harvests and business cycles in nineteenth century america most major american industrial business cycles from around 1880 to the first world war were caused by fluctuations in the size of the cotton harvest due to economically exogenous factors such as weather wheat and corn harvests did not affect industrial production nor did the cotton harvest before the late 1870s the unique effect of the cotton harvest in this period can be explained as an essentially monetary phenomenon the result of interactions between harvests international gold flows and high powered money demand under america s goldstandard regime of 1879 1914

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

implicit delivery options and optimal delivery strategies for financial futures contracts abstract futures contract specification usually allow the short position some variation as to when where how much and what is to be delivered in this paper we derive the optimal delivery policy for the treasury bond futures contracts and find that our policy produces profits that are positive and statistically significant this indicates that future prices are too high in that the short position can earn profits by skillfully exercising his delivery options we find the actual delivery policies of market participants depart substantially from the optimal strategy the implications of these findings for futures traders and bond dealers are discussed

taxation and political business cycles in eu economies this paper examines whether incumbent national governments of 11 member states of the european union manipulated the tax policy instruments at their disposal in order to create national political business cycles opportunistic or partisan the empirical evidence based on data concerning the 1965 to 1997 period does not support this hypothesis rather it appears that governments have pursued stabilization policies

deflation and depression is there an empirical link are deflation and depression empirically linked no concludes a broad historical study of inflation and real output growth rates deflation and depression do seem to have been linked during the 1930s but in the rest of the data for 17 countries and more than 100 years there is virtually no evidence of such a link

valuation and optimal exercise of the wild card option in the treasury bond futures market the chicago board of trade treasury bond futures contract allows the short position several delivery options as to when and with which bond the contract will be settled the timing option allows the short position to choose any business day in the delivery month to make delivery in addition the contract settlement price is locked in at 2 00 p m when the futures market closes despite the facts that the short position need not declare an intent to settle the contract until 8 00 p m and that trading in treasury bonds can occur all day in dealer markets if bond prices change significantly between 2 00 and 8 00 p m the short has the option of settling the contract at a favorable 2 00 p m price this phenomenon which recurs on every trading day of the delivery month creates a sequence of 6 hour put options for the short position which has been dubbed the wild card option this paper presents a valuation model for the wild card option and computes estimates of the value of that option as well as rules for its optimal exercise the treasury bond futures contract on the chicago board of trade gives several delivery options to the short position the quality option which allows the short to deliver any of several eligible delivery bonds has already been studied fairly extensively because many bonds are eligible to be delivered against the futures contract and the conversion factors used to adjust for the bond actually delivered do not perfectly reflect relative price differences the short side trader will choose to deliver the cheapest eligible bond kilcollin 71 presents a discussion and analysis of conversion factors and their effects on the optimal delivery bond gay and manaster 4 present a theoretical valuation model for the quality option when two classes of commodities with uncertain end of period spot prices may be delivered garbade and silber 3 provide a similar analysis and estimate parameters of the valuation formula for a variety of agricultural commodity futures kane and marcus 6 have used monte carlo simulations to value the quality option in the treasury bond futures market in contrast the various timing options embedded in the delivery process have received comparatively little attention one of the most important of these is the so called wild card option the wild card option arises because the futures market closes each trading day at 2 p m central standard time which locks in the futures settlement price for the rest of the day while the short trader has until 8 p m of each trading day in the delivery month to declare an intent to deliver

capital formation in japan introduction this chapter analyses the relationship between the input of capital and economic growth in japan during the past century the assigned task of exploring the role of investment in japan necessarily imposes a certain sectoral as well as temporal emphasis only relatively little attention will have to be devoted to agriculture since this sector never became an important recipient of either public or private capital in japan at least an understanding of the advances created by a rising level of investment deals largely with the growth of modern nonagricultural industry this also means that unlike taira and yamamura we must concentrate especially on the history of the twentieth century when factories machines and new social overhead implements reached sizeable dimensions for the first time of course no attempt will be made to slight the crucial transitional years of the meiji era or even the preceding years of tokugawa rule but one should always keep at the forefront the sharp distinction between the hesitant beginnings of economic modernization in the late nineteenth century and its full flowering during the past sixty odd years one further limiting item should be mentioned at the outset we are concerned with the input of capital i e with the investment rather than the saving side of the equation how the necessary funds were raised by individuals banks the state or foreigners will be treated only as a side issue but to a considerable extent this matter has been studied by other authors

measuring business cycles a modern perspective in the first half of this century special attention was given to two features of the business cycle 1 the comovement of many individual economic series and 2 the different behavior of the economy during expansions and contractions both of these attributes were ignored in many subsequent business cycle models which were often linear representations of a single macroeconomic aggregate however recent theoretical and empirical research has revived interest in each attribute separately notably dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables and nonlinear models have been used to describe the regime switching nature of aggregate output we survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business cycle dynamics

international business cycles in theory and in practice this paper investigates whether multi country international business models can account for international comovements in the oecd there are substantial positive comovements between many output components between levels of employment and between total factor productivities the standard international business cycle model is not consistent with these comovements except for consumption levels the model implies either negative or very low comovements this is a robust feature of the theoretical models independently of specific parameter values one interesting finding is that a more general specification of the technology shock processes lead to substantial comovements but at the cost of another deficiency

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

core and periphery in the european monetary union bayoumi and eichengreen 25 years later bayoumi and eichengreen 1993 establish a emu core periphery pattern using 1963 1988 data we use same methodology sample window length 1989 2015 and a novel over identifying restriction test to ask whether the emu strengthened or weakened the core periphery pattern our results suggest the latter

choosing the open sea the cost to the uk of staying out of the euro abstract in this paper we provide an estimate of the trade flows that there would have been between the uk and its main trading partners if the uk had joined the euro as an alternative approach to the standard log linear gravity equation we employ the synthetic control method we show that the aggregate trade flows between britain and eurozone members would have been 16 higher if the uk had adopted the euro we also provide an estimate of the hypothetical euro s effect on trade flows between the uk and non euro countries our results suggest that the adoption of the european currency would also have led to a substantial increase in british trade flows with non euro members finally we provide a new estimate of the euro s trade impact for euro members our results suggest that the adoption of the single currency led to an increase in intra european trade flows of between 19 and 55

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

a comparison of futures and forward prices abstract this paper uses the pricing models of cox ingersoll and ross 1981 richard and sundaresan 1981 and french 1982 to examine the relation between futures and forward prices for copper and silver there are significant differences between these prices the average differences are generally consistent with the predictions of the futures and forward price models however these models are not helpful in describing intra sample variations in the futures forward price differences this failure is apparently caused by measurement errors in both the price differences and in the explanatory variables

delivery uncertainty and the efficiency of futures markets this paper examines the effects of the delivery basis risk embedded in nearly all futures contracts on efficiency tests of these markets examining soybean futures contracts we show that delivery basis risk has important implications for market efficiency tests as suming no delivery basis risk the market efficiency hypothesis is rejected however fu tures prices contain signiflcant time varying expected delivery basis and time varying ex pected delivery risk premiums once these expected delivery basis and delivery risk premiums are accounted for the apparent inefficiency is eliminated equilibrium spot prices also contain signiflcant time varying expected delivery risk premiums

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

futures market efficiency in the soybean complex 13 1 rev division of agricultural sciences university of ifornla working paper no 139 r i j futures market efficiency in the soybean complex gordon c rausser and colin carter giannini foundation of agricultural economics l ibraili v im california agric u l tural elqieriment station giannini foundation of agricultural economics march 1982

external factors in emerging market recoveries an empirical investigation abstract we estimate conditional duration models to analyse recovery processes in emerging market economies our reduced form specification is parsimonious as we focus on exogenous factors such as the effect of growth in the us eu and japan on the prospects for recovery in emerging market economies experiencing recessions the model confirms the importance of external factors in recovery processes however the short run effect of japanese growth on recovery prospects is unconventional weak economic conditions in japan turn out to facilitate recoveries

the quality delivery option in treasury bond futures contracts this paper uses three methods to estimate quality option values for cbot treasury bond futures contracts it presents evidence regarding 1 payoffs from exercising this option at delivery 2 estimates from a t bond futures pricing model that incorporates this option and 3 estimates obtained from an exchange option pricing formula the results indicate that this option is worth considerably less than reported by kane and marcus 1986a for example payoffs obtained by switching from the bond cheapest to deliver three months prior to delivery to the one cheapest at time of delivery average less than 0 30 percentage points of par

historical energy price shocks and their changing effects on the economy abstract the purpose of this paper is to identify the changes in the impact of energy shocks on economic activity with an interest in assessing if an economy s vulnerability and resilience to shocks improved with economic development using data on the united kingdom over the last three hundred years the paper identifies supply aggregate demand and residual shocks to energy prices and estimates their changing influence on energy prices and gdp the results suggest that the impacts of supply shocks rose with its increasing dependence on coal and declined with its partial transition to oil however the transition from exporting coal to importing oil increased the negative impacts of demand shocks more generally the results indicate that improvements in vulnerability and resilience to shocks did not progress systematically as the economy developed instead the changes in impacts depended greatly on the circumstances related to the demand for and supply of energy sources if these experiences are transferable to future markets a transition to a diversified mix of renewable energy is likely to reduce vulnerability and increase resilience to energy price shocks

asymmetric effects of money supply shocks and trend inflation in recent years a number of empirical studies have presented evidence that money supply shocks have asymmetric effects that is unexpected negative changes in the money supply slow the economy more than unexpected positive changes accelerate the economy evidence of asymmetry was documented by cover 1992 for the postwar u s economy and his finding was confirmed by de long and summers 1988 morgan 1993 rhee and rich 1995 and karras 1996a b stimulated by these empirical works several attempts have been made to provide microeconomic foundations for the asymmetric effects of money supply shocks 1 among those theories this paper examines the one that focuses on asymmetric price adjustment and let us call it a sticky price theory money supply shocks will have asymmetric effects on real output if prices are less flexible downward than upward this sticky price theory was proposed by tsiddon 1993 ball and mankiw 1994 and caballero and engel 1992 by employing a menu cost model the above researchers show that positive trend inflation can produce the asymmetric effects of money supply shocks the logic of their theory is the following along with price adjustment costs positive trend infla

common and country specific fluctuations in productivity investment and the current account abstract dynamic factor analysis and kalman filtering are used to construct a measure of common economic activity for the g7 countries we find that the common fluctuations are strongly associated with movements in us investment common fluctuations have substantial impact on fluctuations in both productivity and investment in these countries but very little impact on the current account country specific investment fluctuations have a significant negative impact on the current account while country specific productivity movements have little independent effect these findings are shown to be generally consistent with the predictions of a multi country dynamic model calibrated to the empirical decomposition of productivity shocks

comparisons of business cycles in the ec idiosyncracies and regularities annual data since 1960 and the real business cycle model as a guidance the evidence suggests that there are remarkable similarities between the business cycle pattern of these countries despite significant differences in the patterns of fiscal and monetary policies and the terms of trade we take this evidence to suggest that the type of shocks and the propagation mechanism is fairly similar across the ec countries hence the process of european integration under a set of uniform institutions and policies should not be a problem as far as the business cycle is concerned

gdp growth and currency valuation the case of the dollar abstract one popular view on the strength of the us dollar around the turn of the century is that the higher growth in the us compared to europe had stimulated foreigners to buy american assets thereby driving up the exchange rate in this paper a modified portfolio balance model is presented in which it is shown that the impact of output growth on the exchange rate depends crucially on the origin of this growth an improvement of the output gap is shown to actually depress the exchange rate whereas an increase in potential output growth leads to an appreciation especially if this improvement is likely to be persistent in an empirical example it is shown that the equilibrium real dollar rate is indeed positively affected by high trend growth in the us whereas it is negatively affected by a positive output gap the model outperforms the random walk in forecasting future real dollar rates one to eight quarters ahead

intra day tests of the efficiency of the treasury bill futures market in this paper we use intra day prices to examine the efficiency of the treasury bill futures market the use of intra day data allows us to carefully match in time trades in the futures and cash markets by matching trades and allowing delays between observing apparent inefficiencies and the trade we are examining realistic trading strategies we find profitable arbitrage swaps and a preferred strategy for initial purchase these profits do not depend on an assumption of an equilibrium model hence these tests are direct tests of efficiency rather than a joint test of efficiency and equilibrium t his paper examines the efficiency of the treasury bill futures market this subject has been examined before by capozza and cornell 1979 cornell 1981 lang and rasche 1978 rendleman and carabini 1979 vignola and dale 1979 poole 1978 and puglisi 1978 there are a number of reasons why this paper makes an important contribution to the literature the first reason is that by using trade by trade futures prices we can make more realistic assumptions about the pnces at which trades could have taken place this paper uses intra day prices to examine efficiency prior studies at best used closing prices to examine apparent inefficiencies and assumed that transactions took place at these closing prices there are two problems with this procedure first simultaneous transactions cannot actually occur at closing prices there is almost an hour difference between the closing of the chicago futures and new york spot markets thus when the closing spot market price is observed the futures market has been closed for about an hour closing prices could be used to judge apparent discrepancies however it would be necessary to execute trades at the open making decisions based on closing prices and then assuming trades can take place at these prices is an approximation which could significantly affect results in addition using only closing prices ignores any intra day trades which could lead to profits in this study we match in time intra day prices in the spot and futures market these matched prices are used to identify apparently profitable trading rules we then assume trades take place at prices which are observed later in the day this is a test of a trading rule which an investor could actually follow as we discuss later in the paper our results differ from prior studies these differences are primarily due to using intra day prices and carefully matching times so that information used to initiate trades would actually be available to the investor at the time of the trade the second reason is that we examine more complex trading strategies than those which have been employed in other studies the random walk literature provides a useful analogy the original random walk studies simply correlated past and future prices or returns later studies examined filter rules and other more complicated trading rules in this study we employ alternative trading rules of increased complexity to test for the existence of trading profits finally we explicitly examine the consequence of t bills futures contracts being futures rather than forward contracts futures contracts unlike forward contracts involve flows every settlement day the intermediate cash flows on futures contracts can affect the profitability of any strategy the only prior study that even considered this effect is the one by rendleman and carabini 1979 they used the theoretical model of cox ingersoll and ross 1981 to try to estimate whether the difference between forward and futures prices was likely to be large enough to affect the payoff from alternative trading strategies this is a useful first attempt however ultimately the effect of daily settlement or marking to the market has to be examined directly as part of trading strategies to see if it affects the outcome of these strategies there are other problems with prior studies these involve gross estimates of prices and averaging data in a way that can mask inefficiencies since these problems are discussed in some detail in rendleman and carabini there is no reason to review them further here probably no area in finance has received more attention than the efficiency literature the reader may well wonder why even given the approximareceived for publication august 23 1982 revision accepted for publication may 20 1983 new york university new york university and baruch college respectively the authors would like to thank the center for the study of futures markets at columbia business school for financial support

methodological and empirical issues in real business cycle theory abstract in this paper we argue that the major impact of the rbc literature has been to propose a new methodology for macroeconomics this methodology is distinguished first by the importance it attributes to the empirical description of the phenomena to be explained and second by the use of this description in conjunction with quantitative theorizing i e the construction of computable general equilibrium models whose characteristic statistics match those of the data in accordance with this approach we first report on the current state of knowledge concerning business cycle regularities and conclude that additional empirical effort is called for in order to arrive at the appropriate basis for theorizing we then examine the performance of existing models and evaluate the case for integrating monetary factors and demand shocks into them lastly we review the recent efforts to explain the employment variability puzzle and argue that the search for a solution naturally leads to the incorporation of significant non walrasian features into the rbc framework

government activities and tests of the long run implications of the neoclassical growth model for canada this paper shows that the conclusions of time series analyses of the long run properties of the one factor neoclassical stochastic growth model under uncertainty are robust with regard to alternative ways of handling government expenditures in particular when annual canadian data from 1946 to 1993 are used the hypothesis that the log ratios of consumption to output and investment to output are stationary is rejected even when government expenditures are treated as perfect substitutes for private ones and aggregated with the corresponding private variables

asset correlations in single factor credit risk models an empirical investigation abstractthe internal ratings based irb approach based on a single risk factor model was designed by the basel committee on banking supervision bcbs to determine banks regulatory credit risk capital key inputs of the model asset correlations are prescribed by the regulator relevant banks must use them for capital determination to ascertain whether these correlations are too onerous or too lenient empirical asset correlations embedded in loss data spanning different loss milieu were backed out of the regulatory model static and rolling correlations over a period of time were compared with the prescribed correlations for developed and developing economies and found to be significantly more conservative

on the econometric testing of rationality market efficiency procedures for testing the rational expectations hypothesis deserve careful study because rationality of expectations has such important implications for macroeconomic modeling and policy analysis rationality of expectations generally imposes cross equation restrictions 2 in this paper we discuss the implementation and analyze the econometric properties of a particular test of such restrictions this test has been used in recent empirical studies of bond market behavior 3 since the test focuses on the distinction between anticipated and unanticipated movements in variables as in barro 1977 1978 it is applicable to many macroeconomic issues indeed the results of this paper are useful in further work abel and mishkin 1983 that clarifies the relations among tests of 1 rationality and market efficiency 2 the short run neutrality of anticipated policy and 3 granger 1969 causality in macroeconometric models two important questions about the test of cross equation restrictions arise naturally first under what conditions will the test lead to correct inference about the rationality of expectations second what is the relation of this cross equation test to the more common singleequation test of market efficiency frequently used in the literature the answers to these questions are provided by the theorem in section ii which states the asymptotic equivalence of the cross equation test with the more common test of market efficiency also in section ii we discuss identification and demonstrate that we can test for rationality of expectations even if some parameters are not identified finally we present an empirical example in section iii and concluding remarks in section iv

policy uncertainty and international financial markets the case of brexit this study assesses the impact of the brexit probability on both the uk and on international financial markets for the first and the second statistical moments as financial markets are by nature

speculative price economic welfare and the idiot of chance p aul cootner stimulated significant research on the subject of speculative markets in both commodities and equities his papers 1960 1964 1967 were original and provocative one paper began with the statement the subject matter of this paper is bound to be considered heresy i can say that without equivocation because whatever views anyone expresses on this subject are sure to conflict with someone else s deeply held beliefs 1964 p 231 most of the papers concerned with the operation of futures markets in commodities test the efficiency of the market by examining the stochastic nature of futures prices which samuelson refers to as the idiot of chance in particular it is asked whether the price of a futures contract is a martingale cootner s contention which runs counter to the tide of academic writings is that speculative prices are not random walks but are constrained by economically determined barriers 1964 ch 11 the present paper is in the spirit of cootner s thinking about the economic and welfare implications of speculative markets my main conclusions are as follows 1 the optimality of resource allocation defined as the sum of consumer and producer surplus depends upon the accuracy of the forward price at the time production decisions are made as a forecast of the subsequent spot price when consumption occurs the existence or nonexistence of the martingale property of futures prices between these two dates is irrelevant for welfare purposes 2 social loss is a multiple of the square of the forecast error between the forward price and the subsequent spot price expected social loss is irreducible when the forward price is equal to the mathematical expectation of the subsequent spot price 3 the longer the period between the production decisions and the subsequent consumption decisions the greater the bias between the forward price and subsequent spot price 4 it has been claimed that in an efficient market the spot price at time t should just depend upon the price at t 1 and not upon earlier prices it is proved that this situation is neither a necessary nor a sufficient condition for rational expectations 5 therefore there is a tenuous connection between the stochastic nature of speculative price and measures of economic welfare but there is a direct connection between the forecast errors and economic welfare

do government purchases affect unemployment we estimate the effect of government purchases on unemployment in 20 oecd countries for the period 1980 2007 an increase in government purchases equal to one percent of gdp is found to reduce unemployment by about 0 3 percentage points in the same year the effect is greater and more persistent under less employment friendly labour market institutions and greater and more persistent under a fixed exchange rate regime than under a floating regime the effect is also greater in downturns than in booms the effect on unemployment reflects a corresponding positive effect of increased government purchases on the employment to population rate this article is protected by copyright all rights reserved

optimal hedging in futures markets with multiple delivery specifications nearly all futures contracts allow delivery of any of several qualities of the underlying asset consequently the price of the futures contract is associated more with the price of the expected cheapest deliverable variety than with the price of the par delivery variety the delivery specifications introduce a delivery risk for every hedger in the market we derive the optimal hedging strategies in these markets their hedging effectiveness is evaluated for wheat futures contracts in chicago hedging optimally would have significantly reduced the variance of the rates of return on hedges while yielding similar mean returns nearly all futures contracts on commodities and financial assets allow the seller to deliver any of several qualities of the underlying asset the contracts specify discounts or premiums for delivering a nonpar quality but the realized price differences can be significantly different consequently the futures price on a delivery date converges to the spot price of the quality that is cheapest to deliver rather than the spot price of the par delivery quality since it is uncertain which quality will be the cheapest to deliver this introduces a delivery risk for every hedger in the market gay and manaster 9 and kane and marcus 13 find that hedgers in the treasury bond futures market have neither hedged nor exploited the delivery specifications in an optimal way 1 this paper addresses how to hedge optimally in futures markets with multiple delivery specifications 2 we derive the optimal hedging strategies and evaluate their hedging effectiveness futures markets are hedging markets working 20 they enable traders to hedge the risk of unexpected changes in the spot price of their asset the hedging effectiveness of futures markets is therefore an important issue earlier studies include ederington 3 figlewski 5 and koppenhaver 16 among others this study also differs from those studies in that we evaluate an ex ante hedging

difference systems in financial futures markets many financial futures markets allow substitutions for the par grade of security at delivery substitutes are deliverable at premiums or discounts differences in commodities parlance to the futures price the rule that establishes these differences is called a difference system this paper characterizes financial futures market equilibrium with yield based difference systems and investigates particular systems in use the major finding is that currently used difference systems effectively limit deliverable supply in the futures markets and lead to futures prices which understate the cash market price of the par security in order to increase deliverable supply many financial futures markets allow the delivery of a variety of grades issues of securities in fulfillment of a financial futures contract the par grade of security on which the futures contract is based is deliverable at the futures price various other grades of securities are deliverable at premiums or discounts to the futures price in commodities parlance these premiums and discounts are called differences and the rule that establishes the set of premiums and discounts is called a difference system see hoffman 2 chapter xv for an excellent discussion of difference systems in commodity futures contracts there are two types of difference systems currently in use in financial futures markets both are based on security yields the first is called variable rate or yield maintenance pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted by the yield of the par security selling at the futures price the second is called fixed rate or factor pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted at the yield of the par security selling at par this paper first characterizes financial futures market equilibrium with yieldbased difference systems and then investigates theoretically and empirically the particular characteristics of factor pricing and yield maintenance pricing the major finding is that currently used differences systems produce financial futures prices which systematically understate the spot market price of the par security vice president chicago mercantile exchange this research was conducted while the author was economist financial studies section board of governors of the federal reserve system the opinions in this paper are those of the author and do not necessarily reflect the opinions of the board

business cycles under monetary union a comparison of the eu and us reserve districts in the usa and the 15 countries that make up the eu the comparison is suggestive of what might be expected to emerge in the way of business cycle synchronization from a monetary union between the member states of the eu now simply non decimal denominations of the euro and the national central banks of the 11 are branches of the european system of central banks many prominent observers doubted that europe would ever reach this stage and many continue to believe that monetary union between such a large and dispar ate group of countries is fundamentally unsound a key element in the argu ments of many critics of emu is the degree of business cycle asynchronicity between the member states of the eu this paper contributes to the ongoing debate by documenting key differences and similarities between business cycles in the eu and business cycles in the 12 federal reserve districts in the united states the practice of looking to the us experience for insights into the problems and functioning of a monetary union has a long precedent in the literature on fixed exchange rates in general and in the literature on emu in particular for example in making an argument for fixed exchange rates rolnick and weber 1994 note that the usa can be viewed as having a system of fixed exchange rates between currencies issued by the 12 regional federal reserve banks they argue that the notes issued by the 12 banks are not strictly ident ical and that the difference between the notes creates the possibility that the united states could have a system of floating exchange rates among the 12 federal reserve districts 1 rolnick and weber go on to examine the features of the relationship among the 12 regional federal reserve banks that make a system of fixed exchange rates between them feasible in the process drawing lessons for how a monetary union among the countries of the eu might work the analysis in this paper complements earlier analyses in a number of ways the resurgence of interest in business cycle research over the past 20

adjustment costs in investment time preferences and the current account abstract this paper studies the effects of supply and demand shocks on the optimal investment and savings decisions of economic agents in a small open economy the two building blocks of the setup are adjustment costs in investment and a recursive time preference structure it is shown that the model can mimic certain stylized facts

the terms of trade the real exchange rate and economic fluctuations this paper examines the relationship between terms of trade and business cycles using a three sector intertemporal equilibrium model and a large multicountry database results show that terms of trade shocks account for nearly one half of actual gdp variability the model explains weak correlations between net exports and terms of trade the harberger laursen and metzler effect and produces large and weakly correlated deviations from purchasing power parity and real interest rate parity terms of trade shocks cause real appreciations and positive interest differentials although productivity shocks have opposite effects the puzzle that welfare gains of international asset trading are negligible is left unresolved copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

more international evidence on the historical properties of business cycles this paper establishes stylized facts about business cycles in the late 19th century using spectral analysis techniques which allow an intuitive description and analysis of cyclical structure in economic fluctuations analysis of industrial production data for 13 countries permits the following generalizations in the advanced north atlantic economies a fairly regular long cycle with a periodicity of 7 10 years is identified in all countries this component explains a substantial fraction of overall variation in industrial production there is some evidence of a less regular less powerful short cycle of 3 5 years duration in peripheral economies experience is varied but it is more often the short cycle that exercises greater influence the long cycle component is shown to be highly correlated among the core economies much less so between core and peripheral economies and least of all among peripheral economies the long cycle is more highly correlated among countries with important trading ties and those on a metallic monetary standard throughout the period

overhead cost and price behavior the role of market intransparency search and price randomization this paper investigates price setting when firms produce with increasing returns and customers are imperfectly informed about prices but can search a unique randomization equilibrium exists where each customer is offered a random price by each firm known to him if the number of firms is fixed then the expected price to be paid by a customer responds countercyclically to variations of demand per customer and remains invariant with respect to variations of the number of customers this price behavior corresponds well with new evidence on price behavior copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

endogenous monetary policy and the business cycle the correlations and volatilities of real variables seem to be stable over time but the relation between real and nominal variables is unstable presumably one important factor behind this observation is the nature of money supply in this paper i look at a business cycle model where the central bank sets money supply to minimize the volatility of in ation and output i nd that small changes in the central bank s preferences can generate large changes in the derived money supply rule and in correlations between real and nominal variables although wages are assumed to be sticky changes in the money supply rule do not generate any major changes in the behavior of real variables 2000 elsevier science b v all rights reserved jel classixcation e32 e52

life cycle economies and aggregate fluctuations do the implications for business cycle issues change when we switch from studying infinitely lived representative agent models to more sophisticated demographic structures with finitely lived agents this article addresses that question by using a large overlapping generations model that is calibrated to u s demographic properties microeconomic evidence and national income and product accounts the finding is that the answers obtained are basically the same for the two kinds of models the article also explores the relative volatility of hours across age groups an issue that cannot be addressed by using the infinitely lived representative agent abstraction

money inflation and output under fiat and commodity standards we examine the behavior of money inflation and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity using long term historical data for 15 countries we find that under fiat standards the growth rates of various monetary aggregates are more highly correlated with inflation and with each other than under commodity standards money growth inflation and output growth are also higher in contrast we do not find that money growth is more highly correlated with output growth under one standard than under the other

measuring the determinants of business cycle synchronization using a panel approach abstract this paper investigates the gdp synchronization determinants using a new index for panel data that captures time variability effects although most of our evidence is in line with previous studies the effect of financial openness differs from the standard findings

nominal inertia and shock persistence in uk business cycles a structural var methodology is used for uk data to identify and map out the effects of innovations in the money supply employment output wages and prices moreover bands of two standard errors are computed for the impulse response functions so that comment may be made on the significance of the dynamic responses of the variables to the simulated shocks this allows conclusions to be drawn on the persistence of shocks results suggest that output variation is largely determined by aggregate demand shocks over the business cycle frequency importantly evidence is also found of rigidities in the form of price inertia and nominal wage stickiness

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

the cyclical behaviour of prices g 7 versus non g7 countries the cyclical behaviour of prices and inflation is investigated for g 7 and seven non g7 countries for the postwar period the quarterly prices are shown to be clearly countercyclical in the g 7 countries while they are much less so in the non g7 countries inflation is shown to move procyclically and this is more clearly pronounced in the g 7 than non g7 countries this discrepancy in results may result from the demand management policies that these non g7 countries have adopted in the past and this cautions the students of business cycles to pay attention to the peculiarities of each economy when modelling the business cycle