The Russian Economy and the Oil Price: A Co-integrated VAR Approach

Using a co-integrated VAR model, this paper analyzes the dynamic effects of oil price and interest rate shocks on the Russian economy for the period 1995:Q1-2008:Q2. The co-integration analysis leads to the finding that a 1% increase in oil prices contributes to real GDP growth by 0.8%, suggesting an increase four times that reported by Rautava (2002), in the long run. Furthermore, the impulse response analysis suggests that the impacts of the shock on inflation and real GDP are positive over the next eight quarters (short run), whereas the tightening of monetary policy through interest rate channel is immediately associated with a decline in inflation as predicted by theory, but with an increase in real GDP over the preceding quarters.      

Creating a Favourable Deployment Mechanism of Oil and Gas Revenues with Regard to Volatile Oil Prices: The Case of Azerbaijan

This paper studies optimal mechanisms of intergenerational fair distribution of oil and gas revenues in terms of oil price shocks in the case of Azerbaijan. In order to determine optimal utilization mechanism of oil and gas revenues the following models: real constant expenditure (permanent income hypothesis), nominal constant expenditure, stable diminishing expenditure and stable rate diminishing expenditure, were tested on the basis of three alternative oil and gas export prices. Finally the research suggests the statistical method to calculate crude oil reference price for the midterm fiscal planning and the flexible mechanism which can be revised with regard to oil price uncertainty.     

THE LAW OF ONE PRICE REVISITED: NEW EVIDENCE ON THE BEHAVIOR OF INTERNATIONAL PRICES

This paper is an empirical investigation of the long-run behavior of international prices at the microeconomic level. It analyzes the time-series behavior of a unique set of carefully matched, disaggregated export prices for manufactured goods from the U.S., Gemany, and Japan over the period 1974–90. The results provide little evidence of a long-run linear relationship between global prices of similar export goods from different sources, casting doubts on the empirical relevance of the law of one price.     

AGGREGATE PRICE SHOCKS AND FINANCIAL INSTABILITY: A HISTORICAL ANALYSIS

This article presents evidence on the relationship between price and financial stability. We construct an annual index of financial conditions for the United States, 1790–1997, and estimate the effect of aggregate price shocks on the index using a dynamic ordered probit model. We find that price-level shocks contributed to financial instability during 1790–1933 and that inflation rate shocks contributed to financial instability during 1980–97. The size of the aggregate price shock needed to alter financial conditions depends on the institutional environment, but we conclude that a monetary policy focused on price stability would contribute to financial stability.     

GUNS AND OIL: AN ANALYSIS OF CONVENTIONAL WEAPONS TRADE IN THE POST‐COLD WAR ERA

This paper analyzes the global conventional weapons trade between 1989 and 1999. We postulate that a key reason for the huge transfer of weapons to the Persian Gulf region is the enormous value of the oil wealth there along with the dependence of Western economies on access to the relatively cheap and steady supply of crude oil. We find a strong, positive, and robust empirical association between arms trade and crude oil trade and explain it as the result of a target price band arrangement that was responsible for the remarkably stable crude oil prices during our study period. (JEL F10, F59, Q38)     

PERFECT COMPETITION, URBANIZATION, AND TAX INCIDENCE IN THE RETAIL GASOLINE MARKET

We use monthly gasoline price data for all 50 U.S. states over the period 1984–1999 to examine the incidence of state gasoline excise taxes. Our estimation results indicate full shifting of gasoline taxes to the final consumer. In addition, although we find that gasoline retail prices demonstrate asymmetric responses to changes in gasoline wholesale prices , we find only limited evidence of such behavior for retail prices with respect to gasoline excise taxes. Finally, we find that gasoline markets in urban states exhibit full shifting, but those in rural states (with less competition) demonstrate somewhat less than full shifting . ( JEL H22)     

THE DEMAND for ILLICIT DRUGS

This paper estimates the effects of alcohol prices, marijuana decriminalization, cocaine prices, and heroin prices on the demand for these four substances. Both own price effects and cross price effects are estimated. The estimated price elasticities for alcohol, cocaine, and heroin are, respectively, –.30, –.28 and –.94. Marijuana decriminalization was found to increase the probability of marijuana participation by about 8%. The results for the cross price effects provide general evidence of complementarity. It is estimated that decriminalization of cocaine and heroin might lead to about 260,000 new regular cocaine users and about 47,000 new regular heroin users. ( JEL 110)     

INTERNATIONAL PRICE BEHAVIOR AND THE DEMAND FOR MONEY

Oil prices, commodity prices and American monetary policy, the last operating through a variety of channels, have all figured prominently in explanations of the international inflation process in the late 1960s and early 70s. OUT major purpose in this paper is to test these various hypotheses. We do so in the context of a reduced-form rational-expectations price equation which we estimate for the United States and seven other industrial countries using quarterly data for the period 1955 through 1976.
The principal conclusion that emerges from this exercise is that movements in domestic money in these countries served as the key link in the inflation process. The factors that produced these monetary changes, however, differed among countries. Price shocks of various sorts were clearly of secondary importance.
The other important set of conclusions concerns the demand for money. In place of a traditional stock adjustment model, we used GLS with a second-order correction for autocorrelation. We believe this produced more plausible estimates of the parameters of the long-run demand function and of the adjustment process itself.     

FORECASTING CRUDE OIL PRICE MOVEMENTS WITH OIL‐SENSITIVE STOCKS

This paper uses monthly data from 1984:M10 to 2012:M8 to show that oil‐sensitive stock price indices, particularly those in the energy sector, have strong power in predicting nominal and real crude oil prices at short horizons (1‐month‐ahead predictions), using both in‐ and out‐of‐sample tests. In particular, the forecasts based on oil‐sensitive stock price indices are able to outperform significantly the no‐change forecasts. For example, using the NYSE Arca (AMEX) oil index as a predictor, the 1‐month‐ahead forecasts for nominal crude oil prices reduce the mean squared prediction error by between 22% (for the West Texas Intermediate oil price) and 28% (for the Dubai oil price). Moreover, we find that the directional forecast based on the AMEX oil index is significantly better than a 50:50 coin toss. The novelty of this analysis is that it proposes a new and valuable predictor that both reflects timely market information and is readily available for forecasting the spot oil price.(JEL G17, Q43, Q47, C53)     

Determinants of remittances in Egypt: Do macroeconomic instability and oil price matter?

Emigration and resulting voluminous remittance inflows have been noticeable features of the Egyptian economy since the 1960s. The main purpose of this study is to investigate the determinants of remittances – primarily the role of both macroeconomic instability and oil price – in Egypt. Using autoregressive distributed lag (ARDL) bounds testing procedure, we estimated a remittance determination equation over the period from 1980 to 2015 and found that: (1) macroeconomic instability in Egypt and increases in international oil prices promote remittances; (2) GDP growth rate in the host countries and depreciation of domestic currency spur remittances; (3) financial development is inversely related to remittances, implying that remittances and financial development are substitutes; (4) GDP growth in the home country is not significantly associated with remittances.     

FINANCIAL INNOVATION, PRICE SMOOTHING, AND MONETARY POLICY

This paper examines an unregulated transaction services market that is subject to financial innovation in an economy that experiences aggregate supply and demand shocks. The availability of this unregulated market to transactors smooths the price response to these shocks. However, financial innovations act as money supply shocks that increase price disturbances. If there is persistence in the real aggregate supply shocks and in the rate of adoption of financial innovations, then the central bank can forecast some portion of the changes in transaction requirements that accompany these shocks and damp the residual variation in prices by accommodating these anticipated needs.     

Getting Real About Food Prices

The 2008 spike in world grain prices is widely recognised to have had serious impacts on food security and poverty, but these high grain prices are commonly described as low in historical terms – an inconsistency resulting from the use of advanced‐ and global‐economy price indices in calculating real prices. This ignores the high share of food in poor people's expenditures and the indirect effects of income growth on expenditure patterns of rich consumers. Poor consumers have not experienced the same falls in real food prices and are more vulnerable to price shocks. Different price indices must be developed to take account of differences between consumer groups.     

CYCLICAL COMOVEMENTS IN INDUSTRIAL LABOR AND PRODUCT MARKETS: THEORY AND EVIDENCE

We establish the theoretical connection between industrial labor and product markets within the contractual wage-rigidity new Keynesian explanation of business cycles. We estimate time-series and cross-sectional regressions for 28 private two-digit (S.I.C.) industries and find: (i) greater uncertainty is associated with upward flexibility of the nominal wage and moderates the countercyclical response of the real wage to aggregate demand shocks; (ii) an upwardly rigid nominal wage response to energy price shocks reduces the real contractionary effects of these shocks; (Hi) downwardly inflexible nominal wages are associated with downwardly rigid prices in response to productivity shocks.     

THE CYCLICAL BEHAVIOR OF PRICES AND RELATIVE PRICES

Price and output shock correlations provide information concerning macroeconomic shocks. Previous research generally finds small or negative correlations between real gross domestic product (GDP) and GDP deflator shocks but positive correlations between industrial production (IP) and consumer price index (CPI) shocks at short forecast horizons. We show that mismatched price and output correlations may have different magnitudes or signs than matched pairs. Matched and mismatched correlations between disaggregated prices and output from the GDP accounts indicate the procyclical price of nondurables to durables makes correlations between mismatches misleading. Thus, there is reason to be skeptical of results based on IP and the CPI. (JEL E31, E32)     

Food Prices,Government Subsidies and Fiscal Balances in South Mediterranean Countries

Soaring food and energy prices sparked the revolts in Northern African countries at the end of 2010. This article investigates empirically the impact of world food prices on inflation and government subsidies for Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the occupied Palestinian territories and Tunisia during the ten‐year period 2002–11. Its findings reveal an asymmetry in the response of consumer‐price inflation to shocks in world food prices that made inflation rise fast while nominal rigidities prevented it from falling. Moreover, it shows that government balances deteriorated to 2% of GDP in 2008 and 2011 owing to the incremental government food subsidies, while they hardly improved in value terms when world prices fell sharply in 2009.     

AN EXAMINATION OF LINEAR AND NONLINEAR CAUSAL RELATIONSHIPS BETWEEN COMMODITY PRICES AND U.S. INFLATION

This article uses both linear and nonlinear causality tests to examine the causal relationships between changes in commodity prices and U.S. inflation. Prior to the Great Moderation, there is evidence that changes in commodity price indices linearly lead inflation. The stability of the causal relationship appears to vary over time with a stronger bivariate link established before the Great Moderation. Further, there is evidence of significant nonlinear causality from raw industrials and metals indices to inflation with most of this detected nonlinear relationship being captured using the Baba, Engle, Kraft, and Kroner asymmetric generalized autoregressive conditional heteroskedasticity model. This implies that the observed nonlinear Granger causality is largely driven by unanticipated shocks and volatility spillovers in the run‐up of commodity prices in late 2000. (JEL C18, C22, E31)     

STATE TRADING AND THE QUESTION OF DISCRIMINATION: THE YUGOSLAV CASE

This paper determines the terms of trade between Yugoslavia and members of COMECON between 1966–1968 and Yugoslavia and the Soviet Union between 1957–1969. The results, based on prices prevailing in Yugoslavia's trade with Western Europe, show that Yugoslavia consistently paid lower prices and received higher prices in Bloc trade. The measured price deviations are then used to test two hypotheses, both related to the effect of dependence on measures of discrimination. The results indicated that as Yugoslavia became more integrated into Western markets (less dependent on COMECON trade), her discriminatory power increased.     

INFLATION AND ASYMMETRIC OUTPUT ADJUSTMENTS BY FIRMS

Using ordered probit analyses of a unique micro data set, we find evidence of output asymmetry that is systematically related to inflation and to price asymmetry. As predicted by theory, firms are more likely at higher rates of inflation to raise prices in response to positive cost and demand shocks and less likely to lower prices in response to negative cost and demand shocks. The expected effects of higher inflation on output asymmetry, however, come primarily from cost and demand increases and to a lesser (and statistically insignificant) extent from cost and demand decreases. (JEL E3, D4)     

House Price Shocks and Individual Divorce Risk in the United States

Households in the United States hold a significant portion of their total wealth in owner-occupied housing. Thus, changes in housing prices may have an important impact on the marital surplus the household enjoys. What happens to marriages of homeowners when there is a shock to housing prices? This question was addressed using household data from the panel study of income dynamics (PSID) and a quarterly MSA level house price index from the Federal Housing Finance Agency, controlling for local labor market conditions. House price shocks were calculated as the cumulative sum of residuals of a second order autoregressive model from the previous four years. Results showed that positive house price shocks stabilized marriage for all couples. A one standard deviation increase in the house price shock decreased the risk of divorce in the following year by about 13–18%. The results were driven by the younger cohort of households in the PSID, those with lower educational attainment, and those with relatively low family income. The findings are discussed in the context of theories on changes in marital surplus, and changes in the transaction costs surrounding divorce.     

A common-features analysis of Amsterdam and London financial markets during the eighteenth century

We examine the financial linkage between the London and Amsterdam financial markets using stock prices recorded in each market over the period 1723-94 in conjunction with tests for common trends, cycles, and regime shifts. These tests reveal a surprising degree of integration between the markets as their prices move together in both the short and long run. Moreover, shocks to the assets translate quickly and accurately between markets. It also appears that Dutch investment did not destabilize London markets and stock prices in London were the primary determinant of prices in Amsterdam.