nep-cfn New Economics Papers
on Corporate Finance
Issue of 2005‒03‒20
five papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Volatility Forecasting By Torben G. Andersen; Tim Bollerslev; Peter F. Chirstoffersen; Francis X. Diebold
  2. Financial Markets and the Real Economy By John Cochrane
  3. Volatile Interest Rates, Volatile Crime Rates: A new argument for interest-rate smoothing By Garett Jones; Ali M. Kutan
  4. Are Asset Price Guarantees Useful for Perventing Sudden Stops?: A Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff By Ceyhun Bora Durdu; Enrique G. Mendoza
  5. Should the Government be in the Banking Business? The Role of State-Owned and Development Banks By Ugo Panizza; Eduardo Levy-Yeyati; Alejandro Micco

  1. By: Torben G. Andersen; Tim Bollerslev; Peter F. Chirstoffersen; Francis X. Diebold
    Abstract: Volatility has been one of the most active and successful areas of research in time series econometrics and economic forecasting in recent decades. This chapter provides a selective survey of the most important theoretical developments and empirical insights to emerge from this burgeoning literature, with a distinct focus on forecasting applications. Volatility is inherently latent, and Section 1 begins with a brief intuitive account of various key volatility concepts. Section 2 then discusses a series of different economic situations in which volatility plays a crucial role, ranging from the use of volatility forecasts in portfolio allocation to density forecasting in risk management. Sections 3, 4 and 5 present a variety of alternative procedures for univariate volatility modeling and forecasting based on the GARCH, stochastic volatility and realized volatility paradigms, respectively. Section 6 extends the discussion to the multivariate problem of forecasting conditional covariances and correlations, and Section 7 discusses volatility forecast evaluation methods in both univariate and multivariate cases. Section 8 concludes briefly.
    JEL: C1 G1
    Date: 2005–03
  2. By: John Cochrane
    Abstract: I survey work on the intersection between macroeconomics and finance. The challenge is to find the right measure of marginal utility of wealth, or "bad times" so that we can understand average return premia distilled in finance "factors" as compensation for assets' tendency to pay off badly in "bad times." I survey the equity premium, consumption-based models, general equilibrium models, and labor income/idiosyncratic risk approaches to this question.
    JEL: G1 E3
    Date: 2005–03
  3. By: Garett Jones; Ali M. Kutan
    Abstract: Good monetary policy requires estimates of all of its effects: monetary policy impacts traditional economic variables such as output, unemployment rates, and inflation. But does monetary policy influence crime rates? By extending the vector autoregression literature, we derive estimates of the dynamic effect of higher interest rates on crime rates. Higher interest rates have socially and statistically significant positive effects on rates of theft and knife robberies, while effects on rates of burglary and assault are smaller and statistically insignificant. Higher interest rates have no effect on homicide rates. We conclude that monetary policy influences the rate of economically-motivated crimes.
    Keywords: crime, monetary policy, vector autoregressive models (VARs)
    JEL: E5 C3
    Date: 2004–05–01
  4. By: Ceyhun Bora Durdu; Enrique G. Mendoza
    Abstract: The globalization hazard hypothesis maintains that the current account reversals and asset price collapses observed during 'Sudden Stops' are caused by global capital market frictions. A policy implication of this view is that Sudden Stops can be prevented by offering global investors price guarantees on emerging markets assets. These guarantees, however, introduce a moral hazard incentive for global investors, thus creating a tradeoff by which price guarantees weaken globalization hazard but strengthen international moral hazard. This paper studies the quantitative implications of this tradeoff using a dynamic stochastic equilibrium asset-pricing model. Without guarantees, distortions induced by margin calls and trading costs cause Sudden Stops driven by Fisher's debt-deflation mechanism. Price guarantees prevent this deflation by introducing a distortion that props up foreign demand for assets. Non-state-contingent guarantees contain Sudden Stops but they are executed often and induce persistent asset overvaluation. Guarantees offered only in high-debt states are executed rarely and prevent Sudden Stops without persistent asset overvaluation. If the elasticity of foreign asset demand is low, price guarantees can still contain Sudden Stops but domestic agents obtain smaller welfare gains at Sudden Stop states and suffer welfare losses on average in the stochastic steady state.
    JEL: F41 F32 E44 D52
    Date: 2005–03
  5. By: Ugo Panizza (Research Department, Inter-American Development Bank); Eduardo Levy-Yeyati (Universidad Torcuato Di Tella); Alejandro Micco (Research Department, Inter-American Development Bank)
    Abstract: Missing abstract.
    Date: 2004–03

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