nep-ifn New Economics Papers
on International Finance
Issue of 2005‒02‒06
three papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. A Nonparametric Measure of Convergence Toward Purchasing Power Parity By Mototsugu Shintani
  2. Monetary and Exchange Rate Stability at the EU Mediterranean Borders By Christian Bauer; Bernhard Herz
  3. Why Has the Border Effect in the Japanese Market Declined? By Kyoji Fukao and Toshihiro Okubo

  1. By: Mototsugu Shintani (Department of Economics, Vanderbilt University)
    Abstract: It has been claimed that the deviations from purchasing power parity are highly persistent and have quite long half-lives under the assumption of a linear adjustment of real exchange rates. However, inspired by trade cost models, nonlinear adjustment has been widely employed in recent empirical studies. This paper proposes a simple nonparametric procedure for evaluating the speed of adjustment in the presence of nonlinearity, using the largest Lyapunov exponent of the time series. The empirical result suggests that the speed of convergence to a long-run price level is indeed faster than what was found in previous studies with linear restrictions.
    Keywords: Mean reversion, nonlinear time series, nonparametric regression, purchasing power parity puzzle; Real exchange rates
    JEL: C14 C22 F31
    Date: 2002–08
  2. By: Christian Bauer; Bernhard Herz
    Abstract: Stabilizing the exchange rate is a major monetary policy goal in a number of Mediterranean countries.We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize de facto exchange rate regimes and to derive a market based measure of the credibility of these exchange rate regimes. In our empirical analysis we compare the exchange rate policies of seven non European Mediterranean countries, Algeria, Egypt, Israel, Libya, Morocco, Turkey and Tunisia, with the benchmark of four European non EU countries namely Albania, Bulgaria, Croatia, and Romania. Our results indicate that the fundamental volatility of the market based ex- change rates is quite moderate and that markets assign a moderate degree of credibility to the exchange rate management of most of the countries.
    Keywords: monetary policy, exchange rate policy, credibility, Mediterranean, Eastern Europe, technical trading
    JEL: D84 E42 F31
    Date: 2004–12
  3. By: Kyoji Fukao and Toshihiro Okubo (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper analyzes the causes of the decline in Japan’s border effect by estimating gravity equations for Japan’s international and interregional trade in four machinery industries (electrical, general, precision, and transportation machinery). In the estimation, we explicitly take account of firms’ networks. We find that ownership relations usually enhance trade between two regions (countries), and also find that we can explain 35% of the decline in Japan’s border effect from 1980 to 1995 in the electrical machinery industry by the increase of international networks. JEL Classification numbers: F14; F17; F21;L14
    Keywords: Gravity Model; Border Effect; Networks

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