A multisectoral log-linear model of economic growth with Marshallian externalities

Article Abstract:

This paper constructs a multisectoral general equilibrium growth model based on Marshallian externalities. Using homogenous accumulation and production functions, an analytical solution is derived. Making use of the theory of nonnegative matrices, I discuss the properties of the model and derive its time series implications. In particular, I give a characterization in terms of cointegrated time series which allows us to derive several empirically testable hypotheses about the long-run behavior of the model. Some of these hypotheses are investigated using U.S. manufacturing data.

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Exchange rate uncertainty and firm profitability

Article Abstract:

This paper investigates the effects of permanent and transitory components of the exchange rate on firms' profitability under imperfect information. Utilizing a signal extraction framework, we show that the variances of these components of the exchange rate process will have indeterminate effects on the firm's growth rate of profits, but will have predictable effects on its volatility. An increase in the variance of the permanent (transitory) component in the exchange rate process leads to greater (lesser) variability in the growth rate of the firm's profits, thus establishing that the source of exchange rate volatility matters in analyzing its effects. Implications of our theoretical findings for the empirical modeling of the underlying relationships are discussed.

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New evidence on real exchange rate stationarity and purchasing power parity in less developed countries

Article Abstract:

This study tests for relative purchasing power parity among a sample of thirty less developed countries. For this purpose, a new test advocated by Im, Pesaran and Shin is employed which allows one to test for unit roots in heterogeneous panel datasets. The stationarity of at least one real exchange rate is identified where the average ADF statistic based on demeaned real exchange rate data is significantly different from zero. Using quarterly data covering the period 1973-99, this study finds evidence against purchasing power parity for most less developed countries. This conclusion is also drawn from panels based on region and inflationary experience as well as the application of a panel approach based on seemingly unrelated regression analysis.

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