risk aversion and the recommended hedging ratio in a recent article in this journal kahl reviewed the existing literature on the determination of optimal futures and cash market positions the optimal hedging ratios were found to depend on whether the cash position was treated as endogenous or predetermined and some general implications were set forth the surprising conclusion was that the optimal hedging ratio is independent of the individual s risk aversion even though the optimal positions in the cash and futures markets are themselves not independent of the risk parameter kahl demonstrates that this conclusion

why do farmers have so little interest in futures markets a farm financial model with leverage and investment in two farm enterprises is specified the model is extended to incorporate futures hedging and the separation theorem is used to show that optimal hedging is zero the assumption of a risk free asset is relaxed and while this leads to a violation of the separation theorem the result that optimal hedging is zero is maintained providing that futures markets are efficient it is concluded that if capital markets are efficient then farmers will have little interest in futures markets except to speculate

international borrowing and time consistent fiscal policy we discuss optimal fiscal policy in open economies using an open economy version of a model used in the recent work by lucas and stokey an optimal allocation smooths out the tax distortions associated with financing a given sequence of government consumption and it also smooths out private consumption of goods and leisure by borrowing lending on the international capital market in periods with high low government consumption the main question we ask is how the optimal policy can be made time consistent when usccessive governments reoptimize with respect to current and future tax rates but most honor the government debt obligations we show that this requires government debt of sufficiently rich maturity to be issued first we treat a case with capital controls where only the government can borrow and lend abroad the there is a unique restructuring scheme for the domestic debt that is necessary to give succeeding governments incentives to continue following the optimal policy here we interpret and extend lucas and stokey s results for a small economy this scheme is also sufficient for time consistency but in an economy large enough to affect its terms of trade it is also necessary to follow a unique restructuring scheme for the government s and the country s foreign debt when there are no capital controls time consistency is no longer a problem in a small economy in a large economy what matters is total government debt and total foreign debt but not their composition and again there are unique maturity structures necessary and sufficient for time consistency an interesting observation is that in the distorted world we consider relaxing the capital controls actually deteriorates welfare

trading volume maturity and natural gas futures price volatility important characteristics of the natural gas spot and futures markets are discussed the relationship between the variance of price change or volatility of the natural gas futures price and maturity of the futures contract and the volume of trading in the futures contact is also discussed and estimated it is found that the volume of trade rather than maturity explains the variance of the volatility it is also discovered that past levels of volume of trade influence current variability of price volatility but that past variability of price volatility has much less of an influence on current levels of trading

debt restructuring with a public good endogenous government expenditure is introduced into lucas and stokey s 1983 model of optimal wage taxation so long as the government can precommit to taxes or to expenditures a debt maturity structure that keeps the value of the debt invariant to interest rate changes will make the optimal policies time consistent in the absence of partial precommitment debt restructuring cannot enforce time consistency but it can still limit the costs of time inconsistency numerical examples show 1 average debt is smaller than under the precommitment solution 2 the debt structure is much longer than under partial precommitment and 3 restricting the government to one period debt overstates the welfare losses from time inconsistency

what caused the rise of conservatism a french view conservatism daniel cohen existing theories of political cycles fail to provide an adequate explanation for the widespread shift to conservative economic policies on one view political parties merely court the median voter but this theory is incomplete because it fails to explain why the median voter has become conservative other theories differentiate parties by their ideologies but they wholly fail to explain where changes of ideology come from this author proposes an explanation that does not need to rely on changes in the underlying preferences of voters or parties but in which changing economic conditions lead to different policy choices thus while ends remain unchanged the means to achieve these ends may vary over time the distinction between right and left is still portrayed by the classical trade off between economic efficiency and equity in order to promote equity the government can always redistribute wealth but in order to preserve economic efficiency wealth redistribution should not be expected to be repeated systematically hence the median voter will prefer a laissez faire to an interventionist government when the economy is understood to be affected by a persistent disturbance and the converse when disturbances are temporary thus the shift to conservatism is seen as the result of the sometimes belated realization by the electorate that the shocks of the 1970s were long lasting current forecasts that unemployment in europe is unlikely to fall suggest the continuation of conservative policies irrespective of whether they are implemented by the right or the left

toward a positive economic theory of hedging the hedging models developed over the last half century are evaluated for their ability to explain the actual hedging behavior of the various economic agents this evaluation shows a total lack of a reasonable positive model of hedging behavior while each class of existing models predicts some observed behavior none is able to predict the broad range of actions that is easily observed in the real world in this paper i develop such a model and include a plausible and coldly rational economic explanation for why farmers don t hedge at all while merchandisers with identical risk attitudes will fully hedge

revisiting the behavior of small and large firms during the 2008 financial crisis abstract gertler and gilchrist 1994 provide seminal evidence for the prevailing view that adverse shocks are propagated via credit constraints small firms are affected more during tight credit periods than large firms under this view the deep recession that followed the 2008 financial crisis is often interpreted as the propagation of the initial credit shock following gertler and gilchrist 1994 s methodology we study the behavior of small and large firms during episodes of credit disruption and extend the analysis to the 2008 financial crisis and nber dated recessions we find that large firms short term debt and sales contracted relatively more than those of small firms during the 2008 financial crisis and during most recessions since 1969 the results are robust to changes in the business cycle dating procedure using compustat we also find that during 2007 09 low financially dependent firms suffered more than high financially dependent firms these results favor the view that a tightening of a financial or collateral constraint might not be a good representation of the 2007 09 crisis

time consistency of fiscal and monetary policy a solution this paper demonstrates how time consistency of the ramsey policy the optimal fiscal and monetary policy under commitment can be achieved each government should leave its successor with a uniq

time consistent fiscal policy and government cash flow abstract this short paper provides an interpretation and some extensions of lucas and stokey s results on optimal fiscal policy the discussion relies heavily on the concept of government cash flow which is related but not equal to the budget surplus time consistency of the optimal policy requires that a positive cash flow is used to buy up some debt of each maturity and contingency

market information and price volatility in petroleum derivatives spot and futures markets some new york evidence abstract this paper examines the relationship between petroleum futures trading market information and spot prices it tests the hypothesis that there is increased spot market information with futures trading of various petroleum derivatives for weekly data during the period january 1970 to july 1985 at the new york mercantile exchange increased market information with futures trading is indicated by the insignificance of coefficients of past prices in spot price regressions in periods with futures trading however the estimates of the coefficient of variation indicate that price volatility tends to increase with futures trading thus traders seem better informed with futures trading although the advantages of increased market information might potentially be undermined by increased price volatility as in the case of regular gasoline

crack spread hedging accounting for time varying volatility spillovers in the energy futures markets crude oil heating oil and unleaded gasoline futures contracts are simultaneously analysed for their effectiveness in reducing price volatility for an energy trader a conceptual model is developed for a trader hedging the crack spread various hedge ratio estimation techniques are compared to a multivariate garch model that directly incorporates the time to maturity effect often found in futures markets modelling of the time variation in hedge ratios via the multivariate garch methodology and thus taking into account volatility spillovers between markets is shown to result in significant reductions in uncertainty even while accounting for trading costs copyright 2002 john wiley sons ltd

the effects of supply and interest rate shocks in commodity futures markets this paper extends previous studies of futures markets to highlight the role of expectations in the analysis of supply and interest rate shocks shocks which are expected to be permanent generally will create larger movements in spot and futures prices than shocks which are regarded as transitory further the reactions of spot and futures prices may differ both qualitatively and quantitatively depending on whether new information refers to events in the current period or to likely developments in some future period the results demonstrate the potential importance of capturing expectations effects in empirical studies of futures market behavior

optimal hedge ratios with risk neutral producers and nonlinear borrowing costs a new theory of hedging is derived assuming producers are risk neutral forward pricing is costly and borrowing costs are nonlinear the standard risk minimizing hedge ratio is derived when forward pricing is costless when the assumption of costless hedging is dropped high leveraged firms are shown to hedge more than do low leveraged firms if the value of capital is uncorrelated with output price firms are shown to hedge more as cash price variability increases thus the model can be consistent with what firms actually do

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

estimation of the optimal futures hedge standard approaches to designing a futures hedge often suffer from two major problems first they focus only on minimizing risk so no account is taken of the impact on expected return second in estima ting the hedge ratio no allowance is made for time variation in the distribution of cash and futures price changes this paper describes a technique for estimating the optimal futures hedge that corrects these problems and illustrates its use in hedging treasury bonds with t bond futures copyright 1988 by mit press

fiscal policy debt management and exchange rate credibility lessons from the recent italian experience abstract this paper explores some potential determinants of exchange rate credibility with reference to the italian experience of the 1990s the analysis relies on a nonlinear framework emphasizing shifts between credible and non credible states and assuming a significant degree of persistence in the above regimes almost all fiscal and debt management indicators display significant effects on devaluation expectations the main policy implications of the paper are that a restrictive fiscal stance a lengthening of average debt maturity and an increase in the share of foreign denominated debt are crucial to stabilize the lira exchange rate and to qualify italy in the former group of countries which will join emu

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

price discovery in oil markets a time varying analysis of the 1990 1991 gulf conflict abstract this study examines the behaviour of crude oil spot and futures markets in the uk and usa during the 1990 1991 gulf conflict the objective is to investigate the relative ability of spot and futures markets to impound information this is achieved with the use of a generalized model of price discovery which represents a synthesis of the two most commonly used methodologies in its field emphasis is placed on the time varying nature of price discovery relationships results indicate that such relationships are strongly temporal these findings offer new insights into the nature of relationships between spot and futures markets

why do we have nominal government debt abstract we study the choice between nominal and indexed debt in a stochastic macroeconomic model with discretionary monetary and fiscal policy with distortionary taxes nominal debt provides valuable insurance against the budgetary effects of economic fluctuations we show that a welfare maximizing government always issues some nominal debt even though nominal debt increases inflation along the time consistent path of the economy the result is fairly robust with respect to changes in assumptions about policy constraints and about the macroeconomic setting

generalized optimal hedge ratio estimation a generalized approach to estimating optimal hedge ratios on futures markets is developed the generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation in an application to storage hedging of corn soybeans and wheat it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates

maturity effects in energy futures abstract this paper examines the effects of maturity on future price volatility and trading volume for 129 energy futures contracts recently traded in the nymex the results provide support for the maturity effect hypothesis that is energy futures prices do become more volatile and trading volume increases as futures contracts approach maturity

a utility based comparison of some models of exchange rate volatility abstract when estimates of variances are used to make asset allocation decisions underestimates of population variances lead to lower expected utility than equivalent overestimates a utility based criterion is asymmetric unlike standard criteria such as mean squared error to illustrate how to estimate a utility based criterion we use five bilateral weekly dollar exchange rates 1973 1989 and the corresponding pair of eurodeposit rates of homoskedastic garch autoregressive and non parametric models for the conditional variance of each exchange rate garch models tend to produce the highest utility on average a mean squared error criterion also favors garch but not as sharply

a reformulation of the portfolio model of hedging the portfolio approach to hedging assumes that the primary motivation for hedging is risk reduction the paper reexamines the portfolio approach to hedging and respecifies the model in such a way that hedge ratios are estimated using returns rather than price levels using the same data set hedge ratios estimated using price levels differ from one while hedge ratios using returns are found to be insignificantly different from one the results do not support the portfolio approach to hedging therefore one must look elsewhere for empirical support for the risk reduction theory of hedging

time consistency of fiscal and monetary policy the problem of time inconsistency arises from two different sources first as shown by guillermo a calvo 1978 the re is an incentive for each government to engage in an initial unanti cipated inflation second as discussed by robert e lucas and nancy l stokey 1983 there is an incentive for each government to deviat e from the path of taxes announced by the preceding government in th is paper it is shown that these two sources of time inconsistency ca n be removed by a particular method of debt management involving bot h nominal and indexed government bonds of various maturities copyright 1987 by the econometric society

more reasons why farmers have so little interest in futures markets the use by farmers of futures contracts and other hedging instruments has been observed to be low in many situations and this has sometimes seemed to be considered surprising or even mysterious we propose that it is in fact readily understandable and consistent with rational decision making standard models of the decision about optimal hedging show that it is negatively related to basis risk to quantity risk and to transaction costs farmers who have less uncertainty about prices and those with a diversified portfolio of investments have lower optimal levels of hedging if a farmer has optimistic price expectations relative to the futures market the incentive to hedge can be greatly reduced and finally farmers who have low levels of risk aversion have little to gain from hedging in terms of risk reduction in that the certainty equivalent payoff at their optimal hedge may be little different than the certainty equivalent under zero hedging these reasons are additional to the argument of simmons 2002 who showed that if capital markets are efficient farmers can manage their risk exposure through adjusting their leverage obviating the need for hedging instruments

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

optimal monetary policy with the cost channel in the standard new keynesian framework an optimizing policy maker does not face a trade off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices an ad hoc exogenous cost push shock is typically added to the inflation equation to generate a meaningful policy problem in this paper we show that a cost push shock arises endogenously when a cost channel for monetary policy is introduced into the new keynesian model a cost channel is present when firms marginal cost depends directly on the nominal rate of interest besides providing empirical evidence for a cost channel we explore its implications for optimal monetary policy we show that its presence alters the optimal policy problem in important ways for example both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy

unbiasedness and time varying risk premia in the crude oil futures market abstract this paper presents some empirical evidence on market efficiency and unbiasedness in the crude oil futures market and some related issues on the basis of monthly observations on spot and futures prices of the west texas intermediate wti crude oil several tests are carried out on the relevant hypotheses the evidence suggests that futures prices are neither unbiased nor efficient forecasters of spot prices furthermore a garch m 1 1 model reveals the existence of a time varying risk premium

recent developments in the theory of rules versus discretion policymaker this perspective on rules versus discretion was changed by kydland and prescott 1977 who looked at rules as a form of commitment a commitment amounts to a binding contract which specifies in advance the actions that someone will take possibly contingent on some exogenous variables that everyone can observe in contrast under discretion a person promises only to take those future actions that will best further his objectives later on such promises are easy to keep thus discretion is the special case of a rule or contract in which none of today s provisions restrict a person s future actions in the area of private business dealings it is natural to think about optimal forms of contracts which would not usually be pure discretion similarly for public policy the perspective becomes the optimal form of rules or prior restrictions even the smart benevolent policymaker is likely to desire and use

the demand for hedging and the value of hedging opportunities hedging strategies typically assume that hedging is costless and that only one futures market exists when these assumptions are dropped the demand for hedging is shown to depend on basis risk price risk and the hedger s risk preference the marginal and incremental value of hedging opportunities are computed for the general cases of one and two markets and applied to the specific case of pennsylvania dairy input hedging copyright 2000 oxford university press

dynamically optimal after tax grain storage cash grain sale and hedging strategies this article utilizes a stochastic dynamic programming sdp model that considers the state variables of a before tax income b grain storage c quantity of futures position d value of futures position e wheat price and f basis level decision variables are monthly cash grain sales and futures market transactions in comparing the post sample performance of sdp to other marketing strategies over a four year period sdp resulted in 5 961 to 25 021 more wealth than the other strategies considered also these other strategies yielded a standard deviation of after tax income that was 30 to 621 greater than that from the sdp framework

managing multiple international risks simultaneously with an optimal hedging model abstract a risk management model based on portfolio theory which accounts jointly for price quantity interest rate and exchange rate risks is developed and applied to cocoa and coffee production and exports in the ivory coast utilizing commodity and financial futures markets jointly the results show that a government export agency can reduce risks from 27 to 89 by following a multicommodity hedging program which manages several risks simultaneously the model and technique developed are applicable to many multiproduct firm and international risk management situations

the empirical minimum variance hedge decision making under unknown true parameters estimation risk is discussed along with bayes and parameter certainty equivalent pce criteria bayes criterion incorporates estimation risk in a manner consistent with expected utility maximization the pce method which is the most commonly used is not consistent with expected utility maximization bayes criterion is employed to solve for the minimum variance hedge ratio empirical application of bayes minimum variance hedge ratio is addressed and illustrated simulations shoe that discrepancies between prior and sample parameters may lead to substantial differences between bayesian and pce minimum variance hedges

debt restructuring and the time consistency of optimal policies clever debt restructuring ensures that the optimal taxes on the purchase of consumption goods and on labor income are time consistent even if the government chooses public consumption and public investment for this result two types of debt are needed claims on consumption goods debt indexed by the gross of tax consumption prices and claims on leisure debt indexed by the net of tax wage rate this rescues robert e lucas and nancy l stokey 1983 from the criticism that debt restructuring cannot ensure time consistency when the government chooses public consumption or public investment this paper analyzes a closed economy copyright 1994 by ohio state university press

on the optimal and best sustainable taxes in an open economy abstract we study a representative agent open economy in which government provided services that enter the domestic production function must be financed with distortionary taxes and focus on the optimal size of government and the associated optimal tax rate if the government can precommit its actions it maximizes individual welfare by announcing and implementing a constant tax rate which we refer to as the first best tax rate this tax rate is time inconsistent and under discretion the government implements a tax that maximizes each period s output which may be higher or lower than the first best rate depending on whether the elasticity of substitution in production between private and public inputs is below or above one in this paper we characterize the best sequence of tax rates that can be sustained through trigger strategies this best sustainable sequence of tax rates is constant and lies between the first best and discretionary extremes

portfolio theory and the demand for futures the case of california cotton this paper examines the simultaneous choice of cropping patterns and futures positions it derives the demand for hedging as a function of the price of a hedge and the crop choice set it estimates these functions for california cotton farmers it finds that both the costs of hedging and the opportunity to diversify risk by growing other crops substantially change the optimal hedge for california cotton farmers

a reformulation of the portfolio model of hedging comment in a recent article stewart l brown finds that hedge ratios estimated using percentage price change data are not significantly different from one while hedge ratios estimated using price level data are he argues that a the use of percentage price change data which he calls returns is more appropriate and b his empirical results do not support the portfolio theory of hedging many objective functions do indeed suggest the use of price change data although not necessarily percentage price change data instead of price level data when estimating hedge ratios and brown gives no new reasons for their use however brown s conclusion that hedge ratios significantly less than one support the portfolio theory while ratios not significantly different from one do not is erroneous moreover his paper misrepresents previous research on this topic my comment is intended to clarify these two issues

debt structure as an indicator of central bank independence kydland and prescott 8 demonstrated that as a government with discretion often has an incentive to deviate from previously announced policy the optimal policy under commitment is not time consistent under discretion moreover as the optimal time consistent policy under discretion usually leads to a welfare loss relative to the optimal policy under commitment social welfare can be increased by adopting a credible policy commitment since that finding many authors have examined how a carefully designed debt management strategy can serve as an effective means of commitment to low inflation for example persson persson and svensson 12 and calvo and guidotti 3 illustrate that by trading in nominal and indexed debt the government can eliminate its incentive to engineer inflationary surprises and thus increase social welfare in a rational discretion world in a somewhat related paper missale and blanchard 10 demonstrate how effective debt maturity can serve as a credible means of committing to no inflation 2 the above models of debt management as commitment to low inflation implicitly assume that the fiscal authority has access to the process of money creation when that is the case the optimal structure of government debt depends crucially on how that structure affects expectations of inflation however when the central bank is independent of the central government in the sense that money growth targets are set by the central bank and independently of the federal debt and deficits the expected rate of inflation will be unaffected by the debt management decision thus unlike a government with close ties to its central bank a government that does not control inflation will be able to choose the structure of its debt without affecting the expected rate of inflation this implies that the optimal debt management strategies for governments with and without independent central banks will differ and suggests that one can look at the particular structure of a given government s debt in order to obtain inferences about the state of its central bank s independence

the contribution of large and small employers to job creation in times of high and low unemployment we document a negative correlation at business cycle frequencies between the net job creation rate of large employers and the level of aggregate unemployment that is much stronger than for small employers the differential growth rate of employment between initially large and small employers has an unconditional correlation of 0 5 with the unemployment rate and varies by about 5 percent over the business cycle we exploit several datasets from the united states denmark and france both repeated cross sections and job flows with employer longitudinal information spanning the last four decades and several business cycles we discuss implications for theories of factor demand jel d22 e23 e32 j23 l25

optimal monetary policy in a model with agency costs this paper integrates a fully explicit model of agency costs into an otherwise standard dynamic new keynesian model in a particularly transparent way a principal result is the characterization of agency costs as endogenous markup shocks in an output gap version of the phillips curve the model s utility based welfare criterion is derived explicitly and includes a measure of credit market tightness that we interpret as a risk premium the paper also fully characterizes optimal monetary policy and provides conditions under which zero inflation is the optimal policy finally optimal policy can be expressed as an inflation targeting criterion that depending upon parameter values can be either forward or backward looking

external financing and the role of financial frictions over the business cycle measurement and theory we examine the quantitative importance of financial market shocks in accounting for business cycle fluctuations we emphasize the role financial markets play in reallocating funds from cash rich low productivity firms to cash poor high productivity firms using evidence on financial flows at the firm level we find that for publicly traded firms in compustat almost all investment is financed internally however using an alternative data source amadeus we find that most investment by privately held firms is financed through borrowing motivated by these observations we build a quantitative model featuring publicly and privately held firms that face collateral constraints and idiosyncratic risk over productivity as well as non financial linkages in our calibrated model we find that a shock to the collateral constraints which generates a one standard deviation decline in the debt to asset ratio leads to a 0 5 decline in aggregate output on impact roughly comparable to the effect of a one standard deviation shock to aggregate productivity in a standard real business cycle model in this sense we find that disturbances in financial markets are a promising source of business cycle fluctuations when non financial linkages across firms are sufficiently strong

railroad rate deregulation and uncertainly of farm level prices for corn uncertainty of country elevator prices for corn in terms of error variance and mean squared forecast errors failed to increase in response to the deregulation in 1980 of railroad rates regression analysis was used to separate the uncertainty impacts of deregulation from those of other unanticipated changes in supply and demand factors influencing uncertainty included unexpected changes in storage costs export demand corn futures and rail car utilization some of the factors creating price uncertainty prior to deregulation were replaced by new uncertainty factors occurring as a result of deregulation

nonlinear dynamics of daily cash prices daily cash price changes are not normally distributed their empirical distributions have fat tails and most are skewed in addition they are not independent among the diffusion jump extended generalized autoregressive conditional heteroskedasticity garch and deterministic chaos processes a garch process with residuals following a student distribution is the most likely our garch model reduces leptokurtosis removes nonlinear dependence and provides a considerable improvement over the i i d normal model the garch process is not well calibrated because it cannot explain all the observed nonnormality but it does yield asymptotically valid hypothesis tests

intertemporal commodity futures hedging and the production decision this paper deals with the producer s optimal use of commodity futures in hedging the framework for analysis is an intertemporal consumption and investment model the producer makes his production decisions at the beginning of the period and realizes his return at the end of the time interval during the period he faces both price and output uncertainties in applying stochastic dynamic programming methods this paper shows the effect of these risks on his consumption behavior further the paper investigates his optimal hedging positions in the futures market over time and his optimal production decisions finally implications of these results on the futures markets are discussed this paper studies a normative model of the farmer s optimal hedging strategy and consumption behavior in a continuous time framework recent papers for example berck 3 rolfo 18 stoll 21 have analyzed the farmer s hedging strategies in a one period context these papers have provided interesting insights into the farmer s production decisions and the optimal design of futures contracts and markets however in a one period model some rather restrictive conditions are imposed on the individual s behavior for example in these models an individual is assumed to ignore any information arrival process as a result the individual is assumed to adjust neither consumption behavior nor hedging positions to the changing state of the world during the production period these conditions can be relaxed in a continuous time framework in an intertemporal context the farmer s hedging problem may be viewed as follows since the farm income at harvest depends on both the spot price and the output in bushels the farmer is subject to both price and output uncertainties during the production period 1 when the farmer can hedge only in the commodity futures market he cannot eliminate both the price and output uncertainties by any hedging strategy 2 as the farm income represents a significant portion of his wealth he must necessarily hold an undiversified portfolio during the production period therefore in essence the farmer must solve for his investment consumption behavior and his hedging strategy facing the nonmarketable asset problem mayers 14 in a multiperiod framework in this context one can see intuitively the major difference between a one

the recursive core core allocations may be defined for infinite horizon capital accumulation models if agents cannot trust each other in the sense of gale then agents may renege on their commitments their decisions appear time inconsistent a core allocation is a recursive core allocation provided no coalition can improve upon its consumption stream at any time given its accumulation of assets up to that period we show for every allocation of consumption in the initial core one can find a distribution of capital stocks among the agents where no coalition of agents will break the initial core contract at any date it follows that if the proper distribution of the streams of capital is achieved then the allocation in the core is also in the recursive core the latter therefore forges a link between the distribution of wealth capital the problem of trust and time consistent intertemporal contracts

basis risk measurement and analysis of basis fluctuations for selected livestock markets unanticipated basis changes can reduce the ability of futures markets to transfer risk and can affect income levels of producers and market participants this study examines short term basis risk defined as the variance of the random component of the basis over time for several midwest livestock markets basis risk is related to several factors influencing the long term pattern in the time series and unexpected changes in price little evidence is found that basis risk changed as maturity approached or that risk varied across markets except for the interior iowa hog market

financing of firms labor reallocation and the distributional role of monetary policy we analyze monetary policy in a heterogenous firms environment where cash con strained firms finance operations through external financing and cash unconstrained firms operate by using internal funds we show that firms respond differently to shocks expansionary monetary policy sharply increases the relative employment of the cash constrained firms while positive productivity shocks induce a rise in the relative employment of the cash unconstrained firms our analysis points to a clear role of monetary policy in reallocating resources across sectors that differ in their financing capabilities furthermore the predictions of our model match the empirical evidence implying that financially constrained firms react sharply to monetary policy shocks but are less cyclical than unconstrained firms following productivity shocks

the excess co movement of commodity prices reconsidered this paper provides an empirical reconsideration of evidence for excess co movement of commodity prices within the framework of univariate and multivariate garch 1 1 models alternative formulations of zero excess co movement are provided and corresponding score and likelihood ratio tests are developed monthly time series data for two sample periods 1960 85 and 1974 92 on up to nine commodities are used in contrast to earlier work only weak evidence of excess co movement is found

firm leverage consumer demand and employment losses during the great recession this article argues that firms balance sheets were instrumental in the transmission of consumer demand shocks during the great recession using micro level data from the u s census bureau we find that establishments of more highly levered firms experienced significantly larger employment losses in response to declines in local consumer demand these results are not driven by firms being less productive having expanded too much prior to the great recession or being generally more sensitive to fluctuations in either aggregate employment or house prices likewise at the county level we find that counties with more highly levered firms experienced significantly larger declines in employment in response to local consumer demand shocks accordingly firms balance sheets also matter for aggregate employment our results suggest a possible role for employment policies that target firms directly besides conventional stimulus

a positive theory of foreign currency debt abstract this paper makes a case for foreign currency debt as a hedging device in an open economy subject to stochastic shocks to output a government can reduce uncertainty in wealth and in consumption by issuing foreign or domestic currency debt if unexpected domestic and foreign inflation are negatively correlated with domestic output foreign currency debt is desirable in comparison to domestic currency debt if growth rates of output of both countries are closely related and if domestic inflation is relatively uncertain it has an additional advantage if domestic debt creates time consistency problems