The equilibrium approach to exchange rates: theory and tests.

We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nomial exchange rate is determined by differences in initial wealths - the currencies of richer countries tend to be overvalued, by PPP standards - and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and, in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration test of the homothecy/ CRRA version of the model. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable.Equilibrium; Theory; Trade;

The exchange rate and purchasing power parity: extending the theory and tests.

This paper analyzes the exchange rate in a ``no-arbitrage' or ``real business cycle' equilibrium model and provides empirical evidence for this model vis-a-vis PPP. Our contribution is to show, based on a generalization of the equilibrium model of exchange rates, that (i) the test equation linking the exchange rate to fundamentals should allow for international heterogeneity in time preferences or risk attitudes, as well as noise---that is, the model should not be tested as an exact relation; (ii) empirical work should use levels of variables rather than first differences; (iii) tests on the existence of long-run relations should be complemented by tests on the signs of the coefficients; (iv) the specification of the regression should offer demonstrated advantages over alternatives, and the significance tests should not rely on asymptotic distributions; and (v) the tests should steer clear of countries that have imposed, for most of the period, capital restrictions or exchange controls, thus violating the integrated-markets assumption of the model. Our empirical work shows that, as a long-run relation, the generalized model outperforms PPP.Purchasing; Purchasing power; Theory; Equilibrium; Model; International; Risk; Variables; Advantages; Distribution;

Stocks, Bonds, T-Bills and Inflation Hedging

We analyze the inflation-hedging properties of US stocks, bonds, and T-bills at the subindex level during the 1983 “ 2012 period, for investment horizons between 1 month and 10 years. Bonds other than T-bills turn out poor inflation hedges during the entire sample period, regardless of the investment horizon. Stocks in both cyclical and non-cyclical industries have virtually no hedging ability until the fall of Lehman Brothers in September 2008. From that moment on, equity subindices particularly in the cyclical industries started to develop statistically significant hedging ability, even in the short run. Hence, the extent to which investors can benefit from the hedging ability of stocks and bonds varies over time and across industries, maturities and investment horizons

A Measure of Pure Home Bias

The literature on international equity holdings distinguishes between home bias (overweighting of home stocks) and foreign bias (relative underweighting for more 'distant' countries). The two biases can be integrated into one distance-based model. We define pure home bias as the excess of home bias relative to this model, and find pure home bias only in emerging markets. Countries with high tax rates and low credit standing have higher pure home bias, and more development comes with lower distance aversion. Methodologically, the choice of portfolio bias measure matters. We find the best measure to be a covariance-based measure relative to the world average

Barriers to price convergence

This paper uncovers novel empirical patterns in the cross-country price mechanism using a nonlinear factor model and threshold regression analysis based on individual goods retail price data for a large panel of countries. To our knowledge, this is the first paper to find strong evidence for club convergence of retail prices. These clubs emerge due to the interaction of traded and non-traded factors. For example, countries physically closer to potential trade partners converge faster than countries in the high distance regime as long as they have low initial labor productivity or low initial income. Moreover, we find an asymmetry in the extent that arbitrage opportunities related to international trade are exploited, with low initial price regime countries exhibiting faster convergence from below than high initial price regime countries exhibit from above, consistent with less resistance to exporting than to importing due to political economy considerations. We interpret our findings as evidence of a local law of one price due to barriers to price convergence influencing the duration of the effect of price shocks

Molecular and neurological characterizations of three Saudi families with lipoid proteinosis

<p>Abstract</p> <p>Background</p> <p>Lipoid proteinosis is a rare autosomal recessive disease characterized by cutaneous and mucosal lesions and hoarseness appearing in early childhood. It is caused by homozygous or compound heterozygous mutations in the <it>ECM1 </it>gene. The disease is largely uncharacterized in Arab population and the mutation(s) spectrum in the Arab population is largely unknown. We report the neurologic and neuroradiologic characteristics and <it>ECM1 </it>gene mutations of seven individuals with lipoid proteinosis (LP) from three unrelated consanguineous families.</p> <p>Methods</p> <p>Clinical, neurologic, and neuro-ophthalmologic examinations; skin histopathology; brain CT and MRI; and sequencing of the full<it>ECM1 </it>gene.</p> <p>Results</p> <p>All seven affected individuals had skin scarring and hoarseness from early childhood. The two children in Family 1 had worse skin involvement and worse hoarseness than affected children of Families 2 and 3. Both children in Family 1 were modestly mentally retarded, and one had typical calcifications of the amygdalae on CT scan. Affected individuals in Families 2 and 3 had no grossneurologic, neurodevelopmental, or neuroimaging abnormalities. Skin histopathology was compatible with LP in all three families. Sequencing the full coding region of <it>ECM1 </it>gene revealed two novel mutationsin Family 1 (c.1300-1301delAA) and Family 2 (p.Cys269Tyr) and in Family 3 a previously described 1163 bp deletion starting 34 bp into intron 8.</p> <p>Conclusions</p> <p>These individuals illustrate the neurologic spectrum of LP, including variable mental retardation, personality changes, and mesial temporal calcificationand imply that significant neurologic involvement may be somewhat less common than previously thought. The cause of neurologic abnormalities was not clear from either neuroimaging or from what is known about <it>ECM1 </it>function. The severity of dermatologic abnormalities and hoarseness generally correlated with neurologic abnormalities, with Family 1 being somewhat more affected in all spheres than the other two families. Nevertheless, phenotype-genotype correlation was not obvious, possibly because of difficulty quantifying the neurologic phenotype and because of genetic complexity.</p

The functional role of temperate forest understorey vegetation in a changing world

Temperate forests cover 16% of the global forest area. Within these forests, the understorey is an important biodiversity reservoir that can influence ecosystem processes and functions in multiple ways. However, we still lack a thorough understanding of the relative importance of the understorey for temperate forest functioning. As a result, understoreys are often ignored during assessments of forest functioning and changes thereof under global change. We here compiled studies that quantify the relative importance of the understorey for temperate forest functioning, focussing on litter production, nutrient cycling, evapotranspiration, tree regeneration, pollination and pathogen dynamics. We describe the mechanisms driving understorey functioning and develop a conceptual framework synthesizing possible effects of multiple global change drivers on understorey-mediated forest ecosystem functioning. Our review illustrates that the understorey's contribution to temperate forest functioning is significant but varies depending on the ecosystem function and the environmental context, and more importantly, the characteristics of the overstorey. To predict changes in understorey functioning and its relative importance for temperate forest functioning under global change, we argue that a simultaneous investigation of both overstorey and understorey functional responses to global change will be crucial. Our review shows that such studies are still very scarce, only available for a limited set of ecosystem functions and limited to quantification, providing little data to forecast functional responses to global change