|
on Central and Western Asia |
| By: | Manuel Agosin; Juan D. Díaz |
| Abstract: | This paper attempts to explain real effective exchange rate (REER) volatility in the world economy and particularly in emerging economies. Our first finding is that REER volatility is significantly higher in emerging and other developing countries than it is in advanced economies. The second, and perhaps the most important contribution of the paper, is that the variable that explains a significant percentage of the variability of REER volatility is the correlation between gross capital inflows (increases in liabilities with the rest of the world) and the return of gross capital outflows (decreases in assets held by domestic agents in the rest of the world). This correlation (with increases both in foreign liabilities and declines in assets held abroad expressed as positive magnitudes) is much higher in advanced economies – where, in fact, it approaches unity – than in emerging and other developing economies. The correlation between gross capital outflows and gross capital inflows is negatively and significantly associated with REER volatility. This result is robust to three types of estimation procedures: panel regressions of advanced and emerging economies; a dynamic panel data model that considers the persistence of REER volatility over time; and a logistic regression to model the propensity of having high REER volatility. All three procedures use a variety of control variables such as the exchange rate regime, the inflation rate, the real interest rate, and the volatility in the terms of trade. The major policy conclusion is that, regardless of their exchange rate regime, emerging economies that wish to open their financial account and do not have large institutional investors with assets abroad would do well to maintain sufficient cushions of foreign exchange reservesin order to counteract the negative effects of sudden capital flight. Another interesting finding of the paper is that countries adopting a floating exchange rate regime experience larger REER volatility that those who adhere to other regimes. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp507&r= |
| By: | Jiawen Luo (School of Business Administration, South China University of Technology, Guangzhou, China); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa); Qiang Ji (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China) |
| Abstract: | This paper contributes to the literature on forecasting the realized volatility of oil and gold by (i) utilizing the Infinite Hidden Markov (IHM) switching model within the Heterogeneous Autoregressive (HAR) framework to accommodate structural breaks in the data and (ii) incorporating, for the first time in the literature, various sentiment indicators that proxy for the speculative and hedging tendencies of investors in these markets as predictors in the forecasting models. We show that accounting for structural breaks and incorporating sentiment-related indicators in the forecasting model does not only improve the out-of-sample forecasting performance of volatility models but also has significant economic implications, offering improved risk-adjusted returns for investors, particularly for short-term and mid-term forecasts. We also find evidence of significant cross-market information spilling over across the oil, gold, and stock markets that also contributes to the predictability of short-term market fluctuations due to sentiment-related factors. The results highlight the predictive role of investor sentiment-related factors in improving the forecast accuracy of volatility dynamics in commodities with the potential to also yield economic gains for investors in these markets. |
| Keywords: | Crude oil, realized volatility forecast, Infinite Hidden Markov model, structural break, speculation |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202130&r=all |
| By: | Prema-chandra Athukorala |
| Abstract: | During the post-World War 11 era, the process of economic transformation in Asia has been more rapid and extensive than in any other region in the world. With the Asia-wide embrace of market-oriented policy reforms and following the meteoric rise of China and India’s awakening from economic slumber, the twenty-first century has come to be labelled the ‘Asian Century’. The purpose of this paper is to introduce the nonspecialized reader to a selection of published papers that provides a comprehensive picture of economic policymaking and performance of these countries. The compilation of the collection was motivated by both the economic significance of the region in the global economy and the pivotal role played by Asia-focused research in the enrichment of the subject area of development economics. The papers have been carefully selected to help the reader to understand political and economic underpinnings of the Asian economic dynamism in general and notable differences in economic progress among the Asian countries. |
| Keywords: | Asian century, economic development, structural chnage |
| JEL: | O10 O40 O53 F02 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pas:papers:2021-07&r=all |
| By: | Kanbur, Ravi |
| Abstract: | This paper considers and assesses the concept of social externalities through human interdependence, in relation to the economic analysis of externalities in the tradition of Pigou and Arrow, including the analysis of the commons. It argues that there are limits to economic analysis. Our proposal is to enlarge the perspective and start thinking about a broader framework in which any pattern of influence of an agent or a group of agents over a third party, which is not mediated by any economic, social, or psychological mechanism guaranteeing the alignment of the marginal net private benefit with marginal net social benefit, can be attached the “externality” label and be scrutinized for the likely negative consequences that result from the divergence. These consequences may be significant given the many interactions between the social and economic realms, and the scope for spillovers and feedback loops to emerge. The paper also establishes a tentative and probably incomplete list of possible internalizing mechanisms for externalities under this broader framework, which includes: pricing and monetary incentives; altruism and solidarity; moral norms; reciprocity and mutual monitoring; centralized cooperative decision-making; and merger. There are clear reasons why the pricing mechanism is not appropriate in some cases. A more difficult question to answer is what factors determine which of the mechanisms is the appropriate one to rely on in a given sphere of relations and activities. The object of the paper is to encourage research and contributions from all the relevant disciplines of social sciences on the pervasive human interdependence that the notion of social externalities tries to capture. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2020–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cuaepw:309988&r= |
| By: | Claude Diebolt; Michael Haupert |
| Abstract: | Cliometrics is the application of economic theory and quantitative methods to the study of economic history. The methodology rose to favor in economics departments in the 1960s. It grew to dominate the discipline over the next two decades, culminating in the awarding of the 1993 Nobel Prize in economics to two of its pioneers, Robert Fogel and Douglass North. Cliometrics has always had its share of critics, and some have blamed it for the diminished role that economic history had in economics programs in the 21st century. |
| Keywords: | Cliometrics, economic history, new economic history, multidisciplinary, methodology, quantitative. |
| JEL: | A12 N00 N01 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-13&r= |
| By: | Louis Daumas (CIRED - Ecole des Ponts ParisTech) |
| Abstract: | The transition to a low-carbon economy will entail sweeping transformations of energy and economic systems. To such an extent that a growing literature has been worrying about the effect of such strain on the stability of financial system. This "financial transition risk" literature has highlighted that the conjunction of climate policy, technological change and changing consumption patterns may propagate to financial markets. If too brutal or unexpected, such dynamics may result in a "Climate-Minsky" moment of systemic implications. Yet, recent historical developments have shown that financial markets can prove resilient to shocks onto transition-exposed industries such as fossil fuel producers. Should we thus fear transition risks? To answer this question, I propose a critical review of the relevant applied modelling and econometric literatures. Three sub-fields will be examined: the asset stranding literature, the financial econometrics of the low-carbon transition and the direct assessment of transition risks through prospective models. I will expound some key results of these literatures, and critically assess underlying methodologies. |
| Keywords: | Review, Stranded Assets, Financial Stability, , |
| JEL: | G01 Q50 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:fae:wpaper:2021.05&r= |
| By: | Giuseppe Lucio Gaeta (Department of Human and Social Sciences, University of Naples L’Orientale, Naples, Italy); Stefano Ghinoi (Department of International Business and Economics, University of Greenwich, London, UK); Matteo Masotti (Department of Agricultural and Food Sciences, University of Bologna, Bologna, Italy); Francesco Silvestri (Department of Communication and Economics, University of Modena and Reggio Emilia, Reggio Emilia, Italy) |
| Abstract: | This paper investigates the evolution over time of the economics literature devoted to climate change. The analysis is based on 1974-2021 data extracted from the Scopus database and focuses on the publication outlets included in the first quartile of the “Economics, Econometric, and Finance†SCImago Ranking. We inspect the size and the impact of this economics literature, the geographical pattern of its production, and we provide a content analysis based on the keywords associated with the documents analysed. This study provides a detailed overview of the (still limited) interest that economists demonstrate for climate change. |
| Keywords: | climate change, economic research, bibliometric analysis |
| JEL: | Q50 Q54 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:srt:wpaper:0321&r=all |
| By: | Valentina Michelangeli (Bank of Italy); Eliana Viviano (Bank of Italy) |
| Abstract: | We are in a digital era. Internet banking has been increasingly offered by banks (through simple websites and easy-to-use mobile apps) and demanded by customers for managing their own finances without going to the physical branch. The availability of this new channel to interact with financial intermediaries can reduce households' cost of acquiring information and the time spent for financial transactions; therefore, it could also impact on households' choice to start investing in financial markets. As the decisions to adopt Internet banking and to entry into financial markets could be jointly determined, we derive a measure of bank supply of Internet-based services, which constitutes our instrumental variable and it is assigned to each household in the sample. We find that the adoption of Internet banking induces households to participate in financial markets and, in particular, to hold short term assets with a low risk/return profile. Over time the adoption of Internet banking also drives a higher understanding of basic standard financial concepts. |
| Keywords: | Internet banking, financial market participation, household finance |
| JEL: | D14 G11 O33 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1329_21&r= |
| By: | Lorenzo Bencivelli (Bank of Italy); Beniamino Pisicoli (University of Rome Tor Vergata) |
| Abstract: | We study how FDI affects the financial structure of targeted firms, by looking at a sample of foreign acquisitions that occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and the cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector. |
| Keywords: | FDIs, firms’ financial structure, non-bank financing, investment |
| JEL: | F15 F21 F23 F61 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1327_21&r= |
| By: | Cristina Arellano; Yan Bai; Gabriel Mihalache |
| Abstract: | The coronavirus pandemic has severely impacted emerging markets by generating a large death toll, deep recessions, and a wave of sovereign defaults. We study this compound health, economic, and debt crisis and its mitigation by integrating epidemiological dynamics into a sovereign default model. The epidemic leads to an urgent need for social distancing measures, a large drop in economic activity, and a protracted debt crisis. The presence of default risk restricts fiscal space and presents emerging markets with a trade-off between mitigation of the pandemic and fiscal distress. A quantitative analysis of our model accounts well for the dynamics of deaths, social distance measures, and sovereign spreads in Latin America. In the model, the welfare cost of the pandemic is higher because of financial market frictions: about a third of the cost comes from default risk, compared with a version of the model with perfect financial markets. We study debt relief programs through counterfactuals and find a compelling case for their implementation, as they deliver large social gains. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nys:sunysb:21-03&r=all |
| By: | Jesús Fernández-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti |
| Abstract: | This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms’ output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. |
| Keywords: | Market concentration, superstar firms, search complementarities, monopsony power in the labor market |
| Date: | 2021–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:932&r=all |
| By: | Fabien, Perez (ENSAE); Guillaume, Hollard (Ecole Polytechnique); Radu, Vranceanu (ESSEC Research Center, ESSEC Business School); Delphine, Dubart (ESSEC Research Center, ESSEC Business School) |
| Abstract: | This paper uses the test/retest data from the Holt and Laury (2002) experiment to provide estimates of the measurement error in this popular risk-aversion task. Maximum likelihood estimation suggests that the variance of the measurement error is approximately equal to the variance of the number of safe choices. Simulations confirm that the coefficient on the risk measure in univariate OLS regressions is approximately half of its true value. Unlike measurement error, the discrete transformation of continuous riskaversion is not a major issue. We discuss the merits of a number of different solutions: increasing the number of observations, IV and the ORIV method developed by Gillen et al. (2019). |
| Keywords: | ORIV; Experiments; Measurement error; Risk-aversion; Test/retest |
| JEL: | C18 C26 C91 D81 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-19011&r= |
| By: | Nina Boberg-Fazlić (University of Southern Denmark); Markus Lampe (WU Vienna University of Economics and Business, CEPR); Paul Sharp (University of Southern Denmark, CAGE, CEPR) |
| Abstract: | What determines emigration, and what impact does it have on the sending country? We consider the case of Denmark between 1868 and 1908, when a large number of people left for America. A significant fraction of these were tyender, a servant-like occupational group that was heavily discriminated against at the time, and who saw little opportunities for advancement at home. We exploit the fact that the Danish agrarian reforms between 1784 and 1807 had differential impacts on this class of landless laborers around the country, and use detailed parish-level data – police protocols of emigrants; population censuses and land registers – to show that areas with a more unequal distribution of land witnessed larger emigration. We then use income tax data, finding evidence of a positive income effect on the areas which saw most emigration. |
| Keywords: | Agrarian reform, Denmark, emigration, landless laborers |
| JEL: | J15 N33 O15 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:hes:wpaper:0213&r= |
| By: | Marc-Aurèle Divernois (EPFL; Swiss Finance Institute); Damir Filipović (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute) |
| Abstract: | 60 million tweets are scraped from Stocktwits.com over 10 years and classified into bullish, bearish or neutral classes to create firm-individual polarity time-series. Changes in polarity are associated with changes of the same sign in contemporaneous stock returns. On average, polarity is not able to predict next day stock returns but when we focus on specific events (defined as sudden peak of tweet activity), polarity has predictive powers on abnormal returns. Finally, we show that bad events act more as surprises than good events. |
| Keywords: | Investor sentiment, Event study, Polarity, Social Media, Microblogging, Natural Language Processing, Crowd Wisdom |
| JEL: | G11 G14 C32 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2133&r= |
| By: | Oscar Claveria (AQR-IREA, University of Barcelona); Enric Monte (Polytechnic University of Catalunya); Salvador Torra (Riskcenter-IREA, University of Barcelona) |
| Abstract: | We apply the two-step machine-learning method proposed by Claveria et al. (2021) to generate country-specific sentiment indicators that provide estimates of year-on-year GDP growth rates. In the first step, by means of genetic programming, business and consumer expectations are evolved to derive sentiment indicators for 19 European economies. In the second step, the sentiment indicators are iteratively re-computed and combined each period to forecast yearly growth rates. To assess the performance of the proposed approach, we have designed two out-of-sample experiments: a nowcasting exercise in which we recursively generate estimates of GDP at the end of each quarter using the latest survey data available, and an iterative forecasting exercise for different forecast horizons We found that forecasts generated with the sentiment indicators outperform those obtained with time series models. These results show the potential of the methodology as a predictive tool. |
| Keywords: | Forecasting, Economic growth, Business and consumer expectations, Symbolic regression, Evolutionary algorithms, Genetic programming. JEL classification: C51, C55, C63, C83, C93 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:aqr:wpaper:202101&r= |
| By: | Alyssa G. Anderson; Wenxin Du; Bernd Schlusche |
| Abstract: | We show that the role of unsecured, short-term wholesale funding for global banks has changed significantly in the post-financial-crisis regulatory environment. Global banks mainly use such funding to finance liquid, near risk-free arbitrage positions—in particular, the interest on excess reserves arbitrage and the covered interest rate parity arbitrage. In this environment, we examine the response of global banks to a large negative wholesale funding shock as a result of the U.S. money market mutual fund reform implemented in 2016. In contrast to past episodes of wholesale funding dry-ups, we find that the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision. |
| JEL: | E4 F3 G2 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28658&r=all |
| By: | Luis Felipe Céspedes; Roberto Chang; Andrés Velasco |
| Abstract: | We build a minimalist framework to analyze the macroeconomics of a pandemic, with two essential components. The first is productivity-related: if the virus forces firms to shed labor beyond a certain threshold, productivity suffers. The second component is a credit market imperfection: because lenders cannot be sure a borrower will repay, they only lend against collateral. Expected productivity determines collateral value; in turn, collateral value can limit borrowing and productivity. As a result, adverse shocks have large magnification effects, in an unemployment and asset price deflation doom loop. There may be multiple equilibria, so that pessimistic expectations can push the economy to a bad equilibrium with limited borrowing and low employment and productivity. The model helps identify policies to fight the effects of the pandemic. Traditional expansionary fiscal policy has no beneficial effects, while cutting interest rates has a limited effect if the initial real interest rate is low. By contrast, several unconventional policies, including wage subsidies, helicopter drops of liquid assets, equity injections, and loan guarantees, can keep the economy in a full-employment, high-productivity equilibrium. Such policies can be fiscally expensive, so their implementation is feasible only with ample fiscal space or emergency financing from abroad. We provide macroeconomic evidence consistent with the mechanisms in our model. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp504&r= |
| By: | Hoshino, Satoshi; Ida, Daisuke |
| Abstract: | This paper reevaluates the role of asset price stabilization in Japan during the 1980s through a Bayesian estimation of the dynamic stochastic general equilibrium model. Our results show the presence of the wealth channel from increased stock prices in Japan. In addition, we argue the possibility that the Bank of Japan (BOJ) may have conducted its monetary policy by targeting the stock price stability in addition to inflation and the output gap. The BOJ's response to stock price movements as a matter of policy, however, is subject to considerable uncertainty. Our results indicate that while the BOJ may have reacted to stock prices deviated from their fundamental values, it could not prevent a stock price bubble simply by implementing a contractionary monetary policy shock. Therefore, we conclude that the BOJ's monetary policy stance aimed at stabilizing stock price fluctuations and minimizing macroeconomic volatility, whereas endogenous volatility was caused by bad shocks. |
| Keywords: | Monetary policy; Bayesian estimation; DSGE model; Stock prices; Wealth effect; |
| JEL: | E52 E58 |
| Date: | 2021–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107301&r= |
| By: | Ajide, Kazeem; Raheem, Ibrahim; Alimi, Olorunfemi; Asongu, Simplice |
| Abstract: | This paper investigates the role of institutional infrastructures in the financial inclusion-growth nexus for a panel of twenty countries in sub-Sahara Africa (SSA).Employing the System Generalized Method of Moments (GMM), the following insightful outcomes are established. First, while there is an unrestricted positive impact of physical access to ATMs and ICT measures of financial inclusion on SSA’s growth but only the former was found significant. Second, the four institutional components via economic, political, institutional and general governances were also found to be growth-spurring. Lastly, countries with low levels of real per capita income are matching up with other countries with high levels of real income per capita. The empirical evidence of some negative net effects and insignificant marginal impacts are indication that imperfections in the financial markets are sometimes employed to the disadvantage of the poor. On the whole, we established positive effects on growth for the most part. The positive effects are evident because the governance indicators compliment financial inclusion in reducing pecuniary constraints hindering credit access and allocation to the poor that deteriorate growth. |
| Keywords: | Financial Inclusion; Economic Growth; Governance; System Generalized Method of Moments (GMM) |
| JEL: | G20 I10 O40 P37 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107099&r=all |
| By: | Lorenzo Pozzi (Erasmus University Rotterdam); Barbara Sadaba (Bank of Canada) |
| Abstract: | Macroeconomic disasters (wars, pandemics, depressions) are characterized by drastic shifts and increased volatility of the aggregate consumption to income ratio. By standard intertemporal budget constraint logic, this ratio is linked to expectations of future income and consumption growth rates. We investigate whether these expectations suffice to explain the shifts in the consumption-income ratio that occur during disaster periods or whether, on the other hand, consumers become more forward-looking and therefore give more weight to these expectations during disaster times. Our theoretical framework implies that the predictive ability of the current consumption-income ratio for future income and consumption growth rates is higher during disaster episodes. We check this both for past disasters and the current Covid-19 pandemic through the estimation of panel data regressions for industrial economies using historical annual data (1870 - 2015) and recent quarterly data (1995Q1 - 2020Q4). Our estimations confirm that macroeconomic disasters, contrary to ordinary recessions, make consumers more forward-looking. |
| Keywords: | consumption, saving, macroeconomic disasters, Covid-19, panel data |
| JEL: | C23 E21 |
| Date: | 2021–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210030&r= |
| By: | Scott R. Baker; Nicholas Bloom; Steven J. Davis; Marco C. Sammon |
| Abstract: | We examine next-day newspaper accounts of large daily jumps in 16 national stock markets to assess their proximate cause, clarity as to cause, and the geographic source of the market-moving news. Our sample of 6,200 market jumps yields several findings. First, policy news – mainly associated with monetary policy and government spending – triggers a greater share of upward than downward jumps in all countries. Second, the policy share of upward jumps is inversely related to stock market performance in the preceding three months. This pattern strengthens in the postwar period. Third, market volatility is much lower after jumps triggered by monetary policy news than after other jumps, unconditionally and conditional on past volatility and other controls. Fourth, greater clarity as to jump reason also foreshadows lower volatility. Clarity in this sense has trended upwards over the past century. Finally, and excluding U.S. jumps, leading newspapers attribute one-third of jumps in their own national stock markets to developments that originate in or relate to the United States. The U.S. role in this regard dwarfs that of Europe and China. |
| JEL: | E44 E58 E62 G12 G17 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28687&r= |
| By: | Eric Benhamou; David Saltiel; Serge Tabachnik; Sui Kai Wong; Fran\c{c}ois Chareyron |
| Abstract: | Model-Free Reinforcement Learning has achieved meaningful results in stable environments but, to this day, it remains problematic in regime changing environments like financial markets. In contrast, model-based RL is able to capture some fundamental and dynamical concepts of the environment but suffer from cognitive bias. In this work, we propose to combine the best of the two techniques by selecting various model-based approaches thanks to Model-Free Deep Reinforcement Learning. Using not only past performance and volatility, we include additional contextual information such as macro and risk appetite signals to account for implicit regime changes. We also adapt traditional RL methods to real-life situations by considering only past data for the training sets. Hence, we cannot use future information in our training data set as implied by K-fold cross validation. Building on traditional statistical methods, we use the traditional "walk-forward analysis", which is defined by successive training and testing based on expanding periods, to assert the robustness of the resulting agent. Finally, we present the concept of statistical difference's significance based on a two-tailed T-test, to highlight the ways in which our models differ from more traditional ones. Our experimental results show that our approach outperforms traditional financial baseline portfolio models such as the Markowitz model in almost all evaluation metrics commonly used in financial mathematics, namely net performance, Sharpe and Sortino ratios, maximum drawdown, maximum drawdown over volatility. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.10483&r= |
| By: | Dzung Bui; Lena Dräger; Bernd Hayo; Giang Nghiem |
| Abstract: | This paper investigates the direct and indirect effects of others’ beliefs on respondents’ own beliefs and consumer sentiment. Conducting consumer surveys with randomized control trials (RCTs) in Thailand and Vietnam during the COVID-19 pandemic, we implement two information treatments. Both treatments contain cross-country information about others’ beliefs about the appropriateness of the government’s or the general public’s reaction to the pandemic. The first treatment is asymmetric across our sample countries, as it shows opposite appropriateness ratings of the governments’ reaction in Vietnam and Thailand, whereas the second treatment is rather symmetric. We find that the information treatments affect consumer sentiment only in Vietnam, where the sign of the effect suggests that the treatments are viewed as positive news. Moreover, consumer sentiment in Vietnam is strongly affected by both treatments when the information goes against respondents’ prior beliefs. |
| Keywords: | consumer sentiment, Covid-19, randomized control trial (RCT), survey experiment, second-order beliefs, belief updating, government trust, macroeconomic expectations, Thailand, Vietnam |
| JEL: | E21 E37 E71 D84 D83 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9010&r= |
| By: | Gikas Hardouvelis; Georgios Karalas; Dimitri Vayanos |
| Abstract: | We study theoretically and empirically the relationship between investor beliefs, ownership dispersion and stock returns. We find that high dispersion, measured by high breadth or low Herfindahl index, forecasts returns positively for large stocks, as in Chen, Hong and Stein (2002), but negatively for small stocks. We explain that relationship in a difference-of-opinion model in which stocks differ in the size of investor disagreements and the extent of belief polarization. These differences are characterized by range and kurtosis, respectively. Proxying investor beliefs by analyst forecasts, we find that range and kurtosis affect ownership dispersion in the way that our model predicts. |
| JEL: | G10 G11 G12 G23 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28697&r= |
| By: | Ronayne, David (European School of Management and Technology (ESMT)); Sgroi, Daniel (University of Warwick); Tuckwell, Anthony (University of Warwick) |
| Abstract: | We provide experimental evidence of behavior consistent with the sunk cost effect. Subjects who earned a lottery via a real-effort task were given an opportunity to switch to a dominant lottery; 23% chose to stick with their dominated lottery. The endowment effect accounts for roughly only one third of the effect. Subjects' capacity for cognitive reflection is a significant determinant of sunk cost behavior. We also find stocks of knowledge or experience (crystallized intelligence) predict sunk cost behavior, rather than algorithmic thinking (fluid intelligence) or the personality trait of openness. We construct and validate a scale, the "SCE-8", which encompasses many resources individuals can spend, and offers researchers an efficient way to measure susceptibility to the sunk cost effect. |
| Keywords: | sunk cost effect, sunk cost fallacy, endowment effect, cognitive ability, fluid intelligence, crystallized intelligence, reflective thinking, randomized controlled trial, online experiment, online survey, psychological scales, scale validation, Raven’s progressive matrices, international cognitive ability resource, cognitive reflection test, openness |
| JEL: | D91 C83 C90 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14257&r=all |
| By: | Fan, Ying (Hong Kong Polytechnic University); Leung, Charles Ka Yui (City University of Hong Kong); Yang, Zan (Tsinghua University) |
| Abstract: | This paper studies whether (and how) corporate decisions are affected by internal factors (such as the financial conditions of own company) and external factors (such as the actions of local competitors) in an imperfectly competitive environment. We study the listed real estate developers in Beijing as a case study. Our hand-collected dataset includes transaction-level information booked indicators (such as profitability, liability, and liquidity) and un-booked financial indicators (political connections). Our multi-step empirical model shows that both the firm's financial conditions and her competitors' counterparts are essential but play different roles in the output design, pricing, and the time-on-the-market (TOM). Internal versus external factors' relative importance relates to the degrees of market concentration in a nonlinear manner. Local market leaders' existence alters the small firms' strategy and leads to higher selling prices and slower selling pace in the local market. Our findings survive various robust checks. |
| Keywords: | corporate financial status, output market decision, internal and external driven, real estate developers, housing supply |
| JEL: | G11 R30 L10 |
| Date: | 2021–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_007&r= |
| By: | Salm, Martin (Tilburg University, School of Economics and Management); Siflinger, Bettina (Tilburg University, School of Economics and Management); Xie, Mingjia (Tilburg University, School of Economics and Management) |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:e28efa7f-8219-437c-a26d-2d66384f90ee&r= |
| By: | Denis Shibitov (Bank of Russia, Russian Federation); Mariam Mamedli (Bank of Russia, Russian Federation) |
| Abstract: | We show, how the forecasting performance of models varies, when certain inaccuracies in the pseudo real-time experiment take place. We consider the case of Russian CPI forecasting and estimate several models on not seasonally adjusted data vintages. Particular attention is paid to the availability of the variables at the moment of forecast: we take into account the release timing of the series and the corresponding release delays, in order to reconstruct the forecasting in real-time. In the series of experiments, we quantify how each of these issues affect the out-of-sample error. We illustrate, that the neglect of the release timing generally lowers the errors. The same is true for the use of seasonally adjusted data. The impact of the data vintages depends on the model and forecasting period. The overall effect of all three inaccuracies varies from 8% to 17% depending on the forecasting horizon. This means, that the actual forecasting error can be significantly underestimated, when inaccurate pseudo real-time experiment is run. We underline the need to take these aspects into account, when the real-time forecasting is considered. |
| Keywords: | inflation, pseudo real-time forecasting, data vintages, machine learning, neural networks. |
| JEL: | C14 C45 C51 C53 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps70&r= |
| By: | António Afonso; João Tovar Jalles; Ana Venâncio |
| Abstract: | We link governments’ spending efficiency scores, to sovereign debt assessments made by financial markets´, more specifically by three rating agencies (Standard & Poors, Moody´s and Fitch). Public efficiency scores are computed via data envelopment analysis. Then, we rely notably on ordered response models to estimate the response of sovereign ratings to changes in efficiency scores. Covering 34 OECD countries over the period 2007-2018, we find that increased public spending efficiency is rewarded by financial markets via higher sovereign debt ratings. In addition, higher inflation and government indebtedness lead to sovereign rating downgrades, while higher foreign reserves contribute to rating upgrades. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econwp:_62&r= |
| By: | Anna Ispierto Maté, Irma Martínez García, Gloria Ruiz Suárez |
| Abstract: | This paper is based on the results deriving from the Survey of Financial Competences (ECF) in an attempt to contribute to the improvement of financial education policy designs, and it pursues several objectives: (i) to quantify the financial knowledge of individuals, (ii) to relate this knowledge to available socio-economic characteristics, and (iii) to analyse the effect of financial education on savings and investment decision-making for a broad set of financial assets. The results reveal that financial education plays a particularly important role in the decision to acquire financial assets such as fixed income and equity securities and investment funds. Financial education determines investment decisions in which the valuation of return, risk and investment term predominate and not the decisions of saving or acquisition of assets strongly perceived as hedging products. |
| Keywords: | Financial Education, Investment, Saving. |
| JEL: | A20 G21 G23 I21 I22 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:cnv:wpaper:dt_75en&r= |
| By: | Thomas Nitschka; Shajivan Satkurunathan |
| Abstract: | This paper assesses whether the global fall in inflation expectations together with increased fear of recession, the economic mechanism that drives asset prices in a model with consumption habits, help to explain the downward trajectory in nominal government bond yields and the stock price dynamics of six major economies from 1988 to 2019. We calibrate the habit model for each country separately. For most countries, focusing the calibrations on matching average ten-year bond yields allows one to generate artificial time series of bond yields and price-consumption ratios that follow the long-run time series patterns of their counterparts in the data. |
| Keywords: | Consumption habit, return, risk premium, yields |
| JEL: | G12 G15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2021-08&r=all |
| By: | OECD |
| Abstract: | The rapid pace of technological advance and associated potential for the use of data have not only changed the way people live but also the way people work. This digital disruption hits all sectors, including the public sector, and this working paper emphasises pathways for developing a public sector workforce with the necessary skills to achieve successful digital transformation. It presents the OECD Framework for Digital Talent and Skills in the Public Sector, which highlights the need to create the right working environment, secure the right skills, and evolve the right workforce to support a progression from e-government to digital government. |
| Date: | 2021–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:govaaa:45-en&r= |
| By: | Claude Diebolt (University of Strasbourg, Strasbourg, France) |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:afc:wpaper:05-21&r= |
| By: | Lucas Marc Fuhrer; Nils Herger |
| Abstract: | This paper empirically examines the effect of population growth on long-term real interest rates. Although this effect is well founded in macroeconomic theory, the corresponding empirical results have been rather tenuous and surprisingly unstable. As the demographic interest rate impact is theoretically based on intergenerational relationships, we not only contemplate gross population growth rates but also distinguish between demographic growth resulting from a birth surplus and net migration. Within a panel covering 12 countries and the years since 1820, our results suggest that there is a positive, statistically significant, and stable effect from the birth surplus on real interest rates. Conversely, the corresponding effect of net migration seems to be much more volatile. Hence, our results suggest that it is mainly population growth occurring through a birth surplus that affects the equilibrium real interest rate. |
| Keywords: | Demographics, population growth, real interest rate |
| JEL: | E43 E52 J11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2021-07&r=all |
| By: | Martin, Ian; Wagner, Christian |
| Abstract: | We derive a formula for the expected return on a stock in terms of the risk-neutral variance of the market and the stock's excess risk-neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged. |
| Keywords: | Starting Grant 639744 |
| JEL: | F3 G3 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:90158&r= |
| By: | Honkapohja, Seppo; McClung, Nigel |
| Abstract: | This paper considers the performance of average inflation targeting (AIT) policy in a New Keynesian model with adaptive learning agents. Our analysis raises concerns regarding robustness of AIT when agents have imperfect knowledge. In particular, the target steady state can be locally unstable under learning if details about the policy are not publicly available. Near the low steady state with interest rates at the zero lower bound, AIT does not necessarily outperform a standard inflation targeting policy. Policymakers can improve outcomes under AIT by (i) targeting a discounted average of inflation, or (ii) communicating the data window for the target. |
| JEL: | E31 E52 E58 |
| Date: | 2021–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2021_006&r= |
| By: | Jan Rosenzweig |
| Abstract: | Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to the non-Gaussianity of portfolio returns. \\ In order to look at optimal portfolios for arbitrary risk penalty functions, we construct portfolio shapes where the penalty is proportional to a moment of the returns of arbitrary order $p>2$. \\ The resulting component weight in the portfolio scales sub-linearly with its return, with the power-law $w \propto \mu^{1/(p-1)}$. This leads to significantly improved diversification when compared to Kelly portfolios, due to the dilution of the winner-takes-all effect.\\ In the limit of penalty order $p\rightarrow\infty$, we recover the simple trading heuristic whereby assets are allocated a fixed positive weight when their return exceeds the hurdle rate, and zero otherwise. Infinite order power-law portfolios thus fall into the class of perfectly diversified portfolios. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.07976&r= |
| By: | Plassard, Romain |
| Abstract: | Under which conditions did Robert Lucas’s microfoundational program come to dominate the field? My article sheds new light on this question. The focus is on why models incorporating rational expectations and market-clearing seduced macroeconomists. My case study is Robert Barro and Herschel Grossman. Drawing on Grossman’s archives, I define a framework for explaining their modeling choices. I show that methodological principles, tractability constraints, and research strategies explained why, at the end of the 1970s, Barro and Grossman preferred equilibrium over disequilibrium macroeconomics. |
| Keywords: | fluctuations, non-neutrality of money, fixed-price equilibrium models, contract theory, disequilibrium macroeconomics, equilibrium macroeconomics |
| JEL: | B21 B22 B23 E10 E32 |
| Date: | 2021–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107201&r= |
| By: | Siwei Chen; Yajing Chen; Chia-Ling Hsu |
| Abstract: | School choice is of great importance both in theory and practice. This paper studies the (student-optimal) top trading cycles mechanism (TTCM) in an axiomatic way. We introduce two new axioms: MBG (mutual best group)-quota-rationality and MBG-robust efficiency. While stability implies MBG-quota-rationality, MBG-robust efficiency is weaker than robust efficiency, which is stronger than the combination of efficiency and group strategy-proofness. The TTCM is characterized by MBG-quota-rationality and MBG-robust efficiency. Our results construct a new basis to compare the TTCM with the other school choice mechanisms, especially the student-optimal stable mechanism under Ergin but not Kesten-acyclic priority structures. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.09157&r= |
| By: | Takuji Arai |
| Abstract: | For the Barndorff-Nielsen and Shephard model, we present approximate expressions of call option prices based on the decomposition formula developed by Arai (2021). Besides, some numerical experiments are also implemented to make sure how effective our approximations are. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.10877&r= |
| By: | Benjamin Enke; Uri Gneezy; Brian Hall; David C. Martin; Vadim Nelidov; Theo Offerman; Jeroen van de Ven |
| Abstract: | Despite decades of research on heuristics and biases, empirical evidence on the effect of large incentives – as present in relevant economic decisions – on cognitive biases is scant. This paper tests the effect of incentives on four widely documented biases: base rate neglect, anchoring, failure of contingent thinking, and intuitive reasoning in the Cognitive Reflection Test. In laboratory experiments with 1,236 college students in Nairobi, we implement three incentive levels: no incentives, standard lab payments, and very high incentives that increase the stakes by a factor of 100 to more than a monthly income. We find that response times – a proxy for cognitive effort – increase by 40% with very high stakes. Performance, on the other hand, improves very mildly or not at all as incentives increase, with the largest improvements due to a reduced reliance on intuitions. In none of the tasks are very high stakes sufficient to de-bias participants, or come even close to doing so. |
| JEL: | D01 D03 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28650&r=all |
| By: | Paranhos, Livia (University of Warwick) |
| Abstract: | This paper applies neural network models to forecast inflation. The use of a particular recurrent neural network, the long-short term memory model, or LSTM, that summarizes macroeconomic information into common components is a major contribution of the paper. Results from an exercise with US data indicate that the estimated neural nets usually present better forecasting performance than standard benchmarks, especially at long horizons. The LSTM in particular is found to outperform the traditional feed-forward network at long horizons, suggesting an advantage of the recurrent model in capturing the long-term trend of inflation. This finding can be rationalized by the so called long memory of the LSTM that incorporates relatively old information in the forecast as long as accuracy is improved, while economizing in the number of estimated parameters. Interestingly, the neural nets containing macroeconomic information capture well the features of inflation during and after the Great Recession, possibly indicating a role for nonlinearities and macro information in this episode. The estimated common components used in the forecast seem able to capture the business cycle dynamics, as well as information on prices. |
| Keywords: | forecasting ; inflation ; neural networks ; deep learning ; LSTM model |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1344&r= |
| By: | Mingwen Liu; Junbang Huo; Yulin Wu; Jinge Wu |
| Abstract: | This paper intends to apply the Hidden Markov Model into stock market and and make predictions. Moreover, four different methods of improvement, which are GMM-HMM, XGB-HMM, GMM-HMM+LSTM and XGB-HMM+LSTM, will be discussed later with the results of experiment respectively. After that we will analyze the pros and cons of different models. And finally, one of the best will be used into stock market for timing strategy. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.09700&r= |
| By: | Marcel Ausloos; Valerio Ficcadenti; Gurjeet Dhesi; Muhammad Shakeel |
| Abstract: | The so-called Benford's laws are of frequent use in order to observe anomalies and regularities in data sets, in particular, in election results and financial statements. Yet, basic financial market indices have not been much studied, if studied at all, within such a perspective. This paper presents features in the distributions of S\&P500 daily closing values and the corresponding daily log returns over a long time interval, [03/01/1950 - 22/08/2014], amounting to 16265 data points. We address the frequencies of the first, second, and first two significant digits counts and explore the conformance to Benford's laws of these distributions at five different (equal size) levels of disaggregation. The log returns are studied for either positive or negative cases. The results for the S&P500 daily closing values are showing a huge lack of non-conformity, whatever the different levels of disaggregation. Some "first digits" and "first two digits" values are even missing. The causes of this non-conformity are discussed, pointing to the danger in taking Benford's laws for granted in huge databases, whence drawing "definite conclusions". The agreements with Benford's laws are much better for the log returns. Such a disparity in agreements finds an explanation in the data set itself: the inherent trend in the index. To further validate this, daily returns have been simulated calibrating the simulations with the observed data averages and tested against Benford's laws. One finds that not only the trend but also the standard deviation of the distributions are relevant parameters in concluding about conformity with Benford's laws. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.07962&r= |
| By: | Susanto Basu; Giacomo Candian; Ryan Chahrour; Rosen Valchev |
| Abstract: | We identify a shock that explains the bulk of fluctuations in equity risk premia, and show that the shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions induced by the shock are associated with reallocation away from full-time permanent positions, towards part-time and flexible contract workers. A real model with labor market frictions and fluctuations in risk appetite can explain all of these facts, both qualitatively and quantitatively. The size of risk-driven fluctuations depends on the relationship between the riskiness and productivity of different stores of value: if safe savings vehicles have relatively low marginal products, then a flight to safety will drive a larger aggregate contraction. |
| JEL: | E24 E32 G12 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28693&r= |
| By: | de Meza, David; Reito, Francesco; Reyniers, Diane |
| Abstract: | It is shown that uni-dimensional adverse selection may result in market expansion beyond the full-information level. Although bad types tend to drive out good, enough good types may remain to draw in excessive numbers of bad types. As a result, the welfare loss from adverse selection is potentially underestimated. Applications are made to insurance, credit and the used car market. |
| Keywords: | asymmetric information; adverse selection; welfare. |
| JEL: | D61 D81 D82 |
| Date: | 2021–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107084&r=all |
| By: | Ubilava, David; Atalay, Kadir |
| Abstract: | Commodity price shocks can exacerbate conflict in low income countries with weak institutions. In these countries, agriculture usually is a key source of employment and income. A unique feature of agricultural income is its seasonality, which manifests in harvest-time windfalls. Conflict, therefore, can be seasonal as well. We combine temporal variation in international cereal prices at monthly frequency with spatial variation in cereal crop production and harvest seasons at the one-degree grid cell level to investigate the effect of year–on–year growth in cereal prices on conflict across Africa. We find that in the cropland, conflict is more likely during the first three months after a harvest, when the expected value of spoils to be appropriated is highest. During this period, a one–standard–deviation increase in prices can result in a more than three–percent increase in conflict incidents. We also find that among potential perpetrators, political militias are the most likely culprits behind seasonal conflict in the cropland of Africa. This study offers an important nuance to the growing literature aimed at investigating the economic causes of conflict in fragile states with weak institutions. |
| Keywords: | Africa; Cereals; Conflict; Prices; Seasonality |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2021-03&r= |
| By: | Jaehyuk Choi; Minsuk Kwak; Chyng Wen Tee; Yumeng Wang |
| Abstract: | To cope with the negative oil futures price caused by the COVID-19 recession, global commodity futures exchanges switched the option model from Black-Scholes to Bachelier in April 2020. This study reviews the literature on Bachelier's pioneering option pricing model and summarizes the practical results on volatility conversion, risk management, stochastic volatility, and barrier options pricing to facilitate the model transition. In particular, using the displaced Black-Scholes model as a model family with the Black-Scholes and Bachelier models as special cases, we not only connect the two models but also present a continuous spectrum of model choices. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.08686&r= |
| By: | Victoria Gregory; Guido Menzio; David G. Wiczer |
| Abstract: | Based on patterns of employment transitions, we identify three different types of workers in the US labor market: α's β's and γ's. Workers of type α make up over half of all workers, are most likely to remain on the same job for more than 2 years and, when they become unemployed, typically find a new job within 1 quarter. Workers of type γ comprise less than one-fifth of workers, have a low probability of staying on the same job for more than 2 years and, when they become unemployed, face a high probability of remaining jobless for more than 1 year. Workers of type β are in between αs and γ's. The earnings losses caused by displacement are relatively small and transitory for α-workers, while they are large and persistent for γ-workers. During the Great Recession, excess unemployment for α-workers rose by little and was reabsorbed quickly; unemployment for γ-workers rose by 20 percentage points and was not reabsorbed 4 years after its peak. We use a search-theoretic model of the labor market to rationalize the different patterns of employment transitions across types. The model naturally explains both the variation in the consequences of job displacement across types, and the variation in the dynamics of unemployment during the Great Recession. Our view is that several puzzling micro and macro phenomena about the labor market are driven by the behavior of the small group of γ-workers. |
| JEL: | E24 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28663&r=all |
| By: | Milovanska-Farrington, Stefani (University of Tampa) |
| Abstract: | Nutritious eating habits contribute to a stronger immune system necessary for prevention and easier recovery from illnesses. A job loss, experienced by millions of Americans during the Covid-19 pandemic, is expected to negatively affect food security of families. This research explores the effect of a recent job loss during the Covid-19 crisis on food sufficiency. The findings suggest that a job loss in the family is associated with greater food insecurity, reduced likelihood that a family has a sufficient amount of food, and deteriorated child nutrition. There is also a differential effect between currently employed and unemployed job losers, with the latter group being more adversely affected. The negative effect is primarily driven by Hispanic and low-educated individuals. These results have policy implications in the context of identifying vulnerable groups that are most likely to benefit from programs designed to provide sufficient nutrition to the population. |
| Keywords: | food security, nutrition, job loss, COVID-19 |
| JEL: | J63 J60 I19 D12 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14273&r=all |
| By: | Asongu, Simplice; Nnanna, Joseph; Acha-Anyi, Paul |
| Abstract: | This research complements the extant literature by establishing inequality critical masses that should not be exceeded in order for financial access to promote gender parity inclusive education in Sub-Saharan Africa. The focus is on 42 countries in the sub-region and the data is for the period 2004-2014. The estimation approach is the Generalized Method of Moments. When remittances are involved in the conditioning information set, the Palma ratio should not exceed 6.000 in order for financial access to promote gender parity inclusive “primary and secondary education” and the Atkinson index should not exceed 0.695 in order for financial access to promote inclusive tertiary education. However, when the internet is involved in the conditioning information set, it is established that in order for financial access to promote inclusive primary and secondary education, the: (i) Gini coefficient should not exceed 0.571; (ii) Atkinson index should not be above 0.750 and (iii) Palma ratio should be maintained below 8.000. Irrespective of variable in the conditioning information set, what is apparent is that inequality decreases the incidence of financial access on inclusive education. Hence, a common policy measure is to reduce inequality in order to promote inclusive education using the financial access mechanism. Policy implications are discussed in the light of Sustainable Development Goals. |
| Keywords: | Africa; Finance; Gender; Inclusive development |
| JEL: | G20 I10 I32 O40 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107105&r=all |
| By: | Arash Nekoei; David Seim |
| Abstract: | We use a quasi-experimental design and Swedish administrative data to document that the average heir depletes her inheritance within a decade while the inheritances of wealthy heirs remain intact. These different depletion rates are not due to different consumption or labor supply responses but due to different rates of return on inherited wealth. Upon their receipt, inheritances reduce relative measures of wealth inequality, such as top shares or percentile ratios. Theoretically, this reduction in inequality could be due to either a com-pressed inheritance distribution or similar chances of having wealthy parents (high inter-generational mobility). Empirically, the first force is more significant in Sweden. Within a decade, however, the effect is reversed: inheritances increase wealth inequality since the different depletion rates widen the inequality in inherited wealth over time. This implies that inheritance taxation can reduce long-run wealth inequality only through the taxation of wealthy heirs. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9017&r= |
| By: | Acciari, Paolo; Alvaredo, Facundo; Morelli, Salvatore |
| Abstract: | Italy is one the countries with the highest wealth-to-income ratio in the developed world. Yet, despite the growing policy interest, knowledge about the size distribution of wealth is currently limited. In this paper we expand our windows of observation on the distribution of personal wealth using a novel source on the full record of inheritance tax files. The data cover up to 63% of the deceased population and are available between 1995 and 2016, a period of substantial economic turbulence and structural reform for the Italian economy. Our benchmark results rely on the distribution of the net wealth observed in the National Accounts balance sheets. Unlike available statistics estimated from household survey data, our results point to a strong rise in wealth concentration and inequality since the mid-1990s. Whereas the level of wealth concentration in Italy is in line with those of other European countries, its time trend appears more in line with the U.S. experience. Moreover, Italy stands out as one of the countries with the strongest decline in the wealth share of the bottom 50% of the adult population. We explore the role of household wealth portfolios, accumulation patterns during the life cycle, and inheritance flows, its concentration, and taxation patterns as main drivers of the trends observed. A range of alternative series of wealth concentration helps us better understand the role of adjustments and imputations and is based on a multi-series approach, i.e., comparing the pieces of information given by different and competing sources. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2021–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:2jznp&r= |
| By: | Philippe Andrade; Erwan Gautier; Eric Mengus |
| Abstract: | We provide survey evidence on how households’ inflation expectations matter for their spending highlighting a behavioral distortion compared to the New Keynesian setup. A large share of households expects prices to remain stable instead of increasing. Such a belief is linked to individual experience with non-durable goods frequently purchased. Households expecting stable prices consume less durable goods than those expecting positive inflation. In contrast, differences across households expecting positive inflation are associated with insignificant differences in durable consumption decisions. That distortion implies that managing aggregate demand through households’ inflation expectations is limited and can run out of ammunition. |
| Keywords: | behavioural macroeconomics, heterogeneous beliefs, expectation formation, households’ spending, inflation expectation channel, stabilization policies |
| JEL: | D12 D83 E21 E31 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9005&r= |
| By: | Markus Dertwinkel-Kalt; Holger Gerhardt; Gerhard Riener; Frederik Schwerter; Louis Strang |
| Abstract: | Many intertemporal trade-offs are unbalanced: while the advantages of options are concentrated in a few periods, the disadvantages are dispersed over numerous periods. We provide novel experimental evidence for “concentration bias”, the tendency to overweight advantages that are concentrated in time. Subjects commit to too much overtime work that is dispersed over multiple days in exchange for a bonus that is concentrated in time: concentration bias increases subjects’ willingness to work by 22.4% beyond what standard discounting models could account for. In additional conditions and a complementary experiment involving monetary payments, we study the mechanisms behind concentration bias and demonstrate the robustness of our findings. |
| Keywords: | attention, focusing, bounded rationality, intertemporal choice, future bias, present bias, framing |
| JEL: | D01 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9011&r= |
| By: | Chenwei Shi; Yiyang Wang |
| Abstract: | This paper approaches the problem of understanding collective agency from a logical and game-theoretical perspective. Instead of collective intentionality, our analysis highlights the role of Pareto optimality. To facilitate the analysis, we propose a logic of preference and functional dependence by extending the logic of functional dependence. In this logic, we can express Pareto optimality and thus reason about collective agency. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.09112&r= |
| By: | Berthine Nyunga Mpinda; Jules Sadefo Kamdem (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier); Salomey Osei; Jeremiah Fadugba |
| Abstract: | There is increasing interest in using Artificial Intelligence (AI) and machine learning techniques to enhance risk management from credit risk to operational risk. Moreover, recent applications of machine learning models in risk management have proved efficient. That notwithstanding, while using machine learning techniques can have considerable benefits, they also can introduce risk of their own, when the models are wrong. Therefore, machine learning models must be tested and validated before they can be used. The aim of this work is to explore some existing machine learning models for operational risk, by comparing their accuracies. Because a model should add value and reduce risk, particular attention is paid on how to evaluate it's performance, robustness and limitations. After using the existing machine learning and deep learning methods for operational risk, particularly on risk of fraud, we compared accuracies of these models based on the following metrics: accuracy, F1-Score, AUROC curve and precision. We equally used quantitative validation such as Back-testing and Stress-testing for performance analysis of the model on historical data, and the sensibility of the model for extreme but plausible scenarios like the Covid-19 period. Our results show that, Logistic regression out performs all deep learning models considered for fraud detection |
| Keywords: | Machine Learning,Model Risk,Credit Card Fraud,Decisions Support,Stress-Testing |
| Date: | 2021–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03191437&r= |
| By: | Pfeffer, Fabian T. (University of Michigan); Waitkus, Nora |
| Abstract: | Comparative research on income inequality has produced several coherent frameworks to study the institutional determinants of income stratification. In contrast, no such framework and much less empirical evidence exist to explain cross-national differences in wealth inequality. This situation is particularly lamentable as cross-national patterns of inequality in wealth diverge sharply from those in income. We seek to pave the way for new explanations of cross-national differences in wealth inequality by tracing them to the influence of different wealth components. Drawing on the literatures on financialization and housing, we argue that housing equity should be the central building block of the comparative analysis of wealth inequality. Using harmonized data on fifteen countries included in the Luxembourg Wealth Study (LWS), we first demonstrate a lack of association between national levels of income and wealth inequality and concentration. Using decomposition approaches, we then estimate the degree to which national levels of wealth inequality and concentration relate to cross-national differences in wealth portfolios and the distribution of specific asset components. Considering the role of housing equity, financial assets, non-housing real assets, and non-housing debt, we reveal that cross-national variation in wealth inequality and concentration is centrally determined by the distribution of housing equity. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2021–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:6msuf&r= |
| By: | Sophie Calder-Wang; Paul A. Gompers; Kevin Huang |
| Abstract: | We study the role of diversity and performance in the entrepreneurial teams. We exploit a unique dataset of MBA students who participated in a required course to propose and start a real micro-business that allows us to examine horizontal diversity (i.e., within the team) as well as vertical diversity (i.e., team to faculty advisor) and their effect on performance. The design of the course allows for identification of the causal implications of horizontal and vertical diversity. The course was run in multiple cohorts in otherwise identical formats except for the team formation mechanism used. In several cohorts, students were allowed to choose their teams from among students in their section (roughly 90 students). In other cohorts, students were randomly assigned to teams based upon a computer algorithm. In the cohorts that were allowed to choose, we find strong selection based upon shared attributes. Among the randomly-assigned teams, greater diversity along the intersection of gender and race/ethnicity significantly reduced performance. However, the negative effect of this diversity is alleviated in cohorts in which teams are endogenously formed. Finally, we find that teams with more female members perform substantially better when their faculty section leader was also female. Because the gender of the faculty section leader is exogenous to the gender make-up of the entrepreneurial team, the positive performance effects can be interpreted as causal. These findings suggest that diversity policies should take adequate consideration of the multiple dimensions of diversity. |
| JEL: | J1 J15 J16 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28684&r= |
| By: | Christian Kubitza (University of Bonn) |
| Abstract: | This paper proposes Spillover Persistence as a measure for financial fragility. The volatility paradox predicts that fragility builds up when volatility is low, which challenges existing measures. Spillover Persistence tackles this challenge by exploring a novel dimension of systemic risk: loss dynamics. I document that Spillover Persistence declines when fragility builds up, during the run-up phase of crises and asset price bubbles, and increases when systemic risk materializes. Variation in financial constraints connects Spillover Persistence to fragility. The results are consistent with the volatility paradox in recent macro-finance models, and highlight the usefulness of loss dynamics to disentangle fragility from amplification effects. |
| Keywords: | Systemic Risk, Fragility, Financial Crises, Asset Price Bubbles, Fire Sales |
| JEL: | E44 G01 G12 G20 G32 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:079&r= |
| By: | Vu, Khuong; Asongu, Simplice |
| Abstract: | This paper seeks to gain insights into whether developing countries benefit more from the backwardness advantage for economic growth in the Information Age. The paper examines this concern through three complementary approaches. First, it derives theoretical grounds from the existing economic models to support the hypothesis that the internet, inter alia, enables developing countries to reap greater growth gains from technology acquisition and catch-up. Second, the paper uses descriptive evidence to show that the growth landscape has indeed shifted decisively in favor of developing countries in the Internet Age in comparison to the pre-internet period. Third, using rigorous econometric techniques with data of 163 countries over a 20-year period, 1996-2016, the paper evidences that developing countries on average reap significantly greater growth gains from internet adoption in comparison to the average advanced country. The paper discusses policy implications from the paper’s findings. |
| Keywords: | backwardness advantage; developing countries; internet; technology catch-up; GMM |
| JEL: | C5 O40 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107103&r=all |
| By: | M. Hashem Pesaran; Ron P. Smith |
| Abstract: | The arbitrage pricing theory (APT) attributes differences in expected returns to exposure to systematic risk factors, which are typically assumed to be strong. In this paper we consider two aspects of the APT. Firstly we relate the factors in the statistical factor model to a theoretically consistent set of factors defined by their conditional covariation with the stochastic discount factor (mt) used to price securities within inter-temporal asset pricing models. We show that risk premia arise from non-zero correlation of observed factors with mt; and the pricing errors arise from the correlation of the errors in the statistical factor model with mt: Secondly we compare estimates of factor risk premia using portfolios with the ones obtained using individual securities, and show that the identification conditions in terms of the strength of the factor are the same and that, in general, no clear cut ranking of the small sample bias of the two estimators is possible. |
| Keywords: | arbitrage pricing theory, stochastic discount factor, portfolios, factor strength, identification of risk premia, two-pass regressions, Fama-MacBeth |
| JEL: | C38 G12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9001&r= |