aggregation and pairwise aggregation of demand when the distribution of income is fixed abstract this paper derives necessary and sufficient conditions for pairwise aggregation of the demand functions of a group of consumers conditions under which the mean demand for each pair of consumers satisfies the slutsky restrictions when the distribution of income is fixed the sufficient conditions imply existence of a representative competitive consumer whose demand is the mean demand of the group the necessary conditions imply that such a representative consumer exists for every fixed income distribution only if the consumers have homothetic preferences or alternatively if for each price vector all the consumers income expansion paths lie in the same plane

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

spatial competition with free entry chamberlinian tangencies and social efficiency abstract free entry in loschian spatial competition leads to a tangency between each firm s negatively sloped average revenue and the downsloping portion of average costs as in chamberlin s monopolistic competition it is generally concluded that this equilibrium involves too many inefficiently small firms however this conclusion is incorrect the difference between price and firm marginal production costs in spatial equilibrium is just sufficient to cover the additional marginal cost of output resulting from availability of multiple locations this chamberlinian tangency does not imply inefficiency because it does not include all the social costs and benefits resulting from spatial competition

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

detecting spot price forecasts in futures prices futures markets are often described as having two important social functions first they facilitate the transfer of commodity price risk and second they provide forecasts of commodity prices the evidence that futures markets transfer price risk is irrefutable however there is some debate about the markets forecasting ability in particular forecasts based on the current spot price are often as good as those based on the futures price some economists cite a failure to detect superior forecast power in futures prices as evidence of market inefficiency see e g leuthold 1974 and martin and garcia 1981 there are at least two other explanations first there may be nothing for the futures market to forecast if the current spot price equals the true expectation of the future spot price the futures market cannot provide a better forecast second a superior futures market forecast may be obscured by the unexpected component of the realized spot price the true expectation of the future spot price is unobservable one must approximate this expectation with the actual future spot price

term premiums in bond returns abstract this paper examines expected returns on u s treasury bills and on u s government bond portfolios expected bill returns are estimated from forward rates and from sample average returns both estimation methods indicate that expected returns on bills tend to peak at eight or nine months and never increase monotonically out to twelve months reliable inferences are limited to treasury bills and thus to maturities up to a year the variability of longer term bond returns preempts precise conclusions about their expected returns

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

testing the expectations hypothesis using long maturity forward rates abstract this paper reports on long maturity interest rates the results hardly vary across maturities using forward rate regressions the expectations hypothesis eh is numerically close to being accepted for a long short data set the eh is statistically rejected accepted

a simple account of the behavior of long term interest rates recent empirical research on the term structure of interest rates has shown that the long term interest rate is well described by a distributed lag on short term interest rates but does not conform to the expectations theory of the term structure it has been suggested that the long rate overreacts to the short rate this paper presents aunified taxonomy of risk premia or deviations from the expectations theory this enables the hypothesis of overreaction to be formally stated it is shown that if anything the long rate has underreacted to the short rate however the independent movement of the long rate is primarily responsible for the failure of the expectations theory

nominal interest rates as indicators of inflation expectations forward interest rates have become popular indicators of inflation expectations theusefulness of this indicator depends on the relative volatilty and the correlation of inflation expectations and expected real interest rates this paper studies u s and u k data using a range of different tools and data sets the forward rate rule perfoms reasonably well in spite of significant movements in the expected real interest rate the reason is that the noise that movements in the expected real interest rate add to the inflation expectations is balanced by a tendency for expected real interest rates and inflation expectations to move in opposite directions

exports and labor demand searching for functional structure in multi output multi skill technologies to simplify the representation of a technological relationship between inputs and outputs a production unit s technology must typically satisfy some restrictive conditions some of them being well known in the literature this article presents new results for aggregating labor inputs and outputs in terms of restrictions on elasticities of scale and substitution these conditions are then empirically investigated in a framework that is flexible and does not lose its flexibility after separability being imposed the empirical findings of the exact approach to aggregation are found to be rather pessimistic on the possibility of providing a simplified representation

term structure of interest rates in the singapore asian dollar market this paper investigates empirically the term structure of interest rates in the singapore asian dollar market we consider extended versions of the arch m model of engle lilien and robins 1987 the extended models permit autocorrelation skewness and leptokurtosis in the residuals the robustness of the empirical tests with respect to alternative specifications of the arch process is examined it turns out that there is significant time varying term premium and this conclusion is independent of the hypothesized arch model

nested tests of alternative term structure theories controversies in term structure theory center around the existence and variability of term premia in securities yields in this paper the term premium on a default free n period bond is defined as the difference between its observable yield to maturity and the average expected per annum rate of return on an n period strip of rollover investments in one period bonds to test alternative term structure theories without introducing ex post proxies for expectational variables this paper uses a set of cross section interest rate forecasts collected jointly with burton malkiel of princeton university from a population of large institutional lenders at four different phases of a single interest rate cycle statistical tests strongly confirm the existence of nonzero term premia at each survey date thereby rejecting the pure expectations theory of the term structure additional tests are unable to reject restrictions implied by the liquidity premium hypothesis that term premia should be positive and increase with maturity finally contrary to the martingale hypothesis ex ante term premium data vary significantly overtime and show a positive association with the level of interest rates this abstract was borrowed from another version of this item

a note on the determinants of unexpected exchange rate movements abstract in this paper we study the relative importance of surprises in fundamentals in explaining unexpected exchange rate movements employing a unique survey dataset that contains matched exchange rate and interest rate expectations we are able to derive a number of interesting conclusions a variance decomposition of unexpected exchange rate movements into various components reveals that interest rate news is relatively unimportant but that changes in perceptions about risk premia and more importantly revisions of expectations with regard to future exchange rate levels are crucial in explaining unexpected exchange rate movements

the expectation hypothesis of the term structure of very short term rates statistical tests and economic value this paper re examines the validity of the expectation hypothesis eh of the term structure of us repo rates ranging in maturity from overnight to three months we extend the work of longstaff 2000a in two directions i we implement statistical tests designed to increase test power in this context ii more importantly we assess the economic value of departures from the eh based on criteria of profitability and economic significance in the context of a simple trading strategy the eh is rejected throughout the term structure examined on the basis of the statistical tests however the results of our economic analysis are favorable to the eh suggesting that the statistical rejections of the eh in the repo market are economically insignificant

federal reserve interest rate targeting rational expectations and the term structure abstract the amount of information in the yield curve for forecasting future changes in short rates varies with the maturity of the rates involved indeed spreads between certain long and short rates appear unrelated to future changes in the short rate contrary to the rational expectations hypothesis of the term structure this paper estimates a daily model of federal reserve interest rate targeting behavior which accompanied by the maintained hypothesis of rational expectations explains the varying predictive ability of the yield curve and elucidates the link between fed policy and the term structure

good bye financial repression hello financial crash some unintended consequences of financial liberalization in latin america are analyzed in this paper intrinsic imperfectious in financial markets and the policy dilemmas they pose are reviewed first the stylized facts of southern cone experiments in financial liberization are then presented alternative ways of organlzing domestic capital markets under latin american conditions are discussed and an eclectic reform mongering program is proposed

engel curves leading to the weak axiom in the aggregate for every range of admissible incomes the authors characterize the class of engel curves with the property that if an economy has first a price independent distribution of income and second preferences which are identical across consumers and generate engel curves in the class then the corresponding aggregate demand function satisfies the weak axiom of revealed preference this class is defined by two simple conditions the no torsion condition says that in the relevant range of income the engel curve is contained in a plane through the origin the uniform curvature condition says that in addition the engel curve is either convex or concave to the origin copyright 1987 by the econometric society

the implications of additive community preferences in a multi consumer economy we investigate the consequences of imposing additivity on community preferences we show that there are important implications of additive community preferences that are not implied by the additivity of a single consumer s preferences in particular we show that imposing additivity on community preferences implies the existence of a representative consumer with a utility function in the ces family we demonstrate the restrictive nature of these implications with three examples our interpretation of the results is that single consumer models are unable to adequately represent important features of multi consumer economies

the revival of the expectations hypothesis of the us term structure of interest rates abstract us interest rate data from 1987 to 1995 show a substantial predictive power of the spread for the short rate in line with the expectations hypothesis the estimation of a mccallum policy reaction model supports our conjecture that this striking result can be attributed to the adoption of the spread as an indicator for us monetary policy since the late eighties 1997 elsevier science s a

the term structure of interest rates during a financial reform argentina 1977 81 abstract this paper studies the term structure of interest rates in argentina following the financial and monetary reforms of 1977 which mainly entailed the liberalization and deregulation of the financial system using first order conditions from the international capital asset pricing model we derived a set of term structure equations expressed in terms of returns data alone empirical implementation of these equations yielded results that are consistent with an important degree of time variation in term premiums

new hope for the expectations hypothesis of the term structure of interest rates survey data on interest rate expectations permit separate testing of the two alternative hypotheses in traditional term structure tests that the expectations hypothesis fails and that expected future interest rates are ex post inefficient forecasts we find that the source of the spread s poor predictions of future interest rates varies with maturity at short maturities the expectations hypothesis fails at long maturities however changes in the yield curve reflect changes in expected future rates one for one an implication of the expectations hypothesis this result confirms earlier findings that long rates underreact to short rates but now it cannot be attributed to term premia if the attractiveness of an economic hypothesis is measured by the number of papers which statistically reject it the expectations theory of the term structure is a knockout most tests beginning with macaulay 1938 find no evidence supporting the expectations hypothesis 1 many cannot even reject statistically the alternative hypothesis that the spread between long and short rates contains no information about future interest rate changes 2 to make matters worse in u s postwar data future long rates tend to rise when short rates are above long rates since the expectations hypothesis would predict that long rates tend to fall the theory often does worse than even the naive model that future interest

time variation in term premia international survey based evidence using a large previously unexplored data set of survey based interest rate forecasts that covers a broad range of countries this paper re examines the expectations hypothesis of the term structure of interest rates we find that survey based interest rate forecasts outperform not only a random walk forecast but also outperform forecasts from forward rates when using these superior survey based forecasts in a modified expectations hypothesis test the expectations hypothesis is rejected for fewer countries at lower significance levels and has greater explanatory power than when using a traditional forward rates based test we furthermore document strong time variation in the term premia which is an important reason why the traditional expectations hypothesis test is rejected so frequently this time variation seems to arise from the changing attitudes towards risk among market participants and as a compensation for the change in liquidity in the term structure finally we find that generalizing findings from earlier u s studies to other countries may lead to bias in the true economic relationships in these countries

the october 1979 change in the u s monetary regime its impact on the forecastability of canadian interest rates subsequent to the october 1979 shift in monetary policy in the united states interest rates in north america not only reached unprecedented levels but also exhibited unprecedented volatility using canadian data the authors show that anticipated quarterly changes in long term rates associated with the rational expectations model have remained small during this post shift period the authors examine three sets of recorded forecasts of long term interest rates in canada and note their failure to improve upon the no change prediction the perverse relationship between the slope of the yield curve and the subsequent movement in long term rates exists in the canadian data but is of only modest value in a forecasting context the excess returns on long term bonds implicit in the recorded forecasts of the level of interest rates vary sharply yet there is little evidence that forecasters have identified a predictable component of time varying term premia

the term structure of very short term rates new evidence for the expectations hypothesis abstract empirical researchers have frequently rejected the expectations hypothesis the expectations hypothesis however has seldom if ever been tested at the extreme short end of the term structure where maturities are measured in days or weeks using overnight weekly and monthly repo rates i find that term rates are almost unbiased estimates of the average overnight rate this evidence provides new support for the expectations hypothesis

the existence of input and output aggregates in aggregate production functions in this paper we make two contributions to the literature on aggregating inputs and outputs in economy production functions first we present necessary and sufficient conditions for aggregating efficiently allocated goods under general assumptions on the technology second we present a general theorem on the conditions for the existence of aggregates of both efficiently allocated goods and arbitrarily allocated goods we use this theorem to elucidate the role of efficiency in determining the existence of aggregates