stabilization policy a reconsideration i introduction in 1936 keynes s general theory explained how fiscal and monetary policy could be used to end depressions since that time no developed country has ever seen a downturn on the scale of the 1930s the general theory was not just a how to book on the avoidance of depressions it was an argument for stabilization policy itself the years since the general theory have seen a revolt against keynesian economics in a revisionist mode milton friedman argued that countercyclical policy cannot affect the average level of unemployment and output robert lucas and thomas sargent 1979 went further contending that it is not only impossible to increase average output it is also impossible to stabilize it more recently lucas 1987 2003 has argued that policies to stabilize output even if effective would yield negligible welfare gains thus stabilization policy should not be a macroeconomic priority lucas s conclusion notwithstanding stabilization policy has long been an explicit or implicit objective of monetary policy in most industrial countries even including those countries with inflation targets the volatility of output has in fact declined in most major industrial countries since the mid 1980s and monetary policy arguably deserves at least partial credit see bernanke 2004 mirroring practice monetary policy research commonly takes it as given that along with price stability stabilization policy the minimization of squared deviations of output around potential is an appropriate policy objective see for example clarida et al 1999 in this article we explore the economic rationale for stabilization as a policy goal concluding that it does in fact deserve high policy priority we survey a large body of literature that critiques the validity of key assumptions in lucas s argument we also offer suggestive evidence that stabilization policy can significantly reduce average levels of unemployment by providing stimulus to demand in circumstances where unemployment is high but underutilization of labor and capital does little to lower inflation a monetary policy that vigorously fights high unemployment should however also be complemented by a policy that equally vigorously fights inflation when it rises above a modest target level the federal reserve act thus wisely enunciated price stability and maximum employment as twin goals for monetary policy ii the case against stabilization policy macroeconomic analysis typically assumes that social welfare depends negatively on both inflation above a modest target level here assumed zero and unemployment above some minimum socially efficient level for example a standard social welfare function is the discounted sum of period losses l sub t of the form see among others barro and gordon 1983 pp 592 93 1 l sub t a u sub t 1 k u sup 2 b pi sup 2 sub t where u sub t and pi sub t are the unemployment and inflation rates in period t and u sup is the natural rate of unemployment the coefficient k is positive reflecting the desirability of unemployment below the natural rate because real economies deviate in many respects from perfect competition the natural rate of unemployment is likely to exceed the socially optimal unemployment rate for example with monopolistic competition goods are underproduced because they are priced above marginal cost so potential output is inefficiently low and equilibrium unemployment is too high standard macroeconomic analysis additionally assumes that inflation is determined by an expectations augmented accelerationist phillips curve of the form 2 pi sub t pi sup e sub t f u sub t u sup epsilon sub t where pi sup e sub t is the expected inflation rate at time t with expectations formed at t 1 and epsilon sub t captures supply shocks to the phillips curve at t

the effect of supply management on dairy productivity tweeten 1992 argues that the relative rate of productivity growth is a key determinant of the international competitiveness of an industry as a result of the recently negotiated general agreement on tariffs and trade gatt and north american free trade nafta deals the competitiveness of the canadian dairy industry is for the first time of direct concern to producers in particular the effect of supply management or quotas on the amount of fluid milk each producer can sell is of primary importance barichello 1981 veeman 1982 and schmitz 1983 each document the static welfare costs of supply controls but little is known about supply management s impact on productivity growth and hence competitiveness several recent studies compare the competitiveness of canadian and u s dairy production barichello and stennes 1991 jeffrey 1992 and price waterhouse 1992 use measures of financial cost and partial productivity to arrive at conflicting conclusions jeffrey and barichello and stennes finding canadian costs significantly higher than those in the u s with price waterhouse concluding that little or no difference exists partial productivity measures such as milk yield per cow are misleading indicators of competitiveness due to differences in input prices input usage levels and herd sizes among other reasons financial cost comparisons are distorted by input subsidies and the capitalization of policy rents into fixed input prices furthermore these studies provide only a static snapshot of the state of competitiveness of the canadian dairy industry and do not capture the dynamism of genetic and technological change in dairy this study determines the effect of supply management on investment and total factor productivity growth in the alberta dairy industry treating quota licenses as quasi fixed inputs in a multi variate cost of adjustment investment framework an econometric model of investment demand estimates the effect of introducing quotas on the rate of adjusting all other

inserting gm products into the food chain the market and welfare effects of different labeling and regulatory regimes the purpose of this article is to examine the system wide effects of the introduction of genetically modified gm products with and without labeling and to compare these two regimes to a third regime where gm products are not present either because they have not yet been developed or because they have been banned for each regime the decisions and welfare of consumers producers and life science companies are examined the article explicitly incorporates the consumer response to the introduction of gm technology and considers different market structures of the life science sector

inference in nonlinear econometric models with structural change this paper extends the classical test for structural change in linear regression models see chow 1960 to a wide variety of nonlinear models estimated by a variety of different procedures wald lagrange multiplier like and likelihood ratio like test statistics are introduced the results allow for heterogeneity and temporal dependence of the observations in the process of developing the above tests the paper also provides a compact presentation of general unifying results for estimation and testing in nonlinear parametric econometric models

supply management and import concessions countries such as canada which manage domestic supply by regulating both production and imports have come under pressure in recent years to liberalize their trade policy this paper examines the effect of import concessions on the distribution of rents in supply managed industries although import concessions decrease producer welfare it is shown that rather sizeable concessions may occur before producers are worse off under supply management than free trade this is especially true in industries characterized by a low free trade import share and inelastic demand with regard to net social welfare policies that are designed to transfer market rents to producers through supply management incur larger deadweight losses when they also incorporate import concessions gestion de l offre et concessions faites aux importateurs les pays qui comme le canada gerent l offre domestique en reglementant a la fois la production et les importations ont ete soumis au cours des demi eres annees a des pressions pour qu ils liberalisent leurs politiques commerciales ce memoire examine les effets de concessions faites aux importateurs sur la repartition des rentes dans les industries oiu l offre est geree meme si ces concessions reduisent le bien etre des producteurs on montre qu il faut que les concessions soient re lativement importantes pour que les producteurs soient plus mal en point sous un regime d offre geree que sous un regime de libre echange ceci est particulierement vrai dans le cas des industries caracterisees par une demande inelastique et une faible portion du marche allant aux importations en regime de libre echange pour ce qui est du niveau de bien etre social net les politiques dessinees dans le but de transf6rer les rentes aux producteurs via la gestion de l offre engendrent des pertes plus importantes quand on y ajoute aussi des concessions aux importateurs

treasury bill factors and common stock returns capital asset pricing theory gives a linear ex ante relationship between a security s return and one special portfolio return the return on all assets this linear equation is called the capital asset pricing model capital asset pricing theory alone provides no empirical hypotheses because it is derived and defined wholly with expectations tests of empirical hypotheses with historical data require an additional proposition that relates ex ante and ex post returns a model for this second proposition is called a return generating equation arbitrage pricing theory gives a more compact method for deriving a linear ex ante security return model in the arbitrage theory developed by ross 6 the return generating equation is the basis for the ex ante return relationship briefly an approximate linear expected return equation is derived directly from the return generating equation so two separate models are not required in addition the ex ante return equation is defined in terms of an arbitrary number of special factor portfolio returns rather than a single market portfolio return in this sense arbitrage pricing theory has richer implications and a simpler structure than capital asset pricing arbitrage pricing theory starts with a linear return generating equation for each security

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

low inflation targeting and long run unemployment the model of akerlof dickens and perry 2000 adp predicts that low inflation may cause unemployment to persist at high levels when applied to u s data their results strongly rejected the conventional nairu model we apply the adp model to swedish data the fact that our swedish data also reject the nairu model has a number of interesting implications for the swedish economy and potentially for other european countries as well the results indicate that raising the swedish inflation target from 2 to 4 percent would bring longrun unemployment down by several percentage points the possibility of adp type long run phillips curves also across the euro countries may raise some concern about the emu project while detailed studies on other countries are needed there is nothing to suggest that these non vertical phillips curves would not differ considerably across the euro countries any single inflation level targeted by the ecb would then generate excess unemployment in individual member states

hyperbolic discounting and the phillips curve using a standard dynamic general equilibrium model we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long run effects on real variables

pricing and hedging interest rate options evidence from cap floor markets we examine the pricing and hedging performance of interest rate option pricing models using dailydata on us dollar cap and floor prices across both strike rates and maturities our results show that fitting the skew of the underlying interest rate probability distribution provides accurate pricing results within a one factor framework however for hedging performance introducing a second stochastic factor is more important than fitting the skew of the underlying distribution this constitutes evidence against claims in the literature that correctly specified and calibrated one factor models could replace multi factor models for consistent pricing and hedging of interest rate contingent claims 2004 elsevier b v all rights reserved

cross subsidization due to inframarginal support in agriculture a general theory and empirical evidence a general theory of cross subsidization due to inframarginal support is developed two sources of output distortion are identified exit deterrence and extramarginal output some firms would not be in business without the subsidy cost savings due to declining average costs are always greater than the losses incurred where price equals marginal cost moreover it is theoretically possible for inframarginal subsidies to expand output more than equivalent fully coupled subsidies empirical analysis of u s dairy subsidies isolates these components of cross subsidization and finds distortions from inframarginal support to be substantial with implications for trade negotiations dispute settlement and policy formulation copyright 2008 oxford university press

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

import sensitive products and perverse tariff rate quota liberalization this paper shows that a tariff rate quota s trq minimum access expansion can perversely trigger domestic price increases often trqs have prohibitive over quota tariffs to mimic import quotas in providing minimum market access in the wto s doha round it is likely that countries using trqs will avoid aggressive tariff reductions if they increase the quota portion of trqs we show that when the import price lies between the unit cost of production and the price received by domestic upstream firms an increase in import quota as a share of domestic production may cause an increase in the domestic retail price une expansion de l acces minimum au marche d un contingent tarifaire ct peut generer des augmentations perverses de prix internes souvent les ct ont des tarifs hors contingent prohibitifs pour reproduire les effets des quotas a l importation tout en garantissant un acces minimum au marche dans le cycle de doha de l omc il est probable que les pays utilisant des ct vont pouvoir eviter des reductions importantes de tarifs si le contingent des ct est augmente nous montrons qu une augmentation du contingent defini comme une fraction de la production interne peut engendrer une augmentation du prix interne des detaillants si le prix des importations se situe entre le cout unitaire de production et le prix interne des firmes en amont

testing steady state implications for the nairu estimates of the nairu are usually derived either from a phillips curve or from a wage curve this paper investigates the correspondence between the operational nairu concepts and the steady state of a dynamic wage price model we derive the parameter restrictions that secure that correspondence the full set of restrictions can be tested by econometric analysis of the wage price system and this method is demonstrated for norwegian data a set of necessary conditions can be tested from estimated wage curves alone existing international evidence from empirical wage equations are reinterpreted in light of these conditions

the phillips curve regime switching and the nairu abstract this paper explores the impact of nonlinearities in the phillips curve and its representation by means of a regime switching model on the meaning and the usefulness of the nairu by implementing a regime switching model that can endogenously generate fluctuations in inflation and in the rate of unemployment we conclude that the nairu is not necessarily a single value is not necessarily reachable and is very difficult to measure the model yields a neutral rate which is more an interval of values than a precise number furthermore by postulating dynamic interdependence between real and monetary aspects the model weakens the theoretical basis of the nairu concept itself

testing the nairu model for the united states this paper tests using u s data the dynamics implied by the nairu view of the relationship between inflation and the unemployment rate the results are somewhat sensitive to the measure of inflation used but they generally reject the dynamics an alternative way of thinking about the relationship between inflation and the unemployment rate is suggested

the pricing of options on default free bonds recent developments in the finance literature dealing with the valuation of contingent claims have been triggered by black and scholes 2 with their valuation of european options on corporate stocks the type of valuation model derived by black and scholes is attractive because it is independent of preferences this independence is possible due to the fact that the contingent claims are usually assumed to be contingent on traded assets or traded state variables for example a european call option is a claim contingent on the value of the corresponding stock to maintain the independence of the claim from preferences however some variables have to be discarded and considered as constants for example the rate of interest which is not a traded state variable is considered a constant in most of the literature see black and scholes 2 merton 11 and ingersoll 9 though this approximation might not cause important discrepancies in the case of corporate liabilities and options on corporate liabilities the effect of such an approximation on the value of default free bonds and options on default free bonds is more important since these liabilities depend only on the rate of interest

evaluation of callable bonds finite difference methods stability and accuracy the purpose of this paper is to evaluate numerically the semi american callable bond by means of finite difference methods this study implies three results first the numerical error is greater for the callable bond price than for the straight bond price and too large for real applications secondly the numerical accuracy of the callable bond price computed for the relevant range of interest rates depends entirely on the finite difference scheme which is chosen for the boundary points thirdly the boundary scheme which yields the smallest numerical error with respect to the straight bond does not perform best with respect to the callable bond the callable bond is a straight coupon bond with the provision that allows the debtor to buy back or to call the bond for a specified amount the call price plus the accrued interest since the last coupon date at some time the call date s during the life of the bond three types of callable bonds can be observed in financial markets the american callable bond may be repurchased at any time on or before the final redemption day in contrast to the european or semi american counterparts which may only be called at one or several specific dates respectively in the case of semi american bonds the debtor gives the bondholder two months notice the callable bond can be viewed as a compound security which consists of an otherwise identical straight bond and of an embedded call option which is not traded and the price of which is therefore not observable the embedded call option which is written on the underlying straight bond can be viewed as being sold by the initial

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation

bond price dynamics and options this paper provides a closed form preference free means of valuing a european call option written on a default free pure discount bond investors may not agree upon a theory of the term structure but they will necessarily agree on equilibrium option values further these equilibrium option values may be obtained without recourse to numerical approximation default free pure discount bond prices were posited to follow a non standardized transformed brownian bridge process this specification implicitly incorporates the terminal constraint that the price of a default free pure discount bond equal its face value at maturity contingent claim valuation necessarily involves consideration of terminal constraints on the value of financial securities the brownian bridge specification permits an appropriate means of incorporating a number of such constraints therefore while this paper has considered only the application of the brownian bridge process to the valuation of debt options the introduction of this process may provide for many further financial applications

time dependent variance and the pricing of bond options in this paper we develop a model for valuing debt options that takes into account the changing characteristics of the underlying bond by assuming that the standard deviation of return is proportional to the bond s duration the resulting model uses the bond price as the single state variable and thus preserves much of the simplicity and robustness of the black scholes approach the paper provides comparisons between option prices computed using this model and those using the black scholes and brennan and schwartz models the last decade has seen a dramatic increase in the volatility of bond markets leading to a growing interest in financial instruments that can be used to hedge this risk thus in the u s canada and the u k there has been a proliferation of new interest rate dependent securities such as bond futures options on bonds options on bond futures swap agreements and bonds with option features such as callability putability retractability and so forth with the development of these markets the problems of valuation and the derivation of the hedging strategies have become subjects of increasing importance to both practitioners and academics several valuation methods have been suggested in the literature but so far no consensus has emerged as to the best solution to these problems the simplest approach to the valuation of debt options and probably the most widely used in practice is the black scholes model 3 this method originally developed for the valuation of stock options assumes that the variance of the rate of return on the underlying security is constant while this assumption is plausible for common stocks it is clearly unreasonable for bonds with a finite maturity the distinctive feature of the problem of debt option valuation is that the characteristics of the underlying asset change over time because the price is constrained to converge to the face value of the bond at maturity a second drawback of the black scholes approach is that it assumes a constant short term interest rate an assumption that is clearly inconsistent with stochastic returns on bonds in spite of these problems the black scholes model has been frequently used in practice to value debt options because of its overwhelming simplicity in comparison with other available methods

exchange rate exposure abstract in this paper we examine the relationship between exchange rate movements and firm value we estimate the exchange rate exposure of publicly listed firms in a sample of eight non us industrialized and emerging markets we find that exchange rate movements do matter for a significant fraction of firms though which firms are affected and the direction of exposure depends on the specific exchange rate and varies over time suggesting that firms dynamically adjust their behavior in response to exchange rate risk exposure is correlated with firm size multinational status foreign sales international assets and competitiveness and trade at the industry level

stochastic volatility movements in short term interest rates and bond option values abstract two classes of models for pricing interest rate contingent claims are compared the first contains standard single factor models while the second includes stochastic volatility variants of these it is demonstrated that incorporating stochastic volatility significantly improves the ability of the models to fit movements in short term interest rates the fundamental reason for this is that standard univariate models do not generate enough conditional heteroskedasticity the models are also compared on the basis of bond option prices when each is constrained to fit a particular yield curve the results suggest that stochastic volatility models will typically produce lower option values than corresponding single factor models particularly for near the money to deep out of the money options this is because estimated historical volatilities are significantly lower under stochastic volatility when single factor models are constrained to the same level of volatility as implied by stochastic volatility models in most cases the pricing differences become minor

the effect of supply management on herd size in alberta dairy a supply management program limits the aggregate supply of a commodity often through the use of marketable quota licenses the static aggregate welfare effects of supply controls are well known but the farm level dynamic effects on dairy investment are not a theoretical cost of adjustment model is used to show that supply management reduces the rate of quasi fixed input adjustment at the farm level in fact when a quasi fixed input is complementary to quota licenses investment or disinvestment can be impaired to such an extent that the input moves away from the long run equilibrium as a result overinvestment in this input can significantly reduce productivity growth

an exact bond option formula this paper derives a closed form solution for european options on pure discount bonds assuming a mean reverting gaussian interest rate model as in vasicek 8 the formula is extended to european options on discount bond portfolios

on the determinants of the value of call options on default free bonds the fundamental determinants of the value of an option on a bond are the level and slope of the term structure and the level of interest rate uncertainty competing models that have been developed to price bond options produce similar estimates as long as those models are conditioned on similar values for the fundamental determinants this result is established for simple options with known closed form solutions and for more complex options that require numerical methods for evaluation the finding is confirmed for a wide range of economic conditions and it is shown to be robust with respect to the number and nature of factors that generate interest rate movements copyright 1990 by the university of chicago

the valuation of options on coupon bonds abstract we derive simple closed form expressions for european options on coupon bonds using the general equilibrium term structure framework of cox ingersoll and ross the properties of these options are very different from those implied by the black scholes model for example bond call and put values can move in the same direction as the value of the underlying bond changes this has important implications for hedging interest rate risk with bond options furthermore bond option values can be decreasing functions of interest rate volatility as well as their time to expiration we also examine the properties of american bond options

does the nairu have the right dynamics the nairu view of the relationship between inflation and the unemployment rate is that there is a value of the unemployment rate the nairu below which the price level forever accelerates and above which the price level forever decelerates this view imposes two important restrictions on the dynamics of the price process this can be seen by examining a simple version of the nairu equation

a cointegration study of the efficiency of the us treasury strips market one theoretical implication of cointegration according to granger 1986 is that asset prices in an efficient market cannot be cointegrated using price data on us treasury strips with maturities from 2 15 1997 to 8 15 2015 it is found that a set of three strips series is often cointegrated in addition by setting up a costless hedge portfolio from three strips with three different maturities it is found that the hedge portfolio is often stationary and thus arbitrage opportunities are likely to occur that is because the hedge portfolio is costless and stationary cash in can be done when the value of the hedge portfolio is either positive or negative however when taking liquidity tax effects and transaction costs into consideration these arbitrage profits would be unlikely hence it is concluded that the us treasury strips market is efficient

a reexamination of exchange rate exposure finance theory suggests that changes in exchange rates should have little influence on asset prices in a world with integrated capital markets indeed the existing literature examining the relationship between international stock prices and exchange rates finds little evidence of systematic exchange rate exposure we argue in this paper that the absence of evidence may be due to restrictions imposed on the sample of data and the empirical specifications used in previous studies we study a broad sample of firms in eight countries over an eighteen year period we find that firm level and industry level share values are significantly influenced by exchange rates further we do not find evidence that exchange rate exposure is falling or becoming less statistically significant over time our results suggest that significant firm industry and country specific differences remain even as financial markets become more and more integrated

real wages real interest rates and the phillips curve this article argues that any analysis of a phillips curve should include the real interest rate in addition to inflation and real wages as any changes in the interest rate changes the labour capital input mix in the production process leading to a change in the level of employment in the economy to justify this argument a phillips curve model is developed which includes the real interest rate in addition to inflation and real wages after the diagnosis of the time series properties of the data an error correction model is developed and estimated using a set of us annual data from 1948 to 1996 the estimated parameters of the model do suggest that one should really take into consideration of the real interest rate while analysing the phillips curve a non nested test f test also suggests that the phillips curve model with real interest rate as an additional variable performs better than the conventional method that does not include the real interest rate

valuing debt options empirical evidence abstract a two factor model using the instantaneous rate of interest and the return on a consol bond to describe the term structure of interest rates the brennan schwartz model is used to derive theoretical prices for american call and put options on us government bonds and treasury bills these model prices are then compared with market prices the theoretical model used to value the dept options also provides hedge ratios which may be used to construct zero investment portfolios which in theory are perfectly riskless several trading strategies based on these riskless portfolios are examined

stochastic processes for interest rates and equilibrium bond prices default free bonds represent in essence money sold forward the investor gives dollars say to the government now in exchange for a contract which promises to pay with probability one a given number of dollars at maturity and possibly a stream of intermediate coupon payments prior to maturity only recently have financial economists begun to examine the pricing of those bonds in a portfolio context in that framework nominal liquidity premiums or risk premiums on long term default free bonds are attributable to uncertainty about taste technological and price level changes which may occur prior to maturity of the bonds and prior to each coupon payment if any to the extent that the investor is unable to diversify away that uncertainty there is a systematic risk attached to the marginal utility which he or she can derive from the use in consumption or investment of the dollar payoffs on the bonds in some term structure models the instantaneous or short term rate of interest denoted here as a function of time t by r t in nominal terms and r t in real terms can be taken as a sufficient statistic1 for the source of systematic uncertainty about the marginal utility of the proceeds to be derived from defaultfree bonds maturing beyond the next instant e g merton 1974 vasicek 1977 cox ingersoll and ross 1977 specific assumptions about tastes technology and utility functions lead to specific equilibrium stochastic processes for the instantaneous short term riskless rate and longer term bond prices which are modelled as functionally dependent upon maturity and that short term riskless rate if a closed form solution exists for the long term bond price as a function of maturity and the short term interest rate it will be conditional inter alia on the parameters of the stochastic process for that short term rate marsh 1981 proposed that the closed form solutions could be tested in terms of the restrictions implied cross sectionally on the parameters of the time series process for the returns or prices of longer term bonds each with a given term to maturity for an analogy outside the term structure literature think of the closed form solution given by black and scholes 1972 for the price of an option on a nondividend paying stock with lognormal price dynamics given the model the cross section of time series for the changes in prices for each of the several options written on the same stock are not unrestricted their dispersion is functionally linked to the same volatility parameter for the stock price thus the option model including

the volatility of short term interest rates an empirical comparison of alternative models of the term structure of interest rates we estimate and compare a variety of continuous time models of the short term riskless rate using the generalised method of moments we find that the most successful models in capturing the dynamics of the short term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate a number of well known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility we show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk

measuring returns to an innovation in an imperfectly competitive market application to mechanical harvesting of processing tomatoes in taiwan in this paper we develop and apply a general imperfect competition model to evaluate returns to a cost reducing innovation most related work has applied models of perfect competition results demonstrate that welfare estimates derived from a model of perfect competition may be seriously distorted when the relevant market is imperfectly competitive application to mechanical harvesting of processing tomatoes in taiwan reveals the potential for significant benefits to adoption of mechanical harvesting in taiwan however farmers incentives to adopt the harvester are attenuated because total benefits are reduced by oligopsony power in tomato procurement and imperfectly competitive processors will capture a large share of the benefits that remain in this paper we analyze the welfare impacts of mechanical harvesting of processing tomatoes in taiwan a key distinguishing feature of the study relative to previous empirical work on returns to innovations is that it permits market power to be exhibited in both the markets for the raw agricultural product and the processed product outputs indeed the empirical results find significant processor market power in taiwan in both the procurement of raw tomatoes and the sale of processed products in the domestic market the study demonstrates that welfare estimates derived from a model of perfect competition may be seriously distorted when in fact the relevant markets are imper

government bond returns measurement of interest rate risk and the arbitrage pricing theory empirical tests are reported for ross arbitrage pricing theory using monthly data for u s treasury securities during the 1960 1979 period we find that mean returns on bond portfolios are linearly related to at least two factor loadings multivariate test results however are not consistent with the apt our sample data in the u s treasury securities market are also not consistent with either version of the capm one monthahead forecasts of excess returns using factor generating models are compared with corresponding naive predictions or predictions using the market model with various

hidden costs of supply management in a small market canada regulates its dairy and poultry industries through supply management the supply management programs use target prices production quotas and import tariff rate quotas to raise domestic prices canadian supply managed producers cannot export their output to world markets as exports would be considered subsidized under world trade organization rules in this paper we show that once foregone export opportunities are accounted for supply management may no longer be beneficial to domestic producers of the supply managed commodities the extent to which foregone profits from exports dominate domestic rents depends on canada s comparative advantage domestic market elasticities and the extent of supply management distortion in the domestic market