Tests for fractional integration in the S&P 500 log dividend yield are conducted in order to test the proposition that exogenous shocks have permanent effects. The presence of a unit root in the log dividend yield is consistent with ‘rational bubbles’ in stock prices. Our findings, based on tests for fractional integration, yield robust rejections of the null hypothesis of rational bubbles. The results strongly suggest that the log dividend yield is mean reverting.

In this paper we test the absolute and relative purchasing power parity (PPP) hypotheses during the recent flexible exchange rate period, using quarterly data for 21 OECD countries. In doing so, we use a new econometric technique developed by M.H. Pesaran et al. [Bounds testing approaches to the analysis of long run relationships. University of Cambridge, Department of Applied Economics, Working Paper #9907]. This approach is particularly interesting as it is capable of testing the existence of long-run relations regardless of whether the underlying variables are stationary, integrated, or mutually cointegrated.

This paper provides parametric estimates of technical change, efficiency change, economies of scale, and total factor productivity growth for large banks (those with assets in excess of $1 billion) in the United States, over the period from 2000 to 2005. This is done by estimating an output distance function subject to theoretical regularity within a Bayesian framework. We find that failure to incorporate theoretical regularity conditions results in mismeasured shadow revenue and/or cost shares, which in turn leads to perverse conclusions regarding productivity growth. Our results from the regularity-constrained model show that total factor productivity of the large US banks grew at an average rate of 1.98% over the sample period. However, our estimates also show a clear downward trend in the growth rate of total factor productivity and our decomposition of the primal Divisia total factor productivity growth index into its three components – technical change, efficiency change, and economies of scale – indicates that technical change is the driving force behind this decline.

In this article we test the purchasing power parity (PPP) hypothesis during the recent floating exchange rate period, using quarterly data for 21 OECD countries. In doing so, we use the long-horizon regression approach developed by Fisher and Seater [American Economic Review 83 (1993) 402] and consider 60 bilateral intercountry relations. We investigate the power of the long-horizon regression tests, using the inverse power function of Andrews [Econometrica 57 (1989) 1059], and provide weak evidence in favor of PPP.