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

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

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

ldc agriculture nonparametric malmquist productivity indexes abstract this paper examines changes in agricultural productivity in 18 developing countries over the period 1961 1985 we use the nonparametric output based malmquist index to examine whether the results from such an approach confirm results from other methods that have indicated declining agricultural productivity in less developed countries ldcs the results confirm previous findings indicating that at least half of these countries have experienced productivity declines in agriculture we also found that those countries that tax agriculture most heavily had the most negative rates of productivity change

urbanization informal sector and development abstract urbanization is a universal phenomenon in the postwar world but its qualitative nature is varied across countries some nations have experienced urbanization that accompanied skill upgrading industrialization and the expansion of the urban formal modern sector but others urbanized without such modernization and underwent the expansion of the urban informal traditional sector simultaneously the question that naturally arises is what are the underlying causes for the differences the purpose of the paper is to tackle this question analytically based on a dynamic model of urbanization and development

water scarcity and food trade in the southern and eastern mediterranean countries abstract this study investigates food trade patterns in relation to water resources availability in the southern and eastern mediterranean countries semed examinations show that most of these countries have a high dependence on the import of water intensive crops cereal vegetable oil and sugar in the domestic food supply the region as a whole is marginally a net exporter of fruits and vegetables while variations are substantial across countries multi variable regression analyses show that intensification of water scarcity is an important factor in explaining the increase in food import in the semed countries during the past two decades it also finds that while gdp per capita has a strong influence on the level of food import in a country its impact on changes in the import during the same period is rather modest no significant relationship is found between the trade of fruits and vegetables and water resources availability the projection on food import with respect to the decline in per capita water resources availability results in an increase of 40 39 and 14 respectively for cereal vegetable oil and sugar by 2020 in the region holding other factors constant the european union eu is the major food trade partner of the semed countries except for cereal about 70 of the fruit export and 55 of the vegetable export of the region currently go to the eu market expanding the export of fruits and vegetables is conducive to improving the value of water use in the semed countries however the expansion is constrained partly by the barriers in the destination markets notably the eu

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

v goods and the role of the urban informal sector in development this paper analyzes the role of the urban informal sector in a developing country in relation to the performance of agriculture and other rural activities on the one hand and that of urban formal sector activities on the other it decomposes the sectors into traditional and modernizing components traceable to production and consumption linkages with the rest of the economy as well as the character of government interventions over time the paper contrasts success cases a la taiwan in which the overall size of the urban informal sector remains modest the modernizing sub sector grows in relative importance and the end of overall labor surplus is reached rather early with non success cases a la the philippines in which rapid rural urban migration enhances the overall size of the urban informal sector the traditional sub sector grows relatively and the end of the labor surplus condition is substantially delayed authors

the price stabilization effects of the eu entry price scheme for fruit and vegetables the paper assesses the stabilization effects of the eu import regime for fresh fruit and vegetables based on the entry price system the analysis is carried out on the eu prices of tomatoes and lemons and those of imports from some of the main competing countries on the eu domestic markets morocco argentina and turkey it is based on the estimation of a threshold vector autoregressive econometric model that is shown capable of taking the workings of the import regime into account the model shows that prices behave differently when import prices are above below the trigger entry price this paper allowed to highlight the cases for which the isolation effect of eps seems reached and the resulting stabilization effects

the effects of trade policies for fresh fruit and vegetables of the european union abstract this paper examines the economic effects of the trade policies for fresh fruit and vegetables adopted by the european union eu after the uruguay round agreement on agriculture uraa the new import regimes are based on entry prices that in effect work as minimum prices at the same time the eu has signed trade preference agreements particularly with southern mediterranean countries that are important suppliers of fruit and vegetables to the eu the management of the import regime is a balance between two conflicting objectives to support internal producers and to preserve trade flows from preferred countries on the side of export subsidies to handle the reduction commitments under the uraa the eu has introduced rationing trough tender procedures the analysis shows that such subsidies do not seem able to boost the exports of eligible products therefore eu policy makers should ask whether the eu should continue to offer such subsidies

economic underdevelopment the case of a missing market for human capital abstract this paper demonstrates that the coexistence of developed and underdeveloped countries can be a stationary equilibrium in a world economy with free trade in consumption goods and physical capital an underdeveloped country is characterized by a high ratio of unskilled workers in the labor force a small stock of physical capital a low gross national product a high rate of return on human capital and a corresponding large wage differential between skilled and unskilled workers the critical assumptions are that future labor earnings cannot serve as collateral on a loan and indivisibilities in education

testing the expectations hypothesis when interest rates are near integrated nominal interest rates are unlikely to be generated by unit root processes using data on short and long interest rates from eight developed and six emerging economies we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated if the null hypothesis of no cointegration is rejected we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis the results show support for cointegration in 10 of the 14 countries we consider and the cointegrating vector is similar across countries however the parameters differ from those suggested by theory we relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia

subprime mortgage default abstract this paper constructs a reduced form credit risk model of mortgage default the data used is of privately securitized subprime arms adjustable rate mortgages originated between 1997 and 2008 and observed between 2000 and 2009 the period studied thus encompasses the beginning of the subprime crisis given the estimated model contractual properties of the loans are then used to infer the market price of default risk for the various quarters of origination it is empirically determined that a change in the inherent nature of borrowers led to a deterioration in their default performance a change which can be first detected in late 2004 on the other hand the evidence also indicates that the secondary mortgage market became aware of this change at about this same time the large rise in defaults in 2007 cannot therefore be attributed to any surprise other than the unexpectedly large fall in housing prices

seasonal protection of f v imports in the eu impacts of the entry price system the measures of border protection applied by the european union eu to imports of fruits and vegetables fv are complex and usually not well represented in trade models not only because of the range of instruments still constraining trade but also because of product differentiation and seasonality in these products this article assesses the impact of eliminating entry price ep constraints applied to a group of fv products the proposed model is of a partial equilibrium nature and takes seasonality into account we have applied the model to imports of tomatoes cucumbers clementines and table grapes trade impacts of eliminating ep are significant for particular origins during specific seasons most notably for moroccan tomatoes the volumes and prices of products originating in the eu experience moderate reductions

a realistic model for official interest rate movements and their consequences this article extends the vector autoregression var methodology to examine the consequences of monetary policy decisions by considering two types of nonlinearities in the determination of official interest rates 1 the asymmetry related to the different nature of the discrete and infrequent positive and negative interest rate movements determined by central bankers and 2 the convexity in the transmission of policy shocks induced by the nonnegativity constraint in interest rates for the uk we find some evidence of both types of asymmetries in the us responses to unexpected interest rate shocks are far more symmetric results highlight the importance of considering all types of asymmetries when studying monetary transmission

fruit and vegetable access to eu markets dissecting tariffs faced by mediterranean countries this paper analyzes the access of eastern and southern mediterranean countries to the eu fruit and vegetables market and provides a measure of the level of preferences from which they benefit to take into account the complexity of eu protection in the fv morocco has the highest preference while syria and israel have the lowest we simulated a multilateral reduction in the mfn tariffs as planned in the doha round and showed that this would reduce the heterogeneity within the zone by more strongly eroding the preferences of the most advantaged countries the classification of entry price products as sensitive products would either benefit or have no effect on most mediterranean countries

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

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

the eu entry price system for fresh fruits and vegetables paper tiger or powerful market barrier abstract the eu protects eu growers of 15 kinds of fresh fruits and vegetables against international competition by the entry price system eps which is designed to restrict imports below the product specific politically designated entry price level this study investigates the relevance of the eps per product and country of origin we develop two indicators for the effectiveness of the eps which serve as variables in a cluster analysis identifying four classes differing in the relevance of the eps the relevance of the eps is found to be heterogeneous among products as well as countries of origin it is highest for artichokes courgettes cucumbers lemons plums and tomatoes the influence of the eps on apples clementines and pears is significantly lower and of least relevance for apricots mandarins oranges peaches and nectarines and table grapes the eps has the greatest effect on countries which neighbour the eu whereas it is of minor importance for exports from far away countries with the exception of china and south africa

the impact of the gatt agreement on eu fruit and vegetable policy abstract this paper examines the eu s plans for implementing the uruguay round gatt agreement on agriculture with respect to fresh fruits and vegetables it considers the import access export subsidy and domestic support commitments in particular the eu has decided to retain a minimum import price regime for fresh fruits and vegetables the new entry price system displacing the old reference price system is to apply on a consignment basis the entry price and reference price systems are compared and some conclusions drawn about the likely impact of entry prices on potential third country suppliers of the eu market