jump diffusion processes and the term structure of interest rates the authors investigate the term structure of interest rates when the underlying state variables and production technologies follow the jump diffusion processes even in some cases where the traditional expectations theory about the term structure is consistent with general equilibrium under diffusion processes the traditional theory is not consistent under jump diffusion processes it is shown that bond prices are strictly higher under jump risks than otherwise and that consumers with logarithmic utility functions will develop hedge portfolios in the presence of jump diffusion a number of continuous time asset pricing models have been derived under stochastic diffusion processes with continuous sample paths see e g black and scholes 2 merton 21 breeden 3 and cox ingersoll and ross 8 however recent empirical studies see e g brown and dybvig 4 feinstone 10 and jarrow and rosenfeld 17 suggest that the underlying processes may follow

how does free trade become institutionalised an expected utility model of the chretien era this paper seeks to go beyond the question of why free trade and pursues issues related to the tendency for controversial free trade agreements to become institutionalised in other words why do opponents of free trade not mobilise to overturn it even more puzzling why do opposition parties which had opposed passage of free trade in the first place not undo liberalisation undertaken by their predecessors upon coming to power rather than seek reversal it is not uncommon for free trade opponents upon assuming control of the government to deepen liberalisation initiatives hence serving to institutionalise the very policies they had decried vigorously seven sections make up this study it begins with a statement of the basic puzzle and an illustration in the recent canadian context the second section is a theoretical discussion of opposition parties and free trade an expected utility model based on the limits of rent seeking is introduced in the third and fourth sections to explain institutionalised free trade the fifth section provides the background to the case at hand that is the evolution of free trade as a politico economic issue in canada the sixth section applies the expected utility model to the superficially puzzling case of canadian prime minister jean chretien s dramatic about face on the issue of trade liberalisation after coming to power in the final section the contributions of the model are reviewed along with directions for future research

explaining cooperation under anarchy hypotheses and strategies what circumstances favor the realization of mutual interests in the absence of centralized authority and through what strategies can nations foster the emergence of cooperation by altering the circumstances that they confront elementary game theory suggests three sets of conditions that serve as proximate explanations of the incidence of cooperation and discord i payoff structure mutual and conflicting preferences 2 the shadow of the future single play and iterated games and 3 number of players two person and n person games each of these three attributes of context may be subject to willful modification nations may create the preconditions for cooperation through strategies to alter payoffs lengthen the shadow of the future and reduce the number of actors required to realize limited mutual interests

policy rivalry among industrial states what can we learn from models of strategic trade policy the economic theory of international trade has changed dramatically over the last decade by admitting into its mainstream a body of literature that focuses on the implications of monopolistic and oligopolistic elements in international markets by applying the tools of the new industrial organization in an international context two new classes of models have emerged models of intra industry trade and models of strategic trade policy the policy implications of models of strategic trade policy were quite disturbing for the economics profession since these models demonstrated that the classical harmony between national and cosmopolitan welfare maximization does not exist if one assumes opportunities for strategic manipulation of oligopolistic international industries this article reviews two prominent models of strategic trade policy the brander spencer model and the krugman model and relates them to more familiar earlier concepts such as stackelberg s asymmetrical duopoly solution and the venerable infant industry argument for government intervention the primary purpose of this article however is to provide a synopsis of the large literature addressing the question of whether models of strategic trade policy can give guidance for government policy

what happened to fortress europe external trade policy liberalization in the european union in an era when many fear the breakdown of the global trading order through the emergence of relatively closed regional trading blocs assessing the effects of european integration on external european union trade is particularly important surprisingly despite a severe recession accompanied by record levels of unemployment a history of increasing protection under similar economic circumstances and alarming predictions about fortress europe external trade policy in the region has liberalized in recent years prominent trade policy explanations emphasizing changing interest group demands or changing ideas of policymakers are inadequate to account for this significant change in trade policy instead much of this liberalization can be best understood as an unforeseen consequence of the single european act completing the single market undermined the effectiveness of national trade measures and made it difficult to enact new trade barriers thus producing a liberal bias in european policy

corporate unity in american trade policy a network analysis of corporate dyad political action this essay examines factors that produce political unity among large u s corporations advocating free trade expanding on old debates these data and analyses validate the importance of organizational and class cohesion approaches to corporate political action methodologically the political unity of pairs dyads of firms in trade policy activism is analyzed with quadratic assignment procedure regression shared membership in prominent policy networks and board interlocks positively predict corporate political unity across three areas of trade policy influence from the executive branch to the legislature non network organizational indicators also significantly predicted corporate trade policy activism the findings support business unity accounts of corporate political action and suggest that higher levels of firm embeddedness within intercorporate networks facilitate collective corporate political action

inflation risk and international asset returns abstract we show that inflation risk is priced in international asset returns we analyze inflation risk in a framework that encompasses the international capital asset pricing model icapm of adler and dumas 1983 in contrast to the extant empirical literature on the icapm we relax the assumption that inflation rates are constant we estimate and test a conditional version of the model for the g5 countries france germany japan the uk and the us over the period 1975 1998 and find evidence of statistically and economically significant prices of inflation risk in addition to priced nominal exchange rate risk our results imply a rejection of the restrictions imposed by the icapm in an extension of our analysis to 2003 we show that even after the termination of nominal exchange rate fluctuations in the euro area in 1999 differences in inflation rates across countries entail non trivial real exchange rate risk premia

power politics and international trade r recent literature attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade we argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system namely their security externalities we consider these external effects explicitly doing so leads us to two conclusions 1 free trade is more likely within rather than across political military alliances and 2 alliances are more likely to evolve into free trade coalitions if they are embedded in bipolar systems than in multipolar systems using data drawn from an 80 year period beginning in 1905 we test these hypotheses the results of the analysis make it clear that alliances do have a direct statistically significant and large impact on bilateral trade flows and that this relationship is stronger in bipolar rather than in multipolar systems in the early 1970s students of international relations began what would become a long and heated debate about the political correlates of open international markets recently however an important element of consensus has begun to emerge most contributors to this debate now seem to agree that the prisoner s dilemma structure of state preferences with respect to trade explains the relative dearth of open international markets here we argue that what has become the standard prisoner s dilemma representation neglects the most critical aspect of free trade agreements in the anarchic international system namely their security externalities we consider these external effects explicitly in order to do so we construct and analyze a simple game theoretic model the results of this analysis demonstrate that tariff games between allies differ systematically from those played between actual or potential adversaries these differences imply that free trade is more likely within rather than across political military alliances however our analysis also suggests that the evolutionary prospects of alliances vary those that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts less credible exit threats and clearer responsibilities for alliance stability explain the advantage of a bipolar system we test this argument using data drawn from an 80 year period beginning in 1905 the empirical analysis supports our argument it demonstrates that alliances have a direct statistically significant and large effect upon bilateral trade moreover it shows that on average alliances have a much stronger effect on trade in a bipolar than in a multipolar world 2

the state and american trade strategy in the pre hegemonic era trade policy is commonly seen as a product of domestic interest group politics despite the obvious economic distortions introduced by trade barriers protectionism recurs we are often told because producers organize more readily than consumers and dominate the political process in this demand side explanation of protection the state is seen as the empty receptacle of societal bargaining with no independent voice or role

firms and tariff regime change explaining the demand for protection although it is commonly argued that there is a connection between tariff levels and business conditions this hypothesis has not been subjected to systematic empirical analysis or given any theoretical basis the author presents two complementary theories of the movement of tariff levels in response to changing business conditions both explain tariff changes in terms of the changing political demands of business firms and both rely on the business cycle to drive these changing demands one theory is a conventional argument about changing opportunities for entry and exit the other treats firms as satisficers the theories yield similar predictions preliminary empirical analysis while consistent with both does not differentiate between them

side payments versus security cards domestic bargaining tactics in international economic negotiations the literature on international economic cooperation has devoted relatively little attention to domestic bargaining tactics and their determinants recent scholarship has tended to stress the utility and frequency of side payments while discounting other prominent bargaining tactics and a broader understanding of tactical choice this article argues that policymakers choose among domestic bargaining tactics to garner support when faced with situations in which other government officials or societal interest groups block the ratification of international economic agreements focusing on offers of side payments and attempts at issue redefinition the article s findings suggest that differences in domestic resistance to proposals of material compensation and in external security threat may explain choices between those tactics in domestic bargaining

the partisan paradox and the u s tariff 1877 1934 whereas historical accounts of u s tariff policy from 1877 to 1934 emphasize the pivotal role of parties previous quantitative studies have failed to identify significant partisan effects a formal model of policymaking in which strong parties aggregate voters preferences provides empirical equations to test for partisan effects subsequent time series analysis shows that even after controlling for interest group demands partisan control of government did significantly affect the tariff moreover during the period under study the two political parties enacted tariff policies that benefited different sets of producer groups at the expense of others thus political institutions did play a significant role in shaping the interests that influence u s foreign economic policy

growth waves systemic openness and protectionism there is a distinctively repetitive quality about trade policy problems domestic economic growth slows producers seek protection against foreign competitors and national decision makers raise barriers to trade while at the same time criticizing their counterparts in other governments for engaging in similar practices because trade is one of the more important topics in international and comparative political economy and because this scenario has played itself out more than a few times it is not surprising that a number of theorists have sought to model the underlying processes thought to produce movements toward and away from protectionism by now a variety of different types of approaches ranging from the cognitive to the systemic have been tried systemic structure ideas and ideology surplus capacity business cycles and shifts in elite orientation and domestic coalitions in response to external crises have been emphasized as principal theoretical foci our position is that the different levels of analysis and alternative foci all have merit and utility what they lack is an appreciation for the underlying systemic processes that link together these various facets of the political economy we seek to develop a theoretical argument that explicates these underlying processes the argument centers on recurring growth waves characterized in alternating pattern by the ascent of system leaders and the subsequent successful attempt of technological followers to catch up with the leaders the downturns of the growth waves produce conditions favoring protectionism but we contend the form and the intensity of protectionism that are likely to be produced will depend on which of the two types of growth waves is in progress ascent waves are characterized by the emergence of new technological leaders and a consequent increase in the gap between the leaders and the technological followers during the periods of structural transition and intense

the tips treasury bond puzzle we show that the price of a treasury bond and an inflation swapped treasury inflation protected securities tips issue exactly replicating the cash flows of the treasury bond can differ by more than 20 per 100 notional treasury bonds are almost always overvalued relative to tips total tips treasury mispricing has exceeded 56 billion representing nearly 8 of the total amount of tips outstanding we find direct evidence that the mispricing narrows as additional capital flows into the markets this provides strong support for the slow moving capital explanation of arbitrage persistence

the political economy of the tariff cycle how can protectionism and free trade succeed one another our answer focuses on the changing balance of private actors political demands these actors acquire interests in tariff policies because their assets are spatially concentrated and trade in these assets is subject to various limitations actors in regions experiencing no new investment in an established industry old regions have interests that sometimes differ from those in regions where there is new investment we show that old regions have no reason to be involved in tariff politics at business cycle peaks during troughs whether a state becomes more or less protectionist depends ceteris paribus on the relative political strength of old import competing and old exporting interests if old import competing industries outweigh the old exporters then protection will tend to increase at the trough and decrease at the peak of a business cycle the opposite result occurs when old exporters are more influential

integrating western and eastern european markets changing trade preferences in traditional manufacturing sectors in the european union although general trade theories are useful for specifying which groups support or oppose trade these frameworks see preferences as static and do not explain how they change over time instead this article proposes a dynamic perspective that considers how economic adjustment and liberal trade policies alter trade preferences the article examines why the traditionally protectionist german textile and apparel sectors accept the recent trade agreements with eastern europe producers can exploit technological and product changes by gaining access to export markets furthermore to take advantage of low labor costs abroad producers shift production to these countries for later reimportation lower trade barriers are therefore attractive to producers this strategy is also supported by increasingly liberal trade policy orientations in germany the european union eu and the general agreement on tariffs and trade gatt german producers have therefore modified their protectionist focus to a qualified suppo

explaining government choices for promoting renewable energy abstract many advanced industrialized countries have in recent years experienced a significant expansion of electricity production from renewables yet we know quite little about the dynamics of the underlying policychoices in this area using new data on adoptions and changes in feed in tariff and green certificate schemes in 26 advanced industrialized countries over 20 years we examine both domestic driving forces as well as international determinants the findings suggest that three factors play a particularly important role in pushing countries towards market based support systems characteristics of the existing energy supply system a federalist structure of the political system and eu membership particularly noteworthy is the finding that higher shares of fossil and nuclear energy in the national energy supply as well as higher co 2 intensity of the economy do not as we had expected stand in the way of policies for supporting renewables in electricity production to the contrary they increase the likelihood of a country adopting such policies we also find however that higher economic growth and higher growth in solar and wind energy capacity tend to reduce the political appetite for reforms of existing schemes

the demand for international regimes international regimes can be understood as results of rational behavior by the actors principally states that create them regimes are demanded in part because they facilitate the making of agreements by providing information and reducing transactions costs in world politics increased interdependence among issues greater issue density will lead to increased demand for regimes insofar as regimes succeed in providing high quality information through such processes as the construction of generally accepted norms or the development of transgovernmental relations they create demand for their own continuance even if the structural conditions such as hegemony under which they were first supplied change analysis of the demand for international regimes thus helps us to understand lags between structural change and regime change as well as to assess the significance of transgovernmental policy networks several assertions of structural theory seem problematic in light of this analysis hegemony may not be a necessary condition for stable international regimes past patterns of institutionalized cooperation may be able to compensate to some extent for increasing fragmentation of power

external governance and the eu policy for sustainable biofuels the case of mozambique growing demand for transport biofuels in the eu is driving an expansion of the industry in developing countries large scale production of energy crops for biofuel if mismanaged could cause detrimental environmental and social impacts the aim of this study is to examine whether the newly adopted eu directive 2009 28 ec and its sustainability certification system can effectively ensure sustainable production of biofuels outside the eu mozambique a least developed country with biofuels ambitions is selected as empirical case the effectiveness of the eu policy in analysed employing ideal models of external governance hierarchical market and network governance as analytical framework the findings show that the eu attempts to impose its rules and values on sustainable biofuels using its leverage through trade the market approach adopted by the eu is expected to produce only unstable subject to abrupt changes of market prices and demand and thin limited to climate and biodiversity issues policy results stronger emphasis on a network oriented approach based on substantial involvement of foreign actors and on international policy legitimacy is suggested as a way forward

small states in big trouble state reorganization in australia denmark new zealand and sweden in the 1980s in australia denmark new zealand and sweden in the 1980s coalitions of politicians fiscal bureaucrats and capital and labor in sectors exposed to international competition allied to transform the largest single nontradables sector in their society the state particularly the welfare state they exposed state personnel and agencies to market pressures and competition to reduce the cost of welfare and other state services the impetus for change came from rising foreign public and private debt rising public debt levels and expensive welfare states interacted to create a tax wedge between employers wage costs and workers received wages this undercut international competitiveness worsening current account deficits and leading to more foreign debt accumulation two factors explain variation in the degree of reorganization in each country differences in their electoral and constitutional regimes and the willingness of left parties to risk splitting their core constituencies introduction of market pressures is an effort to go beyond the liberalization of the economy common in industrial countries during the 1980s and both to institutionalize limits to welfare spending and to change the nature of statesociety relations away from corporatist forms of interest intermediation in short not just less state but a different state

the determinants of minimum wage rates this paper attempts to test the degree of responsiveness of canadian provincial governments to different political groups in establishing their relative minimum wage policies over the 1975 1982 period it discusses alternative explanations of minimum wage policies and focuses on the political market approach where women youth small business and unions play a role an econometric model is specified and estimated on pooled annual time series and cross section data for nine provinces in canada the results tend to support most of the hypotheses

the limitations of structural theories of commercial policy if a structural theory is one that purports to explain behavior in terms of environmental conditions and that largely eschews analysis of the internal processes of decision makers then it is difficult to identify a theory of commercial policy which is not structural most microeconomic theory is structural so are most balance of power theories in the realm of theories of commercial policy hegemonic stability theories as well as some recently developed theories of international tariff levels fit this description in the latter category judith goldstein s work which attempts to account for american commercial policy in terms of the ideology of american central decision makers and charles kindleberger s ambitious sketch of a general theory of 19th century tariff changes in terms of the diffusion of liberal ideology constitute lonely examples of nonstructural research strategies

pricing foreign currency options under stochastic interest rates abstract in this paper we build a general framework to price contingent claims on foreign currencies using the heath et al 1987 model of the term structure closed form solutions are obtained for european options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic as such this paper provides an example of a bond price process for both the domestic and foreign economies consistent with grabbe s 1983 formulation of the same problem

unemployment collective bargaining and the demand for protection there is a widespread consensus among nonacademic observers that labor unions with large numbers of unemployed members have been central actors in political coalitions demanding protectionist trade policies since the mid 1970s in advanced industrial societies yet trade unions and unemployment are hardly mentioned in most theories of the politics of international trade the purpose of this paper is to develop a theoretical framework for understanding the importance of unemployment as a determinant of protectionist demands that is consistent with optimizing behavior on the part of union members and firms models of labor negotiations derived from cooperative bargaining theory are used to illustrate why the material benefits of protection received by union members and their employers in protected industries increase when union members are unemployed even when workers are risk neutral and capital is immobile

the march of an economic idea protectionism isn t counter cyclic anymore conventional wisdom holds that protectionism is counter cyclic tariffs quotas and the like grow during recessions while that may have been a valid description of the data before the first world war it is now inaccurate since the second world war protectionism has not been counter cyclic tariffs and non tariff barriers simply do not rise systematically during downturns i document this new stylised fact with a panel of data covering over 180 countries and 40 years using over a dozen measures of protectionism and six of business cycles i test and reject a number of potential reasons why protectionism is no longer counter cyclic a diagnosis of exclusion leads me to believe that modern economics may well be responsible for the decline in protectionism s cyclic behaviour economists are more united in their disdain for protectionism than virtually any other concept this in turn leaves one optimistic that the level of protectionism will continue to decline along with its cyclicality andrew k rose

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

performance in a hostile world economic growth in capitalist democracies 1974 1982 many recent studies argue that labor organization and government partisanship were important determinants of the economic performance of the advanced industrial democracies during stagflation they do not however take into account the potential impact on performance of position in the international economy the relationships reported may therefore be largely spurious even when the strong effects of international position most notably the extent of dependence on imported sources of oil were controlled for domestic political structures remained powerful determinants of economic performance during stagflation corporatist political economies dominated by leftist governments in which labor movements were densely and centrally organized and market political economies in which labor was much weaker and rightist governments were predominant performed significantly better than the less coherent cases in which the power of labor was distributed asymmetrically between politics and the market

toward a business cycle model of tariffs a modified interest group model links movements in tariffs to changes in the level of economic activity within nations this model is introduced and tested for tariff behavior in the 19th and early 20th centuries in three nations the united states great britain and germany empirical analysis lends strong support to the model s central thesis that tariffs are sensitive to movements within a business cycle tariff changes occurring in the three nations with the exception of british tariff increases generally conform to the expectations of the model furthermore business cycle sensitivity provides an explanation of the behavior of tariffs superior to two prominent alternatives those based on ideology and on hegemonic stability

multi actor governance of sustainable biofuels in developing countries the case of mozambique this paper describes and analyses the multi actor governance process that made mozambique the first african nation state to develop a national policy framework for sustainable biofuels the paper draws on findings from action research conducted in mozambique between december 2008 and july 2012 we analyse interactions between the changing governance context the course of the multi actor governance process and the choices in relation to governance framework characteristics and content for four successive stages of governance framework development this provides the basis for reflection on the competences required for effective multi actor sustainability governance and a discussion about the role of the nation state in sustainability governance of global economies such as biofuels the governance framework for sustainable biofuels has contributed to a more transparent and secure investment climate for biofuels in mozambique key factors for success were 1 the presence of different types of competences during the various stages of the governance framework development 2 closing the gap between licences to sell and licences to produce across different governance levels and 3 balancing between the short and long term objectives for biofuel production in mozambique and requirements of global biofuel markets developing country nation states can provide an essential contribution to these success factors for global governance of sustainable biofuels

veto points veto players and international trade policy much of the literature on foreign economic policy focuses on the preferences of societal groups to explain policy decisions here however the author emphasizes the effects of domestic political i

affine model of inflation indexed derivatives and inflation risk premium abstract this paper proposes an affine based approach which jointly captures the nominal interest rate the real interest rate and the inflation risk premium to price inflation indexed derivatives including zero coupon inflation indexed swaps year on year inflation indexed swaps inflation indexed swaptions and inflation indexed caps and floors we provide an example and explain how to use traded zero coupon inflation indexed swap rates to estimate inflation risk premiums

inflation indexed swaps and swaptions this article considers the pricing and hedging of inflation indexed swaps and the pricing of inflation indexed swaptions and options on inflation indexed bonds to price the inflation indexed swaps we suggest an extended hjm model the model allows both the forward rates and the consumer price index to be driven not only by a standard multidimensional wiener process but also by a general marked point process our model is an extension of the hjm approach proposed by jarrow and yildirim jarrow r yildirim y 2003 pricing treasury inflation protected securities and related derivatives using an hjm model journal of financial and quantitative analysis 38 409 430 and later also used by mercurio mercurio f 2005 pricing inflation indexed derivatives quantitative finance 5 3 289 302 to price inflation indexed swaps furthermore we price options on so called tips bonds assuming the model is purely wiener driven we then introduce an inflation swap market model to price inflation indexed swaptions all prices derived have explicit closed form solutions furthermore we formally prove the validity of the so called foreign currency analogy

biofuel developments in mozambique update and analysis of policy potential and reality abstract climate change rising oil prices and concerns about future energy supplies have contributed to a growing interest in using biomass for energy purposes several studies have highlighted the biophysical potential of biofuel production on the african continent and analysts see mozambique as one of the most promising african countries favorable growing conditions and the availability of land water and labor are mentioned as major drivers behind this potential moreover the potential of biofuel production to generate socio economic benefits is reflected in the government s policy objectives for the development of the sector such as reducing fuel import dependency and creating rural employment this article provides an overview of biofuel developments in mozambique and explores to what extent reality matches the suggested potential in the country we conclude that biofuel developments mainly take place in areas near good infrastructure processing and storage facilities where there is skilled labor available and access to services and goods moreover our analysis shows the need to timely harmonize current trends in biofuel developments with the government s policy objectives as the majority of existing and planned projects are not focusing on remote rural areas and in absence of domestic markets principally target external markets

closed form solutions for term structure derivatives with log normal interest rates we derive a unified model that gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero coupon bonds the crucial assumption is that simple interest rates over a fixed finite period that matches the contract which we want to price are log normally distributed moreover this assumption is shown to be consistent with the heath jarrow morton model for a specific choice of volatility closed form solutions for interest rate derivatives in particular caps floors and bond options have been obtained by a number of authors for markovian term structure models with normally distributed interest rates or alternatively log normally distributed bond prices see for example jamshidian 1989 1991a heath jarrow and morton 1992 brace and musiela 1994 geman el karoui and rochet 1995 these models support black scholes type formulas most frequently used by practitioners for pricing bond options and swaptions unfortunately these models imply negative interest rates with positive probabilities and hence they are not arbitrage free in an economy with opportunities for riskless and costless storage of money briys crouhy and schobel 1991 apply the gaussian framework to derive closed form solutions for caps floors and european zero coupon bond options to exclude the influence of negative forward rates on the pricing of zero coupon bond options they introduce an additional boundary condition as shown by rady and sandmann 1994 these pricing formulas are only supported by a term structure model with an absorbing boundary for the forward rate at zero where the absorbing probability is not negligible which for a term structure model is a quite problematic assumption

bond yields and the federal reserve bond yields respond to policy decisions by the federal reserve and vice versa to learn about these responses i model a high frequency policy rule based on yield curve information and an arbitrage free bond market in continuous time the fed s target is a pure jump process jump intensities depend on the state of the economy and the meeting calendar of the federal open market committee the model has closed form solutions for yields as functions of a few state variables introducing monetary policy helps to match the whole yield curve because the target is an observable state variable that pins down its short end and introduces important seasonalities around fomc meetings the volatility of yields is snake shaped which the model explains with policy inertia the policy rule crucially depends on the two year yield and describes fed policy better than taylor rules

european union leadership in biofuels regulation europe as a normative power the rapid emergence of the european union eu as a leader in global environmental politics has led many scholars to argue in favour of the eu being a normative power in international relations this paper critically examines the eu s biofuels policy and evaluates whether its attempts to lead by example and shape international practice in this field could support such arguments europe s biofuel policies are evaluated through a sustainable development lens so as to determine the extent to which it has embraced a holistic approach to sustainability while not dismissing that the identity of the eu is indeed an explanatory factor and that normative intentions may well be regarded as a motivating force this study argues that an interest based perspective on international environmental regulation offers a supplementary view of how an actor s preferences for an international regime are shaped by erecting barriers aimed at shielding its own inefficient domestic biofuels production the eu is in essence placing trade competitiveness and economic growth above environmental protection thus permitting sustainability concerns to be addressed only in part

issues of social acceptance on biofuel development alongside with biofuel development social acceptance issues have been underestimated while social acceptance can emerge as powerful barrier for biofuel development this article provides discussion on social acceptance in biofuel context an acceptance framework based on life cycle biofuel production had been referred for a better understanding on social acceptance issues malaysia has been referred for the discussion as the country has faced with acceptance issue in their biofuel program the discussion point out different societal groups will demand specific consideration for either support or oppose biofuel this paper concludes that biofuel development will be constraint if social acceptance issues remain neglect

taxation and the political economy of the tariff traditional accounts of u s tariff policy emphasize trade strategies and interest group politics this article makes a departure it opens with an observation up until world war i the tariff was the largest single source of federal government revenues it then explores the significance of tariffs as taxes theoretically and empirically in its first part the article develops a theory of taxation politics and applies it to the tariff in its second part it submits the theory to an empirical test modeling changes in u s tariff rates from 1829 to 1940 the politics of tariff revision it argues followed from two characteristics of the tariff as tax from the extent of the treasury s dependence upon it and from the distributive pattern of its burdens and benefits taken together the article concludes revenue dependence and distributive incidence account for several diverse aspects of american tariff policy including the structure of its coalitions the shifts in its objectives and the timing of its innovations

the dynamics of negotiated protectionism r ecent protectionism by the united states has principally taken the form of negotiated barriers to trade such as voluntary export restraints these barriers tend to evolve over time and to display three patterns which we label institutionalized temporary and sporadic protectionism cartel theory and studies of the politics of protection suggest that the dynamics of negotiated protectionism will depend on three variables the barriers to entry into an industry the size of the domestic industry and the exit barriers for domestic firms low barriers to entry will lead to institutionalized protectionism when the domestic industry is large and exit difficult temporary protectionism results when the domestic industry is small and exit easy and sporadic protectionism is likely when barriers to entry are high brief studies of u s protectionism in textiles and apparel steel footwear televisions and automobiles illustrate the value of this framework t rade protectionism has often been thought of as a unilateral act by a sovereign state yet much protectionism during the 1970s and 1980s has been negotiated rather than unilaterally imposed voluntary export restraints vers and similar arrangements have become the preferred means by which the united states has sought to cartelize industrial sectors threatened by imports such negotiated protectionism has been particularly evident in five industries in the united states during part or all of the last quarter century in textiles and apparel steel footwear television sets and autos the united states has negotiated trade restrictions with numerous foreign exporters while the u s government has occasionally provided unilateral measures of protection for small industries all u s administrations since world war ii have been reluctant to countenance general schemes of protection for major industries yet beginning with the eisenhower administration s negotiations in textiles in 1956 virtually every u s president has actively sought vers for economically and politically sensitive industrial sectors

between free trade and protectionism strategic trade policy and a theory of corporate trade demands conventional theories of the political economy of trade argue that industries in import competing businesses favor protectionism while multinational firms and export dependent corporations advocate unconditional free trade however many multinational industries have recently advocated strategic trade policies that is they are willing to support free trade at home only if foreign markets are opened or foreign governments reduce subsidies to their firms if demands for strategic trade policy were adopted by the united states they could represent a threat to the general agreement on tariffs and trade gatt and the multilateral trading system this article seeks to explain the emergence of these new corporate trade demands and thereby broaden theories of the political economy of trade the article begins with the widely supported position that multinational and export oriented firms prefer unconditional free trade building on concepts from theories of industrial organization and international trade the article then hypothesizes that rising economies of scale and steep learning curves will necessitate that these firms have access to global markets via exports if growing dependence on world markets is combined with foreign government subsidies or protection the trade preferences of firms will shift from unconditional free trade to demands that openness at home be contingent on openness overseas the manner in which firm demands then get translated into industry demands will vary with the industry s structure if the industry consists of firms with symmetric strategies it will seek strategic trade policy but if the industry is highly segmented it will turn toward protectionism the article concludes with a preliminary test of these hypotheses in four brief studies of the politics of trade in the semiconductor commercial aircraft telecommunications equipment and machine tool industries

pricing interest rate derivatives a general approach the relationship between affine stochastic processes and bond pricing equations in exponential term structure models has been well established we connect this result to the pricing of interest rate derivatives if the term structure model is exponential affine then there is a linkage between the bond pricing solution and the prices of many widely traded interest rate derivative securities our results apply to m factor processes with n diffusions and l jump processes the pricing solutions require at most a single numerical integral making the model easy to implement we discuss many options that yield solutions using the methods of the article

politics at the water s edge parties voters and the use of force abroad this article examines the effects of party politics and presidential election cycles on u s recourse to force abroad i analyze a game theoretic model to generate predictions about these effects in the unique time consistent equilibrium outcome of the one shot game policy varies across political parties in a subgame perfect equilibrium outcome of the repeated game the use of force is invariant to the partisan composition of government in neither case does policy respond to the electoral cycle an empirical analysis supports the predictions of the repeated game between 1870 and 1992 u s recourse to force abroad responds neither to partisan politics nor to the domestic political calendar it responds only to changes in u s power status and to the advent of general wars

market solutions for state problems the international and domestic politics of american oil decontrol the dramatic upheaval in oil prices in the 1970s posed difficult policy dilemmas for the united states like other industrial importing nations the united states was forced to make decisions concerning how to adjust its economy and society to the new and troubling international energy reality from the nixon to the carter administrations government officials attempted to implement policies of energy adjustment these efforts began with ill fated international schemes to form a consumer cartel of industrial nations and ended with the decision in 1979 to decontrol oil prices

the statistical and economic role of jumps in continuous time interest rate models this paper analyzes the role of jumps in continuous time short rate models i first develop a test to detect jump induced misspecification and using treasury bill rates find evidence for the presence of jumps second i specify and estimate a nonparametric jump diffusion model results indicate that jumps play an important statistical role estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps finally i investigate the pricing implications of jumps jumps generally have a minor impact on yields but they are important for pricing interest rate options