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This paper examines the relevance of PPP, the adjustment channel of real exchange rate and the predictability of the movement in nominal exchange rate by studying the behavior of yen/DM exchange rate, using cointegration method. Results support PPP and find that the real exchange rate is mean-reverting. The change in the nominal exchange rate exhibits significant auto-regressive property. These findings imply that movements in the nominal yen/DM exchange rate is actually predictable. The error-correction model and a simple first order autoregressive model both outperform the random walk model in out-of-sample forecasting.

Foreign Exchange --- Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Price Level --- Inflation --- Deflation --- Currency --- Foreign exchange --- Exchange rates --- Purchasing power parity --- Real exchange rates --- Wholesale price indexes --- Export price indexes --- Prices --- Price indexes --- United States

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This paper compares the evolution of the Australian current account balance over the period 1954–94 against an optimal current account derived from a consumption-smoothing model. The findings indicate that the Australian current account was not used to smooth consumption optimally in the period prior to the relaxation of capital controls in the early 1980s. The results also suggest that in the period since the mid-1980s Australia’s current account deficits have become excessive, and that the increase in national saving required to satisfy its external borrowing constraint is about 2 to 4 percent of GDP.

Exports and Imports --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Macroeconomics: Consumption --- Saving --- Wealth --- International Investment --- Long-term Capital Movements --- International economics --- Current account --- Current account deficits --- Current account balance --- Consumption --- Foreign liabilities --- Balance of payments --- National accounts --- External position --- Economics --- Investments, Foreign --- Australia

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This paper reviews the international business cycle among Group of Seven (G-7) countries since 1973 from two angles. An examination of business cycle synchronization among these countries using simple descriptive statistics shows that synchronized slowdowns have been the norm rather than the exception and that the slowdown in 2000-2001 largely followed patterns seen in the past. The paper also identifies the international business cycle with an asymptotic dynamic factor model. Two global factors explain roughly 80 percent of the variance in G-7 output gaps at business cycle frequencies. The factor model decomposes the "common part" of national output fluctuations into two factors, one capturing the average G-7 cycle and one that corrects for phase and amplitude differences. We also found some evidence supporting the hypothesis that global shocks were the main force behind the slowdown in 2000-2001.

Econometrics --- Macroeconomics --- Production and Operations Management --- Business Fluctuations --- Cycles --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Macroeconomics: Production --- Classification Methods --- Cluster Analysis --- Principal Components --- Factor Models --- Economic growth --- Econometrics & economic statistics --- Business cycles --- Output gap --- Factor models --- Production --- Econometric analysis --- Economic theory --- Econometric models --- United States

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This paper examines the optimality of international capital flows to a persistent net importer of capital, Australia, during its post-capital-controls period 1984-98. The results suggest that international capital flows were larger than optimal during the 1980s, but in the 1990s such flows have been broadly consistent with those predicted by the consumption-smoothing approach to the determination of the current account. The paper also discusses the main implications arising from measures of optimal capital flows, and compares them with the implications arising from the key concepts used in the determination of national creditworthiness.

Exports and Imports --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Macroeconomics: Consumption --- Saving --- Wealth --- Aggregate Factor Income Distribution --- International economics --- Current account --- Consumption --- Current account imbalances --- Consumption distribution --- Current account deficits --- Balance of payments --- National accounts --- Economics --- Income distribution --- Australia

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The IMF MULTIMOD model is used to trace the economic impact of a 20 percent reduction in world military expenditures. GDP falls in the short run, however private consumption and investment rise, leading to an increase in GDP in the medium and long run. The estimated gains to economic welfare are substantial, particularly for developing countries, although most of these gains are realized in the long run. A positive international economic externality is found to exist, implying that for any given country the economic gains from a coordinated reduction in military expenditures exceed the gains from a unilateral reduction.

Exports and Imports --- Macroeconomics --- Public Finance --- National Security and War --- Macroeconomics: Consumption --- Saving --- Wealth --- National Government Expenditures and Related Policies: General --- Trade: General --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Public finance & taxation --- International economics --- Defense spending --- Consumption --- Expenditure --- Private consumption --- Imports --- National accounts --- International trade --- Expenditures, Public --- Economics --- United States