Rod Cross

University of Strathclyde, Economics, Emeritus

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Papers by Rod Cross

Periodic Sequences of Arbitrage: A Tale of Four Currencies

by Victor S Kozyakin and Rod Cross

Metroeconomica, 2012

This paper investigates arbitrage chains involving four currencies and four foreign exchange trad... more This paper investigates arbitrage chains involving four currencies and four foreign exchange traderarbitrageurs. In contrast with the three-currency case, we find that arbitrage operations when four currencies are present may appear periodic in nature, and not involve smooth convergence to a 'balanced' ensemble of exchange rates in which the law of one price holds. The goal of this article is to understand some interesting features of sequences of arbitrage operations, features which might well be relevant in other contexts in finance and economics.

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Double Exponential Instability of Triangular Arbitrage Systems

If financial markets displayed the informational efficiency postulated in the efficient markets h... more If financial markets displayed the informational efficiency postulated in the efficient markets hypothesis (EMH), ar-bitrage operations would be self-extinguishing. The present paper considers arbitrage sequences in foreign exchange (FX) markets, in which trading platforms and information are fragmented. In Kozyakin et al. (2010) and Cross et al. (2012) it was shown that sequences of triangular arbitrage operations in FX markets containing 4 curren-cies and trader-arbitrageurs tend to display periodicity or grow exponentially rather than being self-extinguishing. This paper extends the analysis to 5 or higher-order currency worlds. The key findings are that in a 5-currency world arbitrage sequences may also follow an exponential law as well as display periodicity, but that in higher-order currency worlds a double exponential law may additionally apply. There is an “inheritance of instability” in the higher-order currency worlds. Profitable arbitrage operations are thus endemic rathe...

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The Natural Rate of Unemployment

For 25 years, theory about the causes of, and possible solutions to, the problem of unemployment ... more For 25 years, theory about the causes of, and possible solutions to, the problem of unemployment has been dominated by Phelps' and Friedman's natural rate of unemployment hypothesis. This postulates that the equilibrium rate of unemployment consistent with steady inflation is determined by structural variables: sustainable reductions in unemployment can be achieved only by measures to change underlying microeconomic structures, such as benefit and pay bargaining systems. Belief in the hypothesis has faltered since the 1980s, the hypothesis being unable to explain the dramatic upward shifts in European unemployment rates. These essays reflect upon the fundamental structures underlying the hypothesis, assess the related evidence, and look forwards, suggesting possible modifications. In contrast to the single rate postulated by the natural rate hypothesis, several of the contributors propose that there are ranges of unemployment rates consistent with steady inflation.

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Hysteresis and Economics Taking the economic past into account

The goal of this article is to explore the rationale underlying the application of hysteresis to ... more The goal of this article is to explore the rationale underlying the application of hysteresis to economic models. In particular, we explain why many aspects of real economic systems are hysteretic. The aim is to be explicit about the difficulties encountered when trying to incorporate hysteretic effects into models that can be validated and then used as possible tools for macroeconomic control. The growing appreciation of the ways that memory effects influence the functioning of economic systems is a significant advance in economic thought and, by removing distortions that result from oversimplifying specifications of input–output relations in economics, has the potential to narrow the gap between economic modeling and economic reality. Although economic systems evolve in time, mainstream economics on the whole is not cognizant of the history dependence of economic processes, even though the relevance of the historical dimension in economics has been emphasized time and again by his...

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On the rationale for hysteresis in economic decisions

Journal of Physics: Conference Series, 2017

In the social sciences there are plausible reasons to postulate that hysteresis effects are impor... more In the social sciences there are plausible reasons to postulate that hysteresis effects are important. The available evidence, however, is predominantly at the macro level. In this paper we review the evidence regarding hysteresis in the neural processes underlying human behavior. We argue that there is a need for experimental and neuroimaging studies to fill the gap in knowledge about hysteresis processes at the micro level in the social sciences.

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Unemployment: natural rate epicycles or hysteresis?

This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemploy... more This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by 'structural' variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed.

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Natural and Unnatural Frameworks Is the Natural Rate Redundant?

New Economy

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A model of hysteresis arising from social interaction within a firm

Journal of Physics: Conference Series

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Ec 206 Economic Thought and Method

The Natural Rate versus the Hysteresis Hypothesis: A Century of Prices and Unemployment in the U.S. and U.K

Review of World Economics, 1990

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Measures of Shortage and Monetary Overhang in the Polish Economy

Http Dx Doi Org 10 1162 003465397556449, Mar 13, 2006

ABSTRACT This paper attempts to cast light on the debate about the existence and size of a moneta... more ABSTRACT This paper attempts to cast light on the debate about the existence and size of a monetary overhang in household money balances in command economies. Four measures of shortage or price deformation are constructed for the Polish economy and used to test for the existence of &#39;&#39;shortage&#39;&#39;money balances in Poland 1965-1989. The approach involves estimating relationships for household money balances 1965-1993, a period that spans both central planning and the post-1990 period of liberalised prices. The principal finding is that the evolution of household money balances in Poland cannot be explained without invoking measures of shortage and an overhang during the planning period. The estimates suggest an overhang with a maximum of just over 40% of money balances. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

Three Pillars of Conventional Wisdom

Http Dx Doi Org 10 1080 09538250120036637, Aug 25, 2010

This paper considers three pillars of contemporary economic wisdom that form part of the so-calle... more This paper considers three pillars of contemporary economic wisdom that form part of the so-called 'Washington consensus': that free markets work best; that price stability is a good thing; and that deregulated financial markets work best. We argue that these propositions apply in certain circumstances, but do not have general validity. After discussing the circumstances in which these propositions do not hold we suggest how the conventional policy wisdom should be revised.

Uncertainties surrounding natural rate estimates in the G7

This paper discusses some of the uncertainties surrounding natural rates of unemployment. Point e... more This paper discusses some of the uncertainties surrounding natural rates of unemployment. Point estimates of the natural rate are usually generated as ratios between parameters estimated in regression equations. Thus uncertainties about the estimated parameter values inevitably implies uncertainty about the natural rate of unemployment. Regression packages do not usually report standard errors for non-linear functions of parameters, so standard errors for natural rate estimates are not usually reported. Staiger, Stock and Watson and others have corrected this deficiency by estimating confidence intervals for natural rates in the US. The present paper extends this work to the G7 countries and finds that although a careful specification search yields an improvement in the precision of estimates of the natural rate, there is still a large degree of uncertainty.

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The physics of unemployment.: Obsession with equilbrium stems from an old physics metaphor

New Econ, 1996

Hysteresis and Instability in the Natural Rate of Unemployment

The Scandinavian Journal of Economics, 1987

... estimation procedure was to estimate a wage change-unemployment locus for some equilibrium in... more

Time-dependent Preisach models and their properties

Doklady Mathematics

On the Economics of Tax Aversion

Public finance = Finances publiques

Properties of time-independent Preisach model

Doklady Akademii nauk / [Rossiĭskaia akademii nauk]

The physics of unemployment

New Economy, 1996

Hysteresis in the fundamentals of macroeconomics

Two fundamental problems in economic analysis concern the determination of aggregate output, and ... more Two fundamental problems in economic analysis concern the determination of aggregate output, and the determination of market prices and quantities. The way economic adjustments are made at the micro level suggests that the history of shocks to the economic environment matters. This paper presents tractable approach for introducing hysteresis into models of how aggregate output and market prices and quantities are determined.

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