Equilibrium Exchange Rate Determination and Multiple Structural Changes

The large appreciation and depreciation of the US dollar in the 1980s stimulated an important debate on the usefulness of unit root tests in the presence of structural breaks. In this paper, we propose a simple model to describe the evolution of the real exchange rate. We then propose a more general smooth transition (STR) function than has hitherto been employed, which is able to capture structural changes along the (long-run) equilibrium path, and show that this is consistent with our economic model. Our framework allows for a gradual adjustment between regimes and allows for under- and/or over-valued exchange rate adjustments. Using monthly and quarterly data for up to twenty OECD countries, we apply our methodology to investigate the univariate time series properties of CPI-based real exchange rates with both the U.S. dollar and German mark as the numeraire currencies. The empirical results show that, for more than half of the quarterly series, the evidence in favour of the stationarity of the real exchange rate was clearer in the sub-sample period post-1980.

Dominance Solvable Games with Multiple Payoff Criteria.

Two logically distinct and permissive extensions of iterative weak dominance are introduced for games with possibly vector-valued payoffs. The first, iterative partial dominance, builds on an easy-to check condition but may lead to solutions that do not include any (generalized) Nash equilibria. However, the second and intuitively more demanding extension, iterative essential dominance, is shown to be an equilibrium refinement. The latter result includes Moulin’s (1979) classic theorem as a special case when all players’ payoffs are real-valued. Therefore, essential dominance solvability can be a useful solution concept for making sharper predictions in multicriteria games that feature a plethora of equilibria.

Income stratification and the measurement of interdistributional inequality between multiple groups

This paper proposes a new class of stratification indices that measure interdistributional inequality between multiple groups. The class is based on a conceptualisation of stratification as a process that results in a hierarchical ordering of groups and therefore seeks to capture not only the extent to which groups form well-defined strata in the income distribution but also the scale of the resultant differences in income standards between them, where these two factors play the same role as identification and alienation respectively in the measurement of polarisation. The properties of the class as a whole are investigated as well as those of selected members of it: zeroth and first power indices may be interpreted as measuring the overall incidence and depth of stratification respectively, while higher power indices members are directly sensitive to the severity of stratification between groups. An illustrative application provides an empirical analysis of global income stratification by regions in 1993.

Multiple Objectives in Monetary Policy: A de Facto Analysis for ‘Advanced’ Countries

A statistical methodology is developed by which realised outcomes can be used to identify, for calendar years between 1974 and 2012, when policy makers in ‘advanced’ economies have successfully pursued single objectives of different kinds, or multiple objectives. A simple criterion is then used to distinguish between multiple objectives pure and simple and multiple objectives subject to a price stability constraint. The overall and individual country results which this methodology produces seem broadly plausible. Unconditional and conditional analyses of the inflation and growth associated with different types of objectives reveal that multiple objectives subject to a price stability constraint are associated with roughly as good economic performance as the single objective of inflation. A proposal is then made as to how the remit of an inflation-targeting central bank could be adjusted to allow it to pursue other objectives in extremis without losing the credibility effects associated with inflation targeting.

A Multiple Break Panel Approach to Estimating United States Phillips Curves

Phillips curves are often estimated without due attention being paid to the underlying time series properties of the data. In particular, the consequences of inflation having discrete breaks in mean have not been studied adequately. We show by means of simulations and a detailed empirical example based on United States data that not taking account of breaks may lead to biased, and therefore spurious, estimates of Phillips curves. We suggest a method to account for the breaks in mean inflation and obtain meaningful and unbiased estimates of the short- and long-run Phillips curves in the United States.

Tracking cost savings from competitive tendering in the short and long run

A major initiative of the Thatcher and Major Conservative administrations was that public sector ancillary and professional services provided by incumbent direct service organisations [DSOs] be put out to tender. Analyses of this initiative, in the UK and elsewhere, found costs were often reduced in the short run. However, few if any studies went beyond the first round of tendering. We analyze data collected over successive rounds of tendering for cleaning and catering services of Scottish hospitals in order to assess the long term consequences of this initiative. The experience of the two services was very different. Cost savings for cleaning services tended to increase with each additional round of tendering and became increasingly stable. In accordance with previous results in the literature, DSOs produced smaller cost reductions than private contractors: probably an inevitable consequence of the tendering process at the time. Cost savings from DSOs tended to disappear during the first round of tendering, but they appear to have been more permanent in successive rounds. Cost savings for catering, on the other hand, tended to be much smaller, and these were not sustained.