This paper characterizes the time-series properties of debt:GDP ratios in 10 EU countries over 1982-2009 and measures the size and source of the permanent effects of shocks as they evolve over time. The analysis shows debt dynamics in the EU10 are complicated, involving important intercountry interactions and protracted adjustment periods of about 10 years. We find evidence of asymmetries in the effects of different forms of "fiscal consolidation," with unanticipated reductions in government spending having a more permanent effect than unanticipated increases in government revenue. Unanticipated business cycle fluctuations also have important long-term effects on the ratio.JEL codes: C32, D84, E32

Real-time output and direct measures of expectations at different time horizons are analysed within a cointegrated VAR. We generally find expectations to be unbiased in the long-run with stationary expectational errors that persist between 4 and 14 quarters.

The magnitude of deviations from the Law of One Price (LOP) across cities depends on a number of characteristics, including language differences, distance, and other correlates of trade costs. We show that in the USA, political differences between cities are an equally important determinant of LOP deviations. LOP deviations are smaller if the cities are both strongly Democrat or both strongly Republican. These effects are of a similar order of magnitude to those of distance, and suggest that political differences represent a substantial barrier to competition.