monetarism and the us economy we take a small macroeconomic model due to stein designed to capture the essential aspects of keynesian and monetarist propositions especially on the question of crowding out we show that stein s empirical procedure is inadequate he ignores the restrictions that he imposed on the structure of his model and concentrates on single equation reduced form estimation we are able to derive complete maximum likelihood estimates of the structural parameters subject to the non linear restrictions of the model using identical data and the same specifications but with these more appropriate estimation techniques we show that conclusions opposite to those of stein may be reached

technology adoption under production uncertainty theory and application to irrigation technology we propose a theoretical framework to analyze the conditions under which a farmer facing production uncertainty due to a possible water shortage and incomplete information will adopt a more efficient irrigation technology a reduced form of this model is empirically estimated using a sample of 265 farms located in crete greece the empirical results suggest that farmers choose to adopt the new technology in order to hedge against production risk in addition we show that the farmer s human capital also plays a significant role in the decision to adopt modern more efficient irrigation equipment

causes of the forward bias non rational expectations versus risk premia the sources of the systematic forward bias in the foreign exchange market are sought a theoretical framework based on some well known international parity conditions is developed in order to derive testable hypotheses these are a only risk premia account for the observed deviations between forward and future sport rate c anticipated real exchange rate changes explain part of the bias the provided evidence is not consistent with any of these hypotheses which in turn implies that part of the bias may be due to non rational expectations

methodical madness technical analysis and the irrationality of exchange rate forecasts substantial empirical research documents that exchange rate forecasts are not formed rationally this paper identifies a common technical trading signal the head and shoulders pattern as a potential source of departures from rationality in exchange rate forecasts forecasts based on this pattern are evaluated for daily dollar exchange rates over 1973 to 1994 using two criteria for rationality profitability and efficiency resulting profits replicable in real time are tested for statistical significance using a bootstrap technique we find that the rule is profitable but not efficient since it is dominated by simpler trading rules

rational expectations as long run equilibria tests for indian securities abstract it is recommended that the standard bias test for muth rational expectations should be augmented in the form of a dynamic model amongst other advantages this approach permits the researcher to test unbiasedness as a long run equilibrium of the underlying dynamic adjustment process relating expectations to realizations the approach is applied to a new data set on traders expectations in the madras stock exchange although bias is generally found in the short run the long run equilibrium is consistent with rational expectations in about half the cases studied significant steady state biases are indicated for the remainder

a critical appraisal of the effectiveness of uk perennial energy crops policy since 1990 abstract energy crops are cultivated primarily for bioenergy production but can also have wider benefits to agriculture and the environment policies put in place in the uk and europe have promoted bioenergy and the growth of energy crops despite the various policy support mechanisms the cultivation of perennial energy crops has proceeded at a low rate this study rigorously analyses some of the key uk bioenergy policies since 1990 to assess why perennial energy crops have not fulfilled their potential the uk energy crops market is scrutinised and shows the industry is still nascent compared to government aspirations case studies of both successful and unsuccessful projects are evaluated to reveal how effective different policies have been in establishing uk perennial energy crops this original review shows significantly that none of the projects initiatives or schemes described can be viewed as an absolute success the main obstacles that have hindered progress include the lack of long term supportive energy crops policy the failure of headline projects and organisations the lack of competitiveness of long term perennial crop options compared to annual crops bureaucracy of schemes over ambitious projects and large scale support schemes tending to favour imported biomass rather than support domestic supply 25 years of failed energy crops policy suggests there needs to be a long term strategy future support for the sector must join up policy between different government departments to recognise multi functional benefits of perennial energy crops support mechanisms could aim to provide a competitive advantage for local supply and use and improve management of cashflows during establishment the risk burden should be shared between suppliers and end users smaller scale projects using established technologies are required with energy crops introduced in a phased manner supply side measures need to be balanced with demand side incentives to link supply with end user markets

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

are outcomes driving expectations or the other way around an i 2 cvar analysis of interest rate expectations in the dollar pound market abstract this paper uses consensus forecasts to address empirical puzzles in international macro using the cointegrated var model the data consisting of three month libor rates their three month ahead forecasts prices and exchange rates for the us and uk were all found to be near i 2 consistent with imperfect knowledge expectations the i 2 analysis showed that over the medium run the nominal exchange rate has moved away from equilibrium values with interest rates following suit whereas over the long run the nominal exchange rate was adjusting while the interest rate forecasts pushed the system away from steady state evidence of self reinforcing feedback mechanisms in the system signals the importance of speculative bubbles for the determination of the exchange rate and the interest rates

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

predictability in financial markets what do survey expectations tell us abstract there is widespread evidence of excess return predictability in financial markets for the foreign exchange market a number of studies have documented that the predictability of excess returns is closely related to the predictability of expectational errors of excess returns in this paper we investigate the link between the predictability of excess returns and expectational errors in a much broader set of financial markets using data on survey expectations of market participants in the stock market the foreign exchange market the bond market and money markets in various countries the results are striking first in markets where there is significant excess return predictability expectational errors of excess returns are predictable as well with the same sign and often even with similar magnitude this is the case for foreign exchange stock and bond markets second in the only market where excess returns are generally not predictable the money market expectational errors are not predictable either these findings suggest that an explanation for the predictability of excess returns must be closely linked to an explanation for the predictability of expectational errors

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

evaluating the impact of three incentive programs on the economics of cofiring willow biomass with coal in new york state abstract plantations of fast growing willow shrubs are being promoted as a source quality biomass feedstock for bioenergy and bioproducts in new york state ny in the near term cofiring of the feedstock in combination with other woody biomass with coal in existing utility power boilers is considered to be the most promising conversion method for energy generation despite the clear technological viability and associated environmental benefits cofiring of willow has not been widely adopted the relatively high production cost of the willow feedstock which is over twice that of coal is the primary reason for this lack of interest taxes that account for some of the social costs of using coal and or incentives that appropriate value for some of the social benefits of using willow are essential for eliminating most or the entire current price differential this paper presents an integrated analysis of the economics of power generation from cofiring willow biomass feedstock with coal from the perspective of the grower aggregator and the power plant emphasis is placed on analyzing the relative impact of a green premium price a closed loop biomass tax credit and payments to growers under the proposed conservation reserve program crp harvesting exemption policy the crp payments reduced the delivered cost of willow by 36 35 to 1 90 gj 1 and 1 70 gj 1 under current and increased yield conditions respectively these prices are still high relative to coal other incentives are required to ensure commercial viability the required levels of green premium price 0 4 1 0 cents kwh 1 and biomass tax credit 0 75 2 4 cents kwh 1 vary depending on whether the incentives were being applied by themselves or in combination and whether current yield or potential increased yields were being considered in the near term cofiring willow biomass and coal can be an economically viable option for power generation in ny if the expected overall beneficial effects associated with the production and use of the biomass is accounted for

the pricing of forward contracts for foreign exchange this paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market if these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies this condition imposes testable restrictions on the parameters of a multivariate regression model the empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

unemployment inflation and monetarism the council s report provides a look at the 1969 71 game plan to disinflate by means of retarding aggregate demand the president elect s task force on inflation recommended as a first interim step that aggregate demand be slowed so as to bring the unemployment rate back to some equilibrium region around 4 5 percent what happened was that under the cover of the expectation and acceptance of such a limited step towards re equilibration the administration gradually tightened monetary and fiscal policy so severely as gradually to send the unemployment rate whizzing past the equilibrium zone to around 6 percent to my knowledge the theory of how and how well this medicine would act to cure the patient of his inflation was never spelled out by the council of economic advisers pp 533 34

a note on exchange rate expectations and nominal interest differentials a test of the fisher hypothesis this note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period this proposition often called the fisher open hypothesis or the hypothesis of perfect asset substitutability has been a major component of recent theories of exchange rate determination and has important implications for monetary policy 1 the fisher hypothesis differs from the covered interest parity theorem enunciated by keynes 11 while covered interest parity equates the nominal interest differential between financial centers to a known premium or discount on forward foreign exchange and is thus in principle riskless fisher parity involves risk in an essential way the two conditions are equivalent only when forward exchange rates equal expected future spot rates recent theoretical work for example that of grauer litzenberger and stehle 8 kouri 12 and frankel 6 shows that this need not be the case when market participants are risk averse thus while covered interest parity must always hold exactly in an informationally efficient asset market with no transactions costs fisher parity need not nominal interest differentials may reflect risk premia in addition to expected exchange rate movements 2 it should be emphasized at the outset that the tests conducted in this paper are really joint tests of the fisher hypothesis and a weak form of foreign exchange market informational efficiency levich 14 has argued that tests of market efficiency are always joint tests involving some hypothesized structure of normal equilibrium returns below we assume informational efficiency and instead test fisher s hypothesized arbitrage condition that nominal interest differentials equal expected percentage changes in exchange rates

information rigidities and exchange rate expectations abstract sluggish adjustment of expectations to new information is rational in an environment characterized by information costs and signal to noise problems this paper investigates the role of such information rigidities for exchange rate expectations using data from consensus economics for ten emerging and industrial economies from 1999 until 2015 our results confirm the importance of rigidities and show that the inclusion of forecast updates largely accounts for otherwise detected biases in expectation errors moreover we find little evidence for a systematic effect of fundamentals or uncertainty measures on exchange rate disagreement

expectation formation mechanisms profitability of foreign exchange trading and exchange rate volatility an attempt is made to identify the expectation formation mechanism dominating the foreign exchange market and to demonstrate that exchange rate volatility can be attributed to the heterogeneity of traders with respect to expectation formation the criterion used to identify the dominance of a particular mechanism is the profitability of trading based on that mechanism it is concluded that mixed and extrapolative expectations are the dominant mechanisms that market participants follow some sort of a herd behaviour and that they pay attention to the expectations of other participants it is also found that the heterogeneity of market participants with respect to expectation formation goes a long way towards explaining volatility

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

the carry trade and fundamentals nothing to fear but feer itself the carry trade is the investment strategy of going long in high yield target currencies and short in low yield funding currencies recently this nave trade has seen very high returns for long periods followed by large crash losses after large depreciations of the target currencies based on low sharpe ratios and negative skew these trades could appear unattractive even when diversied across many currencies but more sophisticated conditional trading strategies exhibit more favorable payos we apply novel within economics binary outcome classication tests to show that our directional trading forecasts are informa tive and out of sample loss function analysis to examine trading performance the critical conditioning variable we argue is the fundamental equilibrium exchange rate feer expected returns are lower all else equal when the target currency is overvalued like traders researchers should incorporate this information when evaluating trading strategies when we do so some questions are resolved negative skewness is purged and market volatility vix is uncorrelated with returns other puzzles remain the more sophisticated strategy has a very high sharpe ratio suggesting market ineciency

policy incentives for switchgrass production using valuation of non market ecosystem services abstract this study presents a linear profit model with combined economic and environmental factors for a switchgrass for biofuels agricultural system in the southeastern u s the objectives are to establish conversion to switchgrass thresholds for various market prices and identify policy incentives that would ensure economic profit while also maximizing environmental benefits carbon sequestration displacement of fossil fuels and minimizing negative impacts global warming potential nitrate loss weighting factors are chosen to represent incentives and penalties by assigning value to the impacts with no other incentives switchgrass market prices of at least 51 and 58 dton would be needed in order to make a profitable switch from corn conservation reserve program crp lands and cotton respectively at a mid range offering of 50 dton feasible carbon credit prices of 3 8 23 per metric tonne co 2 e would incentivize conversion from corn crp or cotton respectively similarly a water quality penalty of 0 20 3 2 per kilogram no 3 n leached would incentivize the same conversions with resultant watershed improvement at a lower price of 30 dton switchgrass incentives based on valuation of ecosystem services begin to exceed feasible ranges of these valuations

fair pricing of redd based emission offsets under risk preferences and benefit sharing we consider a risk aware forest owner and electricity producer evaluating the reduced emissions from deforestation and degradation redd based offsets with a benefit sharing mechanism under uncertain co2co2 prices for a range of co2co2 prices and respective risks perceived by the forest owner seller and electricity producer buyer we apply a model of fair indifference pricing parties risk preferences are reflected by exponential utility functions the potentially contracted amounts of redd offsets are analyzed under various risk preferences and for different benefit sharing opportunities our results show that a risk averse attitude considerably increases the contracted offset amounts compared to risk neutral case and therefore creates a higher potential for redd implementation we demonstrate possible situations when parties could agree on a certain range of redd contracts e g smaller amounts of redd offsets are traded for higher prices and larger amounts for lower prices although contracting a moderate amount at a moderate price is impossible the suggested benefit sharing mechanism can help increase contracted offset amounts our modeling results highlight two ways to promote higher redd participation i strengthening the carbon price signal to reveal risk averse behavior of energy producers and ii implementing the mechanism of benefit risk sharing between the redd consumer and supplier

exchange rate expectations and functional misspecification the authors employ the cooley prescott adaptive model to examine for functional misspecification in three commonly used exchange rate expectation models they also test for heterogeneity among forecasts the authors find no serious misspecification problem but some heterogeneity in expectations these test results are confirmed by various other regression specification tests copyright 1994 by mit press

international interest rate linkages and the exchange rate regime abstract return differentials between instruments denominated in canadian dollars and instruments denominated in american dollars are investigated the study compares the properties of return differentials in the period of fixed exchange rates during the 1960s and in the period of flexible exchange rates during the 1970s and 1980s both real and nominal return differentials are investigated the results indicate that the change in exchange rate regime is not associated with a change in the average level of ex post return differentials between canada and the united states models which predict ex ante return differentials from available information in a rational expectations framework show a surprisingly large amount of structural stability across the regime change the major impact of the flexible exchange rate regime is on the variance of ex post return differentials and not on the average level of ex post or ex ante return differentials jel e42 e58 g15

predicting currency fluctuations and crises do resident firms have an informational advantage the authors investigate whether resident enterprise managers have an informational advantage about the countries in which they work they propose a method for extracting information available to resident managers but unknown to investors and forecasters they rest their hypothesis of informational advantage using a unique data set the global competitiveness survey the survey asks local managers about their outlook for the country in which they reside they find that local managers do have useful private information local managers responses improve on conventional forecasts of future volatility and changes in the exchange rate which are based on economic fundamentals or interest rate differentials they find that the local business community perceived in advance the recent crises in the republic of korea russia and thailand but not those in indonesia and malaysia markets have had limited success predicting crises and might do better by drawing on private information available to resident enterprise managers who seem to know better than markets about future movements in exchange rates

the time series properties of the risk premium in the yen dollar exchange market summary in this paper a var model is employed to construct a measure of the conditional expectations of the future yen dollar spot rate this measure allows us to examine the dynamics of an ex ante time series for the risk premium in the market the var model produces better forecasts than the survey responses for turbulent periods such as 1981 1982 and 1984 1985 the var generated expectations are then used to construct a risk premium time series this risk premium ieerie series seems to be more reliable than the ones obtained using either survey data on expectations of the future spot exchange rate or the ex post realized spot exchange rate tests on the risk premium series suggest that a risk premium was present but that it was virtually constant throughout the sample the conditional variance of the risk premium changed over time but its unconditional distribution seemed stable across subsamples despite these features the volatility of the series was substantial and varied considerably throughout the sample

on the consistency of short run and long run exchange rate expectations abstract this paper examines whether short term exchange rate expectations overreact by comparing them with long term expectations we develop a set of nonlinear restrictions linking expectations at different forecast horizons the restrictions impose consistency a property weaker than rationality we use exchange rate survey data to measure expectations and then test whether consistency holds the data show that a current positive exchange rate shock leads investors to expect a higher long run future spot rate when iterating forward their short term expectations than when thinking directly about the long run in this sense short horizon expectations may overreact to current exchange rate changes

market efficiency and cointegration an application to the sterling and deutschemark exchange markets abstract the assumption that the foreign exchange market is efficient that is that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate is a property often imposed in theoretical international macroeconomic models although a vast empirical literature has evolved to test market efficiency we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency we ffind evidence inconsistent with market efficiency for both germany and the united kingdom

are foreign exchange forecasts rational an empirical note abstract this paper uses survey data drawn from a high inflation economy israel to directly test the rationality of foreign exchange forecasts the empirical evidence indicates that exchange rate expectations are not rational in the muthian sense

on the internal consistency of short term medium term and long term oil price forecasts we derive internal consistency restrictions on short medium and long term oil price forecasts we then analyse whether oil price forecasts extracted from the survey of professional forecasters spf conducted by the european central bank ecb satisfy these internal consistency restrictions we find that neither short term forecasts are consistent with medium term forecasts nor that medium term forecasts are consistent with long term forecasts using a more complex expectation formation structure featuring a distributed lag structure however we find stronger evidence of internal consistency of medium term forecasts with long term forecasts

farm level constraints on the domestic supply of perennial energy crops in the uk abstract there are a number of estimates of the land area that could potentially be dedicated to perennial energy crops such as short rotation coppice src willow and miscanthus in the uk but little is known about how farmers will respond to the opportunities presented by these relatively novel crops perennial energy crops face competition from other arguably more flexible uses of farmland and if not seen as attractive propositions to individual farmers they will not be grown farmers decisions are therefore a key constraint on potential supply this paper reviews the policy background and considers whether policy is based on any consideration of likely supply response before presenting outcomes of focus groups composed of farmers who already grow or are considering growing perennial energy crops there appear to be a number of barriers to adoption in addition to concerns over the security of contracts the current high wheat price increases the opportunity cost of committing land to perennial energy crops there are also worries about the impact of willow roots on field drains and the cost of returning the land to other uses this paper outlines a number of issues of importance to policy makers and suggests future research needs

changing beliefs and systematic rational forecast errors with evidence from foreign exchange this paper addresses a new interpretation to the appearance in the early 1980s of systematic errors in forecasting the dollar exchange rate following a change in the process of a fundamental variable market participants revise their beliefs about the process using bayes rule since the market does not immediately recognize the change forecast errors are on average wrong during a period when the market is rationally learning for conservative parameter values the learning behavior of the dollar exchange rate in the early 1980s appears consistent with about half of the dollar s underprediction implied by the forward market copyright 1989 by american economic association

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

the adoption of switchgrass and miscanthus by farmers impact of liquidity constraints and risk preferences lignocellulosic biomass is expected to become a key feedstock for renewable energy production however the potential supply strongly depends on farmers willingness to grow the new perennial energy crops many economic assessments have been led at the farm level all based on the standard net present value approach this paper looks into the effect of farmers liquidity constraints and risk preferences on switchgrass and miscanthus adoption by farmers we study the problem of the land allocation between a traditional cropping system and an innovative one in a static framework using four intertemporal choice models we find that in central france agronomic and economic conditions switchgrass and miscanthus result to be less profitable in terms of annualised net margin than the usual rape wheat barley rotation nevertheless they can be highly competitive as diversification crops when appropriate contracts are offered to farmers despite the additional liquidity they require

rational expectations in the foreign exchange market some survey evidence this paper uses a survey data set that includes a large cross section of currencies to test for the rationality of expectations in the foreign exchange market two standard tests are applied to the data first a test to determine if investors make systematic forecast errors second a test to determine if investors use all available information efficiently when they make their forecasts this paper s data set involves a more recent time period which saw more quiescent exchange rate changes than the 1980s this paper finds that participants in the foreign exchange market do make systematic forecast errors and do not always use all available information when forecasting this conclusion is similar to past research but is now extended to a broader range of currencies and more recent time period

tests of rational expectations and no risk premium in forward exchange markets abstract this paper tests the simple efficiency hypothesis i e that traders have rational expectations and charge no risk premium in the forward exchange market it uses a statistical procedure which is consistent under a large class of heteroscedasticity and a set of data which takes into account the institutional features of the forward exchange market the results show that this procedure leads to stronger rejections of the simple efficiency hypothesis than do procedures using the standard assumption of homoscedasticity

inefficiency of foreign exchange markets and expectations survey evidence in recent years the finding of a bias has cast doubts on the efficiency of the forward exchange market a large survey of exchange rate expectations in the danish market shows that this inefficiency is mainly due to risk aversion in the market the results contradict the findings of surveys of us and uk forward exchange markets where contribution from biased expectations has been large

an economic assessment of potential ethanol production pathways in ireland abstract an economic assessment was conducted on five biomass to ethanol production pathways utilising the feedstock wheat triticale sugarbeet miscanthus and straw the analysis includes the costs and margins for all the stakeholders along the economic chain this analysis reveals that under current market situations in ireland the production of ethanol under the same tax regime as petrol makes it difficult to compete against that fuel with tax breaks however it can compete against petrol on the other hand even under favourable tax breaks it will be difficult for indigenously produced ethanol to compete against cheaper sources of imported ethanol therefore the current transport fuel market has no economic reason to consume indigenously produced ethanol made from the indigenously grown feedstock analysed at a price that reflects all the stakeholders costs to deliver a significant penetration of indigenous ethanol into the market would require some form of compulsory inclusion or else considerable financial supports to feedstock and ethanol producers

differential interpretation of information in inflation forecasts we test the hypothesis associated with a standard assumption in the theoretical literature on learning that economic agents interpret information identically we use a data set based on a survey o

do dollar forecasters believe too much in ppp this article extends earlier studies on exchange rate expectations formation by using new data and adding information about forecasters reliance on fundamental analysis for the first time we replicate the conventional result of nonrational expectations moreover biases in expectations are identified as professionals significantly believe too much in mean reversion mean being represented by purchasing power parity ppp when respondents are grouped on their reliance to fundamental analysis fundamentalists reveal an even stronger bias those who rely the least on fundamentals preferring technical analysis instead show a significantly smaller bias towards ppp in lieu of expecting too much trend extrapolation biased beliefs will grow stronger when the us dollar is further away from ppp finally the accuracy of the expectations is poor for both groups however we find directional forecasting ability

are foreign exchange forecasts rational new evidence from survey data abstract tests of rationality in foreign exchange markets have been inconclusive because of disagreement over the relevant asset pricing model this paper uses a newly available set of data on foreign exchange expectations to directly test the rationality of four foreign currency markets overall the results reject the rational expectations hypothesis

a test for speculative bubbles in the sterling dollar exchange rate 1981 84 the u s dollar price of the u k pound sterling is tested for a speculative bubble defined as a period with a nonzero median in excessreturns a nonparametric procedure is developed which controls for data mining over the period of flexible exchange rates and finds a negative bubble in the excess return to holding sterling rather than dollar assets during the period 1981 84 possible interpretations arebootstrap equilibria rational bubbles nonsym metric fundamentals and nonrational expectations copyright 1986 by american economic association

rationality of survey data and tests for market efficiency in the foreign exchange markets abstract this paper tests the rational expectations hypothesis reh and the market efficiency hypothesis meh in the foreign exchange markets using survey data on expectations our results show that the spot exchange rates expected exchange rates and the forward rates all follow a random walk process hence the cointegration theory is employed to test the reh and meh all the test statistics support the reh but fail to support the meh we use survey data on expectations to identify the causes behind this failure of the meh jel f31 g14

foreign exchange rate expectations micro survey data this paper analyzes the panel data of biweekly surveys on the yen dollar exchange rate expectations of forty four institutions for two years and contains four major findings first market participants are heterogeneous that is significant individual effects exist in their expectation formation second the individual effects have a characteristic of wishful expectations exporters expect yen depreciation and importers expect yen appreciation relative to others third many violate the rational expectations hypothesis fourth forecasts with long horizons show less yen appreciation than those with short horizons cross equation constraints implied by the consistency of the forecast term structure are strongly rejected in the data copyright 1990 by american economic association

complete systems methods of estimating models with rational and adaptive expectations a case study abstract this paper examines the use of complete fully efficient systems methods to compare model estimates under rational and adaptive schemes of expectations generation to do this we employ a small well known model designed to distinguish monetarist from keynesian macroeconomic structures

the influence of a renewable energy feed in tariff on the decision to produce biomass crops in ireland abstract a target of 30 per cent substitution of biomass for peat in the three peat fired power stations from 2015 has been set by the irish government however a knowledge gap exists on the extent to which irish farmers would actually choose to grow these crops an extension of the renewable energy feed in tariff refit scheme to include the co firing of biomass with peat in electricity generation would enable the power stations to enter into power purchase agreements ppas these offer a fixed price to farmers for biomass feedstock the decision to adopt biomass is represented as a constrained problem under certainty with the objective of profit maximisation the results showed that the price offered under a ppa has a large effect on the economic returns from biomass crops the price that the power stations previously estimated they would be able to pay at 46 and 48 per tonne for willow and miscanthus respectively was used as a starting point at this price the number of farmers who would choose to adopt biomass production is insufficient to achieve the national co firing target the target could be achieved at 70 and 65 per tonne for willow and miscanthus respectively

further evidence on exchange rate expectations abstract this paper considers a previously unexploited survey data set of exchange rate expectations which allows us to focus on differences between ems and dollar exchange rates we corroborate the earlier finding in the literature that exchange rate forecasts are not rational and that agents do not use all available information efficiently although extrapolative and adaptive expectations formation mechanisms describe non ems exchange rate expectations to a certain extent ems exchange rates forecasts seem to follow long run fundamentals more closely and would suggest that agents believe that ems exchange rate expectations undershoot their long run equilibrium values jel f31

some evidence on the international inequality of real interest rates abstract this paper undertakes econometric tests of the hypothesis that ex ante real interest rates are equal across countries with highly integrated capital markets the issue is of practical importance because the violation of real rate equality is a necessary condition for monetary policy to influence the open economy through the real interest rate channel although an empirical literature concerning real rate equality already exists previous investigators have focused on pre tax real rates this paper contributes to the literature by attempting to incorporate the effects of taxation into the analysis

does foreign exchange intervention matter the portfolio effect until recently there was an unusual degree of consensus among economists that intervention by central banks in the foreign exchange market did not offer an effective or lasting instrument for affecting the exchange rate at least not independently of monetary policy this consensus was largely shared among policymakers and participants in the financial markets as well the 1982 g 7 economic summit at versailles commissioned a study of intervention known as the jurgenson report which found that the effects were small and transitory at most we think that the time is ripe for new statistical testing of the question many policymakers and foreign exchange traders believe that the intervention operations that have taken place since the plaza agreement of september 1985 have had an effect especially when operations are coordinated moreover the theoretical case against the effectiveness of intervention is not as clear as a reading of the economics literature might suggest the academic literature is predicated on the distinction between intervention operations that are sterilized and those that are allowed to affect the money supply we study the intervention operations that actually took place between 1982 and 1988 regardless of whether they were sterilized however we do begin in section i with a review of the issues involved 2 there are two possible channels through which intervention whether sterilized or not can influence the foreign exchange rate the portfolio and the expectations channels intervention can even if sterilized influence exchange rates through the portfolio channel provided foreign and domestic bonds are considered imperfect substitutes in investors portfolios intervention operations that for example increase the current relative supply of mark to dollar assets which private investors are obliged to accept into their portfolios will force a decrease in the relative price of mark assets 3 intervention can also influence exchange rates regardless of whether foreign and domestic bonds are imperfect substitutes through the expectations channel the public information that central banks are intervening in support of a currency or are planning to intervene in the future may under certain conditions cause speculators to expect an increase in the price of that currency in the future speculators react to this information by buying the currency today bringing about the change in the exchange rate today in sections ii and iii we describe the econometric problems that arise in the standard portfolio balance estimation equation we derive an alternative portfolio balance dominguez kennedy school of government harvard university 79 j f kennedy street cambridge ma 02138 frankel department of economics university of california 787 evans hall berkeley ca 94720 we thank three anonymous referees for valuable comments and suggestions julia marsh and julia lowell for research assistance and franz scholl at the bundesbank jean pierre roth at the swiss national bank and officials at the u s treasury and the board of governors of the federal reserve system for making the daily intervention data available 1many of the econometric results finding little or no effect were reported in kenneth s rogoff 1984 and dale w henderson and stephanie sampson 1983 2for authoritative statements see henderson 1984 or maurice obstfeld 1990 3the exchange rate reaction to an increase in the relative supply of outside foreign assets may be reduced if there is an increase in their expected rate of return that induces a corresponding increase in demand

differential uncertainties and risk attitudes between conventional and organic producers the case of spanish arable crop farmers the growing importance of economic factors in farmers decision to go organic has raised interest in characterizing the economic behavior of organic versus conventional farms published analyses so far have not considered differential uncertainties and farmers risk preferences between conventional and organic practices when comparing these techniques our article attempts to assess this issue we use a model of farmer decision under risk to analyze the differential values between spanish cop organic and conventional farms and to assess the incentives for adoption of organic practices results show that organic and conventional farms do have different abilities to control production risk as well as different risk preferences organic price premiums and subsidies are found to be powerful instruments to motivate adoption of organic techniques

using survey data to resolve the exchange risk exposure puzzle evidence from u s multinational firms while in previous literature foreign currency exposure is estimated to be surprisingly small and insignificant we question in this paper the rationality assumption and show that the traditional use of realized exchange rate changes to approximate unexpected currency shocks leads to a strong underestimation of the influence that exchange rates play in determining firm valuations in light of a unique survey data base of individual exchange rate expectations we distinguish between realized and unexpected foreign currency movements and find that half of our sample of 935 u s firms with real operations in foreign countries is significantly exposed to unexpected exchange rate movements in line with previously reported results foreign exchange risk exposure is found to become increasingly perceptible when the return horizon is lengthened the difference between the exposure to realized versus unexpected exchange rate movements is however decreasing when lengthening the horizon suggesting that the more market participants disagree about the future path of currency values the less investors and or managers are likely to use the publicly available forecasts in their pricing and hedging decisions

dollar jump fears 1984 1992 distributional abnormalities implicit in currency futures options abstract deutsche mark and yen futures options over 1984 1992 and 1986 1992 respectively are examined for deviations from the lognormal assumption underlying standard option pricing models two methods are used an atheoretic skewness premium and daily estimates of moments using a model for pricing american foreign currency futures options under systematic exchange rate jump risk substantial variation over time is found in all moments including implicit skewness and kurtosis the implicit abnormalities predict future abnormalities in log differenced dm futures prices but not yen the peso problem implications do not explain standard rejections of uncovered interest parity

an evaluation of survey exchange rate forecasts abstract a non parametric test of direction is employed to evaluate the survey forecasts provided by the money market services empirical results suggest that the forecasts are useful for predicting the direction of exchange rate changes the results are consistent with a weaker form of rationality than unbiasedness

economic evaluation of miscanthus production a review this paper reviews the peer reviewed literature dealing with the economics of miscanthus cultivation to identify factors influencing the adoption of miscanthus and to reveal shortcomings in research in total 51 studies have been identified for this review the majority of these publications are recent i e the majority is published after 2009 and concern case studies in europe particularly the uk and ireland and north america this review reveals that the economic viability of miscanthus depends on largely uncertain assumptions especially concerning yields 10 48 t dry matter per ha and prices 48 134 t dry matter but also concerning the lifespan 10 20 years and different cost items a lack of established markets high establishment costs and uncertainties arising to a large extent from the long term commitment are identified as major barriers to miscanthus adoption in addition the level of support for miscanthus production e g via subsidies is identified as crucial for miscanthus profitability but is found to be highly heterogeneous across countries next to diversity in agronomic and economic assumptions also the assessment criteria and research techniques used to investigate the profitability of miscanthus differ widely while the net present value criterion was most frequently used we identify a lack of approaches that account for risks and uncertainties which seem to potentially play a critical role in the uptake of miscanthus by farmers

volume volatility and the dispersion of beliefs i examine a two period noisy rational expectations model of a futures market and show that the dispersion of expectations about a weighted average of future prices measures both the additional volatility and the additional expected volume of trade associated with noisy information the role played by dispersion helps clarify several stylized facts concerning volume and price behavior specifically dispersion can be a factor contributing to the positive correlation between volume and absolute price changes and the positive correlation between consecutive absolute price changes article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

equity and tradeoffs in a tax based incomes policy a tax based incomes policy tip is a tax incentive that tries to induce employers and or workers to reduce wage and or price increases it is intended as a complement to the basic anti inflation policy of gradual monetary deceleration and fiscal restraint its purpose is to reduce the capital stock and output loss that would otherwise accompany such a policy see my 1978 1979a articles this article is divided into two sections section i examines the capital stock and output loss under monetary deceleration that is uncomplemented by tip this loss is due primarily to wage growth inertia a central feature of modern capitalist economies such inertia provides not only the rationale for a tip on wage increases but also implies that special effort is required to assure that the design of a complete tip package is fair to labor section ii analyzes the tradeoffs confronting two alternative methods of making tip more equitable to labor profit and or price restraint insurance and a tip on price increases of the largest firms the original tip limited to wage increases at first glance is often perceived as unbalanced and inequitable this section tries to contribute to the development of a balanced equitable tip

conditional variance and the risk premium in the foreign exchange market abstract we investigate the existence of a risk premium in the foreign exchange market based on the conditional variance of market forecast errors the forecast errors are assumed to follow the arch process introduced by engle 1982 estimation and diagnostic testing of the model are discussed and results are presented for the currencies of the united kingdom france germany japan and switzerland