Eric J. Pentecost

The handbook of international macroeconomics

Preface. 1. Introduction: Rick van der Ploeg (Amsterdam). 2. Quantity-Constrained Models of Open Economies: Neil Rankin (Warwick). 3. Imperfect Competition and Open Economy Macroeconomics: Huw D. Dixon (York). 4. Relative Price Movements in Dynamic General Equilibrium Models of International Trade: David Backus (NYU), Patrick Kehoe (Pennsylvania) and Finn Kydland (Carnegie Mellon). 5. International Fiscal Policy Coordination and Competition: Assaf Razin and Efraim Sadka (Tel Aviv). 6. Capital Taxation in the World Economy: A. Lans Bovenberg (Tilburg). 7. History of the International Monetary System: Implications for Research in International Macroeconomics and Finance: Barry Eichengreen (Berkeley). 8. On Inflation, Unemployment and the Optimal Exchange Rate Regime: George Alogoskoufis (Athens). 9. Macroeconomic Policy, Speculative Attacks, and Balance of Payments Crisis: Pierre-Richard Agenor and Robert P. Flood (IMF). 10. Continuous-Time Models of Exchange Rates and Intervention: Giuseppe Bertola (Princeton). 11. Stylized Facts of Nominal Exchange Rate Returns: Casper G. de Vries (Leuven). 12. Partial versus General Equilibrium Models of International Capital Market Equilibrium. 13. Sovereign Debt: Kenneth Kletzer (Santa Cruz). 14. Growth and External Debt: Daniel Cohen (CEPREMAP). 15. Growth and Deficits in an Interdependent World. Index.

Measuring and estimating exchange market pressure in the EU

Abstract This paper estimates a model of exchange market pressure for several EU currencies vis-a-vis the German mark over the period 1980–94. It differs from previous work in that we use principal components analysis to derive a measure of exchange market pressure, rather than adding exchange rate and reserves changes or using ad hoc weighting schemes. Secondly, we also try to explain movements in our measure of exchange market pressure by a wealth-augmented monetary model. The results suggest that exchange market pressure can indeed be explained by differential money growth, the change in the long-term interest rate differential, real depreciation, budget deficit and the current account for five members of the EUs Exchange Rate Mechanism.

A Gravity Model Forecast of the Potential Trade Effects of EU Enlargement: Lessons from 2004 and Path-dependency in Integration

This paper uses a gravity model to forecast the potential impact on trade balances and trade patterns of the 2004 EU enlargement. The results suggest that gross trade creation for the accession economies is about 25 per cent of their 2003 trade. Although membership of the EU creates trade it also results in trade diversion; that is, a declining share of accession country exports and imports with non-EU15 countries. Overall, the trade balances of the accession countries suffer larger trade deficits after accession due to import growth surpassing export growth. The extent of increase in the trade deficit due to accession is inversely related to the level of integration and income of the new members. Hence integration is path-dependent and the EU should take this into account when preparing for further enlargements to the Balkans and Southeast Europe.

Common trends and cycles in G-7 countries exchange rates and stock prices

In this paper we investigate the nature of the relationship between stock prices and spot exchange rates using recent developments in time series modelling. We are able to explain why traditional econometric techniques show little correlation between bilateral exchange rates and stock prices. The reason is that stock prices and exchange rates do not exhibit common trends, but do exhibit common cycles. Common cycle tests are used in this paper to show this result for the G-7 countries exchange rates and relative stock market prices indices using monthly data over the period from 1982 to 1994.

The Determinants of Technology Diffusion: Evidence from the UK Financial Sector

We investigate the role of firm- and industry-specific factors in the diffusion of automated teller machines in the UK financial sector. A duration model of technology adoption is employed in the empirical modelling and is applied to an annual panel of adoption histories over the period 1972-97. The main factors affecting the diffusion of new technology are found to be endogenous learning, cumulative learning-by-doing effects, firm size, growth and profitability, and price expectations. There is little evidence, however, to support the role of stock effects in the diffusion process. The results are found to be robust across a number of specifications of the baseline hazard function. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester

Locational advantage and US foreign direct investment in UK manufacturing

The relationship between foreign direct investment (FDI) and international trade is examined with specific reference to US FDI in the UK. Four complementary hypotheses are tested on a cross-section of UK industries. There is evidence of US FDI being located in UK industries which have a revealed comparative advantage and that large market size effects are important. On the other hand, little evidence was found for the protection jumping and industrial concentration hypotheses.

Evaluating the Empirical Evidence for Currency Substitution: A Case Study of the Demand for Sterling in Europe

Currency substitution has important implications for the cost of European monetary union--if it is significant it will help to reduce costs of convergence to a single currency. This paper informs the policy debate by testing for its existence on a consistent European database making use of cointegration methods. The results demonstrate that, in the two types of models tested, there is no clear evidence of currency substitution in either the short or the long run and that, therefore, currency substitution between sterling and EC currencies cannot be relied upon as a mechanism or an aid to reduce the costs of monetary convergence. Copyright 1994 by Royal Economic Society.

The real exchange rate and the output response in four EU accession countries

Abstract This paper estimates the response of output to changes in the real exchange rate in four central and eastern European Emerging Market economies using a new time series technique to generate robust short- and long-run estimates in small samples, where the integration properties of the variables are unknown. The reduced form estimation results show that devaluation is neutral in its effect on the long-run level of GDP in the Czech Republic and Hungary, but that a real appreciation leads to a persistent fall in output in Poland and a sustained rise in output in Slovakia.

Regional Service Sector Convergence

BUTTON K. And PENTECOST E. (1993) Regional service sector convergence, Reg. Studies 27, 623–636. This paper is concerned with examining changes in service sector employment in the UK regions. In particular, it seeks to examine the degree of convergence in service sector employment which has occurred since the late 1970s. It provides some initial background material relating to the employment and structural changes which have taken place in Europe and, in particular, in the UK over this period. It outlines the general changes in regional policy, both within the UK and the EC, which seem likely to have some bearing on the location and development decisions of service sector activities. The main focus, though, is on the question of how to define and measure convergence. Finally, it proceeds to examine, using various techniques including time-varying parameter techniques, the extent to which regional convergence in service sector employment has come about. BUTTON K. Et PENTECOST E. (1993) La convergence regio...

Exchange controls and European stock market integration

This paper examines the impact on stock price predictability that the removal of exchange controls had on major European countries during the late 1970s and 1980s. It is found that for Germany, Switzerland and France, the removal of exchange controls led to an increase in the interdependence between these and other markets. In contrast, there is little evidence of an increase in interdependence for the UK and Italy.