(WP 2010-10) Assessing the Predictive Power of Labor-Market Indicators of Inflation

This paper examines two different measures of wages as predicators of prices in a vector error-correction framework using quarterly data for the U.S. for the period from 1947.Q1 through 2008.Q1. Based on cointegration and a series of exogeneity tests, it is found that: 1) there is a stable, long-run relationship between the Consumer Price Index (CPI) and the Personal Consumption Expenditure Deflator (PCED) on the one hand and unit labor costs (ULC) and average earnings per unit of output (AHE) on the other; 2) ULC is weakly exogenous for both price indices while the two price indices are weakly exogenous for AHE; 3) ULC is strongly exogenous for CPI but not for AHE; 4) ULC is super exogenous for CPI. Taken together, these findings lead to the conclusion that ULC is a reliable indicator of price inflation but productivity-adjusted hourly earnings is not. Thus monetary policymakers are justified in using information about the behavior of ULC in formulating policy actions for achieving the goal of price stability

An Empirical Study of the Dynamics of International Stock Markets Interdependence

This paper examines the interaction between international national stock markets using daily data and a VAR model. The results indicate that the speed of adjustment to equilibrium after a shock is about two days, indicating that markets are highly efficient at processing international information. Moreover, the US market appears to be the most important in the system, while Japan is very independent and does not have much effect on the other markets in the sample. Finally, the recent Asian financial crisis appears to have amplified the importance of the Asian markets to the rest of the global exchanges

Deformed Calogero-Sutherland model and fractional Quantum Hall effect

The deformed Calogero-Sutherland (CS) model is a quantum integrable system with arbitrary numbers of two types of particles and reducing to the standard CS model in special cases. We show that a known collective field description of the CS model, which is based on conformal field theory (CFT), is actually a collective field description of the deformed CS model. This provides a natural application of the deformed CS model in Wen's effective field theory of the fractional quantum Hall effect (FQHE), with the two kinds of particles corresponding to electrons and quasi-hole excitations. In particular, we use known mathematical results about super Jack polynomials to obtain simple explicit formulas for the orthonormal CFT basis proposed by van Elburg and Schoutens in the context of the FQHE

A Reexamination of the Effect of Rapid Military Spending on Inflation

The hypothesis that rapid defense buildups contribute to inflation recently has been rejected by Donald F. Vitaliano. In this paper, it is argued that this result is misleading, given that it is obtained under the implausible assumption of constancy of the expected real rate of interest. The hypothesis is reexamined using a well-known measure of the expected inflation rate, and it is found that growth of defense spending has a statistically significant positive effect on the rate of price inflation

Determinants of Economic Development Incentives Offered by States: A Test of the Arms Race Hypothesis

This paper tests the arms race hypothesis, which postulates that states tend to increase their incentive offerings to new firms if such incentive programs are in use in other states that are perceived to be direct competitors. Using a pooled time-series/cross-section sample of twelve states covering the period from 1969 through 1985 and a model that controls for the effects of various economic and political factors, we find strong support for the arms race hypothesis. This result is robust to the alternative specifications of the incentive offerings and different measures of the degree of competition among states