diverse information and market efficiency in a monetary model of the exchange rate tests of informational efficiency of a given market involve testing two hypotheses simultaneously the first is the hypothesis about the structure determining equilibrium prices or returns and the second is the hypothesis about the information used in formulating expectations and the ability of agents to set current prices to conform with their expected values we examine this issue in the context of the foreign exchange market by setting up a simple model of exchange rate determination and using equilibrium properties of the model to examine market efficiency the model of exchange rate determination involves monetary equilibrium and rational expectations by virtue of the latter equilibrium prices by definition fully reflect available information yet we show that conventional tests of market efficiency would fail when confronted by data generated by such a model we then proceed to define more restrictive and more appropriate concepts of informational efficiency we also illustrate and clarify a fundamental misconception with current rational expectations models we believe that the current models employing the rational expectations hypothesis overemphasize the distinction between monetary and real shocks and underemphasize the distinction between permanent and transitory distinctions for expectations formation the conventional efficiency tests it is the latter distinction that is the essential one this abstract was borrowed from another version of this item

optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

testing the unbiasedness hypothesis in the forward foreign exchange market a specification analysis abstract this paper evaluates two popular regression methods of testing the unbiasedness hypothesis in the forward foreign exchange market for the 30 day canada united states forward foreign exchange market the evidence overwhelmingly indicates that it is inappropriate to treat the structure of the systematic and stochastic components of the test relations as constant over time hence conclusions inferred from parameter significance testing based upon full sample estimation can be very misleading accordingly we argue for a specification analysis of the test relations and more explicit modelling of market fundamentals

peak oil and energy policy a critique energy policy has frequently been based upon assumptions about future oil prices at the end of the 1970s it was assumed oil prices would continue to rise now a similar assumption pervades policy design this article critiques the peak oil hypotheses which lie behind these forecasts and policy beliefs and considers that from a climate change perspective the challenge is too much not too little fossil fuel reserves the coming of shale gas its fungibility with oil via the electrification of transport along with technological advances in increasing the depletion rates of existing wells and new reserves together undermine that assumption that rising oil prices will rapidly make renewable and other low carbon technologies cost competitive without subsidies the paper suggests indexing carbon prices to the oil price infrastructure investment strategic storage and a focus on market failures provides a superior approach to energy policy rather than relying on forecasts of oil prices and picking winners

forecasting foreign exchange rates with an intrinsically nonlinear dynamic speed of adjustment model forecasting foreign exchange rates is an important but difficult process therefore it is important to use a superior forecasting model the paper takes up this criterion and proposes to describe and forecast foreign exchange rates by developing an intrinsically nonlinear model with variable and dynamic speeds of adjustment it is found that the speed of adjusting the random or expected to the equilibrium rate is very slow implying that fiscal policy statistically insignificat and monetary policy statistically significant may be ineffective to induce changes in the adjustment speed we also find that the nonlinear dynamic model improves forecasting performance implying that nonlinearities in the sense of functional forms are exploitable for improved point forecasting of foreign exchange rates

testing the efficiency of the canadian u s exchange market under the assumption of no risk premium the efficiency of the canadian u s exchange market for the current float is examined more extensively than previously semi strong form tests which admit the lagged spot rate as a predictor are considered in addition to the standard weak form test these stronger tests reject the joint null hypothesis of an efficient exchange market and no risk premium for the period ending in october 1976 although not for the entire period for almost every year the current spot rate provided a better forecast of the future spot rate than did the current forward rate there is now an extensive empirical literature on testing the efficiency of various foreign exchange markets see 16 for a survey yet almost all of these tests are weak form tests or tests of the bias of the forward exchange rate as a predictor of the future spot rate such tests in the canadian u s exchange market can be found in the work of porter 20 eastman 5 kaserman 10 kohihagen 11 cornell 3 and levich 14 for the canadian float of the 1950s porter 20 and kaserman 10 found that one could not reject the unbiasedness of the forward rate eastman 5 and kohlhagen 11 rejected the unbiasedness of the forward rate for the floating period although not for the subsequent fixed period but their use of overlapping contracts means that their standard errors are biased cornell 3 and levich 14 found that in terms of the root meansquared error criterion the lagged spot rate and the lagged forward rate predicted the current spot rate equally well for more recent periods this paper examines the efficiency of the canadian u s exchange market for the current float july 1970 to december 1978 in a more extensive way than it has been previously examined from the weak form test the paper proceeds to two semi strong form tests which admit the lagged spot rate as a possible predictor throughout the paper various subperiods are considered in addition to the period as a whole

futures markets and monetary policy abstract it has recently been argued that when differentially informed agents trade with one another monetary policy can influence the distribution of output by altering the information content of prices this paper introduces a futures market into the barro 1980 model and shows that under certain conditions prices may aggregate information in a manner such that differentially informed agents hold identical beliefs concerning aggregate market conditions in such cases monetary policy will be unable to influence the distribution of output these results then serve as a backdrop for a more general discussion of the relationship between asset prices and the role of monetary policy

real and monetary determinants of real exchange rate behavior theory and evidence from developing countries abstract this paper develops a dynamic model of real exchange rate rer behavior in developing countries a three goods economy exportables importables and non tradables is considered residents of this country hold domestic and foreign assets and there is a dual exchange rate regime there is a government that consumes importables and non tradables a distinction is made between equilibrium and disequilibrium movements of the rer the determinants of real exchange rate misalignment are studied with emphasis placed on the role of devaluations and balance of payments crises the implications of the model are tested using data for 12 developing countries the results obtained are generally favorable for the model the issue of rer stationarity is also analyzed

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

an exploration in the theory of exchange rate regimes three exchange rate regimes a float a one sided peg and a cooperative peg are evaluated and compared in terms of efficiency and welfare levels the framework of analysis embodies country specific monies with the money of each country being used to transact in its commodity markets and its currency denominated bonds welfare levels depend only on consumption levels in the presence of perfect foresight all equilibrium allocations are pareto efficient in a floating exchange rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy the same result holds in a one sided peg if the pegging country s exchange rate stabilizing authority breaks even over time in a cooperative peg regime there is a different equilibrium allocation for each combination of exchange rate levels and monetary policies problems of policy coordination and conflicts in desired monetary policies are discussed

conscientious vs ambivalent consumers do concerns about energy availability and climate change influence consumer behaviour abstract energy availability and climate change are interrelated concerns with economic components they need to be addressed by policy makers and they require changes in energy consumption this study examines whether concerns about energy availability and climate change influence consumer behaviour policy perceptions and beliefs about future energy consumption this question is investigated by analysing data from the eurobarometer 75 4 a comprehensive survey of citizens from all countries of the european union that was conducted in june 2011 n 26 840 the regression results show that people concerned about climate change were significantly more likely to take action to mitigate climate change and to be more favourably disposed towards energy policies and future changes in energy consumption than people who were not concerned about climate change on the other hand people who were concerned about energy availability undertook fewer actions and neither supported energy policies nor believed in future changes in energy consumption this surprising finding raises questions regarding the adequate communication of energy availability and policies to the public in the european union

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

does a correct parameter estimate tell a better story about foreign exchange market efficiency abstract this paper demonstrates that the estimated parameters in previous research with wrong signs and absurd sizes do not indicate market inefficiency and market behavior as they appear to in the real world where forecasting errors are substantially large a correct or an unreasonable parameter estimate renders almost identical results specifically we demonstrate that an absolutely unbiased predictor is irrelevant empirically and the unknowingly pursuit of absolute unbiasedness is misleading what needs to be verified is a sufficiently unbiased predictor which may appear to be incredibly biased under the circumstances with expected specified probabilistic errors

the implications of mean variance optimization for four questions in international macroeconomics abstract the hypothesis of mean variance optimization has powerful implications transcending particular methods used for variance covariance estimation 1 for conventional estimates of risk aversion substitutability between domestic and foreign securities is close to perfect in the sense that risk premiums are small in magnitude a few basic points and thus cannot explain much bias in forward rates 2 nevertheless as long as risk aversion is not zero foreign exchange intervention still affects the level of the exchange rate proportionately at least to asset supply changes 3 current account deficits also have effects 4 finally dollar depreciation should not be accompanied by appreciation of the mark against the franc

exploring the links between community based governance and sustainable energy use quantitative evidence from flanders community based energy organizations have been said to influence their members energy related behavior by activating social norms and by providing trustworthy information about sustainable energy investments and behaviors however little is known yet about members actual energy use and how it differs from that of individuals who do not participate in such projects in particular selection effects are likely to arise i e community based energy projects may attract people that are different from the underlying population in terms of energy use this article empirically addresses the question of the selection into community based energy projects in terms of energy use focusing on the case of renewable energy cooperatives based on quantitative data from an original survey conducted with one renewable energy cooperative in flanders and using probit regression analyses it contrasts a sample of cooperative members with an appropriate comparison group in terms of electricity usage the results show that electricity consumption is positively related with cooperative membership suggesting that high use consumers have greater incentives to join a community based organization which provides assistance and advice on the adoption of green technologies and energy efficiency measures these findings contribute to an understanding of the relationship between community based governance and sustainable energy practices

an examination of the effects of government purchases in an open economy this paper examines the effects of permanent and transitory changes in government purchases in the context of a model of a small open economy that produces and consumes both traded and nontraded goods the model incorporates an equilibrium interpretation of the business cycle that emphasizes the responsiveness of agents to intertemporal relative price changes it is demonstrated that transitory increases in government purchases lead to an appreciation of the real exchange rate and an ambiguous change although a likely worsening in the current account while permanent increases have an ambiguous impact on the real exchange rate and no effect on the current account when agents do not know whether a given increase in government purchases is permanent or transitory the effect is a weighted average of these separate effects the weights depend on the relative variances of the transitory and permanent components of government purchases in the past few years a considerable amount of effort has been devoted to examining the effects of macroeconomic policy in an open economy such issues as exchange rate overshooting deviations from purchasing power parity sterilization and monetary control the effectiveness of monetary policy and the choice between alternative exchange rate regimes have been at center stage the models that have been employed to study these issues have run the spectrum from variants of the mundell fleming model such as dornbusch 1976 turnovsky 1981 and kimbrough 1983a to wage contracting and indexing models like bhandari 1982b and flood and marion 1982 to equilibrium models of the business cycle along the lines of bhandari 1982a saidi 1982 and kimbrough 1983b to the closely related intertemporal utility maximization models with money of helpman 1981 and stockman 1980 1983 one common thread that in a sense unifies all of these and other recent contributions is that they are concerned primarily with the effects of alternative monetary and exchange rate policies that the central bank might enact in light of the development and refinement during this period of the monetary approach to the balance of payments and the exchange rate it is not surprising i would like to thank phil brock jeremy greenwood gary zarkin and two anonymous

aggregate information and the role of monetary policy in an open economy a model of a small open economy in which agents trade in local goods markets and an economy wide asset market is developed purchasing power parity is assumed to hold at the aggregate level however because of local deviations from purchasing power parity agents possess differential information using this framework it is shown that when the exchange rate is flexible monetary policy can influence the distribution of real output by altering the information content of the exchange rate however when monetary policy is committed to fixing the exchange rate by a feedback rule the distribution of real output is independent of the particular exchange rate rule chosen the stability of real output under the two regimes is compared and it is demonstrated that regardless of the stability of domestic monetary policy a flexible exchange rate regime is superior in this respect possible qualifications and extensions of these results are also discussed

policy effectiveness in an open multi market economy with risk neutral exchange rate speculation abstract in an open multi market equilibrium model of the business cycle the informational role of a forward exchange market is that the forward rate aggregates individual perceptions of the aggregate state of the economy in the case of risk neutral exchange rate speculation the forward rate perfectly reveals average expectations of current nominal shocks that hit the economy this paper analyzes the informational implications of forward speculation when markets are structurally diverse the two types of structural diversity considered are heterogeneous price elasticities of output demand and supply and asymmetric information between traders in output markets and traders in asset markets in contrast to previous results the paper shows that risk neutral speculation is not in general sufficient to generate a fully revealing rational expectations equilibrium in which monetary policy is ineffective

testing for efficiency and rationality in foreign exchange markets a review of the literature and research on foreign exchange market efficiency and rationality with comments abstract this paper specifies two var models for testing efficiency and expectations in foreign exchange markets the sufficient conditions for efficiency and rational expectations by imposing restrictions on the var parameters are derived based on these models issues on testing efficiency and rationality are discussed with reference to previous empirical studies in the area

does environmental concern change the tragedy of the commons factors affecting energy saving behaviors and electricity usage electricity consumption produces private goods such as heat for homes but fossil fuel consumption impacts the public goods of clean air and water while self interests can increase usage social interests such as global climate change can impact an individual s attitude toward energy consumption this paper examines the tragedy of the commons using household data and compares the impact of self and social interests in predicting electricity consumption using both stated and observed behavioral data the results show that self interests have a greater impact on energy saving behaviors and electricity use we extend the analysis to control for an individual s environmental concern and perceived behavioral impact finding similar results and supporting the notion that the tragedy of the commons occurs regardless of a person s perception or environmental concern these findings may explain why pro environmental attitudes do not necessarily lead to pro environmental behaviors and it contributes to our understanding of the motivating factors for energy savings and electricity use by examining both stated and observed behaviors policies aimed at electricity reduction may have a greater impact if they focus on private interests such as pricing rebates subsidies and taxes rather than social interests alone

the balassa samuelson hypothesis in the developed and developing countries revisited abstract this paper aims at examining the balassa samuelson bs hypothesis in 20 developed and 20 developing countries respectively given the cross sectional dependence and structural breaks we develop a new panel cointegration technique which allows for multiple heterogeneous unknown breaks and non stationary factors the empirical results show that the bs hypothesis holds in the developed countries implying that higher productivity growth leads to a real appreciation but they are cointegrated up to a number of cross sectional unobserved stochastic trends as factors are non stationary however we find little evidence to support the bs hypothesis in the developing countries and a further research is needed for the reason

the when issued market for government of canada treasury bills by working directly with the profit functions for both arbitrage and speculative trades this paper develops two distinct notions of market efficiency these notions provide the basis for evaluating the performance of the when issued market for canadian government treasury bills despite the maximum one week maturity of when issued forward contracts a number of instances of inefficient pricing behavior are observed

nuclear power climate change and energy security exploring british public attitudes public attitudes towards nuclear power in the uk have historically been deeply divided but as concern about climate change and energy security has exerted an increasing influence on british energy policy nuclear power has been reframed as a low carbon technology previous research has suggested that a significant proportion of people may reluctantly accept nuclear power as a means of addressing the greater threat of climate change drawing on the results of a national british survey n 1822 the current study found that attitudes towards nuclear remain divided with only a minority expressing unconditional acceptance in general people who expressed greater concern about climate change and energy security and possessed higher environmental values were less likely to favour nuclear power however when nuclear power was given an explicit reluctant acceptance framing allowing people to express their dislike for nuclear power alongside their conditional support concerns about climate change and energy security became positive predictors of support for nuclear power these findings suggest that concern about climate change and energy security will only increase acceptance of nuclear power under limited circumstances specifically once other preferred options have been exhausted

nonlinear relationship between the real exchange rate and economic fundamentals evidence from china and korea abstract this paper investigates the potential nonlinear relationship between the real exchange rates of two currencies chinese yuan and south korean won and economic fundamentals using quarterly data over the period 1980q1 2009q4 we employ the alternating conditional expectation algorithm to test for nonlinearity among the variables of interest the results show that there does exist a nonlinear cointegrating relationship between the real exchange rates and fundamentals for china and korea in contrast with the conventional linear relationship the elasticity of the real exchange rate with respect to fundamentals varies over time according to the nonlinear relationship

peak globalization climate change oil depletion and global trade abstract the global trade in goods depends upon reliable inexpensive transportation of freight along complex and long distance supply chains global warming and peak oil undermine globalization by their effects on both transportation costs and the reliable movement of freight countering the current geographic pattern of comparative advantage with higher transportation costs climate change and peak oil will thus result in peak globalization after which the volume of exports will decline as measured by ton miles of freight policies designed to mitigate climate change and peak oil are very unlikely to change this result due to their late implementation contradictory effects and insufficient magnitude the implication is that supply chains will become shorter for most products and that production of goods will be located closer to where they are consumed

views on peak oil and its relation to climate change policy abstract definitions of fossil fuel reserves and resources and assessed stock data are reviewed and clarified semantics explain a large stake of conflict between advocate and critical voices on peak oil from a holistic sources sinks perspective limited carrying capacity of atmospheric sinks not absolute scarcity in oil resources will impose tight constraints on oil use eventually observed peaks in oil production in nearby years will result from politically imposed limits on carbon emissions and not be caused by physical lack of oil resources peak oil belief induces passive climate policy attitudes when suggesting carbon dioxide emissions will peak naturally linked to dwindling oil supplies active policies for reducing emissions and use of fossil fuels will also encompass higher energy end use prices revenues obtained from higher levies on oil use can support financing energy efficiency and renewable energy options but when oil producers charge the higher prices they can pump new oil for many decades postponing peak oil to occur while extending carbon lock in

global energy security and the implications for the eu abstract the following article will analyse the global and geopolitical dimensions of the future international energy security and its implications for europe and the eu 27 in this context i will discuss to which extent the eu s newly proclaimed energy action plan of the eu spring summit of 2007 and its declared common energy foreign policy are a sufficient strategy to cope with the new global and geopolitical challenges the article concludes the following 1 the interlinkage between globally designed traditional energy security concepts that rely just on economic factors and market strategies and domestic as well as regional political stability demands new thinking with regard to both energy supply security and foreign and security policies 2 although after the russian ukrainian gas conflict in january 2006 energy security has forced its way up the european energy and foreign policy agendas the eu 27 member states have largely failed to forge a coherent european energy security and energy foreign policy strategy after their spring summit of 2007 because its declared political solidarity has been still lacking but the 2nd strategic energy review of november 2008 has recommended new initiatives to overcome this lack by promoting concrete infrastructure and other projects for enhancing europe s supply security and its political solidarity as part of a common energy foreign policy if the eu is able to implement the march 2007 and november 2008 decisions the eu oil and gas demand will drastically reduce and freeze at current levels in this case putin s energy policies by using russia s energy resources and pipeline monopolies as a political instrument to enforce its economic and geopolitical interests will be proved as self defeating in russia s long term strategic interests it will reduce gazprom s gas exports to a much smaller eu gas market than originally forecasted as the result of a deliberate eu policy of decreasing its overall gas demand and by diversifying its gas imports

arbitrage cointegration and testing the unbiasedness hypothesis in financial markets we use a no arbitrage cost of carry asset pricing model to show that the existence of coin tegration between spot and forward futures prices depends on the time series properties of the cost of carry we argue that the conditions for cointegration are more likely to hold in currency markets than in commodity markets explaining many of the empirical results in the literature we also use this model to demonstrate why the forward rate forecast error the basis and the forward premium are serially correlated and to develop econometric tests ofthe unbiasedness hypothesis sometimes called the simple efficiency hypothesis in various financial markets the unbiasedness hypothesis is so prevalent in the finance liter ature that many tests for it have been developed we examine four of the common tests and and use our cointegration results to demonstrate why each of these tests should reject the null hypothesis of unbiasedness we find strong support for our hypothesis in the existing empirical literature

imperfect information and the comovement of the exchange rate and the interest rate a signal extraction approach this paper analyzes the joint determination of the exchange rate and the interest rate in a signal extraction framework in principle a given disturbance should generate a systematic relationship between the exchange rate and the interest rate as two endogenous variables in the context of any specified economic model when expectations matter however the introduction of imperfect information would weaken the comovement between the two endogenous variables that results from a given disturbance this simple point is demonstrated in a flexible price model of a small economy

contracts the trade account and deviations from purchasing power parity in equilibrium a hallmark of the recent monetary analysis of exchange rate determination has been the assumption of purchasing power parity p p p it can be argued that this is an arbitrage relationship in the context of a one output world in any case considerable advance has been made by analyzing international finance issues under this assumption on the other hand it is not innocuous as has been demonstrated by isard 12 and richardson 17 for example p p p does not in fact hold at least in the short run magee 16 argues that observed deviations from p p p do not imply market inefficiency because the presence of contracts in international trade implies that ex ante profit opportunities can be eliminated through arbitrage and yet p p p fail to hold in his context the deviations are spurious and therefore if taken seriously can lead to erroneous policy measures on for example dumping he assumes an exogeneous stochastic process for the exchange rate and so does not discuss the implications of contracting for equilibrium market prices harris and purvis 11 derive equilibrium market prices on the assumption of exogenous deviations from p p p and do not explicitly model the origin of these deviations in the present paper a contrast is drawn between two polar models the first is a standard stochastic equilibrium in a small open economy in which arbitrage ensures

ecological economics as a policy science rhetoric or commitment towards an improved decision making process on sustainability abstract with sustainability issues currently attracting increasing political and policy attention this paper examines the impact of the rise of ecological economics in the policy world and its potential influence on the decision making process this study emphasises that ecological economics development is coevolved with and modified to fit specific social economic political and cultural contexts as a policy science ecological economics is context sensitive and action oriented explaining why it is so and what to do about it has become imperative for ecological economists this paper attempts to address the questions such as what are the macroeconomic conditions and political processes that make the formulation and implementation of ecological economic policy possible how should this alternative social reality engage with the dominant decision making process does ecological economics provide the necessary means for prescribing policy measures to achieve sustainable development endeavouring to understand these dimensions of ecological economics has been a dynamic social process and understanding this complex process might provide an opportunity to bridge the divide between policy rhetoric and reality in practice rather than maintain the status quo in order to achieve an improved decision making process on sustainability it highlights the imperative to explicitly study the institutional setting through which sustainable development policy discourse is mediated

accounting for forward rates in markets for foreign currency absteract forward and spot exchange rates between major currencies imply large standard deviations of both predictable returns from currency speculation and of the equilibrium price measure the intertemporal marginal rate of substitution representative agent theory with time additive preferences cannot account for either of these properties we show that the theory does considerably better along these dimensions when the representative agent s preferences exhibit habit persistence but that the theory fails to reproduce some of the other properties of the data in particular the strong autocorrelation of forward premiums since the advent of flexible exchange rates in the early 1970s a large body of statistical work has established that forward rates for major currencies are not optimal predictors of future spot rates relevant evidence is reported in studies by baillie lippens and mcmahon 1983 bekaert 1991 bilson 1981 boothe and longworth 1984 cumby 1988 cumby and obstfeld 1984 fama 1984 gregory and mccurdy 1984 hansen and hodrick 1983 hodrick and srivastava 1984 and korajczyk and viallet 1990 a more complete list of references is provided by hodrick 1987 these papers indicate that returns from speculation in forward and spot currency markets are predictable and that the predictable components vary considerably over time a number of alternative explanations have been offered for the predictable variation in foreign currency market excess returns kaminsky 1988 korajczyk 1985 and krasker 1980 suggest that infrequent extreme events may make returns appear predictable in small samples the so called peso problem lewis 1989 argues that rational learning following infrequent changes in the process governing equilibrium prices can explain part of the ex post predictability of currency returns froot and frankel 1989 and froot and thaler 1990 examine the hypothesis that market forecasts of future spot

rejection of unbiasedness is not rejection of market efficiency reply to gilbert 1986 rejection of unbiasedness is not rejection of market efficiency reply to gilbert applied economics vol 18 no 11 pp 1167 1178

incomplete information and the equilibrium determination of the forward exchange rate abstract in the present paper we embed the forward exchange rate in an equilibrium macroeconomic model incorporating rational expectations and portfolio balance and in which the spot exchange rate the forward exchange rate the expected future spot rate and the domestic interest rate are determined simultaneously the purpose is to examine the impact of alternative macroeconomic disturbances on the spot and forward exchange rates and on the bias in the forward rate as a predictor of future spot rates the rational expectations hypothesis plays a key role in the analysis alternative assumptions made about the information available to agents in the economy are shown to have rather dramatic consequences on the answers obtained

information aggregation and policy the function of monetary policy to alter the informational content of money price signals is examined in a model where traders can observe an economy wide financial signal and a local commodity price under a passive policy money demand disturbances which are not directly observable are shown to be confused with real productivity shocks and thereby preclude prices from fully reflecting all information even when the policy authority has no informational advantage prospective money growth feedback rules can improve the structure of available information applications of the rational expectations hypothesis to monetary theory have focused on the informational aspects of money price signals a key element of the models of lucas 1972 1975 barro 1976 and sargent and wallace 1975 is that agents have limited powers of information acquisition and use prices as imperfect summaries from the rest of the world those works have suggested that monetary policy can affect the informational content of observed price signals and thereby affect real variables in weiss 1980a it was shown systematic money growth feedback rules can contribute to economic efficiency when the money demands of one group are based on factors not directly observed by all in this context monetary policy can alter the information content transmitted from the informed to the uninformed through observation of nominal price signals a limitation of these analyses is the omission of economy wide financial signals clearly stock and bond prices are observed accurately and costlessly empirically there are strong comovements between financial signals and economic activity traditional keynesian theory argues that financial signals exert an important influence on output by affecting the demand for new capital goods understanding the informational role of such signals is crucial to any theory which explains fluctuations as arising from incomplete information the present analysis investigates the structure of available information with its implications for real variables in a model where agents trade on both an economy wide capital market and a local commodity market the model has positive implications for the comovements of money demand disturbances aggregate investment expected and realized returns as well as normative implications for the conduct of policy the structure of exogenous information in the model differs from that of my earlier paper rather than assuming two types of traders informed and uninformed the model considers traders to have symmetric although noisy exogenous private information in this framework the economy wide market both aggregates and transmits individuals information about an aggregate structural variable this modification is both analytically convenient and illustrates how noise in the price system alters the importance of public relative to private sources of information the idea that prices aggregate individual information was first formalized in grossman 1976 in that paper a non monetary model of a speculative market was developed in which the price system conveyed all relevant information so as to yield an efficient allocation however this feature was also shown to break down if prices are influenced by

evolutionary psychology in ecological economics consilience consumption and contentment abstract this paper makes the case that if ecological economics seeks consilience with biology it must acquaint itself with evolutionary theories about social development and human behaviour the author reviews some of the literature in this area particular attention is paid to the newly emerging discipline of evolutionary psychology which sets out a neo darwinian view of human nature in which individual and social behaviour is dominated by the evolutionary strategies of the selfish gene the paper discusses the relevance of this perspective for two specific problem areas in ecological economics the first of these is the question of consumption and consumer behaviour the second is the problem of mismatch between the pursuit of economic growth and social well being or contentment these examples illustrate that evolutionary psychology may sometimes provide a natural ally for ecological economics in particular pointing up certain failures of conventional economics on the other hand it also offers harsh lessons concerning the difficulty of changing evolved behaviour patterns the paper suggests three possible avenues of response by ecological economists to the insights of evolutionary psychology

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

purchasing power parity as a theory of international arbitrage in manufactured goods an empirical view of uk us prices in the 1970s this study treats purchasing power parity as a theory of arbitrage and seeks to test for its applicability at a disaggregated level evidence is found to suggest that arbitrage in individual markets cannot be easily aggregated due to different a adjustment periods across industries even at a disaggregated level the evidence does not suggest a long run arbitrage process of the type implied by relative purchasing power parity moreover the length of time which industries take to adjust to changes in foreign prices and the exchange rate is found to be related both to the domestic competitive environment and the extent to which the particular good is traded

on biases in the measurement of foreign exchange risk premiums abstract the hypothesis that the forward rate is an unbiased predictor of the future spot rate has been consistently rejected in recent empirical studies this paper examines several sources of measurement error and misspecification that might induce biases in such studies although previous inferences are shown to be robust to a failure to construct true returns and to omitted variable bias arising from conditional heteroskedasticity in spot rates we show that the parameters were not stable over the 1975 89 sample period estimation that allows for endogenous regime shifts in the parameters demonstrates that deviations from unbiasedness were more severe in the 1980s jel f31

implications of a long term increase in oil prices for tourism it is expected that global oil prices will increase in the future assessing the overall economic impacts on tourism is difficult as oil price rises will be concomitant with global changes in other commodity prices exchange rates and incomes a general equilibrium perspective is therefore presented in this paper the model couples a global general equilibrium model with a purpose built cge model of new zealand which focuses on describing tourism supply and demand in some detail the results indicate a decrease in real gross national disposable income of 1 7 for a doubling of oil price and a 9 reduction in the real value of tourism exports as a result of segment specific price increases and differing income and exchange rate effects and elasticities the reduction in demand for tourism in new zealand by 18 segments differs substantially the greatest reduction in demand is observed for tourists from the united kingdom

efficiency and a simple model of exchange rate determination abstract a monetary model has no intrinsic dynamics so the intertemporal behavior of exchange rates spot and forward depend entirely upon the time processes of the exogenous variables for typical values of interest elasticities of money demand only if all shocks are permanent do exchange rates follow random walks recently changes in relative outputs and money supplies in the canadian us context have evidenced serial correlation so that shocks are not exclusively permanent ones none the less exchange rates have followed a random walk this suggests that the monetary model is an inappropriate specification and that models which pay attention to the choice of currency of denomination deserve greater attention

rationality of survey data and tests for market efficiency in the foreign exchange markets abstract this paper tests the rational expectations hypothesis reh and the market efficiency hypothesis meh in the foreign exchange markets using survey data on expectations our results show that the spot exchange rates expected exchange rates and the forward rates all follow a random walk process hence the cointegration theory is employed to test the reh and meh all the test statistics support the reh but fail to support the meh we use survey data on expectations to identify the causes behind this failure of the meh jel f31 g14

the vulnerability of price stabilization schemes to speculative attack this paper examines the effects of government attempts to stabilize the prices of commodities by use of buffer stocks agricultural goods subject to supply uncertainty as well as depletable resources are considered in each case it is shown that the resulting rational expectations competitive equilibrium contains a speculative attack a situation where the entire government stock is suddenly purchased by previously inactive speculators the analysis is applied to the historical attempt to peg the gold price which caused the attack of 1968 the insights gained and the methodology developed also apply to the various international agreements to impose bans on commodity prices which have been proposed by the united nations conference on trade and development

the forward rate as a predictor of the future spot rate a stochastic coefficient approach this paper develops a stochastic coefficient model to examine the unbiased forward rate hypothesis for the period january 1974 to august 1983 tests from the full sample estimations confirm the null hypothesis however the re sults from the brown durbin evans 1975 test and the chow test indic ate that the exchange rate behavior departs from parameter constancy using joint rolling regressions for the subsample estimations the a uthor finds evidence that the unbiasedness hypothesis in most cases s hould be rejected and that the estimated parameters sensitive to new information vary through different subsample periods the out of sa mple test concludes that incorporation of the stochastic properties o f the parameters into the model improves accuracy of exchange rate pr edictions copyright 1988 by ohio state university press

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

some linear and nonlinear thoughts on exchange rates abstract after discussing the inconclusive results of linear structural models as applied to exchange rates this paper assesses the possibilities of using a particular form of nonlinear estimation called alternating conditional expectations as i a diagnostic tool and ii a forecasting method it contrasts the forecast performance of various linear in levels in differences error correction and nonlinear in levels in differences specifications of a sticky price monetary model augmented by a relative wealth variable the diagnostic results are as follows the optimal transformations are almost always nonlinear and often nonmonotonic forecasting results in sample and out of sample nonlinear forecasts yield substantial improvements over a random walk however in exercises with forecasts from rolling regressions the random walk specification still dominates over one quarter forecast horizons albeit only marginally and insignificantly so nonlinear specifications do slightly better than linear competitors at four quarter horizons

efficiency in foreign exchange markets a vector autoregression approach abstract this paper examines and tests the simple efficiency property of the forward exchange market by analyzing the linearly indeterministic covariance stationary propertoes of the vector stochastic proceess that governs the joint behavior of the spot exchange rate and forward rates wiht different maturity dates a multivariate autoregressive methodology for testing the simple efficiency hypothesis that relies upon a set of highly non linear cross equation restrictions is utilized the results of the estimation and testing for the british pound and the deutsche mark over the period september 1974 to november 1987 using monthly observation on the spot rate the one month forward rate and the three month forward rates are presented special concern is given to the sensitivity of the tests results to subsampling over the period

the effects of devaluation and foreign price disturbances under rational expectations abstract this paper analyzes the effects of changes in the exchange rate and the foreign price level in a stochastic model in which domestic agents form expectations about possible changes in these variables the general conclusion to emerge is that the impact of such changes on the domestic economy depend critically upon a the extent to which such changes are predicted and b in some cases the permanency with which they are expected to prevail the short run and dynamic effects of a number of specific changes are examined in detail and it is shown how a variety of transitional paths may arise depending upon the accuracy of expectations with respect to both timing and magnitude

global energy crunch how different parts of the world would react to a peak oil scenario peak oil theory predicts that oil production will soon start a terminal decline most authors imply that no adequate alternate resource and technology will be available to replace oil as the backbone resource of industrial society this article uses historical cases from countries that have gone through a similar experience as the best available analytical strategy to understand what will happen if the predictions of peak oil theorists are right the author is not committed to a particular version of peak oil theory but deems the issue important enough to explore how various parts of the world should be expected to react from the historical record he is able to identify predatory militarism totalitarian retrenchment and socioeconomic adaptation as three possible trajectories

the unbiasedness hypothesis in the forward foreign exchange market a specification analysis with application to france italy japan the united kingdom and west germany abstract the purpose of this paper is to carry out a specification analysis of a test relation for the unbiasedness hypothesis using thirty day forward foreign exchange data from france italy japan the united kingdom and west germany the results indicate that econometric problems do exist for each country s test equation over the entire sample for each country there is at least one period which admits a statistically adequate regression equation results for these periods show that the null hypothesis of the unbiasedness of the forward rate is rejected for some countries but is retained for others

the impact of data errors on measurement of the foreign exchange risk premium abstract in most situations measurement error produces bias which it less likely that the null hypothesis will be rejected in the case of regression equations designed to estimate the premiums impounded in forward exchange rates the reverse is true because the forward rate appears on both sides of the equation measurement error makes it more likely that a risk premium will be found however the empirical results reported here indicate that there is still evidence of a risk premium even after taking account of measurement error

foreign exchange market efficiency tests implications of recent empirical findings abstract the recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence these contradictions result because 1 different maintained hypotheses are held and 2 different criteria e g micro versus macroeconomic are used to judge the evidence in this survey we organize the empirical literature under several headings the presence of risk premiums empirical regularities in regression tests profitable trading rules and advanced econometric techniques in integrating this material we consider the implications of the current evidence for investors forecasters policy makers and theorists

heterogeneous information and the theory of the business cycle the inability to observe the money supply and price level has been an essential ingredient of informational based equilibrium models of cycles here we assume these data are available but show that heterogeneous information about the productivity of capital can lead to a monetary theory of fluctuations in equilibrium each agent s investment depends on the difference between his own productivity and the perceived real rate in the presence of money demand shocks the nominal rate is noisy signal of the real rate this leads to greater fluctuations in output than if all agents had the same information

forward premia and risk premia in a simple model of exchange rate determination this paper develops the standard rational expectations model of exchange rate determination with risk premia taken as exogenous the exchange rate is equal to a weighted sum of all future values of the fundamentals and risk premia specifically if risk premia are percei ved to be temporary then their levels are negatively associated with rates of appreciation this finding is consistent in sign with the results from the conventional regression equation but the theory indicates that to obtain unbiased estimates errors in variables techniques must be employed plausible estimates for the money market parameters are found from canadian data copyright 1988 by ohio state university press

exchange rate policy and monetary information this paper develops a model of a small open economy in which the presence of local deviations from purchasing power parity give rise to differential information it is assumed that the monetary authorities are committed to buy and sell foreign exchange in order to support an exchange rate policy rule it is demonstrated that exchange rate policy can influence the distribution of real output i if agents possess incomplete and differential information and ii if they have contemporaneous money supply or balance of payments information it is also shown that exchange rate policy can be effective because of its ability to influence the information content of available monetary data the argument is turned around and used to support the frequent release of monetary data

the term structure of forward exchange premiums and the forecastability of spot exchange rates correcting the errors we develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and

informational efficiency and the open economy a troublesome feature of existing stochastic macroequilibrium models of the open economy is the nature of the informational assumptions usually made most of these models assume that full contemporaneous information on all relevant macrovariables is freely available to economic agents this is the assumption made for example in cox 7 driskill and mccafferty 10 driskill 8 and turnovsky 17 18 among others further when information gaps are introduced the lack of full current information refers to the inability of domestic agents to correctly identify permanent versus transitory components of movements in either the currently observed domestic money supply as in ueda 20 or the observable foreign price level 2 16 5 yet prevailing economic reality is characterized by the availability of differentiated current information to economic agents information or data on variables relevant to auction markets such as asset markets is far more easily and frequently available than information that relates to markets that are contractual in nature such as commodity markets a financial newspaper such as the wall street journal for example provides daily information on half a dozen foreign prime interest rates a multitude of u s

environmental economics and ecological economics where they can converge abstract environmental economics and ecological economics share the common objective of understanding the human economy environment interaction in order to redirect the economies towards sustainability in pursuing this objective these two perspectives utilise different types of analytical framework and are opposed to each other on many of the fundamental theoretical and methodological issues while the environmental economics has progressed within a narrowly but sharply focused neoclassical analytical approach the ecological economics has expanded by adopting a diversified approach which led to widen the gap between the two this article makes an attempt to highlight the divergence between these two perspectives on different issues and identifies certain research avenues that would potentially bring convergence between these two perspectives

assessing the potential demand for biofuel by combining economics and psychology a focus on proximity applied to jatropha oil in africa abstract bio energy demand is known to be influenced by geographical origin and social equity this paper aims to highlight the influence of the proximity between biomass production and energy consumption on the demand for alternative bio fuels in the context of burkina faso we explore potential demand for jatropha oil jatropha curcas as a diesel substitute among engine owners survey data are based on a between groups design one group of respondents experiencing a local supply chain while the other a global one results show that proximity has a significant effect on potential demand itself and on the formation and strength of beliefs regarding jatropha oil in a local supply chain context the demand is superior and seems to be guided more by a certain economic and technical rationality conversely the prospect of a jatropha oil produced outside the village restrains demand and this latter is more determined by contextual factors and social interaction our analysis confirms that demand does not only depend on technical and economic factors such as price but also on the integration of the biomass production and processing in the socioeconomic life of local rural populations understanding demand construction and assessing underlying beliefs are key success factors for bio energy projects

conditional variance and the risk premium in the foreign exchange market abstract we investigate the existence of a risk premium in the foreign exchange market based on the conditional variance of market forecast errors the forecast errors are assumed to follow the arch process introduced by engle 1982 estimation and diagnostic testing of the model are discussed and results are presented for the currencies of the united kingdom france germany japan and switzerland