers in a transitional economy apply a variety of reading approaches including different cultural interpretive strategies and self referencing to absorb global images into their cultural and consumption schemas this is commonly referred to as glocalization we developed a typology of modern women images in chinese magazine advertising potential interpretive strategies and self referencing responses in this research results of a content analysis and a reader response study support our postulations implications are discussed

mean reversion in interest rates new evidence from a panel of oecd countries previous studies show that the standard univariate unit root tests cannot reject the hypothesis that interest rates follow integrated processes in this paper the authors pool interest rate data of twelve oecd countries and implement a multivariate test it is found that the unit root hypothesis can be decisively rejected copyright 1996 by ohio state university press

real exchange rate adjustment in european transition countries abstract in single equation tests real exchange rates show mean reversion for nine of 10 central and eastern european transition countries for the period january 1993 to december 2005 because of the shift from controlled to market economies and accompanying crises failed policy regimes and changes in exchange rate regimes unit root tests for transition countries often require allowance for structural changes accounting for structural breaks gives substantially faster mean reversion speeds than those found for major industrialized countries these fast adjustment speeds are plausible transition countries had perhaps 10 years to make unprecedented adjustments required for accession to the european union a number of papers have applied non linear models to the central and eastern european countries this paper investigates four non linear models and compares them with piece wise linear break models the break models appear superior in detecting mean reversion for the central and eastern european transition countries

objectives and constraints of government policy the countercyclicity of transfers to agriculture estimates of government transfers to typical u s corn wheat and cotton farms are regressed on estimates of market derived farm income to show that u s farmers receive greater government transfers when they face relatively unfavorable market conditions this transfer countercyclicity is shown to be unrelated to potential deadweight losses constraining government transfers it is argued that prevailing political economy models have difficulty explaining transfer countercyclicity because they focus on political agents constraints to the neglect of political agents objectives

persistent underinvestment in public agricultural research abstract it is often argued that public support of agricultural research is inadequate however the empirical papers that support this hypothesis rarely reflect formal behavioral theory capable of explaining this phenomenon this paper presents a theory that explains underfunding namely that funding agencies respond too slowly to secular changes in the value of research a model of farmer and funding agency behavior is presented and shown to imply that actual research funding will be consistently smaller than optimal funding the assumptions and results of the model are explained in terms of the institutional literature on public agricultural research agencies

option pricing with mean reversion and stochastic volatility many underlying assets of option contracts such as currencies commodities energy temperature and even some stocks exhibit both mean reversion and stochastic volatility this paper investigates the valuation of options when the underlying asset follows a mean reverting lognormal process with stochastic volatility a closed form solution is derived for european options by means of fourier transform the proposed model allows the option pricing formula to capture both the term structure of futures prices and the market implied volatility smile within a unified framework a bivariate trinomial lattice approach is introduced to value path dependent options with the proposed model numerical examples using european options american options and barrier options demonstrate the use of the model and the quality of the numerical scheme

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

causes of u s farm commodity programs this paper i s an attempt to explain variations by commodity in producer protection afforded by farm price support programs since the1930s particularly emphasized are theideas that these programs are essentially income redistributional measures and that given political forces the programs are attempts to redistribute efficiently variables associated with the cost to producers of generating political pressure and the social cost deadweight losses of redistribution are both found to be empirically important copyright 1987 by university of chicago press

increasing evidence of purchasing power parity over the current float we conduct unit root tests of real exchange rates with the united states dollar and the german mark as base currencies using samples of data which begin in 1973 and end between 1982 and 1996 we find that as the sample is extended the evidence of ppp strengthens with panel but not univariate methods because of the sharp rise and fall of the dollar in the early 1980s rejections of the unit root null do not monotonically increase with the sample size the evidence of ppp is uniformly stronger when the mark is used as the base currency

the effects of social capital and organizational innovativeness in different institutional contexts this paper examines how social capital and organizational innovativeness influence business performance through their separate indirect or interactive effects and how these effects differ across the institutional contexts of a transition economy and a market economy in line with institutional theory our findings show that the effects of social capital are more extensive and probably more malignant in a transition economy than in a market economy furthermore different types of organizational innovativeness as corporate culture can be cultivated by different forms of social capital in different institutional contexts the implications for institutional theory and social capital theory and the managerial implications are discussed

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

testing for absolute purchasing power parity abstract purchasing power parity ppp is an equilibrium condition equating the nominal exchange rate between two countries with the relative price of an identical bundle of goods in each country previous time series researchers use price indices to study ppp so they test relative ppp we use new data that measures price levels so we test absolute ppp price levels provide a test of absolute ppp because unlike price indices price levels do not contain a base period in which the nominal exchange rate equals the price ratio by construction we find support for absolute ppp

a roll call analysis of the endangered species act amendments public choice economics view legislative process as a transaction in the political market interest groups demand regulation in their favor and lobby lawmakers the lawmakers analyze an assortment of factors and supply legislation to the winning group thereby maximizing their rent from the political market this article examines endangered species act esa amendments from a public choice perspective congressional voting on the esa amendments are assessed using a model based on political incentive and ideology the results show that the lawmakers voting behavior is correlated with their party affiliation ideology and several characteristics of their home state such as number of endangered species proportion of urban population contribution of the natural resources and construction sectors in gross state product and geographical location copyright 2001 oxford university press

a critical assessment of the political preference function approach in agricultural economics abstract the policy preference function ppf approach has become popular with economists seeking to explain the origin of government policies in this paper a distinction between positive and normative work with the ppf concept is made positive work is shown to suffer from a variety of shortcomings including the misspecification of traditional ppfs and the failure to consider the importance of institutions constraints and the interaction between different commodity policies these weaknesses are reflected in the counter intuitive results of a simple ppf model designed to reflect the interaction between the ec s wheat and barley policies furthermore it is demonstrated that ppf weights change as a result of both political preferences and market parameters hence changes in ppf weights cannot be attributed to changes in preferences alone test of the axioms of revealed preference theory are used to demonstrate that even though ppf weights derived for the ec s wheat and barley markets have fluctuated considerably since the early 1970s we are not able to conclude that there has been a shift in political preferences the paper concludes with some comments about the use of ppfs in a normative framework the underlying assumption that policy makers optimise seems not surprisingly often to lead practitioners to the conclusion that observed policies are not so bad after all economists should also beware of the tendency to overlook possible differences between the ppf and the social welfare function

intervention bias in agricultural policy abstract this paper re examines the motivation for government intervention in agriculture to support farm prices and incomes a model is outlined in which the government has a preference for higher farm incomes but fails to provide farmers with the socially optimal level of price support even when one accepts the government s income redistribution goals as a valid reflection of social preference it is shown that agricultural policy has an intervention bias government price supports generally are higher than would be socially optimal the source of the intervention bias is a time inconsistency in optimal agricultural policy formation caused by the government s inability to precommit to a rule for setting future price support levels simulation results indicate that in some circumstances the intervention bias in agricultural policy can be substantial

mean variance asset liability management cointegrated assets and insurance liability abstract the cointegration of major financial markets around the globe is well evidenced with strong empirical support this paper considers the continuous time mean variance mv asset liability management alm problem for an insurer investing in an incomplete financial market with cointegrated assets the number of trading assets is allowed to be less than the number of brownian motions spanning the market the insurer also faces the risk of paying uncertain insurance claims during the investment period we assume that the cointegration market follows the diffusion limit of the error correction model for cointegrated time series using the markowitz 1952 mv portfolio criterion we consider the insurer s problem of minimizing variance in the terminal wealth given an expected terminal wealth subject to interim random liability payments following a compound poisson process we generalize the technique developed by lim 2005 to tackle this problem the particular structure of cointegration enables us to solve the alm problem completely in the sense that the solutions of the continuous time portfolio policy and efficient frontier are obtained as explicit and closed form formulas

are government transfers efficient an alternative test of the efficient redistribution hypothesis the efficient redistribution hypothesis says that no available government policies are pareto superior to observed government policies efficient redistribution from government policy is a central tenet of much recent theoretical and applied political economy literature in this paper limitations of previous attempts to test the efficient redistribution hypothesis are discussed and an alternative test of the efficient redistribution hypothesis that uses vector optimization theory and bootstrap methodology is presented

a policy preference function for government intervention in the u s wheat market this paper estimates a policy preference function that explains the government s choices of target prices government held wheat stocks and public wheat research funding the policy preference function depends on producers surplus consumers surplus and budget expenditures an important innovation in this paper is the inclusion of interactions between public research expenditures and other public policy variables results indicate that the government places a premium of 25 to 45 on the welfare of wheat producers of relative to budget expenditures while wheat consumers welfare is discounted as much as 50 relative to budget expenditures the purpose of this paper is to provide an explanation of government commodity programs stock accumulations and research expenditures in the u s wheat sector the explanation is based on a policy preference function ppf that depends on producers surplus consumers surplus and budget expenditures it is assumed that target prices reductions in or additions to government stocks and public research expenditures are chosen to maximize the policy preference function the central contribution of the paper is the estimation of a function that is consistent with the observed government interventions in the u s wheat market that is the paper explains the observed target prices government sales and public research expenditures as rational behavior by a government which seeks to maximize the estimated policy preference function the approach in this paper is based on the political interest group theories of peltzman and becker applications of these ideas to agriculture include rausser and freebairn s description of the beef industry gardner s 1985 analysis

arima and cointegration tests of ppp under fixed and flexible exchange rate regimes real exchange rates between the united states and its major trading partners were calculated for the bretton woods and flexible exchange rate periods unit root tests indicate that purchasing power parity performed poorly in both periods tests for cointegration reveal limited instances in which it is possible to estimate the deviations from ppp as an error correcting model the estimated error correcting models indicate that foreign but not u s prices responded to deviations from ppp frenkel s 1981b finding that purchasing power parity ppp worked better during the 1920s than the 1970s caused considerable controversy for example davutyan and pippenger 1985 contend that the socalled collapse of ppp is a result of an increase in the relative importance of real versus monetary shocks they argue that the 1970s as opposed to the 1920s was characterized by real supply shocks and the international coordination of monetary policies the argument is that ppp did not fail rather there was an increase in the volatility of those factors giving rise to deviations from ppp hakkio 1984 reestimated ppp over the 1920s and 1970s using cross country tests i e sure estimates to improve the efficiency of his estimates he was able to support the hypothesis that ppp worked better in the 1970s than in the 1920s on the other hand papers by adler and lehman 1983 dornbusch 1980 frenkel 1981a junge 1985 and krugman 1978 report findings contrary to the ppp hypothesis moreover kenen and rodrik 1986 find that the volatility of real exchange rates has increased throughout the flexible rate period this paper tries to shed some light on the importance and persistence of the observed deviations from purchasing power parity under alternative exchange rate systems while it is interesting to compare ppp in the 1920s versus the 1970s it is equally useful to compare the 1960s versus the 1970s and 1980s if real supply shocks and lack of monetary coordination are characteristic of the latter period ppp should perform better in the 1960s to illustrate the issues involved consider the following econometric model of relative purchasing power

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

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

attitudes towards women s career advancement in latin america the moderating impact of perceived company international proactiveness while companies operating in latin america have witnessed increased female leadership participation the region remains characterized by traditional gender role attitudes this juxtaposition of traditional machismo attitudes towards women along with progress in women s leadership participation make this setting ideal for examining a topic of continued worldwide debate women s career advancement this study examines attitudes towards the career advancement of women a historically marginalized group in latin america building on the extant literature we test the negative association between traditional gender role orientations and attitudes towards women s career advancement both directly and via a mediated relationship through acceptance of women in the workplace we then theoretically and empirically extend this literature by examining an important context related moderator a company s international proactiveness which we contend serves as a mechanism for keeping traditional machismo attitudes from manifesting we examine these relationships within a sample of 973 respondents within the latin american countries of argentina bolivia brazil chile colombia dominican republic ecuador mexico panama peru and venezuela our findings support our hypotheses and provide practical insight into the important yet generally not considered effects of a company s internationalization efforts on attitudes towards the career advancement of women

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

performance of currency portfolios chosen by a bayesian technique 1967 1985 abstract this paper is about normative currency portfolio rules it assumes logarithmic investors who maximize the expected utility from lognormal currency returns with and without short sales restrictions a number of implementable portfolio diversification policies are tried out on a large body of data covering nine major currencies and eighteen years of weekly observations in doing so we present ways of dealing with the estimation risk in an international context the necessary mean and covariance inputs are provided by a bayesian prior on the means and by sample means and covariance matrices which are estimated from weekly sample data while some policies do produce abnormal returns over and beyond proper reward for risk none does so in a statistically significant way this means that the evidence does not allow one to conclude that market participants are improperly diversified as a byproduct of this investigation techniques are found which would allow portfolio managers to earn a proper reward for risk by following a purely mechanical procedure such techniques may be valuable in a multi country world where the aggregate portfolio of currencies and securities is unknown and is not supposed to be efficient

the welfare consequences of directly unproductive profit seeking dup lobbying activities price versus quantity distortions abstract this paper is a contribution to the growing literature on the theory of what bhagwati 1982 has christened the theory of dup activities these are activities that use up real resources in making profits i e income without producing directly or indirectly a good they result therefore in the contraction of the availability set defined on goods for one generic subset of such dup activities namely distortion triggered lobbying activities the paper establishes asymmetrical propositions on the possibility of such dup lobbying resulting in a paradoxical improvement of welfare

fed intervention dollar appreciation and systematic risk abstract in a four factor asset pricing model estimated on daily data fed intervention significantly affects betas of surprises in the market return expected inflation rate yield curve and corporate bond risk premium fed foreign currency sales cause economically and statistically significant increases in the systematic risk premium in appreciation and thus in the dollar s expected appreciation rate the direction the fed desires and consistent with the signaling but not the portfolio balance channel intervention s effects on actual appreciation are less reliable they depend on unpredictable risk factor realizations even successful intervention to strengthen the dollar may be costly by increasing the dollar s systematic risk intervention reduces the attractiveness of u s relative to foreign investments further uncertainty about future fed interventions may induce resource misallocation ceteris paribus investors find it harder to estimate risk adjusted discount rates and forecast the home currency value of cash flows

cointegration fractional cointegration and exchange rate dynamics multivariate tests due to johansen 1988 1991 as implemented by baillie and bollerslev 1989a and diebold gardeazabal and yilmaz 1994 reveal mixed evidence on whether a group of exchange rates are cointegrated further analysis of the deviations from the cointegrating relationship suggests that it possesses long memory and may possibly be well described as a fractionally integrated process hence the influence of shocks to the equilibrium exchange rates may only vanish at very long horizons in the article by baillie and bollerslev 1989a it is argued that seven different nominal spot and forward exchange rates all contain unit roots in their univariate time series representations at the same time however the spot exchange rates appear to be tied together in the long run through a cointegration type relationship the latter finding of baillie and bollerslev has attracted particular interest and several studies such as those by hakkio and rush 1991 and sephton and larsen 1991 have already addressed this issue using the same data as the baillie and bollerslev article sephton and larsen 1991 describe the evidence for the presence of cointegration as being fragile and note that mixed conclusions are reached by truncating the baillie and bollerslev sample at different points in time diebold gardeazabal and yilmaz 1994 henceforth diebold et al provide interesting evidence that application of the johansen 1988 1991 tests with and without an intercept will result in different inferences on the baillie and bollerslev data set furthermore diebold et al carry out an ex ante forecasting experiment and find that the addition of an error correction term to the martingale model as implied by the standard cointegration paradigm fails to reduce the prediction mean square error when compared to a simple martingale model this therefore leads diebold et al to conclude that there exists substantial uncertainty regarding the existence of cointegration relationships among nominal dollar exchange rates this article provides some additional evidence on the existence of such a long run relationship among the same seven nominal spot exchange rates after further analysis it appears that a form of cointegration does exist between the exchange rates so that they do not drift apart in the long run we argue that this form of cointegration is

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

from senators to the president solve the lumber problem or else we use key events associated in the two decade long u s canada softwood lumber trade dispute to present the dynamic relationship between u s congress and the administration in the formation of international trade policy we find that the executive branch of the u s government responded quickly to several letters from a group of u s senators demanding a solution to the lumber problem a roll call analysis is used to identify factors influencing senators willingness to sign these letters and pressure the president on behalf of the u s lumber industry the results show that the economic importance of the lumber industry in a senator s home state is positively correlated with signatory on these letters and that the presence of a large housing industry in a state makes a senator less likely to sign these letters

consumer responses to sexual advertising the intersection of modernization evolution and international marketing drawing on insights from evolutionary psychology and sociology this research seeks to explain the gender differences and within sex variations in consumer responses to nudity in advertisements specifically we argue that the abundant resources that come with modernization emancipate women from the dependency on a long term relationship with a male partner for child bearing and rearing therefore women in modern societies are more likely to use fast reproductive strategies e g short term mating to enhance the chances of getting good genes from their mates for their offspring their physiological arousals activated by and attitudes toward male or female nudity in ads will change accordingly in contrast men s responses to nudity in ads are less affected by modernization we conducted an experiment in six chinese cities and obtained supportive evidence to illustrate these differences there was also evidence indicating that the socialization of high socio economic status may offset the force of evolution this study highlights the usefulness of an interdisciplinary approach in answering important questions in international business the findings are discussed with a focus on the integration of strategic pluralism theory life history theory parental investment theory and socialization theory

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

new panel unit root tests of ppp abstract we use the new panel unit root tests im k s pesaran m h shin y 1995 testing for unit roots in heterogenous panels wp 9526 dae university of cambridge revised march 1997 to analyse the stationarity of real exchange rates for the g10 economies and switzerland our results for monthly data 1973 96 indicate mean reversion in real exchange rates and a half life of under three years for one off shocks

mean reversion in equilibrium asset prices this paper demonstrates that negative serial correlation in long horizon stock returns is consistent with an equilibrium model of asset pricing when investors display only a moderate desire to smooth their consumption commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the monte carlo distributions implied by the authors equilibrium model from this evidence the authors conclude that the degree of serial correlation in the data could plausibly have been generated by their model copyright 1990 by american economic association

is there a unit root in the inflation rate evidence from sequential break and panel data models summary using sequential trend break and panel data models we investigate the unit root hypothesis for the inflation rates of thirteen oecd countries with individual country tests we find evidence of stationarity in only four of the thirteen countries the results are more striking with the panel data model we can strongly reject the unit root hypothesis both for a panel of all thirteen countries and for a number of smaller panels consisting of as few as three countries the non rejection of the unit root hypothesis for inflation is very fragile to even a small amount of cross section variation 1997 john wiley sons ltd

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

agricultural policy adjustments in the korean rice economy abstract a political preference function is used to endogenize government actions in a simultaneous equation model for south korean rice policy the effects of economic changes on rice pricing decisions through estimated political weights are tested to improve our understanding of policy adjustments in that country and open the way for further research in east asia

a discontinuous mispricing model under asymmetric information we study a discontinuous mispricing model of a risky asset under asymmetric information where jumps in the asset price and mispricing are modelled by levy processes by contracting the filtration of the informed investor we obtain optimal portfolios and maximum expected utilities for the informed and uninformed investors we also discuss their asymptotic properties which can be estimated using the instantaneous centralized moments of return we find that optimal and asymptotic utilities are increased due to jumps in mispricing for the uninformed investor but the informed investor still has excess utility provided there is not too little or too much mispricing

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

purchasing power parity for east asia countries further evidence based on panel stationary test with multiple structural breaks in this article we re investigate the validity of purchasing power parity ppp for a sample of 10 east asia countries over the period of january 1987 to june 2005 using a recently developed econometric technique of the panel stationary test with multiple structural breaks proposed by carrion i silvestre et al 2005 this test considers multiple structural breaks positioned at different unknown dates and a different number of breaks for each individual empirical evidence shows that the ppp holds true for half of 10 east asia countries during the research period our results have important policy implications for these 10 east asia countries under study

protectionism versus risk in screening for invasive species abstract i examine the extent to which enforcement of a biosecurity import restriction us border inspections for foreign pests and diseases is used as a protectionist trade barrier the parameters of a structural model of border inspection are estimated using a detailed dataset documenting the outcome of us agricultural border inspections i find that inspections are conducted in a manner that places an implied welfare weight on domestic producers relative to consumers ranging from 1 to 1 63 i also find evidence that the inspection agency takes terms of trade into account when inspecting agricultural imports these results suggest that border inspections are used as a protectionist non tariff barrier

from the editors experimental designs in international business research the question that motivated this editorial was where are the ib experiments the short answer is that experiments are largely absent from the ib literature and we argue that they shouldn t be experimental methods offer the opportunity to significantly improve the evidence for the causal relationships in international business research in a variety of ways in this article we highlight the value and limitations of experiments in ib research and explain the basic tenets of experimental design and thinking with the goal of encouraging the submission of more papers with an experimental design to jibs

on cointegration and exchange rate dynamics baillie and bollerslev 1989 have recently argued that nominal dollar spot exchange rates are cointegrated here we examine an immediate implication of their finding namely that cointegration implies an error correction representation yielding forecasts superior to those from a martingale benchmark in light of a large earlier literature highlighting the predictive superiority of the martingale in an out of sample forecasting exercise we find the martingale model to be superior we then perform a battery of improved cointegration tests and find that the evidence for cointegration is much less strong than previously thought a result consistent with the outcome of the forecasting exercise

common stochastic trends in a system of exchange rates univariate tests reveal strong evidence for the presence of a unit root in the univariate time series representation for seven daily spot and forward exchange rate series furthermore all seven spot and forward rates appear to be cointegrated that is the forward premiums are stationary and one common unit root or stochastic trend is detectable in the multivariate time series models for the seven spot and forward rates respectively this is consistent with the hypothesis that the seven exchange rates possess one longrun relationship and that the disequilibrium error around that relationship partly accounts for subsequent movements in the exchange rates a general consensus has emerged in recent years that many macroeconomic time series such as gnp consumption expenditures disposable income etc can be characterized by a stochastic trend model in particular nelson and plosser 22 described this property as one of being difference stationary so that the first difference of a time series is stationary an alternative trend stationary model where a stationary component is added to a deterministic trend term has generally been found to be less appropriate 1 similarly it has long been recognized that many financial time series such as foreign exchange rates are nonstationary e g in meese and singleton 21 the issue of nonstationary is not merely a statistical curiosity but has several important implications for the modeling of exchange rates for instance many models of exchange rate determination under rational expectations require stationarity assumptions when solving out the expected future values of the fundamentals further there has been some controversy over the appropriate transformations to use when conducting tests of whether the forward rate is an unbiased and efficient predictor of the future spot exchange rate 2 some authors e g frenkel 11 12 have conducted tests in levels while geweke and feige 14

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null