was the emergence of the international gold standard expected evidence from indian government securities abstract the emergence of the gold standard has for a long time been viewed as inevitable we analyze agents expectations using the spread between gold and silver bonds issued by the indian government we find that bimetallism was credible until france surprised markets by suspending domestic operation of bimetallism triggering a run away from silver thereafter markets began demanding a premium to hold silver bonds indicating their belief that silver would depreciate in the future as more countries moved on gold

a model of the bimetallic system abstract a longstanding puzzle in the bimetallic literature concerns the stability of the relative price of gold and silver in the absence of arbitrage possibilities in the major bimetallic countries in the 19th century this paper offers a solution by developing a model of bimetallism that adds the disequilibrium dynamics relevant when gresham s law has driven out the good money the model demonstrates how the bimetallic mint ratios of major countries acted as sets of regulating barriers to stabilize the relative price of gold and silver an empirical investigation confirms the presence of the associated target zone effects in bimetallic data

cournot equilibrium calculation in power networks an optimization approach with price response computation since deregulated power markets are very often oligopolistic ones efficient models that are able to describe strategic behavior of firms must be developed in particular transmission constraints can easily increase the opportunities of market players to exercise market power this paper presents a model that describes the firms strategic interaction based on nash cournot equilibrium when the power network is taken into account specifically this paper introduces a new iterative algorithm that explicitly considers how the production at a certain bus affects the whole network and consequently models the opportunities for the firms of exercising market power taking into account their ability to influence the composition of the set of constrained lines the theoretical basis of the method as well as a case study based on the central european network is included

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

arbitrage bounds in markets with noisy prices and the puzzle of negative option prices implicit in bonds abstract the term structure of interest rates has occupied economists for many years this is testimony to the importance of the term structure or equivalently valuation operator and to the difficulty of obtaining reliable estimates of it until recently it was not possible to reconcile the theoretical existence of a multiplicity of valuation operators in an incomplete bond market and the empirical nonexistence of even a single one mackay and prisman estimating valuation operators in incomplete market with noises can noise complete the market working paper 1996 tackle this problem in this paper an amendment to and a generalization of their methodology is presented the amendment preserves the linearity of valuation operators and allows use of efficient linear programming techniques further it facilitates an admissible consideration of the puzzle of negative option prices embedded in bonds the empirical results presented in this paper were obtained using data on extendable government of canada bonds the results indicate that although the gap between the lowest and the highest prices assigned to a cash flow by different valuation operators is significant it is not sufficient to resolve the above mentioned puzzle

currency competition a hayekian perspective on international monetary integration currency internationalization is examined from the vantage point of friedrich hayek s contributions in the 1970s compared with received commentaries in which only an idealized case for private money is attributed to hayek this paper underscores other dimensions of hayek s work on money and currency hayek s case for choice in currency draws on his theory of competition anticipates competition between government suppliers of fiat money accommodates many aspects of international monetary integration and embodies a distinctive approach to monetary independence choice of exchange rate regime and the transnationalization of currency hayekian predictions are outlined for future developments in currency competition

reading a target zone in keynes s indian currency and finance the gold exchange standard in india 1893 1913 was characterized by a narrow target zone for the exchange rate a wide annual range for the international interest rate differential and negative seasonal autocorrelation in interest rates these properties are consistent with a standard target zone model in which fundamentals are negatively autocorrelated on a markov chain

land reforms poverty reduction and economic growth evidence from india recognition of the importance of institutions that provide security of property rights and relatively equal access to economic resources to a broad cross section of society has renewed interest in the potential of asset redistribution including land reforms empirical analysis of the impact of such policies is however scant and often contradictory this paper uses panel household data from india together with state level variation in the implementation of land reform to address some of the deficiencies of earlier studies the results suggest that land reform had a significant and positive impact on income growth and accumulation of human and physical capital the paper draws policy implications especially from the fact that the observed impact of land reform seems to have declined over time

energy and reserve market designs with explicit consideration to lost opportunity costs the primary goal of this work is to investigate the basic energy and reserve dispatch optimization cooptimization in the setting of a pool based market of particular interest is the modeling of lost opportunity cost introduced by reserve allocation the authors derive the marginal costs of energy and reserves under a variety of market designs they also analyze existence algorithm and multiplicity of optimal solutions the results of this study are used to support the reserve market design and implementation in iso new england control area

the limits to land reform the land acts in ireland 1870 1909 ireland experienced two great waves of land reform during the late nineteenth and early twentieth centuries land reform was a central demand of irish political factions of the time and by acceding to this demand successive british governments hoped to pacify ireland this article reconsiders the economic significance of the several irish land reform measures by examining them in the context of economic theory and by comparing them to other land reform episodes in currently developing countries and in european history the irish reforms contained little that could better the allocation of resources and so had little impact on economic efficiency even though the end result was the creation of a class of peasant proprietors operating in a free market the analysis focuses on the structure of the laws and their relation to irish institutions although we also discuss the aggregate evidence on the evolution of agricultural efficiency following the reforms moreover the irish legislation missed an important opportunity to improve smallholders access to credit some facets of the land legislation interacting with some unusual institutional features of land tenure in ireland made credit conditions worse land reform in ireland was much more a wealth redistribution program financed by britain than a serious effort to improve the efficiency of agriculture land tenure and land reform occupy central roles in both the history and historiography of the political struggles that culminated in the partition of ireland in the 1920s successive waves of irish politicians sought to harness essentially nationalist ambitions to the more mundane dissatisfactions of the irish farmer convincing the latter that economic prosperity required alterations to or complete abolition of an agrarian system

water seeks a level modeling bimetallic exchange rates and the bimetallic band arbitrage costs are usually treated as a mere footnote in formal analyses of bimetallism at the same time recent empirical research has demonstrated their key importance since they produced a bimetallic band this paper provides the first model of bimetallism that takes this explicitly into account and uses it to explain a number of stylized features of the french bimetallic experience 1850 1870 first the model explains the association between the location of the price ratio within its band and the nature either cross or joint of specie flows second it explains the correlation between bimetallic exchange rates and the bimetallic ratio and third it explains the two humps distribution of the bimetallic ratio this analysis leads to a reconsideration of bimetallism the fluctuations of the price ratio are no longer evidence of the collapse of bimetallism but are part of the normal functioning of a bimetallic system

observing bailout expectations during a total eclipse of the sun abstract the literature has not reached a consensus yet regarding the existence of sovereign creditor moral hazard exploiting an exceptional historical example this paper proposes an original method to address this issue as the corona which is observable only during a total eclipse of the sun market specific prices of repudiated bonds are observable only when extreme conditions segment the markets such very rare events allow for isolating pure country specific bailout expectations the paper shows that bailouts do create creditor moral hazard based on an impulse response analysis the econometric results further emphasize the influence of bailout expectations in sovereign bonds valuation

the market for equity options in the 1870s the introduction of exchange traded options in 1973 led to explosive growth in the stock options market but put and call options on equity securities have existed for more than a century prior to the listing of option contracts trading was conducted in an order driven over the counter market from 1873 to 1875 quotes for options contracts were published weekly in the commercial and financial chronicle during a period that saw extensive marketing efforts by a number of brokerage firms in this article we examine these quotes to determine why this seemingly sophisticated market existed for only a brief period in financial history in 1973 exchange traded options were introduced and for the first time a central marketplace was available for the trading of standardized option contracts in addition the creation of the options clearing corporation provided an intermediary to all contracts the volume of options traded has exploded during the past twenty three years as has our understanding of the pricing of options and other derivative securities put and call options on equity securities however have been available to american investors for more than a century following the civil war an active market in privileges the term then used for options1 developed in new york city with numerous brokerage firms offering put call and double privilege contracts this market reached the height of its activity in the period from 1873 through 1875 during that time indicative price quotes from a particular broker for options on about a dozen equity securities were generally published every saturday in the commercial and financial chronicle these quotes were placed along with the other financial data for the week including daily high and low stock prices bond prices gold prices money

turning points in the u s civil war views from the grayback market this paper introduces a new high frequency time series of confederate money prices taken from the newspapers of richmond and leading cities in the eastern confederacy the new grayback series is tested for turning points the empirical analysis suggests that turning points in the confederate grayback market were different from those identified in the union greenback market by willard et al 1996 it appears that war did not always have symmetric effects on northern and southern money prices jel codes n20 n40

the diversity of land markets and regulations in europe and some of its causes abstractthe creation of optimal land institutions attracted renewed attention in the 1990s because of its central role in the transition process in former communist countries in the former soviet union and eastern europe and more recently because of large scale land investments in developing countries this article documents the existence of large variations in land institutions markets and regulation using current and historical data from western and eastern europe it then offers explanations for these differences and draws implications for the role and optimality of land institutions in development with special reference to the current debate on large scale land acquisitions

why ireland starved a quantitative and analytical history of the irish economy 1800 1850 acknowledgements page ix ensp 1 introduction 1 ensp 2 a poverty stricken economy 6 ensp 3 the problem of population was maithus right 30 ensp 4 land leases and length of tenure 81 ensp 5 the economics of rural conflict and unrest 112 ensp 6 the problem of wealth 151 ensp 7 the human factor entrepreneurship and labor 197 ensp 8 emigration and the prefamine economy 230 ensp 9 the great famine the economics of vulnerability 261 10 explaining irish poverty 278 bibliography 295 index 317

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

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

are negative option prices possible the callable u s treasury bond puzzle market prices for callable treasury bonds often imply negative values for the implicit call option the author considers a variety of possible explanations for these negative values including the treasury s track record in calling bonds optimally tax related effects tax timing options and bond liquidity none of these factors accounts for the negative values although the costs of short selling may explain why these apparent arbitrage opportunities persist over time why these implicit call values become negative in the first place remains a puzzle copyright 1992 by university of chicago press

a note on market efficiency institutional practice and economic constraints in the experience of the canadian bond market abstract for many years government of canada bonds with high coupons traded at much higher yields than those with lower coupons this apparent market inefficiency virtually disappeared over a short period of time during 1993 several events occurred in 1993 which relate to the narrowing of the spread this paper shows the earlier yield spread to be consistent with restrictions on the trading of strip bonds it also finds it difficult to defend the hypothesis that the higher yield spread represented unexploited profit opportunities

connecting the intraday energy and reserve markets by an optimal redispatch electricity markets based on simple bids provide a very high degree of transparency and simplicity however simple bids fail to capture many well known characteristics of generating units and therefore the responsibility for obtaining feasible schedules is transferred to market participants the purpose of this paper is to help the generating utility to automatically analyze the last energy program cleared in the market and in case this program is technically unfeasible to provide an alternative schedule by re dispatching the generating units this is achieved by formulating an optimization problem where the objective is to find the cheapest and feasible instantaneous power trajectory of each generator trying to minimize the differences between its hourly average values and the last energy program as the objectives of the utility can vary during the day three different models are presented two of them are formulated as a joint energy and reserve dispatch in order to take into account possible commitments acquired in the ancillary services market of agc regulation in this sense a novel approach for considering discontinuous ancillary regulation curves is proposed some numerical examples are included to illustrate the essential features of the models

bidding strategy of virtual power plant for participating in energy and spinning reserve markets part i problem formulation this paper addresses the bidding problem faced by a virtual power plant vpp in a joint market of energy and spinning reserve service the proposed bidding strategy is a non equilibrium model based on the deterministic price based unit commitment pbuc which takes the supply demand balancing constraint and security constraints of vpp itself into account the presented model creates a single operating profile from a composite of the parameters characterizing each distributed energy resources der which is a component of vpp and incorporates network constraints into its description of the capabilities of the portfolio the presented model is a nonlinear mixed integer programming with inter temporal constraints and solved by genetic algorithm ga

a model of bimetallism bimetallism has been the subject of considerable debate was it a viable monetary system was it desirable in our model the amounts of each metal are split between coined metal satisfying a cash in advance constraint and uncoined metal yielding utility the ratio of the monies in the cash in advance constraint is endogenous bimetallism is feasible we find a continuum of steady states indexed by the constant exchange rate of the monies bimetallism is not desirable among steady states welfare under monometallism is higher than under any bimetallic equilibrium long run trends in gold and silver production placed limits on the maintenance of bimetallism at any given ratio but its sudden collapse in 1873 remains a puzzle

on the welfare benefits of an international currency abstract is it beneficial for a country s currency to be used internationally and if so can we quantify the benefit since the emergence of the euro there has been great interest in the consequences of a transfer of the dollar s premier international role to the euro this paper presents a novel model based approach towards assessing the welfare benefits associated with the international use of a country s currency apart from the familiar benefits associated with seigniorage residents of the issuing country experience an increase in the purchasing power of their currency both at home and abroad in the calibration exercise carried out in this paper we find the benefits of an international currency to be quantitatively significant the welfare gain for the euro area in having the euro internationally used ranges from 1 9 to 2 3 of consumption depending on relative inflation rates the rest of the world is not indifferent as to which currency circulates as the dominant international currency conditional on their currency not being used internationally their preference is for the dominant international currency to be the one with the lowest inflation rate

debt and default in the 1930s causes and consequences abstract this paper studies interwar experience with external debt and default it begins with a description of the contours of international borrowing and lending in the 1920s we then use some empirical models from recent literature on the 1970s to describe the interwar data macroeconomic variables for over 20 countries are related to cross section variations in borrowing and debt during the period from the end of the 1920s to 1938 the paper then considers the incidence and correlates of sovereign default for 1934 1938 using regression to determine the association between standard measures of economic structure and performance and subsequent interruptions to debt service such variables as the magnitude of the debt burden the deterioration of the terms of trade during the great depression and the stance of monetary and fiscal policies provide a remarkably accurate explanation of the incidence of default we go on to provide a long run perspective on default and on the remedies available to creditors the provisions of loan contracts are reviewed with an eye toward analyzing the scope for renegotiation the discussion emphasizes the contrast between the regime of bond finance that prevalied in the interwar years and the current regime of bank lending we analyze the roles of governments banks and bondholders protective committees in the negotiation process we then present new estimates of the ex post realized rates of return on british and american foreign lending in the 1920s this empirical analysis uncovers a striking contrast in the returns realized on loans floated in the two countries while the nominal internal rate of return on dollar loans was less than 1 per annum the comparable return on sterling loans was in excess of 5 the paper concludes with a discussion of factors which help to account for this dramatic difference

negative option values are possible the impact of treasury bond futures on the cash u s treasury market abstract this paper uses a unique financial instrument in the u s treasury market to study the price behavior of the put option embedded in the november 2009 14 callable u s treasury bond we find that beginning in august 1993 the estimated option value was persistently negative on nearly every day for the ensuing eight months we show that the anomalous pricing behavior arose because the underlying callable bond became the cheapest to deliver issue against u s treasury bond futures contracts hence this paper provides direct evidence that derivative assets can significantly distort pricing in the primary asset market

strategic bidding in secondary reserve markets electricity markets are based on several sequential energy and reserve trading mechanisms to constantly maintain the balance between generation and demand during the last years reserve markets are getting much importance all around the world with the increasing social awareness of the renewable energy benefits additional reserve quantities and larger remunerations are being implemented by the regulators since this renewable energy is highly dependent on weather conditions uncertainties utilities are therefore demanding more and more powerful models to better optimize their reserve bidding curves to be sent to the system operators this paper describes a new methodology to obtain an optimized real bidding curve for the secondary spinning reserve market the approach is based on the maximization of a company profit assuming a set of residual demand curves scenarios for its competitors representation and considering the day ahead market opportunity cost to build the reserve cost curve the case study validates the main features of the proposed methodology by its application to the spanish secondary reserve market this methodology is being daily used by one of the most important electricity companies in spain

determining global currency bloc equilibria an empirical strategy based on estimates of anchor currency choice the study presents an empirical strategy for determining global currency bloc equilibria the procedure includes first a nested logit estimation of the combined determinants of currency regime and anchor currency choice second a test for a welfare maximizing regime decision in which estimates of the relative welfare of alternative regimes are inferred from the results of the first step estimation and third taking the path dependency of regime choice into account a currency bloc equilibrium is derived in equilibrium the dollar bloc is somewhat smaller and the euro bloc larger than at present counterfactual exercises assess among others the potential for a renminbi bloc

operating reserve model in the power market most of the current research on operating reserve markets assumes that the required capacity is predetermined which means that the demand of operating reserve capacity is inelastic this paper considers that operating reserve capacity in a power system is flexible and that one should optimize it by cost benefit analysis based on the reliability evaluation of the generation system a clearing model of the operating reserve market is proposed to determine the optimal reserve capacity and simultaneously clear the operating reserve market the model is discussed on both uniform price and pay as bid auction mechanisms by using a heuristic method we suggest an efficient algorithm to solve the model case studies for reliability test system rts96 demonstrate the usefulness and efficiency of the proposed model

an ex post valuation of the quality option implicit in the treasury bond futures contract abstract this paper develops three empirical estimates of the value of the quality delivery option implicit in the treasury bond futures contract a an ex ante value as given by the excess of forward price of the cheapest to deliver bond over its conversion factor times the futures price b an ex post value equal to the payoffs to a strategy of buying and holding a short futures long forward position at the start and delivering the cheapest bond at the expiration of futures contract and c another ex post value equal to the sum of payoffs to a continuous rollover strategy involving a short futures long forward position in the cheapest to deliver bonds three months prior to delivery the average values of the three estimates are 464 329 and 2 075 respectively the differences among the three estimates appear to be largely due to nonsynchronous spot futures data

the crime of 1873 the u s coinage act of 1873 eliminated provision for the free coinage of silver that act cast the die for a gold standard the conventional view is that the act of 1873 was a piece of good fortune this paper indicates that it was the opposite a mistake that had highly adverse consequences this is a judgment about 1873 not 1896 by 1896 when william jennings bryan ran for president on a free silver ticket it was too late to undo the damage bryan was trying to close the barn door after the horse had been stolen

target zones in theory and history credibility efficiency and policy autonomy abstract an experiment with an exchange rate band in austria hungary in the early 20th century provides a rare opportunity to discuss critical aspects of the theory of target zones providing a new derivation of the target zone model as a set of nested hypotheses the inference is drawn that policy credibility and market efficiency were paramount in the success of the austro hungarian experience

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

inequality as a determinant of malnutrition and unemployment policy this paper explores the policy implications that are obtained once it is recognized that at low nutrition intakes a person s productivity is an increasing function of intake in the context of a fully general equilibrium model it is shown that if aggregate assets in an economy are neither large nor small certain patterns of lorenz improving asset redistributions or nutrition transfers increase aggregate output and reduce the volume of involuntary unemployment and the incidence of undernourishment copyright 1987 by royal economic society

strategic trading behavior and price distortion in a manipulated market anatomy of a squeeze abstract this paper investigates an attempted delivery squeeze in a bond futures contract traded in london using cash and futures trades of dealers and customers we analyze their strategic trading behavior price distortion and learning in a market manipulation setting we argue that marked differences in settlement failure penalties in the cash and futures markets create conditions that favor squeezes we recommend that regulators require special flagging of forward term repurchase agreements on the key deliverables that span futures contract maturity dates and that exchanges mark to market their contract specifications more frequently or consider a cash settled contract on a basket of bonds

currency competition network externalities and switching costs towards an alternative view of optimum currency areas existing models of currency competition and monetary union ignore network effects and switching costs this paper develops a simple model that incorporates these features and shows how it can be used to shed light on observed monetary experience and current issues in international monetary relations it explains why agents will often be reluctant to switch currencies highlights the role of expectations and sheds light on the nature of currency competition and the effect of legal restrictions copyright 1993 by royal economic society

adaptive learning and the transition to fiat money this article explores some implications of adaptive learning for monetary evolution using a search theoretic framework that allows for media of exchange network effects adaptive learning precludes any voluntary transition to a fiat standard from a non monetary state of nature and can account for the historically observed tendency for fiat monetary standards to emerge only following the prior appearance of commodity money and the widespread employment of redeemable banknotes adaptive learning can also account for governments frequent resort to coercive measures to force a switch to fiat money and for their ability to affect such a switch even when doing so is not pareto optimal exchange media fall into the general category of products for which the utility that a user of the good derives from use of the good increases with the number of other agents using the good katz and shapiro 1985 p 424 there are two reasons for these positive network effects 1 indirect the more agents who employ a particular medium of exchange the more likely it is that prices will be quoted in terms of that medium of exchange i e that the medium of exchange will also serve as the economy s principle medium of account the costs of exchange are less for a medium of exchange that trades at par this indirect external effect is analogous to one encountered in computer hardware the more purchasers of a particular kind of hardware the more likely manufacturers of software are to supply compatible products 2 direct the more persons who use a particular exchange medium the better its quality or performance this direct network effect is analogous to one encountered in communications technologies such as telephones the analogy is especially close for fiat money which is useless to an isolated individual this article examines some ways in which media of exchange network effects influence the evolution of monetary standards and especially their role in determining both when and how a transition may occur from barter or commodity money to fiat money the approach taken here emphasises the role of adaptive learning where agents select exchange strategies that reflect static expectations concerning other agents preferred strategies although the exchange game agents play generally has multiple nash equilibria including one in which all agents accept fiat money adaptive learning precludes a spontaneous transition from barter to a fiat monetary standard even where a fiat standard would be welfare enhancing yet such learning does not rule out the spontaneous evolution of a commodity money standard or the eventual substitution of redeemable banknotes for commodity money readers familiar with the literature on network effects will recognise this

nominal contracts in a bimetallic standard as its central feature a bimetallic standard grants nominal debtors an option to deliver either of two metals with results from the option pricing literature construction of a formula to evaluate the bimetallic option in debt instruments is straightforward with this formula one can compute the option value in a wide range of nineteenth century u s treasury securities posession of the option values permits an adjustment of the yields on u s securities to make them comparable to yields on nonmetallic european securities evaluating the option allows the estimation of transfers from debtors to creditors copyright 1986 by american economic association

liquidity reconstitution and the value of u s treasury strips an apparent pricing anomaly exists in the market for u s treasury strips zerocoupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero coupon strips created from coupon payments in addition to documenting this phenomenon this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation u s treasury strips are zero coupon bonds created from either the principal or individual coupons of u s treasury bonds if the maturity date and face value are identical the cash flows for a strip derived from a principal payment are identical to the cash flows for a strip derived from a coupon payment however the two instruments almost always trade at significantly different prices for a recent sample 5 31 91 the mean percentage difference in price is greater than 1 2 with some differences greater than 2 7 this is an apparent anomaly since securities with identical cash flows should trade at the same price although coupon strips and principal strips have identical cash flows at maturity closer inspection reveals two differences the two instruments have different degrees of liquidity and different reconstitution characteristics previous studies have documented the effect of liquidity on prices in other markets amihud and mendelson 1986 1989 find that common stocks with differences in liquidity have significantly different risk adjusted rates of return silber 1991 studies restricted stock offerings and documents substantial price discounts on these illiquid securities vis a vis identical stocks that trade in the open market 1 in a study of u s treasury bills and treasury bonds with remaining maturities of less than six months amihud and mendelson 1991 find that differences in liquidity contribute to differences in prices between matched pairs of bills and bonds of the same

gravity in international finance abstract the past decade has witnessed an explosion of papers estimating gravity equations for cross border financial holdings without much of a theoretical foundation in this paper we develop a theory for bilateral asset holdings that takes a gravity form we discuss how to estimate international financial frictions and conduct comparative statics analysis within the context of the theory we also find though that reasonable extensions of the model no longer generate a gravity form while this does not significantly complicate estimation and comparative statics analysis it raises questions about the empirical validity of gravity specifications for cross border financial holdings that need to be addressed in future work

energy and reserve dispatch in a multi zone electricity market competitive bidding for ancillary services a s in addition to bidding for energy is increasingly recognized as an important part of electricity markets in this paper an lp based approach is presented for solving the multi product i e energy and a s products multi zone area physical market dispatch problem the approach can explicitly represent various constraints such as reserve requirement constraints network security limits and sharing of constrained resource capacity e g maximum unit generation between energy and reserve the joint dispatch method which dispatches energy and reserve market concurrently is extended to allow inter zonal reserve trading in a multi zone competitive pool numerical examples are included to demonstrate the salient characteristics of the joint dispatch solution

german debt traded in london during the second world war a british perspective on hitler two series of german bonds issued in 1924 and 1930 traded on the london stock exchange throughout hitler s 1933 45 regime in germany we isolate both structural breaks and turning points in these bond series major turning points follow hider s reintroduction of conscription in 1935 the outbreak of war in 1939 and the d day invasion of june 1944 the german bonds sustained downward trend after 1935 suggests that bondholders recognized the risks posed by hitler s programme bond prices recovered during the war however and appear to have anticipated the overthrow of hitler and the postwar settlement of foreign bondholders claims german bonds even in peace time were distinctly dubious investments and the fact of war has entirely justified the distrust with which they have long been regarded

a new world order explaining the international diffusion of the gold standard 1870 1913 abstract the gold standard gradually became an international monetary regime after 1870 similarly some nations in the european union are waiting to adopt the euro while others have joined immediately what explains the timing of exchange rate regime adoption to find out the international diffusion of the gold standard is analyzed duration analysis shows that network externalities operating through trade channels the desire to decrease borrowing costs on international capital markets and the level of development matter some evidence shows that the level of exchange rate volatility or inflationist agricultural interests did not matter for the timing of adoption

asset market perspectives on the israeli palestinian conflict this paper locates turning points in the israeli palestinian conflict since the late 1980s using asset market data from israel and the palestinian authority pa we find that major escalations in violence such as the outbreak of the intifada in 2000 lead to significant declines in asset prices in both israel and the pa conversely major peace initiatives such as the oslo accords in 1993 and the road map plan in 2003 lead to substantial increases in asset prices on both sides of the conflict an additional novel finding is that asset markets respond positively to the success of politicians who favour a negotiated settlement to the conflict

security constrained unit commitment for simultaneous clearing of energy and ancillary services markets this paper introduces a security constrained unit commitment scuc model with emphases on the simultaneous optimization of energy and ancillary services markets benders decomposition is used to decouple the scuc into a unit commitment uc master problem and hourly network security checking subproblems lagrangian relaxation is used to decouple the uc problem into individual single unit commitment problems dynamic programming is used to find the optimal commitment decision a simultaneous marginal curve algorithm is proposed to find the optimal values of energy and ancillary services a six bus system with three units and the ieee 118 bus system with 54 units are analyzed to illustrate the proposed model

sovereign risk credibility and the gold standard 1870 1913 versus 1925 31 author s obstfeld maurice taylor alan m abstract what determines sovereign risk we study the london bond market from the 1870s to the 1930s our findings support conventional wisdom concerning the low credibility of the interwar gold standard before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads in the 1920s however simply resuming prewar gold parities was insufficient to secure benefits countries that devalued before resumption were treated more favorably and markets scrutinized other signals public debt and british empire membership were important determinants of spreads after world war one but not before

turning points in the civil war views from the greenback market in early 1862 the united states government began issuing greenbacks a legal tender currency that was not convertible into gold the government promised to redeem the greenbacks in gold eventually but speculators understood that the probability of redemption depended on union army military fortunes and political developments that affected the total cost of the war to serve the speculative interest in gold a market emerged for the purpose of trading greenbacks for gold dollars because the market price of a greenback reflected the public s perceptions of future war costs the movement of these prices provides unique insights into how people at the time perceived various events we use daily quotations of the gold price of greenbacks to identify a set of dates during the civil war that market participants regarded as turning points in some cases these dates coincide with events familiar from conventional historical accounts of the war in other instances however market participants reacted strongly to events that historians have not viewed as very significant this abstract was borrowed from another version of this item

making negotiated land reform work initial experience from colombia brazil and south africa abstract the paper describes background initial experience and future challenges associated with a new negotiated approach to land reform this approach has emerged as following the end of the cold war and broad macroeconomic adjustment many countries face a second generation of reforms to address deep rooted structural problems and provide the basis for sustainable poverty reduction and economic growth it reviews possible theoretical links through credit market or political channels between asset ownership and economic performance program characteristics in each country as well as lessons for implementation and implications for monitoring and impact assessment are discussed

multicommodity spatial cournot model for generator bidding analysis conventional behavioral models such as cournot to analyze generator behavior do not reflect many of the complexities of advanced electricity markets dispatch and pricing in a number of advanced pool based electricity markets worldwide explicitly recognize the co optimization of ancillary services as well as transmission constraints this paper discusses the development of and experiments with a multimarket cournot model that deals with co optimization of multiple commodities namely energy and various classes of ancillary services and deals with transmission constraints that separate these commodity markets spatially we also discuss the multimarket extension of the cournot model to deal with bilateral contracts for energy a nonlinear programming formulation of the proposed model and the analysis of nodal prices are presented followed by a detailed set of experiments using a simple three node system the model is expected to add to understanding of complex interactions between energy and ancillary services markets and further the impact transmission capacity limits may have on exercise of market power of each of these markets

residual demand curves for modeling the effect of complex offering conditions on day ahead electricity markets residual demand curves rdcs can be used to represent the strategic interaction of participants in electricity markets rdcs relate the energy that an agent can buy or sell in one hour with the clearing market price that would be obtained in such hour assuming the market is organized as simple bid independent auctions despite the fact that they have been widely used in the literature the existence of time and or spatial constraints in the market clearing algorithm makes the rdcs not directly applicable this paper tries to overcome these difficulties by extending the concept of rdcs to zonal pricing markets where complex offering conditions and transmission constraints are taken into account therefore the rdcs are redefined in order to capture such effects which are usually neglected or oversimplified a new method for computing the redefined rdcs is established and its application to the iberian electricity market is presented the results show that modeling complex conditions and transmission constraints in rdcs can have a significant effect when compared to the standard approach found in the literature therefore the method presented in this paper modeling the effect of firm s decisions on market prices in a more accurate way

realignment expectations and the us dollar 1890 1897 was there a peso problem we investigate dollar sterling exchange rate expectations during the period 1890 1908 we show that the dollar faced a peso problem in that for much of the period financial markets expected it to depreciate against sterling but this never in fact happened i e expectations were persistently biased drawing on the economic history of the period we identify 11 events which probably gave rise to realignment expectations once the dollar s adherence to the gold standard was settled as a political matter in the 1896 presidential election expectations of dollar realignment abruptly subsided and united states interest rates fell relative to british rates

open economy macroeconomics developments in theory and policy this paper views developments in open economy macroeconomics through the lens of the debate over european monetary unification the empirical tendency for nominal exchange rate regimes to affect the variability of nominal and real exchange rates alike can be rationalized by sticky price theories or models of asset market liquidity effects but plausible liquidity models have difficulty generating enough persistence to match the data thus the macroeconomic stabilization costs of forgoing the exchange rate realignment option seem pertinent it is argued that our theories of efficiencies due to a common currency remain unsatisfactory despite recent advances the paper concludes by reviewing theories of currency crisis

a reexamination of option values implicit in callable treasury bonds abstract longstaff 1992 and edleson fehr and mason 1993 examine option values implicit in callable treasury bonds and report a significant puzzle implied option values are frequently negative using an alternative approach we reexamine this issue and find that implied option values are generally positive and in contrast to previous studies instances of option values sufficiently negative to overcome the bid ask spread are rare we explain the findings in other studies by showing that the method used may lead to the appearance of a negative option value when the true value is positive

managing price risk in a multimarket environment in a competitive electricity market a generation company genco can manage its trading risk through trading electricity among multiple markets such as spot markets and contract markets the question is how to decide the trading proportion of each market in order to maximize the genco s profit and minimize the associated risk based on the mean variance portfolio theory this paper proposes a sequential optimization approach to electric energy allocation between spot and contract markets taking into consideration the risks of electricity price congestion charge and fuel price especially the impact of the fuel market on electric energy allocation is analyzed and simulated with historical data in respect of the electricity market and other fuel markets in the u s simulation results confirm that the proposed analytic approach is consistent with intuition and therefore reasonable and feasible for a genco to make a trading plan involving risks in an electricity market

forecasting functional time series with a new hilbertian armax model application to electricity price forecasting a functional time series is the realization of a stochastic process where each observation is a continuous function defined on a finite interval these processes are commonly found in electricity markets and are gaining more importance as more market data become available and markets head toward continuous time marginal pricing approaches forecasting these time series requires models that operate with continuous functions this paper proposes a new functional forecasting method that attempts to generalize the standard seasonal armax time series model to the l 2 hilbert space the structure of the proposed model is a linear regression where functional parameters operate on functional variables the variables can be lagged values of the series autoregressive terms past observed innovations moving average terms or exogenous variables in this approach the functional parameters used are integral operators whose kernels are modeled as linear combinations of sigmoid functions the parameters of each sigmoid are optimized using a quasi newton algorithm that minimizes the sum of squared errors this novel approach allows us to estimate the moving average terms in functional time series models the new model is tested by forecasting the daily price profile of the spanish and german electricity markets and it is compared to other functional reference models

derivative pricing 60 years before black scholes evidence from the johannesburg stock exchange we obtain daily data for warrants traded on the johannesburg stock exchange between 1909 and 1922 and for a broker s call option quotes on stocks from 1908 to 1911 we use this new data set to test how close derivative prices are to black scholes 1973 prices and to compute profits for investors using a simple trading rule for call options we examine whether investors exercised warrants optimally and how they reacted to extensions of the warrants durations we show that long before the development of the formal theory investors had an intuitive grasp of the determinants of derivative pricing