A Unit Root Test With Multiple Trend Breaks: A Theory and an Application to US and Japanese Macroeconomic Time-Series

This study develops a unit root test that allows for an alternative hypothesis with multiple trend breaks of unknown dates, and proves that tests with fewer than the true number of breaks fail, incorrectly, to reject the null asymptotically. The asymptotic distributions of appropriate t -statistics under the unit root null are determined. In empirical applications, this test rejects the null for the Nelson–Plosser velocity of the USA, the postwar quarterly real output series of the USA and Japan, and Japanese real consumption, but not for real consumption of the USA. The finite-sample properties are examined with Monte Carlo experiments.
JEL Classification Numbers: C32, C12, E32.     

Nonstationarity of Real Exchange Rates in the G7 Countries: Are They Cointegrated with Real Variables?

Using monthly data for the G7 countries in the post-Bretton Woods floating rate period, this paper demonstrates that almost all bilateral real exchange rates have unit roots and, hence, are nonstationary. Consequently, it rejects simple PPP as a long-run relationship. The paper also shows that many of these real exchange rates are cointegrated with other real economic variables such as relative labor productivity, terms-of-trade ratios, real trade balance ratios, and long-term real interest rate differentials. In particular, relative labor productivity is statistically significant with the correct sign for more than half of the country pairs for which cointegration is confirmed. This finding lends support to the Balassa–Samuelson productivity-bias hypothesis. These results imply that nonstationarity of real exchange rates and the consequent rejection of simple PPP can be consistent with the notion that real exchange rates revert to an equilibrium in the long run without deviating arbitrarily far from this equilibrium position.J. Japan. Int. Econ.,December 1997, pp. 523–547. Institute of Social Science, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113, Japan, and Faculty of Business and Commerce, Meiji University, 1-1 Kanda, Surugadai, Chiyada-ku, Tokyo 101, Japan.     

Domestic Political Institutions,Diplomatic Style and Trade Agreements: A Comparative Study of China and Japan

Through an analysis of the formation of free trade agreements (FTAs), this article seeks to examine the factors that caused the gap in Japan and China's relationship with Southeast Asia to emerge and expand in the new millennium. In order to address this question, the article focuses on China and Japan's diplomatic styles and domestic political institutions and examines how these two elements influenced negotiations on the formation of FTAs, as well as the evolving perceptions that the Southeast Asian nations have of these two states. The article argues that Japan and China possess different kinds of weaknesses in implementing feasible external policies – a lack of policy decisiveness for Japan and weak policy credibility for China – which have resulted from the operation of domestic political institutions. Given these differences, while China implemented pragmatic diplomacy that helped improve its policy credibility, Japan's bargaining diplomatic style did not serve to rectify its weak policy decisiveness. Such differences in their diplomatic approach have led to the differing influence of these two states on Southeast Asia.     

Globalization,state and industrialization: The automobile and telecommunications industries in Southeast Asia

This article explores the role of the state in industrial transformation in the era of economic globalization. It argues that economic globalization and market liberalization have not necessarily led to the retreat of state capacity in industrial development Given the rising importance of multinational corporations (MNCs) as promoters of international transactions and domestic industrialization, even developing countries are required to show capacity to promote industrial development in cooperation with foreign MNCs. The argument is examined with the case studies of the automobile industry in Thailand and the telecommunications industry in Malaysia.     

Capturing the volatility smile of options on high-tech stocks—A combined GARCH-neural network approach

A slight modification of the standard GARCH equation results in a good modeling of historical volatility. Using this generated GARCH volatility together with the inputs: spot price divided by strike, time to maturity, and interest rate, a generated Neural Network results in significantly better pricing performance than the Black Scholes model. A single Neural Network for each individual high-tech stock is able to adapt to the market inherent volatility distortion. A single Network for all tested high-tech stocks also results in significantly better pricing performance than the Black-Scholes model. Dr. Gunter Meissner (gmeissner@hawaii.rr.com) is president of Derivatives Software, www.dersoft.com, and associate professor of finance at the Hawaii Pacific University; Noriko Kawano, MSIS, is currently working as a software engineer at Hawaii Dental Service. The article was presented at the eighth Asia Pacific Finance Conference, Shanghai, July 2000.     

GENERAL EQUILIBRIUM ANALYSIS OF OVERLAPPING GENERATIONS WITH HETEROGENEOUS TIME PREFERENCES

The overlapping generations model presented herein requires incorporation of exactly three periods in which one lives, but makes intertemporal decision‐making twice, neither once nor three times. Single decision‐making at the outset, none thereafter, ignores the fact that one makes decisions every day anew as long as tomorrow exists. Incorporating such observations most simply requires decisions to be made at the first period and the second, but not at the third or last period. Our model reveals how the Mabiki (infanticides) and the Narayama (elderlycides) can occur simultaneously. We also find conditions under which child‐indulgence and parental overprotection called sunekajiri might be reckoned a virtue.     

How do corporate tax bases change when corporate tax rates change? With implications for the tax rate elasticity of corporate tax revenues

We construct a new database of extensive margin changes to multiple aspects of corporate tax bases for OECD countries between 1980 and 2004. We use our data to systematically document the tendency of countries to implement policies that both lower the corporate tax rate and broaden the corporate tax base. This correlation informs our interpretation of previous estimates of the relationship between corporate tax rates and corporate tax revenues, which typically do not include comprehensive measures of the corporate tax base definition. We then re-examine the relationship between corporate tax rates and corporate tax revenues. We find that accounting for unobserved heterogeneity attenuates the relationship between corporate tax rates and corporate tax revenues, and increases the implied revenue-maximizing tax rate. Controlling for our new tax base measures does not substantively impact the magnitude of this relationship.     

THE EFFECT OF THE TRANSFER IN A TWO-CLASS MODEL

Hamada showed that the income transfer from capitalists to workers does not increase the income of workers in the long run. His result is based on the nonlinearity of the saving functions. If the saving function of capitalists is concave (or convex), the maximum of workers' income is attained by the positive (or the negative) transfer. There exists a case where the after-tax income of capitalists increases by a positive transfer. The global maximum of capitalists' income is attained when workers' income is all transferred to capitalists, while the global maximum of workers' is attained when capitalists enjoy positive income.