AGRICULTURAL PRICE INSTABILITY: A SURVEY OF COMPETING EXPLANATIONS AND REMEDIES

Abstract There are two explanations for agricultural price dynamics. One follows cobweb logic and models fluctuations driven by expectation errors but emphasises that these expectations create complex dynamics and possibly chaos. The other stems from the rational expectations tradition of dynamics driven by real shocks. The empirical evidence tends to support the latter, but is not conclusive. The rational expectations model generates an optimal dynamic path from which no improvement can be expected from public intervention. However, if we take account of all the potential market failures in agricultural markets, and especially in developing countries, this conclusion might require some qualifications, although an appropriate policy design for stability has still to be achieved. This paper surveys the positive and normative literature on agricultural prices, highlighting empirical evidence and identifying remaining unresolved issues.     

An efficient heuristic for medium-term planning in shampoo production

This paper presents a single machine problem which occurs in shampoo production at medium-term planning phase. The considered production plant is linked to subsidiary companies which are themselves linked to final customers. The aim is to answer subsidiary companies requests by keeping their stocks in a window defined by their safety stock and maximum inventory levels. After an introduction, we present a formal definition of the problem. Next, we present a two-phase heuristic algorithm: the first phase is based on a greedy algorithm and the second phase on the Goldberg and Tarjan algorithm for the minimum cost flow problem. Experimental testings close to industrial instances show that the heuristic performs very efficiently.     

PURCHASING POWER PARITY FOR DEVELOPING AND DEVELOPED COUNTRIES. WHAT CAN WE LEARN FROM NON‐STATIONARY PANEL DATA MODELS?

Abstract.  The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni ( Oxford Bulletin of Economics and Statistics 61 (1999): Supplement, 653–670; Econometric Theory 20 (2004): 597–625) and generalized by Banerjee and Carrion-i-Silvestre (Working Paper 591, European Central Bank, February 2006) to examine the robustness of the PPP concept for a sample of 80 developed and developing countries. We find that strong PPP is verified for OECD countries and weak PPP for Middle East and North African countries. However, in African, Asian, Latin American and Central and Eastern European countries, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. Further investigations indicate that the nature of the exchange rate regime does not condition the validity of PPP, which is more easily accepted in countries with high rather than low inflation.     

No-arbitrage criteria for financial markets with transaction costs and incomplete information

This note deals with criteria of absence of arbitrage opportunities for an investor acting in a market with frictions and having a limited access to the information flow. We develop a mathematical scheme covering major models of financial markets with transaction costs and prove several results including a criterion for the robust no-arbitrage property and a hedging theorem.      

Option pricing for GARCH-type models with generalized hyperbolic innovations

In this paper, we provide a new dynamic asset pricing model for plain vanilla options and we discuss its ability to produce minimum mispricing errors on equity option books. Given the historical measure, the dynamics of assets being modeled by Garch-type models with generalized hyperbolic innovations and the pricing kernel is an exponential affine function of the state variables, we show that the risk-neutral distribution is unique and again implies a generalized hyperbolic dynamics with changed parameters. We provide an empirical test for our pricing methodology on two data sets of options, respectively written on the French CAC 40 and the American SP 500. Then, using our theoretical result associated with Monte Carlo simulations, we compare this approach with natural competitors in order to test its efficiency. More generally, our empirical investigations analyse the ability of specific parametric innovations to reproduce market prices in the context of an exponential affine specification of the stochastic discount factor.