Why is it so difficult to outperform the random walk in exchange rate forecasting?

A simulation exercise is used to demonstrate the difficulty to outperform the random walk in exchange rate forecasting if forecasting accuracy is judged by the Root Mean Square Error (RMSE) or similar criteria that depend on the magnitude of the forecasting error. It is shown that, as the exchange rate volatility rises, the RMSE of the model rises faster than that of the random walk. While the literature considers this finding to be a puzzle that casts a big shadow of doubt on the soundness of international monetary economics, the results show that failure to outperform the random walk, in both in-sample and out-of-sample forecasting, should be the rule rather than the exception. However, the results do not imply that the random walk is unbeatable, because it can be easily outperformed if forecasting accuracy is judged according to criteria such as direction accuracy and profitability.     

Why the money multiplier has remained persistently so low in the post-crisis United States?

The money multiplier collapsed in the USA in the wake of the Lehman crisis, and since then it remained at particularly low levels. The main reason for this collapse is to be found in the significant increase in banks’ excess reserves and the modest increase in deposits. The weak growth of deposits resulted from a contained growth of loans. Most scholars attribute the latter to the low propensity of banks to grant credit. Using quarterly data for the period 1991–2017 we estimate a demand for loans by firms and households. We show that the modest increase in deposits and the persistence of low levels of the US money multiplier has been due to the weak demand for loans by the private sector.     

Exchange rate variability and trade: why is it so difficult to find any empirical relationship?

This paper discusses why previous literature has found little evidence of any effect of exchange rate variability on international trade. Methodological and statistical issues are discussed. In particular, comparisons are made of estimations based on different specifications or using different data sets and changes in the results depending on the method used are shown.     

Exchange rate pass-through in the Asian countries: does inflation volatility matter?

This paper presents a nonlinear relationship between exchange rate pass-through (ERPT) and inflation volatility. Through the lens of a threshold framework, we uncover a clear evidence of near to one ERPT to consumer prices once inflation volatility crosses a threshold level of 4.17. Clearly, there are significant differences in the degree of ERPT between the high and low inflation volatility in the inflation targeting (IT) and non-IT Asian countries.     

Inequality and growth in the United States: is there asymmetric response at the state level?

A previous study that tried to assess the impact of economic growth on income inequality in the U.S. used state-level data and an ARDL panel model to conclude that economic growth worsens income inequality in the U.S. In this article, we use the same data set but an ARDL time-series model applied to each state in the U.S. to show that the above conclusion is only valid in 20 states. Additionally, we use a nonlinear ARDL approach to show that the effects are asymmetric in the short run as well as in the long run. Significant long-run asymmetric effects reveal that in 28 states both an increase and a decrease in real output have worsened income distribution.     

Why does the investment rate not increase? Capital accumulation and stabilization policy in the 1990s and 2000s in Brazil

The stabilization of inflation was conquered in the mid-1990s, but since then the Brazilian economy has not shown a stable growth trend. This article discusses how the maintenance of a high interest rate in Brazil has affected growth through its impact on investment decision. In a macroeconomic environment with a relatively high degree of uncertainty, decisions to accumulate capital rely heavily on retained earnings and are negatively affected by the persistent high level of interest rates. Our econometric exercise reveals that the interest rate is the most important variable to explain the investment rate, and that financialization negatively impacts physical capital accumulation.     

Why is change so slow? Assessing prospects for United Nations Security Council reform

The article explores how changed patterns of UN membership affected the prospects for UN Security Council institutional reform. First, we outline a theoretical framework based on path dependency, veto player analysis and social choice theory. Second, we offer calculations of decision probability and show that a higher voting threshold lowers chances of winning coalitions in a non-linear fashion. Third, we explore the specific decision-making procedures for UNSC reform and which actors can block reform. We conclude that not only diverging preferences, but that hurdles established early on combined with membership growth have ‘locked in’ the current institutional arrangement.     

Heart rate variability testing: could it change spending for rheumatoid arthritis patients in the United States? An exploratory economic analysis

Background: Autonomic nervous system (ANS) testing with heart rate variability (HRV) has been shown in early research to predict 52-week outcomes in rheumatoid arthritis (RA). HRV testing could be combined with putative ANS biologic pathways to improve treatment response for RA patients. This study explored potential costs and health outcomes of introducing HRV testing into RA treatment, without and with ANS optimization.

Methods: A decision tree exploratory economic model compared HRV testing to standard care in moderate-to-severe biologic-eligible patients over a 10-year time horizon. HRV data was derived from an observational study of RA patients (n?=?33). Patients were stratified into treatment groups based on HRV test scores indicating “low probability of response” and “moderate to high probability of response”. This study explored adding ANS optimization based on HRV score followed by clinically-appropriate treatment. Costs and quality-adjusted life-years (QALYs) for the US population were estimated.

Results: HRV testing in biologic-eligible patients decreased non-effective biologic use, reducing US healthcare costs by $34.6 billion over 10 years with QALYs unchanged. When combined with ANS optimization in biologic-eligible patients, HRV testing could increase costs by $3.6 billion over 10 years but save over 350,000 QALYs. Among all RA patients, HRV testing with ANS optimization could save over $8 billion and over 100,000 QALYs over 10 years, depending on the positive predictive value (PPV) of the HRV test.

Conclusions: The potential economic impact of introducing HRV testing and ANS optimization into RA treatment appears substantial and cost-effective based on the exploratory analysis. Additional rigorous studies are warranted in larger patient samples to better inform decision-making.     

Continuing Progress? Trends in Occupational Segregation in the United States over the 1970s and 1980s

This study uses comparable data on 470 detailed occupations from the 1970, 1980, and 1990 Censuses to analyze trends in occupational segregation in the United States in the 1980s and compare them in detail to the 1970s experience of declining segregation. We find that the trend towards reduced segregation did indeed continue into the 1980s at only a slightly slower pace. In both decades, changes in sex composition within occupations accounted for the major share of the decline in segregation (compared to changes in the mix of occupations in the economy). We also find that the pattern of changes in the sex composition of occupations and in the employment distribution of workers that produced the observed reductions in segregation were remarkably similar in each of these two periods. This similarity potentially poses some problems for the future. As women continue to enter the same areas, resegregation, which we found to have relatively moderate effects in the 1970s and 1980s, becomes an increasing possibility. Continued progress towards reducing occupational segregation requires that women succeed in entering a broader range of traditionally male occupations and/or a greater flow of men into traditionally female occupations.     

Why does monetary policy respond to the real exchange rate in small open economies? A Bayesian perspective

To estimate how monetary policy works in small open economies, we build a dynamic stochastic general equilibrium model that incorporates the basic features of these economies. We conclude that the monetary policy in a group of small open economies (including Australia, Chile, Colombia, Peru, and New Zealand) is rather similar to that observed in closed economies. Our results also indicate, however, that there are strong differences due to the shocks from the international financial markets (mainly risk premium shocks). These differences explain most of the variability of the real exchange rate, which has important reallocation effects in the short run. Our results are consistent with an old idea from the Mundell–Fleming model: namely, a real depreciation to confront a risk premium shock is expansive or procyclical, in contradiction to the predictions of the balance sheet effect, the J curve effect, and the introduction of working capital into RBC models. In line with this last result, we have strong evidence that only in one of the five countries analyzed in this study does not intervene the real exchange rate, the case of New Zealand.     

The older nurse in the workplace: does age matter?

Between 2010 and 2020, over 40% of the RN workforce will be over 50 years of age, and many RNs are expected to retire and withdraw from the workforce. Given that older nurses are the fastest growing cohort of the workforce, the important findings presented in this article deserve careful consideration by policymakers, health care leaders, and managers.     

Why is it so difficult to outperform the random walk? An application of the Meese–Rogoff puzzle to stock prices

Some economists suggest that the Meese–Rogoff puzzle is equally applicable to the stock market, in the sense that no model of stock prices can outperform the random walk in out-of-sample forecasting. We argue that this is not a puzzle and that we should expect nothing, but this result if forecasting accuracy is measured by the root mean square error (RMSE) and similar metrics that take into account the magnitude of the forecasting error only. We demonstrate by using two models for dividend-paying and nondividend-paying stocks that as price volatility rises, the RMSE of the random walk rises, but the RMSE of the model rises even more rapidly, making it unlikely for the model to outperform the random walk.     

Why is Income Inequality Increasing in the Developed World?

We address empirically the factors affecting the dynamics of income inequality among industrialized economies. Using a panel for 32 developed countries spanning the last four decades, our results indicate that the predictions of the Stolper–Samuelson theorem concerning the effects of international trade on income inequality find support in the data if we concentrate on imports from developing countries as a trade measure, as theory would imply. We find that democratization, the interaction of technology and education, and changes in the relative power of labor unions affect inequality dynamics robustly.     

Can Empathy Explain Gender Differences in Economic Policy Views in the United States?

This paper shows that different levels of empathy of men and women explain the well-documented gender differences in interventionist government economic policy views in the United States. Using the Davis Interpersonal Reactivity Index (IRI) to measure empathy, the study finds that more empathic people support more interventionist policies. While greater empathy leads both men and women to support more government action, there is no gender difference in the effects of empathy on policy views. When policy views are separated by area, gender differences on policies concerning poverty, inequality, and social welfare disappear once empathy is accounted for, though they persist in views on free markets.     

Monetary policy rules in Central and Eastern European Countries: Does the exchange rate matter?

We estimate monetary policy rules for six Central and Eastern European Countries (CEEC) during the period when they prepared for membership to the EU and monetary union. By taking changes in the policy settings explicitly into account and by splitting up the exchange rate impact into two different components we significantly improve estimation results for monetary policy rules in CEEC. We uncover that the focus of the interest rate setting behaviour in the Czech Republic, Hungary and Poland explicitly switched from defending the peg to targeting inflation. For Slovakia, however, there still seemed to be on ongoing focus on the exchange rate. Finally, Slovenia and, after a policy switch, Romania exhibit a solid relation with inflation as well.     

Bubbles and house price dispersion in the United States during 1975–2017

We investigate the rapid growth in the dispersion of housing prices across metropolitan statistical areas (MSAs) in the United States during 1975–2017. We first examine several explanations for this pattern, and find that it is difficult to fully explain it. Our econometric analyses show that the log of price-to-rent ratios follows a random walk process. We then set up a parsimonious asset-pricing island model. We find that the dispersion of fundamental housing prices grow too slow relative to that in data. Incorporating rational bubble solutions, our calibrated model can match the rapid growth in the dispersion of housing prices.     

Higher education enrolment in Bangladesh: does the wage premium matter?

This paper empirically examines the decisions of individuals to enrol in a course of tertiary education in Bangladesh, focussing on the period 1999 to 2009. Of particular interest is whether the wage premium―the gap in wage earnings between tertiary and secondary school graduates―is associated with decisions to enrol in tertiary education. The analytical framework used here is the human capital theory, which is tested through a discrete choice model. Using data from Bangladesh Labour Force Surveys, empirical results suggest that the wage premium is positively associated with decisions of males to enrol in tertiary education, while for females there appears to be no such association. A battery of robustness tests supports our results.     

Growth in Africa: does the source of investment financing matter?

This paper examines empirical evidence for 11 sub-Saharan African countries on the relationship between economic growth and three principal sources of investment funds: foreign aid, foreign direct investment, and domestic saving. In light of the shortcomings of traditional cross-section analyses, the time series approach is used instead. Modern time series methods are rigorously applied, beginning with unit root tests and followed by model specifications that reflect the revealed temporal behaviours of the variables in each of the 11 countries. Domestic saving seems to play a somewhat more important role in generating economic growth than foreign direct investment or foreign aid. However, the mixture of results across the 11 countries implies that, in general, it is not possible to rank one source of investment financing ahead of any other.