Rational Expectations and the Foreign Exchange Market

Many models of exchange rate determination imply that movements in money supplies and demands should result in movements in exchange rates. Hence, if rational agents are attempting to forecast exchange rate movements, they should in the first instance forecast movements in the supplies of and demands for money balances. Furthermore, if these underlying variables follow some stable autoregressive processes agents should use those processes to make their forecasts. If we identify the forward rate with the market's expectation for the future spot rate, rationality of expectations will imply testable cross-equation restrictions in a joint model of the autoregressions and exchange rate forecasting equation. This strategy is implemented in the paper using data on the L UK/$US and DM/$US exchange rates from the recent floating rate period.

Inside Money and Monetary Neutrality

This paper examines the interaction between the financial and real sectors of the economy within the framework of a stochastic, rational expectation model that distinguishes between inside and outside money. The model also can be used to study the impact of variations in the degree of intermediation, measured by the elasticity of bank deposit supply. In contrast to earlier work which emphasized confusion between monetary and real shocks, we focus on the role played by confusion between inside and outside money and temporary and permanent base money disturbances. Financial sector disturbances, as well as temporary shocks tothe monetary base, are shown to have real effects even when private agents have complete information. When contemporaneous information on economic disturbances is incomplete, permanent shocks to the monetary base also have real effects. If our model is correct, it is invalid to reject equilibrium models of the business cycle on the grounds that anticipated money affects output. We argue that this result is robust in the sense that many "reasonable" models which incorporate inside money would yield a non-neutrality of portfolio and temporary base money supply shocks.

Financial intermediation, monetary policy, and equilibrium business cycles

Business cycles ; Monetary theory ; Financial institutions

Macroeconomic fluctuations in Europe: demand or supply, permanent or temporary?

We use generalized method of moments to estimate a rational expectations aggregate demand-aggregate supply macroeconomic model for five European economies. Our aim is to examine whether supply or demand shocks have predominated in the major European economies during the post-war era and whether shocks of either type have been primarily temporary or permanent in nature. The estimation procedure is an alternative to estimating and interpreting vector autoregressions under restrictions either of the Bernanke-Sims variety or the Blanchard-Quah variety or to performing calibration exercises. ; We find that all four types of shocks (permanent supply, permanent demand, temporary supply, and temporary demand) are needed to account for the data on output and inflation. Permanent or temporary demand shocks have been the dominant source of variance in output growth in four of the five countries, but there is no consistent pattern for inflation.Business cycles ; Econometric models ; Europe ; Macroeconomics

Macroeconomic fluctuations in Europe: demand or supply, permanent or temporary?

We use generalized method of moments to estimate a rational expectations aggregate demand-aggregate supply macroeconomic model for five European economies. Our aim is to examine whether supply or demand shocks have predominated in the major European economies during the post-war era and whether shocks of either type have been primarily temporary or permanent in nature. The estimation procedure is an alternative to estimating and interpreting vector autoregressions under restrictions either of the Bernanke-Sims variety or the Blanchard-Quah variety or to performing calibration exercises. ; We find that all four types of shocks (permanent supply, permanent demand, temporary supply, and temporary demand) are needed to account for the data on output and inflation. Permanent or temporary demand shocks have been the dominant source of variance in output growth in four of the five countries, but there is no consistent pattern for inflation

Electricity Reform and Retail Pricing in Texas

Electricity market reforms have pursued two main goals, both aimed at increasing economic efficiency. The first is to make prices more reflective of costs so that consumers can make more efficient decisions about where and when to consume electricity. The second goal is to ensure that suppliers minimize the costs of supply. How successful has electricity market reform in Texas been with regard to achieving these goals? We focus on one aspect of this overall set of desired outcomes, namely whether movements in retail prices reflect wholesale market prices and whether reform has delivered cost reductions in the delivery of energy services by retailers. We find clear evidence that retail prices in competitive market areas better reflect wholesale prices and have moved favorably for consumers relative to wholesale prices. The same is not necessarily true for consumers in non-competitive market areas. This suggests that competitive retail markets have delivered cost reductions consistent with electricity service providers reducing their marginal costs. The effort that Texas undertook over a decade ago to introduce competition into the retail electricity supply thus appears to be yielding the benefits to consumers that were intended in competitive areas. Consumers in less competitive areas do not appear to have benefited as much

Creativity and the computer nerd: an exploration of attitudes

This study arises from our concern that many of our best art and design students are failing to make the most of the opportunities provided by IT because of their fear or dislike of computers. This not only deprives them of useful skills, but, even more importantly, deprives many IT based developments of their input. In this paper we investigate the relationship between attitudes to creativity and to computers among students. We quickly discard an approach based on theories of personality types as philosophically and educationally problematic. An approach based on the self-concept of artists and designers, in relation to their own creativity and to their feelings about computers, offers more hope of progress. This means that we do not try to define the attributes of "creative people". Rather, we ask what creativity means to students of art and design and relate these responses to their attitudes to computers. Self-concept depends on how the subjects see themselves within society and culture, and is liable to change as culture changes. One major instrument of cultural change at the present time is the growth of IT itself. We then describe a first attempt at using a psychological method - Kelly's Repertory Grids - to investigate the self-concept of artists and designers. It is hoped to continue with this approach in further studies over the next few years

Elevation and cholera: an epidemiological spatial analysis of the cholera epidemic in Harare, Zimbabwe, 2008-2009

BACKGROUND: In highly populated African urban areas where access to clean water is a challenge, water source contamination is one of the most cited risk factors in a cholera epidemic. During the rainy season, where there is either no sewage disposal or working sewer system, runoff of rains follows the slopes and gets into the lower parts of towns where shallow wells could easily become contaminated by excretes. In cholera endemic areas, spatial information about topographical elevation could help to guide preventive interventions. This study aims to analyze the association between topographic elevation and the distribution of cholera cases in Harare during the cholera epidemic in 2008 and 2009. METHODS: We developed an ecological study using secondary data. First, we described attack rates by suburb and then calculated rate ratios using whole Harare as reference. We illustrated the average elevation and cholera cases by suburbs using geographical information. Finally, we estimated a generalized linear mixed model (under the assumption of a Poisson distribution) with an Empirical Bayesian approach to model the relation between the risk of cholera and the elevation in meters in Harare. We used a random intercept to allow for spatial correlation of neighboring suburbs. RESULTS: This study identifies a spatial pattern of the distribution of cholera cases in the Harare epidemic, characterized by a lower cholera risk in the highest elevation suburbs of Harare. The generalized linear mixed model showed that for each 100 meters of increase in the topographical elevation, the cholera risk was 30% lower with a rate ratio of 0.70 (95% confidence interval=0.66-0.76). Sensitivity analysis confirmed the risk reduction with an overall estimate of the rate ratio between 20% and 40%. CONCLUSION: This study highlights the importance of considering topographical elevation as a geographical and environmental risk factor in order to plan cholera preventive activities linked with water and sanitation in endemic areas. Furthermore, elevation information, among other risk factors, could help to spatially orientate cholera control interventions during an epidemic

Using exomarkers to assess mitochondrial reactive species in vivo

Background: The ability to measure the concentrations of small damaging and signalling molecules such as reactive oxygen species (ROS) in vivo is essential to understanding their biological roles. While a range of methods can be applied to in vitro systems, measuring the levels and relative changes in reactive species in vivo is challenging. Scope of review: One approach towards achieving this goal is the use of exomarkers. In this, exogenous probe compounds are administered to the intact organism and are then transformed by the reactive molecules in vivo to produce a diagnostic exomarker. The exomarker and the precursor probe can be analysed ex vivo to infer the identity and amounts of the reactive species present in vivo. This is akin to the measurement of biomarkers produced by the interaction of reactive species with endogenous biomolecules. Major conclusions and general significance: Our laboratories have developed mitochondria-targeted probes that generate exomarkers that can be analysed ex vivo by mass spectrometry to assess levels of reactive species within mitochondria in vivo. We have used one of these compounds, MitoB, to infer the levels of mitochondrial hydrogen peroxide within flies and mice. Here we describe the development of MitoB and expand on this example to discuss how better probes and exomarkers can be developed. This article is part of a Special Issue entitled Current methods to study reactive oxygen species - pros and cons and biophysics of membrane proteins. Guest Editor: Christine Winterbourn. Abbreviations: EPR, electron paramagnetic resonance; GFP, green fluorescent protein; 4-HNE, 4-hydroxynonenal; MitoB, 3-(dihydroxyboronyl)benzyltriphenylphosphonium bromide; MitoP, (3-hydroxybenzyl)triphenylphosphonium bromide; ROS, reactive oxygen species; SOD, superoxide dismutase; TPMP, methyltriphenylphosphonium; TPP, triphenylphosphonium catio