Money and totality: A review essay

Moseley’s (2016 Moseley, F. 2016. Money and Totality: A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the Transformation Problem. Leiden: Brill Publishers. [Google Scholar]) Money and Totality focuses on two important issues: (a) the nature and significance of Marx’s notion of the “circuit of money capital” and (b) the solution to the “transformation problem”. The former question, in particular, makes this book important not only for Marx specialists but also for other dissenting economists. Recall that in writings before the General Theory Keynes (1933a, 1933b), in particular, made allusion to the Marxian circuit via the concept of the monetary theory of production. However, these references did not survive in the published version in 1936. Nor was Keynes at all confident on this topic in debate the following year. It is therefore important to both Marx scholars and other heterodox economists to inquire exactly how the Marxian circuit was supposed to work. A starting point is to write out the scheme from Capital Vol. 2 (Marx, 1885/1976 Marx, K. 1885/1976. Capital: Vol. II. London: Penguin Books. [Google Scholar]) in full, M – C?…?P … C’ –?M’, and try to explain what the magnitudes (M’ – M) and (C’ – C), are supposed to represent. This is indeed one of Moseley’s main tasks in this thought-provoking book.     

Adolphe Quetelet,the average man and the development of economic methodology *

Abstract

Quetelet's contribution to statistics has received adequate attention in Stigler (1986 Stigler, S. M. 1986. The History of Statistics. The Measurement of Uncertainty before 1900, Cambridge & London, MA: Belknap Press of Harvard University Press.  [Google Scholar], 1999 Stigler, S. M. 1999. Statistics on the Table. The History of Statistical Concepts and Methods, Cambridge & London, MA: Harvard University Press.  [Google Scholar]) and Porter's (1986) seminal works on the history of that scientific discipline. 24 24 See also Westergaard (1932 Westergaard, H. 1932. Contributions to the History of Statistics, London: King & Son.  [Google Scholar]: 167–70), Klein (1997 Klein, J. 1997. Statistical Visions in Time. A History of Time Series Analysis 1662–1938, Cambridge: Cambridge University Press.  [Google Scholar]: 122–31). Our contribution investigates Quetelet's influence on economic methodology. Other scholars have already investigated his influence on econometrics and empirical economics (Morgan 1990 Morgan, M. S. 1995. The History of Econometric Ideas, Cambridge: Cambridge University Press. [1990] [Google Scholar], Stigler 1999 Stigler, S. M. 1999. Statistics on the Table. The History of Statistical Concepts and Methods, Cambridge & London, MA: Harvard University Press.  [Google Scholar]), but we argue that his influence on theoretical economics should be considered significant as well. We devote attention to Quetelet's concept of the ‘average man’. For this purpose we briefly summarize Quetelet's methodology and examine the evolution of his ideas as expressed in his published works. We then investigate his influence on Jevons's ‘calculus of pleasures and pains’ and on the statistical investigations of the German historical school. We argue that the history of statistics, and especially Quetelet's contribution, should not be neglected by historians of economic thought as it provides important insights into the development of economic methodology.     

Reforming the international monetary system: a stock-flow-consistent approach

Abstract:

The emergence and persistence of large trade imbalances as well as the volatility of financial flows among countries have been attributed, at least in part, to the inadequacy of the current international monetary system after the breakdown of Bretton Woods. From a different perspective, the current eurozone crisis is also the result, in our view, of a flawed institutional setting. These problems call for reforms to mitigate or avoid the recessionary bias that is the outcome of current systems, as Keynes predicted in the discussion preceding the Bretton Woods agreements. In this paper we briefly review the evidence on international imbalances, and survey the rapidly growing literature on the subject. We introduce a set of models based on the stock-flow-consistent approach pioneered by Godley (1999 Godley, W. “Open Economy Macroeconomics Using Models of Closed Systems.” Working Paper no. 281, Levy Economics Institute of Bard College, 1999. [Google Scholar]) and Lavoie and Godley (2003 Lavoie, M., and Godley, W. “Two-Country Stock-Flow Consistent Macroeconomics Using a Closed Model Within a Dollar Exchange Regime.” CERF Working Paper no. 10, University of Cambridge, 2003. [Google Scholar]). We discuss how to use these models to explore potential reform of the international monetary system.     

A Simple Model of Entrepreneurship for Principles of Economics Courses

The critical roles of entrepreneurs in creating, operating, and destroying markets, as well as their importance in driving long-term economic growth are still generally either absent from principles of economics texts or relegated to later chapters. The primary difficulties in explaining entrepreneurship at the principles level are the lack of a universally accepted definition, a plausible explanation of the demand for entrepreneurship, and a diagram that summarizes the impact of entrepreneurship on market equilibrium and growth—a definition, a story, and a picture. This article discusses how the notion of the stationary state associated with Schumpeter (1911 Schumpeter, J. A. 1911/1983. Theory of economic development., Cambridge, MA: Harvard University Press.  [Google Scholar]/1983), Knight (1921 Knight, F. H. 1921/1971. Risk, uncertainty and profit, Chicago: University of Chicago Press. [Crossref] , [Google Scholar]/1971), and Weber (1930 Weber, M. 1930/2002. The Protestant ethic and the spirit of capitalism, New York: Scribner's.  [Google Scholar]/2002) can provide a framework for integrating the entrepreneur into the early part of principles of economics courses.     

Structural changes and regional disparity in China's inflation: a revisit

The study re-examined the time series properties and regional disparities in Chinese inflation by extending the work of Chong, Zhang, and Feng (2011 Chong, Tai-Leeung, Terence, Ning Zhang and Feng, Qu. 2011. Structural Changes and Regional Disparity in China's Inflation. Economics Bulletien, 31(1): 572–583.  [Google Scholar]). For this purpose we employed the Lagrange Multiplier (LM) unit root test with one structural break and two structural breaks suggested by Lee and Strazicich (2003 Lee, Junsoo, Mark, C. and Strazicich. 2003. Minimum LM Unit Root Test with Two Structural Breaks. Review of Economics and Statistics, 85(4): 1082–1089. [Crossref], [Web of Science ®] , [Google Scholar], 2004 Lee, J. and Strazicich, M. 2004. Minimum LM unit root test with one structural break. Working Paper 04–17, Boone, North Carolina: Department of Economics, Appalachian State University.  [Google Scholar]) and a recently developed ADF type unit root test with two structural breaks of Narayan and Popp (2010 Narayan, Paresh Kumar and Stephan Popp. 2010. A New Unit root test with Two Structural Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37(9): 1425–1438. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]). We found that national, urban and rural series of the overall inflation series, clothing, and food, national series of education and residence and the rural series of residence and education are stationary. We also found regional disparity in Chinese inflation, but the disparities existed only in education inflation series.     

Investor Attention and Global Stock Returns

The author constructs a direct measure of investor attention toward global benchmark indices using Google search volume and empirically examines its impact on stock returns. The author documents a significant decrease in index returns following an increase in investor attention. This result is consistent with the investor recognition hypothesis (Merton [1987 Merton, R. “A Simple Model of Capital Market Equilibrium with Incomplete Information.” Journal of Finance, 42, (1987), pp. 483–510.[Crossref], [Web of Science ®] , [Google Scholar]]) and the finding of no-media premium in the United States (Fang and Peress [2009 Fang, L., and J. Peress. “Media Coverage and the Cross-section of Stock Returns.” Journal of Finance 64, (2009), pp. 2023–2052.[Crossref], [Web of Science ®] , [Google Scholar]]). Additional tests suggest that the attention effect may be attributable to local and U.S. investors. Finally, such negative effect of attention is found to be strengthened (weaken) in the market with positive (negative) sentiments.     

Relationships between oil price shocks and stock market: an empirical analysis from Greater China

Although a lot of empirical research has studied the relationship between changes in oil price and economic activity, it is surprising that little research has been conducted on the relationship between oil price shocks and the Greater China region (China, Hong Kong and Taiwan). Therefore, the main goal of this article is to apply detailed monthly data from 1997/7 to 2008/9 to fill this gap. Compared to the effect of US stock market returns described by Kilian (2009 Kilian, L. 2009. Not All oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99: 1053–69. [Crossref], [Web of Science ®] , [Google Scholar]) and Kilian and Park (2009 Kilian, L. and Park, C. 2009. The impact of oil price shocks on the US stock market. International Economic Review, 50: 1267–87. [Crossref], [Web of Science ®] , [Google Scholar]), we found that the impact of oil price shocks on stock prices in Greater China has been mixed. First, the impact of oil price shocks on Taiwan's stock market is very similar to that on the US stock market. Additionally, all three shocks have had significantly positive impacts on Hong Kong's stocks, partially in contrast to the effects on the US stock market. However, in contrast to the effect in the US stock market, we found that only global oil supply shock has a significantly positive impact on China's stock returns, but global oil demand shock and the oil specific demand shock have no significant impacts. The reason for the lack of significant impacts is that the positive expectation effect of China's fast economic growth may be just offset by the negative effect of a precautionary demand-driven effect. This result is also consistent with the previous empirical findings that the segmented and integrated China stock market is mixed, and it implies that the China stock market is ‘partially integrated’ with the other stock markets and oil price shocks.     

Hayek and the General Theory ∗

Abstract

Hayek did not review the General Theory, but he criticized it in Profits, Interest and Investment (1939 Hayek, F. A. 1939. “Profits, interest and investment”. In Profits, Interest and Investment, London: Routledge & Sons.  [Google Scholar]) and in part IV of The Pure Theory of Capital (1941 Hayek, F. A. 1941. The Pure Theory of Capital, Chicago: The University of Chicago Press.  [Google Scholar]). First, he showed that only exceptionally does greater consumption favour investment and employment. Second, he rejected Keynes's liquidity preference and maintained that only in an ‘extreme case’ might it be said that Keynes's theory of the rate of interest is valid. Although he correctly identified the gist of Keynes's theoretical innovation, his criticisms were already implicitly answered in the General Theory.     

Global Capitalism and Imperialism Theory: Methodological and Substantive Insights from Rosa Luxemburg

This paper analyses some issues raised by Rosa Luxemburg's theory of imperialism that are central to current debates on globalisation. Methodologically, despite widespread scepticism on the use of mathematics in Marxist social science, Luxemburg's rigorous analysis of Marx's schemes of reproduction forcefully shows the importance of theoretical abstraction and formal modelling. Indeed, this paper analyses Luxemburg's theory by means of an intertemporal generalisation of Roemer's (1983) Roemer, J. E. 1983. “Unequal exchange, labor migration, and international capital flows: a theoretical synthesis”. In Marxism, Central Planning and the Soviet Economy, Edited by: Desai, P. Cambridge, MA: MIT Press.  [Google Scholar] economy with a global capital market. It focuses in particular on two substantive issues: the relation between capital accumulation and imperialism, and the role of force and non-competitive distortions in imperialistic international relations. It argues that differences in development and competitive credit markets, rather than realisation problems, are important to understand the emergence of international exploitation, whereas extra-economic coercion may be important to understand its persistence.     

A Simple Model to Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies

The canonical neoclassical model is insufficient to understand business cycle fluctuations in emerging market and developing economies. The author reformulates the model proposed by Aguiar and Gopinath (2007 Ahumada, I., and F. Butler. 2009. La enseñanza de la economía en México. Working Paper 672. Washington, DC: Inter-American Development Bank, Research Department. [Google Scholar]) in a simple setting that can be used to teach business cycle macroeconomics for emerging market and developing economies at the undergraduate level. The simplified model is employed for qualitatively explaining facts such as the highly countercyclicality of the trade balance and the higher volatility of output and consumption compared with those observed in advanced countries.     

Inflation,growth, and distribution: The Brazilian economy after the post war

Abstract

Following Marglin and Bhaduri (1990 Marglin, S.A., and Bhaduri, A. “Profit Squeeze and Keynesian Theory.” In S.A. Marglin and J. Schor (eds.), The Golden Age of Capitalism. Reinterpreting the Postwar Experience. Oxford: Clarendon, 1990. [Google Scholar]), the purpose of this paper is to investigate empirically the interaction between income distribution and growth of aggregate demand during the 1951–89 period in Brazil. Applying Hein and Vogel’s (2008) methodology we conclude that the Brazilian economy showed a profit-led demand regime. In a context of high inflation, high concentration of markets, and wage control, retained profits were the main source to finance new capital. In this sense, we found a large sensitivity of investment relative to the wage share, a result that is compatible with a consumption pattern based on high income, which supported the growth trend with low wages observed during the period.     

Sustainability of external debt: further evidence from non-linear framework

This study investigates sustainability of external debt under a two-step non-linear framework. The first step uses a general linearity test proposed by Harvey and Leybourne (2007 Harvey, David I. and Leybourne, Stephen J. 2007. Testing for time series linearity. Econometric Journal, 10: 149–165. [Crossref], [Web of Science ®] , [Google Scholar]) to determine the linearity property of external debt. The second step applies a non-linear ADF unit root test proposed by Kapetanios, Shin, and Snell (2003 Kapetanios, G., Y. Shin, and A. Snell. 2003. Testing for a unit root in the nonlinear STAR. Journal of Econometrics 112: 359–79.  [Google Scholar]) on the non-liner processes and the linear ADF test on the linear processes to examine the sustainability of external debt. The analysis of 36 debt and 55 current account ratios identifies strong evidence of non-linearity and sustainability. The results indicate superior performance of the non-linear unit root test over the ADF test in determining the stationary property of the data.     

The Challenge of Radical Political Economics

The aim of this paper is to develop a theoretical framework for the study and integration of financial innovation in the institutional structures that support the operation of the monetary system. The background of the analysis comes from original institutional economics (Bush and Tool 2003 Bush, Paul Dale and Marc R. Tool. “Foundational Concepts for Institutionalist Policy Making.” In Institutional Analysis and Economic Policy, edited by Paul D. Bush and Marc R. Tool, pp. 1–46. Dordrecht, Germany: Kluwer Academic Publishers, 2003.[Crossref] , [Google Scholar]; Foster [1942] 1981 Foster, J. Fagg. “John Dewey and Economic Value.” Journal of Economic Issues 15, 4 ([1942] 1981): 871–879. [Google Scholar], [1949] 1981 Foster, J. Fagg. “The Relation Between Theory of Value and Economic Analysis.” Journal of Economic Issues 15, 4 ([1949] 1981): 899–905. [Google Scholar]; Veblen [1914] 1964 Veblen, Thorstein. The Instinct of Workmanship and the State of the Industrial Arts. New York, NY: Augustus M. Kelley, [1914] 1964. [Google Scholar], [1889] 1996 Veblen, Thorstein. The Theory of the Leisure Clash. London: Dover, [1889] 1996. [Google Scholar]), the state theory of money (Ingham 2004 Ingham, Geoffrey. The Nature of Money. London: Polity, 2004. [Google Scholar]; Papadopoulos 2009 Papadopoulos, Georgios. “Between Rules and Power: Money as an Institution Sanctioned by Political Authority.” Journal of Economic Issues 43, 4 (2009): 951–969.[Taylor &; Francis Online] , [Google Scholar]), and a specific account of social ontology based on constitutive and normative rules as well as the notion of collective intentionality (Searle 2005 Searle, John. “What Is an Institution?” Journal of Institutional Economics 1, 1 (2005):1–22.[Crossref] , [Google Scholar], 2010 Searle, John. Making the Social World. Oxford, UK: Oxford University Press, 2010. [Google Scholar]). The aim is a dynamic framework for the analysis of the institutional evolution of money, whereby institutional change comes from technology, and the state acts both as regulator of the institutional adjustment and guarantor of the stability and the efficiency of the monetary system. In that sense, the framework outlines the context and principles for the government regulation of financial innovation.     

Immiserizing Growth and the Metzler Paradox in the Ricardian Model

Conditions for the occurrence of immiserizing growth and the Metzler paradox are analysed in the Ricardian model when consumers in the foreign country have Leontief preferences while consumers in the home country have Cobb-Douglas preferences. By using specific functional forms, the conditions for the occurrence of the two paradoxes are defined in terms of the exogenous parameters of the model rather than endogenous variables such as the foreign import demand elasticity in the conditions of Bhagwati (1958) Bhagwati, J. N. 1958. Immiserizing growth: a geometrical note. Review of Economic Studies, 25: 201–205. [Crossref], [Web of Science ®] , [Google Scholar] and Metzler (1949a Metzler, L. A. 1949a. Tariffs, the terms of trade and the distribution of national income. Journal of Political Economy, 57: 1–29. [Crossref], [Web of Science ®] , [Google Scholar], b Metzler, L. A. 1949b. Tariffs, international demand, and domestic prices. Journal of Political Economy, 57: 345–351. [Crossref], [Web of Science ®] , [Google Scholar]). It is shown that the simultaneous occurrence of both paradoxical results is possible for some parameter values.     

Financial development and economic growth nexus: a time-series evidence from India

This study examines the relationship between financial development and economic growth in India for the period 1951–52 to 1995–96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969 Goldsmith, RW. 1969. Financial Structure and Development, New Haven: Yale University Press.  [Google Scholar]). The Johansen (1991 Johansen, S. 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models’. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980 Sims, CA. 1980. Macroeconomics and reality. Econometrica, 48: 1–48. [Crossref], [Web of Science ®] , [Google Scholar]), and the Toda and Yamamoto (1995 Toda, HY and Yamamoto, T. 1995. Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66: 225–50. [Crossref], [Web of Science ®] , [Google Scholar]) estimator show the presence of bidirectional Granger-causality between financial development and economic growth. The presence of bidirectional Granger-causality suggested by these estimators points towards the possible problem of endogeneity and simultaneity bias in the growth models that examine the contemporaneous effect of financial development on economic growth. The economic reforms that started since July 1991 emphasized on the liberalization and development of financial sector to supplement the efforts aimed at achieving high economic growth in India.     

How different are the production functions of the European manufacturing sectors? New empirical evidence

The neo-classical model of international trade assumes that the Total Factor Productivity (TFP) of a sector is common across countries, that returns to scale are constant and that the sectoral production of the countries differs by virtue of the factor endowments. In this article, we consider whether the differences in production can also be explained by the economies of scale in the national industries and by the technological differences across countries. To test this hypothesis, we estimate three models proposed in Harrigan (1999 Harrigan, J. 1999. Estimation of cross-country differences in industry production functions. Journal of International Economics, 47: 267–93.  [Google Scholar]) with data for eight European Union (EU) Member States covering the period 1978 to 1992 and analyse how the TFP changes from country to country.     

Rethinking the Links between Human Relationships and Economic Efficiency Using Local Institutions: The Case of Two Emerging Economies

Emerging countries around the world have been growing fast over the last thirty years, with most of these countries basing their economic development on a state capitalism. Within these countries, there is a concentration of wealth in the hands of a few people. This fact confirms the analysis of Thorstein Veblen (1898 Veblen, Thorstein. “Why Is Economics Not an Evolutionary Sciences?” Quarterly Journal of Economics 12, 2 (1898): 373–397.[Crossref] , [Google Scholar]) who shows the gap that exists between the vested interest of the rich and the unmet needs of the poor. The world happiness report (Helliwell, Layard and Sachs 2016 Helliwell, John F., Richard Layard and Jeffrey Sachs, eds. World Happiness Report 2016. World Happiness, 2016. Available at http://worldhappiness.report/wp-content/uploads/sites/2/2016/03/HR-V1_web.pdf. Accessed December 1, 2016. [Google Scholar]) also shows for the emerging economies a gap between the world rank in economic growth and in wellbeing. I propose a new paradigm of development for two emerging economies, Brazil and South Africa, by putting human development in the center of economic development and by using different approaches in economics and psychology. My analysis links the theories of Carl Shapiro and Joseph E. Stiglitz regarding “efficiency wages” (1984 Shapiro, Carl and Joseph E. Stiglitz. “Equilibrium Unemployment as Worker Disciplines Devices.” American Economic Review 74, 3 (1984): 433–444.[Web of Science ®] , [Google Scholar]) with the complexity approach (Le Moigne 1995 Le Moigne, Jean-Louis. La modélisation des systèmes complexes. Paris, France: Dunod, 1995. [Google Scholar]). This approach combines the results of positive psychology (Kahneman 2011 Kahneman, Daniel. Thinking, Fast and Slow. London, UK: Penguin, 2011. [Google Scholar]) with the role of local institutions for improving the economic development of emerging economies (Deaton 2016 Deaton, Angus. La grande évasion: Santé, richesse et origine des inégalités. Paris, France: PUF, [2015] 2016. [Google Scholar]). In the first section of the article, I examine definitions of economic and human wealth. In the second section, I analyze the gaps that exist between the standard-of-living ranking and the wellbeing ranking for both Brazil and South Africa in order to present meso-happiness indexes linking the micro- and macro-levels of human wealth. In the last section, I analyze the way local institutions in Brazil and South Africa could create dynamic links for these countries’ efficient functioning in the world economy.     

Nonlinearity in real exchange rates: an approach with disaggregated data and a new linearity test

Employing disaggregated real exchange rates from nine European counties in 16 goods categories, we assess in this study the nonlinearity in the real exchange rates. Surprisingly, we find evidence for nonlinearity in only four (10) out of 143 series with the linearity test proposed by Harvey et al. (2008 Harvey, D. I., Leybourne, S. J. and Xiao, B. 2008. A powerful test for linearity when the order of integration is unknown. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]) at the 5% (10%) significance level. This result differs greatly from those of Juvenal and Taylor (2008 Juvenal, L. and Taylor, M. P. 2008. Threshold adjustment of deviations from the law of one price. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]), Imbs et al. (2003 Imbs, J., Mumtaz, H., Raven, M. O. and Rey, H. 2003. Nonlinearities and real exchange rate dynamics. Journal of the European Economic Association, 1: 639–49. [Crossref] , [Google Scholar]), Sarno et al. (2004 Sarno, L., Taylor, M. P. and Chowdhury, I. 2004. Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study. Journal of International Money and Finance, 23: 1–25. [Crossref], [Web of Science ®] , [Google Scholar]) and Berka (2009 Berka, M. 2009. “Non-linear adjustment in law of one price deviations and physical characteristic of good”. In Review of International Economics Vol. 17, 51–73.  [Google Scholar]), who report ample evidence for nonlinearity for the same or similarly disaggregated real exchange rate datasets.     

Malmquist productivity index decompositions: a unifying framework

In two widely cited but unpublished working papers, Simar and Wilson (1998 Shephard, R. 1970. Theory of Cost and Production Functions, New Jersey: Princeton University Press.  [Google Scholar]) and Zofío and Lovell (1998 Wheelock, D and Wilson, PW. 1999. Technical progress, inefficiency, and productivity change in U.S. banking, 1984–1993. Journal of Money, Credit and Banking, 31: 212–34. [Crossref], [Web of Science ®] , [Google Scholar]) proposed an alternative decomposition of the Malmquist Productivity Index, which retained what seemed to be the strongholds of previous proposals with regard to the contribution of technological and efficiency change to productivity change. Namely, a technical change term with regard to the best practice variable returns to scale (VRS) technology, which is to be found in Ray and Desli (1997 Ray, S. Sept. 2001. “On an extended decomposition of the malmquist productivity index”. In Paper Presented at the Seventh European Workshop on Efficiency and Productivity, Sept., 25–29. Oviedo: Universidad de Oviedo.  [Google Scholar]) and a scale efficiency change term that illustrates a firm's situation with regard to optimal scale (benchmark technology), Färe et al . (1994 Färe, R, Grosskopf, S and Norris, M. 1997. Productivity growth, technical progress, and efficiency change in industrialized countries: reply. American Economic Review, 87: 1040–43. [Web of Science ®] , [Google Scholar]). Attaining this objective required the introduction of an additional term in the Malmquist Productivity Index decomposition, which would reflect the scale bias of technical change. It is our objective to provide economic rationale for this term within a theory of production context, the existing decompositions and recent articles that further elaborate on this issue. The ideas are illustrated using productivity trends in 17 OECD countries.     

Flexible Fourier stationary test in purchasing power parity for African countries

This study applies stationary test with a Fourier function proposed by Enders and Lee (2004 Enders, W and Lee, J. 2004. Testing for a unit root with a nonlinear Fourier function, Tuscaloosa, AL, , USA: Working Paper, Department of Economics, Finance and Legal Studies, University of Alabama.  [Google Scholar], 2009 Enders, W and Lee, J. 2009. The flexible Fourier form and testing for unit roots: an example of the term structure of interest rates, Tuscaloosa, AL, , USA: Working Paper, Department of Economics, Finance and Legal Studies, University of Alabama.  [Google Scholar]) to test the validity of long run Purchasing Power Parity (PPP) to assess the nonstationary properties of the real exchange rate for 20 African countries. We find that our approximation has higher power to detect U shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary nonlinear process. We examine the validity of PPP from the nonlinear point of view and provide robust evidence clearly indicate that PPP holds true for almost African countries. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way.