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We study the dynamics of good-by-good real exchange rates using a micro-panel of 270 goods prices across 90 international cities and 13 cities within the U.S., annually from 1990 to 2000. The picture of relative price adjustment that emerges from our analysis is that price adjustment is very rapid both across cities within countries and across cities of the(More)
We examine whether the news shocks, as explored in Beaudry and Portier (2004), can be a major source of aggregate fluctuations. For this purpose, we extend a dynamic stochastic general equilibrium model, à la Christiano, Eichenbaum, and Evans (2005), by allowing news shocks on the total factor productivity and estimate the model using Bayesian methods.(More)
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 alternative of stationarity. Our framework is very general and(More)
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 method of principal components is useful since it allows the wide variety of the nonlinearity in the factors. The factors extracted from(More)
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 studies. This paper proposes a simple nonparametric procedure(More)
A positive Lyapunov exponent is one practical deÞnition of chaos. We develop a formal test for chaos in a noisy system based on the consistent standard errors of the nonparametric Lyapunov exponent estimators. When our procedures are applied to international real output series, the hypothesis of the positive Lyapunov exponent is signiÞcantly rejected in(More)
A long-standing puzzle in open economy macroeconomics is the fact that prices of the same good across countries, expressed in the same currency, differ widely and persistently over the business cycle. The observed deviations from the law of one price hold even for individual goods that are actively traded internationally , and even in the absence of tariffs(More)
This paper develops a wavelet (spectral) approach to test the presence of a unit root in a stochastic process. The wavelet approach is appealing, since it is based directly on the different behavior of the spectra of a unit root process and that of a short memory stationary process. By decomposing the variance (energy) of the underlying process into the(More)
Volatile and persistent real exchange rates are observed not only in aggregate series but also on the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price(More)