Mark Rush

Cointegration: how short is the long run?

Abstract When testing for cointegration and faced with short sample periods, it is common for researchers to turn to more frequently sampled observations, that is, to move from annual to quarterly or monthly data, in order to increase the number of observations. We argue that such a gain in the degrees of freedom is more apparent than real. Essentially, cointegration is a long-run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations. Using Monte Carlo simulations, we demonstrate this for four popular tests for cointegration.

Real Exchange Rates under the Gold Standard

Purchasing power parity is one of the most important equilibrium conditions in international macroeconomics. Empirically, it is also one of the most hotly contested. Numerous recent studies, for example, have sought to determine the validity of purchasing power parity using data from the post-Bretton Woods float and have reached different conclusions. We assert that most such studies are flawed for two reasons. First, the post-1973 data contain, by definition, only a very limited amount of the low-frequency information relevant for examination of long-run parity. Second, the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low-frequency dynamics. Both deficiencies are rectified in the present paper, with dramatic results. We construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period, and we study deviations from parity using long-memory models that allow for subtle forms of mean reversion. For each real exchange rate, we find that purchasing power parity holds in the long run.

Market efficiency and cointegration: an application to the sterling and deutschemark exchange markets

Abstract The assumption that the foreign exchange market is efficient, that is, that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate, is a property often imposed in theoretical international macroeconomic models. Although a vast empirical literature has evolved to test market efficiency, we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency. We ffind evidence inconsistent with market efficiency for both Germany and the United Kingdom.

Stock market dispersion and unemployment

Abstract The sectoral shifts hypothesis, advanced by Lilien (1982) and Davis (1987), suggests that unemployment is, in part, the result of resources being reallocated from declining to expanding sectors of the economy. Using U.S. data from 1931 to 1987, we test this hypothesis by constructing an index measuring the dispersion among stock prices from different industries. We find that lagged values of this index significantly affect unemployment. We show that the stock market dispersion index is less contaminated by aggregate demand influences than Liliens employment dispersion index, which makes our test less vulnerable to the Abraham and Katz (1986) critique.

Is it Live or is it Internet? Experimental Estimates of the Effects of Online Instruction on Student Learning

This article presents the first experimental evidence on the effects of live versus Internet media of instruction. Students in a large introductory microeconomics course at a major research university were randomly assigned to live lectures versus watching these same lectures in an Internet setting where all other factors (e.g., instruction, supplemental materials) were the same. We find modest evidence that live-only instruction dominates Internet instruction. These results are particularly strong for Hispanic students, male students, and lower-achieving students. We also provide suggestions for future experimentation in other settings.

Unexpected monetary disturbances during the gold standard era

Abstract This empirical paper uses the Barro methodology of estimating unexpected monetary shocks to determine the effect these shocks had on real output in the U.S. during the gold standard era between 1880 and 1913. It also investigates whether changes in a measure of financial intermediation had real effects. The results indicate that neither expected nor unexpected money shocks affected output. Changes in financial intermediation, however, were significantly correlated with output. This result lends support to theories which stress the endogeneity of broad measures of the money supply.

Unexpected Money and Unemployment, 1920 to 1983

IN A SERIES OF PAPERS, BARRO ( 1977, 1978), BARRO and Rush (1980), Vittorio and Tanner (1983), Bellante, Morrell, and Zardkoohi (1982), and others have tested the rational expectations hypothesis that only unexpected changes in the money supply affect real variables. Mishkin (1982), Merrick (1983), Sheehey (1984), Small (1979), and others have criticized this work for various reasons. None of the cnticisms, however, has addressed the question of possible endogeneity of the money supply (M1) used. Moreover, most of this literature uses only data from after World War II. This paper builds on the previous literature in several directions. First, it differs from most other work by following Blejar and Fernandez (1980) and Rush (1985) in using the base money supply as the monetary aggregate. This controls for the possible endogeneity of the M1 money supply typically used by other researchers. Moreover, it allows the sample period to be extended through 1983 without worrying how the recently changing definitions of M1 affect any results. Next, a longer sample period, roughly from 1920 to 1983, is used. This time span is interesting for a couple of reasons. It allows an assessment of the role played by

On measuring the nearness of near moneys revisited

Abstract In this paper we re-examine the theoretical foundations and empirical estimation of models which incorporate a CES utility function to study the nearness of money substitutes. We show that previous studies using these models have been subject to a number of theoretical and empirical flaws. The result of these flaws has been to overestimate the degree of substitutability between money and near money assets. We show that when these errors are corrected, estimates of substitution elasticities are several times smaller than even those of the most recent studies and therefore are more in line with estimates from more traditional demand for money studies.

The marginal income tax rate schedule from 1930 to 1990

Abstract Although it is well known that marginal income tax rates vary with income, few economists have studied the effect on real GDP of the distribution of marginal income tax rates. This omission is probably because data on the distribution do not exist. We remedy this shortcoming by providing a computer program that calculates marginal income tax rates for all income levels for the years 1930 to 1990. We conduct a preliminary empirical investigation into the effect of taxes on economic growth. We find that lowering taxes significantly raises economic growth and that changing the tax rate schedule also has significant effects on economic growth.

Do government policy multipliers decrease with inflation

Abstract We use cross-country data to examine the effects of inflation on government spending and monetary policy multipliers. In contrast to earlier work by Ball, Mankiw, and Romer (1988) and Defina (1991), we allow for differential impacts of both the monetary base and government spending, and this difference turns out to be empirically quite important. We find little evidence in favor of a New Keynesian, sticky price model.