An appropriate model for joint regional action in southern Africa after apartheid

Market‐based integration is not appropriate to the joint development of the southern African region; the region's political, technical and institutional immaturity requires instead loose, function‐based economic cooperation. This will also facilitate intraregional trade. Subregions in the meantime could progress to higher levels of integration: international experience has shown that successful integration is most likely when it takes place on the basis of ‘regions within regions’. Cooperative development of the subcontinent is likely to be best achieved through the ‘concentric circles’ approach to regional cooperation, in which a revised Southern African Customs Union‐Common Monetary Area forms the highly integrated core of a loose, function‐based cooperative arrangement covering the whole of southern Africa.     

Using proxies for the short rate: when are three months like an instant?

The dynamics of the unobservable short rate are frequently estimateddirectly using a proxy. We examine the biases resulting fromthis practice (the 'proxy problem'). Analytic results show thatthe proxy problem is not economically significant for single-factoraffine models. In the two-factor affine model of Longstaff andSchwartz (1992), the proxy problem is only economically significantfor pricing discount bonds with maturities of more than fiveyears. We also describe two different numerical procedures forassessing the magnitude of the proxy problem in a general interestrate model. When applied to a nonlinear single-factor model,they suggest that the proxy problem can be economically significant.     

Private information, trading volume, and stock-return variances

New evidence is provided on the determinants of stock-returnvariances. First, when the Tokyo Stock Exchange is open on Saturday,the weekend variance increases; weekly variance is unaffected,however, despite an increase in weekly volume. Second, the listingof U.S. stocks in Tokyo substantially increases the number oftrading hours, but Tokyo volume is negligible for these U.S.stocks and their 24-hour variance is unaffected. The overallresults are consistent with the predictions of private-information-basedrational trading models, but inconsistent with both the irrationaltrading noise and public-information hypotheses.     

A critique of size-related anomalies

This article argues that the size-related regularities in assetprices should not be regarded as anomalies. Indeed, the oppositeresult is demonstrated. Namely, a truly anomalous regularitywould be if an inverse relation between size and return wasnot observed. We show theoretically (1) that the size-relatedregularities should be observed in the economy and (2) why sizewill in general explain the part of the cross-section of expectedreturns left unexplained by an incorrectly specified asset pricingmodel. In light of these results we argue that size-relatedmeasures should be used in cross-sectional tests to detect modelmisspecifications.     

Alternative views of the money transmission mechanism: what difference do they make for monetary policy?

This paper examines how alternative views of the monetary transmissionmechanism affect the choice of a monetary policy rule. The mainfinding is that many different structural models indicate thatthe same simple monetary policy rule - one in which the centralbank's target short-term interest rate reacts to inflation andto real output - would perform well. Such rules work well evenin models where the monetary transmission mechanism has a relativelystrong exchange-rate channel. The models differ, however, intheir implications for more complex monetary rules.