U.S. MILITARY EXPENDITURE AND THE DOLLAR

This paper examines the connection between U.S. military expenditure and the dollar-mark real exchange rate. Quarterly data for the period 1951.1–1986.3 are used to show that there exists a significant relationship linking real exchange rate, real military spending, and real GNP. The conclusion is based on evidence that these three variables are cointegrated.     

Earnings inequality and skill mismatch in the U.S.: 1973–2002

This paper shows that skill mismatch is a significant source of inequality in real earnings in the U.S. and that a substantial fraction of the increase in wage dispersion during the period 1973–2002 was due to the increase in mismatch rates and mismatch premia. In 2000–2002, surplus and deficit qualifications taken together accounted for 4.3 and 4.6% of the variance of log earnings, or around 15% of the total explained variance. The dramatic increase in over-education rates and premia accounts for around 20 and 48% of the increase in the Gini coefficient during the 30 years under analysis for males and females respectively. The surplus qualification factor is important in understanding why earnings inequality polarized in the last decades.     

THE REAL EXCHANGE RATE AND REAL INTEREST DIFFERENTIALS: THE ROLE OF THE TREND‐CYCLE DECOMPOSITION

We propose an alternative model and method to reconcile the puzzling feature in the relationship between the real exchange rate and real interest rate differentials. Our simple two‐country model with preset prices, along with firms' misperception about the future exchange rate, implies that the real exchange rate follows an ARIMA(0,1,p) process. This allows us to compute the exact Beveridge‐Nelson decomposition, which is a model‐consistent decomposition. In accordance with our model, unit roots in the real exchange rates are found; and statistical inference is partially found to be affirmative regarding the link between the real exchange rate detrended by the Beveridge‐Nelson decomposition and corresponding real interest differentials. (JEL F31, F41)     

FUTURES MARKET BACKWARDATION UNDER RISK NEUTRALITY

J.M. Keynes first introduced the theory of normal backwardation in futures markets. In the language of (British) commodities markets, a backwardation is an excess of the spot price over futures prices. As is well-known, Keynes suggested that this might be explained as a risk premium. Less well known is that Keynes actually proposed two distinct theories of backwardation.
Of these two theories of backwardation, the latter has recently received much attention. The purpose of this paper is to formalize Keynes' first theory, his liquid stocks theory, with an eye to its eventual empirical test.
We follow the recent formalizations of the risk premium theory by assuming the existence of perfectly competitive asset markets. To emphasize the differences between the two theories, however, we assume that there are well-funded risk neutral investors. Thus, risk premia cannot explain backwardation under our assumptions. Instead, backwardations arise because of interactions between equilibrium in the commodities exchange, both in spot and futures trading, and the production, consumption and storage decisions taken on the real side of the economy.     

Structural Decomposition of Exchange Rate Shocks in Pakistan: An Empirical Investigation using SVAR Methodology

This study is an attempt to decompose nominal and real exchange rate movements in Pakistan into components induced by real and nominal shocks. Using the Blanchard and Quah (1989), famously known as B-Q, methodology for the period 2000:1–2009:12, the study finds that real shocks affect both nominal and real exchange rate. Similarly, the nominal shocks have a permanent effect on nominal exchange rate but have temporary effect on real exchange rate. Moreover, speed of convergence is different between the two rates affected by the same shock. These results put forward that nominal devaluation is not followed by real devaluation and resultantly will not improve trade balance situation. The policy makers, therefore, need to be careful while taking any decision regarding nominal devaluation as it may also lead to worsening of, instead of improvement in, trade balance.     

Do Migrant Remittances Cause Dutch Disease in Nigeria?

Statistics show that remittances inflow to Nigeria grew from US$3,000,000 in 1978 to over US$22 billion in 2017. Theoretically, such a large inflow of foreign currency into an economy may lead to Dutch diseases. This study, therefore, investigated whether the massive inflow of remittances into the economy causes Dutch disease. Given that the model had both I(0) and I(1) variables, ARDL/Bound testing methodology was used with annual data from 1981 to 2016. The ARDL result showed that migrant remittances have a significant positive effect on the real effective exchange rate in Nigeria in the long run. Specifically, a one per cent increase in the inflows of remittances increases the real effective exchange rate of Naira by 0.44 per cent in the long run. This appreciation of the Nigerian Naira relative to other competing nations encourages import and discourages export, leading to the Dutch disease effect.     

A THEORY OF EX POST VERSUS EX ANTE PRICE DETERMINATION

The traditional theory of exchange implicitly assumes instantaneous exchange at the contractually determined price. However, actual exchange may entail payment before or after supply as well as determination of effective price ex ante or ex post of supply. The paper demonstrates that the market determination of price timing arises in conjunction with the resolution of mutual uncertainty among buyers and sellers concerning product quality and product cost. The conditions are identified under which ex post pricing will result rather than the more traditional ex ante pricing. The theory accounts for the simultaneous use of ex post and ex ante pricing in a single market. Legal service pricing is used to illustrate the theoretical principles derived in the paper.     

保障房市场与商品房市场关系研究

保障房和商品房在本质上是差异化产品,两者在对应的需求层次、房屋的品质、价格、供给和渠道等方面都存在着巨大的差别。自我国房地产市场化以来,商品房就始终处于市场独大的局面,但随着近年来我国政府加大了对楼市的调控、加快了保障房建设的步伐,房地产市场已朝着保障房市场和商品房市场并重的＂双轨制＂迈进。然而,保障房的大规模兴建和投放市场会对商品房市场乃至整个中国楼市产生什么影响,以及保障房供给体系在运行与管理过程中存在什么问题,目前尚不确定。为此,有必要对其深入分析并寻找对策。     

INCOME INEQUALITY: THE CONSEQUENCES OF SKILL‐UPGRADING WHEN FIRMS HAVE HIERARCHICAL ORGANIZATIONAL STRUCTURES

During the last three decades, most developed countries have experienced increasing income inequality. Using Danish register data from 1992 to 2007 for all private‐sector employees, we confirm that income inequality has increased in Denmark. We also observe an increase in the relative employment of highly educated individuals, as well as differential income growth rates across employee subgroups where, in particular, managers experienced significant real income progression. We use an equilibrium search framework with on‐the‐job search to study the interplay between skill‐upgrading, management compensation, and income inequality. In this model we can determine the management and education premia. We can also show that when our model is exposed to skill‐upgrading, it is capable of producing income dynamics similar to those observed in the Danish income distribution. (JEL J3, J6, M5)     

Specific Investments, Flexible Adaptation, and Requirement Contracts

In a simple hold-up model with contractible cost-related variables, I show that an optimal requirement contract with "standard cost"–based nonlinear pricing can provide both ex post flexibility for adaptation and ex ante incentives for relationship-specific investments. The result is related to contractual arrangements observed in vertical procurement relationships.     

Is Tunisian Real Effective Exchange Rate Mean Reverting? Evidence from Nonlinear Models

This paper investigates mean reversion in the deviation of Tunisian real effective exchange rate (REER) from its fundamental value. This paper uses the smooth transition auto-regression (STAR) methodology advocated by Granger and Teräsvirta (1993) in order to test whether the Tunisian REER is mean reverting over the period 1990:01 to 2010:01. The empirical results show that data support the hypothesis that deviations can be characterized by asymmetric responses towards appreciation and depreciation with the speed of transition between the expansion and contraction regimes being relatively high. The research results have both methodological and practical originality. On the practical side, the main policy implications the paper puts forward are that foreign exchange market participants should adopt the LSTAR model rather than ESTAR model in their attempt to effectively comprehend the behavior of the exchange rates. On the methodological side, this study makes use of robust test for STAR type nonlinearity. This procedure has been deemed immune against outliers and does not need a priori knowledge regarding their presence and/or timing.     

The Relationship Between Military Spending and Black Market Premium in Greece: An ARDL Approach

Recently, there are a few empirical studies relating to the military spending and other macro variables such as real exchange rate, unemployment rates, investment rates, budget, and inflation rates. We examine the relationship between military spending and black market premium, in the Greece using the autoregressive distributed lag approach for the time period 1954?C1998. Our results implied that higher military spending leads to higher black market premium and we concluded that while military spending does not Granger cause black market premium in the short run, black market premium does Granger cause military spending in the short run. When we examine the long-run results, ELC model implies that almost 30?% of the disequilibrium of the previous year??s shocks adjusts back to the long run equilibrium.     

Transitional appreciation of equilibrium exchange rates and the ERM II

A suitable parity for exchange rate fixing can be derived from an analysis of the equilibrium exchange rate. As the equilibrium exchange rates of the new EU 5 countries, the Czech Republic, Hungary, Poland, Slovenia, and the Slovak Republic, tend to exhibit appreciation trends, credibility of the potential commitment to fixed exchange rate parity with respect to the euro can be undermined. In order to investigate this issue, we estimate a behavioral model of real exchange rates for EU 5 countries and derive the respective equilibrium real exchange rates. Using the linear-quadratic filter we estimate permanent equilibrium exchange rates and their stationary points. We find that as of 2004 fixing of the national currencies to the euro should not be undermined by further significant trend appreciation in the equilibrium exchange rates of the EU 5 countries, in aggregate.     

COMOVEMENTS OF BUDGET DEFICITS, EXCHANGE RATES, AND OUTPUTS OF TRADED AND NON-TRADED GOODS

Between 1974:I-1989:II, it appears that U.S. budget deficits and real exchange rates are correlated. This paper attempts to provide a structural explanation of these comovements in government budget deficits and exchange rates. The model expands on previous works to include fiscal policy considerations in a stochastic set-up. It shows that within a simple two-country cash-in-advance constraint model, it is possible to have a positive correlation between budget deficits and exchange rates, as well as a negative correlation between exchange rates and domestic traded goods production.     

The regional distribution of skill premia in urban China: Implications for growth and inequality

Based on urban household survey data, the authors find that skill premia increased significantly across all regions of China between 1995 and 2002, but only in coastal regions between 2002 and 2007. By then, these regions also displayed much wider wage inequality and thus contributed more to overall urban wage inequality than non‐coastal regions. While privatization was the main driver of skill premia in 1995–2002, China's (regionally uneven) integration into the global economy became the dominant influence in 2002–07. Reducing skill premia and inequality, the authors argue, calls for reform of the Hukou registration system which impedes skilled labour mobility and possibly also growth.     

Financial Variables and the Simulated Out-of-Sample Forecastability of U.S. Output Growth Since 1985: An Encompassing Approach

We reconsider the out-of-sample forecasting ability of a large number of financial variables with respect to real output growth over the 1985:1–1999:4 period. We show that models including financial variables display almost no forecasting ability relative to an autoregressive benchmark model over this period according to a mean squared forecast error metric. However, tests based on forecast encompassing indicate that many financial variables do, in fact, contain information that is useful for forecasting real output growth over the 1985:1–1999:4 out-of-sample period. Our results suggest that the extant literature exaggerates the demise of the forecasting power of financial variables with respect to real activity since the mid-1980s.     

DOES THE LAUNCH OF THE EURO HINDER THE CURRENT ACCOUNT ADJUSTMENT OF THE EUROZONE?

This paper examines current account adjustments before and after the launch of the euro. Applying a dynamic panel model, we provide robust evidence to support that the adoption of the euro facilitates rather than hinders the adjustment of current accounts. This finding agrees with our results that the use of the euro assists real exchange rate and inflation rate adjustments. We also find that the independence of exchange rate regimes from current account, real exchange rate and inflation rate adjustments is observed when standard panel estimation methods are applied and when time‐varying smooth shifts in mean are not controlled. (JEL C33, F32, F41)     

Does the degree of relative risk aversion vary with household characteristics?

This study examines household risk taking, using Swedish cross-sectional data based on tax returns from more than 7000 households for 1985. In contrast to previous studies, this study recognizes that households compose different risky portfolios because of their varying characteristics. This study also recognizes real assets as investment goods and takes into account the gains from diversification that emerge when real assets and financial assets are combined. The estimated risk aversion was found to be very large but not systematically correlated with any of the included variables, with the exception of age. The estimated age coefficient suggests that risk aversion increases with age.     

IDENTIFYING THE ROLE OF RISK SHOCKS IN THE BUSINESS CYCLE USING STOCK PRICE DATA

I analyze the sources of U.S. business cycle fluctuations in an estimated Dynamic Stochastic General Equilibrium model with a rich set of nominal and real rigidities and various exogenous disturbances. The model includes a shock to the expected risk‐premium, which introduces a time‐varying wedge between the policy rate set by the central bank and the cost‐of‐capital of firms. In the aggregate data, most U.S. corporations finance their investment using internal funds, and stock prices reveal the opportunity cost of this type of financing. I therefore use corporate market value and dividend data in the Bayesian estimation of the model to identify risk shocks. Variance decomposition exercises show that these shocks account for a substantial part of the variation in the stock market, as well as the variation in output and investment, especially at short forecast horizons. The variation of these variables at longer forecast horizons are mainly captured by shocks to investment‐specific technological change. Historical decomposition points to the important role played by risk shocks in the run up of stock prices and output in the late 90s, and in the reversal of these variables in the early 2000s and during the recent recession. (JEL E32, E44)     

The Behavioral Equilibrium Exchange Rate of the Czech Koruna

The behavioral equilibrium exchange rate (BEER) model of the Czech koruna is derived in this paper and estimated by three methods suitable for nonstationary time series. The considered potential determinants of the real equilibrium exchange rate are the productivity differential, the interest rate differential, the terms of trade, net foreign direct investment, net foreign assets, government consumption, and the degree of openness. We find that the Czech koruna was on average undervalued over the period from 1994 to 2004 by about 7 percent with respect to the estimated BEER. The significant determinants of the equilibrium exchange rate of the Czech koruna appear to be the productivity differential, the real interest rate differential, the terms of trade, and the net foreign direct investment.