Does the nominal exchange rate regime affect the real interest parity condition?

The real interest parity (RIP) condition combines two cornerstones in international finance, uncovered interest parity (UIP) and ex ante purchasing power parity (PPP). The extent of deviation from RIP is therefore an indicator of the lack of product and financial market integration. This paper investigates whether the nominal exchange rate regime has an impact on RIP. The analysis is based on 15 annual real interest rates and covers a long time span, 1870-2006. Four subperiods are distinguished and linked to fixed and flexible exchange rate regimes: the Gold Standard, the interwar float, the Bretton Woods system and the current managed float. Panel integration techniques are applied to increase the power of the tests, where cross section correlation is embedded via common factor structures. The results suggest that RIP holds as a long run condition irrespectively of the nominal exchange rate regime. However, adjustment towards RIP is affected by both the institutional framework and the historical episode. Half lives of shocks tend to be lower under fixed exchange rates and in the first part of the sample. Although barriers to trade and capital controls have been removed, they did not lead to lower half lives during the managed float.Real interest parity, nominal exchange rate regime, panel unit roots, common factors

All Eyes on Us: A Comparative Critique of the North Carolina Innocence Inquiry Commission

Tourism as one of the biggest industries in the world has been changing continuously and rapidly. The publishing of the Brundtland Report in 1987 has accelerated the discussion about combining economic, social and environmental factors – the so-called triple-bottom line – in order to secure long-term sustainable living conditions on a finite planet for both business and society. This has lead to occurring pressure from different stakeholder groups as for example policy makers or non-governmental organizations (NGO’s) urging for more sustainable business practise within the industry whereas one important pressure group appears to be missing out in this context: the customers of mass tourism products and therefore the demand side within the economic equation. Tourists have been observed to be overall reluctant to pay price premiums for more sustainable travel alternatives and seem to “take vacation” from their everyday green behaviour. Hence at the current point of time eco-tourism appears to be a market niche in which mainly small-scale providers and NGO’s like Nature’s Best in Sweden operate. However integrating mass tourism into the consideration can be seen as a promising opportunity and from an environmental standpoint an urgent necessity as it can be argued that within an industry of this scale, even small improvements towards more sustainable behaviour bear the potential for a substantial impact. The purpose of this study therefore lies in researching the two marketing tools of brands and eco-labels and the influence they can have individually and in combination on the tourist’s decision making delimitated to the context of charter tourism in Sweden. Through the research of this study it was found that currently no directly applicable theory about the combination of brands and eco-labels seems to exist for marketing neither in general, nor for the tourism industry in particular. This strongly indicates the novelty of the topic of combining brands and eco-labels and points out research opportunities. In order to achieve this purpose, a mixed-method research design was used combining qualitative expert interviews from direct business representatives and a quantitative data collection utilizing the scholarly acknowledged marketing research method of conjoint analysis in one of its most up-to-date forms of an adaptive choice-based conjoint analysis. Theory from different fields of study as consumer behaviour and decision making, branding and eco-labelling as well as sustainability marketing was combined and translated into the new and emerging service category of sustainable tourism. From this a conceptual framework was developed combining the data collection results from the mixed-method approach. This leads to the identification of ways for improving current charter tourism companies’ marketing based on the customers’ current view on utilities within certain aspects of the tourism package. Overall this study therefore contributes to the discussion on how demand for sustainable products evolves and can likely be increased. This is seen as a valuable theoretical, practical and societal contribution as it helps improving tourism companies’ understanding of their customer base and supports offering products/services with an improved perceived individual and societal value for charter tourism companies that aim for a higher degree of sustainability in their objectives

Thresholds for Employment and Unemployment - a Spatial Analysis of German Regional Labour Markets 1992-2000

Changes in production and employment are closely related over the course of the business cycle. However, as exemplified by the laws of Verdoorn (1949, 1993) and Okun (1962, 1970), thresholds seem to be present in the relationship. Due to capacity reserves of the firms, output growth must exceed certain levels for the creation of new jobs or a fall in the unemployment rate. While Verdoorn's law focuses on the growth rate of output sufficient for an increase in employment, in Okun's law, the fall in the unemployment rate becomes the focus of attention. In order to assess the future development of employment and unemployment, these thresholds have to be taken into account. They serve as important guidelines for policymakers. In contrast to previous studies, we present joint estimates for both the employment and unemployment threshold. Due to demographic patterns and institutional settings on the labour market, the two thresholds can differ, implying that minimum output growth needed for a rise in employment may not be sufficient for a simultaneous drop in the unemployment rate. Second, regional information is considered to a large extent. In particular, the analysis is carried out using a sample of 180 German regional labour markets, see Eckey (2001). Since the cross-sections are separated by the flows of job commuters, they correspond to travel-to-work areas. Labour mobility is high within a market, but low among the entities. As the sectoral decomposition of economic activities varies across the regions, the thresholds are founded on a heterogeneous experience, leading to more reliable estimates.The contribution to the literature is twofold. First, to the best of our knowledge, no previous paper has investigated a similar broad regional dataset for the German economy as a whole before. By using a panel dataset, information on the regional distributions around the regression lines as well as theirs positional changes is provided for each year. Second, the methods applied are of new type. They involve a mixture of pooled and spatial econometric techniques. Dependencies across the regions may result from common or idiosyncratic (region specific) shocks. In particular, the eigenfunction decomposition approach suggested by Griffith (1996, 2000) is used to identify spatial and non-spatial components in regression analysis. As the spatial pattern may vary over time, inference is conducted on the base of a spatial SUR model. Due to this setting, efficient estimates of the thresholds are obtained. With the aid of a geographic information system (GIS) variation of the spatial components can be made transparent. With Verdoorn’s and Okun’s law the figures show some significant patterns become obvious over time. In respect to Verdoorn’s law, for instance, a stripe of high values in the north-western part from Schleswig-Holstein via Lower Saxony and North Rhine Westfalia to Rhineland Palatinate is striking in all years but 1994 and 1995. In most periods the spatial component is likewise concentrated in Saxony. Clusters of low values can be found in northern Bavaria and, in some periods, in Thüringen and Mecklenburg-Vorpommern. Other parts of Germany appear to be more fragmented consisting of relative small clusters of low, medium and high values of the spatial component. With Okun’s law some changing spatial patterns arise. In all, spatially filtering provides valuable insights into the spatial dimensions of the laws of Verdoorn and Okun. Threshold employment and unemployment, regional labour markets, spatial filtering techniques, spatial SUR analysis

Money Velocity and Asset Prices in the Euro Area

Monetary growth in the euro area has exceeded its target since several years. At the same time, the money demand function seems to be increasingly unstable if more recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In fact, a rise in the income elasticity after 2001 can be observed, and may reflect the exclusion of real and financial wealth in conventional specifications of money demand. This presumption is explored by means of a cointegration analysis. To separate income from wealth effects, the specification in terms of money velocity is preferred. Evidence for the presence of wealth in the long run relationship is provided. In particular, both stock and house prices have exerted a negative impact on velocity after 2001 and lead to almost identical equilibrium errors. The extended error correction model is stable over the entire sample period and survive a battery of specification tests.Cointegration analysis, error correction, money demand, financial wealth, monetary policy

Investigating M3 Money Demand in the Euro Area: New Evidence Based on Standard Models

Monetary growth in the euro area has exceeded its target level especially since 2001. Likewise, recent empirical studies did not find evidence in favour of a stable long run relationship between the variables entering the money demand function. Instead the equation appears to be increasingly unstable if more recent data are included. Since the link between money balances and macroeconomic variables seems to has become rather fragile, these results put serious doubts concerning the rationale of monetary aggregates in the monetary policy strategy of the ECB. However, if the analysis is done without imposing a short run homogeneity restriction between money and prices, a stable long run money demand relationship can be identified, where recursively estimated parameters are almost stable. In addition, the corresponding error correction model survives a wide array of specification tests, including procedures for nonlinearities and parameter instability. Hence, the apparent monetary overhang is in line with standard models of money demand behaviour, and is not expected to lead to a rise in inflation.Cointegration analysis, Error correction, Money demand, Monetary policy

Current Account Imbalances in the Euro Area: Catching up or Competitiveness?

In the debate on global imbalances, the euro area countries did not receive much attention so far. While the current account is on balance for the entire area, divergences between individual member states have increased since the introduction of the common currency. In this paper, the imbalances are traced to catching up and competitiveness factors using paneleconometric techniques. In line with the intertemporal approach to the current account, low income countries tend to run deficits, while rich countries realize surpluses. However, the effect diminishes, if early years are dropped from the sample. The competitiveness channel is more robust and shows the expected sign, i.e. a real appreciation leads to external deficits. To restore competitiveness, a reduction of unit labour costs is on the agenda. Since a deterioration of competitiveness is not a feasible strategy for the surplus countries, an asymmetric response across countries is required in order to reduce the imbalances.Current account imbalances, catching up and competitiveness, euro area

A Further Examination of the Export-Led Growth Hypothesis

This paper challenges the common view that exports generally contribute more to GDP growth than a pure change in export volume, as the export-led growth hypothesis predicts. Applying panel cointegration techniques to a production function with non-export GDP as the dependent variable, we find for a sample of 45 developing countries that: (i) exports have a positive short-run effect on non-export GDP and vice versa (short-run bidirectional causality), (ii) the long-run effect of exports on nonexport output, however, is negative on average, but (iii) there are large differences in the long-run effect of exports on non-export GDP across countries. Cross-sectional regressions indicate that these cross-country differences in the long-run effect of exports on non-export GDP are significantly negatively related to cross-country differences in primary export dependence and business and labor market regulation. In contrast, there is no significant association between the growth effect of exports and the capacity of a country to absorb new knowledge.Export-led growth, Developing countries, Panel cointegration

GPS source solution of the 2004 Parkfield earthquake

We compute a series of finite-source parameter inversions of the fault rupture of the 2004 Parkfield earthquake based on 1 Hz GPS records only. We confirm that some of the co-seismic slip at shallow depth (<5 km) constrained by InSAR data processing results from early post-seismic deformation. We also show 1) that if located very close to the rupture, a GPS receiver can saturate while it remains possible to estimate the ground velocity (~1.2 m/s) near the fault, 2) that GPS waveforms inversions constrain that the slip distribution at depth even when GPS monuments are not located directly above the ruptured areas and 3) the slip distribution at depth from our best models agree with that recovered from strong motion data. The 95th percentile of the slip amplitudes for rupture velocities ranging from 2 to 5 km/s is, 55 +/- 6 cm.Comment: 24 pages including supp. material

M3 Money Demand and Excess Liquidity in the Euro Area

Money growth in the euro area has exceeded its target since 2001. Likewise, recent empirical studies did not find evidence in favour of a stable long run money demand function. The equation appears to be increasingly unstable if more recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In contrast to the bulk of the literature, we are able to identify a stable long run money demand relationship for M3 with reasonable long run behaviour. This finding is robust for different (ML and S2S) estimation methods. To obtain the result, the short run homogeneity restriction between money and prices is relaxed. In addition, a rise in the income elasticity after 2001 is taken into account. The break might be linked to the introduction of euro coins and banknotes. The monetary overhang and the real money gap do not indicate significant inflation pressures. The corresponding error correction model survives a battery of specification tests.Cointegration analysis, error correction, excess liquidity, money demand, monetary policy