Foodgrain price and trade policy in the Dominican Republic

As in many developing countries, the Dominican Republic has both an overvalued official foreign exchange rate and a policy of heavy government intervention in foodgrain markets. The Institute of Price Stabilization (INESPRE) controls the marketing, pricing and imports of the staple foodgrain, rice. INESPRE's operations and the overvalued currency produced an undervaluation of domestic rice production and an upward distortion of foodgrain imports. Additionally, the increasingly unfavourable rice-fertilizer price ratio has undoubtedly suppressed yields. As part of a set of austerity measures, the newly elected President banned rice imports. Dominican foodgrain policy may be at an important crossroads and a policy assessment is very timely.     

Optimal expectations and the extreme information assumptions of ‘rational expectations’ macromodels

‘One might reply that the rationality of a person's choice does not depend upon how much he knows, but only upon how well he reasons from whatever information he has, however incomplete. Our decision is perfectly rational provided that we face up to our circumstances and do the best we can.’ (John Rawls, A Theory of Justice)     

Differences in white-non-white returns to schooling: Theory and policy

Summary and conclusions In this paper, we reviewed and evaluated the empirical literature on differences in white-non-white returns to schooling during the pre- and post-Civil Rights Act of 1964 periods. The most striking results, using the 1960 census data, are that returns to education for Blacks are low. Equally interesting are the results using 1967 Survey of Economic Opportunity data; these show that Blacks have gained considerably relative to whites in returns to education. A logical explanation of these differences was the impact of the landmark Civil Rights Act of 1964.     

Credit risk dynamics in response to changes in the federal funds target: The implication for firm short-term debt

The recent credit crisis has raised a number of interesting questions regarding the role of the Federal Reserve Bank and the effectiveness of its expected and unexpected interventions in financial markets, especially during the crisis, given its mandate. This paper reviews and evaluates the impact of expected and unexpected changes in the federal funds rate target on credit risk premia. The paper's main innovation is the use of an ACH-VAR (autoregressive conditional hazard VAR) model to generate the Fed's expected and unexpected monetary policy shocks which are then used to determine the effects of a Federal Reserve policy change on counterparty credit risk and more importantly short-term firm debt financing. The findings answer a longstanding question sought by researchers on the effect of policy makers' announcements on firm debt financing. The results clearly show that the Federal Reserve influences short-term debt financing through the credit channel for both expansionary and contractionary monetary policies. In particular, we find that the growth in counterparty risk appears less responsive to anticipated responses in the Fed funds rate that fail to materialize than to an unanticipated increase in the federal funds rate. Finally, we also document that the results appear to validate the Feds interventions in financial markets to stem counterparty risk and to make liquidity more readily available to firms.