Self-employment in Britain: when, who and why?

This work explores self-employment in Britain across recent years with a particular focus on when individuals became self-employed, who is more or less likely to enter self-employment and why individuals choose to enter self-employment. It complements previous microeconomic studies that focus on transitions into and out of selfemployment and presents new evidence on the returns to selfemployment and how these compare to the returns to paid employment. Lifetime employment history data from the British Household Panel Survey suggest that the large increase in self-employment in the 1980’s was due to increases in the inflow rate, while an increase in the outflow rate in the early 1990’s has stopped this trend. Panel data from the same source indicate that gender, parents occupation, assets and considering the work itself, the use of initiative or hours of work to be the most important aspect of a job emerge as key determinants of self-employment entry. Gender, age, occupation and elapsed duration in self-employment emerge as important determinants of selfemployment exit. Our analysis reveals that, all else equal, the selfemployed report higher levels of job satisfaction with pay and with the work itself than employees, but lower levels of satisfaction with job security

The Purchasing Power Parity Debate

Originally propounded by the sixteenth-century scholars of the University of Salamanca, the concept of purchasing power parity (PPP) was revived in the interwar period in the context of the debate concerning the appropriate level at which to re-establish international exchange rate parities. Broadly accepted as a long-run equilibrium condition in the post-war period, it was first advocated as a short-run equilibrium by many international economists in the first few years following the breakdown of the Bretton Woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s. Accordingly, over the last three decades, a large literature has built up that examines how much the data deviated from theory, and the fruits of this research have provided a deeper understanding of how well PPP applies in both the short run and the long run. Since the mid 1990s, larger datasets and nonlinear econometric methods, in particular, have improved estimation. As deviations narrowed between real exchange rates and PPP, so did the gap narrow between theory and data, and some degree of confidence in long-run PPP began to emerge again. In this respect, the idea of long-run PPP now enjoys perhaps its strongest support in more than thirty years, a distinct reversion in economic thought.

International liquidity swaps: is the Chiang Mai Initiative pooling reserves efficiently?

We analyze the network of bilateral liquidity swaps (BSAs) among the ASEAN+3 countries. We find that the network has taken the correlation of capital flows in the region into account, in the sense that countries with lower correlation of reserve growth have engaged in larger BSAs. All else equal, a decimal point increase in the correlation of international reserve growth decreases the size of a bilateral swap agreement between 18 and 27%. Moreover, we find that the approximatedly $ 60bn of BSAs have had a limited impact, if any, on government bond spreads so far. Finally, we identify potential gains from inter-regional BSAs

Real exchange rate dynamics in transition economies : a nonlinear analysis

We examine the behavior of the real exchange rates of nine transition economies during the 1990s. We propose an empirical model rationalized on the basis of standard economic models in the tradition of Mundell-Fleming-Dornbusch and Harrod-Balassa-Samuelson, allowing explicitly for real interest rate differentials and (implicitly) for productivity differentials to have an impact on real exchange rate equilibrium and employing nonlinear modeling techniques that are consistent with recently developed economic theories and observed regularities. Using a nonlinear multivariate generalization of the Beveridge-Nelson decomposition applied to our models, we also identify the permanent and temporary components of these real exchange rates implied by our estimates. The results have a natural interpretation and clear policy implications

International Liquidity Swaps : Is the Chiang Mai Initiative Pooling Reserves Efficiently ?

We analyze the network of bilateral liquidity swaps (BSAs) among the ASEAN+3 countries. We find that the network has taken the correlation of capital flows in the region into account, in the sense that countries with lower correlation of reserve growth have engaged in larger BSAs. All else equal, a decimal point increase in the correlation of international reserve growth decreases the size of a bilateral swap agreement between 18 and 27%. Moreover, we find that the approximatedly $ 60bn of BSAs have had a limited impact, if any, on government bond spreads so far. Finally, we identify potential gains from inter-regional BSAs.insurance ; international reserves ; liquidity ; sovereign risk ; swaps

Interest rate setting and inflation targeting : evidence of a nonlinear Taylor rule for the United Kingdom

We examine potential nonlinear behaviour in the conduct of monetary policy by the Bank of England. We find significant nonlinearity in this policy setting, and in particular that the standard Taylor rule really only begins to bite once expected inflation is significantly above its target. This suggests, for example, that while the stated objective of the Bank of England is to pursue a symmetric inflation target, in practice some degree of asymmetry has crept into interest-rate setting. We argue that, nevertheless, the very predictability of the policy rule, especially when set out in a highly plausible and intuitive nonlinear framework, is perhaps one reason why the United Kingdom has, since the early 1990s, enjoyed price stability combined with relatively strong growth

The Crisis in the Foreign Exchange Market

The financial crisis of 2007-2008 had major implications for the foreign exchange market. We review events and implications for exchange rates, volatility, returns to currency investing, and transaction costs. This “blow-by-blow” narrative is intended to be a resource for researchers seeking a comprehensive review of the “what, why and when” of the financial crisis in terms of foreign exchange market dynamics. An implementable financial stress index (FSI) is created and then used to illustrate the dramatic nature of the current crisis compared to earlier crises. We also examine how the global FSI might have been used to condition the exposure to the carry trade (long high interest rate currencies, short low interest rate currencies) and we show that such an index has potential value in protecting a portfolio against loss during periods of stress, although this result is subject to the important caveats of controlling for transaction costs and timely recognition of the change in regime.financial crisis, foreign exchange, exchange rates, transaction costs

Threshold adjustment of deviations from the law of one price

Using self-exciting threshold autoregressive models, we explore the validity of the law of one price (LOOP) for sixteen sectors in nine European countries. We find strong evidence of nonlinear mean reversion in deviations from the LOOP and highlight the importance of modelling the real exchange rate in a nonlinear fashion in an attempt to measure speeds of real exchange rate adjustment. Using the US dollar as a reference currency, the half-lives of sectoral real exchange rate shocks, calculated by Monte Carlo integration, imply much faster adjustment than the 'consensus' half-life estimates of three to five years. The results also imply that transaction costs vary significantly across sectors and countries