target zones and interest rate variability abstract for narrow exchange rate bands and for reasonable parameter values the interest rate differential s asymptotic unconditional variability is increasing in the width of the exchange rate band whereas for wide exchange rate bands it is slowly decreasing in the exchange rate band the interest rate differential s instantaneous conditional variability is decreasing in the width of the exchange rate band a narrow target zone differs from a completely fixed exchange rate regime in that the interest rate differential s instantaneous standard deviation is high and even increases when the zone narrows

the determinants of realignment expectations under the ems some empirical regularities abstract the stability of the ems depends crucially on realignment expectations of the market participants in this paper we discuss how to measure such expectations and how to relate them to economic fundamentals central bank reputation and institutional arrangements of the ems we find the following empirical regularities for ff dm and il dm exchange rates 1 1 expected devaluations are positively related to the current exchange rate deviation from the central parity 2 2 expected devaluations are negatively related to the length of time since last realignment in the short and medium run 3 3 the basle nyborg agreements seem to have a stabilizing effect for both currencies examined albeit through different channels

central bank intervention and risk in the forward market abstract a two country inter temporal asset pricing model is developed which implies that central bank foreign exchange intervention affects the forward exchange risk premium the model is estimated from daily foreign exchange intervention data for the us german and japanese central banks considerable empirical support is found for the theoretical model with intervention influencing the risk premium in the forward market purchases of dollars by the federal reserve bank are found to be associated with excess denominated returns there is evidence that intervention has increased rather than reduced exchange rate volatility

intrinsic bubbles the case of stock prices several puzzling aspects of the behavior of united states stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends the authors call bubbles of this type intrinsic bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors intrinsic bubbles provide a more plausible empirical account of deviations from present value pricing than do the traditional examples of rational bubbles their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods copyright 1991 by american economic association

have trading rule profits in the currency markets declined over time abstract previous studies have reported mixed results regarding the success of technical trading rules in currency markets abnormal returns were observed in many studies using data up to the mid 1980s while more recent studies generally report less success for technical trading rules this paper tests whether moving average trading rule profits have declined over the period from 1971 to 2000 if so previous profits may represent a temporary inefficiency that has since been eliminated in the currency markets the hypothesis is tested using 18 exchange rate series over a longer time period than in previous studies rules are optimized for successive 5 year in sample periods from 1971 to 1995 and tested over subsequent 5 year out of sample periods results show that risk adjusted trading rule profits have declined over time from an average of over 3 in the late 1970s and early 1980s to about zero in the 1990s thus market inefficiencies reported in previous studies may have been only temporary inefficiencies

rural nonfarm employment and incomes in latin america overview and policy implications abstract rural nonfarm employment rnfe and incomes rnfi are crucial to latin american rural households the 11 rural household income studies in this volume reviewed in this paper use 1990s data and show that rnfi averages 40 of rural incomes rnfi and rnfe have grown quickly over the past three decades the review of evidence provided some surprising departures from traditional images of nonfarm activities of latin american rural households in terms of shares of rural incomes 1 nonfarm wage incomes exceed self employment incomes 2 rnfi far exceeds farm wage incomes 3 local rnfi far exceeds migration incomes 4 service sector rnfi far exceeds manufactures rnfi these findings suggest the need for more development program attention to wage employment in the service sector versus the traditional focus on small enterprise manufactures moreover poor households and zones tend to have higher shares in their incomes but lower absolute levels of rnfi as compared to richer households and zones the rnfe of the poor tend to be the low paid nonfarm equivalent of semi subsistence farming raising the capacity of the poor to participate in the better paid types of rnfe is crucial via employment skills training education infrastructure credit finally rnfe has grown fastest and been most poverty alleviating where there are dynamic growth motors in particular in the agricultural sector but also in tourism links to urban areas mining and forestry this means that developing rnf jobs cannot be done at the expense of programs promoting agricultural development

detecting periodically collapsing bubbles a markov switching unit root test this paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals as this is essentially a problem of identifying the collapsing periods from the expanding ones we propose using a generalization of the dickey fuller test procedure which makes use of the class of markov regime switching models the potential of the new methodology is illustrated via simulation and an empirical example is given copyright 1999 john wiley sons ltd

exchange rate target zones a survey of the literature this work selectively reviews the literature on exchange rate target zones and their theoretical and empirical methodologies and examines whether they can be used to clarify to what extent this type of exchange rate regime could contribute to greater exchange rate stability we discuss the main contributions of the first and second generations of exchange rate target zone models in an attempt to reconcile the poor empirical performance of the krugman model with the reality of exchange rate target zone regimes this line of research integrates target zones with alternative underlying economic models such as imperfect credibility intra marginal interventions and sticky price models it was thus possible to understand the correlations observed between the exchange rate its fundamentals determinants and the interest rate differential and to explain the fact that the statistical distribution of the exchange rate is hump shaped rather than u shaped this implies that the initial emphasis of target zone models on nonlinearities honeymoon effect smooth pasting and marginal interventions has vanished exchange rate target zones are better described as similar to managed floating regimes with intra marginal interventions with some marginal interventions when the exchange rate reaches the edges of the floating band

forecasting foreign exchange rates with an intrinsically nonlinear dynamic speed of adjustment model forecasting foreign exchange rates is an important but difficult process therefore it is important to use a superior forecasting model the paper takes up this criterion and proposes to describe and forecast foreign exchange rates by developing an intrinsically nonlinear model with variable and dynamic speeds of adjustment it is found that the speed of adjusting the random or expected to the equilibrium rate is very slow implying that fiscal policy statistically insignificat and monetary policy statistically significant may be ineffective to induce changes in the adjustment speed we also find that the nonlinear dynamic model improves forecasting performance implying that nonlinearities in the sense of functional forms are exploitable for improved point forecasting of foreign exchange rates

target zone models with stochastic realignments an econometric evaluation abstract this paper provides empirical support for the second generation of target zone models with stochastic devaluation risk i propose a simple non linear framework with a time varying probability of exchange rate realignment this model nests alternatives i with no devaluation risk ii with constant devaluation risk and iii the random walk i reject these three in favor of a stochastic realignment model where devaluation risk varies with economic fundamentals the model predicts 13 of 17 realignments for the franc and lira including an out of sample episode in august 1993

assets activities and income generation in rural mexico factoring in social and public capital in recent years there has been increasing emphasis in the rural development literature on the multiple income generating activities undertaken by rural households and the importance of assets in determining the capacity to undertake these activities controlling for the endogeneity of activity choice and applying lee s generalisation of amemiya s two step estimator to a simultaneous equation model household returns to assets from multiple activities are explored for the mexico ejido sector to incorporate the multiple variables representing social and public capital into the analysis factor analysis is used the results indicate that the asset position of the household has a significant effect on household participation in income generating activities and returns to those activities furthermore the inclusion of measures of social and public capital into the analysis show that these assets play an important role in income generating activities and that the influence is dependent on the type of social and public capital as well as the particular activity

employment dynamics in the rural nonfarm sector in ethiopia do the poor have time on their side abstract we study rural employment transitions in ethiopia between farming and both low and high return nonfarm employment we find that initial asset holdings and access to saving and credit are important factors for transition into high return rural nonfarm employment and that households participation in high return rural nonfarm activities is robust to their experience of health shocks however shocks that affect their wealth or liquidity may trigger descents into low return nonfarm employment on the other hand shocks that reduce agricultural income motivate transitions into high return rural nonfarm employment

nonlinear nonparametric nonessential exchange rate estimation a wide variety of empirical exchange rate mo dels have been estimated over the years but despite the considerable energies that have been devoted to this work the economics profession has remarkably little to show for itself there is little evidence that conclusively links the bilateral exchange rates of typical oecd countries to fundamental macroeconomic determinants of exchange rates such as money output relative prices or interest differentials coefficient estimates are notoriously unstable and frequently mis signed compared with theoretical predictions exchange rate equations do not fit particularly well and forecast no better than the simplest naive alternatives recently a new class of exchange rate models was introduced by paul krugman 1988 these models provide a potential reason for the poor performance of traditional exchange rate models because they are nonlinear if the exchange rate actually depends in a nonlinear way on exogenous macroeconomic fundamentals linear exchange rate models may work poorly even though the exchange rate is closely linked to fundamentals in this paper we provide a brief sketch of some of this work as well as some preliminary evidence on the actual performance of these nonlinear models in our empirical analysis we use a nonparametric estimator that can handle a wide variety of nonlinear phenomena we examine fixed exchange rate regimes where nonlinearities should be quite easy to detect however we do not find strong empirical support for the hypothesis that the incorporation of nonlinear effects significantly improves models of exchange rate determination in section i we briefly review the theoretical literature on nonlinear target zone exchange rate models linking this work to the tests for intrinsic bubbles we draw heavily on recent papers by kenneth froot and maurice obstfeld 1989a b our methodology and data are discussed in section ii section iii contains new empirical tests for nonlinearities in exchange rate models

entrepreneurship selection and performance a meta analysis of the impact of education in developing economies this meta analytical review of empirical studies of the impact of schooling on entrepreneurship in selection and performance in developing economies looks at variations impact across specific characteristics of the studies a marginal year of schooling in developing economies raises enterprise income by an average of 5 5 percent which is close to the average return in industrial countries the return varies however by gender rural or urban residence and the share of agriculture in the economy furthermore more educated workers typically end up in wage employment and prefer nonfarm entrepreneurship to farming the education effect that separates workers into self employment and wage employment is stronger for women possibly stronger in urban areas and also stronger in the least developed economies where agriculture is more dominant and literacy rates are lower

is it signalling exchange intervention and the dollar deutschemark rate abstract the portfolio balance channel for sterilised intervention is tested by examining the effects of changes in relative asset supplies on the dollar deutschemark rate during the 1980s in contrast to previous studies we control for any signalling effects of central bank intervention and find a weak but statistically significant portfolio balance influence on the exchange rate

learning about intervention target zones abstract this paper provides a framework for evaluating how market participants beliefs about foreign exchange target zones change as they learn about central bank intervention policy we generalize the standard target zone model to allow for intra marginal intervention intra marginal intervention implies that market participants beliefs about the target zone can be determined from their beliefs about the likelihood of intervention we then estimate a daily probability of intervention model for the period following the louvre accord we find that the market s views of intervention target zones would have varied quite a bit over time even over this relatively stable period

determinants and impacts of rural land market activity evidence from nicaragua summary use of data from nicaragua to examine the performance of land rental and sales markets during 1995 98 which coincide with the implementation of major macroeconomic and sectoral reforms leads to three main conclusions first even though the data point toward an inverse farm size productivity relationship and large differences in land productivity between large and small producers land markets have not led to an equalization of returns among the groups considered second both in 1995 and in 1998 land sales markets have contributed to land concentration suggesting that credit market imperfections impeded demand in land sales markets third the policy reforms undertaken after 1995 have led to a structural shift in the performance of the land rental market instead of transferring land to large owners as it did in 1995 the land market now moves land from large to small producers the quantities involved however remain limited we conclude that if it is to contribute to equity and efficiency liberalization of land sales markets has to be complemented by measures to reduce the attractiveness of speculative land accumulation furthermore measures to reduce the transaction costs of land rental e g titling and to increase effective demand from small producers e g technical assistance and credit will be needed 2003 elsevier ltd all rights reserved

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

target zones and exchange rates an empirical investigation this paper develops an empirical model of exchange rates in a target zone the distribution of exchange rate changes is conditioned on a latent jump variable where the probability and size of a jump vary over time as a function of financial and macroeconomic variables when there is no jump the target zone is credible and exchange rate changes are constrained to remain within the target zone band the paper revisits the empirical evidence from the european monetary system regarding the conditional distribution of exchange rate changes the credibility of the system and the size of the foreign exchange risk premia in contrast to some previous findings we conclude that the french franc deutschmark rate exhibits considerable nonlinearities realignments are somewhat predictable and the credibility of the system did not increase substantially after 1987 moreover our model implies that the foreign exchange risk premium becomes large during speculative crises

on the impact of fundamentals liquidity and coordination on market stability complex interactions between fundamentals and liquidity during unstable periods in financial markets are succinctly modeled with co ordination games we propose a flexible framework to estimate such a model and use the efficient method of moments as estimation proce dure we illustrate the model by using exchange rates from the yen dollar carry trade induced uncertainty in 1998 interest rate spreads and global market volatility the model fits the data well with ev idence of low information disparities the market is generally very deep where global volatility is more important than fundamental un certainty in the determination of liquidity there is clear evidence of asymmetry between the buy and sell sides of the market

using option prices to estimate realignment probabilities in the european monetary system the case of sterling mark abstract this paper describes a procedure for estimating the market s perceived probability distribution of future exchange rates from the prices of risk reversals strangles and other currency options and uses the procedure to estimate the risk neutral ex ante probability of a realignment of the pound sterling the procedure for estimating the realignment probabilities relies on the jump diffusion model of exchange rate behavior and the resulting option pricing formula by fitting this model to market option price data i retrieve the unobserved parameters of the jump diffusion process i then use these parameter estimates to estimate the ex ante probability distribution of exchange rates and thus the realignment probabilities

using evidence of household income diversification to inform study of the rural nonfarm labor market in africa abstract the labor market literature in developing countries has seldom drawn on the studies of rural household income diversification this paper draws on such studies to inform future study of the rural nonfarm labor market in africa the review of evidence provides some surprising departures from traditional images of nonfarm activities of rural households among the most striking is the dominant importance in the majority of case study areas of nonfarm wage labor as compared to self employment of nonfarm sector earnings as compared to farm sector wage earnings and of local nonfarm earnings as compared to migration earnings the most worrying finding was the poor distribution of nonfarm earnings in rural areas despite the importance of these earnings to food security and farm investments this poor distribution implies significant entry barriers and market segmentation it is probable that this will lead over time to an increasingly skewed distribution of land and other assets in rural africa

exchange rate dynamics in a multilateral target zone this paper presents a model of exchange rate behaviour in a multilateral target zone the model produces new economic insights beyond the well known bilateral model of krugman 1991 which is obtained as a special case the paper also introduces a new class of stochastic processes in economics namely multidimensional reflected diffusion processes two main features characterize the economics of exchange rates in a multilateral target zone i the restrictions on interventions imposed by cross currency constraints when one country changes its money supply say because its exchange rate with a second country has hit its band all exchange rates involving the currency of that particular country will be affected regardless of their position within their respective bands ii cooperation in sharing the intervention burden in general the exchange rate between any two countries will depend on the fundamentals of third countries in a multilateral target zone this is because if the monetary authorities intervene together a shock in the fundamentals of any country will induce a revision of the expectation of future interventions of other countries the model reverts the counterfactual predictions of the bilateral model that the exchange rate steady state density should be u shaped and that its volatility should be a decreasing function of the distance of the exchange rate to the limits of its band thus accounting for the multilateral feature of real world target zones allows us to reconcile target zone models with the most salient empirical features of exchange rate behaviour

an arbitrage free trilateral target zone model abstract this paper proposes an arbitrage free trilateral model of a credible target zone regime with bands on each bilateral exchange rate the no arbitrage condition reduces the system to only two dimensions any two rates must obey their own boundaries but in addition the free rein for movements is restricted by the band of the redundant rate therefore target zone models defined in bilateral settings do not apply to general systems with a cobweb of bilateral bands such as the european monetary system since the model has no known analytical solution it is estimated by the method of simulated moments

wage labour activities by agricultural households in nicaragua this article considers wage labour activities by agricultural households in nicaragua it analyses the role of 1 comparative advantage as determined by individual and household characteristics and 2 agricultural conditions and market imperfections in shaping wage labour supply an econometric specification is developed which allows for random household specific effects results reveal that non agricultural wage work is largely determined by comparative advantages whereas agricultural wage work is used to deal with a number of agricultural conditions and market imperfections

modelling the ff mm rate by threshold cointegration analysis this paper investigates a sticky price model of exchange rate determination extension of krugman s target zone model with price inertia applied to the french franc a novel theoretical argument is considered threshold cointegration such that the long run relationship between the parity and its fundamentals is dormant within a certain range of disequilibria but is restored when the system crosses the boundaries over the period 1987 1993 nonlinearities in the ff dm rate consistent with the credibility of this target zone were detected by pointing out a band reversion mechanism a shock persistence analysis which highlights a nonlinear reversion of the exchange rate deviation is also implemented

target zones and the distribution of exchange rates abstract we develop a parsimonious parameterization of exchange rate density function under target zones that enables us to estimate the approximate shapes of density curves from the exchange rate data we find that the distributions of exchange rates can take several different shapes which may correspond to possibly widely different monetary and exchange rate intervention policies including the marginal and intramarginal intervention policies discussed in previous theoretical models

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

few opportunities much desperation the dichotomy of non agricultural activities and inequality in western kenya summary using data from western kenya we confirm the existence of a dichotomous non agricultural sector the poverty and inequality implications of the differently motivated diversification strategies only partly correspond to expected patterns while high return activities are indeed confined to richer households low return activities constitute an important income source for households across the entire income distribution finally we examine the wider implications of our findings for rural livelihoods we find that only engagement in high return non agricultural activities is significantly associated with increased agricultural productivity it seems that such high return activities play a key role in triggering cumulative effects of relative livelihood success

does the nonfarm economy offer pathways for upward mobility evidence from a panel data study in ethiopia summary empirical studies across many developing countries routinely document a positive correlation between participation in rural nonfarm employment and households wealth or income this paper explores whether nonfarm employment leads to higher consumption expenditure growth in ethiopia we find that 1 households consumption expenditure growth is positively correlated with the initial share of nonfarm income 2 the growth elasticity of nonfarm income share is higher for wealthier households and 3 the main source of growth for nonfarm participants comes from the higher rates of return participants enjoy on their human and physical capital

rural nonfarm employment and incomes in the himalayas abstract nonfarm activities generate on average about 60 of rural households incomes in the himalayas this article analyzes the determinants of participation in nonfarm activities and of nonfarm incomes across rural households a unique data set collected in the himalayan region of india allows us to deal with the heterogeneity of rural nonfarm activities by using aggregations into categories that are useful both analytically and for policy purposes we conduct an empirical inquiry that reveals that education plays a major role in accessing more remunerative nonfarm employment other household assets and characteristics such as land social status and geographical location also play a role

the rural non farm economy prospects for growth and poverty reduction summary policy makers have high expectations for the rural non farm economy rnfe given high income shares growing employment and frequently low capital requirements they see the rnfe as a potential pathway out of poverty for their rural poor yet available evidence suggests that pro poor rural non farm growth does not occur automatically for the poor to benefit from rural non farm growth policy makers must stimulate buoyant rural economies with robust non farm income growth not simply low productivity employment moreover the poor must gain access to growing market niches fluid labor markets provide one important bridge linking the rural poor to growing non farm opportunities

the determinants of nonfarm activities and incomes of rural households in mexico with emphasis on education abstract this paper presents the main results of a study of the effects of education as well as other household assets on the choice of activities and incomes of rural mexican households our study examines the various income sources as well as the education of the household s head and its members implications are drawn for rural education and development policies to promote rural nonfarm incomes and employment

regime switching analysis for the impacts of exchange rate volatility on corporate values a taiwanese case a second moment regime switching model with not only a switching intercept and a switching slope but also a switching error variance is applied to examine the impacts of exchange rate volatility erv on corporate values cv for the 10 industries investigated in taiwan two different regimes categorized as strong impact and weak impact are identified the dominant power varies from one industry to another the wald statistics for the null of equality are ambiguous which show that if the markov switching ms model is plausible then the erv might not be one major factor but another factor that could switch the cv of taiwan s industries for the model s volatility influence the data of 8 out of 10 industries are shown to fit a two state model when the volatility is stimulated a two state first order ms model is appropriate for the goodness of fit analysis at the 10 significant level

rural nonfarm incomes in nicaragua abstract this paper examines nonfarm incomes of rural nicaraguan households using a nationwide survey lsms from 1998 the key findings are as follows a rural nonfarm income rnfi constitutes 41 of rural household incomes b rnfi is much more important than farm wage labor income c rnfi tends to be relatively concentrated geographically and socioeconomically toward the rural areas of the managua zone and the rest of pacific zone which are denser in infrastructure and population and toward the upper income quartile of rural households this concentration implies high entry barriers and capital requirements for rural nonfarm activity that the poor are simply not equipped to overcome equipping the rural poor through training and acquisition of diverse forms of capital to have a chance at the higher return nonfarm jobs would be a major step toward helping them to share the benefits of the rural nonfarm economy d self employment small enterprise income in manufactures is very minor probably due to the ease of obtaining manufactured goods from urban industries and imports wage employment constitutes the bulk of rnfi despite it receiving little attention in development programs and debate e three quarters of rnfi is in the service sector and only one quarter is from manufactures that can be contrasted with the emphasis on small manufactures enterprises in rural development programs and research f education road access as well as access to electricity and water were found to be important to nonfarm incomes

transformation of the rural economy in the philippines 1988 2006 abstract this research explores the changing structure of the rural economy in the philippines from 1988 to 2006 we found that the expansion and upgrade of infrastructure such as electricity and roads and investment in secondary and tertiary education are important factors that induced the economic transformation of the rural economy the importance of higher education as an entry requirement to the nonfarm labor market has declined over time indicating that the rural nonfarm sector has been increasingly providing employment opportunities to the unskilled and the uneducated who form the bulk of the rural poor

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

inflation and taxation with optimizing governments this paper examines the empirical validity of the predictions that if governments minimize the deadweight loss from raising revenue through inflation and tax finance there should be a positive contemporaneous association between inflation and the level of tax burdens the authors examine the empirical validity of this prediction using data from great britain france germany japan and the united states inflation and tax rates are as likely to be negatively as positively correlated so the results cast doubt on the empirical relevance of simple models in which governments with time invariant tastes choose monetary policy to equate the marginal deadweight burdens of inflation and taxes copyright 1990 by ohio state university press

seminonparametric estimation of conditionally constrained heterogeneous processes asset pricing applications the overidentifying restrictions of the intertemporal capital asset pricing model are usually rejected when tested using data on consumption growth and asset returns particu larly when additively separable constant relative risk utility is attributed to the representa tive agent this article investigates the extent to which specification error can explain these rejections the empirical strategy is limited information maximum likelihood in conjunc tion with seminonparametric expanding parameter space representations for both the law of motion and utility we find that consumption growth and asset returns display conditional heterogeneity but this fact does not account for rejection of the overidentifying restrictions as might be anticipated from the work of hansen singleton and others using generalized method of moments methods we also find that expansion of the parameter space in the direction of nonseparable utility causes the overidentifying restrictions to be accepted our estimation strategy provides information on the manner in which the restrictions distort the law of motion in particular imposition of additively separable constant relative risk aversion utility causes the conditional variance of consumption growth to be overpredicted the conditional covariance of asset returns with consumption growth to be overpredicted and an equity premium imposition of nonseparable seminon parametric utility causes distortion in these same directions though the distortions are much smaller which is consistent with the outcomes of the tests of the restrictions

multivariate nearest neighbour forecasts of ems exchange rates exchange rate modelling has been a persistent puzzle for international economists forecasts from popular models for the exchange rate generally fail to improve upon the random walk out of sample while a multivariate nonparametric approach provides useful information about exchange rates the model produces forecasts superior to the random walk for only one of the three ems currencies examined using a statistic developed in mizrach 1991 i find that the forecast improvement a 4 5 percent reduction in mean squared error for the lira in daily returns is not statistically significant a cross validation exercise suggests that the improvement is also not robust

an empirical reassessment of target zone nonlinearities abstract in this paper we investigate the presence of target zone nonlinearities in the pound sterling german mark exchange rate for the period of the uk european exchange rate mechanism erm membership using data with frequency of every 2 days tests against general nonlinear specifications as well as specifications consistent with a stochastic devaluation risk model of exchange rate target zones are carried out using recursive techniques in addition the significance of nonlinear effects is analysed within a recursive bayesian framework we find evidence of target zone nonlinearities in the whole sample but the recursive analysis yields support for the presence of such nonlinearities only in specific subsamples our results imply that the reduction in the uk inflation rate was most likely a consequence of contractionary policies rather than of the expectational effects associated with the target zone

using non linear methods to search for risk premia in currency futures abstract this paper uses currency futures prices to test the joint null hypotheses of rational expectations and absence of a time varying risk premium in the foreign exchange market we find no linear predictability in the logarithm of futures price changes either using its own past or past interest differentials also we establish that there is no non linear predictability in log price changes conditioning on its own past or past interest rate differentials thus if a time varying risk premium exists in currency futures market it is not related to its own past or past interest rate differentials

a univariate analysis of ems exchange rates using a target zone model summary the models in the literature on exchange rate target zones imply a non linear time series model for the exchange rate we show how the parameters of such models can be estimated and develop maximum likelihood and method of simulated moments estimators for the target zone model of krugman 1991 the maximum likelihood estimator is based on a computationally attractive approximation to the exact predictive density of the continuous time model monte carlo experiments are used to assess the properties of this estimator in the empirical part we estimate the model with data on recent ems exchange rates we find that the krugman 1991 target zone model is not able to explain the full observed kurtosis and conditional heteroscedasticity of the exchange rate returns

the sloping land conversion program in china effect on the livelihood diversification of rural households summary through addressing the motivations behind rural households livelihood diversification this paper examines the effect of the sloping land conversion program slcp on livelihood diversification using a longitudinal household survey data set spanning the overall implementation of the slcp our results show that the slcp works as a valid external policy intervention to increase rural livelihood diversification in addition the findings demonstrate that the implementation of the slcp has had heterogeneous effects on livelihood diversification across different rural income groups the lower income group was more affected by the program in terms of income diversification

stochastic trends and jumps in ems exchange rates abstract in this paper we study the statistical properties of ems exchange rate returns our findings show that jumps time varying parameters and conditional leptokurtosis are pertinent features in the empirical distributions of ems exchange rate returns allowance for fat tails however tends to reduce the measured frequency of jumps in the distributions to more realistic proportions most successful in capturing the relevant features of ems exchange rate returns is a combined jump garch model with conditionally t distributed innovations jel f31

a jump diffusion model for the european monetary system abstract we propose a general continuous time bivariate jump diffusion representation for the exchange rates of european currencies our model captures key features of the exchange rate mechanism fluctuation within bilateral limits is modeled by appropriate diffusion dynamics while discontinuous variation in the level of the fluctuation band is posited to have a jump structure under specific assumptions the probability distribution of the exchange rate process is derived analytically we also perform an empirical investigation of these exchange rates comparing the fit of alternative models we find some evidence of mean reversion inside the bands for these exchange rates jel f33 c51

the presence of target zone nonlinearities when narrower bands exist within official zones the presence of target zone nonlinearities is generally refuted in empirical research we argue that this may be due to estimation being performed vis a vis official limits when monetary authorities are in fact targeting a narrower band estimation results for the belgian and french franc confirm that nonlinearities are present when narrower zones are accounted for

income strategies among rural households in mexico the role of off farm activities abstract off farm activities generate on average more than half of farm households incomes in the mexican ejido sector participation in these activities helps reduce poverty and contributes to greater equality in the distribution of income this paper analyzes the determinants of access to off farm sources of income across households we find that education plays a major role in accessing better remunerated nonagricultural employment adults of indigenous ethnic origin suffer from an educational lag and have less access to off farm nonagricultural employment than non indigenous adults at identical educational levels the regional availability of off farm employment strongly affects participation in addition women are differentially limited by distance to urban centers in their ability to gain off farm employment

household income strategies and natural disasters dynamic livelihoods in rural nicaragua this paper assesses the impact of hurricane mitch on livelihood strategies of rural households in nicaragua through destruction or distress sales of productive assets a hurricane or another natural hazard could induce people with relatively remunerative livelihoods to choose more defensive strategies which allow them to survive but at a permanently lower welfare level than before using panel data from before and after hurricane mitch we find that livelihood strategies can be grouped into three welfare categories annual farming and farm employment generate low incomes whereas nonfarm wage employment and livestock farming result in relatively high incomes perennial farming nonfarm self employment and annual cropping with nonfarm employment take an intermediate position high welfare strategies were associated with high levels of capital and the number of people involved was very similar between different years suggesting that households following low welfare strategies were trapped in poverty however many households moved actively between strategies of different welfare levels this indicates that there was no absolute poverty threshold but also that being able to initiate a relatively profitable livelihood strategy was no guarantee that this strategy could be maintained there is no evidence that hurricane mitch affected livelihood strategy transitions livelihood mobility was similar for households inside and outside mitch affected areas

testing target zone models using efficient method of moments the objectives of this article are threefold 1 to test target zone models using more efficient and direct econometric methodology than previous research 2 to identify an implicit band if it exists from observed data and to test target zone models based on the estimated implicit band rather than the stated official band and 3 to examine whether the exchange rate can be modeled as a managed float system with a central parity that lacks a band we find strong evidence that a model with intramarginal intervention and a narrower implicit unofficial band can describe the dynamics of the french franc deutsche mark exchange rate from january 1 1987 july 30 1993

in the eye of the storm the welfare impacts of a hurricane summary the impact of a large covariant shock namely hurricane mitch is examined in the context of household asset holdings in rural nicaragua utilizing household panel data from the period it is found that the hurricane did not have an adverse impact on the ownership of productive assets among the affected households on average on the other hand nonproductive asset holdings seem to have been significantly reduced a further examination confirms that the shock affected the poorest households disproportionally especially in terms of nonproductive assets finally this study presents strong suggestive evidence of a geographical poverty trap within the shock affected areas of the country

intervention policy and mean reversion in exchange rate target zones the swedish the intervention policy of the swedish central bank is studied using daily intervention data for the late 1 980s in contrast to the first generation of target zone models we find that the interventions occur all over the exchange rate band and almost every day based on this evidence we estimate an exchange rate target zone model with intra marginal interventions the results go a long way towards explaining the well established hump shaped exchange rate distribution and lack of non linearities

banking on currency forecasts how predictable is change in money abstract the paper examines the predictive performance of four structural exchange rate models using both parametric and nonparametric techniques error correction versions of the models are fit so that plausible long run elasticities can be imposed on the fundamental variables of each model a variety of model evaluation statistics are reported our findings confirm that fundamental exchange rate models forecast no better than a random walk model for short term prediction horizons for longer horizons error correction terms can explain exchange rate movements significantly better than a no change forecast for a subset of the models and currencies we consider

quantitative modelling of the eur chf exchange rate during the target zone regime of september 2011 to january 2015 krugman 1991 s target zone model for exchange rate dynamics has become the reference of a large part of this literature despite its simplicity and elegance empirical evidence has been lacking not least because it is difficult to capture the predicted non linear relationship between the observable exchange rate and the non observable fundamental value this is why we propose a different approach by inverting locally the relation between exchange rate and fundamental value we derive analytical expressions for the conditional volatility and the probability density as a function of the exchange rate this allows us to examine krugman s prediction directly from historical data and furthermore enables us to test the smooth pasting condition which is intimately related to the no arbitrage condition concretely we study the performance of the euro swiss franc exchange rate in the extraordinary period from september 6 2011 to january 15 2015 when the swiss national bank enforced a minimum exchange rate of 1 20 swiss francs per euro we show that the data are well explained by the theory and conclude that krugman s target zone model holds after all but apparently only under extreme and sustained pressure that pushes continuously the exchange rate very close to the boundary of the target zone

rural nonfarm employment and incomes in chile abstract this article analyzes the evolution of rural nonfarm employment rnfe and income in chile during 1990 96 the data used come from the national socioeconomic survey casen and from a household survey undertaken by the authors in two municipalities in 1999 the latter contrasted two zones very different in terms of economic dynamism and rural poverty we show that during the period rnfe and incomes increased 10 and 18 respectively in 1996 reaching 39 of rural employment and 41 of rural incomes the rate of multiactivity the share of households participating in more than one sector was only 20 lower than expected indicating a tendency toward economic specialization in rural income strategies the determinants of such employment are mainly household characteristics in particular variables related to human capital such as the age and gender of the household head and the schooling of the household members although also important are access to credit and physical capital the level of nonfarm income of rural households is determined mainly by the economic context in particular the economic level and dynamism of the overall zone and the quality of the roads it is proposed that policies to develop rnfe should be geared to zone characteristics and should in general favor investments in education in roads and in access to credit moreover households headed by women should be the object of special attention to promote such policies it will be necessary to address important gaps and weaknesses in the public institutional structure

jobs off the farm wealth human capital and social group in rural eastern india abstractthis study examines the effects of wealth human capital and social group on the occupational choice and income of farm households to gain an understanding of the mechanism underlying the

non farm activity household expenditure and poverty reduction in rural vietnam 2002 2008 summary diversifying into non farm activities has been suggested as an effective way out of poverty for rural households in developing countries using the vietnamese household living standards surveys of 2002 2004 2006 and 2008 we test this claim and investigate the effect of non farm sector involvement on poverty and expenditure growth our endogeneity corrected estimates show that an additional household member involved with non farm activity reduces the probability of poverty by 7 12 and increases the household expenditure by 14 over a two year period our findings also indicate that non farm involvement reduces the hours worked on farm but not the household agricultural income

regime switching properties of the optimal seigniorage hypothesis the case of taiwan the optimal seigniorage hypothesis argues that the government will attempt to minimize the sum of social costs arising from the rate of inflation and taxation which results in the testable prediction that inflation and rate of tax revenue will be positively correlated this article empirically examines the regime switching properties of this theory using quarterly data from taiwan over 1961 2000 sampling periods it finds that the optimal seigniorage hypothesis is weakly supported and its explanatory power for the long run inflation behaviour is weak

intramarginal intervention in the ems and the target zone model of exchange rate behavior abstract exchange rate data produced by the european monetary system ems contradict important predictions made by the standard target zone model we show that the contradictions reflect a misinterpretation of policies pursued by the ems countries they intervened intramarginally to keep exchange rates will within their bands not at the edges of the bands to keep rates from crossing them in the basle nyborg agreement of 1987 however they agreed to make fuller use of the band and exchange rates behave differently thereafter the effect appears clearly in the behavior of the french franc and less decisively in the behavior of the italian lira we conclude by examining and rejecting other explanations for the observed difference in exchange rate behavior

are workers close to cities paid higher nonagricultural wages in rural china in the present study we investigate whether workers close to cities are paid higher non agricultural wages than workers in outlying rural areas we find that workers close to urban areas not only benefit from more opportunities to engage in non agricultural activities but also from better paid jobs in addition distance exhibits a strongly nonlinear impact distance always has a negative impact on wages but the effect is more detrimental the closer the village is to the urban center we also find evidence of urban hierarchy effects workers living close to bigger cities are paid higher wages finally we provide evidence on the transmission channels at work

what s so spatial about diversification in nigeria summary many households in developing countries allocate their productive assets among various income generating activities in order to develop a portfolio of income from occupations with different degrees of risk expected returns and seasonal and liquidity constraints the push and pull factors influencing diversification decisions of households are widely discussed in the literature however no study to date has taken into account spatial interdependence of household decisions in spite of various channels of neighborhood effects such as information flow learning from others social networks and agglomeration economies this paper fills in the gap by incorporating spatial dependence in the choice model of diversification using a spatial auto regressive probit model and an advanced bayesian strategy to its estimation empirical analysis is run taking advantage of the nigerian general household survey panel 2010 11 providing gis coordinates for the surveyed households the results imply endogeneity of the neighbors decisions to allocate their productive assets among various occupations and signal the importance of social learning and agglomeration effects favoring the spillover of diversification activities through neighbors networks and local markets the households decisions respond to local environment factors such as weather shocks or infrastructural constraints as shown by the regional differences taking into account spatial interdependence is particularly important in the event of a wide divide of the data available into different zones as for example in case of the nigerian northern region where the states are larger

fishing and nonfishing income decisions the role of human capital and family structure resource dependent households often diversify their income we model demand for remittances and supply of off resource labor as a joint decision and discuss household trade offs we extend the off farm labor supply literature to a rural fishery contrasting our results to common findings in the farm literature and providing empirical evidence of the interdependence between education and family structure in determining income diversification using a unique dataset from malaysia we find that more educated households are less likely to diversify their income with caveats depending on family composition policy implications for resource management in a remittance economy with alternative livelihoods are discussed

assets activities and rural income generation evidence from a multicountry analysis summary this paper examines the links between the assets and the economic activities of rural households in developing countries to provide insight into how the promotion of certain key assets particularly education land and infrastructure influences the economic choices of these households nationally representative data from 15 countries which form part of the rural income generating activities riga database are used in the analysis the results indicate that improved land access is linked to agricultural production and thus will lead households to take on average this path for improving household welfare higher levels of education and greater access to infrastructure appear to be most closely linked to non agricultural wage employment