nep-fmk New Economics Papers
on Financial Markets
Issue of 2006‒06‒24
fifty-five papers chosen by
Carolina Valiente
London South Bank University

  1. "CAN BASEL II ENHANCE FINANCIAL STABILITY?: A Pessimistic View" By L. Randall Wray
  2. Ownership Concentration and Competition in Banking Markets By Alexandra Lai; Raphael Solomon
  3. El costo del crédito en el Perú, revisión de la evolución reciente By Mario Mesía; Eduardo Costa; Oscar Graham; Robert Soto; Alejandro Rabanal
  4. Risk-Cost Frontier and Collateral Valuation in Securities Settlement Systems for Extreme Market Events By Alejandro García; Ramazan Gençay
  5. Benchmark Index of Risk Appetite By Miroslav Misina
  6. Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course? By Hans Genberg
  7. Are Household Portfolios Efficient? An Analysis Conditional on Housing By Loriana Pelizzon; Guglielmo Weber
  8. Financial Innovations and Macroeconomic Volatility By Urban Jermann; Vincenzo Quadrini
  9. Calendar Anomalies in an Emerging African Market: Evidence from the Ghana Stock Exchange. By Paul Alagidede; Theodore Panagiotidis
  10. "Asset Prices, Financial Fragility, and Central Banking" By Eric Tymoigne
  11. Collateralized Borrowing and Life-Cycle Portfolio Choice By Paul Willen; Felix Kubler
  12. MUSE: The Bank of Canada's New Projection Model of the U.S. Economy By Marc-André Gosselin; René Lalonde
  13. A Structural Error-Correction Model of Best Prices and Depths in the Foreign Exchange Limit Order Market By Ingrid Lo; Stephen G. Sapp
  14. Searching for a Metric for Financial Stability By Lea Zicchino; Dimitrios Tsomocos; Miguel Segoviano; Charles Goodhart; Oriol Aspachs
  15. Monetary Union, External Shocks and Economic Performance: A Latin American Perspective By Sebastian Edwards
  16. A Three-Factor Yield Curve Model: Non-Affine Structure, Systematic Risk Sources, and Generalized Duration By Francis X. Diebold; Lei Ji; Canlin Li
  17. Money and Credit Factors By Paul D. Gilbert; Erik Meijer
  18. Understanding Saving and Portfolio Choices with Predictable Changes in Assets Returns By GOLLIER, Christian
  19. On the Role of Stock Market for Real Economic Activity By Boriss Siliverstovs; Manh Ha Duong
  20. A quoi réagit le marchés des obligations privées? By Marie Brière; Aurélie Cohen
  21. The Open Economy Consequences of U.S. Monetary Policy By John Bluedorn; Christopher Bowdler
  22. "Why Central Banks (and Money) ÒRule the RoostÓ" By C. Sardoni
  23. Remittances, Financial Development, and Growth By Paola Giuliano; Marta Ruiz-Arranz
  24. Ireland’s Housing Boom: What has Driven it and Have Prices Overshot? By David Rae; Paul van den Noord
  25. Why Do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice By Christopher M. Meissner; Nienke Oomes
  26. The Mystique of Central Bank Speak By Petra Geraats
  27. A New Approach Based on Cumulants for Estimating Financial Regression Models with Errors in the Variables: the Fama and French Model Revisited By Alain Coen; Francois-Éric Racicot; Raymond Théoret
  28. On the political economy of financial reform By Yongfu Huang
  29. Wealth Accumulation and Growth in a Specific-Factors Model of Trade and Finance. By Petrucci, Alberto
  30. Does Flexibility Enhance Risk Tolerance? By GOLLIER, Christian
  31. Supply and Demand for Terrorism Insurance: Lessons from Germany By Thomann, Christian; Graf von der Schulenburg, J.-Matthias
  32. Towards New Empirical Versions of Financial and Accounting Models Corrected for Measurement Errors By Francois-Éric Racicot; Raymond Théoret; Alain Coen
  33. Public Debt and Social Expenditure: Friends or Foes? By Eduardo A. Lora; Mauricio Olivera
  34. "Twin Deficits and Sustainability" By L. Randall Wray
  35. "Can the Growth in the U.S. Current Account Deficit Be Sustained?: The Growing Burden of Servicing Foreign-Owned U.S. Debt" By Dimitri B. Papadimitriou; Edward Chilcote; Gennaro Zezza
  36. Personlized Retirement Advice And Managed Accounts: Who Uses Them And How Does Advice Affect Behavior In 401(k) Plans? By Julie Agnew
  37. Equity Valuation Under Stochastic Interest Rates By Marco Realdon
  38. Examining the Trade-Off between Settlement Delay and Intraday Liquidity in Canada's LVTS: A Simulation Approach By Neville Arjani
  39. Bubbles, Collateral and Monetary Equilibrium By Aloisio Pessoa de Araújo; Mario R. Páscoa; Juan Pablo Torres-Martínez
  40. Sterling implications of a US current account reversal By Morten Spange; Pawel Zabczyk
  41. La sensibilité de l'activité bancaire aux chocs macroéconomiques : une analyse en panel sur des données de banques luxembourgeoises By Abdelaziz Rouabah
  42. The State Of Private Pensions: Current 5500 Data By Marric Buessing; Mauricio Soto
  43. Chile´s Market Share in the EU Market: The Role of Price Competition in a Panel Analysis Setting By Felicitas Nowak-Lehmann D.; Dierk Herzer; Sebastian Vollmer; Inmaculada Martínez-Zarzoso
  44. "DEBT AND LENDING: A CRI DE COEUR" By Wynne Godley; Gennaro Zezza
  45. Structural Change in Covariance and Exchange Rate Pass-Through: The Case of Canada By Lynda Khalaf; Maral Kichian
  46. Recent U.S. Progress in Collecting Data on Derivatives By Ralph Kozlow
  47. Proposal for a Common Currency among Rich Democracies (Paper 1); One World Money, Then and Now (Paper 2) By Richard N. Cooper (Paper 1); Michael Bordo (Paper 2); Harold James (Paper 2)
  48. Europe’s Hard Fix: The Euro Area By Otmar Issing
  49. The Productivity Effects of Stock Option Schemes: Evidence frm Finnish Panel By Derek C. – Kalmi Jones
  50. Regional Currency Arrangements in North America By Sven Arndt
  51. Analyse des impacts financiers, organisationnels et marketing des normes IFRS dans le secteur des assurances. By Frédéric Chandelle; Jacqueline Haverals
  52. Time Series Analysis By Francis X. Diebold; Lutz Kilian; Marc Nerlove
  53. The euro and its perception in the German population By Bettina Isengard; Thorsten Schneider
  54. The Welfare Implications of Inflation versus Price-Level Targeting in a Two-Sector, Small Open Economy By Eva Ortega; Nooman Rebei
  55. Are Currency Crises Low-State Equilibria? An Empirical, Three-Interest-Rate Model By Christopher M. Cornell; Raphael H. Solomon

  1. By: L. Randall Wray
    Abstract: Even as the United States enjoys an economic expansion, there is an undercurrent of concern among economic analysts who follow financial markets. Some feel that the expansion of the credit derivatives markets poses the threat of a crisis similar to the Long-Term Capital Management debacle of 1998. Credit derivatives allow banks to share risks with holders of the derivatives, which are often mutual funds and other nonbank financial institutions. The Basel II accord, now being implemented in many countries, is hailed as a good form of protection against the risk of a series of bank failures of the type that might cause problems in the derivatives markets. Basel II represents a more sophisticated and complex version of the original Basel Accord of 1992, which set minimum capital ratios for various types of bank assets.
    Date: 2006–05
  2. By: Alexandra Lai; Raphael Solomon
    Abstract: Many countries prohibit large shareholdings in their domestic banks. The authors examine whether such a restriction restrains competition in a duopolistic loan market. Blockholders may influence managers' output decisions by choosing capital structure, as in Brander and Lewis (1986). For the blockholder, debt has an additional benefit: it "disciplines" a manager by reducing the amount of free cash flow from which the manager can divert funds. A larger blockholder can exert more control. The authors show that an economy with blockholders often leads to a more competitive banking sector. Hence, a restriction on the size of blockholdings has anti-competitive results.
    Keywords: Financial institutions; Financial services; Financial system regulation and policies
    JEL: G21 G28 G32 L10
    Date: 2006
  3. By: Mario Mesía (Central Bank of Peru); Eduardo Costa (Central Bank of Peru); Oscar Graham (Central Bank of Peru); Robert Soto (Central Bank of Peru); Alejandro Rabanal (Central Bank of Peru)
    Abstract: This paper evaluates from a microeconomic perspective the lending cost determinants in the Peruvian banking system in the June 2004-December 2005 period. The evaluation considers the credit market segments identified in a prior study (published in 2002). Furthermore, it reviews the progress occurred in the financial system infrastructure –asymmetric information, credit risk assessing technologies, competitive structure, and credit guarantees performance– in the aforementioned period. The paper also contains a set of “study cases” that contributes to a better understanding of the credit market dynamics. We found evidence that supports the presence of a higher level of competition in every market segment, especially for that of corporate borrowers. Finally, the paper suggests a set of policies to further reduce the cost of credit.
    Keywords: Interest Rate, Credit Cost
    JEL: E31 E37 E47 C11 C53
    Date: 2006–06
  4. By: Alejandro García; Ramazan Gençay
    Abstract: The authors examine how the use of extreme value theory yields collateral requirements that are robust to extreme fluctuations in the market price of the asset used as collateral. In particular, they study the risk and cost attributes of market risk measures by constructing a risk-cost frontier for the collateral pledged to cover exposures in a securities settlement system. The frontier can be used as a diagnostic tool to understand the risk-cost trade-off of different methodologies to calculate collateral value (haircuts) and select the most efficient alternative in a variety of settings.
    Keywords: Financial stability; Payment, clearing, and settlement systems; Econometric and statistical methods
    JEL: G0 G1 C1
    Date: 2006
  5. By: Miroslav Misina
    Abstract: Changes in investors' risk appetite have been used to explain a variety of phenomena in asset markets. And yet, popular indicators of changes in risk appetite typically have scant foundation in theory, and give contradictory signals in practice. The question is which popular indicator, if any, captures these changes. Kumar and Persaud (2002) offer an intuitively appealing argument regarding the effects of changes in risk appetite on asset prices in a portfolio, and Misina (2003) establishes the conditions under which these effects will be present. The author proposes a method that empirically implements these conditions and thus ensures that the resulting index can identify changes in risk appetite in the data. This index is then used to assess other risk appetite indexes used in practice. An example illustrates how the index can be used to help interpret price movements in foreign exchange markets.
    Keywords: Economic models; Financial markets
    JEL: G12
    Date: 2006
  6. By: Hans Genberg (Executive Director (Research), Hong Kong Monetary Authority)
    Abstract: Financial integration in Ease Asia is actively being pursued and will in due course lead to substantial mobility of capital between economies in the region. Plans for monetary cooperation as a prelude to monetary integration and ultimately monetary unification are also proposed. These plans often suggest that central banks should adopt some form of common exchange rate policy in the transition period towards full monetary union. This paper argues that this is a dangerous path in the context of highly integrated financial markets. An alternative approach is proposed where independent central banks coordinate their monetary policies through the adoption of common objectives and by building an appropriate institutional framework. When this coordination process has progressed to the point where interest rate developments are similar across the region, and if in the meantime the required institutional infrastructure has been build, the next step towards monetary unification can be taken among those central banks that so desire. The claim is that this transition path is likely to be robust and will limit the risk of currency crises.
    Date: 2006–05–05
  7. By: Loriana Pelizzon (University of Venice); Guglielmo Weber (University of Padua)
    Abstract: In this paper we argue that standard tests of portfolio efficiency are biased because they neglect the existence of illiquid wealth. In the case of household portfolios, the most important illiquid asset is housing: if housing stock adjustments are costly and therefore infrequent, we show how the dynamic optimization problem produces optimal portfolios in periods of no adjustment that are affected by housing price risk (through a hedge term). When the housing stock is not adjusted, we argue that tests for portfolio efficiency of financial assets must then be run conditionally upon housing wealth. In our application, we use Italian household portfolio data from SHIW 1998 and time series data on financial asset and housing stock returns to assess whether actual portfolios are efficient. We first consider purely financial portfolios and portfolios that also treat the housing stock as another asset. We then consider the consequences of treating the housing stock as given and test for efficiency in this framework. Our empirical results support the view that the presence of housing wealth plays an important role in determining whether portfolios chosen by home-owners are efficient.
    JEL: D91 G11
    Date: 2006–06
  8. By: Urban Jermann; Vincenzo Quadrini
    Abstract: The volatility of US business cycle has declined during the last two decades. During the same period the financial structure of firms has become more volatile. In this paper we develop a model in which financial factors play a key role in generating economic fluctuations. Innovations in financial markets allow for greater financial flexibility and generate a lower volatility of output together with a higher volatile in the financial structure of firms.
    JEL: E3 G1 G3
    Date: 2006–06
  9. By: Paul Alagidede (Loughborough University); Theodore Panagiotidis (Loughborough University)
    Abstract: This paper investigates two calendar anomalies in an emerging African market. Both the day of the week and month of the year effects are examined for Ghana. The latter is an interesting case because i) it operates for only three days per week during the sample period and ii) the increased focus that African stock markets have received lately both from academics and practitioners. We employ rolling techniques to asses the affects of policy and institutional changes. This allows deviations from the linear paradigm. We finally employ non-linear models from the GARCH family in a rolling framework to investigate the role of asymmetries. Contrary to a January return pattern in most markets, an April effect is found for Ghana. The evidence also shows the presence of the day of the week effects with asymmetric volatility performing better than the benchmark linear estimates. This seasonality though disappears when only the latest information is used (time-varying asymmetric GARCH). Our approach provides a new framework for investigating this well-known puzzle in finance.
    Keywords: Calendar Anomalies, Non-Linearity, Market Efficiency, Asymmetric Volatility, Rolling windows.
    JEL: C22 C52 G10
    Date: 2006–06
  10. By: Eric Tymoigne
    Abstract: The paper reviews the current literature on the subject in both the New Consensus and the Post Keynesian framework. It shows that both approaches give to central banks a wrong goal (inflation, distribution, curbing speculation, etc.) and a wrong instrument (interest rate rule). The paper claims that central banks should focus their attention on maintaining financial stability and leave other problems to public institutions better suited for this task. In doing so they should develop new tools of intervention and leave policy interest rates unchanged, close to or at zero percent. Central banks have been created to deal with financial matters (government finance and financial stability) and should stick to this. Central banks, then, have a large amount of improvements to make, both as reformers and as guides for the financial community. Their main instrument should be an analysis of the financial fragility of the financial system and of the different economic sectors. In this context, it is shown that the notion of ÒbubbleÓ does not matter for policy purposes, and that the current regulatory system lacks an institution that is able to deal effectively with solvency crisis.
    Date: 2006–06
  11. By: Paul Willen; Felix Kubler
    Abstract: We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance. In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral-constrained models. Our results do not depend on the specification of the collateralized borrowing regime: the gains to trading equity remain relatively small even with the unrealistic assumption of unlimited leverage. We argue that our results strengthen the role of borrowing constraints in explaining the portfolio participation puzzle, that is, why most investors do not own stock.
    JEL: G11 D14
    Date: 2006–06
  12. By: Marc-André Gosselin; René Lalonde
    Abstract: The analysis and forecasting of developments in the U.S. economy have always played a critical role in the formulation of Canadian economic and financial policy. Thus, the Bank places considerable importance on generating internal forecasts of U.S. economic activity as an input to the Canadian projection. Over the past year, Bank staff have been using a new macroeconometric model, MUSE (Model of the U.S. Economy). The model is a system of estimated equations that describe, in a stock-flow framework, the interactions among the principal macroeconomic variables, such as gross domestic product (GDP), inflation, interest rates, and the exchange rate. The stock-flow equilibrium is fully described in MUSE. In steady state, the model defines specific values for all stocks, including capital stock, government debt, financial wealth, and net foreign assets. In MUSE, most behavioural equations are governed by a polynomial adjustment cost (PAC) structure. This approach is widely used in the U.S. Federal Reserve Board's FRB/US model. By allowing for lags in the dynamic equations in the context of forward-looking rational expectations, the PAC approach strikes a balance between theoretical structure and forecasting accuracy. MUSE, therefore, makes an explicit distinction between dynamic movements caused by changes in expectations and those caused by adjustment costs. Moreover, GDP is decomposed into household expenditures, business investment, government spending, exports, and imports. Hence, MUSE can be used to predict the consequences of a wide variety of shocks to the U.S. economy.
    Keywords: Economic models; Business fluctuations and cycles
    JEL: E37 C53 E17 E27 F17
    Date: 2005
  13. By: Ingrid Lo; Stephen G. Sapp
    Abstract: Traders using the electronic limit order book in the foreign exchange market can watch the posted price and depth of the best quotes change over the day. The authors use a structural errorcorrection model to examine the dynamics of the relationship between the best bid price, the best ask price, and their associated depths. They incorporate measures of the market depth behind the best quotes as regressors. They report four main findings. First, best prices and their associated depths are contemporaneously related to each other. More specifically, an increase in the ask (bid) price is associated with a drop (rise) in the ask (bid) depth. This suggests that sell traders avoid the adverse-selection risk of selling in a rising market. Second, when the spread-the error-correction term-widens, the bid price rises and the ask price drops, returning the spread to its long-term equilibrium value. Further, the best depth on both sides of the market drops, due to increased market uncertainty. Third, the lagged best depth impacts the price discovery on both sides of the market, with the effect being strongest on the same side of the market. Fourth, changes in the depth behind the best quotes impact both the best prices and quantities, even though those changes are unobservable to market participants.
    Keywords: Exchange rates; Financial markets
    JEL: C3 D8 F31
    Date: 2006
  14. By: Lea Zicchino; Dimitrios Tsomocos; Miguel Segoviano; Charles Goodhart; Oriol Aspachs
    Date: 2006–05
  15. By: Sebastian Edwards (University of California, Los Angeles and National Bureau of Economic Research)
    Abstract: During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union does not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks are amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries.
    Date: 2006–05–06
  16. By: Francis X. Diebold (Department of Economics, University of Pennsylvania); Lei Ji (Department of Economics, University of Pennsylvania); Canlin Li (Graduate School of Management, University of California)
    Abstract: We assess and apply the term-structure model introduced by Nelson and Siegel (1987) and re-interpreted by Diebold and Li (2003) as a modern three-factor model of level, slope and curvature. First, we ask whether the model is a member of the affine class, and we find that it is not. Hence the poor forecasting performance recently documented for affine term structure models in no way implies that our model will forecast poorly, which is consistent with Diebold and Li's (2003) finding that it indeed forecasts quite well. Next, having clarified the relationship between our three-factor model and the affine class, we proceed to assess its adequacy directly, by testing whether its level, slope and curvature factors do indeed capture systematic risk. We find that they do, and that they are therefore priced. Finally, confident in the ability of our three-factor model to capture the pricing relations present in the data, we proceed to explore its efficacy in bond portfolio risk management. Traditional Macaulay duration is appropriate only in a one-factor (level) context; hence we move to a three-factor generalized duration, and we show the superior performance of hedges constructed using it.
    Keywords: Term structure; Yield curve; Factor model; Risk Management
    JEL: G1 E43 E47 C5
    Date: 2006–03–09
  17. By: Paul D. Gilbert; Erik Meijer
    Abstract: The authors introduce new measures of important underlying macroeconomic phenomena that affect the financial side of the economy. These measures are calculated using the time-series factor analysis (TSFA) methodology introduced in Gilbert and Meijer (2005). The measures appear to be both more interesting and more robust to the effects of financial innovations than traditional aggregates. The general ideas set out in Gilbert and Pichette (2003) are pursued, but the improved estimation methods of TSFA are used. Furthermore, four credit aggregates are added to the components of the monetary aggregates, resulting in the possibility of extracting more common factors.
    Keywords: Credit and credit aggregates; Monetary aggregates; Econometric and statistical methods
    JEL: E51 C43 C82
    Date: 2006
  18. By: GOLLIER, Christian
    Date: 2005–02
  19. By: Boriss Siliverstovs; Manh Ha Duong
    Abstract: In this study we have addressed the relationship between the stock market, the measure of real economic activity (represented by the real GDP), the economic sentiment indicator, and real interest rate for the five European countries: Germany, France, Italy, the Netherlands, and the UK. We find that even when accounting for expectations, represented by the economic sentiment indicator, the stock market has certain predictive content for the real economic activity. At the same time, the relationship between the economic sentiment indicator and the real activity seems to be more articulated than that between the latter variable and the stock market. We also have shown that the developments in the national stock markets are explained by the common factor shared by all of them. The greater relative importance of the economic sentiment indicator for the real GDP when compared to that of the stock market can be traced to the fact that the real economic activity is still shaped more by the domestic shocks rather than the global ones, i.e. those reflected in the stock market.
    Keywords: Stock market, real activity, economic sentiment indicator
    JEL: E44 G15
    Date: 2006
  20. By: Marie Brière (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels, Crédit Agricole Asset Management); Aurélie Cohen (BFT Gestion)
    Abstract: Nous avons étudié quelles annonces économiques font significativement réagir le marché des obligations privées aux Etats-Unis. Nous avons mesuré l’impact sur 1 jour d’une trentaine d’annonces macroéconomiques sur les spreads de crédit, en affinant notre analyse grâce à une décomposition sectorielle et par rating. Nous trouvons qu’une liste restreinte de chiffres économiques fait réagir les spreads : quelques indicateurs d’activité (ISM, Chicago PMI), de confiance des consommateurs, d’inflation et d’emploi. Cette liste est très proche des chiffres qui font réagir les obligations d’Etat. Les résultats diffèrent assez fortement selon les ratings. Alors que les indicateurs cycliques économiques font fortement réagir les spreads de crédit High Yield, leur impact sur les spreads Investment Grade est beaucoup plus limité. C’est le contraire pour les chiffres d’inflation et les annonces de taux directeurs, qui font surtout bouger les spreads Investment Grade. Ces résultats peuvent s’expliquer par la plus grande vulnérabilité à la conjoncture économique des émetteurs les plus risqués, et aux clauses de désendettement spécifiques aux émissions High Yield. Notre étude permet également de mettre en évidence une disparité sectorielle des réponses des spreads de crédit aux annonces économiques. Le secteur de la finance est surtout impacté par les annonces de taux directeurs et celles reflétant la santé financière des consommateurs (confiance, dépenses personnelles, emploi). Le secteur des Utilities (services aux collectivités) est très impacté par les stocks, l’inflation et quelques indicateurs d’activité (Chicago PMI, production industrielle). Enfin, au sein des 8 sous-secteurs de l’industrie, il convient de distinguer les secteurs cycliques, très liés à la conjoncture et fortement influencés par les variables d’activité, des secteurs plus défensifs, qui réagissent à un nombre plus restreint d’indicateurs.
    Keywords: Corporate bonds, credit spreads, event studies.
    JEL: G14 G12 C22 C13
    Date: 2006–06
  21. By: John Bluedorn; Christopher Bowdler
    Abstract: We characterize the channels by which a failure to distinguish intended/unintended and anticipated/unanticipated monetary policy may lead to attenuation bias in monetary policy`s open economy effects. Using a U.S. monetary policy measure which isolates the intended and unanticipated component of federal funds rate changes, we quantify the magnitude of the attenuation bias for the exchange rate and foreign variables, finding it to be substantial. The exchange rate appreciation following a monetary contraction is up to 4 times larger than a recursively-identified VAR estimate. There is stronger evidence of foreign interest rate pass-through. The expenditure-reducing effects of a U.S. monetary policy contraction dominate any expenditure-switching effects, leading to a positive conditional correlation of international outputs and prices.
    Keywords: Open economy monetary policy identification, Exchange rate adjustment, Interest rate pass-through
    JEL: E52 F31 F41
    Date: 2006
  22. By: C. Sardoni
    Abstract: Some have argued that a significant decrease in the demand for money, due to financial innovations, could imply that central banks are unable to implement effective monetary policies. This paper argues that central banks are always able to influence the economyÕs interest rates, because their liability is the economyÕs unit of account. In this sense, central banks Òrule the roost.Ó In the 1930s, starting from KeynesÕs ideas and referring to money in general, Kaldor had followed a similar line of analysis. In principle, a new unit of account could displace conventional money and, hence, central banks. But this process meets relevant obstacles, which essentially derive from the externalities and network effects that characterize money. Money is a Òsocial relation.Ó Money and central banks are the outcome of complex social and economic processes. Their displacement will occur through equally complex processes, rather than through mere innovation.
    Date: 2006–06
  23. By: Paola Giuliano (International Monetary Fund and IZA Bonn); Marta Ruiz-Arranz (International Monetary Fund)
    Abstract: Despite the increasing importance of remittances in total international capital flows, the relationship between remittances and growth has not been adequately studied. This paper studies one of the links between remittances and growth, in particular how local financial sector development influences a country’s capacity to take advantage of remittances Using a newly-constructed dataset for remittances covering about 100 developing countries, we find that remittances boost growth in countries with less developed financial systems by providing an alternative way to finance investment and helping overcome liquidity constraints. The study also explores some common myths about remittances and suggests that they are predominantly profit-driven and mostly pro-cyclical.
    Keywords: remittances, financial development, growth
    JEL: F22 F43 O16
    Date: 2006–06
  24. By: David Rae; Paul van den Noord
    Abstract: The Irish housing market is very buoyant. The housing boom is driven by strong economic growth, dynamic demographics and low interest rates. However, large tax advantages and relatively lenient credit policies by banks have also played their part, and prices may have become overvalued. To the extent that high house prices reflect favourable tax treatment, they may lead to economic inefficiencies by drawing excessive resources into residential construction. While a soft landing appears the most likely prospect, a disorderly correction of house prices would pose risks for macroeconomic and possibly financial stability. In this context, one policy lever available to the government would be a phased removal of the tax advantages associated with housing. In addition, banks should remain cautious in their lending and provisioning policies. <P>L’envolée du marché irlandais du logement Le marché de l’immobilier est très dynamique en Irlande. L’essor du logement s’explique par la forte croissance économique, la dynamique démographique et la faiblesse des taux d’intérêt. Cependant, les importants avantages fiscaux et les politiques de crédit relativement libérales des banques ont aussi joué leur rôle et les prix sont désormais peut être surévalués. Dans la mesure où les prix élevés de l’immobilier reflètent un régime fiscal favorable, ils peuvent conduire à des inefficiences économiques en attirant des ressources excessives dans la construction résidentielle. Tandis qu’un atterrissage en douceur apparaît très probable, une correction désordonnée de ces prix ferait peser des risques sur la stabilité macroéconomique, voire financière. Dans ce contexte, un des leviers d’action à la disposition des autorités serait une suppression graduée des avantages fiscaux associés au logement. En outre, les banques devraient être incitées à faire preuve de prudence dans leurs politiques de prêt et de provisionnement.
    Keywords: house prices, property tax, housing markets, marché immobilier, residential construction, construction résidentielle, immobilier, taxe foncière
    JEL: E2 R21 R31
    Date: 2006–06–15
  25. By: Christopher M. Meissner; Nienke Oomes
    Abstract: Conditional on choosing a pegged exchange rate regime, what determines the currency to which countries peg or “anchor” their exchange rate? This paper aims to answer this question using a panel multinomial logit framework, covering more than 100 countries for the period 1980-1998. We find that trade network externalities are a key determinant of anchor currency choice, implying that there are multiple steady states for the distribution of anchor currencies in the international monetary system. Other factors found to be related to anchor currency choice include the symmetry of output co-movement, the currency denomination of debt, and legal or colonial origins.
    Keywords: exchange rate regime; anchor; network externalities; optimal currency area; international currency; de facto
    JEL: E42 F02 F33
    Date: 2006–06
  26. By: Petra Geraats (Faculty of Economics, University of Cambridge, Cambridge)
    Abstract: Despite the recent trend towards greater transparency of monetary policy, in many respects mystique still prevails in central bank speak. This paper shows that the resulting perception of ambiguity could be desirable. Under the plausible assumption of imperfect common knowledge about the degree of central bank transparency, economic outcomes are affected by both the actual and perceived degree of transparency. It is shown that actual transparency is beneficial while it may be useful to create the perception of opacity. The optimal communication strategy for the central bank is to provide clarity about the inflation target and to communicate information about the output target and supply shocks with perceived ambiguity. In this respect, the central bank benefits from sustaining transparency misperceptions, which helps to explain the mystique of central bank speak.
    Keywords: Transparency, monetary policy, communication
    JEL: E52 E58 D82
    Date: 2006–05–15
  27. By: Alain Coen (Département de stratégie des affaires, Université du Québec (Montréal)); Francois-Éric Racicot (Département des sciences administratives, Université du Québec (Outaouais) et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal))
    Abstract: This paper proposes to revisit both the CAPM and the three-factor model of Fama and French (1993) in presence of errors in the variables. To reduce the bias induced by measurement and specification errors, we transpose to the cost of equity an estimator based on cumulants of order three and four initially developed by Dagenais and Dagenais (1997) and lated generalized to financial models by Racicot (2003). Our results show that our technique has great and significant consequences on the measure of the cost of equity. We obtain ipso facto a new estimator of the Jensen alpha.
    Keywords: Errors in the variables, cumulants, higher moments, instrumental variables, cost of equity, Jensen alpha.
    JEL: C13 C49 G12 G31
    Date: 2006–05–01
  28. By: Yongfu Huang
    Abstract: This paper studies what induces governments to undertake reforms aimed at financial development. Its starting point is Abiad and Mody (AER 95(1), 2005). Rather than their ordered logit technique, it uses a within groups approach allowing for error dependence across countries and over time. This paper finds that policy change in a country is negatively rather than positively associated with its liberalization level, while the regional liberalization gap does not appear relevant. On the effects of shocks and crises, it suggests that some of the Abiad and Mody (2005) findings are robust, but others are fragile. Furthermore, it claims that the extent of democracy is important for this analysis, and identifes a negative effect of the extent of democracy on policy reform.
    Keywords: Financial liberalization; Financial reform; Political economy; Cross country dependence
    JEL: D72 F36 G18
    Date: 2006–06
  29. By: Petrucci, Alberto
    Abstract: This paper investigates the allocative properties of an OLG specificfactors small open economy facing perfect capital mobility. Wealth formation, economic development and different labor market regimes are at the center-stage of the analysis. In a model with competitive wages and no unemployment, we find that exogenous shocks that do not affect human wealth —like the terms of trade and land endowment shifts— or the propensity to save, leave nonhuman wealth, consumption and aggregate labor unchanged; in such cases, capital formation is driven by the static effects exerted on sectoral labor. Disturbances that alter human wealth —like the world interest rate, and capital and labor taxation shocks— or the thrift rate, instead, affect nonhuman wealth and consumption as they involve an intergenerational redistribution of resources that modifies aggregate saving; labor hours supplied may be changed. In these circumstances, capital accumulation is the result of the consequences exerted on financial wealth and input demands. The consideration of a labor market with structural unemployment does not qualitatively affect the results, except for the world interest rate and the rate of time discount shifts. Our results differ substantially from those obtained in static and dynamic specific-factors setups with financial autharky.
    Keywords: Specific-Factors; Capital Accumulation; Land; Net Foreign Assets; Finite Horizons.
    JEL: F41 F43 O41
    Date: 2006–06–16
  30. By: GOLLIER, Christian
    Date: 2005–06
  31. By: Thomann, Christian; Graf von der Schulenburg, J.-Matthias
    Abstract: In our article we consider insurance as a means of allocating terrorism risk. Terrorism poses a significant challenge for insurers worldwide. In terms of possible losses it fits into the same category as earthquakes and hurricanes. Yet as a result of the uncertainty surrounding these risks private markets face significant difficulties in providing insurance for it. In the insurance industry costly risk bearing can explain the supply of capacity risks. Corporate risk management theory provides reasons why transaction costs can motivate firms to purchase insurance. In the context of these tightly connected theories we derive models for both the supply of terrorism reinsurance and the demand for terrorism insurance. Using two datasets from the German terrorism insurer we estimate models on how corporations in Germany employ government sponsored insurance to manage their terrorism risk and on the factors that determine the supply for private market terrorism reinsurance.
    Keywords: Terrorism Insurance, Risk Allocation, Regulation
    JEL: G22 G32 D61
    Date: 2006–06
  32. By: Francois-Éric Racicot (Département des sciences administratives, Université du Québec (Outaouais) et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal)); Alain Coen (Département de stratégie des affaires, Université du Québec (Montréal))
    Abstract: In this paper, we propose a new empirical version of the Fama and French Model based on the Hausman (1978) specification test and aimed at discarding measurement errors in the variables. The proposed empirical framework is general enough to be used for correcting other financial and accounting models of measurement errors. Removing measurement errors is important at many levels as information disclosure, corporate governance and protection of investors.
    Keywords: Asset pricing, portfolio selection, errors in variables, measurement errors, higher moments, instrumental variables, Specification test, corporate governance, protection of investors.
    JEL: C13 C19 C49 G12 G31
    Date: 2006–03–01
  33. By: Eduardo A. Lora (Research Department, Inter-American Development Bank); Mauricio Olivera (George Washington University)
    Abstract: This paper assesses the effects of total public debt (external and domestic) on social expenditure worldwide and in Latin America using an unbalanced panel of around 50 countries for the period 1985-2003. The most robust and important finding is that higher debt ratios do reduce social expenditures, as popular opinion holds. This effect comes mostly from the stock of debt and not from debt service payments, indicating that debt displaces social expenditures not so much because it raises the debt burden, but because it reduces the room (or the appetite) for further indebtedness. Loans from multilateral organizations like the World Bank or the Inter-American Development Bank do not seem to ameliorate the adverse consequences of debt on social expenditures. In accordance with popular wisdom, our results indicate that defaulting on debt obligations does help to increase social expenditures. Nonetheless, Latin America is different in some respects. The adverse effects of debt and debt-interest payments are significantly stronger in the region, which makes defaults more beneficial to social expenditures. While many of these conclusions are very heterodox, their main policy implication is not; there is no better way to protect social expenditures than to avoid overindebtedness,especially in Latin America.
    Keywords: Public debt, social expenditure, Latin America, debt burden, interest payments, international financial institutions, external debt, default.
    Date: 2006–05
  34. By: L. Randall Wray
    Abstract: In the mid to late 1980s, the U.S. economy simultaneously producedÑfor the first time in the postwar periodÑhuge federal budget deficits as well as large current account deficits, together known as the Òtwin deficitsÓ (Blecker 1992; Rock1991). This generated much debate and hand-wringing, most of which focused on supposed Òcrowding-outÓ effects (Wray 1989). Many claimed that the budgetdeficit was soaking up private saving, leaving too little for domestic investment, and that the ÒtwinÓ current account deficit was soaking up foreign saving. The result would be higher interest rates and thus lower economic growth, as domestic spendingÑespecially on business investment and real estate construction was depressed. Further, the government debt and foreign debt would burden future generations of Americans, who would have to make interest payments and eventually retire the debt. The promulgated solution was to promote domestic saving by cutting federal government spending and private consumption (Rock 1991; Council of Economic Advisers 2006). Many pointed to JapanÕs high personal saving rates as a model of the proper way to run an economy.
    Date: 2006–04
  35. By: Dimitri B. Papadimitriou; Edward Chilcote; Gennaro Zezza
    Abstract: Can the growth in the U.S. current account deficit be sustained? How does the flow of deficits feed the stock of debt? And how will the burden of servicing this debt affect future deficits and economic growth? These are some of the questions we address in this Strategic Analysis....
    Date: 2006–05
  36. By: Julie Agnew (
    Abstract: This paper investigates two methods for improving participants’ asset allocations in their 401(k) plans: personalized online advice and managed account services. This paper uses a unique new dataset of individual-level administrative data from one 401(k) plan and recommendation data from an advice provider. Preliminary results suggest that online advice and the managed account service appeal to different populations. Managed accounts tend to be attractive to individuals across most demographic groups, while the online advice appeals more to higher salaried, full-time workers. In addition, individuals who show a predisposition to seek advice are more likely to use one of the methods than to do nothing. Finally, although a causal relationship cannot be determined, trading activity is higher for those using the online advice system compared to those who do nothing. Future research will investigate in more detail how portfolio allocations and trading are influenced by use of the two systems.
    Keywords: 401(k) plans, account services, retirement, asset allocations
    Date: 2006–06–12
  37. By: Marco Realdon
    Abstract: This paper presents an equity valuation model that employs risk-neutral valuation under stochastic interest rates along the lines of Ohlson and Feltham (1999). Closed form valuation formulae for equities are presented in a discrete time setting whereby the short term interest rate is modelled by a quadratic term structure model. Earnings are driven by mean reverting return on equity (ROE). The term strcture of interest rates, and in particular the variance of the future short rates, is found to be a primary dterminant of equity value tat has been largely overlooked by the previous equity valuation literature. Equity value decreases in the correlation between the short interest rate and ROE and can be very sensitive to such correlation when the ROE process is very persistent. This suggests that equity value dreceases in the degree of pro-cyclicality of the firm's profitability.
    Keywords: Equity valuation, residual income valuation, stochastic interest rates, quadratic term structure model in discrete time, mean reverting return on equity
    JEL: G12 G13 M41
    Date: 2006–06
  38. By: Neville Arjani
    Abstract: The author explores a fundamental trade-off that occurs between settlement delay and intraday liquidity in the daily operation of large-value payment systems (LVPS), with specific application to Canada's Large Value Transfer System (LVTS). To reduce settlement delay, participants generally must maintain greater intraday liquidity in the system. Intraday liquidity and settlement delay can be costly for LVPS participants, and improvements in the trade-off are desirable. The replacement of standard queuing arrangements with a complex queue-release algorithm represents one such improvement. These algorithms are expected to lower intraday liquidity needs and speed up payments processing in an LVPS. Simulation analysis is used to empirically test this proposition for the case of Canada's LVTS. The analysis is conducted using a payment system simulator developed by the Bank of Finland, called the BoF-PSS2. The author shows that increased use of the LVTS central queue (which contains a complex queue-release algorithm) reduces settlement delay associated with each level of intraday liquidity considered, relative to a standard queuing arrangement. Some important issues emerge from these results.
    Keywords: Payment, clearing, and settlement systems
    JEL: E47 G21
    Date: 2006
  39. By: Aloisio Pessoa de Araújo (EPGE/FGV); Mario R. Páscoa; Juan Pablo Torres-Martínez
    Date: 2006–04
  40. By: Morten Spange; Pawel Zabczyk
    Abstract: This paper investigates the potential implications for sterling of the US current account returning to balance. The analysis is conducted using a three-country model comprising the United Kingdom, the United States and a block that is meant to represent the rest of the world. The main conclusion from our analysis is that the potential implications for sterling of a US current account reversal are highly uncertain - one can derive a wide range of estimates for the potential changes. Estimates of the sterling adjustments are smaller than the implied movements in the dollar and depend heavily on (a) the cause of the US current account adjustment; (b) the assumptions one makes about the associated adjustment of the UK current account deficit; and (c) assumptions about key model parameters.
  41. By: Abdelaziz Rouabah
    Abstract: Cette étude examine la problématique de la sensibilité des soldes intermédiaires du compte de perte et profits des banques luxembourgeoises aux chocs monétaires, financiers et macro-économiques. L'analyse est conduite sur des données en panel et à fréquence trimestrielle couvrant la période 1994-2005. Les résultats des estimations obtenus et les simulations réalisées révèlent que les banques luxembourgeoises sont beaucoup plus sensibles aux variations du produit intérieur brut de la zone euro et aux chocs afférents à l'indice boursier européen DJE Stoxx qu'aux chocs monétaires. L'importance de cette réactivité est à relativiser dans la mesure où elle n'est pas un facteur fondamental de déstabilisation financière du secteur bancaire dans son ensemble.
    Date: 2006–05
  42. By: Marric Buessing (Center for Retirement Research); Mauricio Soto (Center for Retirement Research)
    Abstract: Every year, pension plan sponsors are required to file a return with the U.S. Department of Labor. These returns, known as the Form 5500 series, contain detailed information about the plans' finances, participants, and administrators that allows government agencies to monitor compliance with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. The comprehensive nature of the Form 5500 series makes them a primary source for examining the state of the private pension world: from participation rates to financial health to 401(k) investment in company stock to the size of employer contributions — it is all there. Unfortunately, these rich data are not available in a timely manner. The data from the "Private Pension Plan Bulletins Abstract of Form 5500 Annual Reports" — the official tabulations put out by the Department of Labor commonly used by practitioners and researchers — have a five-year lag. Sponsors have up to ten months to file the forms, and it can take up to two years to convert the raw forms, which generally are filed in paper, into a manageable and complete dataset. Then, these data must be cleaned, analyzed, and tabulated. The resulting lag meant that as of early 2006, official tabulations were available only up to 2000. This brief uses raw 5500 Form data from the Department of Labor to extend the tabulations to 2003 — the latest year in which the datasets are available. The estimations are done for the 1990-2003 period, and are presented as a data appendix to this brief. The 1990-2000 numbers match closely those from official reports; the 2001-2003 calculations bring the tabulations as up-to-date as currently possible. Using these recent data, this brief highlights trends that are impossible to observe in the current official releases: a notable increase in pension contributions for defined benefit plans; the decline and recovery of pension assets in the 2001-2003 period; the continued use of cash balance plans; and the sustained move in coverage towards defined contribution plans.
    Keywords: pension plans, retirement, Employee Retirement Income Security Act
    Date: 2006–06–12
  43. By: Felicitas Nowak-Lehmann D. (Universität Göttingen, Ibero-Amerika Institut); Dierk Herzer (Universität Frankfurt / Universität Göttingen); Sebastian Vollmer (Universität Göttingen, Ibero-Amerika Institut); Inmaculada Martínez-Zarzoso (Universität Göttingen, Ibero Amerika Institut)
    Abstract: It is the objective of this paper to analyze Chile’s development of market shares in the EU market in the period of 1988 to 2002, testing for the impact of price competitiveness on market shares with panel data. Price competitiveness is considered a decisive determinant of Chile’s market shares since Chile’s successful export products are rather homogeneous products (fish, fruit, beverages, ores, copper, and wood and products thereof). Six EU countries, namely France, Germany, Italy, the Netherlands, Spain and the UK, with perceptible imports from Chile in the above-mentioned sectors, serve as cross-sections in this study. It is found that Chile’s market shares in all seven sectors under investigation were unstable in economic terms in the 1988-2002 period. From a statistical point of view market shares were non-stationary variables, integrated of order one (I(1)) and so were Chile’s relatives prices and its competitors’ relative prices, which turned out to be I(1), too. All variables being I(1), a panel cointegration test was conducted. Pedroni’s residual based cointegration test revealed cointegration between market shares and relative prices in all seven sectors allowing regression coefficients to be estimated by means of Dynamic Ordinary Least Squares (DOLS). The DOLS results were then compared with the ones obtained by the Three Stage Feasible Generalized Least Squares (3SFGLS) and the Generalized Method of Moments (GMM) technique.
    Keywords: Market shares, panel unit root tests, panel cointegration tests, panel DOLS modeling, 3SLS -
    JEL: F14 F17 C23
    Date: 2006–06–06
  44. By: Wynne Godley; Gennaro Zezza
    Abstract: Many papers published by the Levy Institute during the last few years have emphasized that the U.S. economy has relied too much on the growth of lending to the private sector, most particularly to the personal sector, to offset the negative effect on aggregate demand of the growing current account deficit. Moreover, this growth in lending cannot continue indefinitely.
    Date: 2006–05
  45. By: Lynda Khalaf; Maral Kichian
    Abstract: The authors address empirically the implications of structural breaks in the variance-covariance matrix of inflation and import prices for changes in pass-through. They define pass-through within a correlated vector autoregression (VAR) framework as the response of domestic inflation to an impulse in import price inflation. This approach allows them to examine changes in both the amount and the duration of pass-through.
    Keywords: Econometric and statistical methods
    JEL: F40 F31 C52 E31
    Date: 2006
  46. By: Ralph Kozlow (Bureau of Economic Analysis)
    Abstract: This note briefly summarizes work conducted in the United States over the past several years to design a report form that collects comprehensive data on U.S. positions and transactions in derivative financial instruments.
    JEL: E60
    Date: 2004–10
  47. By: Richard N. Cooper (Paper 1) (Harvard University); Michael Bordo (Paper 2) (Economics Department, Rutgers University and Harvard University); Harold James (Paper 2) (History Department and Woodrow Wilson School, Princeton University)
    Abstract: Paper 1: This paper suggests that some time in the not-too-distant future the governments of the industrialized democracies – concretely, the United States, the European Union, and Japan – should consider establishing a common currency for their collective use. A common currency would credibly eliminate exchange rate uncertainty and exchange rate movements among major currencies, both of which are significant sources of disturbance to important economies. One currency would of course entail one monetary policy for the currency area, and a political mechanism to assure accountability. This proposal is not realistic today, but is set as a vision for the second or third decade into the 21st century. Europeans, in creating EMU, have taken a major step in the direction indicated. Their idea could be taken further. Paper 2: In this paper, we look at the major arguments for monetary simplification and unification before explaining why the nineteenth century utopia is an idea whose time has gone, not come.
    Date: 2006–09–06
  48. By: Otmar Issing (European Central Bank)
    Date: 2006–04–26
  49. By: Derek C. – Kalmi Jones
    Keywords: personnel economics, stock options, productivity, panel data
    JEL: M5 J3 L2 C3
    Date: 2006–06–16
  50. By: Sven Arndt (The Lowe Institute of Political Economy, Claremont McKenna College)
    Date: 2006–02–05
  51. By: Frédéric Chandelle (; Jacqueline Haverals (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: Au détour de conférences et selon les dires de la plupart des directeurs financiers de groupes d’assurances confrontés aux normes IFRS, leur implémentation est ou a été la relève d’un véritable défi. Outre le challenge lié à la compréhension et à l’application de ces normes, l’adoption du référentiel international a généré de nombreux coûts et a engendré divers changements organisationnels. Malgré l’intérêt de l’étude, les impacts des normes IFRS n’ont, jusqu’à ce jour, jamais été analysés par la recherche académique. Cette contribution a pour but de déterminer et d’analyser les impacts de l’introduction des normes comptables internationales dans un secteur complexe et plutôt méconnu, celui des assurances. Précisons qu’outre le passage aux normes IFRS, les assureurs de l’Union européenne font face à un autre projet clé. L’exercice “Solvabilité II” poursuit l’objectif de réviser l’ensemble des règles en matière de contrôle de la solvabilité de ces entreprises. Ce projet, qui constitue un des points majeurs du “Plan d’Actions pour les Services Financiers” de la Commission européenne, apparaît plus ambitieux, car plus global, que l’Accord “Bâle II” applicable au secteur bancaire. Son approche plus globale pourrait même, si la Commission obtient des résultats à la hauteur des ambitions qu’elle affiche, alimenter utilement les futures discussions en vue d’un prochain accord “Bâle III”. Cet article s’articule autour des quatre sections suivantes : Après une première section introductive, la deuxième section définit les enjeux de l’introduction des normes IFRS dans le secteur des assurances. Nous y verrons si les assureurs, ainsi que leurs autorités de tutelle, seront obligés de revivre les tracas et mécontentements du secteur bancaire , consacrant les divergences de vues irréconciliables entre, d’une part, le normalisateur comptable qu’est l’IASB et, d’autre part, les assureurs et leurs autorités de contrôle. La troisième section cerne les impacts financiers, organisationnels et marketing des normes IFRS sur le secteur belge de l’assurance, au travers de l’analyse des résultats d’une enquête conduite auprès d’une quinzaine d’entreprises avec la collaboration d’Assuralia (auparavant Union professionnelle des entreprises d’assurances). La quatrième section tire les principales conclusions de l’étude.
    Keywords: IFRS, Insurance Sector.
    JEL: G22 K34
    Date: 2006–06
  52. By: Francis X. Diebold (Department of Economics, University of Pennsylvania); Lutz Kilian (Department of Economics, University of Michigan); Marc Nerlove (Department of Agricultural and Resource Economics, University of Maryland)
    Abstract: We provide a concise overview of time series analysis in the time and frequency domains, with lots of references for further reading.
    Keywords: time series analysis, time domain, frequency domain
    JEL: C22
    Date: 2006–05–01
  53. By: Bettina Isengard (DIW Berlin, German Socio-Economic Panel Study); Thorsten Schneider (Otto-Friedrich-University Bamberg, Chair of Sociology I)
  54. By: Eva Ortega; Nooman Rebei
    Abstract: The authors analyze the welfare implications of simple monetary policy rules in the context of an estimated model of a small open economy for Canada with traded and non-traded goods, and with sticky prices and wages. They find statistically significant heterogeneity in the degree of price rigidity across sectors. They also find welfare gains in targeting only the non-traded-goods inflation, since prices are found to be more sticky in this production sector, but those gains come at the cost of substantially increased aggregate volatility. The authors look for the welfare-maximizing specification of an interest rate reaction function that allows for a specific price-level target. They find, however, that, overall, the higher welfare is achieved, given the estimated model for the Canadian economy, with a strict inflation-targeting rule where the central bank reacts to the next period's expected deviation from the inflation target and does not target the output gap.
    Keywords: Economic models; Exchange rates; Inflation targets
    JEL: E31 E32 E52
    Date: 2006
  55. By: Christopher M. Cornell; Raphael H. Solomon
    Abstract: Suppose that the dynamics of the macroeconomy were given by (partly) random fluctuations between two equilibria: "good" and "bad." One would interpret currency crises (or recessions) as a shift from the good equilibrium to the bad. In this paper, the authors specify a dynamic investment-savings-aggregate-supply (IS-AS) model, determine its closed-form solution, and examine numerically its comparative statics. The authors estimate the model via maximum likelihood, using data for Argentina, Canada, and Turkey. Since the data show no support for the multiple-equilibrium explanation of fluctuations, the authors cast doubt on the third-generation models of currency crisis.
    Keywords: Uncertainty and monetary policy
    JEL: C62 E59 F41
    Date: 2006

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