The equilibrium relationship among money,income, prices,and interest rates: evidence from a threshold cointegration test

The long-run equilibrium relationship among money, income, prices, and interest rates in Japan is investigated by the threshold cointegration test, which allows for asymmetric adjustment, introduced by Enders and Siklos (2001 Enders, W and Siklos, PL. 2001. Cointegration and threshold adjustment. Journal of Business and Economic Statistics, 19: 166–76. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). The threshold cointegration approach provides clear evidence of the cointegration relationship characterized by asymmetric adjustment. By allowing for asymmetric adjustment, results are obtained showing the stability of the money demand function, similar to Lucas (1988 Lucas, RW Jr. 1988. Money demand in the United States: a quantitative review. Carnegie-Rochester Conference Series on Public Policy, 29: 137–68.  [Google Scholar]), who pointed out that the money demand function is stable if unit income elasticity is imposed. In particular, the estimated results show that the adjustment process toward equilibrium is highly persistent above an appropriately estimated threshold, whereas the adjustment process toward equilibrium quickly converges below it. This finding indicates that deviations from equilibrium resulting from increases in money or decreases in income and prices are highly persistent.     

Detecting cointegration relationships under nonlinear models: Monte Carlo analysis and some applications

Testing for cointegration in the presence of nonlinear adjustments or structural breaks is important for examining the equilibrium relationship among economic variables. It is known that standard cointegration tests perform poorly when a cointegration relationship has nonlinear adjustments or structural breaks. However, it is not clear how some cointegration tests allowing for nonlinearity perform under other classes of nonlinear cointegration models. This paper investigates which cointegration tests help detect a cointegration relationship with nonlinear adjustments or structural breaks. Our Monte Carlo simulation results demonstrate that the cointegration test with threshold adjustment generally has better power performance under most cointegration relationships with nonlinearity. We also provide empirical applications to the money demand and term structure of the U.S. interest rates. The empirical results show that the test allowing for threshold adjustment provides strong evidence of the cointegration relationships of money demand and the term structure of interest rates.     

Lending attitude as a financial accelerator in a credit network economy

In existing literature, commercial banks are often considered mere financial intermediaries that facilitate the flow of credit in an imperfect credit market. However, as demonstrated in the history of financial instability, the behavior of financial institutions plays an important role. This paper examines how lenders’ attitudes affect macroeconomic performance. In our analysis, the economy is composed of multiple borrowers (firms) and one lender (bank). Each borrower is directly connected to the lender through its credit contract. At the same time, each borrower is indirectly connected to all the other borrowers within the credit network. Using this model, we execute computer simulations to examine the economic consequences of lending attitudes. The results of the simulations demonstrate that the bank’s lending attitude functions as a financial accelerator; that is, it significantly affects the dynamics of the economic system through the credit network. Consequently, the same level of exogenous shock generates completely different outcomes depending on the different lending attitudes. The results also show that there exists an optimal lending attitude that leads to high economic growth and a stable growth path.     

Does high labour mobility always promote trade liberalization?

Labour immobility (high adjustment cost) has been regarded as a major obstacle to trade liberalization and it has been argued that higher labour mobility promotes trade liberalization. However, this is not the case when we take into account conflicts of interest between politicians and voters that are inevitable in representative democracy. I construct a simple two‐period model including both elections and sectoral adjustment. Then I show that the non‐monotonic relationship between labour mobility and the equilibrium degree of trade liberalization exists due to the principal–agent relationship. In representative democracy, higher labour mobility prevents trade liberalization in some cases.     

Tests for cointegration allowing for an unknown number of breaks

This paper introduces cointegration tests allowing for an unknown number of breaks. The introduced tests assume that the unspecified number of breaks is smaller than or equal to the maximum number of breaks set a priori. Monte Carlo simulations provide two main results. First, the proposed tests perform as well as the tests of Gregory and Hansen (1996a) and Hatemi-J (2008), which assume one or two breaks a priori, when the cointegration relationship has one or two breaks. Second, the proposed tests perform better than the tests of Gregory and Hansen (1996a) and Hatemi-J (2008) when the cointegration relationship has more than three breaks or persistent Markov switching shifts. We also provide empirical applications for the money demand of the U.S. The empirical results show that the proposed tests reject the null hypothesis of no cointegration as compared to other tests.     

When trade liberalization is self‐fulfilling: Population aging and uncertainty

Expectation about future trade liberalization induces sectoral adjustment in advance. As a result, the extent of opposition to trade liberalization decreases, and liberalization becomes self‐fulfilling. We analyze this mechanism from two aspects: population aging and uncertainty. Then, we show that (1) the effect of expectation formation is non‐monotonic across ages, and (2) the effect of population aging of workforce varies depending on its driving force. In addition, we analyze uncertainty about future trade liberalization. Then, we show that (3) the mechanism cannot work due to strategic delay even under small uncertainty, but (4) a subsidy scheme can resolve this problem.     

On the relative importance of demand and supply shocks: a panel VAR study for US states

This article is a panel VAR study of demand and supply shocks in the USA using state-level data where structural shocks are decomposed into state idiosyncratic and common components. Decomposition suggests that in all instances, idiosyncratic state shocks rather than common shocks have larger impact and explain most variation in both the state-level unemployment rate and real gross state product. Further, demand shocks are the primary driving force in unemployment rate fluctuations, while both demand and supply are important in output movements to varying degree of impact and importance depending on the use of quarterly or annual data.     

Emergence of populism under ambiguity

The aim of this article is to provide a short summary of the study that obtained the ITAX Ph.D. Award in 2017 (Kishishita, in: Emergence of populism under risk and ambiguity, 2017. https://ssrn.com/abstract=3006550). This study is a game-theoretic analysis of populism using a dynamic elections model with information asymmetries. The main focus is the effect of uncertainty voters face about an elite’s degree of bias on the emergence of populism. Interestingly, its effect is different depending on the source of the uncertainty. In particular, an increase in risk and that in ambiguity (Knightian uncertainty) work in the opposite directions with higher ambiguity rather than risk being a significant source of populism.     

An informational role of supermajority rules in monitoring the majority party's activities

There often exists a supermajority rule that enables the minority party to delay or prevent a vote on a bill. I construct a two‐period model consisting of a representative voter, self‐interested parties, and a media outlet. In the model, the majority party has an incentive to misrepresent the voter's optimal policy. I show that the minority party's attempt to block a vote (e.g., a filibuster) can signal this misrepresentation. Interestingly, the key is that the minority party and the mass media are complementary in creating the signal. Overall, the results suggest that supermajority rules could be beneficial even for the majority of voters.