Though both classical liberals, Friedman adopted the quantity theory of money and used the general price indexes and aggregate data in empirical analysis, whereas Hayek rejected aggregative analyses as potentially misleading and focused on the impact of money on relative prices in his business cycle theory. This study shows theoretically that when the central bank minimizes the monetary shock to maintain stability in the general price level, it also maintains simultaneously relative price stability, thus narrowing the divergence between Friedman and Hayek. This finding is empirically verified by Canada’s experience with inflation targeting since 1991
{"title":"Friedman Meets Hayek on Money and Prices in Canada","authors":"Kam Hon Chu","doi":"10.15353/rea.v8i1.1432","DOIUrl":"https://doi.org/10.15353/rea.v8i1.1432","url":null,"abstract":"Though both classical liberals, Friedman adopted the quantity theory of money and used the general price indexes and aggregate data in empirical analysis, whereas Hayek rejected aggregative analyses as potentially misleading and focused on the impact of money on relative prices in his business cycle theory. This study shows theoretically that when the central bank minimizes the monetary shock to maintain stability in the general price level, it also maintains simultaneously relative price stability, thus narrowing the divergence between Friedman and Hayek. This finding is empirically verified by Canada’s experience with inflation targeting since 1991","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2016-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66906028","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study estimates the Markov-switching model and examines the Keynesian business cycle dynamics ofeconomic growth for a comprehensive set of eight OECD countries. The estimated duration of regime one is (i)shorter for Denmark, Sweden and Switzerland, (ii) moderate for France and (iii) longer for Belgium, Spain andthe U.S. The persistence of regime two is observed to be (i) shorter for Belgium, Canada, Spain, Sweden andthe U.S., (ii) moderate for Denmark and France, and (iii) longer for Switzerland. The stylized evidence for thepersistence of a given state has important implications for Keynesian policy activism and the formulation ofmacroeconomic stabilization policies. The monetary and fiscal policies are used to reduce the amplitudes andtime-durations of the economic growth cycles and, thus, stabilise the output around its long-run natural ratelevel and the inflation around its target level. The short-run downward rigidities in prices in the goods marketsand in nominal wages in the factor markets tend to impinge upon the clearance of markets and the accelerationof economic growth during recessions, thereby leading to the pathologically longer durations of lower regimes.While the longer durations of upper regimes support the sustainability of the expansionary economic policies,the adequate precautions need to be taken for the inflationary implications of these policies.
{"title":"Business Cycle Dynamics of Economic Growth in the OECD Countries: Evidence from Markov-Switching Model","authors":"T. Singh","doi":"10.15353/rea.v8i1.1431","DOIUrl":"https://doi.org/10.15353/rea.v8i1.1431","url":null,"abstract":"This study estimates the Markov-switching model and examines the Keynesian business cycle dynamics ofeconomic growth for a comprehensive set of eight OECD countries. The estimated duration of regime one is (i)shorter for Denmark, Sweden and Switzerland, (ii) moderate for France and (iii) longer for Belgium, Spain andthe U.S. The persistence of regime two is observed to be (i) shorter for Belgium, Canada, Spain, Sweden andthe U.S., (ii) moderate for Denmark and France, and (iii) longer for Switzerland. The stylized evidence for thepersistence of a given state has important implications for Keynesian policy activism and the formulation ofmacroeconomic stabilization policies. The monetary and fiscal policies are used to reduce the amplitudes andtime-durations of the economic growth cycles and, thus, stabilise the output around its long-run natural ratelevel and the inflation around its target level. The short-run downward rigidities in prices in the goods marketsand in nominal wages in the factor markets tend to impinge upon the clearance of markets and the accelerationof economic growth during recessions, thereby leading to the pathologically longer durations of lower regimes.While the longer durations of upper regimes support the sustainability of the expansionary economic policies,the adequate precautions need to be taken for the inflationary implications of these policies.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2016-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Weather can have profound effects on economic activity, most obviously agriculture, construction, and transportation. It has also been argued that the daily weather in New York City affects daily U.S. stock returns, a clear challenge to the efficient market presumption that rational investors will not let their assessment of a stock’s value be swayed by whether the sun happens to be shining. Studies claiming to have found a sunshine effect are clouded by differing methodologies which may have been chosen to buttress their results. We examine a fresh set of data and confirm the existence of a New York City sunshine effect which has weakened over time as trading has become more geographically dispersed.
{"title":"Sunny Upside? The Relationship Between Sunshine and Stock Market Returns","authors":"Gary Smith, Michael Zurhellen","doi":"10.15353/rea.v7i2.1420","DOIUrl":"https://doi.org/10.15353/rea.v7i2.1420","url":null,"abstract":"Weather can have profound effects on economic activity, most obviously agriculture, construction, and transportation. It has also been argued that the daily weather in New York City affects daily U.S. stock returns, a clear challenge to the efficient market presumption that rational investors will not let their assessment of a stock’s value be swayed by whether the sun happens to be shining. Studies claiming to have found a sunshine effect are clouded by differing methodologies which may have been chosen to buttress their results. We examine a fresh set of data and confirm the existence of a New York City sunshine effect which has weakened over time as trading has become more geographically dispersed.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2016-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905786","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the relationship between environmental stringency and mergers and acquisitions (M&A) activity in a highly polluting, resource-based industry. Specifically, it seeks to determine whether buyers are targeting countries with the same or different levels of environmental stringency than in their own country, i.e. whether pollution havens exist in the global mining industry. Rather than aggregate investment, which has been used by most previous studies, we analyze a dataset of individual investment choices. We model the choice of country and the amount invested jointly as the two variables are likely to be correlated. The choice of country is modeled using a random parameters multinomial Logit model. We use a hitherto unanalyzed data set of the value paid for all completed M&A in the mining industry worldwide between 1994 and 2006. We find no evidence of pollution havens in this industry. If anything, buyers from countries with high levels of environmental stringency are more likely to invest in countries with a similar level of environmental stringency and make larger investments in them than in less environmentally stringent countries.
{"title":"The Determinants of Mergers & Acquisitions in a Resource-Based Industry: What Role for Environmental Sustainability?","authors":"R. León-González, L. Tole","doi":"10.15353/rea.v7i2.1417","DOIUrl":"https://doi.org/10.15353/rea.v7i2.1417","url":null,"abstract":"This paper examines the relationship between environmental stringency and mergers and acquisitions (M&A) activity in a highly polluting, resource-based industry. Specifically, it seeks to determine whether buyers are targeting countries with the same or different levels of environmental stringency than in their own country, i.e. whether pollution havens exist in the global mining industry. Rather than aggregate investment, which has been used by most previous studies, we analyze a dataset of individual investment choices. We model the choice of country and the amount invested jointly as the two variables are likely to be correlated. The choice of country is modeled using a random parameters multinomial Logit model. We use a hitherto unanalyzed data set of the value paid for all completed M&A in the mining industry worldwide between 1994 and 2006. We find no evidence of pollution havens in this industry. If anything, buyers from countries with high levels of environmental stringency are more likely to invest in countries with a similar level of environmental stringency and make larger investments in them than in less environmentally stringent countries.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2016-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905647","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Konstantinos Drakos, N. Giannakopoulos, P. Konstantinou
Performance persistence in the US mutual fund market is investigated, modeling risk-adjusted performance as a Markov Chain. This allows us to explore whether there is a higher probability for funds to remain in their initial ranking, compared to the probability that funds exhibit some kind of movement. We find some degree of inertia due to non-uniformity of transition probabilities across states. Our analysis allows also assesses the proximity of empirical transition matrices to two benchmark matrices, identifying the no-persistence/perfect immobility cases. We find that the observed transition matrices are closer to the no-persistence benchmark and also that performance persistence has decreased over time.
{"title":"Investigating Persistence in the US Mutual Fund Market: A Mobility Approach","authors":"Konstantinos Drakos, N. Giannakopoulos, P. Konstantinou","doi":"10.15353/rea.v7i1.1485","DOIUrl":"https://doi.org/10.15353/rea.v7i1.1485","url":null,"abstract":"Performance persistence in the US mutual fund market is investigated, modeling risk-adjusted performance as a Markov Chain. This allows us to explore whether there is a higher probability for funds to remain in their initial ranking, compared to the probability that funds exhibit some kind of movement. We find some degree of inertia due to non-uniformity of transition probabilities across states. Our analysis allows also assesses the proximity of empirical transition matrices to two benchmark matrices, identifying the no-persistence/perfect immobility cases. We find that the observed transition matrices are closer to the no-persistence benchmark and also that performance persistence has decreased over time.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2015-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905466","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
M. Çaglayan, Ozge Kandemir Kocaaslan, Konstantinos Mouratidis
In this paper, we propose an analytical framework to explore the level and volatility effects of inflation on the output gap. Using quarterly US data over 1977:q2-2009:q4, we then examine the empirical implications of the model by implementing an instrumental variables Markov regime switching approach. We show that inflation uncertainty has a negative and regime dependent impact on the output gap but the level of inflation does not have any such effect. Our empirical investigation also provides evidence that the US economy is moving towards a period of turmoil before the recent financial crisis was imminent. The results are robust to the use of alternative measures of inflation uncertainty. Keywords: Output gap; inflation uncertainty; Markov-switching modeling; instrumental variables; endogeneity. JEL classification: E31, E32
{"title":"Uncertainty Effects of Inflation on Output: A MRS-IV Approach","authors":"M. Çaglayan, Ozge Kandemir Kocaaslan, Konstantinos Mouratidis","doi":"10.15353/rea.v7i1.1483","DOIUrl":"https://doi.org/10.15353/rea.v7i1.1483","url":null,"abstract":"In this paper, we propose an analytical framework to explore the level and volatility effects of inflation on the output gap. Using quarterly US data over 1977:q2-2009:q4, we then examine the empirical implications of the model by implementing an instrumental variables Markov regime switching approach. We show that inflation uncertainty has a negative and regime dependent impact on the output gap but the level of inflation does not have any such effect. Our empirical investigation also provides evidence that the US economy is moving towards a period of turmoil before the recent financial crisis was imminent. The results are robust to the use of alternative measures of inflation uncertainty. Keywords: Output gap; inflation uncertainty; Markov-switching modeling; instrumental variables; endogeneity. JEL classification: E31, E32","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2015-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66904926","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A short presentation and description of the papers that have been selected from the 1stInternational Conference in Applied Theory, Macroeconomics and Empirical Finance(AMEF) that took place in in the Department of Economics,
{"title":"Guest Editorial: AMEF","authors":"Theodore Panagiotidis","doi":"10.15353/rea.v7i1.1482","DOIUrl":"https://doi.org/10.15353/rea.v7i1.1482","url":null,"abstract":"A short presentation and description of the papers that have been selected from the 1stInternational Conference in Applied Theory, Macroeconomics and Empirical Finance(AMEF) that took place in in the Department of Economics,","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2015-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905335","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper surveys export hysteresis on a micro (firm) level and an aggregate level if sunk adjustment costs matter for export market entry and exit decisions. Furthermore, the impacts of option-to-wait effects due to uncertainty on the aggregation procedure are illustrated. It then illustrates the so-called play-algorithm which allows an estimation of the aggregate/macro hysteresis loop taking into account the variable option value effects resulting from on changing volatility of exchange rates. The play regression model is then applied to empirical export equations (Euro Area member countries to the United States). We do not confine ourselves to the aggregate macro level but also take a sectoral/branch perspective. Analyzing one of the largest export destinations outside the Eurozone, the US, to which 12% of total EA exports were directed in 2012, we find hysteretic effects in many cases of EA member countries’ exports. However, not every increase or decrease of the exchange rate will, automatically, lead to positive or negative reactions of the volume of exports. But a large appreciation of the euro means passing the play-area (i.e. a kind of 'pain-threshold') and results in a strong reaction of exports, et vice versa.
{"title":"Exchange Rate Volatility and other Determinants of Hysteresis in Exports - Empirical Evidence for the Euro Area","authors":"A. Belke, Matthias Göcke, Laura M. Werner","doi":"10.15353/rea.v7i1.1484","DOIUrl":"https://doi.org/10.15353/rea.v7i1.1484","url":null,"abstract":"This paper surveys export hysteresis on a micro (firm) level and an aggregate level if sunk adjustment costs matter for export market entry and exit decisions. Furthermore, the impacts of option-to-wait effects due to uncertainty on the aggregation procedure are illustrated. It then illustrates the so-called play-algorithm which allows an estimation of the aggregate/macro hysteresis loop taking into account the variable option value effects resulting from on changing volatility of exchange rates. The play regression model is then applied to empirical export equations (Euro Area member countries to the United States). We do not confine ourselves to the aggregate macro level but also take a sectoral/branch perspective. Analyzing one of the largest export destinations outside the Eurozone, the US, to which 12% of total EA exports were directed in 2012, we find hysteretic effects in many cases of EA member countries’ exports. However, not every increase or decrease of the exchange rate will, automatically, lead to positive or negative reactions of the volume of exports. But a large appreciation of the euro means passing the play-area (i.e. a kind of 'pain-threshold') and results in a strong reaction of exports, et vice versa.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2015-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905415","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a macroeconomic framework to estimate the importance of fluctuations in relative ability in accounting for trends in the college premium in the United States since 1965. The theoretical scaffolding is a heterogeneous agent model with two dimensions of ability and endogenous schooling choice, with exogenous skill-biased technological change (SBTC), college tuition, and noneconomic social forces. We solve for conditions under which SBTC reduces the relative ability of college educated workers, and show that these conditions are met in the data. We attribute the drop in the college premium over the 1970s to a 25.5% drop in the mean relative quality of college-educated workers from 1968 to 1977. We find that SBTC explains about two thirds of the increase in college attendance since 1965, and that absent both supply shifts and a supply response to SBTC, the relative wage of highly educated workers would have been 77.1% larger in 2013.
{"title":"Changes in Relative Ability as a Determinant of the U.S. College Premium","authors":"D. Martin, Yongli Zhang","doi":"10.15353/rea.v7i1.1486","DOIUrl":"https://doi.org/10.15353/rea.v7i1.1486","url":null,"abstract":"We develop a macroeconomic framework to estimate the importance of fluctuations in relative ability in accounting for trends in the college premium in the United States since 1965. The theoretical scaffolding is a heterogeneous agent model with two dimensions of ability and endogenous schooling choice, with exogenous skill-biased technological change (SBTC), college tuition, and noneconomic social forces. We solve for conditions under which SBTC reduces the relative ability of college educated workers, and show that these conditions are met in the data. We attribute the drop in the college premium over the 1970s to a 25.5% drop in the mean relative quality of college-educated workers from 1968 to 1977. We find that SBTC explains about two thirds of the increase in college attendance since 1965, and that absent both supply shifts and a supply response to SBTC, the relative wage of highly educated workers would have been 77.1% larger in 2013.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2015-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905537","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recently, social media, particularly microblogs, have become highly valuableinformation resources for many investors. Previous studies examined general stockmarket movements, whereas in this paper, USD/TRY currency movements based on thechange in the number of positive, negative and neutral tweets are analyzed. Weinvestigate the relationship between Twitter content categorized as sentiments, such asBuy, Sell and Neutral, with USD/TRY currency movements. The results suggest thatthere exists a relationship between the number of tweets and the change in USD/TRYexchange rate.
{"title":"A Sentiment Analysis of Twitter Content as a Predictor of Exchange Rate Movements","authors":"S. Ozturk, Kursad Ciftci","doi":"10.15353/rea.v6i2.1416","DOIUrl":"https://doi.org/10.15353/rea.v6i2.1416","url":null,"abstract":"Recently, social media, particularly microblogs, have become highly valuableinformation resources for many investors. Previous studies examined general stockmarket movements, whereas in this paper, USD/TRY currency movements based on thechange in the number of positive, negative and neutral tweets are analyzed. Weinvestigate the relationship between Twitter content categorized as sentiments, such asBuy, Sell and Neutral, with USD/TRY currency movements. The results suggest thatthere exists a relationship between the number of tweets and the change in USD/TRYexchange rate.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2015-04-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66905270","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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