economic tactics commercial policy and the socialization of african agriculture abstract commercial policies in some african countries have come under considerable criticism in recent years and it has become necessary to resolve the problems of existing agricultural marketing forms an alternative approach to the market liberalization commonly recommended is to intervene in the market so as to achieve its regulation and control and a pricing system which can and will support the socialization of agricultural production in collective farms maintain incentives for individual producers and encourage state procurement of basic crops such market control cannot be achieved without an active commercial policy based on the transformation of marketing institutions effective forms of market intervention and the devolution of considerable power over pricing and marketing from the national to the local levels

currency and credit markets abstract in this paper we focus on two aspects of the relationship between exchange rates and interest rates which have not been widely discussed first the extent to which the forward premia discount in one market can be used to predict the speculative return in the other second the extent to which unanticipated changes in the speculative returns are correlated across markets so that positions in one market can be hedged using positions in the other our results demonstrate that these two linkages are also important factors behind the time variation in speculative risk premia

general equilibrium pricing of cpi derivatives we examine the issue of pricing forward futures and option contracts written on the consumer price index cpi the change of which is a measure of inflation affecting the economy traditional approaches postulate an exogenous process for the price level and then derive cpi derivatives prices by standard arbitrage arguments by contrast we build the general equilibrium of a continuous time monetary economy that is affected by both real and nominal shocks the price level and thus the inflation rate are found endogenously and solutions for the prices of cpi derivatives are obtained which are in closed form in a specialized version of the economy

the purchasing power of money and nominal interest rates a re examination while it has been known for some time that under uncertainty the original version of the fisher hypothesis is not precisely correct empirical researchers have largely ignored this fact such an omission has possibly resulted in erroneous conclusions concerning other hypotheses most notably the impact of prices on the real economy this paper clarifies some of the previous interpretations of the existing empirical literature and provides a theoretical version of the relation between prices and interest rates empirical tests based on both the livingston survey data and data from time series forecasting models provide support for the fisher effect and the hypothesis that only covariance risk is priced in the treasury bill market one of the basic hypotheses concerning rationality in financial markets is based on statements generally attributed to fisher 18 fisher argued that the nominal or money rate of return on an asset should compensate an investor for his or her required real rate of return and changes in the purchasing power of money for the uncertainty case fisher replaced known purchasing power changes with the expected inflation rate whereas the fisher relationship under certainty is well defined his basic theorem under uncertainty is not precise as fama 15 has argued it is changes in the purchasing power of money not the inflation rate that should concern investors under uncertainty the expected value of one is not by jensen s inequality the inverse of the expected value of the other moreover fama and farber 16 grauer and litzenberger 20 and benninga and protopapadakis 3 have shown that when investors are risk averse the fisher relationship will generally not hold even after adjustment has been made for the distinction between purchasing power changes and the inflation rate in particular these authors show that an adjustment must be made for the fact that the real rate of return on nominal bonds is random while these issues have been discussed in the theoretical literature they have largely been ignored in the empirical work on this topic given the fact that nominal rates do not seem to adjust as rapidly to price changes as fisher hypothesized numerous empirical researchers have expanded the basic fisher model in an attempt to explain this empirical anomaly these extensions include the incorporation of a inflation rate variability and the growth in real output

interest rate volatility and the term structure a two factor general equilibrium model we develop a two factor general equilibrium model of the term structure the factors are the short term interest rate and the volatility of the short term interest rate we derive closed form expressions for discount bonds and study the properties of the term structure implied by the model the dependence of yields on volatility allows the model to capture many observed properties of the term structure we also derive closed form expressions for discount bond options we use hansen s generalized method of moments framework to test the cross sectional restrictions imposed by the model the tests support the two factor model there are essentially two approaches to the modeling of the term structure of interest rates in continuous time the equilibrium approach pioneered by

extrinsic versus intrinsic problems of agricultural cooperation anti incentivism in tanzania and china peasant willingness to engage in collective farming and the efficiency of collective farms once established may be preconditioned on local self determination participatory control discriminating work incentives and external manoeuvrability in the absence of such preconditions whether or not there exist economies of scale sufficient to offset effectively minimised incentive problems cannot be determined anti incentivism bureaucratic controls and extractive external environments are identified as factors inhibiting successful collective farming in both tanzania and china explanations of these tendencies in the two countries are sought in their political economies and ideological structures

a model of international asset pricing under imperfect commodity arbitrage abstract this paper examines the effect of imperfect international commodity arbitrage i e violation of the law of one price modeled as the existence of non traded goods on the structure of purchasing power risk optimal portfolio rules of the risk averse investors and the equilibrium yield relationship among assets the major results of the paper include i there are two separate sources of purchasing power risk i e relative price risk and inflation risk relative price risk is specific to the country in which the investor resides ii in a world of n countries investors may hold n 1 hedge portfolios as vehicles to hedge against purchasing power risk facing different relative prices investors residing in different countries display divergent portfolio behavior iii in equilibrium investors are compensated in terms of excess return for bearing not only the systematic world market risk but also the systematic inflation and relative price risks

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

agrarian reform in the dominican republic an associative solution to the collective individual dilemma abstract the dilemma of appropriate organizational structure for agrarian reform projects is pervasive in all of latin america collectives or production cooperatives provide superior vehicles for necessary credit and technical assistance but unlikely family plots they are wrought with administrative problems and low worker incentive this case study of land reform projects in the dominican republic presents the limitations of collective and individual farming structures and characterizes an intermediate associative preferred by the dominican reform beneficiaries empirical evidence shows higher productivity as the reform projects adopt the associative structure

economic determinants of the nominal treasury yield curve abstract macroeconomic shocks account for most of the variability of nominal treasury yields inducing parallel shifts in the level of the yield curve we develop a new approach to identifying macroeconomic shocks that exploits model based empirical shock measures technology shocks shift yields through their effect on expected inflation and the term premium shocks to preferences for current consumption affect yields through their impact on real rates and expected inflation for both shocks the systematic reaction of monetary policy is an important transmission pathway we find little evidence that fiscal policy shocks are an important source of interest rate variability

on some recent explanations of why capital hires labor conventional microeconomics contains no explanation of why capital hires labor and not the reverse in view of some surprisingly positive results in the theoretical analysis of worker run enterprise systems recent contributions to the theory of the firm have attempted to explain the dominance of capitalist production relations in efficiency terms the present paper critically reviews works in this area by alchian and demsetz 1972 williamson 1975 1980 and jensen and meckling 1979 and contends that a convincing efficiency argument for the general superiority of capital owners over workers control of enterprises still is lacking

money bonds and foreign exchange in the theory of finance capital markets provide securities which allow the ownership of productive assets to be allocated among investors according to their willingness to bear risk in exchange for return and independently of their tastes for the productive services provided by the assets this paper uses the theory of finance to study the role of money as a productive asset and the transformation of money into a portfolio asset true to its purpose the capital market provides securities nominal bonds that allow an allocation of the current services of the money supply according to its current productivity and without regard for its future purchasing power risk and an allocation of the future purchasing power risk of the money supply according to the willingness of investors to bear this risk in exchange for return and without regard for investor needs for the future transactions services of money in open

short term interest rates as subordinated diffusions in this article we cbaracterize and estimate the process for short term interest rates using federal funds interest rate data we presume that we are observing a discrete time sample of a stationary scalar diffusion we concentrate on a class of models in whicb the local volatility elasticity is constant and the drift has aflexible specufication to accommodate missing observations and to break the link between economic time and calendar time we model the sampling scheme as an increasing process that is not directly observed we propose and implement two new methods for estimation we find evidence for a volatility elasticity between one and onehalf and two when interest rates are high local mean reversion is smaul and the mechanism for inducing stationarity is the increased volatility of the diffusion process

a nonlinear general equilibrium model of the term structure of interest rates abstract we derive and test an alternative closed form general equilibrium model of the term structure within the cox ingersoll and ross theoretical framework in which yields are nonlinear functions of the risk free rate we show that equilibrium bond prices and the risk free rate are not always inversely related and that bond risk need not be strictly increasing in maturity using hansen s generalized method of moments to obtain parameter estimates this nonlinear model outperforms the cox ingersoll and ross square root model in describing actual treasury bill yields for the 1964 1986 period

common property equality and development the appeal of common property ideas may be traced in large measure to the fact that they seem to embody widely held values of equality on the other hand empirical examination of common property institutions reveals that they can coexist with significant inequality in this paper the relationship between common property and equality is examined it is argued that the role of common property can only be understood in the context of the associated private property institutions common property in agriculture is interpreted as part of a system based on small scale peasant proprietorship of arable land common property institutions provide a method of capturing scale economies and thereby increasing the efficiency of small scale proprietorship in competition with large scale production based on wage labor

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

a modified collective agriculture in rural growth with equity reconsidering the private unimodal solution abstract this paper identifies limitations of an agricultural structure of small private farms as a basis for rural growth with distributive equity and points out potential advantages of democratically managed collectives characterized by flexibility with respect to production scale group checks on inequality in land use and avoidance of the underemployment generating tendencies of large scale non collective agriculture after a critique of recent literature on scale economies and a discussion of stratification tendencies in private agriculture a model of democratic rural collectives incorporating features of chinese and tanzanian precedents is introduced and evaluated political feasibility is considered in a concluding discussion

international experience on incentive program in support of fuel economy standards and labelling for motor vehicle a comprehensive review abstract the road transports especially the motor vehicles play a significant role in increment of energy consumption in the transportation sector however the harmful greenhouse gas ghg emissions from such vehicles which are the main causes of global warming have been increased as well one of the effective solutions to reduce the growth rate of energy consumption is the implementation of fuel economy standard and label other countries experiences indicate that the program is very beneficial for society environment and government the hierarchy of the program consists of the test procedure fuel economy standards fuel economy label and incentive program as a peak of the program reviews of the fuel economy standard can be found in many references however a few papers deal with the incentive program specifically therefore this paper aims to give a review on the implementation of the incentive program globally in support of fuel economy standard and label for the motor vehicles finally as the incentive program is necessary to support fuel economy standard and label it should be applied to the motor vehicles as soon as possible

communal property and land markets agricultural development policy in st lucia abstract communal land tenure in st lucia was targeted for privatization in 1986 on the premise that its undercapitalization and low productivity could be corrected by establishing an efficient land market this article takes the neoclassical analysis which was used to support this policy to task with empirical evidence from st lucia it argues that the inefficiencies attributed to communal land only are not justified many of these inefficiencies are in fact also shared with freehold tenure in addition family land performs socioeconomic functions that cannot be achieved with freehold tenure and fulfills a critical function in the development process

two unannounced environmental tax reforms in the uk the fuel duty escalator and income tax in the 1990s environmental tax reform etr is a process of shifting the weight of taxation from socially desirable activities such as labour and profit generation to the use of natural resources and the generation of pollution the paper calculates the revenues from the uk fuel duty escalator fde an above inflation increase in fuel duty implemented from 1993 to 1999 and compares these with the revenues lost from the cuts in income tax in 1995 and 1996 and again in 2001 the paper finds that the lost revenue was roughly the same as the revenue from the fde in effect the governments concerned had implemented an etr without in any way drawing attention to the fact the fde was discontinued in 1999 when the oil price rose and in the face of protests at the level of fuel duty the following year real revenues from fuel duty subsequently declined it is at least arguable that had the fact that fde had facilitated income tax cuts been established by the government at the time the fde and fuel duty generally would have been less unpopular

optimum consumption and portfolio rules with money as an asset this article generalizes merton s optimum consumption and portfolio rules in continuous time by introducing money as a capital asset and allowing for uncertain inflation assuming that prices are log normally distributed a three funds theorem is derived and the introduction of money is shown not to change the form of the standard inflation adjusted capm but to change the market price of risk the individual s consumption portfolio problem is completely solved under uncertain inflation if his utility function is iso elastic in its arguments comparative statics are used to assess the influence of changes in exogenous parameters on the individual s optimal rules

a hierarchy model of associative farming abstract acceptance of the need for complementary services when agrarian reform is introduced such as credit and technical assistance has led many countries in latin america to organize land reform projects into collectives or production cooperatives but the disincentives to effort inherent in group farming have been a continual source of underproduction and disappointment with cooperative farming experiments the paper suggests an intermediate farming structure currently successful in the dominican republic in the framework of an agency contract incorporating the hierarchical relations between beneficiary administrator and governing agency the advantages of the associative over either individual or collective farming are illustrated

a theory of the nominal term structure of interest rates a model of the nominal term structure of interest rates is developed that has a positive and stationary process for the interest rate and delivers closed form expressions for the prices of discount bonds and european options on bonds unlike the one state variable version of the cox ingersoll and ross 1985 model this model even in its one state variable version allows the term premium to change sign as a function of the state and the term to maturity and also allows for shapes of the yield curve that are observed in the u s data but that are disallowed in the cox ingersoll and ross model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the effect of fossil energy and other environmental taxes on profit incentives for change in an open economy evidence from the uk this paper argues that the underlying supply and demand analysis of fossil energy and other environmental taxes needs further elaboration when a country a introduces national fossil energy or environmental taxes and b is open to international trade at given world prices we provide evidence that such conditions are plausible for many sectors in the uk a key implication is that the short run effects of such taxes should not be felt in final good prices since these are determined in world markets but in terms of underlying profitability these changes in underlying profits provide two key incentives for producers to change to more environmentally friendly production techniques and to switch resources to production of less environmentally harmful goods using input output techniques we provide evidence for the uk to show how existing fossil energy and other green taxes have affected underlying profitability the evidence shows quite strong profit incentives to shift resources from a small number of energy intensive industries to others

short rate nonlinearities and regime switches abstract using non parametric estimation methods various authors have shown distinct non linearities in the drift and volatility function of the us short rate which are inconsistent with standard affine term structure models we document how a regime switching model with state dependent transition probabilities between regimes can replicate the patterns found by the non parametric studies to do so we use data from the uk and germany in addition to us data and include term spreads in some of our models we also examine the drift and volatility function of the term spread

corrections and additions to a nonlinear equilibrium model of the term structure of interest rates abstract longstaff 1989 introduces a new process for the short rate of interest he claims to derive the zero coupon bond pricing formula and state transition density for his model we demonstrate that longstaff s pricing formula is not the solution to the pricing problem which he poses the source of his error is a failure to properly account for a boundary condition we introduce a new model economy and derive a new endogenous interest rate process and find the green s function and the price of a zero coupon bond for our model economy

expectation puzzles time varying risk premia and dynamic models of the term structure abstract linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory this paper shows that these findings are not puzzling relative to a large class of richer dynamic term structure models specifically we match all the key empirical findings reported by fama and bliss 1987 american economic review 77 4 680 692 and campbell and shiller 1991 review of economic studies 58 495 514 among others within large subclasses of affine and quadratic gaussian term structure models additionally we show that certain risk premium adjusted projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly and not only through factor volatilities the risk premiums have a simple form consistent with fama s findings on the predictability of forward rates and are also shown to be consistent with interest rate feedback rules used by a monetary authority in setting monetary policy

green fiscal reform in sweden econometric assessment of the carbon and energy taxation scheme abstract empirical econometric assessment of environmental policy effectiveness is capable of demonstrating which tools have been helping to achieve the desired effect of reducing harmful emissions or stimulating technological change this paper employs an econometric approach to analyse the effectiveness of energy and carbon taxes in sweden the country which was one of the first to introduce a co2 tax as well as an extensive environmental tax reform the results showed that taken in isolation a co2 tax was not sufficient to result in a significant change in co2 emissions in sweden except in the case of petrol on the other hand energy taxes for coal and lpg have been statistically significantly effective it was also clear that a technological innovation in the form of development of nuclear and hydro energy played a significant role in reducing co2 emissions and higher oil price was also important in reducing national co2 emissions in sweden at the same time renewable energy excluding hydro a more recent innovation has not been a statistically significant driver of co2 emissions reduction perhaps due to the fact that wind and solar play a much lesser role in sweden at the moment the net electricity imports from other countries have contributed positively towards reducing co2 emissions in sweden while the use of coal and biomass tended to increase co2 emissions compared to the ex ante modelling results from the literature review the findings confirm the role of environmental taxation as a viable policy instrument effective in reducing co2 emissions in sweden although point towards a more nuanced picture the paper raises important policy questions focused on the effectiveness of environmental policy tools

asset pricing implications of a new keynesian model to match the stylised facts of goods and labour markets the canonical new keynesian model augments the optimising neoclassical growth model with nominal and real rigidities we ask what the implications of this type of model are for asset prices using a second order numerical solution to the model we examine bond and equity returns the equity risk premium and the behaviour of the real and nominal term structure we catalogue the factors that are most important for determining the size of risk premia and the slope and level of the yield curve in a world of technology shocks only increasing the degree of real rigidities raises risk premia and increasing nominal rigidities reduces risk premia in a world of monetary policy shocks only both real and nominal rigidities raise risk premia the results indicate that the implications of the new keynesian model for average asset returns depend critically on the

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

nominal rigidity and monetary uncertainty in a small open economy temporary nominal rigidity is introduced into a dynamic stochastic general equilibrium model of a small open economy the foreign country is also modelled and is the closed economy counterpart of the domestic country we examine whether a small open economy is more vulnerable than a closed economy to uncertainty over its monetary policy a signal of an increase in future variability which was not previously foreseen as a risk by agents is shown to weaken the current exchange rate and boost current output in the small open economy in the equivalent closed economy it has no effect on current variables

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

recent advances in estimating term structure models in the past 10 years increasingly sophisticated statistical techniques have been applied to the estimation of increasingly complex models of the term structure of interest rates in reviewing this literature we highlight the facts that have been established and the key unresolved issues the data indicate that within a wide range of interest rates mean reversion in rates is at best weak whether mean reversion is stronger for very high or very low levels of rates is an unresolved issue the absolute volatility of rates increases as the level of rates increases but the strength of this effect and the role and nature of either stochastic volatility or regime switching components in rates are still unclear unfortunately these unresolved issues have important implications for fixed income option pricing and risk measurement including value at risk calculations

a parametric nonlinear model of term structure dynamics recent nonparametric estimation studies pioneered by ait sahalia document that the diffusion of the short rate is similar to the parametric function r superscript 1 5 estimated by chan et al whereas the drift is substantially nonlinear in the short rate these empirical properties call into question the efficacy of the existing affine term structure models and beg for alternative models which admit the observed behavior this article presents such a model our model delivers closed form solutions for bond prices and a concave relationship between the interest rate and the yields we show that in empirical analyses our model outperforms the one factor affine models in both time series as well as cross sectional tests article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

asset pricing under the quadratic class we identify and characterize a class of term structure models where bond yields are quadratic functions of the state vector we label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application we consider asset pricing in general and derivative pricing in particular under the quadratic class we provide two general transform methods in pricing a wide variety of fixed income derivatives in closed or semi closed form we further illustrate how the quadratic model and the transform methods can be applied to more general settings i introduction we identify and characterize a class of term structure models where bond yields are quadratic functions of the markov process we label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application we identify the necessary and sufficient conditions for the quadratic class and consider the general asset pricing problem under the quadratic framework in particular we propose two transform methods to price a wide variety of interest rate derivatives in closed or semi closed form we further illustrate how the pricing methods can be applied to more general settings examples include option pricing for currencies or stocks with quadratic stochastic volatilities our interests in the quadratic class come mainly from concerns on empirical application recent empirical research within the affine framework of duffie and kan 1996 indicates an inherent tension between i delivering good empirical performance in matching salient features of the interest rate data and ii excluding positive probabilities of having negative interest rates for example backus telmer and wu 1999 and dai and singleton 2000 find that incorporating gaussian state variables in the affine framework significantly increases the flexibility for model design and greatly improves its empirical performance in capturing the conditional dynamics of interest rates dai and singleton 2001

trade in nominal assets monetary policy and price level and exchange rate risk in a previous paper trade in risky assets i have analyzed the pattern of international trade in risky real assets between barter economies relying on the law of comparative advantage and using autarky asset price differences to predict the pattern of asset trade in this paper the analysis is extended to international trade in nominal assets assets with returns paid in currencies between monetary economies the risk chracteristics of real returns on nominal assets depend on price level and exchange rate risk and therefore on monetary policy it is examined how different combinations of monetary policies and exchange rate regimes affect nominal assets return risk characteristics their autarky perices and hence their trade pattern when countries differ with respect to their outputs or their attitudes towards risk when world asset markets are incomplete different monetary policies and exchange rate regimes have dramatic effects on risk characteristics of home and foreign currency bonds and on the trade pattern in these assets as well as on aggregate capital and current accounts

asset pricing in a monetary economy with heterogeneous beliefs in this paper we shed new light on the role of monetary policy in asset pricing by examining the case in which investors have heterogeneous expectations about future monetary policy this case is realistic because central banks are typically less than perfectly open about their intentions accordingly surveys of economists reveal that they frequently disagree in their expectations under heterogeneity in beliefs investors place speculative bets against each other on the evolution of the money supply and as a result the sharing of wealth in the economy evolves stochastically employing a continuous time equilibrium model we show that these fluctuations majorly affect the prices of all assets as well as inflation our model could help explain some empirical puzzles in particular we find that the volatility of bond yields and stock market volatility could be significantly increased by the heterogeneity in beliefs a conclusion supported by our empirical analyses this paper was accepted by wei xiong finance

the structure and contradictions of productive relations in socialist agrarian reform a framework for analysis and the chinese case this article attempts to develop a complex analytical framework for analysing socialist agrarian reform and to apply it to the case of post mao china perhaps the most sweeping agrarian reform in the history of socialism the purpose of doing so is to disaggregate the complex changes which have been wrought under the responsibility systems in order to get a more nuanced sense of what has and has not changed how the various parts fit together and where the axes of contradiction posed by the reform may lie this analytical framework may also be of use in comparative analysis of socialist agriculture though that enterprise is not attempted here one basic argument of this study is that the responsibility systems of the recent chinese reforms are neither socialist nor capitalist but something distinctive whose potentially heterogeneous elements must be identified disaggregated analysed one by one and then reconstituted in order to expose their nature dynamics and contradictions

an analysis of intertemporal pricing for forward foreign exchange contracts an asset pricing model with an unobservable time varying risk premium is used to price forward foreign exchange contracts specifically the term spectrum of forward foreign exchange contracts is examined in order to focus on country specific and maturityspecific information the testable restrictions imposed by the model are consistent with both cross country and cross maturity forward contracts except at the short end of the maturity spectrum for cross country forward exchange rates this indicates that the intertemporal model is relatively robust in valuing forward contracts of different maturities and for different exchange rates but that it may fail when there are significant short term country specific shocks theoretical and empirical studies have demonstrated that the forward exchange rate incorporates a time varying risk premium in addition to an expected future spot exchange rate recent works by fama 9 and hodrick and srivastava 21 reveal the importance of the risk premium by showing that the variability in risk premiums exceeds the variability in expected change in spot exchange rates these results are very general in that they are based on the definition that equates the forward exchange rate to the expected future spot exchange rate and a risk premium term a logical but more demanding next step is to model and conduct specification tests of the risk premium itself the purpose of this paper is to use an intertemporal latent variable assetpricing model ilvm to examine the risk return characteristics of the term structure of forward foreign exchange contracts more specifically the ilvm is used to price various bilateral dollar forward exchange contracts for each maturity as well as the different maturities for each bilateral forward exchange contract the ilvm was first utilized by hansen and hodrick 16 and hodrick and srivastava 20 to examine forward exchange risk premiums the two studies are however confined to just one month forward exchange contracts in addition the studies yield conflicting results the application of the ilvm to other

general equilibrium real and nominal interest rates we derive the general equilibrium short term real and nominal interest rates in a monetary economy affected by technological and monetary shocks and where the price level dynamics is endogenous assuming fairly general processes for technology and money supply we show that an inherent feature of our equilibrium is that any real variable dynamics in particular that of the short term real interest rate is driven by both monetary and real factors this money non neutrality is generic as it does not stem from any friction such as price stickiness or from a particular utility function non neutrality obtains because the ex ante cost of real money holdings is random due to inflation uncertainty we then analyze in depth a specialized version of this economy in which the state variables follow square root processes and the representative investor has a log separable utility function the short term nominal rate dynamics we obtain encompasses most of the dynamics present in the literature from vasicek and cir to recent quadratic and more generally non linear interest rate models moreover our results pave the way to several new nominal term structures

equilibrium positive interest rates a unified view this article develops precise connections among two general approaches to building interest rate models a general equilibrium approach using a pricing kernel and the heath jarrow and morton framework based on specifying forward rate volatilities and the market price of risk the connections exploit the observation that a pricing kernel is uniquely determined by its drift through these connections we provide for any arbitrage free term structure model a representative consumer real production economy supporting that term structure model in equilibrium we put particular emphasis on models in which interest rates remain positive by modeling the dynamics of the drift of the pricing kernel we construct a new family of markovian positive interest rate models article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

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