Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs

We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with ‘deep’ habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.Exchange Rate Puzzles; Forward Foreign Exchange; Habit Persistence

Interview with Carey A. Moore, December 30, 2003

Carey A. Moore was interviewed on December 30, 2003 by Michael Birkner about his experiences after leaving Gettysburg College and moving on ultimately toward a Ph.D and then a teaching career. Length of Interview: 94 minutes Collection Note: This oral history was selected from the Oral History Collection maintained by Special Collections & College Archives. Transcripts are available for browsing in the Special Collections Reading Room, 4th floor, Musselman Library. GettDigital contains the complete listing of oral histories done from 1978 to the present. To view this list and to access selected digital versions please visit -- http://gettysburg.cdmhost.com/cdm/landingpage/collection/p16274coll

Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs

We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with deep? habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.Exchange Rate Puzzles; Forward Foreign Exchange; Habit Persistence

Habit and Heterogeneity in the Youthful Demand for Alcohol

Observed patterns of youthful drinking indicate substantial persistence. This paper analyzes how much of that persistence reflects the actual development of a habit, and how much is due to unobserved aspects of the individual and the environment. The role of restrictions on alcohol availability, both in the current period and in adolescence, is also explored. We find that much of the observed persistence represents habit formation, and not unobserved characteristics. Consequently, restrictions on availability, particularly at an early age, alter subsequent patterns of alcohol consumption and abuse.

For Rich or for Poor: When does Uncovered Interest Parity Hold?

We present a model that simultaneously explains why uncovered interest parity holds for some pairs of countries and not for others. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with ‘deep’ habits along the lines of the work of Ravn, Schmitt-Grohe and Uribe. By deep habits, we mean habits defined over goods rather than countries. The negative slope in the Fama regression arises when monetary instability is low and the precautionary savings motive dominates the intertemporal substitution motive. When monetary instability is high, the Fama slope is positive in line with uncovered interest parity. The model is simulated using the artificial economy methodology for 34 currencies against the US dollar. We conclude that, given the predominance of precautionary savings, the degree of monetary instability explains whether or not uncovered interest parity holds.Monetary instability; Uncovered interest parity; Forward biasedness puzzle; Carry trade; Habit persistence

Conservation Behavior: From Voluntary Restraint to a Voluntary Price Premium

This paper provides a theoretical and empirical investigation of conservation behavior that is motivated by concern for the environment. Two types of behavior are considered. First, individuals who care about environmental quality may voluntarily restrain their consumption of goods and services that generate a negative externality. Second, individuals may choose to pay a voluntary price premium for goods and services that are more "environmentally friendly." A theoretical model highlights the relationship between such voluntary restraint and a voluntary price premium. We test predictions of the model in an empirical study of household electricity consumption with introduction of a price-premium, green-electricity program. We find evidence of voluntary restraint and its relation to a voluntary price premium. The empirical results are consistent with the model of conservation behavior, as none of the theoretical predictions can be rejected.Consumer, Electricity, Environment, Households, Individual

Private Provision of Environmental Public Goods: Household Participation in Green-Electricity Programs

Green-electricity programs provide an opportunity to study private provision of public goods in a field setting. The first part of this paper develops a theoretical framework to analyze household decisions about voluntary participation in green-electricity programs. We consider different participation mechanisms and show how they relate to existing theory on either pure or impure public goods. The models are used to examine the implications of participation mechanisms for the level of public-good provision. The second part of the paper provides an empirical investigation of actual participation decisions in two green- electricity programs: one based on a pure public good and the other based on an impure public good. The data come from original household surveys of participants and nonparticipants in both programs, along with utility data on household electricity consumption. The econometric results are interpreted in the context of the theoretical models and are compared to other studies of privately provided public goods.Pure and impure public goods, private provision, green electricity