bounded price variation and rational expectations in endogenous switching model of the u s corn market a model that includes bounded price variation and rational expectations by producers is estimated for the u s corn market the resulting model specification is highly nonlinear though since the probability of market equilibrium must be determined endogenously unlike previous research the cross equation restrictions implied by the rational expectations hypothesis are incorporated in the bounded prices model by using fair and taylor s 1983 procedure for obtaining maximum likelihood estimates of nonlinear rational expectations models the resulting model is compared against a standard equilibrium model with naive expectations the results show the bounded prices model is a superior specification copyright 1989 by mit press

econometric developments in agricultural and resource economics the first 100 years this article reviews the major contributions of agricultural and resource economists in the area of econometrics over the past 100 years early on a number of agricultural economists were in on the ground floor in terms of developing new econometric methods over time as the economics profession became more empirically oriented agricultural and resource economists increasingly assumed the role of early adopters of new econometric methods even so agricultural and resource economists continue to make useful modifications to econometric techniques in order to adapt the methods to the unique nature of the problems and applications that we study

imports and the supply of winter tomatoes an application of rational expectations a model of the florida tomato industry is formulated under the hypothesis that growers make production decisions as rational economic agents this assumption implies that anticipated mexican tomato imports as well as other economic variables are taken into account when the planting decision is made maximum likelihood estimation methods are used to solve the simultaneous equations model and the implications of the model s reduced form are analyzed the empirical findings are consistent with the rational expectations hypothesis that producers respond to market information in its entirety when making acreage decisions key vwords expectations imports mexico rational expectations supply response tomatoes florida produces about 90 of u s tomatoes harvested for fresh use during the november to mid june season since the cuban trade embargo of february 1962 mexico has become the major foreign supplier of fresh winter tomatoes the total fresh winter tomato market in the united states has been almost equally shared by florida and mexico in recent years the rivalry for this market reached the point in 1978 that florida growers charged that mexican producers were dumping their product on the u s market schmitz firch hillman many florida growers suggest that unless mexican tomato imports are limited the florida tomato industry will effectively disappear primary attention in this paper is focused on domestic tomato acreage allocations in light of the mexican influence on the winter tomato market the paper does not attempt to evaluate the welfare effects of mexican imports on the florida tomato industry in addition to the emphasis on acreage response the domestic quantity and price effects are also considered most efforts to explain acreage devoted to agricultural crops have utilized some variant of a cobweb model because the ultimate price of the crop cannot be ascertained until the completion of the production cycle nevertheless if the supply and demand framework is truly representative of the way the market works an alternative to lagged price for representing the anticipated price for the crop is the price prediction of the supply and demand model itself thus acreage would be dependent on the expected price of the crop and expected price would result from the solution of the supply and demand model for price on the basis of information available at planting time the underlying hypothesis is that producers are acting in accordance with the information available to them at planting time and in a way represented by the interaction in the supply and demand model viewed in this way planted acreage decisions would be based on such factors as anticipated mexican imports and their attendant effect on the price of tomatoes one distinction between this and the traditional cobweb framework is that in the latter case lagged imports may influence planted acreage via their effect on lagged prices but any impact expected imports might have on current price is ignored in the acreage

acreage decisions under risk the case of corn and soybeans an acreage supply response model is developed under expected utility maximization the resulting framework is used to specify and estimate a system of risk responsive acreage equations for corn and soybeans in the united states particular attention is given to the truncation effects of government price supports on the distribution of corn and soybean prices also a wealth variable is included in the acreage equations the empirical results indicate that risk and wealth variables play an important role in cornsoybean acreage decisions the analysis also shows that cross commodity risk reduction is important in acreage allocation decisions

intrahousehold allocation of free and purchased mosquito nets for some health goods intrahousehold allocation may be more important in determining outcomes than household level consumption an example is the use of mosquito nets to prevent malaria malaria kills over one million people annually 90 percent of them children under the age of five the use of insecticide treated mosquito nets itns is considered the most costeffective available strategy for control of the disease in 2000 44 of the 50 malaria affected countries in africa committed themselves to increasing the use of itns by vulnerable populations in particular children under five years of age and pregnant women adults in malarious regions have typically acquired some immunity to the disease through repeated exposure over the course of their lives the risk of severe malaria resulting in lifelong disability or death is highest for young children and pregnant women across transmission environments robert w snow et al 2003 on the other hand lost labor time often accounts for the largest portion of the private cost of the disease this implies a trade off between minimizing the income lost to malaria and minimizing the risk that a household member dies or is permanently disabled despite public health messages emphasizing the importance of using mosquito nets to protect young children from malaria nets are often used by adults when a household does not have enough nets to cover all members eline l korenromp et al 2003 frederick mugisha and jacqueline arinaitwe 2003 determining the welfare maximizing allocation of nets is intrahousehold allocation of free and purchased mosquito nets

how much of commodity price behavior can a rational expectations storage model explain a rational expectations competitive storage model was applied to the u s corn market to assess the aptness of this framework in explaining monthly price behavior in an actual commodity market relative to previous models extensive realism was added to the model in terms of how production activities and storage costs are specified by modeling convenience yield backwardation in prices between crop years did not depend on the unrealistic assumption of zero ending stocks our model generated cash prices that were distributed with positive skewness and kurtosis and mean and variance that increased over the storage season comparable to the persistence and the occasional spikes observed in commodity prices futures prices were generated as conditional expectations of cash prices at contract maturity and the variances of futures prices exhibited realistic time to maturity and seasonal patterns model realizations of cash and futures prices over many years were used to demonstrate the wide variety of price behaviors that could be observed in an efficient market with a similar market structure implying that economic and policy implications drawn from short historical samples of prices could be misleading

public health insurance expansions and hospital technology adoption abstract this paper explores the effects of public health insurance expansions on hospitals decisions to adopt medical technology specifically we test whether the expansion of medicaid eligibility for pregnant women during the 1980s and 1990s affects hospitals decisions to adopt neonatal intensive care units nicus while medicaid expansion provided new insurance to a substantial number of pregnant women prior literature also finds that some newly insured women would otherwise have been covered by more generously reimbursed private sources such crowd out combined with medicaid s low reimbursement rats leads to a theoretically ambiguous net effect of medicaid expansion on a hospital s incentive to invest in technology using american hospital association data we find that on average medicaid expansion has no statistically significant effect on nicu adoption however we also find that in geographic areas where more of the newly medicaid insured may have come from the privately insured population medicaid expansion slows nicu adoption this holds true particularly when medicaid payment rates are very low relative to private payment rates our findings are consistent with prior evidence on reduced nicu adoption from increased managed care penetration we conclude by discussing the policy implications of our work for insurance expansions associated with the affordable care act

rational expectations in limited dependent variable models abstract the appropriate characterizations of rational expectations solutions in one limit and two limit models are derived we prove the existence and uniqueness of the rational expectations solution for each model our analysis is general without imposing serial independence and the parametric distributional assumption

bounded price variation models with rational expectations and price risk abstract the bounded price variation model under rational expectations is extended to include higher moments of price in the supply equation the resulting framework is then used to estimate a disequilibrium model of the u s corn market that includes price risk

modeling expectations of bounded prices an application to the market for corn the presence of farm programs should directly affect the expectations of producers this paper analyzes the formation of price expectations when price supports constitute an effective lower bound on the distribution of the expectations we first investigate what the expected price would be if the usual rational expectations formula is used this leads to a relationship that is not estimable we suggest two alternatives one based on a tobit approximation and the other based on a perfect prediction of when the support is going to be effective using a simplified model of the u s corn market the methodology is demonstrated and compared to an alternative method of using futures prices as the expectation of harvest price the analysis of supply response for the major u s field crops is made difficult due to government intervention in these markets this intervention has been characterized by the use of price supports acreage diversion storage incentives etc during the last thirty years many studies have analyzed producer behavior in the presence of governmental involvement such studies have typically been concerned with modeling the effect of supports and diversions in an ex post sense rather than with how producers used the knowledge of farm programs to form their expectations if producers are rational economic agents their expectations of harvest prices should be conditioned both by free market forces and the type and degree of governmental intervention in the market of course farm programs have varied in nature and extent during the past thirty years and it is doubtful that any structural model could capture their complexities in this paper we attempt to introduce rational expectations in a simplified model of the u s corn market in essence we focus on the formation of price expectations when price supports constitute an effective lower bound on the distribution of the expectations we proceed by developing a theoretical model that connects the rational expectations model with a model of bounded price variation it is shown that one representation that may characterize the corn market is a triangular structural system with endogenous switching a full information maximum likelihood estimator is proposed for the system next an empirical model is specified and estimated the model is evaluated in comparison to an augmented model that contains a futures price so that some inferences may be made concerning the rational expectations model s success in summarizing relevant market information expectations under bounded prices consider a market that may be represented by a simple supply and demand system q a pt a2w el supply function pt b qt b2xt e2t demand function 1 where p and q represent market price and quantity w and x represent supply and demand shifters and p represents the rational expectation of product price at the time production decisions are made note that this system has a familiar recursive structure when the expected price variable is specified in terms of one or more lagged prices when the restricted reduced form of the structural system is solved for in terms of the expected price and this expression is used to replace pj wallis 1980 then models similar to those of goodwin and sheifrin 1982 and shonkwiler and emerson 1982

the expectations hypothesis of the term structure when interest rates are close to zero abstract in an economy where cash can be stored costlessly in nominal terms the nominal interest rate is bounded below by zero this paper derives the implications of this non negativity constraint for the term structure and shows that it induces a nonlinear and convex relation between short and long term interest rates the long term rate responds asymmetrically to changes in the short term rate and by less than that is predicted by the benchmark linear model in particular a decrease in the short term rate produces a smaller response in the long term rate than an increase of the same magnitude the empirical predictions of the model are examined using data from japan

an analysis of the determination of deutsche mark french franc exchange rate in a discrete time target zone model following krugman 1 99 i recent models of exchange rates within a target zone have paid particular attention to the effect of the band on exchange rate expectations see for example miller and weller i 989 and froot and obstfeld i 989 the basic idea is that the band as long as it is credible has a stabilising effect on the exchange rate not only because the authorities when necessary would control the fundamentals in order to contain the movements of the exchange rate but also because expectations are influenced by the band these studiesby employing the continuous time stochastic setting of regulated brownian motion familiar from option pricing theory cf merton 1973 have also made a significant contribution to the theoretical analysis of the exchange rate the advantage of the continuous time framework is that in a multiperiod setting it makes the analysis of bands algebraically more manageable than a discrete formulation to illustrate the approach consider the following simple model from the literature

an empirical comparison of agricultural supply response mechanisms 1982 an empirical comparison of agricultural supply response mechanisms applied economics vol 14 no 2 pp 183 194

disequilibrium market analysis an application to the u s fed beef sector in this paper current theory and estimation procedures are applied in an analysis of disequilibrium price behavior in the u s fed beef sector although tests of equilibrium versus disequilibrium hypotheses are not well developed results indicate the possible presence of disequilibrium prices in the market for fed beef at least the hypothesis of significant disequilibrium could not be rejected

estimating the credibility of an exchange rate target zone abstract recent breakthroughs in the theory of exchange rate target zones have not been followed by similar contributions on the empirical side the drift adjustment method of evaluating the credibility of a target zone has become common practice however the estimates of the expected rate of depreciation inside the band do not model knowledge of the band in the agents information set in this paper a rational expectations limited dependent variable method to estimate the expected rate of depreciation is used to remedy this weakness in the case of the franc mark target zone with daily data covering a 4 year period we show that expected rates of devaluation of the order of 2 5 were still present in the early 1990s their reappearance in the autumn of 1992 may thus not be surprising

a heteroskedastic multivariate tobit analysis of price dynamics in the presence of price floors this article presents an econometric analysis of the effects of price floors on price dynamics and price volatility in a multimarket context we investigate the implications of a government price support program providing a censoring mechanism to the price determination process the analysis uses a dynamic multivariate tobit model under time varying volatility the model is applied to the u s dairy markets with a special focus on the effects of government price support programs in a period of market liberalization the econometric analysis provides useful information on the multimarket effects of price supports on price dynamics and price volatility

testing the rational expectations hypothesis in an agricultural market a recent survey on models of agricultural supply equations listed over 500 studies in which variants of nerlove s adaptive expectations model were employed one might naively assume that the scientific evidence overwhelmingly favored the adaptive expectations hypothesis but this inference would not be warranted in particular there have been very few studies which have even attempted to estimate a rational expectations version of the traditional agricultural supply models and none that have explicitly tested the rational expectations hypothesis 2 in this paper we estimate a model of agricultural supply and demand for the chicken broiler industry under the maintained assumption of rational expectations in the sense of muth 1961 and provide a series of tests of the model specification we find that in this case the hypothesis of muth rationality receives strong support in recent years there has been increasing interest in models in which economic actors are assumed to form expectations of variables rationally for the most part empirical applications of the rational expectations hypothesis have employed single equation econometric methods these methods have permitted consistent estimation of equations under the assumption of the rational expectations hypothesis but do not allow for any explicit testing of the maintained hypothesis of rationality this paper presents estimates of a simultaneous equation model of the chicken broiler industry using maximum likelihood methods and provides a joint test of the rational expectations hypothesis and the model specification our econometric procedure is related to the recent theoretical work of wallis 1980 and combines time series analysis with traditional econometric estimation techniques under the assumption of rational expectations the model can be solved for the expected price as a function of the expected values of the exogenous variables this function can then be substituted into the model leading to a specification which contains the original endogenous and exogenous variables plus the expected values of the exogenous variables in general following this substitution the model will contain overidentifying restrictions time series analysis is utilized to generate the necessary forecasts of the exogenous variables the complete system of equations is estimated by full information maximum likelihood and the constraints are tested by a log likelihood ratio test the overidentifying constraints arise in the model because the suppliers are assumed to act as if they know both the underlying structure of the model and the stochastic processes governing the exogenous variables the two requirements of rational expectations while the expected price enters only the supply equation of our model it is necessary in the econometric formulation to specify the demand equation the instrumental variable procedures of mccallum 1976 and nelson 1975b are single equation methods and do not permit a test of the rational expectations hypothesis by specifying the complete model the additional structure imposed on the problem allows us to estimate the coefficients and test the implied restrictions there has not been universal agreement that the rational expectations hypothesis is the best theoretical device to model rational behavior according to muth s original formulation economic actors forecast endogenous variables according to the true reduced form equations of the model decanio 1979 and friedman 1979 have argued that the economic actors actually received for publication august 24 1981 revision accepted for publication march 2 1982 university of new mexico and university of california davis respectively we wish to thank g king r l huntzinger r pope and l wegge for advice on this project a nelson and e shaw contributed useful research assistance i the paper by askari and cummings 1977 provides references for these studies 2 huntzinger s 1979 paper is one of the first attempts at estimatitng a rational expectations model of agricultural supply

uncovering financial markets beliefs about inflation targets this paper exploits the term structure of interest rates to develop testable economic restrictions on the joint process of long term interest rates and inflation when the latter is subject to a targeting policy by the central bank in an empirical application to the canadian inflation target zone results indicate that financial markets perceive the band to be of approximately the same width as announced but asymmetrically distributed around the official target this finding suggests that in practice the monetary authority might attach different weights to positive and negative inflation deviations from the target copyright 2000 john wiley sons ltd

on information and market dynamics the case of the u s beef market abstract the paper investigates the nature of dynamic prices and expectations in a competitive market the approach is applied to the u s beef market which exhibits cyclical patterns and significant biological lags in the production process beef price equations are estimated under different expectation regimes the empirical results indicate the presence of heterogeneous price expectations with a significant number of market participants neglecting information about the existence of a beef cycle

methods of estimation for models of markets with bounded price variation under rational expectations abstract the present paper extends the analysis in an earlier paper by maddala on estimation of disequilibrium market models with controlled prices to the case where the supply function depends on expected prices and expectations are formed rationally as suggested by muth

were the peseta exchange rate crises forecastable during target zone period during the 1990s several fixed or quasi fixed exchange rate systems collapsed currency crises have happened in both developed and emerging countries so it is necessary to forecast and avoid them however financial market crises have been extremely difficult to forecast economic agents expectations are nonobservable variables that cannot be ignored in the models in addition if it is required to study the european case during the 1990s the censored disposition of the exchange rate cannot be ignored either a discrete time target zones model is proposed where these aspects are taken into account it will be tested in a peseta deutsche mark exchange rate framework from june 1989 to december 1998 the results indicate differences between before and after the shift in band widths in august 1993

technology as an agricultural pollution control policy in this paper we consider the market level impacts of factor augmenting innovations designed to reduce the use of fertilizers and pesticides first within the context of a simple two factor model and then through a simulation model of the u s corn market in both models the impacts depend on the output demand elasticity and input substitution elasticities the principal conclusion of the simulation analysis is that the potential for new techniques to reduce the use of agricultural chemicals is limited capital augmenting innovations would actually raise fertilizer and pesticide usage land augmenting innovations would also tend to increase pesticide usage

the impact of market clearing assumptions and dynamics on demand elasticities abstract this paper establishes support for the empirical regularity that model specifications which assume market clearing produce more elastic impact demand price elasticities than their disequilibrium counterparts specification error analysis helps explain this regularity the regularity is shown to be only a short run phenomenon

a note on the estimation of limited dependent variable models under rational expectations abstract in this paper we derive the expressions for the expected price in a disequilibrium model with upper and lower limits on prices under rational expectation relaxing the assumption of perfect foresight made in earlier studies we prove the uniqueness of the solution to the rational expectations model and outline the estimation method and iterative procedure

analysis of exchange rate target zones using a limited dependent rational expectations model with jumps this article examines the exchange rate determination in a target zone regime when the bounds can be fixed for an extended period but are subject to occasional jumps in this case the behavior of the endogenous variable is affected by the agents expectations about both the occurrence and the size of the jump empirical results using data for the franc mark exchange rate provide support for the nonlinear model with time varying realignment probability and indicate that the agents correctly anticipated most of the observed changes in the central parity

price and quantity controlled agricultural markets and disequilibrium econometrics a survey abstract this survey reviews the literature on estimating single markets in disequilibrium in the presence of regulated price and or quantity controls e g minimum price regimes and or marketing quotas most of the literature is found to describe pure econometric technique with only a few applications having emerged to date various reasons for the broad non acceptance of this literature are offered including a perceived lack of realism proposals to close this econometric theory application gap are put forward including the use of effective demand concepts in specifying demand and supply functions synthesizing some closely related literature on agricultural price quantity controls with disequilibrium econometrics i e endogenous government policy and the effects controls have on yield uncertainty and price risk and outlining more applicable econometric technique extensions