testing intertemporal budget constraints theory and applications to u s federal budget and current account deficits this paper extends previous tests of intertemporal budget balance and present value relationships by expanding the set of allowable deficit processes and by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive using these tests the authors find that both the postwar federal budget deficit process and the process governing accumulation of u s assets by foreigners are consistent with intertemporal budget balance copyright 1991 by ohio state university press

estimation of the monetary model of exchange rate determination under rational expectations abstract this paper develops a sticky price version of the monetary model of exchange rate determination under rational expectations the reduced form difference equation for the exchange rate has two roots which lie on either side of unity in the solution the stable root is solved backwards and the unstable forwards the model is estimated by the full information maximum likelihood method on deutsche mark dollar data the results are supportive of the rational expectations restrictions

the monetary approach to exchange rate determination under rational expectations the dollar deutschmark rate abstract this paper reformulates the monetary approach after ascertaining that a money demand function with a partial adjustment mechanism had more empirical support than a money demand function which assumed instantaneous stock adjustment the resulting exchange rate equation is estimated by two rational expectations techniques the parameter estimates are reasonable and are robust to the estimation technique used to different specifications of the driving processes and to changes in the estimation period the structural model outperforms the random walk model and its own unconstrained equivalent a pure time series equation in outof sample forecasts

sustainability of current account deficits in india an intertemporal perspective this study examines the sustainability of current account deficits cads and the validity of intertemporal budget constraint ibc in india the long run model is estimated on annual data for the period 1950 1951 to 2009 2010 the optimal single equation and maximum likelihood ml system estimates of the model provide a consistent support for the long run relationship between imports and exports the olsgh estimates provide no support and that ml system estimates a consistent support for cointegration in both the models estimated with one and two structural breaks in level the new cointegration breakdown tests generally suggest that the cointegration prevails from 1951 to 2010 the evidence supporting the cointegration between imports and exports overwhelms the evidence providing a mixed or no support for cointegration the estimates of slope parameter above zero and the dominant support for cointegration between imports and exports vindicate the validity of ibc and the sustainability of cads the shor

short run exchange rate uncertainty in latin america this paper to obtain an ex ante measure of exchange rate uncertainty in 11 latin american countries as a preliminary issue the purchasing power parity ppp condition is tested using engle and granger two step procedure and johansen method the argument is that exchange rate uncertainty could be lower if ppp holds in the long run the expected exchange rate uncertainty is estimated according to an extended version of the autoregressive conditionally heteroscedastic arch model the results show that the arch adjusment produces more efficient estimates in seven countries and that the acceptance of ppp has little effect on exchange rate uncertainty

the role of price in multi attribute product evaluations the potentially multifaceted role of price in product evaluations is investigated with an empirical analysis of surveyed beliefs attitudes and intentions regarding automobile brands it is found that price beliefs both influence and are influenced by beliefs about a brand s quality thereby contributing to the attribution definition process however price is not a significant determinant of overall attitude it is also found that price becomes a negative factor when behavioral intentions are involved lending support to an economic interpretation of price

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

purchasing power parity in the long run a cointegration approach this paper utilizes cointegration analysis to examine purchasing power parity relationships over a long time horizon the results indicate that the exchange rate is cointegrated strongly with the wholesale price index ratio and somewhat weakly with the consumer price index ratio the cointegrating coefficient between the exchange rate and the price ratio is close to one when cointegration is confirmed the hypothesis that the real exchange rate follows a random walk is rejected in most cases finally a new test for common trends finds no such common trends in exchange rates or price ratios copyright 1990 by ohio state university press

generic advertising in an asymmetric cournot oligopoly we examine how benefits of mandated generic advertising vary with firm size in an asymmetric cournot oligopoly market generic advertising funded through a mandatory assessment changes demand but also increases firms costs the effect on a firm s profits depends upon the nature of the change in demand and the company s market share situations are identified in which generic advertising 1 disproportionately favors large small firms 2 decreases profits and 3 increases decreases social welfare our findings explain the concerns that are often raised on small firms being disadvantaged by generic advertising we discuss implications for policy and for firms advertising strategies copyright 2010 oxford university press

leader driven primacy using attribute order to affect consumer choice leader driven primacy uses initial product information to install a targeted brand as the early leader in a choice between two brands biased evaluation of subsequent attributes builds support for the targeted brand causing the choice itself to be biased study 1 finds evidence of this effect in choices between two equally attractive brands study 2 extends the finding to a situation where one brand is inferior and to conditions where participants do not explicitly identify their leader study 3 shows how leader driven primacy can be reduced by encouraging brand based processing

exchange rate policies for developing countries the i98os saw major changes in exchange rate regimes in many developing countries the significance of which can now be assessed in addition there have been since i978 some fascinating experiments in the use of exchange rate policy for inflation stabilisation these experiences raise important issues this paper draws on a world bank supported project which examined in depth the macroeconomic experience of eighteen developing countries since i965 and especially during the period i 980 go table i lists the countries and gives some relevant information about them all examples come from these countries and generalisations are based on their experiences the focus here is on the contrast or competition between the real targets approach to exchange rate policy and the nominal anchor approach 2 the real targets approach might be described as orthodox but the nominal anchor approach has been frequently advocated especially by europeans the issues are somewhat similar to those debated in europe in connection with membership of the exchange rate mechanism of the ems and the proposed moves towards monetary union but as noted in section vi below in developing countries the balance of considerations is probably different and experiences certainly are first i shall deal with the choice of exchange rate regime for countries starting with low or moderate inflation the role of exchange rate policy in the stabilisation programmes of high inflation countries will be discussed in section v

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

what to say when influencing consumer choice by delaying the presentation of favorable information delaying the presentation of some favorable information about an alternative e g a product service brand store or cause until after consumers have completed their pre choice screening can increase that alternative s choice share while such a delay reduces the alternative s chance of surviving the screening it can actually increase its probability of ultimately being chosen evidence from five experiments demonstrates this preference enhancing effect of the delayed presentation of favorable information and it illustrates the underlying preference dynamics across decision stages associated with such a delay the findings also indicate that this preference enhancing effect is driven by a combination of two mental mechanisms a shift in the decision weights of attribute dimensions rendering dimensions on which a delay occurs more influential across all alternatives and an overall preference boost for the alternative about which information is delayed

real and nominal effective exchange rates for 22 ldcs 1971 1 1990 4 the international monetary fund constructs and publishes the real and nominal effective exchange rates mostly for developed but not less developed countries this paper employs a method of constructing real and nominal effective exchange rate from the literature to produce quarterly data over the 1971 1990 period for 22 developing nations as an application the stationarity of real effective exchange rates are determined to establish the empirical validity of the purchasing power parity theory ppp the results reveal that ppp fails to hold for most countries

do practice rounds affect experimental auction results researchers use practice rounds to familiarize participants with experimental auction mechanisms we find a positive correlation between practice bids and bids submitted in later rounds we consider three explanations for this correlation a behavioral anchoring effect a tendency for some auction participants to be more free spending and misconception of the experimental auction s demand revealing qualities

goal reversion in consumer choice how do consumers manage goal conflicts before making a choice this question was studied by examining emerging preferences in choices involving two products that were means to conflicting goals these preference patterns revealed that an initially active goal which had been set aside to reconcile a goal conflict exerted greater than expected influence on the remainder of the choice process this influence was manifest in a tendency for consumers to revert to the product aligned with the initially active goal upon seeing information that objectively favored neither product the prevalence of the reversion i e flip flop preference pattern suggests that activation of a set aside goal escalates when it is set aside much as if its pursuit had been impeded by an external force in addition to revealing goal reversion in a variety of choice contexts the studies in this article also find that goal reversion is moderated by goal conflict

inherent rule variability in consumer choice changing rules for change s sake the present research demonstrates that consumers tend to vary their use of decision rules independent of option and set characteristics in five experiments increased choice of a particular option e g lower price brand name or compromise option was associated with relatively decreased choice of that same generic option on occasions that followed results indicate that this inherent rule variability is not an effect of background contrast but instead relates to consumers favorable valuation of decision change itself this research implies that the idea of contingent decision making applies not only to decision outcomes but also to decision processes

rational expectations and monetary models of exchange rate determination an empirical examination abstract one asset model of exchange rate determination that has received substantial attention in the literature is the monetary model as with other asset models expectations of future exchange rates play a key role usually these expectations are assumed to be formed rationally however to date there has been no attempt to empirically estimate a complete monetary model with rational expectations in this paper such a model is estimated and the restrictions implicity imposed by the rational expectation hypothesis tested the results suggest that both the parameter constraints associated with the monetary model and those implied by the reh are consistent with recent exchange rate behavior

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

mean reversion of the current account evidence from the panel data unit root test abstract theoretically the modern intertemporal model of current account determination implies the stationarity of the current account however the empirical finding in the literature indicates nonstationary current account balances based on conventional unit root tests applying the panel data unit root test of im pesaran and shin we find support for the mean reverting property of the current account this in turn lends support to the intertemporal approach to the current account the policy implication of our findings is that current account deficits in major industrial countries are sustainable

international intertemporal solvency in industrialized countries evidence and implications recent large current account deficits among industrialized countries have caused concern for policy makers some believe for example that the current buildup of claims on the u s by foreigners violates her solvency condition with respect to the rest of the world recent research 22 suggests that for a country s intertemporal solvency condition to hold the change in the country s obligations to the rest of the world i e her current account deficit must be stationary stationarity tests on current accounts were performed for the u s by trehan and walsh 22 and wickens and uctum 23 for the u s and canada by otto 15 and for twenty three countries by gundlach and sinn 10 these papers present evidence that current accounts are non stationary for several major industrialized countries including the u s the u k canada germany and japan these findings do not favor international intertemporal solvency for this reason the issue merits further investigation in this paper we test for the stationarity of current account deficits of the group of seven industrialized countries preliminary results confirm many of gundlach and sinn s 10 findings however several events during the 1980s might have caused discrete breaks in current account balances events potentially linked with current account breaks include the reduction in world inflation tax reduction and reform in the u s and other industrialized countries attempts at international macroeconomic coordination i e the plaza accord and shifts in the after tax rate of return on capital in many countries as shown in recent research on gross national product 16 2 if such breaks are not accounted for stationarity tests will be biased in favor of accepting the null hypothesis of non stationarity our results suggest strong evidence of discrete breaks in the u s and japan and some evidence favoring breaks in the u k germany and canada the break in the u s current account appears to occur in 1983 while breaks in the other countries appear to occur somewhat later between late 1984 and 1987 more importantly once these breaks are incorporated the evidence is more favorable toward the stationarity of current accounts in these countries these findings thus support intertemporal solvency for these countries

floating exchange rates in peru 1950 1954 abstract three potentially complementary models are tested in an effort to capture the fundamentals that underlaid the market s determination of peru s floating exchange rate through the period 1950 1954 the first is an expectational purchasing power parity ppp model which maintains that asset market forces were driving the exchange rate to its perceived ppp level the second is a flexible price monetary model and the thrid is a model along the lines described by tsiang 1957 which emphasizes world prices for peruvian exports as a fundamental determinant i find that the expectational ppp model not only dominates the others but also fits quite well

purchasing power parity as a long run relation dickey fuller and stock watson tests of purchasing power parity ppp as a long run proposition are provided within the cointegration framework proposed by granger since different countries use different weights to construct price indices the traditional constraint that the coefficients on the price indices should be unity in the log linear ppp relation is relaxed the absence of a general ppp relation cannot be rejected at most a ppp relation is indicated in five out of fifteen country pairs that are examined even if a long run ppp relation exists it is not found to be useful in predicting future nominal exchange rates which is consistent with efficient speculative markets

the monetary approach to analysing floating exchange rate behaviour in developing countries evidence from sub saharan african countries 1986 1992 abstract the study tests the monetary approach to floating exchange rate analysis with monthly data for five sub saharan african countries over the 1986 1992 period the results are in strong support of the approach

relative ppp and the long run terms of trade for five latin american countries a cointegration approach this paper uses a cointegration approach with an error correction mechanism to examine purchasing power parity with the us for brazil colombia costa rica mexico and venezuela a relative version of purchasing power parity ppp is tested which includes the possibility of secularly declining or rising long run real terms of trade ppp explains the data fairly well for the more diversified economics of brazil and mexico but is rejected for the other three economies

econometric testing of purchasing power parity in less developed countries fixed and flexible exchange rate regime experiences we investigate the purchasing power parity ppp hypothesis for 16 less developed countries ldcs from all over the world during their fixed and flexible exchange rate experiences over the period 1957 01 1999 12 the main contribution of this article to the empirical literature on ppp is that our study is the first to consider ppp hypothesis on alternative exchange rate regimes for ldcs the bilateral exchange rates of ldcs and the united states and their respective price levels are considered three different time series methodologies are employed unit root tests engle granger 1987 cointegration technique and johansen multivariate var methodology 1988 the cointegration techniques improve the results which allows the examination of the more frequent long run relationship between relative prices and nominal exchange rates nevertheless using each of econometric techniques we find only a few and a nearly equal evidence in favour of ppp under the alternative regimes in ldcs hence the main conc

an alternative approach to the american demand for money with a decade of evidence behind it the profession seems to have agreed on the fact that a structural break shifted the american demand for money shortly after 1973 it is difficult to pinpoint the source of the trouble precisely let alone to explain the event with an econometric model in their survey judd and scadding 1982 tentatively concluded that financial innovation is the source of the problem while this conclusion has not been universally accepted the instability of the money demand function is largely taken as a given stylized fact the primary goal of this article is to provide an alternative solution to the case of the missing money using the methods of hendry 1979 it should be stressed at the outset that as this paper deals with a problem in the applied literature it is unabashedly empirical in nature the paper attempts to explain an empirical difficulty without presenting a new theoretical model of money demand rather in the context of the standard transactions demand theory for narrow money a number of questions are analyzed with an atypical econometric model was there actually a shift or a series of shifts in the demand for money if not why have other investigators concluded that there was in fact a shift most importantly what function seems to be the most reasonable approximation to the data generation process during the period in question

one swallow doesn t make a summer new evidence on anchoring effects some researchers have argued that anchoring in economic valuations casts doubt on the assumption of consistent and stable preferences we present new evidence that explores the strength of certain anchoring results we then present a theoretical framework that provides insights into why we should be cautious of initial empirical findings in general the model importantly highlights that the rate of false positives depends not only on the observed significance level but also on statistical power research priors and the number of scholars exploring the question importantly a few independent replications dramatically increase the chances that the original finding is true

further results on long run purchasing power parity in the 1920s abstract we reexamine long run purchasing power parity ppp for the dollar sterling exchange rate in the 1920s using a three variable cointegration regression and the new statistics tabulated by engle and yoo 1987 consistent with taylor and mcmahon s 1988 results we reject cointegration for the dollar sterling exchange rate the u k and the u s a price levels for the sample period february 1921 to may 1925 contrary to taylor and mcmahon however we find only weak evidence of cointegration for the shorter sample period february 1921 to may 1924

market simulation and the provision of public goods a non paternalistic response to anomalies in environmental evaluation most normative economics assumes that individuals have coherent preferences this paper responds to growing evidence of failures of this assumption particularly in the context of stated preference methods widely used in environmental policy analysis it proposes a non paternalistic concept of consumer sovereignty that does not assume preference coherence is satisfied by competitive markets and can be applied to the provision of public goods a key implication is that decisions should reflect valuations revealed at the point of consumption such valuations which can be inferred from hedonic prices may be less susceptible to willingness to accept wta willingness to pay wtp disparities than those elicited by stated preference methods

unit root tests of the current account balance implications for international capital mobility the extent of international capital mobility is assessed in a time series context the possibility that the current account balance of different 0ecd countries contains a unit root is explored it is shown that if the ratio of the current account balance to gdp is found to be integrated of the order of one the country is likely to be part of the world capital market the results for the whole period 1950 1988 indicate that the current account balance of at least germany japan and the united states contains a unit root considering the subperiods before and after 1972 it is shown that international capital mobility increased after the breakdown of the bretton woods system

commercial policy the terms of trade and the real exchange rate revisited abstract we estimate the effects of commercial policy and changes in the external terms of trade on the real exchange rate for four latin american economies using data on internal relative prices we find that the greater the elasticity of the non traded price level with respect to the price of importables the larger is the real exchange rate effect of import restrictions but the smaller is the real exchange rate effect of changes in the external terms of trade

the sustainability of current account deficits abstract this paper proposes a new method of determining whether a country is likely to be able to sustain its current account deficits without defaulting on its debt it is based on the notion of the national intertemporal budget constraint ibc which is derived from a forward solution of the balance payments identity although the problem is formally similar to that considered in the literature on the government ibc a more general solution is obtained by allowing the primary deficit to be endogenous instead of exogenous it is shown that the existence of negative feedback from net indebtedness to the primary deficit a wealth effect is sufficient this method supplants the ad hoc approach previously adopted in the current account literature whilst many of the same variables appear a formal structure for analysing them is provided

distinguished lecture on economics in government exchange rate regimes is the bipolar view correct the choice of appropriate exchange rate regime which for economies with access to international capital markets increasingly means a move away from the middle ground of pegged but adjustable fixed exchange rates towards the two corner regimes of either flexible exchange rates or a fixed exchange rate supported if necessary by a commitment to give up altogether an independent monetary policy lawrence h summers 2000 p 8

are current account deficits sustainable evidence from panel cointegration abstract conventional cointegration tests fail to consider information across countries which leads to efficiency loss in estimation in this article we apply panel cointegration tests to examine the cointegration between exports and imports among the g7 our findings support the sustainability of current accounts among major industrial countries which lends support to the intertemporal approach to the current account

why not cut pay abstract i interviewed over 300 business people labor leaders business consultants and counselors of unemployed people all in the northeast of the united states during the recession of the early 1990 s in order to learn why wages and salaries declined in only a few firms employers were reluctant to cut pay because they believed doing so would hurt employee morale leading to lower productivity and current or future difficulties with hiring and retention it was thought that these effects would in the end cost more than the savings from lower pay there were few indications that unemployed people had excessive wage expectations on the contrary many unemployed were too flexible and found themselves rejected by firms as overqualified in most companies pay cuts were not a useful alternative to layoffs because pay cuts would not make it worthwhile to retain many employees and because layoffs harmed morale less than would pay cuts the findings support none of the theories of wage rigidity except those of solow and akerlof that emphasize morale

cointegration of long span saving and investment abstract we find that saving and investment cointegrate in all or most countries in maddison s research memorandum no 443 1991 long span data set by a variety of time series and panel data tests we interpret our results as reflecting current account solvency and not capital immobility

unrealistically optimistic consumers a selective hypothesis testing account for optimism in predictions of future behavior we propose that when predicting future behavior consumers selectively but unwittingly test the hypothesis that they will behave ideally this selective hypothesis testing perspective on unrealistic optimism suggests that estimates of future behavior should be similar to those made by individuals who assume that conditions will be ideal moreover consumers who initially provide estimates assuming that conditions will be ideal should recognize that the world is not ideal and so should test a more realistic hypothesis in line with these predictions we find that ideal world estimates e g in an ideal world how often will you exercise next week do not differ from standard estimates e g how often will you exercise next week we also find that individuals who initially estimate their behavior in an ideal world subsequently make more realistic predictions

a two stage analysis of the effectiveness of promotion programs for u s apples export promotion programs are intended to help u s exporters enter maintain and expand foreign markets but little is known of their success in achieving each of these goals in this paper we attempt to determine the effectiveness of export promotion in increasing both u s market share and total import consumption using apple imports by singapore and the united kingdom as case studies estimates of a two stage linear expenditure system les almost ideal demand system aids model show that promotion increases consumption of apples in both the united kingdom and singapore but increases u s market share only in the united kingdom the results suggest that free riding on u s promotion can be significant

targeting the real exchange rate theory and evidence abstract this paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate an intertemporal optimizing model suggests that in the absence of changes in fiscal policy a more depreciated level of the real exchange rate can only be attained temporarily this can be achieved by means of higher inflation and or higher real interest rates depending on the degree of capital mobility evidence for brazil chile and colombia supports the model s prediction that undervalued real exchange rates are associated with higher inflation

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

the sustainability of india s current account this study conducts an investigation into the sustainability of the indian current account using data for 1950 onwards a necessary condition for current account sustainability is that exports and imports are cointegrated after testing for unit roots that allow for a structural break we employ parametric tests for cointegration based on johansen 1995 and saikkonen and lutkepohl 2000a b c as well as the nonparametric procedure proposed by breitung 2002 and breitung and taylor 2003 that does not assume linearity by employing these procedures recursively two distinct regimes are identified characterized by whether or not imports and exports are cointegrated the regime of noncointegration runs until the late 1990s and the second regime of cointegration is present after that this latter regime coincides with the liberalization of the indian economy

case based decision theory this paper suggests that decision making under uncertainty is at least partly case based we propose a model in which cases are primitive and provide a simple axiomatization of a decision rule that chooses a best act based on its past performance in similar cases each act is evaluated by the sum of the utility levels that resulted from using this act in past cases each weighted by the similarity of that past case to the problem at hand the formal model of case based decision theory naturally gives rise to the notions of satisficing decisions and aspiration levels

tourist destination and experience choice a choice experimental analysis of decision sequence effects abstract while many studies have investigated travel motives and modelled holiday destination choices none have directly modelled choice of type of holiday experience and how these two choices interrelate this study tests whether early exposure to geographical destination or experience type information in a decision task influences consumers final choices when choosing a holiday the study compares two choice tasks that have the same instructions and attributes but differ with respect to which attribute is exposed first and is used to label the choice options the destination name or the experience type findings show that early exposure to either attribute enhances the importance of the attribute although the effect is less pronounced for experiences than for destinations the findings are explained using the psychological notions of leader primacy complacency and induced mindset the research conducted in australia shows that sequential effects can be very important in shaping tourism consumption choices and decision making

the influence of generic advertising on brand preferences more than a billion dollars is spent annually on generic advertisements that promote the consumption of commodity goods generic advertising is designed to increase primary demand or the size of the pie without affecting selective demand or the share of the pie we find evidence to the contrary generic advertising increases the consumer s sensitivity to changes in price and systematically alters brand preferences these effects of generic advertising can be attributed to the tendency of generic ads to change the relative importance of the attributes used to evaluate the brands the results have implications for the public policy issue of how to effectively implement generic advertising without differentially benefiting certain brands and the managerial issue of how to integrate generic and brand advertising in order to achieve product category and brand differentiation goals

cooperative advertising models in supply chain management a review this paper reviews articles on cooperative advertising a topic which has gained substantial interest in recent years thereby we first briefly distinguish five different definitions of cooperative advertising which can be found in operations research literature after that we concentrate on vertical cooperative advertising which is the most common object of investigation it is understood as a financial agreement where a manufacturer offers to pay a certain share of his retailer s advertising expenditures in total we identified 58 scientific papers considering mathematical modeling of vertical cooperative advertising these articles are then analyzed with regard to their general model setting e g the underlying supply chain structure and design of the cooperative advertising program after that we explain the different demand and cost functions that are employed whereupon we distinguish between static and dynamic models the last dimension of our review is dedicated to the game theoretic concepts which are mostly used to reflect different forms of distribution of power within the channel

econometric methods and purchasing power parity short and long run ppp this paper defines the different versions of the purchasing power parity and establishes the existing relationships between them in the light of econometric techniques monthly and annual data for real exchange rates are studied through a variance ratio test unlike other authors it is found that there is not explosive behaviour in the real exchange rate when monthly data are used besides stationarity is easily accepted using annual data these results allow to reconcile the two main versions of the purchasing power parity and also explain why trade imbalances are persistent but not permanent

the procompetitive effect of demand enhancing check off programs this article explores demand enhancing check off programs and how such programs may influence both private programs as well as industry market structure under duopoly a firm may increase its sales through privately funding product quality improvements however such endogenous sunk costs may also be used to exclude a rival industry funded check off programs affect firms strategies and can be procompetitive the rationale lies not only in how the check off enhancement is perceived by consumers but also in the way the check off s crowding out effect reduces the ability of a firm to use its private expenditures to bar a rival s market access

current account deficits in africa stylized facts and basic determinants abstract this article analyzes the behavior of current account deficits in africa the findings are that deficits are i not very persistent ii positively linked with domestic growth iii strongly linked with public and private savings suggesting that fiscal consolidation in imf supported programs may be relatively effective iv linked with aid flows so as to close the external gap and v linked with currency depreciation and the terms of trade

the dollar pound exchange rate in the 1920s an empirical investigation much of the empirical support for the monetary approach to exchange rate determination has been obtained with data from the 1920s for example clements and frenkel 4 frenkel 8 9 frenkel and clements 11 and huang 18 all obtained favorable empirical evidence estimating different versions of the monetary model the empirical results with data from the 1970s however are mixed bilson 1 2 3 edwards 7 hoffman and schlagenhauf 16 and woo 25 obtained favorable empirical evidence while dornbusch 6 hartley 14 huang 17 meese and rogoff 20 and shafer and loopesko 24 obtained contrary empirical evidence this mixed performance of the monetary exchange rate model in the 1970s has been attributed by dornbusch 6 and frenkel 10 to the failure of purchasing power parity ppp to hold in the short run and by meese and rogoff 21 to the instability of the u s money demand function we re examine the empirical evidence on the dollar pound exchange rate in the 1920s using the simple monetary exchange rate model popularized by bilson 1 2 and frenkel 8 9 thus it is not the purpose of this paper to suggest new empirical monetary exchange rate models nevertheless there are several important reasons why we re examine the simple monetary exchange rate model first several important implications of the monetary exchange rate model in our opinion are not adequately tested in existing work second there is a presumption that the failure of the monetary exchange rate model in the 1970s and the 1980s is due to special events such as real shocks that affected ppp and the instability of the u s money demand function by using the data from the 1920s we hope to avoid the problem of the instability of the u s money demand equation in the 1970s moreover frenkel 10 found that ppp held up reasonably well in this period thus the period of the 1920s provides a favorable setting to test the monetary approach finally we choose the dollar pound exchange rate based on data availability our empirical methodology differs from most previous empirical studies in that we estimate the reduced form equation of the exchange rate within a system of three equations in addition to the reduced form equation of the exchange rate there are also two equations describing monetary equilibrium one for the domestic economy and one for the foreign economy the estimation

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

monetary incentives and mood abstract researchers have long debated the methodological necessity of monetary incentives in experimental research the current work shows that financial incentives not only can fail to improve task performance but also can worsen it three studies verify that incentives can elevate mood and that this mood enhancement contributes to worsened task performance the authors discuss implications for the use of incentives in experimental research

testing for the cointegrating rank of a var process with structural shifts tests for the cointegrating rank of a vector autoregressive process are considered that allow for possible exogenous shifts in the mean of the data generation process the break points are assumed to be known a priori it is proposed to estimate and remove the deterministic terms such as mean linear trend term and a shift in a first step then systems cointegration tests are applied to the adjusted series the resulting tests are shown to have known limiting null distributions that are free of nuisance parameters and do not depend on the break point the tests are applied for analyzing the number of cointegrating relations in two german money demand systems

seasonality cointegration and the long run purchasing power parity evidence for sterling exchange rates the long run purchasing power parity ppp hypothesis is tested for nine bilateral sterling exchange rates using recently developed techniques on cointegration and seasonal integration the empirical findings show that none of the exchange rates and relative prices contain seasonal unit roots but all have an autoregressive unit root the cointegration tests overwhelmingly reject the ppp hypothesis as a long run equilibrium condition for all countries concerned

simulating demand for electric vehicles using revealed preference data we have modelled the market for new cars in ireland with the aim of quantifying the values placed on a range of observable car characteristics mid sized petrol cars with a manual transmission sell best price and perhaps fuel cost are negatively associated with sales and acceleration and perhaps range are positively associated hybrid cars are popular the values of car characteristics are then used to simulate the likely market shares of three new electric vehicles electric vehicles tend to be more expensive even after tax breaks and subsidies are applied but we assume their market shares would benefit from an environmental premium similar to those of hybrid cars the environmental premium and the level of subsidies would need to be raised to incredible levels to reach the government target of 10 market penetration of all electric vehicles

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

on unit roots and real exchange rates empirical evidence and monte carlo analysis this paper presents some empirical evidence that real exchange rate series contain a unit root in their time series respresentation which cancels out on first differencing using the augmented dickey fuller test the power of this test is also tested using monte carlo methods and it is found to be quite powerful against a range of stationary local alternatives the findings imply the absence of any tendency of the nominal exchange rate to converge on purchasing power parity even in the long run

the monetary approach to exchange rate in an efficient foreign exchange market tests based on volatility the variance bounds on exchange rate movements implied by the monetary approach to exchange rate in an efficient foreign exchange market is shown to be violated by sample data the paper also presents evidence showing that the forecast errors implied by the monetary model can be forecasted using historical data the results are interpreted to suggest either the incompatibility of the monetary approach with sample data or an inefficient foreign exchange market or both models of exchange rate determination based on the monetary approach to the balance of payments imply when coupled with an interest rate parity relation and the assumption of an efficient foreign exchange market that exchange rates are related to a long average of money stocks differentials 1 2 the long average is analogous to the difference across countries of the long average of expected future money stocks which was supposed to characterize the price level of a single country see e g sargent and wallace 20 since long averages are known to have certain smoothing properties it appears that the observed volatility of exchange rates may be inconsistent with these models thus alternative tests of the models may be produced which rely on those properties the aim of this paper is to determine if the observed volatility is consistent with those properties the paper is the first to use tests based on the volatility of the exchange rate in an efficient market model of the monetary approach the first set of tests is based on the property of implied variance bounds for exchange rate movements and the second set consists of the more familiar efficient market tests of forecastability the empirical results violate these two sets of tests of the model thus casting doubt on the model even though the claim that exchange rates are too volatile has been commonly made few direct attempts have been made in the past to determine the validity of the claim some studies have presented estimates of variances of spot and forward rates but lacking an objective criterion to determine what constitutes

the emerging u s current account deficit in the 1980s a cointegration analysis this paper seeks to understand the recent history of u s external imbalances by identifying the long run tendency of the u s current account balance and investigating its behavior the procedure that is adopted is to estimate cointegrating regressions between u s exports and imports of goods and services estimates from cointegrating regressions between several measures of u s exports and imports show that up to about the end of 1983 the u s current account tended toward zero since that time there has been an apparent structural shift resulting in a long run tendency for a deficit in excess of 100 billion per year copyright 1992 by mit press

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

floating exchange rates in less developed countries a monetary analysis of the peruvian experience 1950 54 since the collapse of the bretton woods system in 1973 there has been an increasing discussion concerning the appropriateness of different exchange rate systems for less developed countries ldcs however this discussion has been marked by the absence of empirical analysis on how floating exchange rate systems behave in ldcs the purpose of this paper is to analyze from a monetary perspective the peruvian experience with floating exchange rates during the early l950s a short run version of the simple monetary approach to exchange rate determination is tested using monthly data for 1950 54 the results obtained are quite satisfactory indicating that the monetary view of exchange rate determination provides a useful benchmark for analyzing the behavior of floating exchange rates in developing economies l

purchasing power parity an analysis based on the evolutionary spectrum the bulk of the literature on the empirical validation of the purchasing power parity ppp has been based on cointegration although on rare occasions band spectrum analysis has also been used the former is tied down to the use of notional time in the analysis of systems away from equilibrium and the latter is circumscribed by the slutzky yule effect both these drawbacks are sought to be remedied in the present paper which seeks to bring to bear upon the ppp a new approach derived from the concept of a time varying spectrum both absolute and relative versions of the doctrine are tested for ten advanced economies over the post 1973 period uniform rejection of the ppp occurs with the us as base but with centring on the dm the evidence seems to be supportive of the ppp in its relative version for three european countries

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

your loss is my gain a recruitment experiment with framed incentives empirically labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success an effect attributed to loss aversion this is puzzling as penalties are infrequently used in practice the most obvious explanation is selection loss averse agents are unwilling to accept such contracts i formalize this intuition then run an experiment to test it surprisingly i find that workers were 25 percent more likely to accept penalty contracts with no evidence of adverse or advantageous selection consistent with the existing literature penalty contracts also increased performance on the job by 0 2 standard deviations i outline extensions to the basic theory that are consistent with the main results but argue that more research is needed on the long term effects of penalty contracts if we want to understand why firms seem unwilling to use them

testing symmetry and proportionality in ppp a panel data approach purchasing power parity ppp is a proposition equating the nominal exchange rate to the ratio of the domestic to foreign price levels this article employs bayesian panel data methods to test for ppp in particular the implied symmetry and proportionality conditions using a dataset of all the organization for economic cooperation and development member countries in the post bretton woods era i do not find support for symmetry and proportionality in ppp over time and across countries

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exchange rate determination and the demand for money this paper examines the conventional monetary equation of exchange rate determination under certain exogeneity conditions one can write the price level at home and abroad as the ratio of the nominal money supply to the demand for real money balances then since the exchange rate is the domestic price of foreign exchange one can equate the exchange rate to the ratio of domestic to foreign prices this then allows one to write and estimate the exchange rate as a function of the money supply differential income differential and interest rate differential if the domestic and foreign money demand errors are autocorrelated and if deviations from purchasing power parity are autocorrelated tests based on the above model may be invalid only if all autoregressive parameters are equal will test results be valid a full information maximum likelihood procedure is used to estimate and test the assumptions necessary for the conventional procedure to be correct finally two alternative models of exchange rate determination are considered to illustrate the importance of introducing the error terms at the beginning of the analysis this abstract was borrowed from another version of this item