This paper examines several practical issues regarding the implementation of the Phillips and Hansen fully modified least squares (FMLS) method for the estimation of a cointegrating vector. Various versions of this method arise by selecting between standard and prewhitened kernel estimation and between parametric and nonparametric automatic bandwidth estimators and also among alternative kernels. A Monte Carlo study is conducted to investigate the finite-sample properties of the alternative versions of the FMLS procedure. The results suggest that the prewhitened kernel estimator of Andrews and Monahan (1992, Econometrica 60, 953–966) in which the bandwidth parameter is selected via the nonparametric procedure of Newey and West (1994, Review of Economic Studies 61, 631–653) minimizes the second-order asymptotic bias effects.

The purpose of this note is to discuss the role of forward-looking behaviour in wage formation in the major economies, and to analyse the implications for policy analysis using the National Institute Global Econometric Model, NIGEM. Our policy analyses are directed at issues relating to the ERM. The first section of the note discusses nominal inertia and staggered contracts (see Taylor, 1980), whilst the second discusses bargaining and wage formation, using the analysis discussed in Layard, Nickell and Jackman (1991). The third section discusses some empirical work on wages undertaken at the Institute, whilst the fourth section analyses the implications of forward-looking wages for our model NIGEM. The final section concludes.