The Balassa-Samuelson Model: an Overview*

This paper introduces a special issue marking the thirtieth anniversary of the publication of two classic papers in international economics, Balassa (1964) and Samuelson (1964). We provide a brief analytical treatment of the basic model and an overview of the contributions in this special issue. the special issue includes novel empirical and theoretical approaches related to the Balassa-Samuelson model. Theoretical models include dynamic two-sector growth models, two-country general-equilibrium models, and openeconomy models with imperfectly competitive nontraded-goods sectors. Several papers exploit new sources of data or datasets constructed in new ways from traditional sources. “Under the skin of any international economist lies a deep-seated belief in some variant of the PPP theory of exchange rates.” (Rudiger Dornbusch and Paul Krugman, 1976, p. 540)     

The Balassa-Samuelson Model: A General-Equilibrium Appraisal*

We derive two key propositions of the Balassa-Samuelson model as long-run balanced growth implications of a neoclassical general equilibrium model. the propositions are that productivity differentials determine international differences in nontradable relative prices and deviations from PPP reflect differences in nontradable prices. Closed-form solutions are obtained and tested using panel methods applied to long-run components of OECD sectoral data computed using the Hodrick-Prescott filter. the results indicate that labor productivity differentials help explain international low-frequency differences in relative prices. However, predicted nontradable relative prices are less successful in explaining long-run deviations from PPP. Unless very sophisticated indeed, PPP is a misleadingly pretentious doctrine, promising us what is rare in economics, detailed numerical predictions. (Paul A. Samuelson, 1964, p. 153)     

Competitive capitalism and cooperative labor management in a dynamic nutshell

Competitive capitalism and co-operative labor management are both formulated as differential games: The former, as a game between capitalists and workers, and the latter as one between an elected council and workers. The two systems are compared against the background of neoclassical optimal growth theory, at their respective equilibria and in terms of their rates of approach toward these states, all within a dynamic “nutshell” model extended from the static one of Dirickx and Sertel (1979).     

Product Variety and Real Exchange Rates: The Balassa-Samuelson Model Reconsidered

This paper introduces product variety into the Balassa-Samuelson model in order to extend the model of real exchange rate determination. With product differentiation, real exchange rates depend not only on the relative price of nontradables to tradables but also on relative prices among tradables. This paper identifies a new factor that determines the extent of variety, termed Infrastructural Technology, and that affects real exchange rates not through the relative price of nontradables but through relative prices among tradables. This paper also conducts empirical tests, and the results of these tests support the model. Received May 31, 2001; revised version received March 20, 2002 Published online: April 30, 2003     

Balassa-Samuelson Theory and Predictability of the US/UK Real Exchange Rate

This paper performs a theory-based forecast of the US/UK real exchange rate. The theory is the Balassa-Samuelson hypothesis that productivity differentials between two countries would determine long-run movements of real exchange rates. The relative income and real exchange rate set a bivariate system, which considers the heteroskedasticity in the real exchange rate movements. The model, to which the Kalman filter and Markov-switching algorithm are applied, is compared with the random walk model and reports significant improvements in forecasting in the medium and long term. [C53, F31]     

“富人社区效应”还是巴拉萨-萨缪尔森效应?——一个基于外生收入的实际汇率理论

作为对国际价格水平差异的标准解释,巴拉萨—萨缪尔森(BS)效应依赖于国内劳动力同质假设和跨部门工资套利行为。本文提出了一个与之相对的"富人社区效应",可以在一国劳动力异质的条件下解释为什么富国的非贸易品价格较高。其直观解释是,如果一个国家拥有一个"富有居民"群体(比如高生产率的贸易品部门劳动者,或者全球贸易资源的所有者),而这个群体通过国际市场获得的硬通货总收入相对于该国总人口而言较高的话,其需求将抬高该国非贸易品价格。本文进而指出,关于BS效应的实证文献所广泛采用的两种基本统计检验,实际上无法区分BS效应与富人社区效应,这就对该领域相当一部分实证文献的正确性提出了质疑。此外,富人社区效应也有别于林德效应。     

The Yugoslav inflation: Some competing hypotheses

Various hypotheses about wage and price inflation in Yugoslavia are presented and tested empirically with quarterly data from the 1962–1972 period. Both theoretical literature and empirical evidence on the behavior of the self-managed firm are used to derive different models of wage determination. The wage-equation results indicate that labor-market conditions, inflationary expectations; and labor-productivity variables are significant determinants of the rate of growth of wages. The price equations, based on a modified cost-markup model consistent with the practices of Yugoslav firms, identify labor costs and aggregate demand as significant determinants of the rate of growth of prices. University of California, Berkeley.     

The interest-rate management and sterilization hypotheses for the UK: under fixed exchange rates

This study uses the vector autoregressive (VAR) technique and Granger's definition of causality to examine the interest rate management and sterilization hypotheses of UK for the period 1955.I to 1974.IV. Our findings show that neither the long-term government bond yield nor long-term treasury bill rate of UK can be considered as a policy-determined variable, since each is subject to feedback from UK and US monetary and income variables. In regard to the sterilization hypothesis, our results indicate that the UK domestic credit is an exogenous variable with respect to UK foreign reserves and interest rates. This result supports the implication of the monetary approach to the balance of payments that there was no sterilization in the UK during the fixed exchange rate period.     

On the asymptotic validity of a bootstrap method for testing nonnested hypotheses

Bootstrap methods have been used to approximate the p-value of the uncentred log likelihood ratio statistic when a model is tested against a nonnested alternative. The purpose of this paper is to question the asymptotic validity of this approach.     

Testing of the rational expectations and structural neutrality hypotheses

In this paper we examine the tests of the new classical rational expectations and structural neutrality hypotheses undertaken by Leiderman (1980) using a model of money growth and unemployment for the United States developed by Barro (1977). Employing the data used in the studies by Barro and Leiderman we are able to construct an alternative model of money growth and unemployment against which the Barro-Leiderman model is rejected along with the joint hypothesis of rational expectations and structural neutrality.     

Some implications of the natural rate hypotheses

Changes in the anticipated and actual levels of inflation change the incentive to hold monetary and nonmonetary assets. We present a model with a production sector and markets for labor, capital, bonds, and money. The response of the model to changes in the anticipated inflation rate is derived. Restrictions implied by the various natural rate hypotheses are discussed. An asymmetry in the response of the economy to anticipated inflation and deflation makes the natural rate conditions more plausible for inflationary as opposed to deflationary equilibria. A new version of the liquidity trap is suggested by the analysis.     

Prices and output in the Mexican economy Emperical testing of alternative hypotheses

This paper derives and compares alternative formulations of price and output formation for the Mexican economy over the period 1961–1981. A structuralist type model with working capital is found to dominate its monetarist and keynesian counterparts. A breakdown of the causes of inflation is offered, and some simulations are carried out to highlight some trade-offs among real wages, the real exchange rate, real interest rates and output.     

幸福人假设及在管理领域的意义

“幸福人假设”从一个全新的视角看待人性的本质问题．认为传统的人性假设理论的实质其实都是幸福人假设。幸福人假设正在颠覆着传统的人性理论,也颠覆着我们对于人生意义的传统理解。本文让我们重新审视管理的终极意义,到底是财富最大化．还是幸福最大化？同时帮助决策者们更准确地把握人性,真正地做到人性化管理。     

Testing of unit roots and other fractionally integrated hypotheses in the presence of structural breaks

Tests of unit roots and other nonstationary hypotheses that were proposed by Robinson (1994) are applied in this article to the Nelson and Plosser's (1982) series. The tests can be expressed in a way allowing for structural breaks under both the null and the alternative hypotheses. When applying the tests to the same dataset as in Perron (1989), we observe that our results might be consistent with those in Perron (1989) when testing the nulls of trend-stationarity or a unit-root. However, we also observe that fractionally integrated hypotheses may be plausible alternatives in the context of structural breaks at a known period of time. Final version received: August 2000/Final version accepted: August 2001 RID="*" ID="*"  The author gratefully acknowledges the financial support from the European TMR grant No. ERBFMRX-CT-98-0213. Comments of two anonymous referees are also acknowledged.     

Testing the taxmimicking versus expenditure spill-over hypotheses using English data

Spatial interaction among local governments in tax setting and public spending decisions is receiving increasing attention in the applied public economics literature. Spatial interaction models rely on the presence of an externality from local budget making: in traditional public finance models, external effects originate either from interjurisdictional resource flows due to tax competition for a mobile base, or from local public expenditure spill-overs into neighbouring jurisdictions. However, the recent political agency/yardstick competition literature has stressed the role of ‘informational’ externalities between neighbouring jurisdictions, and predicted tax mimicry at the local level. The actual relevance of the above hypotheses clearly needs to be assessed empirically. In this paper, an attempt is made at discriminating between alternative sources of local fiscal interaction, by using data on the English municipal authorities' budgets. While both public spending levels and local property tax rates exhibit considerable positive spatial autocorrelation, maximum likelihood and instrumental variables estimation results suggest that the interdependence among local governments can be attributed to mimicking behaviour in local property tax setting.     

The gains and losses to predicting nominal income by disaggregating via the new classical aggregate supply and rational expectations hypotheses

In this paper we compaia the predictive power of two types of model of nominal income: one based on a simple single equation aggregate framework; the second disaggregated into price level and output components. The source of the decomposition of nominal income of the type of model that is considered here are the twin hypotheses of rational expectations and structural neutrality. The model chosen as being representative of this approach to macroeconomic model building and against which some single equation models are compared isBarro's [1978] model of the price level and output in the U.S.     

Alternative hypotheses and the volume of trade: the gravity equation and the extent of specialization

Abstract.  We examine why the gravity equation works and the implications for its use. First, we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs. Second, we analyse the predominance of zero bilateral trade values as a 'puzzle' broadly inconsistent with the complete specialization models typically used to derive the gravity equation, but consistent with the alternative hypothesis of incomplete specialization. Third, we demonstrate that the explanation for why the gravity equation works has considerable relevance for how the gravity equation is interpreted and used and how we view bilateral trade.     

Long-term unemployment and labour force participation: a decomposition of unemployment to test for the discouragement and added worker hypotheses

We sharpen tests for ‘discouragement’ and ‘added worker’ effects by splitting the explanatory variable – the unemployment rate – into a short-term component and a long-term component. While short-term unemployment (STU) might not result in additional workers on a large scale, long-term unemployment (LTU) reduces household income more, increasing the need for additional income. On the other hand, it may discourage older workers for psychological and sociological reasons. Applying our model to the German labour market, these hypotheses could be confirmed. Even for men, about whom only a few empirical studies on this issue are available, distinguishing between STU and LTU reveals added worker as well as discouragement effects.     

A note on the interpretation of the Cox procedure for non-nested hypotheses

This note demonstrates that the Cox procedure for non-nested hypotheses yields only four possible conclusions. Therefore, if a researcher draws any implications upon rejection of a null hypothesis, the inference could be misleading.     

Studying scenario planning: Theory, research suggestions, and hypotheses

The scenario planning literature reveals a gap regarding its research and theory development. This article addresses these gaps by beginning the development of a theory of scenario planning and by providing suggestions for research. To do so, this research uses Dubin's (R. Dubin, Theory Building, revised ed., Free Press/MacMillan, New York, 1978) technique for theory building in applied disciplines and then provides suggestions for verifying each aspect of the proposed theory. While this research is preliminary in nature, its intent is to work toward a theoretical understanding and validation of scenario planning practices through sound research. Thus, the core purpose of this article is to provide an approach to studying scenario planning that is based on research, theory, and practice.