Is there a yen optimum currency area? Evidence from 18 Asian and Pacific economies

This paper examines the macroeconomic costs and benefits of adopting a common currency (the yen) for 18 Asian and Pacific countries. Economic theory suggests that the main benefit is enhanced price stability, while the main cost is higher business-cycle volatility if the adopting country’s output is not sufficiently correlated with that of Japan. Using data from 1960–2001, the paper finds that the estimated cost and benefit measures exhibit substantial variability across the countries and are often positively correlated: countries (such as Bangladesh or Nepal) that have a lot to gain from adopting the yen, also have a lot to lose from it; while other economies (such as Singapore, Thailand, or Taiwan) that have little to lose by adopting the yen, have also little to gain by it. The empirical results can be also used to compare net benefits for individual countries, showing, for example, that Korea is a more promising candidate for adopting the yen than Pakistan or Malaysia.     

The Canadian Dollar and Purchasing Power Parity during the Recent Float

This paper re-examines the purchasing power parity (PPP) concept for five bilateral Canadian dollar exchange rates. The Johansen cointegration technique is employed. Evidence is found in favor of PPP when wholesale prices are used but not when consumer prices are utilized; whereas, in all but one case, it is not possible to reject the symmetry and proportionality hypotheses. Furthermore, it is shown that the dimension of the cointegration space may exhibit sample dependency, but the estimated coefficients are stable in recursive estimations. Finally, by implementing the multivariate KPSS test for the null hypothesis of cointegration, Johansen's results are overturned.     

Low Inflation vs. Stable Inflation: Evidence from the UK, 1688–2009

This paper investigates the relationship between inflation and inflation volatility. Using annual data from 1688 to 2009, the results show that UK inflation and its volatility have been positively correlated when inflation exceeds a certain value, but negatively correlated when inflation is below this threshold. The evidence also suggests that the break in the relationship occurs between annual inflation rates of 0.6% and 5.5%, which includes both the 2% inflation target of many central banks, and the 3.5% break point predicted by the New Keynesian model of Coibion et al. (2012).     

Getting PPP right: Identifying mean-reverting real exchange rates in panels

Recent advances in testing for the validity of Purchasing Power Parity (PPP) focus on the time series properties of real exchange rates in panel frameworks. One weakness of such tests, however, is that they fail to inform the researcher as to which cross-section units are stationary. As a consequence, a reservation for PPP analyses based on such tests is that a small number of real exchange rates in a given panel may drive the results. In this paper we examine the PPP hypothesis focusing on the stationarity of the real exchange rates in up to 25 OECD countries. We introduce a methodology that when applied to a set of established panel unit-root tests, allows the identification of the real exchange rates that are stationary. Our results reveal evidence of mean-reversion that is significantly stronger as compared to that obtained by the existing literature, strengthening the case for PPP.     

Openness to Trade and the Potency of Monetary Policy: How Strong is the Relationship?

Economic theory suggests that an economy's openness to international trade reduces the ability of monetary policy to affect output. Using quarterly data from the 1960:1–1993:4 period for a set of eight countries (Australia, Canada, Germany, Italy, Japan, South Africa, the U.K., and the U.S.A.), this article's empirical results support this theoretical prediction: the more open the economy, the smaller the output effects of a given change in the money supply. This finding, robust across all the different specifications and estimation methods examined, has straightforward implications for stabilization policy. Moreover, it suggests that an economy's net benefit from joining a monetary union is increasing with the economy's openness to foreign trade.     

Current Account Imbalances and Real Exchange Rates in the Euro Area*

Global current account imbalances have been one of the focal points of interest for policymakers during the last few years. Less attention has been paid, however, to the diverging current account balances of the individual euro area countries. In this paper we consider the dynamics of current account adjustment and the role of real exchange rates in current account determination in the EMU countries. After controlling for the effects of income growth, we find the relationship between real exchange rates and current accounts to be substantial in size and subject to nonlinear effects. We find that real exchange rates can offer further insights, beyond the effects of the income catch‐up process, relevant to current account determination in the EMU.     

A multi-criteria game theory and real-options model for irreversible ICT investment decisions

The information and communication technology (ICT) industry is one of the most capital intensive among the high-technology industries. ICT business analysis, especially after the industry deregulation, has become a difficult task. Traditional quantitative cost–benefit analysis concerning investment decisions is by no means sufficient for capturing the complexity of the problem in its entirety. This work combines quantitative and qualitative analyses for modeling competitive interactions between players in the ICT business field. The proposed decision analysis model combines real options, game theory, and analytic hierarchy process for analyzing ICT business alternatives under the threat of competition. The proposed model is applied to a real broadband technology business case, showing how it can be formulated and solved.     

German,US and Central and Eastern European Stock Market Integration

This paper examines the long-term linkages between seven Central and Eastern European (CEE) emerging stock markets and two developed stock markets, namely the German and the US markets. The stability of the long-run relationships is studied using recursive cointegration analysis. The results reveal that the financial linkages between the CEE markets and the world markets increased with the beginning of the EU accession process. Furthermore, the application of the Gonzalo and Granger (J Bus Econ Stat 13:27–35, 1995) methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the emerging stock markets of Central and Eastern Europe except for Estonia together with the German and the US stock markets, have a significant common permanent component, which drives this system of stock exchanges in the long run. Finally, it is worthwhile to note that the global financial crisis of 2007–2009 caused a slowdown in the convergence process. In addition we find evidence that the Slovenian stock market exhibits a moderate increase in the transitory component and this may be attributed to the Slovenian full membership in the euro area.     

Strategic and Tactical Roles of Enhanced Commodity Indices

This article formally compares two traditional long‐only commodity indices, Standard & Poor's Goldman Sachs Commodity Index (S&P‐GSCI) and Dow Jones‐UBS Commodity Index (DJ‐UBSCI), with their enhanced versions that exploit signals based on contract maturity, momentum, and term structure. The enhanced indices are found to be useful for tactical asset allocation. With alphas ranging from 2.77% to 5.49% per annum, the maturity‐enhanced indices offer the best abnormal performance after accounting for liquidity risk. Momentum and term structure enhancements also earn a positive, albeit smaller, alpha of 2.10% per annum on average. All the enhanced indices are found to have comparable effectiveness for risk diversification and inflation hedging as their traditional counterparts, making them useful for strategic asset allocation.     

Are Full Employment and Social Cohesion Possible Under Financialization?

Unemployment and unequal income distribution were singled out by J.M. Keynes, in the General Theory, as major faults of capitalist economies. This paper argues that there is a negative relationship between financialization and unemployment. In particular, we develop a simple Post Keyneian/Kaleckian model and explore distribution as well as institutional channels through which financialization might have negatively affected the employment performance of capitalist economies, undermining the social cohesion and egalitarian development. Furthermore, we argue that in the face of financialization full employment is likely to be attainable under the institutionalization of an Employer of Last Resort (hereafter ELR) policy strategy.