the j curve effect and the u s agricultural trade balance according to the j curve theory following a currency depreciation there will be an initial deterioration of the trade balance before an improvement is realized this paper finds empirical evidence indicating the first segment of the j curve does exist for the u s agricultural trade balance a 10 depreciation of the u s dollar is estimated to lead a deterioration of the agricultural trade balance that will last for about nine months

sticky import prices and j curves we show that devaluations lead to a j curve when imported goods are durable and import prices adjust slowly to exchange rate changes the j curve effect is caused by intertemporal speculation as import prices are low relative to future prices immediately after a devaluation

quote inefficiency in options markets in an arbitrage free economy with non zero bid ask spreads the existence of payoffs whose price is lower than the price of a dominated payoff cannot be discarded in general however when the former price corresponds to trivial portfolios which involve buying or selling one unit of the basis assets its presence although not an arbitrage is a severe market anomaly which we refer to as an inefficient quote in an empirical study we report evidence that indicates that in options markets both the frequency and the magnitude of these anomalies are substantial and we document puzzling patterns in their behavior

trade costs and deviations from the law of one price the link between relative prices across countries and trade costs requires a theoretical foundation that is absent in the literature to date empirical tests on the law of one price are based on an arbitrage equation which is of very limited relevance in understanding this link the application of a new set of arbitrage equations to the tin trade market yields results that are consistent with our theoretical expectations we find evidence in favor of the law of one price between the united states and japan however evidence of price discrimination is also found for the los angeles market

the money supply and nominal agricultural prices in the early 1970s food and agricultural prices in the united states rose substantially faster than other prices now early in the 1980s farm prices are depressed relative to other prices in the economy numerous explanations of the behavior of nominal agricultural prices in the past decade have been offered these explanations may be broadly divided into two categories the first is the structuralist explanation it argues that real shocks in selected sectors of the economy such as global crop failures raise prices of certain goods these price increases are later validated or accommodated by expansions in the money supply so that the prices of other goods need not decline in contrast monetarist inflation explanations argue that autonomous increases in the money supply lead or cause the price increases and do not just occur ex post to accommodate real shocks ultimately both explanations recognize that without monetary expansion no long run inflation can occur the fundamental difference is

purchasing power parity yet again evidence from spatially separated commodity markets abstract this paper examines the empirical validity of the law of one price by exploiting the non stationarity of prices set in us dollars of varieties of wheat that are traded simultaneously in the usa rotterdam and japan we demonstrate the crucial role of transport costs in achieving cointegration long run ppp although systematic short run deviations from ppp occur we show that this does not imply profitable arbitrage opportunities jel c5 f3 g1

a dynamic general equilibrium analysis of deviations from the laws of one price abstract using disaggregated west german prices this study documents movements in relative export and producer prices and in relative import and producer prices which are variable and highly autocorrelated this suggests the presence of time varying persistent deviations from the laws of one price perfect competition monopoly and monopolistic competition with constant mark up pricing are inconsistent with the variability in relative export and producer prices furthermore cournot oligopoly is inconsistent with the variability in relative import and producer prices a dynamic general equilibrium model with differentiated oligopolistic competition and strategic pricing is shown to generate variable and persistent movements in both measures of relative prices

exchange rate uncertainty and agricultural trade panel cointegration analysis for turkey this study addresses the impact of exchange rate levels and uncertainty on bilateral agricultural trade between turkey and 20 major trading partners using panel cointegration analysis for annual data covering the period 1980 2005 results show that i the exchange rate level is less robustly linked to trade volumes than is exchange rate uncertainty ii exchange rate uncertainty is associated with smaller trade volumes in both directions but more so for imports than for exports and iii income growth in turkey is associated with greater imports just as income growth among trading partners is associated with greater exports these findings provide some clues for understanding the recent patterns of turkish agricultural trade and suggest directions for future research

lack of preparation for rare events abstract a new view of crises is proposed a rare event occurs consciously unprepared agents take bad actions and catastrophic consequences follow we model agents who prepare to act in different contingencies they can process only a finite amount of information and thus cannot prepare perfectly for all contingencies in equilibrium agents equate the probability weighted expected loss due to suboptimal action across contingencies implying that the expected loss in a rare event is orders of magnitude larger than in normal times limited liability causes even less preparation for rare events and creates inefficiencies

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

thinking ahead the decision problem we propose a model of costly decision making based on time costs of deliberating current and future decisions we model an individual decision maker s thinking process as a thought experiment that takes time and let the decision maker think ahead about future decision problems in yet unrealized states of nature by formulating an intertemporal state contingent planning problem which may involve costly deliberation in every state of nature and by letting the decision maker deliberate ahead of the realization of a state we attempt to capture the basic observation that individuals generally do not think through a complete action plan instead individuals prioritize their thinking and leave deliberations on less important decisions to the time or event when they arise

symmetric pass through of tariffs and exchange rates under imperfect competition an empirical test abstract this paper examines the effect of tariffs and exchange rates on u s prices of japanese cars trucks and motorcycles in particular we test whether the long run pass through of tariffs and exchange rates are identical the symmetry hypothesis we find that this hypothesis is easily accepted in our sample we also find that the pass through relation varies across products ranging from about 0 6 for trucks to unity for motorcycles these coefficients have very different implications for trade policy we explain the results based on demand cost and institutional conditions in each industry

real and nominal shocks in a two country price setting world abstract this paper develops a two country model in which the law of one price does not hold in the short run and which is consistent with the stylized fact that exchange rates respond more quickly to news than prices this is done by assuming that firms face lumpy information costs in determining what price to charge both domestic and imported goods prices are therefore sticky with respect to news and deviations from the law of one price ppp are due to exchange rate surprises the model is used to analyze the domestic and international impact of real and nominal disturbances

does the law of one price hold for hedonic prices hedonic prices of locational attributes in urban land markets are determined by a process of spatial arbitrage that is similar to that which underpins the law of one price if hedonic prices deviat

temporary disability and economic incentives we investigate the impacts of economic incentives on the duration and outcome of temporary disability insurance tdi spells the analysis is based on a large quasi experiment taking place in norway involving a complete overhaul of the tdi benefit system our findings show that the labour supply of tdi claimants does respond to both the benefit level and the level of local labour demand the estimated elasticity of the transition rate to employment with respect to the benefit level is 0 33 we also find that the tdi benefit level significantly affects the transition rate to alternative social insurance programmes

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

the law of one price in international commodity markets a reformulation and some formal tests abstract we report formal tests of whether the law of one price lop holds in the long and in the short run for commodities traded in orgnized markets we formalize the distinction between short and long run by introducing lagged price adjustments also we introduce expectations explicitly tests support the long run lop but they reject the short rn lop the long run lop holds better for future prices than for spot prices on average 90 per cent of the deviation from lop is eliminated within 10 weeks but this ranges from 1 to 120 weeks

impact of macroeconomic policies upon agricultural trade and international agricultural development international commodity markets in the early 1980s have experienced a severe cyclical downturn high real rates of interest have discouraged stock holding and disinflation has caused asset market participants to shift out of commodities into financial assets this is only the most recent bout of turbulence since we passed from the stable bliss of the 1950s and 1960s the basic question is whether this instability results from a seemingly unending series of shocks or is there a more general basic explanation which transcends individual events

price dynamics of exporting and import competing firms a model of a market for an internationally traded good is presented in this paper buyers who are customers of one firm are imperfectly informed about other firms prices and it is costly for them to change from one supplier to another this leads to dynamic market share equations which allow analysis of the interaction between price quantity decisions of exporting and import competing firms one result is that although the prices of importcompeting firms must in the long run match import prices they may in the short run be uncorrelated or even negatively correlated with import prices

the effect of unemployment benefits and nonemployment durations on wages abstract we estimate that unemployment insurance ui extensions reduce reemployment wages using sharp age discontinuities in ui eligibility in germany we show this effect combines two key policy parameters the effect of ui on reservation wages and the effect of nonemployment durations on wage offers our framework implies if ui extensions do not affect wages conditional on duration then reservation wages do not bind we derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects the effect of ui on wages we find arises mainly from substantial negative nonemployment duration effects jel j31 j64 j65

pass through of exchange rates and tariffs in greek us tobacco trade abstract the paper examines the extent to which exchange rate and unit tariff changes are passed through in us import prices of unmanufactured greek oriental tobacco the results indicate partial pass through of exchange rates and tariffs exchange rate pass through is about 0 272 and tariff pass through about 0 185 one possible reason for the partial pass through is oligopoly in tobacco exporting oligopoly would imply that depreciation of the drachma relative to the us dollar benefits tobacco exporters operating in greece a second possible reason is a possible correlation between exchange rates premiums paid to tobacco exporters in previous agricultural policies an important implication of this possible correlation is that greek tobacco prices may be more sensitive to exchange rate changes under the current agricultural policy

the effects of extended unemployment insurance over the business cycle evidence from regression discontinuity estimates over 20 years one goal of extending the duration of unemployment insurance ui in recessions is to increase ui coverage in the face of longer unemployment spells although it is a common concern that such extensions may themselves raise nonemployment durations it is not known how recessions would affect the magnitude of this moral hazard to obtain causal estimates of the differential effects of ui in booms and recessions this article exploits the fact that in germany potential ui benefit duration is a function of exact age which is itself invariant over the business cycle we implement a regression discontinuity design separately for 20 years and correlate our estimates with measures of the business cycle we find that the nonemployment effects of a month of additional ui benefits are at best somewhat declining in recessions yet the ui exhaustion rate and therefore the additional coverage provided by ui extensions rises substantially during a downturn the ratio of these two effects represents the nonemployment response of workers weighted by the probability of being affected by ui extensions hence our results imply that the effective moral hazard effect of ui extensions is significantly lower in recessions than in booms using a model of job search with liquidity constraints we also find that in the absence of market wide effects the net social benefits from ui extensions can be expressed either directly in terms of the exhaustion rate and the nonemployment effect of ui durations or as a declining function of our measure of effective moral hazard copyright 2012 oxford university press

flexible exchange rates and commodity price changes the case of japan although agricultural commodities are often assumed to have flexible prices little has been done to estimate exchange rate pass through perfect commodity arbitrage opportunities imply complete pass through imperfect opportunities could lead to incomplete pass through analysis of commodity price and exchange rate adjustments for five commodities exported to japan by the united states reveals that during the 1970s commodity prices were generally flexible during the 1980s when the dollar was rising price stickiness on the part of exporters importers contributed to inflexible prices and asymmetric exchange rate response specifically an exchange rate increase was passed through for some commodities but not a decline

spot and futures prices and the law of one price the law of one price lop is tested for narrowly defined commodities traded in futures markets in different countries during the period 1973 80 although the lop holds as an average tendency for most of the commodities there are instances of large riskless arbitrage returns before transactions costs deviations from the lop tend to be commodity specific rather than due to a common external factor and they tend to be smaller the longer the maturity of the futures contract in this paper we examine how well the law of one price lop holds for commodities traded internationally the answer to this question is important for two reasons the first is that in most modern theories of exchange rates price arbitrage for at least some goods is a necessary condition to determine the level of exchange rates but recent empirical research on the behavior of various price indices casts doubt on the empirical validity of the lop across countries for even the most disaggregated indices if it is not possible to identify any commodities for which the lop works satisfactorily then models incorporating the lop will not provide an adequate description of exchange rates the second reason for studying individual commodities is to gain information on the efficiency and the degree of integration of international commodity markets in efficient markets international commodity arbitrage implies that for a standard commodity prices in two markets expressed in a common currency will not differ but for transport costs

linking of u s monetary policy and exchange rates to world soybean markets abstract the linkage between macroeconomic policies and agricultural commodity trade has become an important research issue of agricultural economists this paper investigates the macroeconomic linkage of soybean trade competition between the exporting countries of the united states brazil and argentina in the ec 12 and japan import markets it is argued that u s monetary growth may have important impacts on the competitive position of u s soybean exports through exchange rates two relationships are investigated a the effects of u s monetary growth on the agricultural trade weighted exchange rates and b the responsiveness of agricultural commodity prices and u s exports to exchange rate movements results indicate that a weak dollar increases imports of soybeans and soymeal significantly which serves to increase the equilibrium world price and increase both u s and brazil argentina exports in the long run however during periods of more expansionary u s monetary policy there is little evidence of significant increases in market share position for u s soybeans and soymeal in world markets

reexamining the consumption smoothing benefits of unemployment insurance abstract the great recession spurred renewed interest in the moral hazard effects of the unemployment insurance ui program however little research has focused on determining its benefits this paper examines the consumption smoothing benefit of the ui program over the last 40 years finding strong evidence of heterogeneity in this effect over time in particular the effects of ui are smaller in the 1990s compared with the 1970s the 1990s were unique because of the long period of low unemployment rates as well as relatively low ui program generosity thus we test whether the consumption smoothing effects vary by the state unemployment rate and average program generosity we find suggestive evidence that the effects are larger when the state unemployment rate and average generosity are high together these two dimensions can explain around 30 46 of the differential effect that we find in the 1990s

the growth in the social security disability rolls a fiscal crisis unfolding the u s social security disability insurance di program has grown dramatically over the last 20 years in size and expense this growth poses significant risks to the finances of the di program and the broader social security system and raises troubling questions as to whether the program is being misused by claimants this article first provides an overview of the disability insurance program describing who qualifies for the program how an individual applies for benefits and how the level of benefits is determined next we summarize the factors responsible for the growth in the di rolls and discuss how the characteristics of di recipients have changed as a result we then explore the extent of moral hazard in the di program and the effectiveness of the screening process in distinguishing meritorious from nonmeritorious claims finally we identify the challenges that the di program creates for social security finances and social security reform and discuss potential reforms to the di program

market efficiency in the european carbon markets in this paper we study the relationship between futures and spot prices in the european carbon markets from the cost of carry hypothesis the aim is to investigate the extent of efficiency market the three main european markets bluenext eex and ecx are analyzed during phase ii covering the period from march 13 2009 to january 17 2012 futures contracts are found to be cointegrated with spot prices and interest rates for several maturities in the three co2 markets results are similar when structural breaks are taken into account according to individual and joint tests the cost of carry model is rejected for all maturities and co2 markets implying that neither contract is priced according to the cost of carry model the absence of the cost of carry relationship can be interpreted as an indicator of market inefficiency and may bring arbitrage opportunities in the co2 market

trends in employment and earnings of allowed and rejected applicants to the social security disability insurance program since the early 1980s changes in the economic environment and in the process for determining eligibility for the social security disability insurance di program have had significant effects on the program first the economic situation and labor force opportunities for lower skilled people continued to decline leading to lower rates of participation in the labor force for less educated men second changes in the eligibility process made it easier to obtain di benefits based on conditions difficult to clearly identify on medical terms alone such as back pain or depression 1 those two factors have likely contributed to a substantial increase in the number of individuals receiving di as well as a significant change in the characteristics of applicants and new beneficiaries over the same period both applicants and new beneficiaries have become younger longer lived more likely to apply because of nonterminal conditions such as back pain or mental health and more likely to be female 2 as a result recent work projects a rapid increase in program costs as greater numbers of beneficiaries stay on the program for more years e g david h autor and duggan 2006 the concurrent developments in the economy and eligibility rules have also fueled the concern that the generosity of di increasingly induces low income workers to apply for and sometimes receive benefits and that some of those beneficiaries would be able to work in the absence of the program indeed a growing body of research suggests that some workers in difficult economic conditions exit the labor force to

imperfect competition and exchange rate pass through in the food processing sector imperfect competition has become an important dimension of international trade theory helpman and krugman product differentiation and economies of scale are explicitly incorporated in the new trade theory policy prescriptions following from these models hinge critically on underlying assumptions particularly the form of strategic firm behavior competitive cournot or bertrand unfortunately these models do not lend themselves easily to empirical testing also little empirical information exists on the strategic behavior of firms in international markets thus various models and tests on different aspects of imperfect competition in trade have been proposed and implemented one form of imperfect competition in international trade that has received attention re

international deviations from the law of one price the role of search frictions and market share this article examines the size and persistence of international deviations from the law of one price in an industry with search frictions cost differences lead foreign and domestic firms to price differently within countries when local firms are more common in each country there are large and persistent price differences across countries large and persistent changes in international relative costs lead to large and persistent changes in international relative prices dynamic considerations imply that the amount of a cost shock firms pass through to prices is u shaped in the market share of firms receiving the shock

information acquisition and welfare we study information acquisition in a flexible framework with strategic complementarity or substitutability in actions and a rich set of externalities that are responsible for possible wedges between the equilibrium and the efficient acquisition of information first we relate the in efficiency in the acquisition of information to the in efficiency in the use of information and explain why efficiency in the use is no guarantee of efficiency in the acquisition next we show how the acquisition of private information affects the social value of public information i e the comparative statics of equilibrium welfare with respect to the quality of public information finally we illustrate the implications of the results in a monetary economy with price rigidities and dispersed information about productivity shocks

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

the law of one price revisited new evidence on the behavior of international prices i introduction the law of one price asserts that prices of identical goods should be equalized internationally when expressed in a common currency and adjusted for any contract differences transportation costs and trade distortions the intuition is that international arbitrage should work to eliminate any persistent price discrepancies due solely to differences in the country of origin or sale of goods thus stated the law of one price is frequently assumed to hold in theoretical and empirical models of international trade yet based on evidence from the 1950s 1960s and early 1970s the proposition does not appear to characterize the actual price behavior of many traded goods the evidence further indicates that deviations from absolute price equalization are often both large and protracted even during periods of comparative exchange rate stability 1 the relative version of the law of one price posits that rates of change in prices will be equalized meaning that exchange rate adjusted inflation rates should be the same for similar traded goods empirical support for this alternative has also been lacking 2 as isard 1977b indicates this evidence calls into question any appeal to microfoundations as a basis for macroeconomic price convergence in the form of purchasing power parity ppp it also casts doubt on the role of price linkages in both international market integration and the transmission of economic disturbances across national borders the prevailing view on international price equalization derives from evidence and analyses which are dated and need not apply to current economic conditions most published studies involve data from fixed rate periods very early episodes of floating rates or the first years of the present flexible rate system an analysis based on more contemporary data is warranted in view of the substantial exchange rate movements and the perceived increase in international integration that have occurred since these earlier studies 3 in addition a fresh look at the evidence can make use of both the longer time series data and new time series techniques that are now available accordingly this study updates the microeconomic evidence on international price equalization while investigating the existence and nature of the long run relationship between traded goods prices it analyzes the behavior of u s export prices relative to japanese and german dollar export prices for carefully matched identically weighted categories of manufactured goods over the current floating rate period stationarity and cointegration tests are used to assess the time series properties of these relative export prices and to determine the extent to which the common currency prices of similar exports are related internationally in the long run while these methods have been used in analyses of purchasing power parity they have not been extended to studies of traded goods prices at the microeconomic level ii data description this study is based on a set of quarterly relative dollar export price indexes constructed by the bureau of labor statistics bls the data represent ratios of u s export prices to german or japanese export prices expressed in dollars for highly comparable product groups conceptually the series measure the average price of a particular set of u s exports to all foreign markets relative to a dollar price index for a similar set of exports from germany or japan the indexes are weighted averages of transactions contract prices of individual exports reported on an f o b free on board or f a s free along side ship basis for the final month of each quarter and adjusted for quality changes the categories are fairly disaggregated e g valves trucks over 2000cc so that the comparison is between relatively narrow product categories two additional features in the bls s design of the series ensure a high degree of comparability between the pairs of export categories

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

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

does disability insurance receipt discourage work using examiner assignment to estimate causal effects of ssdi receipt abstract we present the first causal estimates of the effect of social security disability insurance benefit receipt on labor supply using all program applicants we use administrative data to matc

currency risk and relative price risk this paper demonstrates the strong linkages that exist between currency risk represented by inflation risk and exchange rate changes and relative price risk these linkages affect the optional quantities of forward exchange contracts nominal debt and fixed price sales purchase contracts to use in hedging against these risks it is shown that the existence of as many hedging mechanisms as there are forms of price risk allows for the precise targeting of specific price risks with specific hedging instruments moreover even though each hedging mechanism specializes in protecting against a particular form of price risk the optimal quantitiy of each influences and is influenced by the optimal quantities of the others

a proposition on short run departures from the law of one price unanticipated inflation relative price dispersion and commodity arbitrage abstract this paper proposes an explanation of short run departures from the law of one price based on the characteristics of the inflationary process and changes in the distribution of relative prices unexpected inflation gives rise to volatility of relative prices the more unexpected and hence uneven the rate of inflation the greater the difficulty in discerning from a given structure of relative prices commodity arbitrage opportunities which may be expected to persist and those transient opportunities which do not warrant a firm s incurring fixed costs of arbitrage an illustration portrays a risk averse firm confronting an international arbitrage opportunity

commodity prices exchange rates and their relative volatility abstract exchange rates are move volatile than rates implied by ppp using conventional price indexes this fact has led many to believe that exchange rates fluctuate more than is warranted by the variability in commodity prices and supports those who believe that fluctuations in exchange rates are excessive we show that exchange rates are less volatile than commodity prices in auction markets and less volatile than rates implied by the law of one price using such prices we also show that the behavior of exchange rates and the rates implied by these commodity prices is not consistent with the dornbusch overshooting model

interrelationships between monetary instruments and agricultural commodity trade during the last decade agricultural economists have devoted increasing attention to the macroeconomic aspects of agricultural problems indeed a recent presidential address to the american agricultural economics association tweeten centered on the macroeconomics of agriculture given the currency of the monetary approach to macroeconomics it is not surprising therefore that there is also a growing interest in the effects of monetary instruments and monetary phenomena on agricultural commodity trade in this paper i shall discuss what i feel are some of the most pertinent issues that researchers must address in this area before we proceed too far with our discussion it is important to define what i mean by a monetary instrument perhaps arbitrarily i reserve the term monetary instrument for those macroeconomic variables which are primarily determined within domestic or international monetary markets obvious examples are the level of the money supply interest rates and exchange rates i justify the term instrument by noting that as far as the agricultural sector is concerned these variables are by and large predetermined for example the levels of the money supply and interest rates in the united states are to a large extent determined by the policy of the federal reserve similarly the price of the currency the exchange rateis ultimately determined by the demand and the supply for the currency and thus at least partially by governmental policy the first step in any attempt to outline research needs and goals is an identification of what has been done in the past although the literature on the macroeconomics of agriculture is farily large and rapidly expanding eckstein and heien lamm schuh 1976 and tweeten are important examples relatively li tl attention has been given to the effect of monetary instruments on agricultural trade what attention has been given to this area of resea ch has revolved mainly around the role of exchange rates in determining agricultural exports and prices thus it is logical to start our discussion with a brief survey of the literature on exchange rates and agriculture

empirically testing the law of one price in an international commodity market a rational expectations application to the natural rubber market abstract the law of one price lop is an important ingredient in theories of international trade and exchange rate determination an important shortcoming of the existing empirical literature is that parity is typically assumed to hold contemporaneously this overlooks the fact that international commodity arbitrage takes place over time as well as across spatially separated markets recognizing this fact we expect to see parity holding for expected prices a model which incorporates the expectations of commodity arbitragers is constructed and used to test the lop in the natural rubber market results indicate that the inclusion of expectations may be of value when considering the lop

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

unemployment insurance and disability insurance in the great recession social security disability insurance ssdi awards rise during recessions if marginal applicants are able to work but unable to find jobs countercyclical unemployment insurance ui benefit extensions may reduce ssdi uptake exploiting ui extensions in the great recession as a source of variation we find no indication that expiration of ui benefits causes ssdi applications and can rule out effects of meaningful magnitude a supplementary analysis finds little overlap between the two programs recipient populations only 28 of ssdi awardees had any labor force attachment in the prior calendar year and of those only 4 received ui

intertemporal speculation devaluation and the j curve abstract this paper presents a new explanation of why j curves i e the tendency of the trade balance to deteriorate immediately after a devaluation and to improve only as time passes may arise the paper focuses on the consequences of price stickiness if prices are sticky the devaluation leads first to asn increse in the relative price of tradables which tends to improve the trade balance and second to rising prices of tradables following the devaluation which tends to temporarily worsen the trade balance as a result of intertemporal speculation if the latter effect dominates a j curves results

identifying price linkages a review of the literature and an application to the world market of cotton this paper reviews the literature of price linkages and examines the degree to which cotton prices are linked it also tests whether such linkages have improved over the last decade it concludes that the degree of linkage has improved over the last decade while the main source of this improvement appears to be a result of short run price transmission and to a lesser extent long run co movement

efficient use of information and social value of information this paper analyzes equilibrium and welfare for a tractable class of economies games that have externalities strategic complementarity or substitutability and heterogeneous information first we characterize the equilibrium use of information complementarity heightens the sensitivity of equilibrium actions to public information raising aggregate volatility whereas substitutability heightens the sensitivity to private information raising cross sectional dispersion next we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective the efficient use of information reflects the social value of aligning choices across agents finally we examine the comparative statics of equilibrium welfare with respect to the information structure the social value of information is best understood by classifying economies according to the inefficiency if any in the equilibrium use of information we conclude with a few applications including production externalities beauty contests business cycles and large cournot and bertrand games

effects of exchange rate changes on u s agriculture a dynamic analysis an econometric model of the wheat corn and soybean markets is used to examine the dynamic effects of exchange rate fluctuation on u s commodity markets exports and agricultural prices are found to be sensitive to movements in the exchange rate while domestic factors such as disappearance and inventories are less sensitive but still responsive dramatic short run adjustments in prices and exports are followed by less dramatic but significant longer run adjustments thus the hypothesis of elastic response to the exchange rate seems particularly relevant for the short run

the impact of economic conditions on participation in disability programs evidence from the coal boom and bust abstract we examine the impact of the coal boom of the 1970 s and the coal bust of the 1980 s on disability program participation these shocks provide clear evidence that as the value of labor market participation increases disability program participation falls for the disability insurance program the elasticity of payments with respect to local earnings is between 0 3 and 0 4 and for supplemental security income the elasticity is between 0 4 and 0 7 consistent with a model where qualifying for disability programs is costly the relationship between economic conditions and program participation is much stronger for permanent than for transitory economic shocks

export pricing flexible exchange rates and divergence in the prices of traded goods abstract a model of firm pricing where customers adjust slowly to price differences is extended to an exporting firm under flexible exchange rates the foreign currency price the firm sets determines both current net revenue and the rate of investment in market share real exchange rate changes lead to price revisions but the protracted adjustment of customers prompts a smaller price response to transitory changes in the real exchange rate the model accounts for observed variations in traded goods prices across countries and the failure of exporting firms to pass through exchange rate changes but in contrast to static models does not predict frequent reallocation of traded goods production

does the law of one price really hold for commodity prices in spite of the empirical failure of the law of one price it is usually assumed that commodity prices are perfectly arbitraged at least in the long run this paper argues that this assumption is counterfactual and that much of the empirical evidence provided to support it is flawed and affected by econometric shortcomings spurious regressions nonstationarity in the data inappropriate use of first differences an alternative methodology co integration by which a long run relationship between nonstationary series can be tested is proposed tests of nonstationarity and co integration for a group of commodities show quite uniformly that the law of one price as a long run relationship fails and that deviations from the pattern are permanent

some political economy aspects of macroeconomic linkages with agriculture though the political process leading to the 1985 farm bill has shunned proposals for significant policy change commentators on u s food and agricultural policy continue to characterize the current policy environment as arriving at a turning point where fundamental realignment of policy is possible among the factors indicating a need for change macroeconomic linkages have been singled out as primary sources of increasing difficulty in agricultural policy management implicit in this view is the idea that a heightened importance of macroeconomic factors represents a structural change in long term patterns of development for the sector that has rendered current policies anachronistic to advance such an idea is to ignore the historical record macroeconomic disturbances and their links to the agriculture sector are central in any historical account of the policy developments leading to direct federal government intervention in the agriculture sector for example the organized agricultural interest groups that emerged during the populist protest of the late nineteenth century were motivated in part in response to the monetary restriction associated with the greenback period and the return to fixed exchange rates under the gold standard in 1879 friedman and schwartz continued price deflation into the mid 1890s and real interest rates that are estimated to have averaged 8 5 in the period 1870 89 summers p 212 proved particularly burdensome to debtridden farmers the demands of the various farmer movements thus consisted of easy money or an elastic currency created by government action government funds for farm mortgages and the subtreasury scheme for creation of government paper money with stored crops as collateral the discontent voiced by farmers over the macroeconomic policies of the nineteenth century can be associated with later institutional changes that organized the federal reserve in 1913 and created the federal land banks in 1916 agricultural price support through provision of loans against crops was not achieved until 1933 with the creation of the commodity credit corporation reiter and hughes pp 1415 16 that policy change along with other provisions for federal government intervention included in the agricultural adjustment act followed a farm crisis that had its origins in macroeconomic adjustments after world war i exports of agricultural products had expanded rapidly in the united states to supply the wartime needs of europe rapid inflation accompanied the export expansion and land prices and farm mortgage debt increased this exacerbated farm sector adjustments when production was restored in europe and when world liquidity was restricted as u s lending to europe was curtailed overcapacity in world primary product markets persisted and the combination of raw material overproduction and monetary deflation that occurred has been cited as a factor generating the broader economic collapse of the 1930s kindleberger pp 98 107 unified political activity by farmers was also intense in the aftermath of world war i the congressional farm bloc coalition of republicans and democrats came into existence in 1921 and sponsored legislation e g the capper volstead act of 1922 and the agricultural credit acts of 1923 aimed at improving farm conditions through promotion of cooperatives and expansion of credit however as the relative purchasing power of farmers continued to decline through the 1920s the farm lobby organized around the theme of equality for agriculture and demanded more margaret s andrews is a resident fellow national center for food and agricultural policy resources for the future gordon rausser is a professor department of agricultdral and resource economics university of california berkeley giannini foundation paper no 785

the effect of exchange rate distortions on grain export markets the case of argentina the growth of agricultural trade in the 1970s and the strong dollar and depressed commodity prices in the 1980s have increased awareness of the vulnerability of agricultural markets to economic forces outside the agricultural sector some of the recent agricultural developments are attributable to changes in exchange rate movements that transmit macroeconomic forces to a trade dependent agricultural sector under the flexible exchange rate system exchange rate volatility has increased artus and young because exchange rates adjust to balance external accounts for an independent level of money supply across countries volatility has also increased because asset markets and adjustments on the capital side of the balance of payments determine the exchange rate in the short run dornbush regardless of the sources of exchange rate movements exchange rate changes can affect terms of trade and international competitiveness as long as they affect relative prices between traded and nontraded goods krueger even if exchange rate changes primarily adjust price levels between countries for a given level of the money supply there are terms of trade changes in the short run however recent evidence indicates that exchange rate changes are greater than can be attributed to changes in domestic price levels across countries frenkel stockman

who feels the calorie crunch and when the impact of school meals on cyclical food insecurity abstract monthly welfare programs such as the supplemental nutrition assistance program snap produce consistent cycles of expenditure and consumption among recipients food insecurity health status crime poor behavior and test scores track these cycles this paper leverages new data from the usda the foodaps survey to better understand these cycles in three ways first i find that expenditure and consumption cycles are correlated within households a fact not previously established second i study diet quality over the benefit month and find that it worsens potentially compounding the harmful consequences of cyclical food insecurity third i find that kids bear less of the burden of the consumption cycle than adults and that much of this difference may be driven by school meal programs this finding suggests large potential gains in child welfare from expanding summer meal programs

can helping the sick hurt the able incentives information and disruption in a welfare reform the uk jobcentre plus reform sharpened bureaucratic incentives to help disability benefit recipients relative to unemployment insurance recipients into jobs in the long run the policy raised exits off diasability benefits by 10 and left unemployment outflows roughly unchanged consistent with i beneficial effects of reorganising welfare offices for both groups and ii a shift in bureaucrats efforts towards getting disability benefit recipients into jobs relative to those on unemployment benefit the policy accounted for about 30 of the decline in the aggregate disability rolls between 2003 and 2008 in the short run however we detect a reduction in unemployment exits and no effect on disability exits suggesting important initial disruption effects from the big reorganisation this highlights the difficulty of welfare reform as policymakers may focus on the short run political costs rather than the long run economic benefits

the law of one price a test based on prices for selected inputs in new zealand agriculture the law of one price loop is an essential foundation of both the pure theory of trade and monetary theory strictly speaking the law relates to prices of individual commodities however empirical tests of loop have often relied on aggregated data in this paper a model is derived and estimated using price data for 15 selected inputs in new zealand agriculture the results offer no support for the loop in the short run and the results for the long run are mixed it may be inappropriate therefore to assume that the loop holds generally in modelling exercises particularly when models are used for policy purposes

what does purchasing power parity mean this paper examines the theoretical and empirical content of purchasing power parity ppp in efficient markets it analyzes the sources of deviations from the strictest version of ppp that exchange adjusted price levels are everywhere identical focusing on the role played by uncertainty relative price changes inappropriate price data transaction costs and government intervention in creating these deviations it then identifies and addresses the key issue involving purchasing power parity are the deviations from ppp that occur sufficiently large persistent and predictable as to enable individuals or governments to successfully exploit them an answer of no is shown to be consistent with both economic theory and the empirical evidence

more about the law of one price this article explores the general difficulty of testing the law of one price based on evidence about commodity prices and exchange rates but without regard to transfer costs it then reports on tests based on this sort of limited evidence using price data at the finest possible level of disaggregation in any official statistics a part of the results are favorable to the law but the clearest conclusion is that we shall probably never be able to come to any general verdict about the law in the absence of evidence about transfer costs

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure