the effect of political risk on the forward exchange bias the case of elections abstract the unsuccesful search for explanations of the forward bias has concentrated on variables suggested by traditional models of risk political news although important to foreign exchange traders has not been considered as a determinant of the forward bias i present a model in which the forward bias changes when the governing party changes elections in major industrial countries provide a natural test of the model the forward bias changed as predicted after half of the 13 elections in canada france the united kingdom and the united states between 1973 and 1985 politics provides useful information for foreign exchange traders which economists should not ignore

integrated regressors and tests of the permanent income hypothesis abstract we use recent research on estimation and testing in the presence of unit roots to argue that hall s 1978 t and f tests of whether consumption is predicted by lagged income or by lags of consumption beyond the first are asymptotically valid a monte carlo experiment suggests that the asymptotic t and f distributions provide a good approximation to the actual finite sample distribution

single period multiproduct inventory models with substitution we study a single period multiproduct inventory problem with substitution and proportional costs and revenues we consider n products and n demand classes with full downward substitution i e excess demand for class i can be satisfied using product j for i j we first discuss a two stage profit maximization formulation for the multiproduct substitution problem we show that a greedy allocation policy is optimal we use this to write the expected profits and its first partials explicitly this in turn enables us to prove additional properties of the profit function and several interesting properties of the optimal solution in a limited computational study using two products we illustrate the benefits of solving for the optimal quantities when substitution is considered at the ordering stage over similar computations without considering substitution while ordering specifically we show that the benefits are higher with high demand variability low substitution cost low profit margins or low price to cost ratio high salvage values and similarity of products in terms of prices and costs

adaptive estimation of cointegrated models simulation evidence and an application to the forward exchange market the paper reports simulation and empirical evidence on the finite sample performance of adaptive estimators in cointegrated systems adaptive estimators are asymptotically efficient even when the shape of the likelihood function is unknown we consider two representations of cointegrated systems triangular cointegrating regressions and error correction models the motivation for and advantages of adaptive estimators in such systems are discussed and their construction is described we report results from the estimation of a forward exchange market unbiasedness regression using the adaptive and competing estimators and provide related monte carlo simulation evidence on the performance of the estimators copyright 1999 john wiley sons ltd

impact of loss aversion on the newsvendor game with product substitution abstract this paper studies a newsvendor game in which two substitutable products are sold by two different retailers newsvendors with loss averse preferences each loss averse retailer facing stochastic customer demand and deterministic substitution rate will make an order quantity decision to maximize his expected utility since product substitution causes two retailers to make decisions in a competitive environment game theory is used to find the retailers optimal order quantities it is shown that under certain conditions there exists a unique nash equilibrium in the newsvendor game under a symmetry assumption each retailer s equilibrium order quantity is decreasing in the loss aversion coefficient and increasing in the substitution rate further if the effect of loss aversion on the order quantity is strong enough to dominate the effect of competition the total inventory level of a decentralized supply chain will be lower than that of a centralized supply chain numerical experiments are conducted to illustrate our results

bivariate cointegration among european monetary system exchange rates in past research on the long run behaviour of exchange rates the possibility of cointegration among spot rates has been rejected this rejection is surprising as some exchange rates are bound by official agreements to comove over time the european monetary system ems is an example of such an officially coordinating system in this paper we extend past research by focusing on only ems rates and use potentially more powerful cointegration tests to show that ems rates are cointegrated

dynamic capacity management with substitution we examine a multiperiod capacity allocation model with upgrading there are multiple product types corresponding to multiple classes of demand and the firm purchases capacity of each product before the first period within each period after demand arrives products are allocated to customers customers who arrive to find that their product has been depleted can be upgraded by at most one level we show that the optimal allocation policy is a simple two step algorithm first use any available capacity to satisfy same class demand and then upgrade customers until capacity reaches a protection limit so that in the second step the higher level capacity is rationed we show that these results hold both when all capacity is salvaged at the end of the last demand period as well as when capacity can be replenished in the latter case an order up to policy is optimal for replenishment although finding the optimal protection limits is computationally intensive we describe bounds for the optimal protection limits that take little effort to compute and can be used to effectively solve large problems using these heuristics we examine numerically the relative value of strictly optimal capacity and dynamic rationing the value of perfect demand information and the impact of demand and economic parameters on the value of optimal substitution

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

market efficiency in agricultural futures markets market efficiency and unbiasedness are tested in four agricultural commodity futures markets live cattle hogs corn and soybean meal using cointegration and error correction models with gqarch in mean processes results indicate each market is unbiased in the long run although cattle hogs and corn futures markets exhibit short run inefficiencies and pricing biases models for cattle and corn outperform futures prices in out of sample forecasting results also suggest short run time varying risk premiums in cattle and hog futures markets

joint pricing and production decisions with yield uncertainty and downconversion abstract we consider a firm who supplies two types of products high end and low end because of the uncertainty in the production process the yield rate of the high end products is uncertain the substandard high end products caused by the yield uncertainty can be transformed into the low end products with a certain cost we characterize the optimal pricing and production decisions and develop an algorithm to compute the optimal solution we also investigate the impact of the yield uncertainty on the firm s performance and explore how stability of market demand emergent fulfillment costs and downconversion cost influence this effect we find that i the profit of the firm deteriorates when the risk of the yield uncertainty is high in the face of yield uncertainty the firm prefers to decrease increase the production quantity of the high end low end products ii when the market demands are quite unstable the emergent fulfillment costs are low or the downconversion cost is high the firm has a low incentive to eliminate the yield uncertainty

co production processes with random yields in the semiconductor industry a wide variety of manufacturing operations can be characterized as co production with substitutable demand that is there are many situations in which the availability of two or more items are related and because of randomness in either supply or demand it can be advantageous to substitute one of these items for another our research was motivated by the semiconductor industry where chips are produced in large batches because of the presence of randomness in the process individual chips in a given batch can perform differently because some customers have stricter specifications than others chips within the same batch can be classified and sold as different products according to their measurable performance we model the production and inventory problem as a stochastic dynamic program in which the objective is to minimize the costs of meeting contractual obligations after developing heuristic methods of solving the problem in practice we validate them against a lower bound on the cost of an optim

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

mean reversion in g 10 nominal exchange rates according to conventional wisdom industrial country floating exchange rates contain unit roots sur tests on panels of monthly group of ten g 10 log nominal rates reject the null of unit roots for various samples over the current float with significance levels from 0 5 to 15 on average in out of sample forecasts mean reversion models beat random walks significantly in some forecast periods for monthly data the range of expected usd dem appreciation rates exceeds 15 per year in the mean reversion model mean reversion places strong restrictions on international models over the sample period the g 10 had to run monetary policies consistent with stable long run nominal rates

the unbiased forward rate hypothesis re examined abstract this paper examines the unbiased forward rate hypothesis using an error correction model ecm previous tests have utilized mainly two specifications differences and levels the advantage of the ecm is that the parameters of the level specification appear in the error correction term and hence the ecm provides a direct link to the levels specification in this paper we fully exploit this link and demonstrate that both specifications yield essentially the same results when the ecm is explicitly derived from a levels specification and the levels parameters are estimated simultaneously with other parameters of the ecm

error correction mechanisms the interface between economic theory and applied econometrics is often one of uneasy compromise with the pragmatic justification for many accepted procedures resting on a theoretical base this paper examines the surprisingly strong arguments that exist in terms of economic theory for the use of error correction mechanisms in the specification of short run dynamic adjustment a common heresy exists that while economic theory provides a detailed analysis of comparative static equilibria it can offer no guidance as to the appropriate specification of dynamic adjustment towards an equilibrium perhaps in consequence it is not uncommon to find examples where the necessary dynamic specification is achieved by tacking onto an existing equilibrium specification some relatively ad hoc short run adjustment scheme the intercession of stochastic arguments in this process is confused and critical implications are frequently ignored in practice but perhaps more importantly there will typically be no guarantee that the dynamic specification is consistent with the prescribed equilibrium consistency in this sense requires that the short run dynamic adjustment be directed by the perceived disequilibrium and that eventual convergence to the equilibrium position be ensured that two separate theoretical arguments co exist within the final specification is the root cause of many difficulties both theoretical and empirical this abstract was borrowed from another version of this item

the contribution of l c gray to the economic theory of exhaustible natural resources and its roots in the history of economic thought abstract the paper opens with an assessment of natural resources economics up to 1913 14 when gray published his two pioneering articles in natural resources economics part i an in depth study of gray weighing his contribution to the microeconomic theory of the mine and the macroeconomic theory of conservation against current literature constitutes the main body of the paper part ii gray and hotelling s contributions to the theory of the mine are compared part iii the paper concludes with a comparison drawn between the author s findings and the scant attention previously paid to gray s contributions to natural resources economics so far as i know this is the first attempt to apply economic theory to this particular problem of conservation h c taylor unpublished letter to c r van hise may 23 1913 a reference to gray s economic possibilities of conservation

cointegration and market integration an application to the indonesian rice market this article suggests improvements in the use of regression analysis to measure spatial market integration the procedure pioneered by ravallion is still widespread but is valid only under certain conditions of exogeneity the alternative offered here is an error correction mechanism which makes it possible to test for exogeneity as well as indicating the direction and strength of causality in price formation between markets the method is illustrated with data on rice prices in different parts of the indonesian market the results confirm among other things that supply sources are more important than demand sources in driving prices

optimal myopic policy for a stochastic inventory problem with fixed and proportional backorder costs in this paper we consider a single product periodic review stochastic demand inventory problem where backorders are allowed and penalized via fixed and proportional backorder costs simultaneously fixed backorder cost associates a one shot penalty with stockout situations whereas proportional backorder cost corresponds to a penalty for each demanded but yet waiting to be satisfied item we discuss the optimality of a myopic base stock policy for the infinite horizon case critical number of the infinite horizon myopic policy i e the base stock level is denoted by s if the initial inventory is below s then the optimal policy is myopic in general i e regardless of the values of model parameters and demand density otherwise the sufficient condition for a myopic optimum requires some restrictions on demand density or parameter values however this sufficient condition is not very restrictive in the sense that it holds immediately for erlang demand density family we also show that the value of s can be computed easily for the case of erlang demand this special case is important since most real life demand densities with coefficient of variation not exceeding unity can well be represented by an erlang density thus the myopic policy may be considered as an approximate solution if the exact policy is intractable finally we comment on a generalization of this study for the case of phase type demands and identify some related research problems which utilize the results presented here

does the exchange rate follow a random walk a monte carlo study of four tests for a random walk abstract several authors have urged that real and nominal exchange rates follow a random walk conditions under which the exchange rate follows a random walk are reviewed in this paper many of these do not appear to hold therefore the empirical evidence presents a puzzle some evidence suggets the exchange rate follows a random walk while other evidence suggests the opposite should be true this paper attempts to reconcile the evidence it is argued that the tests for a random walk have low power monte carlo evidence on four tests for a random walk is presented that suppors this claim

cointegration market integration and market efficiency abstract this paper uses a standard dynamic general equilibrium asset pricing model to study the relationship among the concepts of efficient markets integrated markets and cointegrated prices within this setting we show that these concepts are independent of one another and any zero one two or three of these characteristics can emerge in equilibrium depending upon taste endowment and technology parameters in particular the results of tests of cointegration among asset prices have no implications about market efficiency or market integration without additional restrictions on the economy or economies

a note on cointegration and international capital market efficiency abstract in a recent paper in the jimf crowder 1994 claims that evidence that spot exchange rates are cointegrated and forward premiums are non stationary implies international capital markets are not efficient this note argues that the cointegration properties of spot exchange rates are independent of the efficiency or inefficiency of financial markets

foreign exchange market efficiency revisited abstract the cointegration of spot rates is neither a necessary nor a sufficient condition to account for the lack of foreign exchange market efficiency instead crowder crowder w 1994 1996 j int money finance 13 551 564 15 661 664 and engel engel c 1996 j int money finance 15 557 560 claimed that the stationarity of the forward premium is crucial to the hypothesis of market efficiency in this paper we employ the panel unit root test of im et al to examine the stationarity of forward premia and interest differentials among nine oecd countries we reject the unit root null for both the time series of the forward premium and interest differential which in turn supports the hypothesis of foreign exchange market efficiency

arbitrage cointegration and testing the unbiasedness hypothesis in financial markets we use a no arbitrage cost of carry asset pricing model to show that the existence of coin tegration between spot and forward futures prices depends on the time series properties of the cost of carry we argue that the conditions for cointegration are more likely to hold in currency markets than in commodity markets explaining many of the empirical results in the literature we also use this model to demonstrate why the forward rate forecast error the basis and the forward premium are serially correlated and to develop econometric tests ofthe unbiasedness hypothesis sometimes called the simple efficiency hypothesis in various financial markets the unbiasedness hypothesis is so prevalent in the finance liter ature that many tests for it have been developed we examine four of the common tests and and use our cointegration results to demonstrate why each of these tests should reject the null hypothesis of unbiasedness we find strong support for our hypothesis in the existing empirical literature

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

measuring global money market interrelationships an investigation of five major world currencies abstract this paper extends the study of global money market integration in two primary directions first a technique which combines stationarity and cointegration tests as a basis for constructing an error correction model is applied to assess the existence of long run equilibrium relationships between money market series second analysis for the increasingly significant asian offshore markets of singapore and hong kong is added to traditional european and national markets analysis major findings are 1 the error correction model is an appropriate technique for identifying causality relationships and 2 major domestic markets and included offshore markets are partially segmented

managing an available to promise assembly system with dynamic short term pseudo order forecast we study an order promising problem in a multiclass available to promise atp assembly system in the presence of pseudo orders a pseudo order refers to a tentative customer order whose attributes such as the likelihood of an actual order order quantity and confirmation timing can change dynamically over time a unit demand from any class is assembled from one manufactured unit and one inventory unit where the manufactured unit takes one unit of capacity and needs a single period to produce an accepted order must be filled before a positive delivery lead time the underlying order acceptance decisions involve trade offs between committing resources production capacity and component inventory to low reward firm orders and reserving resources for high reward orders we develop a markov chain model that captures the key characteristics of pseudo orders including demand lumpiness nonstationarity and volatility we then formulate a stochastic dynamic program for the atp assembly system that embeds the markov chain model as a short term forecast for pseudo orders we show that the optimal order acceptance policy is characterized by class prioritization resource imbalance based rationing and capacity inventory demand matching in particular the rationing level for each class is determined by a critical value that depends on the resource imbalance level defined as the net difference between the production capacity and component inventory levels extensive numerical tests underscore the importance of the key properties of the optimal policy and provide operational and managerial insights on the value of the short term demand forecast and the robustness of the optimal policy this paper was accepted by martin lariviere operations management

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

a note on the efficiency of the london metal exchange abstract in this note we examine the market efficiency hypothesis with respect to six metals traded on the london metal exchange lme using overlapping data and both single and multimarket models we find evidence contradictory to the tenet that the lme is an efficient market

optimal policies for inventory systems with priority demand classes we consider a periodic review inventory system with two priority demand classes one deterministic and the other stochastic the deterministic demand must be met immediately in each period however the units of stochastic demand that are not satisfied during the period when demand occurs are treated as lost sales at each decision epoch one has to decide not only whether an order should be placed and how much to order but also how much demand to fill from the stochastic source the firm has the option to ration inventory to the stochastic source i e not satisfy all customer demand even though there is inventory in the system we first characterize the structure of the optimal policy we show that in general the optimal order quantity and rationing policy are state dependent and do not have a simple structure we then propose a simple policy called s k s policy wheres ands ordering policy determine when and how much to order whilek rationing policy specifies how much of the stochastic demand to satisfy we report the results of a numerical study which shows that this simple policy works extremely well and is very easy to compute

the relative adjustment of wages and prices direct tests within a multiple equation system in order to assess the relative rigidity of the aggregate price level and the nominal wage rate most researchers have focused on the implied behaviour of the real wage rate in response to a purely demand disturbance the present work examines the explicit behaviour of the two variables and is therefore able to analyse the variables short run responses within the context of their defined long run behaviour while the paper reports evidence of long run stability in the real wage rate additional evidence is presented which supports both sticky price and sticky wage models the determining factor is the choice of lag

inventory decisions for substitutable products with stock dependent demand abstract we study a retailer s inventory policy for two products the products are substitutable and have inventory dependent demand so a higher inventory level of a product increases its sales we model the joint effect of demand stimulation and product substitution on inventory decisions by considering a single period stochastic demand setting we provide the first order optimality conditions for the profit maximizing order quantities and interpret them using marginal analysis we also consider two heuristic solutions that separately account for either demand stimulation or product substitution our numerical analysis reveals that the optimal policy by appropriately using sales information that quantifies substitution and demand stimulation can produce significantly higher profits the profit benefits are lessened under certain circumstances such as when the two products have similar critical fractile values suggesting that in such instances the heuristics may be used effectively

william stanley jevons the coal question 1865 beyond the rebound effect before his major 1870s economic writings william stanley jevons wrote in 1865 his first important book entitled the coal question jevons displays an interest for the problem of resource depletion and some opportunism linked to the treatment of a subject in vogue at the time the coal question is retrospectively essentially known for having pointed out the first bases of what we call today the rebound effect known as well as the jevons paradox no one can deny the major contribution jevons did by insisting on the energy efficiency paradoxical phenomenon however this is not the only interesting idea proposed in the coal question this article aims at drawing a larger framework of the ideas developed by jevons looking at some specific points that testify to his position as a turning point in the history of environmental studies we see that jevons expresses a desire of emancipation from both natural sciences and engineering yet without ignoring the necessity of interdisciplinary perspectives to deal with environmental matters it places jevons as a pioneer of several modern approaches towards environmental economics including ecological economics

component rationing for available to promise scheduling in configure to order systems abstract we address the problem of rationing common components among multiple products in a configure to order system with order configuration uncertainty the objective of this problem is to maximize expected revenue by implementing a threshold rationing policy under this policy a product is available to promise if fulfilling the order for the product will not cause the inventory of any one of its required components to fall below the component s threshold level for that product the problem is modeled as a two stage stochastic integer program and solved using the sample average approximation approach a heuristic is developed to generate good feasible solutions and lower bound estimates using industry data we examine the benefit of component rationing as compared to a first come first served policy and show that this benefit is correlated to the average revenue per product and the variability in the revenue across products whose components are constrained

cointegration and predictability of asset prices abstract this article argues that whatever concerns one might have about the identification of a cointegrating relationship with market inefficiency cointegration tests can still be usefully employed to investigate the predictability of asset prices we examine the case of n dimensional systems and show that the standard assumption made in the literature that cointegration implies predictability of all n asset prices is not valid in the presence of r cointegrating vectors only r prices are predictable and standard wald or lm tests carried out within johansen s maximum likelihood ml framework can be used to establish for which prices unpredictability does not hold similarly one can distinguish between joint unpredictability in the short and long run when asset prices are driven by fundamentals

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

dynamic capacity management with general upgrading this paper studies a capacity management problem with upgrading a firm needs to procure multiple classes of capacities and then allocate the capacities to satisfy multiple classes of customers that arrive over time a general upgrading rule is considered i e unmet demand can be satisfied using multistep upgrade no replenishment is allowed and the firm has to make the allocation decisions without observing future demand we first characterize the structure of the optimal allocation policy which consists of parallel allocation and then sequential rationing specifically the firm first uses capacity to satisfy the same class demand as much as possible then considers possible upgrading decisions in a sequential manner we also propose a heuristic based on certainty equivalence control to solve the problem numerical analysis shows that the heuristic is fast and delivers close to optimal profit for the firm finally we conduct extensive numerical studies to derive insights into the problem it is foun

tactical inventory and backorder decisions for systems with predictable production yield abstract we consider a manufacturing system with stochastic demand and predictable production yield the manufacturer has predetermined prices and limited production capacity in each period the manufacturer also has the option to save some inventory for future periods even if there is demand in the current period the demand that is not met is lost or may be backordered for only one period our objective is to maximize the expected profit by choosing optimal produce up to level y t save s t and backorder quantities b t in each period t we formulate this problem as a markov decision process where the state of the system is represented by the net inventory and the yield rate we show that a modified order up to policy y t s t b t is optimal in each period t we also perform computational analysis to examine the effects of production yield on the optimal decisions

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

a re examination of the unbiased forward rate hypothesis in the presence of multiple unknown structural breaks we test the unbiased forward rate ufr hypothesis using new tests for cointegration developed by hatemi j 2008a that allows for multiple unknown structural breaks we analyse the australian dollar aud euro eur british pound gbp and japanese yen jpy versus the us dollar usd spot rates and forward rates relationship during the period 5 january 1999 to 28 december 2006 we find that the ufr does hold when the effects of the unknown structural breaks are taken into account the parameters that we obtained were close to unity hence taking into account transaction cost and the existence of a risk premium earning arbitrage profits may still not be possible thus the markets for these currencies may still be considered as efficient

yield and allocation management in a continuous make to stock system with demand upgrade substitution abstract yield management is crucial for high tech industries to reduce over production however it is very challenging for a manufacturer to make a yield decision under the circumstance of uncertain demand and stochastic product quality for example in semiconductor manufacturing industry products are produced in batches within certain production cycle time even if the same raw material is put into the production system the product qualities measured by performance usually are not identical due to random yield in the manufacturing process since products have overlapped performance specifications products of the same batch are classified into different classes according to their qualities at the allocation stage products with higher performance can substitute for demand for products with lower performance this type of production and allocation system can be specified as a make to stock system with single material multi products multi periods upward demand substitution under random yield and uncertain demands in order to maximize profit the manufacturer needs to decide on the optimal input material quantity and the optimal allocation policy the problem is formulated as a stochastic dynamic programming model because manufacturer s profit is affected by the allocation policies atp r allocation policy is proposed to help manufacturer make real time allocation decisions a numerical experiment shows that atp r allocation policy performs better than the traditional myopic allocation policy to reduce the computation burden involved in atp r allocation policy we further propose a simplified algorithm and our experimental studies provide proof of the effectiveness of the proposed simple algorithm

uncovered interest parity monetary policy and time varying risk premia abstract in a recent paper mccallum argued that monetary policy behavior can be responsible for the apparent empirical failure of uncovered interest parity uip the present paper investigates whether optimizing policy behavior can account for the observed regime dependence of uip evidence the main result is that the tradeoff between interest rate and exchange rate stability is a potential candidate for the explanation of the apparent failure of uip and that the consideration of policy reactions can explain why deviations from uip differ systematically by the exchange rate regime

forward exchange market unbiasedness the case of the australian dollar since 1984 abstract this paper implements a robust statistical approach to regression with non stationary time series the methods were recently developed in other work and are briefly exposited here they allow us to perform regressions in levels with non stationary time series data they accommodate data distributions with heavy tails and they permit serial dependence and temporal heterogeneity of unknown form in the equation errors with these features the methods are well suited to applications with frequently sampled exchange rate data which generally display all of these empirical characteristics our application here is to daily data on spot and forward exchange rates between the australian and us dollars over the period 1984 1991 following the deregulation of the australian foreign exchange market we find big differences between the robust and the non robust regression outcomes and in the associated statistical tests of the hypothesis that the forward rate is an unbiased predictor of the future spot rate the robust tests reject the unbiasedness hypothesis but still give the forward rate an important role as a predictor of the future spot rate

on the restricted cointegration test as a test of the rational expectations hypothesis one of the main consequences of the cointegration revolution on the domain of the direct tests of the rational expectations hypothesis reh was the substitution of the restricted cointegration test rct for the unbiasedness test however the results of a monte carlo study show that a simple t test can be much more powerful than the rct it is argued that the rct is adequate to investigate the asymptotic rationality but that it is not sufficient to assess the muthian rationality of expectations the discussion is empirically illustrated with the test of the reh for the portuguese retail trade inflation expectations

tests of exchange market efficiency fragile evidence from cointegration tests abstract several recent papers have employed engle and granger 1987 cointegration tests to determine whether or not markets are efficient we use a new test for cointegration due to johansen 1988 to examine market efficiency with respect to the us dollar exchange rates for canadian japanese and west german currencies the fragile nature of the test indications suggests that cointegration methodologies cannot be relied upon to provide reliable evidence on market efficiency

the expectations hypothesis of the term structure tests on us german french and uk euro rates abstract this paper tests the expectations hypothesis of the term structure on us german french and uk euro rates three tests are examined the first is based on forward rates and the other two are based on the interest rates spread first we show that the sign puzzle highlighted by campbell and shiller campbell j y shiller r j 1991 yield spreads and interest rate movements a bird s eye view review of economic studies 58 495 514 for us data does not arise in the cases of french and uk short term rates second we propose tests for the expectations hypothesis based on error correction models with these tests the sign puzzle disappears but the country puzzle remains

long run dynamics of black and official exchange rates abstract this paper examines the relationships among black and official foreign exchange rates its primary purpose is to investigate the way in which black and official markets process information application of cointegration tests to the turkish markets for us dollars and west german marks in the mid 1980s indicates that the two black markets are efficient information processors for the black and official markets of each currency evidence is found suggesting the possibility of overshooting by the black exchange rate this inefficiency may not be able to be arbitraged away because of restrictions on capital flows through official channels

testing the hypothesis of market efficiency in the taiwan us forward exchange market since 1990 this article examines the applicability of the hypothesis of market efficiency in taiwan s foreign exchange market using daily data instead of linear regression based models we consider the possibility that the true data generating process may come from two different distributions and we employ the markov switching approach to analyse this from the results of the two state markov switching model we define state 1 as the efficient state and state 2 as the inefficient one only the 30 day forward rate is able to differentiate between the two states based on the unconditional probabilities from the markov switching model we also find that the 30 day forward rate has a 70 probability in the efficient state which indicates that 70 of all speculators fully extract information when predicting future spot rates while 30 of all investors do not

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

description prescription and the choice of discount rates abstract the choice of discount rates is a key issue in the analysis of long term societal issues in particular environmental issues such as climate change approaches to choosing discount rates are generally placed into two categories the descriptive approach and the prescriptive approach the descriptive approach is often justified on grounds that it uses a description of how society discounts instead of having analysts impose their own discounting views on society this paper analyzes the common forms of the descriptive and prescriptive approaches and finds that in contrast with customary thinking both forms are equally descriptive and prescriptive the prescriptions concern who has standing i e who is included in society how the views of these individuals are measured and how the measurements are aggregated such prescriptions are necessary to choose from among the many possible descriptions of how society discounts the descriptions are the measurements made given a choice of measurement technique thus the labels descriptive approach and prescriptive approach are deeply misleading as analysts cannot avoid imposing their own views on society

pigou and future generations a cambridge tradition in the economics of welfare and elsewhere a c pigou took the view that future people should be treated equally with present people he stressed our defective telescopic faculty mortality and weak linkages over time and argued that the present generation would consequently devote too few resources to investment particularly in human capital pigou linked his argument with the then contemporary controversies about natural resource conservation and about eugenics this cambridge tradition holds that issues of generational justice leave an important role for the state and cannot be resolved simply at the level of the individual or the family c 1996 academic press limited copyright 1996 by oxford university press

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

the hotelling rule in non renewable resource economics a reassessment harold hotelling s 1931 contribution is known for providing a basic principle the hotelling rule to the economics of non renewable resources nearly ninety years later empirical tests conclude the rule lacks empirical validity requiring strong amendments to describe the long term aggregate behavior of its target object on the basis of hotelling s unpublished archival material this paper revisits the place given to the hotelling rule in non renewable resource economics our reconstruction shows that hotelling s 1931 paper has been misinterpreted from the outset the hotelling rule was not valid for mineral resources in contrast the consideration of two inherent geological constraints alongside exhaustibility offered the opportunity for an alternative basic framework capable to generate bell shaped and u shaped equilibrium trajectories for supplies and prices respectively inspired by this unknown aspect of hotelling s work brought to light by our archival investigation we sketch this alternative basic model enabling non renewable resource economics to circumvent the empirical shortfalls of the hotelling rule

newsvendor model with random supply and financial hedging utility based approach abstract this paper takes a utility based approach to the single period and single item newsvendor model unlike most models in the literature the newsvendor is not necessarily risk neutral and chooses the order quantity that maximizes the expected utility of the cash flow at the end of the period we suppose that there is uncertainty in demand as well as supply furthermore random demand and supply may be correlated with the financial markets the newsvendor exploits this correlation and manages his risks by investing in a portfolio of financial instruments the decision problem therefore includes not only the determination of the optimal ordering policy but also the selection of the optimal portfolio at the same time we first use a minimum variance approach to select the portfolio the analysis results in some interesting and explicit characterizations on the structure of the optimal policy we also present numerical examples to illustrate the effects of the parameters on the optimal order quantity and the importance of financial hedging on risk reduction

interdependence and dynamics in currency futures markets a multivariate analysis of intraday data abstract this paper investigates long term interdependencies and short term dynamics in currency futures utilizing intraday data for six major foreign currencies the british pound deutsche mark swiss franc australian dollar canadian dollar and japanese yen lack of cointegration ci among the foreign exchange futures is found to be the prevailing mode of behavior but some temporary deviations from the no ci condition are detected there is a notable overlap between detected ci relationships and the timing of policy changes world events and regime shifts indicating that the observed cis are event driven the robustness of the ci results is checked with respect to variations in the model lag structure data period sample horizon and currency basket grouping impulse response functions irfs reveal that currency markets are in general efficient and absorb new information within the day the interdependence among currencies is found to be asymmetric

common stochastic trends between forward and spot exchange rates abstract the common trend analyses between the forward rate f t and the corresponding future spot rate of the same currency s t 1 have raised several issues notably the sensitivity of the cointegrating relation to a constant term and lag lengths and the non stationarity of the risk premium this paper addresses these issues more rigorously using the daily exchange rate of the pound sterling vis a vis five major currencies viz the canadian dollar french franc german mark japanese yen and us dollar the appropriate deterministic term in the cointegrating space is identified through empirical tests a robust cointegrating relation is found between f t and s t 1 however the hypothesis of unbiasedness of forward rate could not be sustained an alternative measure of risk premium is suggested and its stationarity is confirmed

are japanese interest rates too stable abstract we examine the effects of japanese financial market liberalization using daily data on eurocurrency and two japanese onshore interest rates the gensaki and cd rates our evidence suggests that japanese money markets are now fully integrated with world markets but that the degree of integration depends heavily on the japanese asset examined in particular we find that the gensaki market is not completely integrated with the euroyen market the cd rate however is cointegrated with the euroyen rate since june 1984 and the euroyen cd rate variance ratio is similar to that of dollar denominated assets after november 1988 jel e43

does comovement among exchange rates imply market inefficiency abstract this paper argues that contrary to what has been reported in the empirical literature previously cointegration between pairs of exchange rates does not necessarily rule out informational efficiency in currency markets the basic reason is that market efficiency does not rule out predictable exchange rate movements but only rules out arbitrage opportunities from predictable exchange rate movements as the usual parity conditions dictate

robust tests of forward exchange market efficiency with empirical evidence from the 1920s summary this paper provides a robust statistical approach to testing the unbiasedness hypothesis in forward exchange market efficiency studies the methods we use allow us to work explicitly with levels rather than differenced data they are statistically robust to data distributions with heavy tails and they can be applied to data sets where the frequency of observation and the futures maturity do not coincide in addition our methods allow for stochastic trend non stationarity and general forms of serial dependence the methods are applied to daily data of spot exchange rates and forward exchange rates during the 1920s which marked the first episode of a broadly general floating exchange rate system the tail behaviour of the data is analysed using an adaptive data based method for estimating the tail slope of the density the results confirm the need for the use of robust regression methods we find cointegration between the forward rate and spot rate for the four currencies we consider the belgian and french francs the italian lira and the us dollar all measured against the british pound we find support for a stationary risk premium in the case of the belgian franc the italian lira and the us dollar and we find support for the simple market efficiency hypothesis where the forward rate is an unbiased predictor of the future spot rate and there is a zero mean risk premium in the case of the us dollar

time discounting in harold hotelling s approach to natural resource economics the unsolved ethical question the paper focuses on harold hotelling s approach to time discounting in the context of the intertemporal allocation of exhaustible natural resources in 1931 hotelling introduces a positive discount rate when dealing with the social value or total utility derived from a resource his position was in contrast with early economic literature on conservation as well as with the point of view of frank ramsey according to whom time discounting expressed an unjustified preference for the welfare of present generations over that of future ones hence it has been argued that hotelling dismissed ethical concerns using archival material we find that for hotelling economic questions should not be restricted to issues of economic efficiency that his choice to discount utility which he considered as analogous to a concrete benefit at the interest rate is compatible with ramsey s position and more broadly that this choice does not preclude an ethical position on the desirable distribution of exhaustible resources through time to hotelling ethics is implemented by politics through fiscal corrections of the interest rate revisiting hotelling on the articulation between ethics allocative efficiency and policies allows us to rethink the way we do that in current models using time discounting

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure

econometric modelling of non ferrous metal prices abstract this article evaluates the significance of the empirical models and the distributional properties of prices in non ferrous metal spots and futures markets published in leading refereed economics and finance journals between 1980 and 2002 the survey focuses on econometric analyses of pricing and return models applied to exchange based spot and futures markets for the main industrially used non ferrous metals namely aluminium copper lead nickel tin and zinc published empirical research is evaluated in the light of the type of contract examined frequency of data used choice of both dependent and explanatory variables use of proxy variables type of model chosen economic hypotheses tested methods of estimation and calculation of ses for inference reported descriptive statistics use of diagnostic tests of auxiliary assumptions use of nested and non nested tests use of information criteria and empirical implications for non ferrous metals