We propose a methodology for constructing operational indices of inflation pressure, the monetary authority's effort to reduce this pressure, and the degree to which inflation pressure is alleviated. We begin with model independent definitions of these concepts. When our definitions are applied...

It has been claimed that the deviations from purchasing power parity are highly persistent and have quite long half-lives under the assumption of a linear adjustment of real exchange rates. However, inspired by trade cost models, nonlinear adjustment has been widely employed in recent empirical...

This paper considers the test of a unit root in transitional autoregressive models. In particular, we develop the asymptotic theory of the inf-t test for the null hypothesis of a unit root in a wide class of nonlinear autoregressive models having parameters that are identified only under the...

We revisit a foundational theoretical paper in the menu cost literature, Sheshinski and Weiss (1983), one of the few to treat stochastic inflation with persistent deviations from trend. In contrast to the original finding, we find that optimal pricing in this environment entails using different...

This paper extends the diffusion index (DI) forecast approach of Stock and Watson (1998, 2002) to the case of possibly nonlinear dynamic factor models. When the number of series is large, a two-step procedure based on the principal components method is useful since it allows the wide variety of...

We study the dynamics of good-by-good real exchange rates using a micro-panel of 270 goods prices drawn from major cities in 63 countries and 258 goods prices drawn from 13 major U.S. cities. We find the half-life of deviations from the Law-of-One-Price for the average good is about 1 year. The...

We study the dynamics of good-by-good real exchange rates using a micro-panel of 270 goods prices drawn from major cities in 71 countries and 245 goods prices drawn from 13 major U.S. cities. We find half-lives of deviations from the Law-of-One-Price for the average good is about 1 year;...

Data from Okinawa's monetary union with the United States in 1958 and with Japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies. With monetary union, the variance of the real exchange rate...

This paper investigates the effects of consistent and inconsistent long-run variance estimation on a unit root test based on the generalization of the von Neumann ratio. The results from the Monte Carlo experiments suggest that the tests based on an inconsistent estimator have less size...

A method of principal components is employed to investigate nonlinear dynamic factor structure using a large panel data. The evidence suggests the possibility of nonlinearity in the U.S. while it excludes the class of nonlinearity that can generate endogenous fluctuation or chaos.