Gray Marketing: Does It Hurt the Manufacturers?

It is generally believed that the existence of gray channels hurts authorized retailers because gray marketers often free-ride on the marketing activities performed by authorized retailers. However, the effect on manufacturers’ profits is still rather vague. This paper sets up a two-stage sub-game perfect equilibrium model to examine the effects of gray goods on authorized retailers and manufacturers. It is found that manufacturers who are against parallel importation are likely to be those whose product has a low gray good penetration ratio, low price elasticity of demand, high cross-price elasticity of demand, or a high demand convexity.

Public Spending Management and Macroeconomic Interdependence

This paper studies the domestic and international effects of “public competition policies” aimed at improving the efficiency of public spending. Such measures are modeled as an increase in the price elasticity of public consumption. The paper finds that public competition policies significantly affect macroeconomic interdependence across countries, both through the impact of the international elasticity of substitution and of mark-up effects. The paper also develops an extension in which fiscal shocks are stochastic. In welfare terms, countries with a larger government sector have an incentive to promote global public competition policies regardless of whether fiscal policy is modeled as deterministic or stochastic.

Pump Prices and Oil Prices: A Tale of Two Directions

It has been argued that retail gasoline prices adjust more quickly to crude oil price increases than to price decreases. We investigate this issue using the statewide data on weekly retail gasoline prices in the United States between January 2000 and June 2007. Our analysis does not confirm the prediction that gasoline prices adjust more quickly to price increases in crude oil prices. On the contrary, the results suggest that in some geographic areas gasoline prices could change faster when crude oil prices decrease. These findings suggest that a national or a one size fits all energy policy for the United States may be misguided.

The Determinants of Price in Internet Auctions of Used Cars

This study analyzes how auction, seller, and product factors influence the price premium in an eBay used car auction market. In auctions with at least one bid, the reputation of the seller, title status, and the time the auction ended influenced the price premium on the highest bid. For auctions that resulted in a sale, cars with clear title and dealers were able to secure significantly greater price premiums, but seller reputation had no significant effect. Using a binary logit model, cars had a greater probability of selling if the seller had a better reputation. The quality of the presentation and number of pictures did not enhance the price premium in any of the models.

Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries

This paper extends the existing literature on the open economy New Keynesian Phillips Curve by incorporating three different factors of production, domestic labor and imported as well as domestically produced intermediate goods, into a general model which nests existing closed economy and open economy models. The model is estimated for nine euro area countries and the euro area aggregate. We find that the general specification of our model improves the fit of the New Keynesian Phillips Curve considerably compared to the closed economy specification. The estimates of the structural parameters of the model suggest strong heterogeneity in the degree of price rigidity across euro area counties. Furthermore, we find the degree of price rigidity to be systematically lower in the open economy specification than in the closed economy specification and also lower than in the general specification of our model.

Forecasting World Trade: Direct Versus “Bottom-Up” Approaches

In a globalised world economy, global factors have become increasingly important to explain trade flows at the expense of country-specific determinants. This paper shows empirically the superiority of direct forecasting methods, in which world trade is directly forecasted at the aggregate levels, relative to “bottom-up” approaches, where world trade results from an aggregation of country-specific forecasts. Factor models in particular prove rather accurate, where the factors summarise large-scale datasets relevant in the determination of trade flows.

Sowing the seeds for the subprime crisis: does global liquidity matter for housing and other asset prices?

We assess the relationship between global liquidity and two important classes of asset prices on a global scale. For this purpose, we estimate a variety of VAR models for the global economy using aggregated data which represent the major OECD countries. According to the impulse responses obtained a positive shock to global liquidity raises the global house price index and later on via commodity prices also the global GDP deflator to the same extent. Hence, we conclude that there are subsequent spill-over effects from house prices to the overall price level. However, we are not able to find any empirical evidence in favor of the hypothesis that stock prices significantly react to changes in global liquidity.

The Response to Market Power: Non-Profit Hospitals versus For-Profit Hospitals

In the debate over whether non-profit and for-profit hospitals behave differently in the presence of market concentration and greater individual market power, most scholars have concentrated on the traditional price analysis approach. But this has produced conflicting results. This study attempts to avoid the limitations of price as an indicator of how these hospitals respond to greater market power by examining changes in admissions given the capacity decision. The results indicate that for-profit and public hospitals respond similarly to increased market power. On the other hand, private non-profit hospitals appear to act differently. This presents important implications for antitrust policies and for the management of non-profit hospitals.

Implications of Monetary Union for Catching-up Member States

We examine the implications of monetary union for macroeconomic stabilization in catching-up participating countries. We allow member states’ supply conditions to differ, especially with regard to sectoral characteristics. Sectoral productivity shocks of the type associated with the Balassa–Samuelson effect tend to hamper the stabilization properties of a currency union. In the face of aggregate supply disturbances, the stabilization costs of renouncing monetary autonomy diminish with a steeper supply curve (as induced by higher trade openness) and—barring idiosyncratic shocks—with a larger reference country size, more homogeneous supply slopes and a higher preference for price stability.

Disaggregate Real Exchange Rate Behaviour

In this paper, we re-examine the “PPP Puzzle” using sectoral disaggregated data. Specifically, we first analyse the mean reversion speeds of real exchange rates for a number of different sectors in 11 industrial economies and then focus on relating these rates to variables identified in the literature as key determinants of CPI-based real exchange rates, namely: the trade balance, productivity and the mark up. In particular, we seek to understand to what extent the relationships existing at the aggregate level are borne out at the disaggregate level. We believe that this analysis can help shed light on the PPP puzzle.

Country size and the trade effects of the euro

This paper investigates whether small countries gain relatively more than large countries from an ‘expansion’ of their market through the creation of a single currency. The introduction of the euro offers a particularly valuable source to test this hypothesis, which we motivate using the theoretical model by Casella of the year 1996. Our results from a panel data analysis, using both aggregate and disaggregated trade data, point to a statistically significant but quantitatively moderate small country bonus. On average, the euro has led to an improvement of the small euro area’s relative export performance by 3–9%.

Volatility Relationship between Crude Oil and Petroleum Products

This paper utilizes calculated historical volatility and GARCH models to compare the historical price volatility behavior of crude oil, motor gasoline and heating oil in U.S. markets since 1990. We incorporate a shift variable in the GARCH/TARCH models to capture the response of price volatility to a change in OPEC’s pricing behavior. This study has three major conclusions. First, there was an increase in volatility as a result of a structural shift to higher crude oil prices after April 1999. Second, volatility shocks from current news are not important since GARCH effects dominate ARCH effects in the variance equation. Third, persistence of volatility in all commodity markets is quite transitory, with half-lives normally being a few weeks.

Foreign Direct Investment Liberalization Between Canada and the USA: A CGE Investigation

In this paper, we develop a computable general equilibrium (CGE) model to shed quantitative light on the implications of a scenario of deeper economic integration between Canada and the United States, where the barriers for foreign direct investment are preferentially eliminated. Our model distinguishes between the activities of domestic and foreign-owned firms at the microeconomic level, both in terms of demand and production characteristics. Overall our findings suggest that further investment liberalization between the two countries will accelerate the shaping of Canada’s industrial structure, as manifested by recent trends.

Die another day: duration in German import trade

International trade patterns at the product level are surprisingly dynamic. The majority of trade relationships exist for just a few, often only one to three, years. In this paper, I examine empirically the duration in German import trade at the 8-digit product level from 1995 to 2005. I find that survival probabilities are affected by exporter characteristics, product type and market structure. Specifically, I show that the duration of exporting a product to Germany is longer for products obtained from countries that are economically large and geographically close to Germany; for products with large trade value and a low elasticity of substitution; and for trade pairs that command a large share of the German import market and are characterized by two-way trade.

The Transfer Problem in the Euro Area

Building on the celebrated Keynes–Ohlin debate and on Lane and Milesi-Ferretti (Rev Econ Stat 86:841–857, 2004), the paper investigates the transfer problem for the Euro area vis-à-vis the rest of the world. The analysis is developed in a theoretically and statistically consistent way and is intended as a contribution to the empirical literature on EMU. The main result of the paper is that the accumulation of net foreign asset in the Euro area is consistent with real exchange appreciation, largely through the relative price of nontradables rather than through the terms of trade.

Do Patent Protection and Technology Transfer Facilitate R&D in Developed and Emerging Countries? A Semiparametric Study

This paper examines if patent protection and technology transfer facilitate R&D in a sample that includes both developed and emerging countries. A semiparametric model is used to estimate the relevant parameters using country level data from 21 countries, of which six are emerging, for the period 1981–1997. The results suggest thresholds in patent protection and technology transfer: patent protection has a positive effect which weakens at high levels of protection, and FDI has a positive effect only if the country depends heavily on FDI.

International Reserves: Precautionary Versus Mercantilist Views,Theory and Evidence

This paper compares the importance of precautionary and mercantilist motives in the hoarding of international reserves by developing countries. Overall, empirical results support precautionary motives; in particular, a more liberal capital account regime increases international reserves. Theoretically, large precautionary demand for international reserves arises as a self-insurance to avoid costly liquidation of long-term projects when the economy is susceptible to sudden stops. The welfare gain from the optimal management of international reserves is of a first-order magnitude, reducing the welfare cost of liquidity shocks from a first-order to a second-order magnitude.

Managing Risk in Africa Through Institutional Reform

African economies have experienced weak levels of growth in per capita income over the past decade. While standard models of growth suggest institutional governance as one key to success, thus far little attention has been given to the role of risk in institutional reform. In this paper, we use a nested panel regression model to estimate the economic value of institutional reform on economic growth, with data for 30 Sub-Saharan African countries from 1980–2004. Our findings provide a basis for measuring the economic value of institutional reform through its impact on reducing aggregate country risk.

Is Uniform Money Always Better than Separate Monies?

Previous studies that compare a uniform money with separate monies used models in which money is the only asset and in which individuals hold either zero or one unit of money. Here, the comparison is made using a model in which money coexists with a higher-return asset and in which individuals are permitted to hold richer portfolios of assets. The results show that a general conclusion is not possible. A uniform money has a higher expected utility than do separate monies in many examples. However, when the discount on bonds and uncertainty about the nationality of the trading partner are sufficiently high, then there are examples in which separate monies are better.

Policy coordination in East Asia and across the Pacific

In this paper, we construct a macro-econometric model that describes the economic activity in the Asia-Pacific area and provide quantitative insights into the recent policy debates on monetary and currency coordination among the East Asian economies. The model includes a wide variety of monetary and currency policy rules that the East Asian economies adopt and allows for one country's policymaking to have substantial effects on foreign countries. We apply the model to three current policy issues: (1) the desirability of currency basket pegs in East Asia, (2) the anticipated effects of China's currency policy reform, and (3) the non-negativity constraint on Japanese nominal interest rates. The simulation analyses show the external economy effects of policy rules quantitatively and suggest the difficulty of monetary and currency policy coordination among the East Asian economies.

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