HOW STABLE IS THE DEMAND FOR MONEY IN CHINA?

Different authors have tried to estimate the demand for money in different countries. A common theme of almost all studies since 1987 is the application of cointegration technique. The demand for money in China is no exception and has received some attention by researchers. However, finding of cointegration has been interpreted as a sign of constancy of parameter estimates. In this paper we employ CUSUM and CUSUMSQ tests in conjunction with cointegration analysis to show that both M1 and M2 are cointegrated with their determinants. The results of stability tests reveal that while M1 money demand in China is stable, there is some doubt about stability of M2 money demand.Money Demand, China, Bounds Testing, Stability

The J-Curve at the industry level: evidence from U.S.-India trade

Previous studies that investigated the impact of real depreciation of the rupee on Indian trade balance used aggregate trade data and provided mixed results. One recent study disaggregated the trade data between India and the rest of the world and used bilateral trade data between India and her seven major trading partners. No significant relation was found between the real exchange rate and the bilateral trade balance between India and her major partner, the U.S. In this paper we disaggregate the trade data between India and the U.S. at industry level and use trade data from 38 industries to show that in most industries while real depreciation of the rupee has short-run effects, the short-run effects last into the long run in almost half of these industries.Industry Data, India, U.S., Trade Balance

Is there a J-Curve at the Industry Level?

There exits two groups of studies that have investigated the short-run and the long-run effects of currency depreciation on the trade balance. The first group has employed trade data at the aggregate level between one country and the rest of the world. The second group has used trade data at the bilateral level between one country and her major trading partners. Both groups have provided mixed conclusions. In this paper we employ import and export data at industry level. Sixty six industries in the U.S. (SITC Commodity Groupings) have been identified for which monthly data over the January 1991-August 2002 period are used in investigating the short-run and the long-run effects of real depreciation of the dollar. The results reveal evidence of the J-Curve effect only in six industries. However, the long-run favorable effect of real depreciation is supported in 22 industries

Bilateral J-Curve Between Thailand and Her Trading Partners

Previous studies that tested the J-Curve phenomenon, employed aggregate trade data. More recent studies however, have used bilateral data in testing the phenomenon. They have all concentrated investigating the J-Curve between the U.S. and her five largest trading partners. In this paper we test the J-Curve phenomenon between Thailand and her large trading partners that include Germany, Japan, Singapore, U.K and the U.S. Using quarterly data over 1973I-1997IV period and cointegration analysis we find evidence of the J-Curve at least in the cases of U.S. and Japan.

SHORT-RUN AND LONG-RUN EFFECTS OF CURRENCY DEPRECIATION ON THE BILATERAL TRADE BALANCE BETWEEN PAKISTAN AND HER MAJOR TRADING PARTNERS

Previous studies that investigated the short-run (J-curve) and the long-run effects of currency depreciation on the trade balance of Pakistan used aggregate trade data between Pakistan and the rest of the world and provided no evidence of any significant impact. We wonder whether lack of the relation is due to aggregation bias. In this paper, therefore, we go one step further by employing disaggregated data at bilateral level between Pakistan and her 13 major trading partners to determine if we can discover partners whose trade balances react to changes in the real bilateral exchange rate. The results from bounds testing approach are still inconclusive and show that only in half of the cases the real bilateral exchange rate plays a role.Bilateral J-Curve, Bounds Testing, Cointegration, Pakistan

How Fast Wages Adjust to Prices: A Multi Country Analysis

The adjustment of nominal wages to inflation has implications on the labor market as well as on other areas in economics. In this paper, we employ the Blanchard and Katz (1997, 1999) model of nominal wage determination and try to estimate the adjustment speed. By using the bounds testing approach for cointegration and error-correction modeling we distinguish the short run from the long run. The model is estimated for 29 countries using annual data over the period 1975-2006. We find that inflation, unemployment rate, and labor productivity all have short-run and long-run effects for the majority of the countries. However, nominal wages adjust to inflation fully in 11 of the 29 counties.Wage- Price Philips curve, adjustment speed, Bounds Testing.

Policy Uncertainty and the Demand for Money in Australia: An Asymmetry Analysis

Previous research considered impacts of monetary and output uncertainty on the demand for money in Australia using a linear model and found that while output volatility has significantly positive effects, money supply volatility does not. Furthermore, predictive power of the linear model was very low. In this paper we use a nonlinear model and a new measure of uncertainty known as policy uncertainty and show that this new measure has significantly long-run asymmetric effects on the demand for money in Australia. Due to nonlinear adjustment of policy uncertainty measure, the new nonlinear model has a very high predictive power. The adjusted R2 moves from 0.30 in the linear model to 0.80 in the nonlinear model

SMUGGLING AS ANOTHER CAUSE OF FAILURE OF THE PPP

In theoretical literature, smuggling is considered as a factor contributing to the deviation of the PPP-based exchange rates from the equilibrium exchange rates with little empirical support. In this paper, we used panel data for 33 developing countries over the period 1982-1995 and used panel unit root and panel cointegration technique along with pooled OLS, fixed effects, random effects, and Parks estimator in an augmented Balassa-Samuelson framework. Using two different proxies for smuggling it is found that smuggling into a country leads to an appreciation of domestic currency that can be considered as another cause of loosing competitiveness by many developing countries.Smuggling, PPP, Real Exchange Rate, Panel Data, Panel Unit Root, Panel Cointegration, LDCs

Could Changes in Black Market Exchange Rates be Expansionary in LDCs?

Many of the previous studies that tried to assess the contractionay or expansionary effects of depreciations or devaluations in less developed countries (LDCs) used official exchange rate data and concluded that devaluations are contractionary in LDCs. However, due to capital controls, there is a black market for foreign exchange in many of the LDCs. In this paper when we use black market rates over the period 1975-1998 from 29 LDCs in a panel model, we find that devaluations are expansionary. Thus, for an effective exchange rate policy the official and black market exchange rates should be unified.