Robert Driskill

Exchange-Rate Dynamics: An Empirical Investigation

This paper estimates a reduced-form exchange-rate equation whose estimates are used to address questions on exchange-rate overshooting, intermediate-run exchange-rate dynamics, and long-run proportionality relationships between relative money supplies and exchange rates. Based on Swiss-U.S. data from the period 1973-79, the major findings are that following a monetary shock there is short-run exchange-rate overshooting by a factor of about two and that subsequent exchange-rate adjustments to a new long-run equilibrium take longer than 2 years and exhibit nonmonotonic patterns.

Dynamic duopoly with adjustment costs: A differential game approach

Abstract This paper develops a differential-game model of duopoly, in which firms incur costs associated with how fast they change their level of output. The analysis solves for a subgame perfect equilibrium to the model in which the steady-state level of output lies strictly between the static Cournot and perfect competition solutions. Furthermore, we demonstrate that the limit game in which the speed of adjustment parameter approaches zero does not tend toward the static Cournot equilibrium.

Speculation, rational expectations, and stability of the foreign exchange market

Abstract This paper uses Muths model of rational expectations to analyze foreign exchange speculation under floating exchange rates when a trade balance ‘J-curve effect’ exists. It extends the existing literature by basing speculative behavior explicity on maximizing behavior, by relating expectations to the underlying structure of the model, i.e. by assuming rational expectations, and by explicitly incorporating uncertainty. A surprising result is that, if speculation takes place, decreases in risk aversion increase the variance of the exchange rate.

Monopoly and Oligopoly Provision of Addictive Goods

This article investigates monopoly and oligopoly provision of an addictive good. Consumer preferences are modeled as in Becker and Murphy (1988). Addictive goods have characteristics that create interesting strategic issues when suppliers are noncompetitive. We characterize the perfect Markov equilibrium of a market with noncompetitive supply of an addictive good and compare it with the efficient solution. Depending on particular parameter values, we find a wide variety of possible steady-state outcomes, including ones with output above the efficient level and price below marginal cost. We also find that market power can be disadvantageous.

Capital mobility and exchange rate overshooting

Abstract This paper examines the relation between the degree of capital mobility and the exchange rate overshooting phenomenon in a framework that employs a stock formulation of the capital account. The results are compared with those emerging from the corresponding flow formulation and it is shown that the stock formulation modifies the quantitative but not qualitative implications of the model.

Durable-Goods Monopoly, Increasing Marginal Cost and Depreciation

This paper combines increasing marginal cost and depreciation in a continuous-time model of a durable-goods monopolist. In contrast to the case of increasing marginal cost but no depreciation (analyzed by C. Kahn) and the case of depreciation with constant marginal cost (analyzed by E. Bond and L. Samuelson), steady-state output in this model is less than in the competitive case. A turnpike result shows that choice of a long enough time horizon can make the equilibrium path of output in a finite-horizon game arbitrarily close to the path of the infinite-horizon game. Copyright 1997 by The London School of Economics and Political Science

Exchange rate overshooting, the trade balance, and rational expectations

Abstract This paper presents a model of exchange-rate determination characterized by imperfect asset substitutability between domestic and foreign bonds, sticky goods-market prices, and rational expectations. The model is used to analyze the response of the exchange rate to a step change in relative money supplies. The assumption of imperfect asset substitutability permits introduction into the analysis of trade flows which respond to relative price changes. These flows create non-monotonic exchange-rate adjustments to long-run equilibrium. These non-monotonic adjustments are consistent with rationality, and may lead to short-run undershooting or overshooting.

The Effects of Publication Lags on Life‐Cycle Research Productivity in Economics

We investigate how increases in publication delays have affected the life cycle of publications of recent Ph.D. graduates in economics. We construct a panel dataset of 14,271 individuals who were awarded Ph.D.s between 1986 and 2000 in U.S. and Canadian economics departments. For this population of scholars, we amass complete records of publications in peer‐reviewed journals listed in the JEL (a total of 368,672 observations). We find evidence of significantly diminished productivity in recent relative to earlier cohorts when productivity of an individual is measured by the number of AER‐equivalent publications. Diminished productivity is less evident when the number of AER‐equivalent pages is used instead. Our findings are consistent with earlier empirical findings of increasing editorial delays, decreasing acceptance rates at journals, and a trend toward longer manuscripts. This decline in productivity is evident in both graduates of top 30 and non‐top 30 ranked economics departments and may have important implications for what should constitute a tenurable record. We also find that the research rankings of top economics departments are a surprisingly poor predictor of the subsequent research rankings of their Ph.D.s graduates.

Durable goods oligopoly

Abstract This paper models a durable-goods oligopoly as a differential game. Two cases are treated: sales, where firms cannot lease but must sell the good in question, and leasing, where firms do not sell but only rent. In the sales case, firms face increasing marginal cost of production and the good in question depreciates. For this case, a rational expectations feedback Nash equilibrium is constructed for which monopoly or oligopoly output is less than the efficient level. This gap between oligopoly and competitive output diminishes as the number of firms increases. When firms can only lease the good, the good is assumed not to depreciate and the monopoly level of steady state output is compared with the level of steady state output for a feedback equilibrium duopoly. For this case, the duopoly equilibrium has steady-state output that is less than the corresponding efficient level, but greater than the monopoly level. The leasing model is shown to be isomorphic to the adjustment-cost duopoly model of Driskill and McCafferty (Journal of Economic Theory, 49 (1989) 324–338).

Some Evidence in Favor of a Monetary Rational Expectations Exchange Rate Model with Imperfect Capital Substitutability

The authors develop and test a monetary rational expectations model of the Swiss/U.S. exchange rate. Two salient features of the model are the assumption that domestic and foreign currency denominated assets are imperfect substitues, and that purchasing power parity need not hold. The authors fail to reject overidentifying restrictions imposed on the model by the rational expectations hypothesis. Their point estimates, especially for the income elasticity of the demand for money, are plausible. Finally, the model outperforms the random walk model established as a benchmark by R. A. Meese and K. S. Rogoff (1983). Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.