business cycle analysis with a markov switching model this article explores the hamilton markov switching model through an analysis of the business cycles of eight developed market economies forecasting and specification tests suggest only marginal improvements over linear autoregressive models yet filtered and smoothed conditional probabilities indicate turning points in business cycles that closely correlate with turning points from traditional methods tests regarding the asymmetry of business cycles reject the null of symmetry for most countries

patterns of agrarian transition karen macoursuniversity of california berkeley and katholieke universiteit leuvenjohan f m swinneneuropean commission and katholieke universiteit leuveni introductioneconomic reforms have induced important output and productivity changesin the agricultural sectors of transition countries tcs there are however large differences between the countries in terms of the direction and themagnitude of these changes for example agricultural output increased con siderably in the east asian tcs while there was a large output fall in thecentral and east european countries ceecs and the former soviet union fsu during transition g 1

the out of sample success of term structure models as exchange rate predictors a step beyond abstract a large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate however there is evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities this paper proposes a term structure forecasting model of exchange rates based on a regime switching vector equilibrium correction model which is novel in this context our model significantly outperforms both a random walk and to a lesser extent a linear term structure vector equilibrium correction model for four major dollar rates across a range of horizons

exchange rate fundamentals forecasting and speculation bayesian models in black markets summary although speculative activity is central to black markets for currency the out of sample performance of structural models in those settings is unknown we substantially update the literature on empirical determinants of black market rates and evaluate the out of sample performance of linear models and non parametric bayesian treed gaussian process btgp models against the random walk benchmark fundamentals based models outperform the benchmark in out of sample prediction accuracy and trading rule profitability measures given future values of fundamentals in simulated real time trading exercises however the btgp achieves superior realized profitability accuracy and market timing while linear models do no better than a random walk copyright 2013 john wiley sons ltd

regime switches in exchange rate volatility and uncovered interest parity abstract we use a regime switching model to examine how exchange rate volatility is related to the failure of uncovered interest parity main findings are as follows first exchange rate returns are strongly influenced by regime switches in the relationship between the returns and interest rate differentials second low yielding currencies appreciate less frequently but once it occurs their movements are faster than when they depreciate third depreciation of low yielding currencies and low volatility are mutually dependent on each other finally these three findings are more evident for shorter horizons the second and third results are consistent with a market participants view short term carry trades in a low volatility environment and their rapid unwinding substantially influence exchange rates we consider the effects of funding liquidity to explain these results

tenure land rights and farmer investment incentives in china the goal of this paper is to understand the nature of the property rights associated with china s land tenure systems and to study the impact of these property rights on agricultural production efficiency the results show that land tenure and associated property rights in rural china affect the production behavior of farmers the most robust finding is that the right to use land for long periods of time encourages the use of land saving investments while the results show that land tenure affects agricultural production decisions the difference between collective and private plots however is small compared to the private plotcommunal productivity gap that existed in the pre reform period 1998 elsevier science b v all rights reserved

tenure security and land related investment evidence from ethiopia the authors use a large data set from ethiopia that differentiates tenure security and transferability to explore determinants of different types of land related investment and its possible impact on productivity while they find some support for endogeneity of investment in trees this is not the case for terraces transfer rights are unambiguously investment enhancing the large productivity effect of terracing implies that even where households undertake investments to increase their tenure security this may not be socially efficient in ethiopia government action to increase tenure security and transferability of land rights can significantly enhance rural investment and productivity

policy reform and productivity change in chinese agriculture a distance function approach abstract agricultural policy reform has been an important source of change in the chinese agricultural sector the reforms led to productivity growth and helped china to pursue its self sufficiency goal especially in the grain sector in order to analyze whether observable productivity growth stems from technologically induced components or from the market induced parts a multi input multi output model is derived by using an econometric distance function framework a decomposition allows to distinguish allocative effects scale effects technological change and technical efficiency change data on farms in zhejiang from 1986 to 2000 are used to analyze the impact of policy reform

how does land fragmentation affect off farm labor supply panel data evidence from china abstract this article provides a deeper theoretical understanding of the linkages between land fragmentation and off farm labor supply in china andinvestigates this relationship empirically in a more direct way than does the existing literature drawing upon a rural household panel data setcollected in zhejiang hubei and yunnan provinces from 1995 to 2002 we estimate the effects in two steps first we estimate the effect of landfragmentation on labor productivity second we estimate the effect of land fragmentation on off farm labor supply the production function resultsshow that land fragmentation indeed leads to lower agricultural labor productivity implying that land consolidation will make on farm work moreattractive and thus decrease off farm labor supply however the effect of land consolidation on off farm labor supply is not signi cant one likelyexplanation for this result may be the potentially imperfect labor markets jel classi cations j22 q15 q24 r23 keywords

does rising landlessness signal success or failure for vietnam s agrarian transition in the wake of reforms to establish a free market in land use rights vietnam is experiencing a pronounced rise in rural landlessness to some observers this is a harmless by product of a more efficient economy while to others it signals the return of the pre socialist class structure with the rural landless at the bottom of the economic ladder the authors theoretical model suggests that removing restrictions on land markets will increase landlessness among the poor but that there will be both gainers and losers with uncertain impacts on aggregate poverty empirically they find that landlessness is less likely for the poor and that the observed rise in landlessness is poverty reducing on balance however there are marked regional differences notably between the north and the south

optimal forecasts from markov switching models we derive forecasts for markov switching models that are optimal in the mean square forecast error msfe sense by means of weighting observations we provide analytic expressions of the weights conditional on the markov states and conditional on state probabilities this allows us to study the effect of uncertainty around states on forecasts it emerges that even in large samples forecasting performance increases substantially when the construction of optimal weights takes uncertainty around states into account performance of the optimal weights is shown through simulations and an application to u s gnp where using optimal weights leads to significant reductions in msfe supplementary materials for this article are available online

can markov switching models replicate chartist profits in the foreign exchange market abstract in this paper we show that the markov switching model is a relevant statistical alternative to the classical martingale model for exchange rates by extending the standard markov switching model we decisively reject the martingale model moreover the model generates autocorrelations and linear structures in line with what is observed in reality subsequently we test whether this model can explain chartist profits we find that the extended markov switching model is able to explain the profitability of a simple ma 30 rule finally we decompose the profitability of the ma 30 rule into a linear and nonlinear part we find that although the implied linear structure of the markov model explains a substantial part of the profitability part of the profits of the ma 30 rule can be attributed to the specific nonlinearities implicit in the markov model

testing a discrete switching disequilibrium model of the uk labour market this paper develops a test procedure for serial correlation for discrete switching disequilibrium models which include both an endogenous price adjustment equation and lagged dependent variables the tests are applied to a model of the u k labor market and the model is respecified in the light of the test results

the effect of land tenure governance on technical efficiency evidence from three provinces in eastern china this study aims to identify the mechanisms through which land tenure governance affects the technical efficiency of grain production in an integrated framework and to examine the impacts of the public governance village self governance and relational governance of land tenure on the technical efficiency of contracted land and rented in land farm level survey data collected from liaoning jiangxi and jiangsu provinces covering the years of 2014 and 2015 is used for the empirical analysis the findings indicate that i public governance associated with land certification significantly increases the technical efficiency of grain production ii village self governance and administrative land reallocations can serve as substitutes for the land rental market in optimizing the distribution of land resources and improving technical efficiency and iii compared to multi year transfer contracts both annual and open ended transfer contracts have negative impacts on technical efficiency

monetary fundamentals and exchange rate dynamics under different nominal regimes we investigate the dynamic relationship between the us dollar exchange rate and its fundamentals across different exchange rate regimes using data going back to the late 1800s or early 1900s for six industrialized countries for these countries there is evidence of a long run relation between the nominal exchange rate and monetary fundamentals consistent with conventional theories of exchange rate determination we employ a markov switching vector equilibrium correction model that allows for regime shifts in the entire set of parameters and the variance covariance matrix our results suggest that the relative importance of exchange rates and fundamentals in restoring the long run equilibrium level implied by the exchange rate monetary fundamentals model varies significantly over time and is affected by the nominal exchange rate regime in operation

can the markov switching model forecast exchange rates abstract a markov swirching model is fit for 18 exchange rates at quarterly frequencies the model fits well in sample for many exchange rates by the mean squared error criterion the markov model does not generate superior forecasts to a random walk or the forward rate there appears to ne some evidence that the forecasts of the markov model are superior at predicting the direction of change of the exchange rate

forecasting and combining competing models of exchange rate determination this article investigates the out of sample forecast performance of a set of competing models of exchange rate determination we compare standard linear models with models that characterize the relationship between exchange rate and the underlying fundamentals by nonlinear dynamics linear models tend to outperform at short forecast horizons especially when deviations from long term equilibrium are small in contrast nonlinear models with more elaborate mean reverting components dominate at longer horizons especially when deviations from long term equilibrium are large the results also suggest that combining different forecasting procedures generally produces more accurate forecasts than can be attained from a single model

investment intensity of currencies and the random walk hypothesis cross currency evidence abstract this paper studies the cross currency and temporal variations in the random walk behavior in exchange rates we characterize currencies with relatively large investment flows as investment intensive and conjecture that the more investment intensive a currency is the closer its exchange rate adheres to random walk using 29 floating bilateral usd exchange rates we find that the higher the investment intensity the less likely it is to reject random walk and the smaller the deviation from random walk is however the effect of investment intensity is non monotonic application of threshold models shows that after investment intensity reaches the estimated thresholds the level of investment intensity has no further effect on the deviation from random walk these findings help reconcile the previous conflicting results on the random walk in exchange rates by focusing on the effect of cross currency and temporal variations in investment intensity

fundamentals and exchange rate prediction revisited this paper measures latent fundamental exchange rates with independent component based rates constructed from a cross section of exchange rates and then uses their deviations from exchange rates to forecast empirical results indicate that the independent component based model and its taylor rule and purchasing power parity augmented models are superior to the random walk in predicting exchange rates these results are robust to several scenarios and are likely to be observed if the us sources and the recursive scheme are applied our results reveal that information regarding the third moment of exchange rate changes is helpful to explain exchange rate movements

the specification and estimation of a disequilibrium labour market model in this study an aggregate labour market model is formulated and its parameters estimated using maltese annual time series data covering the years 1955 79 the constraint that the wage rate clears the market in all periods is not imposed and the model is specified in such a way as to enable the reseacher to judge whether or not the assumption of equlibrium is valid one conclusion that emerges from this study is that the maltese labour market was not characterized by equilibrium during the period under consinderation

the impact of oil shocks on exchange rates a markov switching approach abstract this paper uses markov switching models to investigate the impact of oil shocks on real exchange rates for a sample of oil exporting and oil importing countries this is an important topic to study because an oil shock can affect a country s terms of trade which can affect its competitiveness we detect significant exchange rate appreciation pressures in oil exporting economies after oil demand shocks we find limited evidence that oil supply shocks affect exchange rates global economic demand shocks affect exchange rates in both oil exporting and importing countries though there is no systematic pattern of appreciating and depreciating real exchange rates the results lend support to the presence of regime switching for the effects of oil shocks on real exchange rates

retail price cycles and response asymmetry weekly retail gasoline prices in windsor ontario from 1989 to 1994 appear to respond faster to wholesale price increases than to decreases but exhibit a cyclic pattern inconsistent with a common explanation of response asymmetry i reconcile these observations through a model of price cycles prices on the downward portion of the cycle appear insensitive to costs compared with price increases supporting the theory that price decreases result from battles over market share this pattern resembles a faster response to cost increases than to decreases and the conclusion that asymmetry indicates a role for competition policy may be inappropriate jel classification l13 l71 cycles des prix de detail et reponse asymetrique les prix de detail hebdomadaires de la gazoline a windsor ont entre 1989 et 1994 semblent reagir plus vite aux accroissements qu aux chutes des prix de gros mais suivent un pattern cyclique qui ne semble pas consistant avec l explication traditionnelle en termes de reponse asymetrique l auteur reconcilie ces observations a l aide d un modele de cycle de prix les prix dans la portion descendante du cycle semblent insensibles aux variations de couts par comparaison avec les accroissements de prix ce qui supporte la theorie que les chutes de prix resultent de luttes pour les parts de marche le pattern ressemble a celui declenche par une reponse plus rapide aux augmentations qu aux chutes de couts et la conclusion qui voudrait qu on puisse attribuer le tout a l asymetrie des reponses et que donc une intervention de la politique de la concurrence s impose peut etre inappropriee

investment and equity effects of land regularisation the case of nicaragua we use data from nicaragua to examine the impact of award of registered and non registered title on land values and changes in land attached investment registration acquisition through purchase and agrarian reform title all are associated with significant increases in the value of plots receipt of registered title is found to increase land values by 30 and at the same time greatly increase the propensity to invest bringing such investment closer to the optimum in line with descriptive statistics indicating great demand for land right regularisation especially from the poor this suggests that titling can have a positive distributional effect at the same time the legal validity and official recognition of the titles issued appears to be of great importance

how much expropriation hazard is too much the effect of land reallocation on organic fertilizer usage in rural china in china land is reallocated on either a full scale or a partial basis by employing a unique farm survey that deliberately draws a distinction between full scale and partial land reallocations and by decomposing their respective expropriation risk effects we find that the significantly negative effect of expropriation risk on organic fertilizer usage is driven solely by full scale reallocation consistent with this finding a reduction in the predicted expropriation hazard rate by half leads to a sizable increase of 491 in organic fertilizer usage in villages with a history of full scale reallocation and has an estimated productivity effect of 19 1

the real effects of uncertainty on merger activity firm values can substantially change between the time deal terms are set and the actual deal closing risking renegotiation or termination we find increases in market volatility decrease subsequent deal activity but only for public targets subject to an interim period the effect is strongest when volatility is highest for deals taking longer to close and for larger targets merging parties attempt to shorten the interim window as risk increases firm and industry level uncertainty measures reveal similar findings ruling out an unobserved macro variable we conclude interim uncertainty contributes to understanding the timing and intensity of public firms merger activity received february 12 2015 accepted may 23 2016 by editor david denis

biofuels and food security micro evidence from ethiopia abstract there is considerable controversy about the impact of biofuels on food security in developing countries a major concern is that biofuels reduce food security by increasing food prices in this paper we use survey evidence to assess the impact of castor production on poor and food insecure rural households in ethiopia about 1 3 of poor farmers have allocated on average 15 of their land to the production of castor beans under contract in biofuel supply chains castor production significantly improves their food security they have fewer months without food and the amount of food they consume increases castor cultivation is beneficial for participating households food security in several ways by generating cash income from castor contracts they can store food for the lean season castor beans preserve well on the field which allows sales when farmers are in need of cash or food spillover effects of castor contracts increases the productivity of food crops increased food crop productivity offsets the amount of land used for castor so that the total local food supply is not affected

endogenous trading volume and momentum in stock return volatility this article examines the ability of volume data to shed light on the source of persistence in stock return volatility a mixture model in which a latent common factor restricts the joint density of volume and returns is used to relax the assumption of exogenous volume used in previous studies we use a point in time signal extraction procedure to identify this latent process and a calibrated simulation to conduct analysis of the viability of the model to explain important properties of the data using daily returns and volume on individual stocks our procedure cannot accommodate serial dependence in squared returns

land tenure choice in chinese villages the rational versus the political model the rational and political decision models are developed and tested for the land tenure choice in rural china a novelty of the test is to link the collective decision with general relative factor scarcities competing hypotheses are developed for the two models and tested with panel data collected on 83 chinese villages the results show that neither model is strongly rejected although the political model fares slightly better in more sophisticated econometric testing this suggests that popular political participation is emerging in chinese villages implications of this finding to chinese land policy are discussed

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

manufacturing stocks and forward looking expectations in the uk this paper derives a model of the stocks plan based on optimal behavior by the firm when facing adjustment costs with forward looking expectations formation estimates of the model are reported for manufacturing using three alternative expectations mechanisms for determining expected sales time series published forecasts derived from national institute published forecasts and rational expectations the latter uses a submodel dependent on weakly exogenous variables single equation and whole model comparisons are made of the stocks equation estimated with forward expectations versus a traditional backward looking model these favor the forward looking model copyright 1986 by the review of economic studies limited

modeling non linearities in real effective exchange rates abstract the aim of this paper is to test for and model non linearities in the real effective exchange rates of 10 major industrial countries the g 10 to exploit non linear dependencies in exchange rates we apply the star smooth transition autoregressive family of models these non linear models imply the existence of two distinct regimes in exchange rates with potentially different dynamic properties but the transition between the regimes is smooth tests reject linearity for eight exchange rates the real exchange rate process is cyclical in both regimes for almost all countries and there appears to be some evidence of asymmetry star models outperform hamilton s markov regime switching model in an out of sample forecasting contest

comparing smooth transition and markov switching autoregressive models of us unemployment logistic smooth transition and markov switching autoregressive models of a logistic transform of the monthly us unemployment rate are estimated by markov chain monte carlo methods the markov switching model is identified by constraining the first autoregression coefficient to differ across regimes the transition variable in the lstar model is the lagged seasonal difference of the unemployment rate out of sample forecasts are obtained from bayesian predictive densities although both models provide very similar descriptions bayes factors and predictive efficiency tests both bayesian and classical favor the smooth transition model copyright 2008 john wiley sons ltd

testing between competing models of sharecropping the marshallian approach assumes a prohibitively high cost of monitoring the sharecropper s activities while the monitoring approach argues that landlords stipulate and effectively monitor sharecroppers activities i present new evidence using detailed data collected from eight indian villages most tenants own some land of their own this provides a controlled environment in studying the impact of contractual arrangements the differences in input and output intensities on owned minus sharecropped land of the same household are found to be sizable and significant suggesting a rejection of the monitoring approach and supporting the notion of the marshallian productive inefficiency of sharecropping

does purchasing power parity hold sometimes regime switching in real exchange rates standard unit root tests are not very powerful in drawing conclusions regarding the validity of purchasing power parity ppp rather than asking whether ppp holds throughout the whole sample period we examine in this study if ppp holds sometimes by employing hamilton type 1989 markov regime switching models when at least one of multiple regimes is stationary ppp holds locally within the regime there are indeed various reasons that we should expect that the persistence of real exchange rates changes over time employing five real exchange rates spanning more than 100 years we find herein strong evidence that the strength of ppp varies during the sample periods and that there exist stationary regimes in which ppp holds throughout the article we also make comparisons to previous markov regime switching estimation results by kanas 2006 on the same data series the new markov switching model selection criterion of smith et al 2006 which is devised especially for discriminating markov regime s

impacts of tenancy arrangements on investment and efficiency evidence from pakistan in this article we use farm level data from the punjab province in pakistan to analyze the impact of three tenancy contracts on investment in soil improving and productivity enhancing measures and farm productivity a multivariate tobit model that accounts for potential substitutability and complementarity of investment options as well as endogeneity of tenure arrangements was employed in the empirical analysis our empirical results indicate that land tenure arrangements influence farmers decisions to invest in soil improving and productivity enhancing measures in particular owner cultivators with secured tenancy arrangements were found to be more likely to invest in soil improving and productivity enhancing measures compared to those on leased contracts we also find that output per hectare was highest on land cultivated by owners and lowest on land under sharecropping tenancy lending support to the marshallian inefficiency hypothesis

determinants of exchange rate regime switching abstract exchange rate policy in many emerging markets shifts between a stronger and weaker commitment to peg this observation raises the following questions which we address in our paper does intervention policy exhibit switching and if so what causes policy to shift the theoretical literature increasingly points to the critical importance of financial fundamentals chinn m d kletzer k m 2001 imperfect information domestic regulation and financial crises in glick r moreno r spiegel m eds financial crises in emerging markets cambridge university press cambridge pp 196 237 dooley 2000 chang r velasco a 2005 monetary policy and the currency denomination of debt a tale of two equilibria kennedy school of government working paper series harvard university cambridge massachusetts among others direct empirical validation to date is limited however although relevant intuitions come from duration and indicators literature kaminsky g l reinhart c m vegh c a 2004 when it rains it pours procyclical capital flows and macroeconomic policies nber macroeconomics annual national bureau of economic research inc domac i peria m s 2003 banking crises and exchange rate regimes is there a link journal of international economics 61 41 72 tudela m 2004 explaining currency crises a duration model approach journal of international money and finance 23 799 816 we use a panel of quarterly data starting 1985 through 2004 for 14 countries mainly from latin america and east asia and adopt a novel two step empirical strategy first we apply regime switching methods to two simple indices of central bank exchange rate policy this generates likelihoods of high and low intervention in the second step we establish the variables that determine these probabilities we find strong evidence that the economy s balance sheet and economic performance determine the likelihood of switching in the exchange rate regime specifically an increase in reserve currency debt relative to assets raises potential capital losses from devaluation and reduces the probability of switching to a low intervention regime as does a decline in growth the purpose here is not to present an alternative regime classification levy yeyati e sturzenegger s 2005 classifying exchange rate regimes deeds vs words european economic review 49 1603 1635 reinhart c m rogoff k 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics available at http www puaf umd edu faculty papers reinhart papers htm but to establish the relative importance of different constraints on the central bank which has policy implications the empirical approach and specification is flexible to whether intervention is discrete or gradual and to whether or not the central bank sterilizes

traditional vs modern production systems price and nonmarket considerations of cacao producers in northern ecuador many factors besides profit maximization such as nonmarket ecological and social benefits influence smallholder households to adopt a specific agricultural production system or sell in a particular market thus different analytical techniques are needed that take into consideration more than monetary income to fully capture these additional benefits to better understand the production decisions of smallholder farmers we build on previous work on the household model and shadow wage estimation to develop a shadow wage for ecuadorian cacao producers that includes these nonmarket benefits we found that the shadow wage correctly indicated that on average these households would prefer to use an agroforestry production system instead of the more profitable modern system because of the nonmarket benefits received from the former system

excess comovements between the euro us dollar and pound sterling us dollar exchange rates abstractthe aim of this article is to discuss excess comovements of the euro us dollar and pound sterling us dollar exchange rates i e we look for comovements of exchange rates which are stronger

exchange rate predictability the main goal of this article is to provide an answer to the question does anything forecast exchange rates and if so which variables it is well known that exchange rate fluctuations are very difficult to predict using economic models and that a random walk forecasts exchange rates better than any economic model the meese and rogoff puzzle however the recent literature has identified a series of fundamentals methodologies that claim to have resolved the puzzle this article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up to date thorough empirical analysis overall our analysis of the literature and the data suggests that the answer to the question are exchange rates predictable is it depends on the choice of predictor forecast horizon sample period model and forecast evaluation method predictability is most apparent when one or more of the following hold the predictors are taylor rule or net foreign assets the model is linear and a small number of parameters are estimated the toughest benchmark is the random walk without drift

on the short term predictability of exchange rates a bvar time varying parameters approach abstract in this paper we propose a bayesian vector autoregressive model with time varying parameters bvar tvp to examine the short term predictability of exchange rates an important contribution of the paper is the application of the bvar tvp model for the first time to daily data using information from financial markets another contribution is the production of forecasts in real time at the very short horizon of one trading day ahead typically used by traders and investors in financial markets we employ financial criteria and recently developed statistical tests to assess the exchange rate predictability we find that the bvar tvp model outperforms the random walk for all exchange rates these forecast gains are due primarily to the time variation of coefficients and secondly to information from other financial markets it is shown that international investors could have made statistically significant excess profits if they had followed an inter day trading strategy based on the buy sell signals generated by the model s one day ahead exchange rate forecasts even after allowing for transaction costs and risk factors

error correction modelling and dynamic specifications as a conduit to outperforming the random walk in exchange rate forecasting the proposition that dynamic exchange rate models can outperform the random walk in out of sample forecasting in the sense that they produce lower mean square errors is examined and disputed by using several dynamic versions of three macroeconomic exchange rate models it is demonstrated that dynamic specifications outperform the corresponding static models but improvement in the forecasting power may not be sufficient for the dynamic models to perform better than the random walk the results are explained by suggesting that any dynamic specification or transformation of the static model leads to the introduction of a lagged dependent variable which in effect is a random walk component the analysis leads to the conclusion that it is implausible to aim at beating the random walk by augmenting a static model with a random walk component

can markov switching models predict excess foreign exchange returns abstract this paper merges the literature on technical trading rules with the literature on markov switching to develop economically useful trading rules the markov models out of sample excess returns modestly exceed those of standard technical rules and are profitable over the most recent subsample a portfolio of markov and standard technical rules outperforms either set individually on a risk adjusted basis the markov rules high excess returns contrast with mixed performance on statistical tests of forecast accuracy there is no clear source for the trends but permitting the mean to depend on higher moments of the exchange rate distribution modestly increases returns

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

a markov regime switching approach for hedging energy commodities abstract this paper estimates constant and dynamic hedge ratios in the new york mercantile exchange oil futures markets and examines their hedging performance we also introduce a markov regime switching vector error correction model with garch error structure this specification links the concept of disequilibrium with that of uncertainty as measured by the conditional second moments across high and low volatility regimes overall in and out of sample tests indicate that state dependent hedge ratios are able to provide significant reduction in portfolio risk

regime switching models for the mexican peso abstract the mexican peso has shown long periods of tranquility that suddenly give rise to short volatile periods we characterize this exchange rate process by estimating a series of regime switching regressions and comparing the different specifications as pioneered by meese and rogoff j int econ 14 1983 3 we find evidence for two clearly identified regimes one with an appreciating trend and low volatility and another with large depreciations and high volatility we use the estimated model to explain the bias implied in the peso forward market finally we show that duration dependence or fundamentally driven transition probabilities do not improve the model s forecasting power

is there a peso problem evidence from the dollar pound exchange rate 1976 1987 one of the most puzzling aspects of the floating exchange rate regime since 1973 has been the apparent irrationality embedded in investors exchange rate expectations this paper investigates whether exchange rate forecasts although biased are still rational the idea is that investors can be rational and yet make repeated mistakes if the true model of the exchange rate is evolving over time the author s results support the hypothesis that the exchange rate has followed a switching regime process moreover the switching regime model estimated can explain about 75 percent of the bias implied by the forward market and the survey data copyright 1993 by american economic association

two tier land tenure system and sustained economic growth in post 1978 rural china abstract the two tier land tenure system has been widely blamed for the problems in land allocation and in land specific investment observed in the postreform rural china greater privatization of property rights in land has been proposed to enable productive farmers to acquire more land to promote land circulation to improve farmers access to credit and to encourage farm investment it is argued here that in the presence of multiple market distortions land privatization is unlikely to provide a solution to the agricultural problems rather an approach which refines the existing framework of the two tier ownership system offers more promise

why is it so difficult to outperform the random walk an application of the meese rogoff puzzle to stock prices some economists suggest that the meese rogoff puzzle is equally applicable to the stock market in the sense that no model of stock prices can outperform the random walk in out of sample forecasting we argue that this is not a puzzle and that we should expect nothing but this result if forecasting accuracy is measured by the root mean square error rmse and similar metrics that take into account the magnitude of the forecasting error only we demonstrate by using two models for dividend paying and nondividend paying stocks that as price volatility rises the rmse of the random walk rises but the rmse of the model rises even more rapidly making it unlikely for the model to outperform the random walk

does exchange rate management affect the causality between exchange rates and oil prices evidence from oil exporting countries abstract the bi directional causality between exchange rates and oil prices of oil exporting countries has been widely investigated since the oil crisis in the 1970s the classical theoretical framework assumes that countries adopt free floating exchange rate arrangements and empirical studies seldom consider exchange rate restrictions when investigating oil exporters that always manage exchange rates to address these limitations this study designs a comparative analysis for three groups of oil exporting economies that adopt different foreign exchange rate policies the analysis aims to examine whether and how intervention behavior may distort the causal relationship between exchange rates and oil prices we first show the non linear causality relationships for countries with free floating exchange rate arrangements in both long and short terms then we establish how the managed floating policy can eliminate the impact of oil prices on exchange rates in bull markets but fail to prevent exchange rate depreciation in bear markets in bear markets a negative non linear feedback from exchange rates to oil prices prevails in these countries however contrary to common wisdom the strict soft pegged exchange rate arrangement cannot remove all the linkages between exchange rates and oil prices a small but significant response of exchange rates toward oil prices is detected for kuwait and saudi arabia a similar effect for kazakhstan is only found in bear markets in addition this study re investigates the relationship between exchange rate and the domestic currency price of oil the conclusions are similar except that the relationship is weakened in free floating countries but strengthened in managed floating countries during the bear market periods

real exchange rates and switching regimes abstract we suggest that the real exchange rate between the major currencies in the post bretton woods period can be described by a stationary 2 state markov switching ar 1 model based on the forecast performance we find that this model outperforms two competing models where the real exchange rate is nonstationary we also find that the existence of different regimes as in the markov switching model is consistent with the common finding of unit roots in real exchange rates

deviations from purchasing power parity under different exchange rate regimes do they revert and if so how abstract we propose an empirical model for deviations from long run purchasing power parity ppp that simultaneously accounts for three key features i adjustment toward ppp may occur via nominal exchange rates and relative prices at different speeds ii different exchange rate regimes may generate regime shifts in the structural dynamics of ppp deviations iii nonlinear reversion toward ppp in response to shocks this empirical framework encompasses and synthesizes much previous empirical research using over a century of data for the g5 countries we provide evidence that long run ppp holds the relative importance of nominal exchange rates and prices in restoring ppp varies over time and across different exchange rate regimes and reversion to ppp occurs nonlinearly at a speed that is fairly consistent with the nominal rigidities suggested by conventional open economy models

long swings in exchange rates are they really in the data several authors have reported evidence of long swings in u s dollar exchange rates by rejecting the random walk in favor of a markov regime switching model we show that this evidence is not robust to an extension of the sample period one should however not conclude that long swings are thus absent because the tests may have insufficient power a possible reason for this is the low data frequency because existing tests are based on quarterly data and we find that the power can be increased substantially by raising the data frequency indeed weekly data reject the random walk so we conclude that long swings are in the data this conclusion is supported by significant superiority of regime switching over random walk out of sample forecasts of the direction of change

on the periodic structure of the business cycle this article tests whether an economic recovery is equally likely to occur in any month of the year i test this hypothesis with a homogeneous markov switching regime model and use the turning point dates for business cycles marked by the national bureau of economic research and romer i tend to find unequal probabilities to switch from recession to expansions in particular the spring and the month of december appear to have higher incidence of economic recovery my results also imply that recessions and expansions are on average longer or shorter depending on what time of the year they start this suggests the presence of a seasonal pattern in business cycle durations though such a notion of seasonality is quite different from the common one based on unobserved component linear time series models i investigate issues that go beyond linear dependence between seasonality and business cycles

rental markets for cultivated land and agricultural investments in china the purpose of this paper is to empirically track the progress and consequences of the emergence of cultivated land markets in china since 2000 we draw on a set of nationwide household level panel data for 2000 and 2008 and find that the markets for cultivated land rental have emerged robustly according to our data 19 of china s cultivated land was rented in farm operators in 2008 we also find that the nature of china s cultivated land rental contracts has become more formal and lengthened the period of time that the tenant is able to cultivate the rented in plots while there may be benefits for lessors and tenants our data show that there are falling rates of investment in organic manure the farmers in our sample have reduced organic manure use from 13 tons ha in 2000 to 5 tons ha in 2008 part of this fall is due to the rise of cultivated land rental markets the analysis however does not find that improved property rights in cultivated land rental affect investment largely because property rights have largely been established by 2000 the first year of our sample our results however also show that there are forces that appear to be mitigating the negative consequences of rising cultivated land rental after holding constant initial rental rates and other factors we find that the gap between investment in organic manure in own land and rented in land is narrowing one interpretation of our findings is that if policymakers can find ways to even further strengthen the rights of lessors and tenants as well as lengthen contract periods farmerseven those that rentwill invest more in their land because they will be able to capture the returns to their investments

meteor showers or heat waves heteroskedastic intra daily volatility in the foreign exchange market this paper seeks to explain the causes of volatility clustering in exchange rates careful examination of intra daily exchange rates provides a test of two hypotheses heat waves and meteor showers the heat wave hypothesis is that the volatility has only country specific autocorrelation alternatively the meteor shower is a phenomenon of intra daily volatility spillovers from one market to the next using the garch model to specify the heteroskedasticity across intra daily market segments we find that the empirical evidence is generally against the null hypothesis of the heat wave using a volatility type of vector autoregression we examine the impact of news in one market on the time path of per hour volatility in other markets

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

how sustainable are sustainable development programs the case of the sloping land conversion program in china summary this paper undertakes a comprehensive assessment of the long run sustainability of one of the world s largest sustainable development programs the slopping land conversion program slcp in china under different plausible post slcp scenarios the analysis is based on farmer contingent behavior post program land and labor decisions as well as choice experiment data our econometric results highlight the main obstacles to the program s sustainability which include specific shortfalls in program implementation and certain institutional constraints namely tenure insecurity and poor land renting rights the use of a choice experiment also reveals unique evidence on rural households preferences over tenure reform in china

two alternative stochastic specifications and estimation methods for quantity rationing models a monte carlo comparison quantity rationing disequilibrium models can be characterized either by deterministic or by stochastic switching rules this paper reports on monte carlo experiments suggesting that the ml estimator associated with the deterministic switching rule one market model apparently has better small sample properties than its stochastic switching rule counterpart even when the latter is asymptotically superior this seems to be the result of a systematic residual variance underestimation in the stochastic switching rule model the feasibility of the deterministic switching rule estimator in a two market framework is next investigated

land redistribution tenure insecurity and intensity of production a study of farm households in southern ethiopia this study analyzes the determinants of land tenure insecurity and its impact on intensity of use of purchased farm inputs among households in southern ethiopia seventeen percent of the households stated that they were tenure insecure the feeling of tenure insecurity could be caused by the land redistribution policy in ethiopia where household size has been the main criterion used for land allocation after the land reform in 1975 this would imply that land rich households should be more tenure insecure alternatively the local power structure may be strong enough to counter this and cause the land rich who are also likely to be influential to be able to protect their land rights the analysis revealed that in the overall sample relative farm size was not significantly correlated with tenure insecurity when testing for each site however we found that in four of the sites per capita farm size was positively associated with tenure insecurity while in five other sites it had a significant negative association this may be due to local historical cultural and demographic differences giving way to differences in the effects of the redistribution policy and the local power structure on tenure insecurity we assessed the impact of tenure insecurity on the intensity of use of purchased farm inputs the tenure insecurity variable was insignificant farmers in areas with a positive correlation between farm size and tenure insecurity were more likely to purchase farm inputs larger farms were more likely to use purchased inputs but this effect was lower in areas with a positive correlation between farm size and tenure insecurity poverty and subsistence constraints may explain this absence of higher intensity of use of purchased inputs on small farms by contrast the land redistribution policy may have improved small farms access to purchased farm inputs text of abstract

the effects of the introduction of the euro on the volatility of european stock markets abstract have convergence of european economies and introduction of the euro produced some effects on european stock markets theory suggests that stabilization of fundamentals should decrease variance of stock returns for historically unstable stock markets we test this proposition with daily data for the period january 1988 may 2000 and apply a three regime markov switching model for the variance covariance matrix among several stock indices including the uk and the us the analysis shows that introduction of the euro after an initial burst of volatility common to all european stock markets has indeed stabilized the spanish and italian stock markets

the potential of land rental markets in the process of economic development evidence from china abstract we develop a model of land leasing with agents characterized by unobserved heterogeneity in ability and presence of an off farm labor market in this case decentralized land rental may contribute to equity and efficiency goals and may have several advantages over administrative reallocation the extent to which this is true empirically is explored using data from three of china s poorest provinces land rental markets and administrative reallocation reallocate land to those with lower endowments but the former are more effective in doing so and have a bigger productivity enhancing effect information on hypothetical market participation suggests that reducing transaction costs in land rental markets could help to realize significant additional productivity gains

revisiting the interest rate exchange rate nexus a markov switching approach abstract in this paper the interest rate exchange rate nexus and the effectiveness of an interest rate defense are investigated empirically i present a reduced form evidence which characterizes the empirical relationship between interest rates and exchange rates i use a markov switching specification of the nominal exchange rate with time varying transition probabilities empirical evidence from six developing countries indonesia south korea the philippines thailand mexico and turkey indicates that raising nominal interest rates leads to a higher probability of switching to a crisis regime thus the empirical results presented here may support the view that a high interest rate policy is unable to defend the exchange rate unlike other studies which consider linear models only my findings are robust and consistent over different countries and crisis episodes asian 1997 crises mexico 1994 crisis and turkey 1994 2001 crises in order to explain the empirical findings i construct a simple theoretical model by incorporating an interest rate rule in the model proposed by jeanne and rose 2002 jeanne o rose a k 2002 noise trading and exchange rate regimes quarterly journal of economics 117 2 537 569 the model has multiple equilibria and under plausible conditions higher exchange rate volatility is associated with higher interest rates

rural household income distribution and inequality in china effects of payments for ecosystem services policies and other factors in the late 1990s china initiated the conversion of croplands to forest program ccfp and the ecological welfare forest program ewfp based on the payments for ecosystem services pes principle positive socioeconomic outcomes of the programs are essential for the long term success of eco environment conservation however there is lack of understanding of their longer term over 10 years impacts on rural livelihoods in this paper we examine income distribution and inequality of rural households under ccfp and ewfp in rural anhui china after 12 years of program implementation results show that ccfp participating households have higher income inequality than non participants while the ewfp does not have an significant effect local off farm work and out migration with remittances are the two principal income sources and both add to inequality a regression based decomposition of inequality shows that the ccfp indirectly alters livelihoods by increasing out migration with remittances but it also adds to inequality from shifting livelihoods to non agricultural activities meanwhile ewfp payments positively affect agricultural incomes and contribute 16 to agricultural income inequality finally human capital natural capital and physical capital all play important roles in generating income and inequality but the factors affecting inequality from agricultural and non agricultural activities are different

central bank intervention exchange rate regime and the purchasing power parity motivated by the argument that central bank intervention leads to non linear exchange rate adjustment processes we examine purchase power parity ppp by applying quantile unit root tests to the exchange rates of the new taiwan dollar ntd vis a vis seven asian currencies we show that exchange rate regime matters in determining whether ppp holds while ppp holds overwhelmingly during the period when the ntd is under the fixed exchange rate regime it is present only for some exchange rates during the managed floating rate regime for exchange rates exhibiting mean reversion the reversion occurs mainly when the shocks are large in contrast to conclusion in the literature our test results show little evidence of asymmetric mean reversion between positive and negative shocks

new evidence on nominal exchange rate predictability abstract the meese rogoff puzzle one of the well known puzzles in international economics concerns the weak relationship between nominal exchange rates and market fundamentals the purpose of this paper is to show that market fundamentals do in fact matter in forecasting nominal exchange rates in particular we emphasize the importance of the harrod balassa samuelson effect in modeling deviations from purchasing power parity based on the post bretton woods period we provide solid out of sample evidence that rejects the random walk forecast model at medium term and long term forecast horizons we also find mild evidence for out of sample predictability of nominal exchange rates over the short term

a cardan s discriminant approach to predicting currency crashes abstract this paper models large swings in exchange rates by introducing nonlinearity via the generalized normal gen distribution lye j n martin v l 1993 robust estimation nonnormalities and generalized exponential distributions journal of the american statistical association 88 261 267 as the distribution allows for bimodality a switch between modes may give rise to currency crashes a statistic known as cardan s discriminant based on the shape parameters of the gen is used to detect bimodality the cardan s discriminant is found to reliably predict currency crashes for eight emerging countries and generate relatively low false signals for stable currencies

estimation of a quarterly macroeconomic model with quantity rationing we specify and estimate a small fix price model with quantity rationing on both the goods and labor markets the side of the market which is rationed is random the model is able to generate a productivity cycle and the degree of capacity utilization is endogenous the rationing scheme allocating supply between the various components of demand is estimated the probabilities of being in the various regimes the intensity of the dispquilibrium on the markets and the results of policy exercises are discussed

a re examination of the exchange rate interest differential relationship evidence from germany and japan abstract this paper presents empirical evidence which links the exchange rate interest differential relation over the recent floating rate period using johansen s cointegration test we find a long run relationship between real exchange rates and expected real interest differentials in addition empirical evidence is provided to show that our error correction framework leads to real exchange rate forecasts that are superior to those generated by a random walk forecasting model moreover this superiority in out of sample predictability is supported statistically by the test of diebold and mariano

empirical exchange rate models and currency risk some evidence from density forecasts a large literature in exchange rate economics has investigated the forecasting performance of empirical exchange rate models using conventional point forecast accuracy criteria however in the context of managing exchange rate risk interest centers on more than just point forecasts this paper provides a formal evaluation of recent exchange rate models based on the term structure of forward exchange rates which previous research has shown to be satisfactory in point forecasting in terms of density forecasting performance the economic value of the exchange rate density forecasts is investigated in the context of an application to a simple risk management exercise

regime shifts and the canada us exchange rate in a multivariate framework this study re evaluates the monetary approach for the canada u s exchange rate and shows that its basic structure can be verified although the coefficients are not consistently in line with theory our findings also indicate that exchange rate adjustment is subject to regime shifts

forecasting petroleum futures markets volatility the role of regimes and market conditions in this paper we employ regime volatility models to describe time dependency in petroleum markets using a sample of nymex and ice futures contracts we establish the existence of a regime process and link this process to market fundamentals this formulation results in two distinct states a highly persistent conditional volatility process characterised by long memory and low sensitivity to market shocks and a relatively short lived nonstationary process with less memory but higher sensitivity to shocks moreover to investigate the relationship between disequilibrium and volatility of oil futures across high and low volatility regimes we use augmented regime garch models to address in a realistic way the potential diverse response of volatility to forward curve shocks the performance of these models is compared to benchmarks using both statistical tests and risk management loss functions to test the robustness of the forecasting strategies we also perform a reality check employing the stationary bootstrap approach the findings of this paper have important implications for decision making concerning trading and risk management as well as energy market operations such as refining and budget planning by providing valuable information on the oil price volatility dynamics and the ability to predict risk

moving off the farm land institutions to facilitate structural transformation and agricultural productivity growth in china agriculture has made major contributions to china s economic growth and poverty reduction but the literature has rarely focused on the institutional factors that might underpin such structural transformation and productivity this paper aims to fill that gap drawing on an 8 year panel of 1 200 households in six key provinces it explores the impact of government land reallocations and formal land use certificates on agricultural productivity growth as well as the likelihood of households to exit from agriculture or send family members to the non farm sector it finds that land tenure insecurity measured by the history of past land reallocations discourages households from quitting agriculture the recognition of land rights through formal certificates encourages the temporary migration of rural labor both factors have a large impact on productivity at about 30 percent each mainly by encouraging market based land transfers a sustained increase in non agricultural opportunities will likely reinforce the importance of secure land tenure which is a precondition for successful structural transformation and continued economic attractiveness of rural areas

induced institutional change or transaction costs the economic logic of land reallocations in chinese agriculture abstract the communal land rights system in china which combines individualised farming with periodic land reallocations provides a good case for testing the economic logic of land reallocations analysis of the results of a unique village survey reveals that a village s choice of land reallocation type partial or large in scale is significantly affected by transaction cost considerations which vary according to village topography and size rather than concerns for economic efficiency tenure security the latter of which is a proxy for the theory of induced institutional change more specifically villages with complex topographies tend to favour partial land reallocation whereas larger settlements tend to reallocate land more thoroughly