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a b s t r a c tUsing cross-sectional data from the first two rounds of the European Social Survey (ESS), we examine the relationship between income, relative income and happiness across 19 European countries. We find that a positive and statistically significant relationship between income and happiness does exist, but such a relationship is weakened by reference income. We also find that while reference income exerts a negative impact on happiness in the case of Western European countries, its effect is positive in the case of the Eastern European countries, a finding that is consistent with the 'tunnel effect' hypothesis. This suggests that for Eastern Europeans reference income is likely to be a source of information for forming expectations about their future economic prospects, rather than a yardstick measure for social comparisons.

A typical finding in the empirical literature is that import and export demand elasticities are rather low, and that the Marshall-Lerner (ML) condition does not hold. However, despite the evidence against the ML condition, the consensus is that real devaluations do improve the balance of trade, though after a lag because of J-curve effects. The aim of this paper is to try and measure the effects of the real exchange rate on the balance of payments using structural cointegrating vector autoregressive distributed lag (VARDL) models for domestic and foreign output, the balance of trade and the real exchange rate. Small systems are estimated for eight OECD countries to investigate long-run cointegration. Generalized impulse response functions are calculated to investigate the response to shocks. These show evidence of J-effects. The VARDL estimates suggest a single cointegrating vector and that output and the real exchange rate can be treated as weakly exogenous for the parameters of the balance of payment equation. This allows estimation using a single-equation ARDL. Although there is considerable heterogeneity, overall the results suggest that the ML condition is satisfied in the long run.