Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets

This study examines dynamic linkages between exchange rates and stock prices for seven East Asian countries, including Hong Kong, Japan, Korea, Malaysia, Singapore, Taiwan, and Thailand, for the period January 1988 to October 1998. Our empirical results show a significant causal relation from exchange rates to stock prices for Hong Kong, Japan, Malaysia, and Thailand before the 1997 Asian financial crisis. We also find a causal relation from the equity market to the foreign exchange market for Hong Kong, Korea, and Singapore. Further, while no country shows a significant causality from stock prices to exchange rates during the Asian crisis, a causal relation from exchange rates to stock prices is found for all countries except Malaysia. Our findings are robust with respect to various testing methods used, including Granger causality tests, a variance decomposition analysis, and an impulse response analysis. Our findings also indicate that the linkages vary across economies with respect to exchange rate regimes, the trade size, the degree of capital control, and the size of equity market.     

A system of demand equations for Austria

This paper presents results of parameter estimations of a small system of demand equations for Austria. The functional form of the equations follows the log-linear specification well known as the “Rotterdam”-System. Using annual data from 1954 to 1977 we estimate the absolute price version for a rather aggregated system consisting of four sectors of consumption expenditures. Aitken estimation with and without linear restrictions is the adopted estimation method. Tests for the validity of the general linear restrictions axe performed employing the usual criteria. Relations among the test statistics are discussed. Taking into accountBeaton's [1972] argument of the appropriate use of likelihood ratio tests we present results also after iterating on the restricted error-covariance matrix. The question of negative semidefiniteness of the matrix of price coefficients is examined by inspection of its characteristic roots and the calculation of their approximated asymptotic covariance matrix. Finally, our results are confronted with such of other comparable studies.     

Dynamic demand and noncompetitive pricing strategies

This paper studies optimal noncompetitive pricing strategies when the evolution of demand is the result of intertemporal considerations. Two different hypotheses of price expectations (myopia and perfect foresight) are treated. The major implication is that the slight modification from an instantaneous to a very fast consumer reaction may completely modify a monopolist's price strategy. More precisely, the price strategy should be volatile if the equilibrium demand is convex, independent whether the consumers act myopically or employ rational expectations. On the other hand, asynchronous dynamics (e.g., due to competitive fringe supply or different segments of demand) cannot explain even damped price oscillations. The equilibrium price strategy of the noncompetitive supplier exceeds the static rule if consumers employ myopic expectations; rational expectations may lead to prices above or below the static rule depending on the rate of discount.I am grateful for the helpful and elaborate comments from three anonymous referees.     

Multiplier effects in economies with missing risk markets

The paper analyses the impact of pecuniary externalities in a two-sector economy with an incomplete market structure. Agents in each sector choose their proportion of risky investment. Sector specific risks are assumed to be perfectly negatively correlated. It is shown that the economy is more volatile if risk markets do not exist. With a complete set of risk markets, shocks in one sector will be dampened on the aggregate level. In contrast, when risk markets are absent, pecuniary externalities arising from higher risky investment in one sector can create feedback effects in the other sector. When agents are sufficiently risk averse (their coefficient of relative risk aversion being greater than one), an individually optimal response to the increased riskiness of the price distribution will result in an even riskier price distribution: an increase in risky activity in one sector will lead to an increase in risky activity in the other sector, and this gives multiplier effects.Part of this work has been done while I was visiting assistant professor at the University of Western Ontario, London, Canada.I am grateful to Hans-Werner Sinn for helpful comments. The suggestions of the two referees have contributed to improve the paper considerably.     

On the existence of involuntary unemployment equilibria

Conclusion We have proved the existence of equilibria implying involuntary unemployment of labour in non-competitive economies with fixed wage rate. We notice that model (II) and its extensions have not been presented as aninterpretation of Keynes' theory. We may define them as Keynesian models only in the sense that they admit involuntary unemployment equilibrium, which concept is basic to Keynes' theory. In any case, we think that these models are a first step in the development of more realistic microeconomic foundations for short-run macroeconomic theory.A first draft of this paper was presented in December 1972 at the Institute of Political Economy, Faculty of Economics and Banking, Siena University.     

z-Transform and identification of linear econometric models with autocorrelated errors

The paper consists of two main parts. In the first part we derive the solution of systems of linear stochastic difference equations by means of thez-transform. In the second part thisz-transform is used to treat the problem of identification of linear econometric systems (the term econometric is used to stress the special aspects of the identification problem dealt with in econometrics). It is shown, that under suitable restrictions observationally equivalent structures are related by unimodular matrices. Using this result, we state (rank-) conditions which ensure, that the unimodular matrices are constant, such that the classical econometric identification theorems can be applied. These conditions are given for stationary errors in the general case as well as in the MA, AR and ARMA case.