Suchergebnisse

With goods prices being sticky, monetary impulses are initially transmitted to the real economy via changes in asset prices; and asset price fluctuations can independently affect monetary and real developments. Most empirical models try to incorporate such monetary–asset price interactions by the inclusion of a short‐term interest rate and the exchange rate, but there are good reasons to doubt the sufficiency of this. Here we examine whether the predictive power of a reduced form equation for inflation, including standard explanatory variables, can be improved by adding other asset price variables, i.e. the changes in housing and equity prices and a yield spread. In our cross‐country time series exercise, we find that housing price movements do provide useful extra information on future inflation, with equity prices and the yield spread being somewhat less informative.

How should asset prices affect monetary policy, and how do they? It is argued that asset prices should not be included in the measure of inflation targeted by monetary policy, which should focus on the prices of goods and services for current consumption. The information yielded directly by asset prices, e.g. about inflation expectations and interest rate expectations, is examined. Finally, the question of what asset prices add to other indicators is considered, and it is concluded that asset prices matter for monetary policy because they help to inform judgements about inflation prospects.

An explicitly specified macro model of exchange rate determination is integrated with a model of trade account hysteresis. In this macro model, flow imbalances in the trade account must be matched by equilibrating stocks of imperfectly substitutable assets, generating a stock–flow consistent determination of the exchange rate. In this paper, changes in the real exchange rate induce firms to enter particular markets for internationally traded goods, which in turn affects the trade balance. When there are sunk costs associated with this entry, returning the real exchange rate to its initial state may not induce those firms to exit the markets that they have entered. This causes trade account hysteresis. Since the real exchange rate is in part determined by the trade balance, trade account hysteresis feeds through to give exchange rate hysteresis.

The concept of a peso problem is formalized in terms of a linear Euler equation and a non‐linear marginal model describing the dynamics of the exogenous variable driving the process. It is shown that, using a threshold autoregressive model as a marginal model, it is possible to produce time‐varying peso premia. A Monte Carlo method and a method based on the numerical solution of integral equations are considered as tools for computing conditional future expectations in the marginal model. A Monte Carlo study illustrates the poor performance of the generalized method of moments estimator in small and even relatively large samples. The poor performance is particularly acute in the presence of a peso problem but is also serious in the simple linear case.

Attempts by governments to finance a substantial proportion of expenditure by seigniorage can lead to multiple inflationary equilibria. Theoretical models suggest that, in these circumstances, inflation follows a non‐linear process with up to three steady states and that the stability characteristics of these depend on the process by which expectations are formed. In this paper we show that the exponential smooth transition autoregression (ESTAR) model is capable of exhibiting the required characteristics and so provides a suitable vehicle for analysing inflation in high inflation economies. We estimate ESTAR models for three well‐known inflationary episodes—the German hyperinflation of the early 1920s and post‐Second World War inflations in Argentina and Brazil. Our results imply that, during the periods in question, each of these economies possessed a stable low‐level equilibrium rate of inflation but that the variances of inflation shocks were large enough to drive each economy into a high inflation state. For Brazil, this high inflation state is stable around a particular value but in the cases of Argentina and Germany the high inflation state is characterized by inflation cycles.

Data on the net sources of finance for France are used to argue that the French financial system was never anéconomie d'endettement, and to question the idea that France has converged on the Anglo‐Saxon model under the impact of financial innovation and deregulation since the early 1980s. These data and additional qualitative information suggest that in the French financial system firms and their managers have more autonomy and more control over the allocation of financial resources than their counterparts in the Anglo‐Saxon countries or Japan, and the French system should not therefore be seen as a mere 'halfway‐house' between these two polar types.

A New Keynesian model is used to derive a relationship between current and expected future inflation taking into account future inflationary pressure. This relationship is employed to examine inflationary dynamics resulting from real disturbances to the economy. Positive current inflationary pressure can be associated with either rising or falling inflation—a phenomenon which has received little attention to date. A data‐based model of the UK is used to provide further evidence on the nature of the response of inflation to real disturbances and to quantify the importance of inertia in goods and labour markets.

This paper contains an econometric analysis of international convergence in growth allowing for the possibility of several trend breaks. The results offer further evidence against strong hypotheses of convergence but demonstrate the existence of common trends among subsets of countries. Trend growth estimates for OECD countries have fallen since the early post‐war period when catch‐up was strong, but nevertheless are generally higher than before the Second World War. Taking these results together with evidence from historical research, it is argued that the recent growth slowdown should not be seen as sufficient reason to reject the hypothesis of endogenous growth.

Books reviewed:Winkelmann, Rainer Econometric Analysis of Count DataCameron, A. Colin and Trivedi, Pravin K. Regression Analysis of Count DataCarraro, C. and Sinsicalco, D. (eds) New Directions in the Economic Theory of the EnvironmentXepapadeas, Anastasios Advanced Principles of Environmental PolicyWilson, F. A. (ed.) Towards Sustainable Project DevelopmentBroadberry, S. N.

To what extent can financing constraints, which have been so central to foreign‐debt‐related explanations of investment decline in heavily indebted economies, account for low investment rates in Mexico after 1982? In order to investigate the implications of the financing constraints hypothesis on investment decisions, this study employs a cost‐of‐adjustment model of investment and annual panel data of Mexican manufacturing industries covering the period 1970–90. It is found that some of the debt crisis effects on investment, identified in the earlier literature, may be due to binding financing constraints in Mexico.

This paper documents cyclical asymmetries in the aggregate investment activity of UK industrial and commercial companies. The ability of a model of aggregate activity based on heterogeneous actions under non‐convex adjustment at the individual level to account for this feature is then investigated. Aggregate activity is found to be consistent with non‐convex adjustment at the individual level. Asymmetric features of microeconomic adjustment technology do not appear crucial for understanding aggregate non‐linearities.

Four cases of a selection problem are examined where knowledge of the distributions from which project returns are drawn is private to entrepreneurs with projects. Diagrammatic analysis is used to determine the contract form offered by funding banks which choose between debt, equity or a more general contract. Two variants of the problem are novel. One new case indicates that some projects will receive equity finance and others debt finance, the other that the choice between debt or equity depends upon the level of the deposit interest rate. The efficiency of the level and composition of investment is examined.

In this paper we examine tenure decisions of public sector tenants following the Housing Act of 1980 which gave tenants the right to buy their property and a substantial discount on the purchase price. Tenure choice is found to be determined by the household budget constraint, life‐cycle characteristics and the quality of both the accommodation and the match between the household and the property, and is in many respects comparable with tenure choice in the private sector. As such, tenure transfers under the 'right to buy' initiative are efficient, undertaken by public sector tenants on the margin of owner‐occupation.