We fit nonlinearly mean-reverting models to real dollar exchange rates over the post-Bretton Woods period, consistent with a theoretical literature on transactions costs in international arbitrage. The half lives of real exchange rate shocks, calculated through Monte Carlo integration, imply faster adjustment speeds than hitherto recorded. Monte Carlo simulations reconcile our results with the large empirical literature on unit roots in real exchange rates by showing that when the real exchange rate is nonlinearly mean reverting, standard univariate unit root tests have low power, while multivariate tests have much higher power to reject a false null hypothesis.

Our paper assesses progress made by the profession in understanding whether and how exchange rate intervention works. We review theory and evidence on official intervention, concentrating primarily on work published in the last decade or so. We conclude that, unlike the profession's consensus of the 1980s, official intervention can be effective, especially as a signal of policy intentions and when publicly announced and concerted. We note an apparent empirical puzzle concerning the secrecy of much intervention and suggest another way for intervention to be effective which has received little attention in the literature, namely by remedying a coordination failure in the foreign exchange market.

We propose a nonlinear econometric model that can explain both the observed volatility and the persistence of real and nominal exchange rates. The model implies that near equilibrium, the nominal exchange rate will be well approximated by a random walk process. Large departures from fundamentals, in contrast, imply meanreverting behavior toward fundamentals. Moreover, the predictability of the nominal exchange rate relative to the random walk benchmark tends to improve at longer horizons. We test the implications of the model and find strong evidence of exchange rate predictability at horizons of two to three years, but not at shorter horizons.

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P urchasing power parity (PPP) is a disarmingly simple theory that holds that the nominal exchange rate between two currencies should be equal to the ratio of aggregate price levels between the two countries, so that a unit of currency of one country will have the same purchasing power in a foreign country. The PPP theory has a long history in economics, dating back several centuries, but the specific terminology of purchasing power parity was introduced in the years after World War I during the international policy debate concerning the appropriate level for nominal exchange rates among the major industrialized countries after the large-scale inflations during and after the war (Cassel, 1918). Since then, the idea of PPP has become embedded in how many international economists think about the world. For example, Dornbusch and Krugman (1976) noted: "Under the skin of any international economist lies a deep-seated belief in some variant of the PPP theory of the exchange rate." Rogoff (1996) expressed much the same y

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This paper uses data from the British Household Panel Survey to investigate the duration of self-employment spells in Britain. The results suggest that 40% of self-employment ventures started since 1991 have not survived their ®rst year in business. Evidence is produced showing that a substantial proportion of self-employment spells are not terminated through bankruptcy, but through moves to alternative employment. The ®ttest, in terms of self-employment survival, are those with no previous unemployment experience but with some work experience, who quit their previous job, and who entered self-employment with some initial capital.Policy makers have implemented initiatives designed to encourage and facilitate the growth of small businesses and self-employment in Britain. Such enterprises are regarded as an important source of job creation and innovation. Despite this, little attention has focused on their success. This paper investigates issues concerning the success of the self-employed by examining the length of self-employment spells using life tables and Cox proportional hazard models, and the reasons given for leaving self-employment. Unlike most previous studies, it is concerned with the individual running the ®rm, allowing personal characteristics to in¯uence the probability of survival. Uniquely, the data allow the separate analysis of voluntary and involuntary selfemployment terminations. All analyses are carried out separately for men and women using micro-level data from the British Household Panel Survey.Previous work analysing self-employment survival rates has mainly focused on personal asset and wealth holdings. Most is consistent with the hypothesis that entrepreneurial activity is restricted by liquidity constraints, either by preventing ®rm entry (Evans and Leighton, 1989;Evans and Jovanovic, 1989;