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Hourly labor costs in the manufacturing sector of seven EC countries, the USA and Canada are used to test the factor price convergence (FPC) by employing Johansen’s multivariate cointegration tests. We also examine if there is a two‐way causality in wages between two groups of countries covered in this study. Both objectives are evaluated by developing error‐correction models for Western Europe and North America. Our empirical findings provide support for the FPC and the existence of a long‐run equilibrium cointegration relationship among labor costs in manufacturing. The estimation results of error correction models show that a feedback causality exists between manufacturing labor costs in North America and Western Europe.

Develops a method of forecasting foreign exchange rate by normal mixture model (NMM). Initially establishes a set of exchange rate models and switches from one model to another probabilistically, depending on supply shocks or government policy changes. By assuming that the population distribution of foreign exchange rate is a mixture of normal distributions, these models can then be estimated simultaneously. Uses the estimated parameters of the model to forecast foreign exchange rate, and then four foreign exchange rate models are used to estimate the NMM. The out‐of‐sample forecasting results obtained show that we can decrease the mean squared error (MSE) of forecast error dramatically by using the NMM, compared with the MSE of the best forecast of each separate model.

Persistent commentary contends that the Patent Office is issuing patents that appropriate public domain concepts at an alarming frequency. This article describes the forces that have rendered the Patent Office an increasingly porous agency. It next reviews existing proposals for improving patent quality, including the conventional wisdom that an opposition system would contribute meaningfully to the solution of our patent quality problem. This article instead proposes that the Patent Office recruit members of the public to act as private patent examiners. By awarding informants with a bounty assessed against applicants, the Patent Office can reduce the social costs of the patent system.