Aggregation of Price Risk over Commodities: An Economic Index Number Approach

This article extends the economic theory of index numbers to the aggregation of price risk over commodities in production. Superlative indexes of aggregate price risk are related to Tornqvist and Fisher−type output quantity indexes. An application to major crops in Manitoba illustrates the empirical importance of the analysis.     

Agricultural Policy Reform and Off‐farm Labour Decisions

Off‐farm labour decisions of a sample of Kansas farmers are evaluated. The central question of our analysis pertains to whether 1996 US farm policy reforms may have altered the decisions to work off the farm. The effects of policy decoupling on off‐farm labour are complex: different aspects of policy changes can have opposing effects on off‐farm work decisions. Essentially, this makes this issue an empirical question. Results show that the introduction of fixed, decoupled payments in 1996 might have reduced the likelihood of off‐farm labour participation. However, the new policy environment may have increased farm households’ revealed aversion to risk, motivating a higher participation in non‐farm labour markets. The effects of 1996 policy reforms on farm income variability could have been attenuated by changes in US crop insurance programmes and by an increase in emergency assistance payments towards the end of the 1990s. The reduction in price supports may have increased the motivation for working off the farm. The net effect of the overall reforms on off‐farm work participation is not likely to have been large.     

Economic analysis of the impact of adopting herd health control programs on smallholder dairy farms in Central Thailand

The economic impact of adopting herd health programs for mastitis and reproduction by small-scale dairy producers of Central Thailand was assessed using a policy analysis matrix (PAM). Following a reduction in the incidence of bovine disease on adopter farms, an increase in private net profits is observed. More importantly the social costs of supporting dairy farmers is reduced; the PAM effective protection coefficient was reduced by 35% for mastitis program adopters and by 44% for reproductive program adopters, indicating improved social efficiency of dairy policy. Other indicators of efficiency and policy implications are discussed.     

Dynamic Relationships in the Market for Ocean Grain Freighting Services

A vector autoregressive model containing ocean grain freight rates, grain shipments, idled tonnage, new carrier deliveries and fuel prices is used to evaluate dynamic linkages in the ocean grain transport market. Dynamic relationships are of particular importance in ocean freighting months because freighting services are often contracted several months before shipment. In addition, such markets may be slow to adjust to shocks because of significant short-run fixities in shipping services. Ocean grain freight rates are found to be responsive to fuel prices and new ship deliveries, but are not affected by demand shocks. Ship idling rates are found to be sensitive to fuel prices, grain shipments and freight rates. Significant adjustment lags are revealed.     

Non‐parametric Modelling of Spatial Price Relationships

We apply non‐parametric methods to a consideration of price transmission processes within US egg markets at the turn of the nineteenth century. Gordon (National Bureau of Economic Research Working Paper 7833, 2000) labelled this as an era of ‘Great Inventions’ which contributed to the subsequent years of significant productivity growth and noted that the development of mechanical refrigeration and transportation technologies played an important role in this growth. Our models present certain advantages relative to parametric models traditionally employed in price transmission analyses. We compare results derived from local polynomial modelling with those obtained using non‐linear threshold models. Both techniques suggest that US egg markets were interrelated at the turn of the nineteenth century. However, non‐parametric techniques often suggest a higher degree of price transmission than that implied by threshold models. Results also suggest that threshold models may have difficulties in adequately capturing price relationship dynamics, especially when these are of a highly nonlinear nature.     

Price Dynamics in International Wheat Markets

A vector autoregression model is used to evaluate dynamic relationships among international wheat prices. The effects of freight rates and exchange rates are also considered. Forecast error variance decompositions and impulse response functions are used to investigate price dynamics in six important international wheat markets. The results suggest significant dynamic relationships among prices in different international wheat markets and between the prices and exchange rates and transportation costs.
On s'est servi d'un modéle vectoriel à autorégression pour évaluer les relations dynamiques entre les cours du blé sur le marché international. On a également tenu compte de l'inci-dence des coûts de transport et du taux de change. La décomposition prévue de la variance de l'erreur et les fonctions de réaction ponctuelle ont également permis d'approfondir la dynamique des prix sur six grands marchés internationaux du blé. Les résultats suggérent des relations dynamiques notables entre les prix sur différents marchés internationaux du blé, de meme qu'entre les prix et le taux du change et les coûts de transport.     

Can Economists Forecast Exchange Rates? The Debate Re‐Visited: The Case of the USD/GBP Market

In the debate on forecasting exchange rates, critics claimed that traditional macroeconomic models could not outperform a random walk in post‐sample forecasts. Perceived deficiencies include inadequate allowance for simultaneity, and expectations hypotheses inconsistent with the structure of models employed. This paper re‐visits the debate, first to address critics' major concerns, and second because in the view of the present authors, the debate closed on an unduly pessimistic note. This paper develops a simultaneous, rational expectations model of the USD/GBP market, with functional relationships for hedgers, speculators and a spot rate equation. The model is estimated with data contemporaneous to the debate, including a period during which the US Commodity Futures Trading Commission did not collect data on traders' open positions. Using the results of post‐debate research on tests for stationarity with missing observations, the model, using only public information, outperforms a random walk in post‐sample forecasts of the spot rate. Recent microstructure models of the exchange rate based on order flow have re‐kindled the forecasting debate. The model developed here, however, is differentiated from these microstructure models, first because order flow utilises both public and private information, and second because the microstructure models do not directly address critics' concerns.