Real Exchange Rate Dynamics in the Asian Economies: Can Regime Shifts Explain Purchasing Power Parity Puzzles?

Abstract

We show that the strong version of the purchasing power parity (PPP) hypothesis holds in most of the US dollar real exchange rates using cointegration method that accounts for breaks in the models. The break dates in seven of the Asian currencies coincide with the two rounds of currency depreciation recorded during the 1997–1998 financial crises. We obtain a mean half-life estimate of about 10 months for PPP to converge to its long-run equilibrium level. Our confidence intervals based on persistence profile approach for the half-lives is much narrower than previous evidence might indicate. Taken together, these results show that mean reversion is stronger than commonly thought.     

South Africa's economics of education: A stocktaking and an agenda for the way forward

This paper reviews some of the existing economics of education literature from the perspective of South Africa's education policymaking needs. It also puts forward a suggested research agenda for future work. The review is arranged according to five areas of research: rates of return, production functions, teacher incentives, benefit incidence analysis and cross-country comparisons. Production functions, especially if translated to cost-effectiveness models, can point to important policy solutions. Teacher incentives is a policy area that is in need of a better theoretical and empirical basis. Rates of return are difficult for policymakers to interpret, but suggest a need for a qualification below the Grade 12 level. While benefit incidence analysis can demonstrate large improvements in the equity of public financing, cross-country comparisons reveal that not only is the distribution of schooling outcomes particularly unequal, on average it is well below what the country's level of development would predict.     

Capital income taxation of Swedish households, 1862–2010

This study describes the evolution of capital income taxation, including corporate, dividend, interest, capital gains and wealth taxation, in Sweden between 1862 and 2010. To illustrate the evolution, we present annual time-series data on the marginal effective tax rates on capital income (METR) for a marginal investment financed with new share issues, retained earnings or debt. These data are unique in their consistency, thoroughness and time span. We identify four tax regimes separated by shifts in economic policy. The first regime stretches from 1862 until the Second World War. The METR is low, stable and does not exceed 5% until the First World War, when the METR begins to drift upwards and varies depending on the source of finance. The outbreak of the Second World War establishes the second regime, when the magnitude and variation of the METR sharply increase. The METR peaks during the third regime in the 1970s and 1980s and often exceeds 100%. The 1990–1991 tax reform represents the beginning of the fourth regime, which is characterised by lower and smaller variations in the METR. The METR varies between 15% and 40% at the end of this period.     

Terms of trade, catch-up, and home-market effect: The example of Japan

This paper explores theoretically and empirically the medium- and long-run relation of the terms of trade (ratio of traded goods prices) and economic growth of a pair of countries—one of which experiences a major catch-up process towards the other. Two theoretical interdependencies between the terms of trade and economic growth are offered: the home-market effect and the productivity-shock effect. These two effects are tested against each other in a cointegration analysis on data for Japan and the US from 1971 until 1997. Income is cointegrated with the terms of trade. The relevant empirical channel is the home-market effect. However, financial-market effects appear also to be relevant. J. Japanese Int. Economies 21 (4) (2007) 470–488.     

Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries

This paper provides some of the first empirical evidence on labour market adjustments to exchange rate movements in Canadian manufacturing industries. Controlling for endogeneity using generalized method of moments estimation, it is found that during the 1981–1997 period, exchange movements have a substantial impact on labour input and that this impact has grown over time as the manufacturing industries have become more exposed to trade. In contrast, the exchange rate effect on real wages is estimated to be virtually zero for all manufacturing industries.

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.

Commodity currencies

This paper looks at real exchange rate behavior by focusing on three OECD economies (Australia, Canada, and New Zealand) where primary commodities constitute a significant share of their exports. For Australia and New Zealand especially, we find that the US dollar price of their commodity exports (generally exogenous to these small economies) has a strong and stable influence on their floating real rates, with the magnitude of the effects consistent with predictions of standard theoretical models. However, after controlling for commodity price shocks, there is still a purchasing power parity puzzle in the residual. The results here are relevant to developing commodity-exporting countries as they liberalize their capital markets and move towards floating exchange rates.     

The market microstructure of central bank intervention

How quickly do central bank intervention operations impact the foreign exchange market? And, do intra-daily market conditions influence the effectiveness of central bank interventions? This paper uses high-frequency intra-daily data to examine the relationship between the efficacy of intervention operations and the “state of the market” at the moment that the operation is made public. The results indicate that some traders typically know that the Fed is intervening at least 1 h prior to the public release of the information in newswire reports. Also, the evidence suggests that the timing of intervention operations matters—interventions that occur during heavy trading volume, that are closely timed to scheduled macro announcements, and that are coordinated with another central bank are the most likely to have large effects.     

The origin and diffusion of shocks to regional interest rates in the United States, 1880-2002

This paper is about the behavior of regional interest rates in the United States from 1880 to 2002. The main concern is with the shocks to regional rates. Where did they originate? How did they diffuse? How did the pattern change over time? We show that in the late nineteenth century the main source of shocks to rates on the periphery were shocks originating on the periphery itself. This pattern continued through World War I and the Great Depression. After World War II, however, the importance of disturbances on the periphery diminished and shocks to rates in the Eastern financial centers became the main source of fluctuations in all regions.     

中国上市公司业绩增长持续性及市场预测

上市公司的业绩增长能力对公司价值具有非常显著的影响,投资者希望找到市场上具有持续稳定成长性的公司。本文考察了公司业绩的增长水平,业绩增长的持续性以及市场对公司业绩增长的预测能力。本文发现公司业绩增长不具有持续性,呈现较大的波动性,投资者无法通过公司历史业绩增长情况预测未来业绩增长。市场对公司的未来业绩增长的预测能力较弱,只能预测大约未来3年时间的业绩增长情况,对更长时间的业绩增长无法预测。这可能与中国股市政策变动频繁,上市公司存在较多利润操纵行为有关。