Differencing of random walks and near random walks

The traditional rationale for differencing time series data is to attain stationarity. For a nearly non-stationary first-order autoregressive process—AR (1) with positive slope parameter near unity—we were led to a complementary rationale. If one suspects near non-stationarity of the AR (1) process, if the sample size is ‘small’ or ‘moderate’, and if good one-step-ahead prediction performance is the goal, then it is wise to difference the data and treat the differences as observations on a stationary AR (1) process. Estimation by Ordinary Least Squares then appears to be at least as satisfactory as nonlinear least squares. Use of differencing for an already stationary process can be motivated by Bayesian concepts: differencing can be viewed as an easy way to incorporate non-diffuse prior judgement—that the process is nearly non-stationary—into one's analysis. Random walks and near random walks are often encountered in economics. Unless one's sample size is large, the same statistical analyses apply to either.     

Employment,labor supply and real wages in market disequilibrium

The purpose of this paper is to provide estimates of a disequilibrium labor market model which has been fitted to the US private non-farm sector and to the manufacturing sector. After examining the rationale of the ‘minimum’-type disequilibrium model, we reject it in favor of a formulation suggested by Chow. The latter provides not only a wage adjustment mechanism, but also a quantity adjustment mechanism and treats wages and quantities symmetrically. The empirical findings for both sectors support the disequilibrium formulation employed and reject the equilibrium hypothesis for the labor market.     

Why are African commodity exchanges languishing? A case study of the Zambian Agricultural Commodity Exchange

Food price volatility and high transactions costs remain major problems in African food markets. These persistent problems provide a strong theoretical justification for the development of commodity exchanges. However, the majority of African commodity exchanges remain underdeveloped. Through a case study of the Zambian Agricultural Commodity Exchange (ZAMACE), this article explores why agricultural commodity exchanges in the region have thus far failed to develop into sustainable trading platforms and identifies the most important changes needed to enhance their performance.     

Effects of multimember districts on black representation in state legislatures

We look at the most general feature of multimember districts (MMDs) as compared to single-member districting (SMD) plans: the higher likelihood of submergence of minority voting strength. We focus on data on black legislative representation between 1977 and 1982 in the 11 states with more than 15% black populations, and compare states which use MMDs with those that use SMDs. We also examine changes in black representation in states which shifted from MMDs to SMDs. In addition, for MMD state legislative elections in eight North Carolina counties between 1978 and 1982, we examine in detail the nature of minority submergence including the lack of geographic representativity of the persons elected from MMDs. The counties we examine contain four of North Carolina’s largest cities and a substantial portion of North Carolina’s black population. Unlike almost all of the previously published literature on racial representation in MMDs, our study deals with state legislative races and not local elections.     

Conditions for Optimality of a Currency Area

Two approaches to the theory of OCA are distinguished in this paper. The first, called the marginalistic approach, attempts to define the OCA from the point of view of a single country, and the second examines the optimality of a currency area of a given membership. The marginalistic approach and its limitations are discussed first. Then, the paper proceeds to the second approach which is discussed in the context of the cooperative game theory in characteristic function form; it argues that a currency area is optimal when the welfare functions of its constituent members are in the core. This implies that the welfare functions of all constituent members of the currency area are maximized and hence they are all better off with a common currency rather than with their own national currencies; hence, no member country has the intention to abandon the currency area. The paper concludes that the condition for the optimality of a currency area independently of the degree of economic similarity of its constituents requires that the characteristic function must exhibit non decreasing returns with respect to its size.