cointegration and the us term structure abstract using the maximum likelihood analysis of cointegration developed by johansen 1988 1991 we test the cointegration implications of the expectations hypothesis of the term structure on a sample of us pure discount yields by using this approach we are able to analyze systems of more than two interest rates simultaneously as opposed to most previous studies which examine interest rates only in pairs one of the main results is that for the period 1952 1987 the cointegration implications generally seem to hold

chinese liquidity effects on the australian macroeconomy 2002 2017 abstractchina s growing importance to the australian economy has been well recognized in policy circles but remained relatively untested in formal empirical analysis this paper examines the reacti

identification of new keynesian phillips curves from a global perspective this paper is concerned with the estimation of new keynesian phillips curves nkpc and focuses on two issues the weak instrument problem and the characterization of the steady states it proposes some solutions from a global perspective using a global vector autoregressive gvar model steady states are estimated as long horizon expectations and valid instruments are constructed from the global variables as weighted averages the proposed estimation strategy is illustrated using estimates of the nkpc for eight developed industrial countries the gvar generates global factors that are valid instruments and help alleviate the weak instrument problem the steady states also reflect global influences and any long run theoretical relationships that might prevail within and across countries in the global economy the gvar measure of the steady state performed better than the hp measure and the use of foreign instruments substantially increased the precision of the estimates of the output coefficient

implementation of nash bargaining solutions with non convexity abstract nash solutions for two player bargaining problems with non convexity are shown to be dictatorial selections of nash product maximizers in recent literature in this paper we show that these solutions are implementable as unique subgame perfect equilibrium payoff allocations of a sequential game

the term structure of euro interest rates and rational expectations abstract this paper analyzes the short end of the maturity spectrum of euro interest rates using recent monthly data the data for the euro franc and euro dm interest rates support the rational expectations hypothesis whereas those true for euro dollar interest rates do not this result is explained by the different approaches used to conduct monetary policy in the usa switzerland and west germany

co integration error and purchasing power parity between canada and the united states the concept of cointegration and the associated error correction representation of a dynamic process see r f engle and c w g granger 1987 is applied to the purchasing power parity relationship between canada and the united states the results are supportive of purchasing power parity as a long run equilibrium relationship between the canadian dollar american dollar exchange rate the purchasing power parity relationship is maintained although with different dynamic mechanisms during both fixed and flexible exchange rate regimes

treasury yield curves and cointegration previous studies find that there is only one common stochastic trend in a set of interest rate series the result is interpreted as the evidence for supporting the expectations hypothesis cf hall et al 1992 this study finds that there are three common stochastic trends when whole spectrum stucture is analysed the three common stochastic trends can be interpreted as the shift the slope and the curvature of the term structure

does the labor income process contain a unit root evidence from individual specific time series employing econometric methods for univariate time series this paper investigates the empirical validity of assuming a unit root in indiv iduals labor income processes using a swedish register based longitudinal dataset which a llows us to follow a cohort of workers from 1968 to 2005 we are able to obtain distributi ons of median unbiased estimates of localto unity parameters the results indicate that earn ings for the representative worker are governed by a process where shocks to earnings have fairly high persistence but are both economically and statistically significantly differ ent from having permanent effects that is the largest autoregressive root is less than unity these results add to the studies that question the heavy use of unit root processes for earnings i n calibrations of life cycle models

information production and the term structure the difference between the forward rate of interest implicit in the term structure of interest rates and the expected future spot rate is usually referred to as a liquidity premium this paper examines the determinants of the liquidity premiums implicit in the term structure of real interest rates using a three date economy with production the sign of the liquidity premium is characterized in terms of the parameters that describe the uncertainty in the economy the results suggest that the liquidity premiums implicit in the real term structure of interest rates may sometimes be negative

co integrating var models and economic policy this paper surveys some relevant contributions to the economic literature on co integrating vector autoregressive var models vector error correction mechanisms vecms emphasizing their usefulness for economic policy it further discusses some theoretical aspects that are necessary for a complete understanding of their potential the theoretical introduction of the co integrating var model is followed by an illustration of its applications to monetary policy fiscal policy and exchanges rates as well as in establishing the effects of structural bilateral shocks between countries the so called global var or gvar models special attention is paid to the vecm capacities of being used in conjunction with dynamic stochastic general equilibrium models and of jointly specifying the short and long run dynamics thus representing the steady state of economic systems by means of the co integration relations and the short run dynamics around it

near unit roots cointegration and the term structure of interest rates the term structure of interest rates is often modelled as a cointegrated system with the yield spreads forming the cointegrating vectors testing whether the yield spreads span the cointegration space is problematic because conventional tests on the cointegration vectors tend to overreject when the largest autoregressive roots deviate from unity as is likely to be the case with interest rates a new test that is robust w r t deviations from the exact unit root assumption is developed and applied to monthly us interest rate data from 1952 1 1991 2 taking into account the regime shift in 1979 the hypothesis of the yield spreads being the cointegrating vectors cannot be rejected using the robust test copyright 2000 john wiley sons ltd

testing the purchasing power parity through i 2 cointegration techniques this paper contributes to the empirical literature on the purchasing power parity ppp over the post bretton woods period by providing a time series based interpretation of the controversial evidence characterizing the dynamics of real exchange rates it is shown that the persistence of deviations from the ppp between a set of european countries and the united states may be empirically attributed to the presence of i 2 stochastic trends in prices using consumer price indices interestingly the slow adjustment towards the equilibrium can be modelled through integral proportional equilibrium correction models and this evidence can be partly reconciled with theories where the inflation rate reduces the markup of profit maximizing firms acting on imperfectly competitive markets copyright 2005 john wiley sons ltd

why u s money does not cause u s output but does cause hong kong output abstract standard econometric tests for whether money causes output will be meaningless if monetary policy is chosen optimally to smooth fluctuations in output if u s monetary policy were chosen to smooth u s output we show that u s money will not granger cause u s output indeed as shown by rowe and yetman 2002 identifying policy makers objectives an application to the bank of canada canadian journal of economics 35 2 239 256 if there is a say 6 quarter lag in the effect of money on output then u s output will be unforecastable from any information set available to the fed lagged 6 quarters but if other countries for example hong kong have currencies that are fixed to the u s dollar hong kong monetary policy will then be chosen in washington d c with no concern for smoothing hong kong output econometric causality tests of u s money on hong kong output will then show evidence of causality we test this empirically our empirical analysis also provides a measure of the degree to which macroeconomic stabilisation is sacrificed by adopting a fixed exchange rate rather than an independent monetary policy

wage growth and the inflation process a multivariate cointegration analysis past empirical analysis of the relationship between wages and prices within the expectations augmented phillips curve model have raised doubts about the effects of labor costs on inflation analysis of the same data used previously reveals the existence of a deterministic linear time component in the wage and price series which past research failed to take into account using the johansen 1988 1992 1994 multivariate cointegration technique the paper provides robust evidence on the consistency of the markup view of the inflation process with the data and concludes that monetary policy should profit from labor costs data in predicting future rates of inflation

reinterpreting the kernel the reduced game relevant for the consistency of the prekernel is used to reinterpret this solution concept in a way that makes it independent of interpersonal utility comparisons based on this reinterpretation a non cooperative model is presented that yields in stationary equilibria the prekernel kernel for the class of monotonic transferable utility games next we apply the same non cooperative model to more general coalitional games for pure bargaining problems the model yields the nash solution for general non transferable utility games a natural extension of the prekernel arises thus the prekernel is obtained as the set of payoffs where the relevant bargaining range between every pair of players is split in half journal of economic literatureclassification numbers c71 c72 c78

is the swedish central government a wage leader is the swedish central government a wage leader this question is studied empirically in a vector error correction model using a unique high quality data set it is first shown that salaries of white collar workers in the private sector and central government are cointegrated it is then found that private sector salaries are weakly exogenous to the system of equations this means that the private sector is the wage leader in the long run model it is also found that changes in central government salaries do not granger cause changes in private sector salaries together these findings clearly demonstrate that the central government is not placing undue pressure on salaries in the private sector the central government is not acting as a wage leader

the nash program non convex bargaining problems we define and characterize an extension of the nash bargaining solution to non convex bargaining problems and in the spirit of the nash program of implementing cooperative solutions non cooperatively we show that this solution is supported by rubinstein s econometrica 50 1982 97 110 model of bargaining and its corresponding set of stationary subgame perfect equilibria

federal funds rate prediction we examine the forecasting performance of a range of time series models of the daily us effective federal funds ff rate recently proposed in the literature we find that i most of the models and predictor variables considered produce satisfactory oneday ahead forecasts of the ff rate ii the best forecasting model is a simple univariate model where the future ff rate is forecast using the current difference between the ff rate and its target iii combining the forecasts from various models generally yields modest improvements on the best performing model these results have a natural interpretation and clear policy implications

beyond nash bargaining theory the nash set abstract we extend nash s bargaining theory to non convex and coalitional problems this paper investigates the implications of nash like axioms for bilateral problems and the properties of consistency and converse consistency over multilateral settings the result is a characterization of the nash set of ntu games defined as the solution concept where each pair of players is splitting the gains from trade at a point where the nash product of their utilities subject to efficiency is critical the intersection of the nash set and the core is also characterized with the same axioms for the class of games where the core is non empty journal of economic literatureclassification numbers c71 c78

disagreement points in trade negotiations abstract this paper analyzes trade negotiations between two large countries in the framework of an alternating offer bargaining model with endogenous interim disagreement actions despite of the flexibility in disagreement tariff selection the countries would keep the status quo tariffs in disagreement periods as far as the country which benefits from keeping the status quo tariffs compensates for the other country s foregone gains from deviating in disagreement actions each equilibrium outcome converges to a corresponding nash bargaining solution whose disagreement point reflects the status quo tariff rates as well as the threat of raising the tariff to the nash tariff rate

law property and marital dissolution this paper challenges the view that legal rights are not important in affecting whether people divorce but it puts as much emphasis on property rights given for example by the law on alimony as on dissolution rights in the united states the paper sets out two stylised models of marriage and examines the consequences of fuller compensation for economic sacrifices made during marriage if the dominant economic issue in a marriage is who undertakes household tasks then a law giving fuller compensation makes divorce more likely if the dominant issue is child custody divorce is less likely excerpt

fair bargains distributive justice and nash bargaining theory the suppes sen dominance relation is a weak criterion of impartiality in distributive justice i propose its application to nash bargaining theory the nash bargaining solution nbs is characterized by replacing the controversial independence of irrelevant alternatives axiom with an axiom embodying the suppes sen principle this allows a clear interpretation of the nbs as a fair arbitration scheme in addition the proposed characterization is more robust than the standard one with respect to variations in the domain of bargaining problems

modelling uk inflation 1875 1991 uk inflation has varied greatly in response to many economic policy and exchange rate regime shifts two world wars and two oil crises as well as legislative and technological changes inflation is modelled as responding to excess demands from all sectors of the economy goods and services factors of production money financial assets foreign exchange and government deficits equilibrium correction terms are developed for each of these over the sample indicator variables and commodity prices capture turbulent years variables representative of most theories of inflation matter empirically yielding an eclectic model inconsistent with any single cause explanation copyright 2001 john wiley sons ltd

the role of asymmetries and regime shifts in the term structure of interest rates we examine the relationship between interest rates of different maturities for the us germany and japan over the period 1982 2000 using a general multivariate vector equilibrium correction modelling framework capable of simultaneously allowing for asymmetric adjustment and regime shifts this approach has a very general underlying theoretical rationale that allows for time varying term premia and other short run deviations from the expectations model of the term structure the resulting nonlinear models provide good in sample fits display regime switches closely related to key state variables driving monetary policy decisions and have satisfactory out of sample forecasting properties

alternative characterizations of three bargaining solutions for nonconvex problems abstract this paper studies compact and comprehensive bargaining problems for n players and axiomatically characterize the extensions of the three classical bargaining solutions to nonconvex bargaining problems the nash solution the egalitarian solution and the kalai smorodinsky solution our characterizing axioms are various extensions of nash s original axioms

benchmarking the expectations hypothesis of the interest rate term structure an analysis of cointegration vectors i test cointegration restrictions that are consistent with the expectations hypothesis of the term structure by employing the full information maximum likelihood methods developed by johansen yield curves appear to be the result of cointegration among interest rates the cointegration vectors that best describe the long term impact of interest rate levels on interest rate changes can often be written as linear combinations of interest rate spreads there is however difficulty in keeping short term yields in such a restricted cointegrated system with other interest rates short term speculative returns from long term bonds do not conform to the expectations hypothesis

strategic delegation and delay in negotiations over the bargaining agenda this paper develops a game theoretic model that endogenizes the items included in the bargaining agenda the model s equilibria suggest two possible sources of inefficiency 1 exclusion of items from the bargaining agenda and 2 delay to agreement due to negotiations over the bargaining agenda evidence from union contract negotiations is provided to demonstrate the relevance of these sources of inefficiency the model also allows strategic delegation by the union in certain equilibria the surplus maximizing union selects wage maximizing delegates such as senior union members to negotiate the contract

the term structure of interest rates in a model with heterogeneous agents abstract this paper examines the term structure of interest rates in a stochastic overlapping generations model several discrete time discrete state models show that the term structure premium is generally positive this paper demonstrates that these results hinge upon the assumption of a single representative agent and if heterogeneous agents are introduced a negative term structure premium cannot be ruled out

general equilibrium properties of the term structure of interest rates abstract the paper examines the allocation of consumption and investment in a three date binomial model in order to determine the sign of the real term structure premium in general equilibrium when production functions are concave markets are complete and future production possibilities are the same irrespective of which state of the world occurs the term structure premium will be positive in incomplete markets constant or increasing absolute risk aversion is sufficient to guarantee a positive term structure premium although in the more likely case of decreasing absolute risk aversion a negative premium cannot be ruled out

on the number of common unit roots in the term structure of interest rates 1994 on the number of common unit roots in the term structure of interest rates applied economics vol 26 no 8 pp 815 820

vintage nash bargaining without convexity i study nash bargaining when the utility possibility set of the bargaining problem is not convex a simple variation of nash s symmetry axiom is all that is necessary to establish a set valued version of nash s solution in non convex settings

a reexamination of traditional hypotheses about the term structure a comment an example of a continuous time economy is given whose general equilibrium term structure of interest rates obeys the expectations hypothesis for continuously compounded interest rates and returns contradicting the 1981 claim by cox ingersoll and ross that such an economy is mathematically impossible this example does not generate exploitable arbitrage opportunities of the type cox ingersoll and ross claim must arise the logarithmic expectations hypothesis as we call it it therefore an acceptable benchmark from which to measure term premia in continuous time term structure modeling the expectations hypothesis eh broadly construed postulates that expected returns on risk free bonds of different maturities are equal or equivalently that appropriately calculated forward interest rates equal expected future spot interest rates in comparing the expected returns on two bonds of different maturities however the returns may be compounded in any of four natural ways continuously to the shorter bond s maturity to the longer bond s maturity or to the nearest available future date it has long been understood that if the eh holds in terms of any one of these methods and if interest rates are stochastic jensen s inequality will in general preclude it from holding in terms of any of the other three in practice the convenience and simplicity of continuously compounded interest rates and returns have led many researchers e g roll 1970 mcculloch 1975 fama 1984 to use the first method and therefore what

testing the expectations hypothesis when interest rates are near integrated nominal interest rates are unlikely to be generated by unit root processes using data on short and long interest rates from eight developed and six emerging economies we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated if the null hypothesis of no cointegration is rejected we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis the results show support for cointegration in 10 of the 14 countries we consider and the cointegrating vector is similar across countries however the parameters differ from those suggested by theory we relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia

centralized fiscal spending by supranational unions we study fiscal spending by supranational unions where participation is voluntary and countries bargain over contributions to and the allocation of a central budget since decisions are made by unanimity bargaining power over the allocation becomes a function of contributions which generically causes inefficiency in the presence of income asymmetry between member nations this link between the budget allocation and contributions explains patterns of inefficient spending in the eu e g why resources are diverted to low productivity projects in high income countries the option of veto creates a trade off between efficiency on the contributions margin and efficiency on the allocation margin

nash in nash bargaining a microfoundation for applied work a nash equilibrium in nash bargains has become the workhorse bargaining model in applied analyses of bilateral oligopoly this paper proposes a non cooperative foundation for nash in nash bargaining that extends the rubinstein 1982 model to multiple upstream and downstream rms assuming there exists gains from trade for each rm pair we prove that there exists an equilibrium with immediate agreement and negotiated prices that correspond to rubinstein prices if and only if the marginal contribution of a set of agreements is weakly greater than the sum of the agreements marginal contributions we provide stronger conditions under which equilibrium prices are unique

the determination of price and output quotas in a heterogeneous cartel applying a selection criterion that uses both subgame perfection and the nash bargaining solution this paper investigates the relationship between firms cost functions and collusive behavior it is found that the optimal collusive price exceeds the price that the low cost firm would set if it was a monopolist comparative statics reveal that the optimal collusive price is increasing in the low cost firm s unit cost but is decreasing in the high cost firm s unit cost when the cost differential between firms is sufficiently large copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

around and around the expectations hypothesis we show how to construct models of the term structure of interest rates in which the expectations hypothesis holds mcculloch 1993 presents such a model thereby contradicting an assertion by cox ingersoll and ross 1981 but his example is gaussian and falls outside the class of finite dimensional markovian mode ls we generalize mcculloch s model in three ways i we provide an arbitrage free characterization of the unbiased expectations hypothesis in terms of forward rates ii we extend this characterization to a whole class of expectations hypotheses and iii we show how to construct finite dimensional markovian and non gaussian examples in one form or another the expectations hypothesis has played a central role in the analysis of the term structure of interest rates perhaps the most common form of the expectations hypothesis is the so called unbiased expectations hypothesis u eh which asserts that forward rates equal the conditional expectations of future spot rates but other forms exist as well cox ingersoll and ross cir 1981 characterize a number of mutually incompatible forms of the expectations hypothesis besides the u eh including the local expectations hypothesis l eh under which the expected rate of return on all zero coupon bonds on all assets in fact equals the short term risk free rate see jarrow 1981 for a similar analysis of the various expectations hypotheses they consider cir claim that only the l eh is consistent with general equilibrium in continuous time models as well as in discrete time models with continuous compounding of yields mcculloch 1993 provides a counterexample to cir s claim his example is in the spirit of heath jarrow and morton hjm 1992 in the sense that it does not admit a representation in terms of a finite number of markovian state variables the setting in cir indeed mcculloch suggests that cir s claim may be true within their setting as we show it is not there is a weak version of the u eh according to which forward rates are biased predictors of future spot rates but the bias or term premium is a constant that only depends on the forecast horizon a regression of future spot rates on current forward rates produces a slope coefficient equal to fisher is with the board of governors of the federal reserve system and gilles is with bear stearns co the views expressed herein are the authors and do not necessarily reflect those of the board of governors or the federal reserve system we thank greg duffee and huston mcculloch for extensive comments and an anonymous referee for suggesting improvements in the exposition

heterogeneity of the determinants of euro area sovereign bond spreads what does it tell us about financial stability abstract in this paper we assess the movements of euro area sovereign bond yield spreads vis a vis the german bund as processes specified across different levels of volatility and subject to movements in asset prices and economic conditions the determinants we use are grouped into domestic and euro area aggregates thus allowing us to derive results on their relative explanatory power and compare them across time and the spectrum of countries we find that volatility influences the deterministic processes of the euro area sovereign spreads and that identical determinants have effects on spreads that vary considerably across countries furthermore we find that variables reflecting investment confidence conditions and perceptions for the upcoming economic activity are significant determinants and their significance remains to a large extent even when controlling for fiscal variables

the treasury yield curve as a cointegrated system this paper examines the temporal relationship between interest rates on treasury securities ranging in maturity from three months to 30 years we find strong empirical support that the seven treasury rates selected are cointegrated a conclusion that is insensitive to the normalization chosen in particular the hypothesis of noncointegration is rejeeted decisively regardless of the rate selected as the dependent variable in the cointegrating equation to determine whether this information can be used to improve forecasts of treasury rates the seven rates are forecasted with a corresponding erroreorrection model that is shown to outperform an augmented var model that ignores the cointegration of the rates the results are consistent with the belief that arbitrage limits the extent to which rates on different maturities of a given security diverge in addition the results confirm the appropriateness of imposing a common stochastic process for interest rates in equilibrium models of the term structure

the term structure of forward exchange premiums and the forecastability of spot exchange rates correcting the errors we develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and