household demand in rural china a two stage les aids model a complete demand system of chinese rural households is estimated using a two stage les aids model and pooled provincial and time series data from 1982 to 1990 for commodity groups food clothing fuel housing and other commodities demand is price inelastic housing and other commodities are luxury goods while clothing and food are necessities within the food group price elasticities range from 0 005 to 0 63 expenditure elasticities are lower for grains and higher for meat tobacco and alcohol the results imply a gap between food demand and supply growth therefore china will face pressure to import food

population dynamics and consumer demand the authors analyze the effects on consumption in the united states of 11 demographic variables including regional location and the urban rural base of the household its age size race sex and marital characteristics and the education and the employment status of the household head and the spouse data are from the 1972 1973 consumer expenditure survey the expenditure functions are first specified followed by descriptions of the data sources and the empirical estimates of expenditure functions for various items of consumption spending excerpt

causes of the forward bias non rational expectations versus risk premia the sources of the systematic forward bias in the foreign exchange market are sought a theoretical framework based on some well known international parity conditions is developed in order to derive testable hypotheses these are a only risk premia account for the observed deviations between forward and future sport rate c anticipated real exchange rate changes explain part of the bias the provided evidence is not consistent with any of these hypotheses which in turn implies that part of the bias may be due to non rational expectations

methodical madness technical analysis and the irrationality of exchange rate forecasts substantial empirical research documents that exchange rate forecasts are not formed rationally this paper identifies a common technical trading signal the head and shoulders pattern as a potential source of departures from rationality in exchange rate forecasts forecasts based on this pattern are evaluated for daily dollar exchange rates over 1973 to 1994 using two criteria for rationality profitability and efficiency resulting profits replicable in real time are tested for statistical significance using a bootstrap technique we find that the rule is profitable but not efficient since it is dominated by simpler trading rules

rational expectations as long run equilibria tests for indian securities abstract it is recommended that the standard bias test for muth rational expectations should be augmented in the form of a dynamic model amongst other advantages this approach permits the researcher to test unbiasedness as a long run equilibrium of the underlying dynamic adjustment process relating expectations to realizations the approach is applied to a new data set on traders expectations in the madras stock exchange although bias is generally found in the short run the long run equilibrium is consistent with rational expectations in about half the cases studied significant steady state biases are indicated for the remainder

a generalization of working s model abstract working s 1943 model states that budget shares are linear functions of the logarithm of income it implies constant differences between corresponding marginal and budget shares a one parameter generalization is proposed which allows each marginal share to be a linear function of the corresponding budget share this model can be further extended with one extra parameter so that all goods are either specific substitutes or specific complements

are outcomes driving expectations or the other way around an i 2 cvar analysis of interest rate expectations in the dollar pound market abstract this paper uses consensus forecasts to address empirical puzzles in international macro using the cointegrated var model the data consisting of three month libor rates their three month ahead forecasts prices and exchange rates for the us and uk were all found to be near i 2 consistent with imperfect knowledge expectations the i 2 analysis showed that over the medium run the nominal exchange rate has moved away from equilibrium values with interest rates following suit whereas over the long run the nominal exchange rate was adjusting while the interest rate forecasts pushed the system away from steady state evidence of self reinforcing feedback mechanisms in the system signals the importance of speculative bubbles for the determination of the exchange rate and the interest rates

collusion via signalling in simultaneous ascending bid auctions with heterogeneous objects with and without complementarities collusive equilibria exist in simultaneous ascending bid auctions with multiple objects even with large complementarities in the buyers utility functions the bidders collude by dividing the objects among themselves while keeping the prices low in the most collusive equilibrium the complementarities are never realized the scope for collusion however narrows as the ratio between the number of bidders and the number of objects increases

a micro analysis of business travel demand this study tests two hypothesis 1 that tax deductibility and the dual benefit nature of goods on the business pleasure borderline increases the demand for business travel and 2 that this dual benefit decreases price elasticity the study uses expenditure microdata and contrasts the behaviour of business travellers and pleasure travellers both groups are assumed to have indentical tastes but the expenditure behaviour of business travellers is modified by the role of the business trip as a factor of production the linear expenditure system les allocation model is applied to expenditures on individual goods at a particular tourist destination business travellers are shown to have higher expenditures than pleasure travellers for food lodging and local transportation minimum quantities estimated by the les are also higher for business travellers uncompensated price elasticities of business travellers are significantly smaller than that of pleasure travellers for local transportation clothing a

aggregate consumer behaviour and the measurement of inequality this paper presents an approach to inequality measurement based on an econometric model of aggregate consumer behaviour the novel feature of this model is that systems of individual demand functions can be recovered uniquely from the system of aggregate demand functions we present methods for evaluating social welfare based on an explicit social welfare function this social welfare function incorporates measures of individual welfare based on indirect utility functions for all consumer units we develop indexes of inequality based on actual and potential levels of social welfare

predictability in financial markets what do survey expectations tell us abstract there is widespread evidence of excess return predictability in financial markets for the foreign exchange market a number of studies have documented that the predictability of excess returns is closely related to the predictability of expectational errors of excess returns in this paper we investigate the link between the predictability of excess returns and expectational errors in a much broader set of financial markets using data on survey expectations of market participants in the stock market the foreign exchange market the bond market and money markets in various countries the results are striking first in markets where there is significant excess return predictability expectational errors of excess returns are predictable as well with the same sign and often even with similar magnitude this is the case for foreign exchange stock and bond markets second in the only market where excess returns are generally not predictable the money market expectational errors are not predictable either these findings suggest that an explanation for the predictability of excess returns must be closely linked to an explanation for the predictability of expectational errors

an emprical model of the demand for a varied diet this study attempts to measure some aspects of the household s demand for a varied die by invesigaing how he number of individual foods consumed b he household is affeced b is preferences and food expendiure a heoriical model suggesed b household production theory is adopted to empirical data from a cross section of households it is found that the number of individual foods consumed is strongly responsive to househjold expenditure on all foods

hierarchical package bidding a paper pencil combinatorial auction we introduce a new combinatorial auction format based on a simple trans parent pricing mechanism tailored for the hierarchical package structure proposed by rothkopf pekec and harstad 1998 to avoid computational complexity this combination provides the feedback necessary for bidders in multi round auctions to discern winning bidding strategies for subsequent rounds and to coordinate re sponses to aggressive package bids the resulting mechanism is compared to two leading alternatives in a series of laboratory experiments involving varying degrees of value synergies based on these wind tunnel tests the fcc has decided to use hierarchical package bidding in the major upcoming 700mhz auction

modelling demand systems with demographic effects based on the modifying function approach abstract we follow review of economic studies 52 1985 1 approach to modify the standard consumer demand theory so that socio demographic variables can be formally incorporated into the demand systems our modified theory not only includes all previous approaches to this problem as special cases but also allows the useful interpretations of household production and subsistence expenditure

on using linear regressions in welfare economics this article consists of two parts the first part shows that the ordinary least squares regression coefficient is a weighted average of slopes between adjacent sample points when applied to a linear regression with income as the independent variable the regression coefficient depends heavily on the slopes of high income groups the weight of the highest income decile may well exceed that of the other nine deciles this may be undesirable especially if the regression is used for welfare analysis because the marginal propensities to consume attributed to the commodities are determined by the high income groups the second part of the article proposes alternative estimators the extended gini estimators that enable investigators to control the weighting scheme and to incorporate their social views into the weighting scheme of the estimators

a note on exchange rate expectations and nominal interest differentials a test of the fisher hypothesis this note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period this proposition often called the fisher open hypothesis or the hypothesis of perfect asset substitutability has been a major component of recent theories of exchange rate determination and has important implications for monetary policy 1 the fisher hypothesis differs from the covered interest parity theorem enunciated by keynes 11 while covered interest parity equates the nominal interest differential between financial centers to a known premium or discount on forward foreign exchange and is thus in principle riskless fisher parity involves risk in an essential way the two conditions are equivalent only when forward exchange rates equal expected future spot rates recent theoretical work for example that of grauer litzenberger and stehle 8 kouri 12 and frankel 6 shows that this need not be the case when market participants are risk averse thus while covered interest parity must always hold exactly in an informationally efficient asset market with no transactions costs fisher parity need not nominal interest differentials may reflect risk premia in addition to expected exchange rate movements 2 it should be emphasized at the outset that the tests conducted in this paper are really joint tests of the fisher hypothesis and a weak form of foreign exchange market informational efficiency levich 14 has argued that tests of market efficiency are always joint tests involving some hypothesized structure of normal equilibrium returns below we assume informational efficiency and instead test fisher s hypothesized arbitrage condition that nominal interest differentials equal expected percentage changes in exchange rates

expectation formation mechanisms profitability of foreign exchange trading and exchange rate volatility an attempt is made to identify the expectation formation mechanism dominating the foreign exchange market and to demonstrate that exchange rate volatility can be attributed to the heterogeneity of traders with respect to expectation formation the criterion used to identify the dominance of a particular mechanism is the profitability of trading based on that mechanism it is concluded that mixed and extrapolative expectations are the dominant mechanisms that market participants follow some sort of a herd behaviour and that they pay attention to the expectations of other participants it is also found that the heterogeneity of market participants with respect to expectation formation goes a long way towards explaining volatility

information rigidities and exchange rate expectations abstract sluggish adjustment of expectations to new information is rational in an environment characterized by information costs and signal to noise problems this paper investigates the role of such information rigidities for exchange rate expectations using data from consensus economics for ten emerging and industrial economies from 1999 until 2015 our results confirm the importance of rigidities and show that the inclusion of forecast updates largely accounts for otherwise detected biases in expectation errors moreover we find little evidence for a systematic effect of fundamentals or uncertainty measures on exchange rate disagreement

the welfare effects of disarmament on the united states under nato and the warsaw pact this paper develops a model of disarmament by incorporating rationing theory into the economic theory of alliance in order to provide an econometric measure of welfare gain from a disarmament treaty the author employs the cost functions predicated on rationed and unrationed demand systems by combining the economic theory of foreign aid with that of alliance the author examines the impact of disarmament on the developed economies foreign aid to developing countries as a peace dividend the model is applied to the case of the u s economy under mutual disarmament between nato and the warsaw pact copyright 1996 by mit press

how much redistribution is possible through commodity taxes abstract this paper aims to quantify the redistribution which can be attained as the outcome of indirect taxation this question is of crucial relevance to many countries which are constrained to depend primarily on indirect taxes i assess the maximum possible redistribution by imposing the most redistributive indirect taxation the public budget is balanced and the real income gain to the worst off is taken as the metric of redistribution ceilings on this metric are first obtained within a general set up and then in a number of specific models the resulting redistribution is found to be meager as this is the outcome of the most redistributive taxation redistribution from any real world indirect taxation will be even smaller

general equilibrium analysis of black and white markets a computational approach abstract this paper explores the inter relationship between black and white markets and presents a formulation in which equilibrium conditions hold separately for each type of market for each product with linking conditions across market types using a traditional goods and factor general equilibrium model the simultaneous operation of price controls on white markets and surveillance with penalties for those caught trading on black markets is modelled a numerical example of such an economy is presented using data for india and equilibria under coexistence are reported

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

recovering individual preferences for non market goods a collective travel cost model traditional recreation demand models do not make a distinction between a household and an individual as the reference decision making unit thus assuming that a family maximizes a single utility function even if the family consists of different individuals such models ignore the possibility of family members divergent preferences for non market goods this study proposes a novel approach the collective travel cost model ctcm to eliciting individual preferences for a non market good such as a recreation site by using revealed preference data this approach accounts for the intra household resource allocation and the role of each household member s preferences we show that the collective travel cost model can be applied to estimating a recreation demand model that yields individual welfare estimates appropriate for policy analysis of non market goods such as the willingness to pay to access a recreation site we find that how resources are distributed within the household reflects significant differences in welfare measures

the carry trade and fundamentals nothing to fear but feer itself the carry trade is the investment strategy of going long in high yield target currencies and short in low yield funding currencies recently this nave trade has seen very high returns for long periods followed by large crash losses after large depreciations of the target currencies based on low sharpe ratios and negative skew these trades could appear unattractive even when diversied across many currencies but more sophisticated conditional trading strategies exhibit more favorable payos we apply novel within economics binary outcome classication tests to show that our directional trading forecasts are informa tive and out of sample loss function analysis to examine trading performance the critical conditioning variable we argue is the fundamental equilibrium exchange rate feer expected returns are lower all else equal when the target currency is overvalued like traders researchers should incorporate this information when evaluating trading strategies when we do so some questions are resolved negative skewness is purged and market volatility vix is uncorrelated with returns other puzzles remain the more sophisticated strategy has a very high sharpe ratio suggesting market ineciency

ascending prices and package bidding further experimental analysis abstract we explore the performance of multi round price guided combinatorial auctions for a previously untested class of value profiles in which synergies arise from shared fixed costs we find that in many cases a simulator that bids straightforwardly does well in predicting auction performance but exceptions arise because human bidders sometimes rely on cues besides prices to guide their package selection and because they sometimes bid aggressively on items for which they have no value in order to increase payments by bidders seeking complementary packages in our experiments this latter behavior not only raises prices but can also improve efficiency by mitigating the threshold problem comparisons between a combinatorial clock auction cca and a simultaneous ascending auction saa are reported

exchange rate expectations and functional misspecification the authors employ the cooley prescott adaptive model to examine for functional misspecification in three commonly used exchange rate expectation models they also test for heterogeneity among forecasts the authors find no serious misspecification problem but some heterogeneity in expectations these test results are confirmed by various other regression specification tests copyright 1994 by mit press

international interest rate linkages and the exchange rate regime abstract return differentials between instruments denominated in canadian dollars and instruments denominated in american dollars are investigated the study compares the properties of return differentials in the period of fixed exchange rates during the 1960s and in the period of flexible exchange rates during the 1970s and 1980s both real and nominal return differentials are investigated the results indicate that the change in exchange rate regime is not associated with a change in the average level of ex post return differentials between canada and the united states models which predict ex ante return differentials from available information in a rational expectations framework show a surprisingly large amount of structural stability across the regime change the major impact of the flexible exchange rate regime is on the variance of ex post return differentials and not on the average level of ex post or ex ante return differentials jel e42 e58 g15

predicting currency fluctuations and crises do resident firms have an informational advantage the authors investigate whether resident enterprise managers have an informational advantage about the countries in which they work they propose a method for extracting information available to resident managers but unknown to investors and forecasters they rest their hypothesis of informational advantage using a unique data set the global competitiveness survey the survey asks local managers about their outlook for the country in which they reside they find that local managers do have useful private information local managers responses improve on conventional forecasts of future volatility and changes in the exchange rate which are based on economic fundamentals or interest rate differentials they find that the local business community perceived in advance the recent crises in the republic of korea russia and thailand but not those in indonesia and malaysia markets have had limited success predicting crises and might do better by drawing on private information available to resident enterprise managers who seem to know better than markets about future movements in exchange rates

a cross country tabulation of own price elasticities of demand abstract this paper tabulates frisch slutsky and cournot own price elasticities for each of 10 goods at the per capita real income levels of 30 countries ranging from india to the united states

the time series properties of the risk premium in the yen dollar exchange market summary in this paper a var model is employed to construct a measure of the conditional expectations of the future yen dollar spot rate this measure allows us to examine the dynamics of an ex ante time series for the risk premium in the market the var model produces better forecasts than the survey responses for turbulent periods such as 1981 1982 and 1984 1985 the var generated expectations are then used to construct a risk premium time series this risk premium ieerie series seems to be more reliable than the ones obtained using either survey data on expectations of the future spot exchange rate or the ex post realized spot exchange rate tests on the risk premium series suggest that a risk premium was present but that it was virtually constant throughout the sample the conditional variance of the risk premium changed over time but its unconditional distribution seemed stable across subsamples despite these features the volatility of the series was substantial and varied considerably throughout the sample

on the consistency of short run and long run exchange rate expectations abstract this paper examines whether short term exchange rate expectations overreact by comparing them with long term expectations we develop a set of nonlinear restrictions linking expectations at different forecast horizons the restrictions impose consistency a property weaker than rationality we use exchange rate survey data to measure expectations and then test whether consistency holds the data show that a current positive exchange rate shock leads investors to expect a higher long run future spot rate when iterating forward their short term expectations than when thinking directly about the long run in this sense short horizon expectations may overreact to current exchange rate changes

fiscal and spending behavior of local governments identification of price effects when prices are not observed this paper analyzes local public fiscal andspending behavior in a setting where localgovernments represented by the dominantparty or coalition are treated as utilitymaximizing agents the econometricanalysis which is based on a modifiedversion of eles recognizes total spendingas well as total income as endogenousvariables identification of the priceeffects is achieved by utilizing data onenvironmental cost factors and localtastes the performance of the estimatedmodel is investigated by testing itsability to make out of sample predictionsof local government behavior

market efficiency and cointegration an application to the sterling and deutschemark exchange markets abstract the assumption that the foreign exchange market is efficient that is that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate is a property often imposed in theoretical international macroeconomic models although a vast empirical literature has evolved to test market efficiency we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency we ffind evidence inconsistent with market efficiency for both germany and the united kingdom

on the internal consistency of short term medium term and long term oil price forecasts we derive internal consistency restrictions on short medium and long term oil price forecasts we then analyse whether oil price forecasts extracted from the survey of professional forecasters spf conducted by the european central bank ecb satisfy these internal consistency restrictions we find that neither short term forecasts are consistent with medium term forecasts nor that medium term forecasts are consistent with long term forecasts using a more complex expectation formation structure featuring a distributed lag structure however we find stronger evidence of internal consistency of medium term forecasts with long term forecasts

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

are foreign exchange forecasts rational an empirical note abstract this paper uses survey data drawn from a high inflation economy israel to directly test the rationality of foreign exchange forecasts the empirical evidence indicates that exchange rate expectations are not rational in the muthian sense

rational expectations in the foreign exchange market some survey evidence this paper uses a survey data set that includes a large cross section of currencies to test for the rationality of expectations in the foreign exchange market two standard tests are applied to the data first a test to determine if investors make systematic forecast errors second a test to determine if investors use all available information efficiently when they make their forecasts this paper s data set involves a more recent time period which saw more quiescent exchange rate changes than the 1980s this paper finds that participants in the foreign exchange market do make systematic forecast errors and do not always use all available information when forecasting this conclusion is similar to past research but is now extended to a broader range of currencies and more recent time period

the genealogy of modern theoretical public economics from first best to second best abstract the development of second best modelling in the seventies has shaped modern theoretical economics the paper discusses some key changes in the economists conceptions the first two sections examine the efficiency equity dilemma the study of non convexities has shown that counterintuitive efficiency enhancing income redistribution might occur the introduction of asymmetric information has shed doubts on virtues of lump sum compensation the last sections focus on the intricate geometry of second best optimisation and the ambiguous value of the signals provided by the price system outside a first best world

green recovery policies for the covid 19 crisis modelling the impact on the economy and greenhouse gas emissions the covid 19 pandemic induces the worst economic downturn since the second world war requiring governments to design large scale recovery plans to overcome this crisis this paper quantitatively assesses the potential of government investments in eco friendly construction projects to boost the economy and simultaneously realise environmental gains through reduced energy consumption and related greenhouse gas emissions the analysis uses a computable general equilibrium model that examines the macroeconomic impact of the covid 19 crisis in a small open economy belgium subsequently the impact of the proposed policy is assessed through comparative analysis for macroeconomic parameters as well as co2 equivalent emissions for four scenarios our findings demonstrate that the covid 19 pandemic damages economies considerably however the reduction in emissions is less than proportionate still well designed public policies can reverse this trend achieving both economic growth and a disproportionally large decrease in emissions moreover the positive effect of such a decoupling policy on gdp is even stronger during the pandemic than compared to the pre covid 19 period this is the result of a targeted investment induced green transition towards low energy intensive economic activities finally this paper describes how the net effect on the government budget is positive through the indirect gains of the economic uptake

tests of rational expectations and no risk premium in forward exchange markets abstract this paper tests the simple efficiency hypothesis i e that traders have rational expectations and charge no risk premium in the forward exchange market it uses a statistical procedure which is consistent under a large class of heteroscedasticity and a set of data which takes into account the institutional features of the forward exchange market the results show that this procedure leads to stronger rejections of the simple efficiency hypothesis than do procedures using the standard assumption of homoscedasticity

inefficiency of foreign exchange markets and expectations survey evidence in recent years the finding of a bias has cast doubts on the efficiency of the forward exchange market a large survey of exchange rate expectations in the danish market shows that this inefficiency is mainly due to risk aversion in the market the results contradict the findings of surveys of us and uk forward exchange markets where contribution from biased expectations has been large

determinants of price elasticities for private labels and national brands of cheese an almost ideal demand system model is developed and used to estimate price elasticities for us cheese sold at retail growing consumption of cheese coupled with fierce competition between private labels and national brands serves as motivating factors for this study per capita consumption of cheese grew by 75 during 1980 2004 and private labels captured a rising share of this growth private labels today account for 35 of market share national brands for the remaining 65 kraft accounts for 45 of national brands but price increases for kraft brands led to a sizeable price gap between its brands and private labels this gap helped to stimulate growth of private labels marketing managers seek to capitalize on both growing cheese sales and price gaps for brands relevant information for marketing managers is consumer sensitivity to price changes this study uses 69 weeks of scanner data with consumers segmented by income levels to derive price elasticities for both lower and higher income consumer

differential interpretation of information in inflation forecasts we test the hypothesis associated with a standard assumption in the theoretical literature on learning that economic agents interpret information identically we use a data set based on a survey o

determinants of food consumption in rural sierra leone abstract this paper reports the application of a quadratic expenditure system with demographic variables to the household consumption leisure choice component of a household firm model a system of seven commodities is estimated including five foods non food and leisure appropriate for such a level of disaggregation a demand system is used the quadratic expenditure system which allows for a flexible relationship between full income and commodity expenditures without sacrificing parsimony in parameters demographic data on households are explicitly incorporated into the model allowing for a richer specification than can be achieved by using per capita variables the data are from a cross section survey of households in rural sierra leone price variation exists by region permitting estimation of a complete demand system engel curves are found to be significantly non linear with marginal expenditure on rice the major staple declining with higher income most foods are found to be reasonably price responsive with sizeable own price substitution effects declining with higher income aggregate labor supply is found to be price inelastic

redistributive impact of optimal commodity taxes evidence from indian data abstract optimal commodity tax rates are computed for different objective functions and their redistributive impact is studied using indian data the results indicate that while in general one should expect a limited impact on redistribution the redistributive impact at the observed tax rates is much below the potential

do dollar forecasters believe too much in ppp this article extends earlier studies on exchange rate expectations formation by using new data and adding information about forecasters reliance on fundamental analysis for the first time we replicate the conventional result of nonrational expectations moreover biases in expectations are identified as professionals significantly believe too much in mean reversion mean being represented by purchasing power parity ppp when respondents are grouped on their reliance to fundamental analysis fundamentalists reveal an even stronger bias those who rely the least on fundamentals preferring technical analysis instead show a significantly smaller bias towards ppp in lieu of expecting too much trend extrapolation biased beliefs will grow stronger when the us dollar is further away from ppp finally the accuracy of the expectations is poor for both groups however we find directional forecasting ability

sensitivity of optimal commodity tax rates to alternative demand functional forms an econometric case study of india this study investigates on a nine commodity disaggregation of indian budget data nss 28th round the sensitivity of optimal commodity tax rates to alternative demand systems les and rnlps optimality is used here in the very special sense of being conditional on observed expenditure and fixed consumer prices the alternative sets of tax rates agree at low levels of inequality aversion but disagree widely at rawlsian levels les is heavily rejected in favour of its one parameter generalisation rnlps the results suggest that les price elasticities should not be used in optimal tax calculations the optimal tax rates imply only a modest redistribution

are foreign exchange forecasts rational new evidence from survey data abstract tests of rationality in foreign exchange markets have been inconclusive because of disagreement over the relevant asset pricing model this paper uses a newly available set of data on foreign exchange expectations to directly test the rationality of four foreign currency markets overall the results reject the rational expectations hypothesis

rationality of survey data and tests for market efficiency in the foreign exchange markets abstract this paper tests the rational expectations hypothesis reh and the market efficiency hypothesis meh in the foreign exchange markets using survey data on expectations our results show that the spot exchange rates expected exchange rates and the forward rates all follow a random walk process hence the cointegration theory is employed to test the reh and meh all the test statistics support the reh but fail to support the meh we use survey data on expectations to identify the causes behind this failure of the meh jel f31 g14

combinatorial clock auctions price direction and performance abstract the lack of price guidance towards efficiency relevant packages in ascending combinatorial clock auctions acca can lead to a low efficiency allocation of goods we propose a descending price combinatorial clock auction dcca with a newly devised pricing strategy to improve on this problem using agent based simulations we document that the dcca provides significant improvements over the acca and we are able to understand in which environments these improvements are likely to be the strongest we test these predictions in the laboratory with human subjects and find evidence that the dcca generates improvements in auction efficiency and revenue

a new and improved design for multiobject iterative auctions in this paper we present a new improved design for multiobject auctions and report on the results of experimental tests of that design we merge the better features of two extant but very different auction processes the simultaneous multiple round smr design used by the fcc to auction the electromagnetic spectrum and the adaptive user selection mechanism ausm of banks et al 1989 allocating uncertain and unresponsive resources an experimental approach rand journal of economics vol 20 no 1 pp 1 25 then by adding one crucial new feature we are able to create a new design the resource allocation design rad auction process which performs better than both our experiments demonstrate that the rad auction achieves higher efficiencies lower bidder losses higher net revenues and faster times to completion without increasing the complexity of a bidder s problem

further evidence on exchange rate expectations abstract this paper considers a previously unexploited survey data set of exchange rate expectations which allows us to focus on differences between ems and dollar exchange rates we corroborate the earlier finding in the literature that exchange rate forecasts are not rational and that agents do not use all available information efficiently although extrapolative and adaptive expectations formation mechanisms describe non ems exchange rate expectations to a certain extent ems exchange rates forecasts seem to follow long run fundamentals more closely and would suggest that agents believe that ems exchange rate expectations undershoot their long run equilibrium values jel f31

horizontal equity income taxation and self selection with an application to income tax credits abstract this paper investigates the relationship between utilitarianism and horizontal equity in models of income taxation in particular and self selection in general an example involving well behaved individual preferences is constructed in which a maximization of a utilitarian social welfare function leads via income taxation to horizontal inequities sufficient conditions for utilitarianism to bring horizontal equity are derived the results are applied to the question of whether income tax credits are an appropriate way to treat differences in family size

does foreign exchange intervention matter the portfolio effect until recently there was an unusual degree of consensus among economists that intervention by central banks in the foreign exchange market did not offer an effective or lasting instrument for affecting the exchange rate at least not independently of monetary policy this consensus was largely shared among policymakers and participants in the financial markets as well the 1982 g 7 economic summit at versailles commissioned a study of intervention known as the jurgenson report which found that the effects were small and transitory at most we think that the time is ripe for new statistical testing of the question many policymakers and foreign exchange traders believe that the intervention operations that have taken place since the plaza agreement of september 1985 have had an effect especially when operations are coordinated moreover the theoretical case against the effectiveness of intervention is not as clear as a reading of the economics literature might suggest the academic literature is predicated on the distinction between intervention operations that are sterilized and those that are allowed to affect the money supply we study the intervention operations that actually took place between 1982 and 1988 regardless of whether they were sterilized however we do begin in section i with a review of the issues involved 2 there are two possible channels through which intervention whether sterilized or not can influence the foreign exchange rate the portfolio and the expectations channels intervention can even if sterilized influence exchange rates through the portfolio channel provided foreign and domestic bonds are considered imperfect substitutes in investors portfolios intervention operations that for example increase the current relative supply of mark to dollar assets which private investors are obliged to accept into their portfolios will force a decrease in the relative price of mark assets 3 intervention can also influence exchange rates regardless of whether foreign and domestic bonds are imperfect substitutes through the expectations channel the public information that central banks are intervening in support of a currency or are planning to intervene in the future may under certain conditions cause speculators to expect an increase in the price of that currency in the future speculators react to this information by buying the currency today bringing about the change in the exchange rate today in sections ii and iii we describe the econometric problems that arise in the standard portfolio balance estimation equation we derive an alternative portfolio balance dominguez kennedy school of government harvard university 79 j f kennedy street cambridge ma 02138 frankel department of economics university of california 787 evans hall berkeley ca 94720 we thank three anonymous referees for valuable comments and suggestions julia marsh and julia lowell for research assistance and franz scholl at the bundesbank jean pierre roth at the swiss national bank and officials at the u s treasury and the board of governors of the federal reserve system for making the daily intervention data available 1many of the econometric results finding little or no effect were reported in kenneth s rogoff 1984 and dale w henderson and stephanie sampson 1983 2for authoritative statements see henderson 1984 or maurice obstfeld 1990 3the exchange rate reaction to an increase in the relative supply of outside foreign assets may be reduced if there is an increase in their expected rate of return that induces a corresponding increase in demand

engel curves for fair trade consumption and development perspectives for producers evidence from data on real fairtrade purchases while fairtrade sales have exhibited two digit growth rates over recent decades their capacity to become large enough to generate substantial gains for producers is still uncertain estimating fai

using survey data to resolve the exchange risk exposure puzzle evidence from u s multinational firms while in previous literature foreign currency exposure is estimated to be surprisingly small and insignificant we question in this paper the rationality assumption and show that the traditional use of realized exchange rate changes to approximate unexpected currency shocks leads to a strong underestimation of the influence that exchange rates play in determining firm valuations in light of a unique survey data base of individual exchange rate expectations we distinguish between realized and unexpected foreign currency movements and find that half of our sample of 935 u s firms with real operations in foreign countries is significantly exposed to unexpected exchange rate movements in line with previously reported results foreign exchange risk exposure is found to become increasingly perceptible when the return horizon is lengthened the difference between the exposure to realized versus unexpected exchange rate movements is however decreasing when lengthening the horizon suggesting that the more market participants disagree about the future path of currency values the less investors and or managers are likely to use the publicly available forecasts in their pricing and hedging decisions

the household s decision to accept or reject a conditional transfer offer households deemed by society to have insufficient resources to purchase an adequate commodity bundle are often offered aid i e additional resources conditional upon the households purchasing a given level of some commodity e g food fuel or housing such conditional transfers attempt to modify the households normal behavior i e if the households would normally purchase the required level of the designated commodity upon receipt of the transfer the constraint would not be necessary how these incentives and constraints interact to affect the households behavior determines in large part the number and type of eligibles aided by the program aggregate program costs given payment levels and the types of commodity bundles purchased by the recipient households clearly understanding the decision to accept or reject a conditional transfer offer has widespread implications for the costs of the transfer program the impact on eligible households and the attainment of society s objectives numerous studies have investigated the size and distribution of recipient benefits in conditional transfer programs 1 3 6 8 9 14 16 21 to this author s knowledge however no analysis has estimated a model of the household s decision to participate in a conditional transfer program using household data and a theoretically appropriate measure for the household s net gain to overcome this gap in our understanding of the household s

package auctions and exchanges we report recent advances concerning the package allocation problem in which traders seek to buy or sell combinations of goods the problems are most difficult when some goods are not substitutes in that case competitive equilibrium typically fail to exist but the core is non empty and comprises the competitive solutions also in that case the vickrey auction fails to select core allocations and yield revenues that are less than competitive the ausubel milgrom auction generally selects core allocations and when goods are substitutes prescribes the vickrey allocation we also evaluate the problems and promise of mechanisms for the package exchange problem

the efficiency of housing search previous research in the housing market has largely focused on housing market outcomes e g the quantity of housing services demanded or supplied or the determination of equilibrium prices scant attention has been directed at the processes producing these outcomes recently economists have developed models of buyer and seller search processes in housing markets 6 22 but almost no empirical testing of these models has been done the importance of search in economic markets has been discussed by lippman and mccall 15 the difficulties encountered by deterministic theories of economic markets in explaining different prices for identical commodities and persistent positive levels of unemployed resources are overcome when search is introduced search may be of even greater importance in housing markets than in most other economic markets housing generally accounts for the largest item of consumption for most households for homeowners housing is usually the household s largest asset housing is a heterogeneous commodity that is traded in highly decentralized markets 2 the costs of moving can be substantial reducing the gains from relocation the consumption of housing also involves externalities that add to the heterogeneity of the consumption bundle finally recent theoretical work by courant 6 suggests that the rational search behavior of households facing discrimination in housing markets might act to perpetuate adverse market conditions facing such households given the importance of housing as a consumption commodity and as an asset and the above characteristics of housing and housing markets previous descriptive examinations

dollar jump fears 1984 1992 distributional abnormalities implicit in currency futures options abstract deutsche mark and yen futures options over 1984 1992 and 1986 1992 respectively are examined for deviations from the lognormal assumption underlying standard option pricing models two methods are used an atheoretic skewness premium and daily estimates of moments using a model for pricing american foreign currency futures options under systematic exchange rate jump risk substantial variation over time is found in all moments including implicit skewness and kurtosis the implicit abnormalities predict future abnormalities in log differenced dm futures prices but not yen the peso problem implications do not explain standard rejections of uncovered interest parity

a proposal for using incentive precommitments in public enterprise funding abstract among the central problems of less developed countries ldcs is the poor performance of their public enterprises pes and the seemingly limited ability of governments and other agencies to improve this performance this paper proposes that project agencies be induced as a part of the initial financing of pes to undertake specific types of precommitments a precommitment to liquidate the project if its ex post performance falls below some threshold level and a precommitment to link a non negligible part of employee compensation to actual performance our proposal is not guaranteed to improve pe performance because there are no perfect solutions to what is inherently a politically difficult problem nevertheless we argue that as long as public enterprises exist independent of whether this is a good idea or not a precommitment to use performance based incentives is likely to improve their performance we discuss the primary sources of pe losses compare their probable magnitudes and explain how various precommitments are likely to ameliorate such losses our proposal is aimed at stimulating more thought on this subject and is addressed to a broad audience

an evaluation of survey exchange rate forecasts abstract a non parametric test of direction is employed to evaluate the survey forecasts provided by the money market services empirical results suggest that the forecasts are useful for predicting the direction of exchange rate changes the results are consistent with a weaker form of rationality than unbiasedness

equity and tradeoffs in a tax based incomes policy a tax based incomes policy tip is a tax incentive that tries to induce employers and or workers to reduce wage and or price increases it is intended as a complement to the basic anti inflation policy of gradual monetary deceleration and fiscal restraint its purpose is to reduce the capital stock and output loss that would otherwise accompany such a policy see my 1978 1979a articles this article is divided into two sections section i examines the capital stock and output loss under monetary deceleration that is uncomplemented by tip this loss is due primarily to wage growth inertia a central feature of modern capitalist economies such inertia provides not only the rationale for a tip on wage increases but also implies that special effort is required to assure that the design of a complete tip package is fair to labor section ii analyzes the tradeoffs confronting two alternative methods of making tip more equitable to labor profit and or price restraint insurance and a tip on price increases of the largest firms the original tip limited to wage increases at first glance is often perceived as unbalanced and inequitable this section tries to contribute to the development of a balanced equitable tip

volume volatility and the dispersion of beliefs i examine a two period noisy rational expectations model of a futures market and show that the dispersion of expectations about a weighted average of future prices measures both the additional volatility and the additional expected volume of trade associated with noisy information the role played by dispersion helps clarify several stylized facts concerning volume and price behavior specifically dispersion can be a factor contributing to the positive correlation between volume and absolute price changes and the positive correlation between consecutive absolute price changes article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

estimation of complete demand systems from household budget data the linear and quadratic expenditure systems in this paper we explore two issues in empirical demand analysis the estimation of complete systems of demand equations using household budget data section i and the incorporation of demographic characteristics into such systems section ii although there are numerous studies which use time series data to estimate complete demand systems and many which estimate engel curves from household budget data there are virtually none which combine budget data from different periods to estimate complete systems since each budget study corresponds to a single price situation one might conjecture that estimation of complete systems would not be possible unless budget studies were available from a large number of periods this is incorrect in section i we argue that interesting complete demand systems can be estimated from a small number of budget studies despite the limited price variability represented in such data to demonstrate this we use budget study data for two periods to estimate a pair of related demand systems the familiar linear expenditure system les and a quadratic expenditure system qes a generalization of les in which the demand equations are quadratic in total expenditure the inclusion of demographic variables in the analysis of household consumption patterns is desirable because there are likely to be systematic differences in the consumption behavior of households with different demographic characteristics but the effects of demographic characteristics have seldom been studied within the framework of complete demand systems in section ii we propose translating as a general method for incorporating demographic variables into complete systems of demand equations this method has not previously been discussed as a general technique for bringing demographic variables into demand systems although it has been employed in several studies to improve the estimates of the les and the qes presented in section i we reestimate these two systems using translating to incorporate family size

a household production specification of demographic variables in demand analysis empirical investigations into the expenditure and time allocation decisions of households usually allow the variation in demographic characteristics across households in particular the number and ages of dependent children to affect these decisions the motivation for allowing such demographic effects is two fold first it permits the researcher to pool observations from households with differing demographic characteristics secondly it has been argued that it allows the researcher to construct an index normally called an equivalence scale to show the full income required by a household with some given composition to attain the same level of utility as some reference household and hence permits comparisons of welfare levels across households there are two areas of controversy surrounding this literature which directly relate to its two sources of motivation first what is the appropriate demographic specification second can the estimated parameters be used to undertake welfare comparisons a series of demand studies including barten 1964 blundell 1980 blundell and walker 1982 gorman 1976 muellbauer 1974 1977 hurd and pencavel 1981 pollak and wales 1978 1981 and ray 1983 have attempted to answer the first problem by considering the current allocation of goods and in some cases household time conditional on demographic structure this literature treats demographic variables as exogenous whereas in contrast the neoclassical fertility literature see for example the contributions in schultz 1973 treats the numbers and ages of children as endogenous nonmarket goods within a lifecycle optimising framework the second problem has been raised by pollak and wales 1979 who argue convincingly whether household composition is the result of endogenous decisions or not it is impossible to compare the welfare of households with different compositions using the results of empirical demand analysis since market decisions do not reveal how the households feel about the presence or absence of children thus estimated equivalence scales are necessarily based on the households preferences conditional on their demographic compositions the object of this paper is to suggest a new approach to the problem of demographic specification and to show that this approach both highlights the problem of making welfare comparisons and at least in part resolves it

price and income elasticities of residential energy demand in germany we apply a quadratic expenditure system to estimate price and expenditure elasticities of residential energy demand electricity and heating in germany using official expenditure data from 1993 to 2008 we estimate an expenditure elasticity for electricity of 0 3988 and of 0 4055 for space heating the own price elasticity for electricity is 0 4310 and 0 5008 in the case of space heating disaggregation of households by expenditure and demographic composition reveals that the behavioural response to energy price changes is weaker stronger for low income top income households there are considerable economies of scale in residential energy use but scale effects are not well approximated by the new oedc equivalence scale real increases in energy prices show a regressive pattern of incidence implying that the welfare consequences of direct energy taxation are larger for low income households the application of zero elasticities in assessments of welfare consequences of energy taxation strongly underestimates potential welfare effects the increase in inequality is 22 smaller when compared to the application of rich and disaggregated behavioural response patterns as estimated in this paper