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A study of housing investment and housing market behaviour

Rantala, Olavi (1986)

Suomen Pankki. B = Bank of Finland. B 40

1 INTRODUCTION 7 2 DEMAND FOR HOUSING IN THE LIFE CYCLE MODEL OF CONSUMER BEHAVIOUR 11 2.1 Introduction 11 2.2 A finite horizon model 14 2.3 An infinite horizon model 18 2.4 The effects of transaction and moving costs on the demand for housing and saving 20 2.5 The effect of progressive income taxation on home-ownership and tenure choice 23 3 DEMAND FOR HOUSING AND PORTFOLIO CHOICE UNDER UNCERTAINTY 27 3.1 Introduction 27 3.2 The effect of asset price uncertainty on consumption and demand for housing 28 3.3 The implications of housing as a necessity for the portfolio distribution 36 3.4 Demand for housing under inflation and income uncertainty 38 3.5 Hedging against inflation risk 48 3.6 The determination of housing prices and rents in a partial equilibrium 49 4 CREDIT AND RENTAL MARKET IMPERFECTIONS AND THE HOUSING INVESTMENT PROCESS 53 4.1 Introduction 53 4.2 Tenure choice in imperfect capital and rental markets 56 4.3 The effect of an expected borrowing constraint on consumption and demand for owner-occupied housing stock 59 4.4 The demand for rental housing and saving for a house purchase 65 4.5 Implications for the household portfolio distribution 69 5 HOUSING MARKET ADJUSTMENT UNDER PERFECT FORESIGHT CONDITIONS 73 5.1 Introdution 73 5.2 Consumer behaviour and price determination on the demand side of the housing market 74 5.3 Flow supply in the housing market 79 5.4 The dynamics of price and quantity adjustment in the housing market 80 5.5 Changes in the steady state housing stock and house prices 84 5.6 Empirical implications 87 6 CONCLUDING REMARKS AND A REFERENCE TO FINNISH HOUSEHOLDS' PORTFOLIO DISTRIBUTIONS 90 APPENDICES 95 BIBLIOGRAPHY 113
Essays on conditional pricing of Finnish stocks

Malkamäki, Markku (1993)

Suomen Pankki. B = Bank of Finland. B 48

Acknowledgements 5 1 Aim and Scope of the Study 9 2 Methodological Aspects of the Tests 12 2.1 Beta Estimation 14 2.2 Estimation of the Risk Premium 18 2.3 Cointegration and Causality 20 2.4 A Note on the Data 22 3 Concluding Remarks 24 References 25 Essays: I In the Defence of the CAPM: Evidence Using Time-Varying Betas on a Thin Stock Market 29 II Conditional Betas and the Price of Risk in a Thin Asset Market: A Sensitivity Analysis 65 III Cointegration and Causality of Stock Markets in Two Small Open Economies and Their Major Trading Partners 105 IV Conditional Risk and Predictability of Finnish Stock Returns 141
Exchange rate flexibility and macroeconomic policy in Finland

Halttunen, Hannu (1980)

Suomen Pankki. B = Bank of Finland. B 35

CHAPTER I INTRODUCTION 7 1. Purpose of the Study 11 2. Outline of the Study 12 CHAPTER II TRADE AND FLEXIBLE EXCHANGE RATES IN THE WORLD ECONOMY 18 1. Introduction 18 2. International Trade in the Model 23 2. 1. Imports 23 2. 2. Exports 27 2. 3. Export Prices 32 2. 4. Import Prices 38 2. 5. Current Account Equation 38 2. 6. The Effect of Import Prices on the Domestic Price Level 40 3. Exchange Rate Determination in the Model 43 4. Interaction of Trade and Exchange Rates 50 4. 1. Assumptions behind the Simulations 52 4. 2. Effects of Interaction of Trade and Exchange Rates 55 4. 3. Effects of Alternative Growth Rates 61 5. Summary and Conclusions 64 CHAPTER III THE EFFECTS OF EXCHANGE RATE POLICY AND OTHER MACROECONOMIC POLICY ACTIONS IN A SMALL OPEN ECONOMY: THE CASE OF FINLAND 66 1. Introduction 66 1. 1. Some Basic Characteristics of the Macroeconomics of the Small Open Economy 67 1. 2. The Basic Approach 71 2. Structure of the Model 76 2. 1. Money and Aggregate Commodity Demand 76 2. 2. Aggregate Commodity Supply 83 2. 3. Price Determination 84 2. 4. Public Sector 91 2. 5. Banking Sector 93 2. 6. Potential Output and Capacity Utilization 94 2. 7. Other Equations of the Model 95 3. Empirical Estimation of the Model 97 4. Performance of the Model in the Sample Period 115 4. 1. Control Solution 116 4. 2. Effects of Monetary Policy 121 4. 3. Effects of Fiscal Policy 125 4. 4. Effects of a Shift in International Demand 129 4. 5. Effects of Exchange Rate Policy under Alternative Monetary Assumptions 130 4. 6. Summary and Conclusions of the Simulation Results 139 5. The Performance of the Model outside the Sample Period 141 5. 1. The Performance of the Finnish Economy after the First Oil Crisis: A Reconsideration 142 5. 1. 1. Control Solution for the Period 1974 - 1979 145 5. 1. 2. Effects of a 10 Per Cent Revaluation in 1974 - 1979 149 5. 2. An Illustration of Alternative Exchange Rate Policy Rules 154 5. 2. 1. The Reference Simulation 154 5. 2. 2. Effects of Alternative Exchange Rate Rules with Oscillating International Prices 158 CHAPTER IV SUMMARY AND CONCLUSIONS 161 REFERENCES 167 DATA APPENDIX FOR CHAPTER II 181
Exchange rate policy, employment and external balance

Korkman, Sixten (1980)

Suomen Pankki. B = Bank of Finland. B 33

PREFACE 5 1. INTRODUCTION 7 1.1 Aim and Outline of the Study 10 2. DEVALUATION ANALYSIS: A SELECTIVE SURVEY 15 2.1 The Monetary General Equilibrium Approach 15 2.1.1 Assumptions 16 2.1.2 Exchange Devaluation 17 2.1.3 Exchange Stability 21 2.1.4 The Monetary Mechanism of Adjustment 22 2.1.5 Concluding Comments 24 2.2 Keynesian Devaluation Analysis 25 2.2.1 The Elasticities Approach 26 2.2.2 The Absorption Approach 28 2.2.3 The Standard Open Economy Model 29 2.2.4 Effects of a Devaluation: Unemployment 32 2.2.5 Effects of a Devaluation: Full Employment 36 2.2.6 Concluding Comments 39 3. INTERNAL AND EXTERNAL BALANCE 42 3.1 Tinbergen's Rule and Mundell's Principle 43 3.2 Meade on the Exchange Rate Regime 45 3.3 Mundell on the Exchange Rate Regime 49 3.4 The Assignment of Exchange Rate Policy 52 3.5 The Assignment Principle: An Extension 55 3.6 Concluding Comments 58 4. ANALYSIS OF EXCHANGE RATE POLICY IN A SIMPLE DYNAMIC MODEL 61 4.1 The Model 62 4.2 Short-run Comparative Statics 68 4.3 Dynamics 72 4.4 The Exchange Rate, Demand Management and Employment 77 4.5 Alternative Norms for Exchange Rate Policy 79 4.5.1 Fixed Exchange Rates 81 4.5.2 The Inflation Norm 82 4.5.3 The Competitiveness Norm 83 4.6 Concluding Comments 84 5. EXTERNAL BALANCE AND THE LONG RUN 87 5.1 The Concept of Structural Balance 88 5.1.1 Imbalance and Adjustment: Some Preliminary Observations 95 5.2 Accumulation and Intersectoral Allocation 99 5.2.1 Dynamic Investment Allocation: First Example 100 5.2.2 Dynamic Investment Allocation: Second Example 106 5.3 Devaluation and Accumulation 112 5.3.1 Effects of a Devaluation 112 5.3.2 The Devaluation Cycle 115 5.4 Conditions for Balanced Growth 119 5.5 Concluding Comment 122 6. SUMMARY, CONCLUSIONS AND SOME FINAL COMMENTS 124 REFERENCES 130
Foreign and domestic shocks and fluctuations in the finnish economy 1960-1988

Starck, Christian C. (1990)

Suomen Pankki. B = Bank of Finland. B 44

ACKNOWLEDGEMENTS 3 1 INTRODUCTION 7 2 THEORETICAL AND EMPIRICAL ANALYSIS OF ECONOMIC FLUCTUATIONS 8 2.1 The Study of Economic Fluctuations 8 2.2 Aim and Limitations of this Study 15 3 METHODOLOGY FOR THE EMPIRICAL ANALYSIS OF ECONOMIC FLUCTUATIONS 16 3.1 Dynamic Macroeconomics: The Frisch - Slutsky Approach 16 3.1.1 Propagation Mechanism and Impulses 16 3.1.2 A Linear Time Series Interpretation of the Frisch - Slutsky Approach 19 3.2 Dynamic Macroeconometrics: The Sims Approach 22 3.2.1 The Vector Autoregression Approach 22 3.2.2 Decompositions of Variance and Impulse Responses 27 3.2.3 Structural Vector Autoregression Models 30 3.3 Research Strategy of this Study 35 4 A PRELIMINARY DATA ANALYSIS 38 4.1 Choice and Description of the Data 38 4.2 Joint Integration Properties of the Data 40 4.3 Empirical Findings 44 4.3.1 Tests for Integration 44 4.3.2 Tests for Cointegration 52 4.4 Conclusions 62 5 A WOLD CAUSAL CHAIN MODEL 64 5.1 Theoretical Considerations 64 5.2 Empirical Evidence 68 5.2.1 Estimation Results 68 5.2.2 Analysis of Structural Shocks 74 5.2.3 Impulse Responses 78 5.2.4 Decompositions of Variance 83 5.2.5 Analysis of Subperiods 86 5.3 Conclusions 93 6 A BUSINESS CYCLE FLUCTUATION MODEL 95 6.1 A Theoretical Model with High Frequency Restrictions 95 6.2 Empirical Evidence 110 6.2.1 Estimation Results 110 6.2.2 Analysis of Structural Shocks 121 6.2.3 long-run Impact of Structural Shocks 128 6.2.4 Analysis of Subperiods 136 6.3 Conclusions 142 7 A SECULAR FLUCTUATION MODEL 143 7.1 An Empirical Model with Low Frequency Restrictions 143 7.2 Empirical Evidence 149 7.2.1 Estimation Results 149 7.2.2 Impulse Responses 153 7.2.3 Decompositions of Variance 161 7.2.4 Analysis of Subperiods 163 7.3 Conclusions 181 8 SUMMARY AND CONCLUDING REMARKS 183 LIST OF SYMBOLS 187 LIST OF FIGURES 189 LIST OF TABLES 191 LIST OF APPENDICES 195 APPENDICES 196 REFERENCES 218
Investment behaviour and market imperfections with an application to the Finnish corporate sector

Koskenkylä, Heikki (1985)

Suomen Pankki. B = Bank of Finland. B 38

CHAPTER I INTRODUCTION 9 PART 1 THEORETICAL ANALYSIS OF INVESTMENT BEHAVIOUR UNDER VARIOUS MARKET IMPERFECTIONS 19 CHAPTER II THE EFFECT OF INFLATION, TAX RULES AND THE DEBT-CAPITAL RATIO ON THE DEMAND FOR CAPITAL 19 CHAPTER III THE EFFECTS OF DEMAND CONDITIONS ON THE DYNAMICS OF INVESTMENT BEHAVIOUR 52 CHAPTER IV INVESTMENT BEHAVIOUR AND IMPERFECTIONS IN THE CAPITAL MARKET: SOME FURTHER RESULTS 94 PART 2 EMPIRICAL ANALYSIS OF THE INVESTMENT BEHAVIOUR OF FINNISH FIRMS 146 CHAPTER V SPECIFICATION OF THE EMPIRICAL INVESTMENT EQUATIONS 146 CHAPTER VI DESCRIPTION OF DATA AND EMPIRICAL RESULTS OF ANNUAL INVESTMENT EQUATIONS 187 CHAPTER VII EMPIRICAL RESULTS OF QUARTERLY INVESTMENT EQUATIONS 232 CHAPTER VIII CONCLUDING REMARKS 277
Labour markets, wage indexation and exchange rate policy

Vilmunen, Jouko (1992)

Suomen Pankki. B = Bank of Finland. B 45

Acknowledgements 5 1 Introduction 9 2 Wage Indexation and Foreign Exchange Intervention in an Open Economy: the Gray-Fischer Approach 14 2.1 Introduction 14 2.2 The labour market model 15 2.2.1 Comments on the Gray-Fischer labour market model 16 2.3 A small open economy subject to wage rigidity and foreign exchange intervention 21 2.3.1 Exchange rate expectations 26 2.3.2 Full information output 28 2.3.3 Actual real wages and output 28 2.3.4 Optimal wage indexation and foreign exchange intervention from the point of view of macroeconomic stability 29 2.3.5 Optimality of a single instrument 34 2.3.5.1 Optimal wage indexation under a given exchange rate regime 34 2.3.4.2 Optimal degree of intervention given the degree of wage indexation 37 2.4 Introducing terms-of-trade changes 39 2.5 Wage rigidity, foreign exchange intervention and the degree of openness 45 2.5.1 A two-sector economy with wage indexation and foreign exchange intervention 46 2.5.2 Optimal degree of wage indexation and foreign exchange intervention and openness 52 2.5.3 Optimality of a single instrument 62 2.5.3.1 Optimal wage indexation under a given exchange rate regime 62 2.5.3.2 Optimal degree of intervention given the degree of wage indexation 67 2.6 Summary of chapter two and discussion 70 3 Bargaining, Trade Unions and Wage Formation in an Open Economy 78 3.1 Introduction 78 3.2 Bargaining between trade unions and firms 78 3.3 Indexed contract wages: an operationalization of the asymmetric Nash bargaining models 86 Appendix to chapter three 104 4 Exchange Rate Variability and Wage Formation 106 4.1 Introduction 106 4.2 A marcomodel of a small open economy with union-firm wage bargaining 108 4.3 Steady state effects of indexation and foreign exchange intervention 115 4.3.1 Steady state output under fixed and flexible exchange rates 116 4.3.1.1 Fixed exchange rates 117 4.3.1.2 Flexible exchange rates 119 4.3.2 Structural features of the labour markets 122 4.3.3 Variability versus level; policy makers' objectives and optimality of a single instrument 125 5 Summary and Discussion 143 References 154
Optimizing agents, exogenous shocks and adjustments in the economy : Real and nominal fluctuations in economies with a wage rigidity

Lempinen, Urho (1984)

Suomen Pankki. B = Bank of Finland. B 37

FOREWORD 7 1 INTRODUCTION 9 1.1 Purpose 9 1.2 Stylized facts 11 1.3 Methodology 12 1.4 Outline of the study and the main results 14 2 OPTIMIZING AGENTS AND MACROECONOMICS: TOPICS IN DYNAMIC MODELLING 17 2.1 Introduction 17 2.2 The simple nonmonetary economy with flexible prices 20 2.3 The monetary economy with the public sector included 41 2.3.1 The public sector and the economy: the idealized case 42 2.3.2 The public sector and the economy: the conventional case 49 2.4 A model of a small open economy 68 2.5 Speculation and fixed exchange rates 77 2.6 Concluding remarks 85 3 SPECULATION AND THE REAL BALANCE EFFECT: THE NEUTRALITY OF STABILIZATION POLICY RECONSIDERED 86 3.1 Introduction 86 3.2 Description of the experiments and the basic argument 89 3.3 Adjustment of the economy to unanticipated shocks 97 3.4 Adjustment of the economy to anticipated shocks with certain timing 100 3.5 Adjustment of the economy to anticipated shocks with uncertain timing 108 3.6 Anticipated shocks with uncertain timing and the neutrality of policy 123 3.7 Neutrality of policy: connections with Fischer and Leijonhufvud 132 3.8 Reality and robustness of the results: critical remarks 137 3.9 Conclusion 142 4 SPECULATION, FIXED EXCHANGE RATES AND THE SMALL OPEN ECONOMY 144 4.1 Introduction 144 4.2 Existence of the endogenous exchange rate cycle: the nonlinear model case 148 4.2.1 Description of the nonlinear model 148 4.2.2 Basic properties of the nonlinear model 162 4.2.3 Existence of speculative exchange rate cycles 170 4.3 Cyclical fluctuations in a small open economy: the linear model case 176 4.3.1 The basic linear model 176 4.3.2 Analytical properties of the basic linear model 187 4.3.3 Predictions of the linear model: the macroeconomic adjustment process of a small open economy 200 4.3.4 Comparison of the results with some other studies 213 4.4 Concluding remarks 216 5 SUMMARY AND POSSIBLE EXTENSION 218 APPENDICES 223 BIBLIOGRAPHY 265
Overnight market interest rates and banks' demand for reserves in Finland

Pulli, Markku (1992)

Suomen Pankki. B = Bank of Finland. B 47

Acknowledgements 5 1 Introduction 9 2 An Overview of the Theory of Banks' Demand for Reserves 16 2.1 The market for reserves 16 2.1.1 Determination of the short-term interest rate 16 2.1.2 The overnight market interest rate, the call money facility and monetary policy 20 2.2 Studies on the borrowing function 23 2.3 Liquidity management theory 27 2.4 The theoretical framework of the study 30 3 The Market for Overnight Funds and the Call Money Facility in Finland 33 3.1 Evolution and current structure of the call money facility 33 3.1.1 Historical background 33 3.1.2 The structure of the call money facility 37 3.2 The overnight market: some 'stylized facts' 39 4 A Stochastic Asset Allocation Model of the Overnight Market 43 4.1 The basic model 45 4.2 Effects of risk aversion 52 4.3 Quantitative quotas on borrowing 56 4.4 Time-dependent costs of borrowing 59 5 Endogenous Variance: Effects of Liquidity Control 63 5.1 Introduction 63 5.2 The model 64 5.3 Comparative statics 66 5.4 Solution of the model 69 5.5 Concluding remarks 72 6 Empirical Application of the Model with Constant Variance 74 6.1 Data and organization of the empirical study 74 6.2 A model with constant variance 77 6.3 Changes in the standard deviation of borrowing 85 7 Estimation of the Reserve Model with Time-Dependent Conditional Variance 88 7.1 A nonlinear GARCH-in mean model 88 7.2 Empirical results from GARCH(1,1)-in mean 93 7.3 Specification of the variance equation 101 7.4 Alternative distributional assumptions 108 7.5 Estimation results from the modified GARCH-in mean model 110 7.6 Concluding remarks 115 8 Summary and Conclusions 117 Appendix 1: Risk premium 124 Appendix 2: Comparative statics of the liquidity control model 126 Appendix 3: Additional estimation results from applications with constant conditional variance 129 Appendix 4: Maximum likelihood estimation of a nonlinear GARCH-in mean model 132 Appendix 5: Estimating of GARCH-in mean model with Student's t distribution 135 Appendix 6: Modelling the residuals as an AR(1) process 137 Bibliography 140
Studies in the theory of balance-of-payments crises

Willman, Alpo (1992)

Suomen Pankki. B = Bank of Finland. B 46

Preface 5 1 Introduction 9 2 A Survey of the Literature on Balance-of-Payments Crises 11 2.1 A balance-of-payments crisis in the F-G model 11 2.2 Extensions of the analysis and further results 13 2.2.1 Balance-of-payments crises in intertemporal. optimization models 15 2.2.2 The minimum level of net foreign reserves 17 2.2.3 Balance-of-payments crises and devaluation 19 2.2.4 Imperfect foresight and balance-of-payments crises 20 2.2.4.1 Stochastic models of balance-of- payments crises 20 2.2.4.2 Uncertainty in deterministic models of balance-of-payments. crises 22 2.2.5 Stabilization policies and balance-of- payments crises 25 2.2.6 Capital controls, imperfect asset substitutability and balance-of-payments crises 27 2.2.7 Real output, prices and wages and balance-of-payments crises 28 2.2.8 Other extensions of the analysis 30 3 Summaries of the Papers 31 3.1 Why there is a lower bound on the central bank's foreign reserves 32 3.2 Speculative attacks on the currency with uncertain monetary policy reactions 35 3.3 Balance-of-payments crises and monetary policy reactions in a model with imperfect substitutability between domestic and foreign bonds 37 3.4 Devaluation expectations and speculative attacks on the currency 39 3.5 The collapse of the fixed exchange rate regime with sticky wages and imperfect substitutability between domestic and foreign bonds 42 Notes 45 References 47 Appendix 52
Studies of exchange rate policies and disequilibria in the Finnish economy

Aurikko, Esko (1986)

Suomen Pankki. B = Bank of Finland. B 39

1. Exchange Rate Policy and Imported Inflation in a Credit Rationing Economy, Empirical Economics 7 (1982), 155 - 173. 2. Exchange Rate Policies Simulated by Means of an Econometric Disequilibrium Macromodel of the Finnish Economy, Journal of Policy Modeling 6 (1984b), 531 - 554. 3. Active Pegging, Rational Expectations, and Autonomy of Monetary Policy, Economics Letters 17 (1985a), 149 - 152. 4. Testing Disequilibrium Adjustment Models for Finnish Exports of Goods, Oxford Bulletin of Economics and Statistics 47 (1985b), 33 - 50. 5. A Dynamic Disaggregated Model of Finnish Imports of Goods, Empirical Economics 10 (1985c), 103 - 120. 6. Testing the Functional Form of Finnish Aggregate Imports, Economics Letters 18 (1985d), 223 - 228. 7. A Dynamic Analysis of Finnish Export Prices, the Finnish Journal of Business Economis 35 (1986), 24 - 38.
Studies on market structure and technological innovation

Saarenheimo, Tuomas (1994)

Suomen Pankki. B = Bank of Finland. B 49

1.1 On The Nature of Innovation 1.1.1 A Taxonomy for R&D 1.1.2 Uncertainty and Divisibility 1.1.3 Economic Properties of Technology 1.2 Economic Analysis of Innovation 1.2.1 History 1.2.2 Schumpeter's Hypothesis 1.2.3 Theoretical Approaches 1.3 Three Aspects of Market Structure and Innovation 1.3.1 Market Structure and the Choice of Research Strategy 1.3.2 The Propensity to Patent 1.3.3 Research Joint Ventures and Cartels or Competitive R&D? 2 The Choice of Research Strategy in a Patent Race 2.1 Introduction 2.2 The Definition of Risk 2.3 The Model . 2.4 The Analysis 2.4.1 Symmetric Equilibrium . 2.4.2 Asymmetric Equilibria . 2.5 A Modification: Stochastic Payoffs 2.6 Conclusions 3 Market Structure and the Propensity to Patent: Patenting or Secrecy? 3.1 Introduction 3.2 The Basic Setup 3.3 Concentration and Patenting: Complete Information 3.3.1 Patenting Equilibrium 3.3.2 Equilibrium without Patenting 3.3.3 A Generalization: Shared Surplus 3.4 Concentration and Patenting: Incomplete Information 3.5 Firm Size and Patenting: Complete Information 3.6 Firm Size and Patenting: Incomplete Information 3.7 Conclusions 4 Research Joint Ventures vs.R&D Competition 4.1 Introduction 4.2 The Model 4.3 The Analysis 4.4 Comparison of the scenarios 4.5 Conclusions
The revision and realization of investment plans in the finnish manufacturing industries in 1964-1986

Pyyhtiä, Ilmo (1989)

Suomen Pankki. B = Bank of Finland. B 43

I INTRODUCTION 9 I.1 Aims of the Study 9 I.2 Background 11 I.3 General Outlines 17 II INVESTMENT THEORY AND INVESTMENT PLANS OF THE FIRM 20 II.I. Aims of the Chapter 20 II.2 Determination of Investment Plans 22 II.3 Determinants of the Neoclassical Investment Function 33 II.4 Stochastic Shocks and the Timing of Investment Decisions 41 II.5 Inclusion of Demand in the Investment Function 44 II.5.1 The Accelerator Model of Investment 44 II.5.2 Downward-Sloping Demand Curve 46 II.5.3 Constrained Demand 50 II.6 Capital Market Imperfections and Investment Plans 52 II.6.1 Introduction 52 II.6.2 Investment Plans and Credit Rationing 54 II.7 Concluding Remarks 58 III INVESTMENT PLANS AS FORECASTS 61 III.1 Aims of the Chapter 61 III.2 Rationality of Plans 62 III.3 Definitions 64 III.4 Statistical Description 66 III.5 The Unbiasedness of Plans 78 III.6 The Information Content of Plans 96 III.7 Concluding Remarks 103 IV REVISION OF INVESTMENT PLANS 104 IV.1 Aims of the Chapter 104 IV.2 Revision and Realization Functions of Investment Plans 105 IV.3 Information Set 109 IV.4 Condensing the Information Set 117 IV.4.1 Demand Shocks and the Revisions of Plans 117 IV.4.2 The Implementation of Plans and Shocks 119 IV.4.3 Principal Component Analysis and the Information Set 124 IV.5 Estimation Results of the Realization Function 129 IV.5.1 The Basic Model 130 IV.5.2 Sectoral Analysis 139 IV.5.3 Uncertainty 147 IV.6 Estimates of the Adjustment and Innovation Parameters 155 IV.7 Concluding Remarks 158 V APPLICATION OF THE EULER RULE TO INVESTMENT EQUATIONS 159 V.1 Aims of the Chapter 159 V.2 The Euler Equation 160 V.3 Data and Estimation of the Euler Equation 163 V.4 Estimation Results and Testing of the Overidentifying Restrictions 165 V.5 Decision Rules 170 V.6 Estimation Results of the Decision Rule 173 V.7 Concluding Remarks 177 VI SUMMARY OF THE STUDY 178 VI.1 Summary of Empirical Results and Comparison with Earlier Studies 178 VI.2 Conclusions 182
Three essays on money, wealth and the exchange rate

Puumanen, Kari (1986)

Suomen Pankki. B = Bank of Finland. B 41

OVERVIEW 7 STABILITY IN PORTFOLIO BALANCE MODELS OF THE EXCHANGE RATE 1 Introduction and Summary 17 2 The Small Country Model 20 3 The Two-Country Model 27 4 A Revised Model 39 WEALTH ACCUMULATION AND EXCHANGE RATE DYNAMICS IN THE ABSENCE OF A STEADY STATE 1 Introduction 47 2 The Perfect Foresight Equilibrium 51 3 Transfer Money 56 4 Monetary Policy 59 5 Fiscal Policy 63 6 Government Borrowing 67 7 World Inflation and the Real Rate of Interest 70 8 A Two-Country Model 74 9 Remarks on Alternative Approaches 86 Appendix 91 INFLATION AND GROWTH WITH STOCHASTIC MONEY AND OUTPUT 1 Introduction 97 2 The Model 100 3 Some General Considerations 108 4 Interpretation of the Results 111 5 Two-Country Model 114 Appendix A 125 Appendix B 132 Appendix C 135 REFERENCES 139