Khosrow Doroodian

Exchange rate variability and the flow of international trade

Abstract This study uses a GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model to test if real exchange rate volatility has an adverse effect on the value of U.S. imports from Canada. We find that exchange rate uncertainty has a negative and statistically significant affect on trade flows.

The linkage between oil price shocks and economic growth with inflation in the presence of technological advances: a CGE model

Abstract This study examines whether oil price shocks are inflationary in the US. We increase the price of oil in the year 2000 in a manner consistent with the oil price shock of 1973–74 and let the economy experience a Hicksian technological change. Then using a dynamic computable general equilibrium (CGE) model, we conduct our analyses under two separate cases: (1) regular economic growth, and (2) low economic growth. We also run three technological scenarios: (1) no technology change, (2) technological advances in the manufacturing and refining sectors, and (3) technological advances in the manufacturing, refining, chemical, and service sectors. The effects of these changes are analyzed over the next 20 years until the year 2020. Our results suggest that while a shock of the magnitude experienced in the 1970s will have a fairly severe effect on such things as gasoline and refinery prices, the aggregate price changes will be largely dissipated over time at the aggregate level. Furthermore, the aggregate level of prices (CPI and PPI) will fall over time as the level of technological advances rise under both growth scenarios. There are several reasons why we would obtain such results. First of all, the structure of the US economy has changed remarkably since the early 1970s. Rather than being a manufacturing based economy, the US is largely a service based economy today and hence it is more protected form raw materials shortages. Second, the economy has had a steady history of strong growth and the faster an economy grows the quicker disruptions to that economy are dissipated. Finally, our economy is experiencing rapid technological advances in information systems which have served to reduce costs and maintain output in a wide number of economic sectors.

A Simultaneous Model of Cigarette Advertising: Effects on Demand and Industry Response to Public Policy

A simultaneous demand and advertising system is used to examine the response of aggregate cigarette demand to advertising and the reaction of consumers and industry to government health warnings and media policy during 1952-84. The results indicate that advertising increases demand and that health warnings reduce consumption. The industry reacts to health warnings by increasing its advertising. Copyright 1989 by MIT Press.

The J-curve effect and US agricultural and industrial trade

This paper examines the J-curve hypothesis for US agricultural and manufactured goods, using the Shiller lag model. The results support the J-curve effect for agricultural goods, but not for manufactured goods. These findings explain why many studies in the literature fail to support the J-curve phenomenon. There are two explanations for these findings: (1) the aggregation bias of data that combine both agricultural and manufactured goods and (2) the country under study is often an industrial nation like the US or Japan with a high proportion of manufactured goods in both exports and imports.

The Value of Changes in Deer Season Length: An Application of the Nested Multinomial Logit Model

Increasing deer populations can be controlled through manipulatingharvest limits or season length. While such actions often result in benefitsto hunters, both motorists and the agricultural sector also benefit as alower deer population leads to fewer incidences of harmful human-deerencounters. Traditional recreation demand models are often employed toexamine the welfare implications of changes in daily hunting bag limits.Studies measuring the effects of changes in season length, however, arenoticeably absent from the literature. This study uses a nested randomutility model to examine hunter choice over site and season selection toderive the values of changes in season length.

Central bank intervention and foreign exchange volatility

This paper provides additional empirical evidence on the topic of the effectiveness and the impact of Federal Reserve intervention on U.S. exchange rates. Using a daily measure of exchange rate intervention in the yen/dollar and mark/dollar exchange markets for the period January 3, 1985 to March 19, 1997, this paper finds a statistically significant impact of intervention on spot rates. A generalized autoregressive conditional heteroskedasticity exchange rate equation is used to measure the impact of intervention on exchange rate uncertainty. This study finds that intervention is associated with a significant increase in the interday conditional variance (uncertainty) of both bilateral spot exchange rates. This supports the view of Friedman and Schwartz that exchange rate intervention serves to destabilize the foreign exchange market by introducing additional levels of exchange rate uncertainty.

Cyclical unemployment: sectoral shifts or aggregate disturbances? A vector autoregression approach

Using a multivariate vector autoregression (VAR) model, this paper investigates if sectoral shifts, inflation uncertainty, or demand shocks are the primary cause of unemployment fluctuations in the postwar US economy. A sectoral shifts variable (cross-section volatility), an ARCH measure of inflation uncertainty, and three demand shocks variables (monetary base growth rate, interest rates and inflation rates) are incorporated in a VAR model. Our major findings are: cross-section volatility Granger causes unemployment; the sectoral shifts variable and inflation uncertainty explain a small amount, while demand shocks variables explain a substantial amount of the variation in unemployment.

The Persistence And Japan's Trade Surplus

In this study we use tiem-series data to examine the persistence of Japanese trade balance surplus and the existence of a J-curve effect for the period 1975 (I)-1990(I). We extend the earlier studies by applying the Shiller lag model to the first differences of the variables that are subject to a unite root process. The empirical findings support the J-curve effect for Japan and also illustrate that it take 13 quarters before the full effect of an exchange rate change on the trade balance is realized. The results also suggest that in 1985(I), for example, a once-and for -all real currency appreciation of 36.2 percent would remove the average quarterly real trade balance surplus of 2.5 trillion yen in 13 quartets, ceteris paribys.[F30]

Labor costs convergence in manufacturing between North America and Western Europe, 1960‐1991

Hourly labor costs in the manufacturing sector of seven EC countries, the USA and Canada are used to test the factor price convergence (FPC) by employing Johansen’s multivariate cointegration tests. We also examine if there is a two‐way causality in wages between two groups of countries covered in this study. Both objectives are evaluated by developing error‐correction models for Western Europe and North America. Our empirical findings provide support for the FPC and the existence of a long‐run equilibrium cointegration relationship among labor costs in manufacturing. The estimation results of error correction models show that a feedback causality exists between manufacturing labor costs in North America and Western Europe.

Testing the law of one price under the fixed and flexible exchange rate systems

This paper examines if the law of one price holds under different exchange rate regimes and if a simultaneous relationship exists among prices of different countries. The findings show that prices in industrial countries are related, as suggested by the monetary approach. Confirming the law of one price, our results show relative price movements play a negligible role in removing a disequilibrium in the balance of payments. These findings provide supportive evidence for the purchasing power parity (PPP) doctrine under the floating exchange rate system but not under the fixed exchange rate system.