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Working Paper
Life expectancy of international cartels: an empirical analysis
This paper examines the empirical relation between market structure and life expectancy for cartels that were active in international commodity markets throughout this century. I consider two alternative empirical formulations and estimate their parameters recognizing that durability cannot take negative values. Both formulations predict that increases in either market shares or intercartel concentration prolong life expectancy but disagree in the relative importance of these two factors. The application of tests to discriminate among the two formulations does not support constant-elasticity ...
Working Paper
Real exchange rates: measurement and implications for predicting U.S. external imbalances
That international trade flows respond to changes in real exchange rates is beyond question. What is less clear is whether the measurement of real exchange rates matters for characterizing and predicting such responses. To identify the implications of choosing a given measure of the real exchange rate, I examine how the parameter estimates and the forecast performance of a given model vary in response to alternative measures of real exchange rates. I reject a given measure if its use (a) implies estimates inconsistent with economic theory; (b) contradicts the assumptions needed for ...
Working Paper
Trade elasticities for G-7 countries
This paper reports the results of a project to estimate and test the stability properties of conventional equations relating real imports and exports of goods and services for the G-7 countries to their incomes and relative prices. We begin by estimating cointegration vectors and the error-correction formulations. We then test the stability of these equations using Chow and Kalman-Filter tests. The evidence suggests three findings. First, conventional trade equations and elasticities are stable enough, in most cases, to perform adequately in forecasting and policy simulations. Equations for ...
Working Paper
Exchange rates, prices, and external adjustment in the United States and Japan
This paper studies the responsiveness of external balances--trade volumes and prices--to changes in exchange rates. Our objectives are twofold: to provide an analytical review of the literature in this area and to assess the influence of exchange rate movements on external adjustment in the two countries whose external imbalances have dominated all others over the past decade, the United States and Japan. ; We find that the conventional partial-equilibrium model of the trade balance has performed generally quite well in predicting the path of the U.S. and Japanese external balance over the ...
Working Paper
Some simple tests of the globalization and inflation hypothesis
This paper evaluates the hypothesis that globalization has increased the role of international factors and decreased the role of domestic factors in the inflation process in industrial economies. Toward that end, we estimate standard Phillips curve inflation equations for 11 industrial countries and use these estimates to test several predictions of the globalization and inflation hypothesis. Our results provide little support for that hypothesis. First, the estimated effect of foreign output gaps on domestic consumer price inflation is generally insignificant and often of the wrong sign. ...
Working Paper
The constancy of illusions or the illusion of constancies: income and price elasticities for U.S. imports, 1890-1992
Virtually all we know about the behavior of U.S. imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of U.S. trade cannot avoid asking whether the postwar period provides enough information to characterize that behavior. From 1890 to 1940, the United States became an increasingly closed economy and experienced the most pronounced fluctuations in income and prices of this century. Is our current understanding of the behavior of U.S. imports consistent with those features of the U.S. economy? Being consistent with the distant ...
Working Paper
Foreign holdings of U.S. Treasuries and U.S. Treasury yields
Foreign official holdings of U.S. Treasuries increased from $400 billion in January 1994 to about $3 trillion in June 2010. Most of this growth is accounted for by a handful of emerging market economies that have been running large current account surpluses. These countries are channeling their savings through the official sector, which is then acquiring foreign exchange reserves. Any shift in policy to reduce their current account surpluses or dampen the rate of reserves accumulation would likely slow the pace of foreign official purchases of U.S. Treasuries. Would such a slowing of foreign ...
Working Paper
IT investment and Hicks' composite-good theorem: the U.S. experience
We study whether aggregation residuals in U.S. private investment in information technology (IT) exhibit a predictable pattern that is consistent with Hicks' composite-good theorem and that may be used for forecasting. To determine whether one can extract such a pattern, we apply the general-to-specific strategy developed by Krolzig and Hendry (2001). This strategy combines ordinary least squares with a computer-automated algorithm that selects a specification based on coefficients' statistical significance, residual properties, and parameter constancy. Then, we derive the testable ...
Working Paper
Measuring U.S. international relative prices: a WARP view of the world
In this paper we construct a new measure of U.S. prices relative to those of its trading partners and use it to reexamine the behavior of U.S. net exports. Our measure differs from existing measures of the dollar's real effective exchange rate (REER) in that it explicitly incorporates both the difference in price levels between the United States and developing economies and the growing importance of these developing economies in world trade. Unlike existing REERs, our measure shows that relative U.S. prices have increased significantly over the past 15 years. In terms of simple correlations, ...