An Empirical Investigation of Shock Persistence in Economic Time Series*

Whether or not shocks persist has important implications in economics. An empirical study investigates this issue for key Australian and US macroeconomic time series. The existence of persistence is investigated by unit root tests and its magnitude estimated by recently proposed techniques. Results from these different approaches are compared.     

TEST OF THE CONVERGENCE HYPOTHESIS ALLOWING FOR CROSS‐SECTIONAL DEPENDENCE

A large empirical literature has investigated whether per capita output converges around a common trend across national and regional economies. The methods used in this literature assume no cross‐sectional dependence even though it is likely to be present and might be important in practice. Chang has devised a promising method of testing for unit roots in heterogeneous panels with cross‐sectional dependence. We apply her method to test whether convergence takes place across three samples of economies: 15 advanced industrial countries; a broader group of 57 countries; and the 48 contiguous US states. We find evidence of convergence for the 15 advanced industrial economies but no evidence of convergence across either the broad group of countries or the US states.     

The Output Effect of a Transition to Price Stability When Velocity Is Time Varying

This paper explores the effect of time‐varying velocity on output responses to policies for reducing/stopping inflation. We study a dynamic general equilibrium model with sticky prices in which we introduce time‐varying velocity. Specifically, we endogenize time‐varying velocity into the model developed by Ireland (1997) for analyzing optimal disinflation. The nonlinear solution method reveals that, depending on velocity, the “disinflationary boom” found by Ball (1994) may disappear even under perfect credibility and that early output losses may be much larger than previously thought. Indeed, we find that a gradual disinflation from a low inflation may even be undesirable.     

Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?

Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one-for-one in the long run, a finding at odds with many theoretical models. This article shows that these results can be deceptive when the process followed by inflation shifts infrequently. We characterize the shifts in inflation by a Markov switching model. Based upon this model's forecasts, we reexamine the long-run relationship between nominal interest rates and inflation. Interestingly, we are unable to reject the hypothesis that in the long run nominal interest rates reflect expected inflation one-for-one.     

Optimal Constrained Interest-Rate Rules

We show that if policymakers compute the optimal unconstrained interest-rate rule within a Taylor-type class, they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibration may be indeterminate or unstable under learning under a different calibration. We advocate a procedure in which policymakers restrict attention to rules constrained to lie in the determinate learnable region for all plausible calibrations, and that minimize the expected loss, computed using structural parameter priors, subject to this constraint.     

Fashion: a new paradigm of consumer behaviour

In clothing markets, ‘fashion’ has traditionally been defined as something that is accepted by a sizeable proportion of a market. This paper is based on empirical research amongst over 500 students investigating a variety of dimensions of ‘fashionability’. The findings support the ‘outer-directedness’ of ‘prevailing styles’ but also identify a potentially important set of ‘individualistic’ influences. It is suggested that this indicates the necessity for a redefinition of what is fashionable, and an explanation is offered for the apparent contradictions in current thinking about fashionability.     

THE CLOTHING ATTITUDES AND ACTIVITIES OF HOME ECONOMISTS EMPLOYED IN BUSINESS

The Sproles Consumer Interest and Priorities questionnaire was administered to 3,036 American home economists, who were pursuing careers in business, in order to develop a profile of the clothing attitudes and activities of that segment of the consumer market who (1) have been enrolled in home economics programmes at the college level, and (2) have been employed in businesses created for profit or associations supported by profit-making companies. Sixty-four per cent (1,950) of the survey forms were returned. A majority of the respondents evidenced a consciousness of clothing styles worn by others, an understanding of the importance of fashionability within social situations, an awareness of personal clothing expenditures and an appreciation for the economic value of home sewing. Application of these principles, however, was individualized, as evidenced by contrasting methods of clothing acquisition, varied willingness to purchase clothing at sales or used clothing establishments, and diverse tendencies toward buying clothing on impulse. Only 22% of the sample perceived themselves to be fashion leaders.