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on Urban and Real Estate Economics |
| By: | Murphy, Anthony; Strobl, Eric |
| Abstract: | We investigate the effect of hurricane strikes on housing prices in US coastal cities. To this end, we construct a new index of hurricane destruction which varies over time and space. Using this index and an annual, two equation, dynamic equilibrium correction panel model with area and time fixed effects, we model the effects of hurricanes on real house process and real incomes. In our model hurricanes have a direct effect on house prices and an indirect effect via a fall in local incomes. Our results show that the typical hurricane strike raises real house prices for a number of years, with a maximum effect of between 3 to 4% three years after occurrence. There is also a small negative effect on real incomes. These results are stable across models and sub-samples. |
| Keywords: | hurricanes; house prices; US coastal cities |
| JEL: | Q54 R21 |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19353&r=ure |
| By: | Fabio Panetta (Banca d'Italia); Michele Leonardo Bianchi (Banca d'Italia); Marcello Bofondi (Banca d'Italia); Fabrizio Borselli (Banca d'Italia); Guido Bulligan (Banca d'Italia); Alessandro Buoncompagni (Banca d'Italia); Mari Cappabianca (Banca d'Italia); Luisa Carpinelli (Banca d'Italia); Agostino Chiabrera (Banca d'Italia); Francesco Columba (Banca d'Italia); Guido de Blasio (Banca d'Italia); Alessio d’Ignazio (Banca d'Italia); Cristina Fabrizi (Banca d'Italia); Carlo Gola (Banca d'Italia); Roberto Sabbatini (Banca d'Italia); Federico Maria Signoretti (Banca d'Italia); Francesco Zollino (Banca d'Italia) |
| Abstract: | Developments in the real-estate sector are of crucial importance for the business cycle and financial stability. This study analyses developments in the Italian housing market on the basis of both real and financial variables. Following the sharp contraction of the market during the financial crisis and the more general fall in economic activity, a few signals suggests that the recession in the housing market is easing somewhat. However, the degree of uncertainty remains considerable. In recent months the ratio between the flow of bad debts to total outstanding loans to households and construction firms has reached the highest levels since the beginning of the decade. The paper also investigates three issues of a more structural nature. First, it examines the performance and the regulatory framework of real-estate investment funds in Italy. Second, it analyses the main characteristics of the taxation of residential housing, with reference to ownership, rentals and transactions. Finally, the paper estimates the impact on residential house prices of the growing demand for housing services by immigrants. |
| Keywords: | housing market cycle, transactions, rentals, residential house prices, mortgages, real-estate investment funds, taxation of residential housing |
| JEL: | E0 G21 H2 L85 R2 R31 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_59_09&r=ure |
| By: | Rebecca Allen (Depatment of Quantitative Social Science - Institute of Education, University of London.); Anna Vignoles (Depatment of Quantitative Social Science - Institute of Education, University of London.) |
| Abstract: | This paper measures the extent to which the presence of religious state-funded secondary schools in England impacts on the educational experiences of pupils who attend neighbouring schools, whether through school effort induced by competition or changes in peer groups induced by sorting. National administrative data is used to estimate pupil test score growth models between the ages of 11 and 16, with instrumental variable methods employed to avoid confounding the direct causal effect of religious schools. It finds significant evidence that religious schools are associated with higher levels of pupil sorting across schools, but no evidence that competition from faith schools raises area-wide pupil attainment. |
| Keywords: | school choice, school competition, educational outcomes |
| JEL: | H11 I21 I28 |
| Date: | 2009–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:qss:dqsswp:0904&r=ure |
| By: | Berliant, Marcus; Watanabe, Hiroki |
| Abstract: | We criticize the theories used to explain the size distribution of cities. They take an empirical fact and work backward to obtain assumptions on primitives. The induced theoretical assumptions on consumer behavior, particularly about their inability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move, generating a Fréchet distribution of city sizes that is empirically competitive with other models. |
| Keywords: | Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory |
| JEL: | R12 |
| Date: | 2009–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19080&r=ure |
| By: | Kopits, Elizabeth; McConnell, Virginia (Resources for the Future); Miles, Daniel |
| Abstract: | The paper explores a number of issues related to lot size and urban density. First, trends in single-family residential lot size over the past 35 years are examined in eight counties in the state of Maryland. We find that there was a trend toward larger lot sizes in many suburban counties in the mid to late 1990s, and that there has been a general flattening of the density gradient in urban areas over the last few decades. We then examine the extent to which lot size is being constrained by regulation by comparing actual subdivision density to the allowable density under zoning rules. This analysis is done for three counties with different degrees of suburbanization. We find that only in the areas with the very large lot zoning does zoning seem to be constraining actual lots size. There is a good deal of excess capacity in the density that could be built, especially in the more densely zoned areas. Finally, recognizing that households have preferences for lot size and other housing characteristics, we provide some evidence about the strength of household preferences over lot size and their willingness to trade off lot size for other characteristics. |
| Keywords: | land use, urban sprawl, density, lot size |
| JEL: | Q24 Q28 R14 |
| Date: | 2009–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-09-15&r=ure |
| By: | Laura Alfaro; Maggie Chen |
| Abstract: | In this paper we characterize the topology of global multinational networks and examine the macro and micro patterns of multinational activity. We construct indices of network density at both pairwise industry and establishment level and measure agglomeration in a global and continuous metric space. These indices exhibit distinct advantages compared to traditional measures of agglomeration including the independence on the level of geographic aggregation. Estimating the indices using a new worldwide establishment dataset, we investigate both the significance and causes of multinational firm co-agglomeration. In contrast to the conventional emphasis of the literature on the role of input-output linkages, we assess the effect of various agglomeration economies. We find that, relative to counterfactuals, multinationals with greater factor-market externalities, knowledge spillovers, and vertical linkages exhibit significant co-agglomeration. The importance of these factors differs across headquarters, subsidiary, and employment networks, but knowledge spillovers and capital-market externalities, two traditionally under-emphasized forces, exert consistently strong effects. Within each macro network, there is a large heterogeneity across subsidiaries. Subsidiaries with greater size and higher productivity attract significantly more agglomeration than their counterfactuals and become the hubs of the network. |
| JEL: | D2 F2 R1 R3 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15576&r=ure |
| By: | Maria Serena Borgia (Unibo. Dip. Statistica); Lucia Pasquini (Unibo. Dip. Statistica) |
| Abstract: | In recent years the analysis of educational outcomes has become increasingly important due mainly to the importance of success at school and the role of the modern school, where students are trained on how to make inroads and work towards planning their lives. In keeping with law no 144/1999, the Province of Bologna local authority collects data on student individuals of compulsory schooling age. This survey represents a complete coverage of the territory. The aim of this study is to use the data on individuals to explain the educational outcomes of these students. We have analysed the data on 5,944 students who were born in 1988 and who attended secondary schools in the province of Bologna in one or more of the five school years from 2002/03 to 2006/07. At first we calculated the success probabilities by gender and institute; later, in order to determine and quantify the influence of students' individual characteristics on final outcomes we estimated five logistic regressions, one for each school year and class attended. Our models confirm the exploratory analysis: variables such as gender, citizenship and the type of school attended do affect educational outcomes. |
| Keywords: | Esiti scolastici, Probabilità di successo, Regressione logistica Educational Outcomes, Success Probabilities, Logistic Regression |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bot:quadip:94&r=ure |
| By: | Kundu, Amitabh |
| Abstract: | The present paper overviews urbanisation and migration process in Asian countries at macro level since 1950s, including the projections made till 2030. It questions the thesis of southward movement of urbanisation and that of urban explosion in Asia. Increased unaffordability of urban space and basic amenities, negative policy perspective towards migration and various rural development pogrammes designed to discourage migration are responsible for this exclusionary urban growth and a distinct decline in urban rural growth differential, with the major exception of China. The changing structure of urban population across different size categories reveals a shift of growth dynamics from large to second order cities and stagnation of small towns. The pace of urbanization has been modest to high in select countries in Asia, not because of their level of economic growth but its composition and labour intensity of rapidly growing informal sectors. Several countries have launched programmes for improving governance and infrastructural facilities in a few large cities, attracting private investors from within as well as outside the country. These have pushed out squatter settlements, informal sector businesses along with a large number of pollutant industries to a few pockets and peripheries of the cities. The income level and quality of basic amenities in these cities, as a result, have gone up but that has been associated with increased intra-city disparity and creation of degenerated periphery. Nonetheless, there is no strong evidence that urbanization is associated with destabilization of agrarian economy, poverty and immiserisation, despite the measures of globalization resulting in regional imbalances. The overview of the trend and pattern suggests that the pace of urbanization would be reasonably high but much below the level projected by UNPD in the coming decades. |
| Keywords: | urbanisation; migration; exclusion; periphery; informalisation; small towns; economic concentration; urban rural growth differential; Asia; China and India |
| JEL: | O15 P25 N95 |
| Date: | 2009–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19197&r=ure |
| By: | Jan Corfee-Morlot; Lamia Kamal-Chaoui; Michael G. Donovan; Ian Cochran; Alexis Robert; Pierre-Jonathan Teasdale |
| Abstract: | Cities represent a challenge and an opportunity for climate change policy. As the hubs of economic activity, cities generate the bulk of GHG emissions and are thus important to mitigation strategies. Urban planning will shape future trends and the concentration of population, socio-economic activity, poverty and infrastructure in urban areas translates into particular vulnerability to increased climate hazards. City governments and urban stakeholders will therefore be essential in the design and delivery of cost-effective adaptation policies. Further, by empowering local governments, national policies could leverage existing local experiments, accelerate policy responses, foster resource mobilization and engage local stakeholders. This paper presents a framework for multilevel governance, showing that advancing governance of climate change across all levels of government and relevant stakeholders is crucial to avoid policy gaps between local action plans and national policy frameworks (vertical integration) and to encourage cross-scale learning between relevant departments or institutions in local and regional governments (horizontal dimension). Vertical and horizontal integration allows two-way benefits: locally-led or bottom-up where local initiatives influence national action and nationally-led or top-down where enabling frameworks empower local players. The most promising frameworks combine the two into hybrid models of policy dialogue where the lessons learnt are used to modify and fine-tune enabling frameworks and disseminated horizontally, achieving more efficient local implementation of climate strategies. |
| Keywords: | climate change, global warming, government policy, regional economics, Regional, Urban and rural Analyses |
| JEL: | Q51 Q54 Q56 Q58 R00 |
| Date: | 2009–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:oec:envaaa:14-en&r=ure |
| By: | Beladi, Hamid; Chakrabarti, Avik; Marjit, Sugata |
| Abstract: | We demonstrate the sensitivity of the location of downstream firms, engaged in sequential spatial competition, to the vertical structure of an industry where no downstream firm can produce all varieties demanded. |
| Keywords: | Product-differentiation; Price-discrimination; Spatial competition; Firm-location; Merger. |
| JEL: | L13 L42 R32 D43 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19278&r=ure |
| By: | Filip Pertold |
| Abstract: | The start of daily smoking is often shortly after the resorting of students between elementary and secondary education. This paper employs a novel identification strategy based on this resorting, in order to estimate peer effects in youth smoking. We address the reflection problem by peers’ pre-secondary-school smoking, which is not influenced by the current social interaction of classmates. The self-selection of students into secondary schools, based on their unobserved preferences toward smoking, is controlled for using own pre-secondary school behavior and the existing prevalence of smoking among older schoolmates. The empirical findings based on data from the Czech Republic, where the prevalence of youth smoking prevalence reached high levels, suggest that male youth smoking is significantly affected by classmates, while female smoking is not. |
| Keywords: | Peer effects, smoking, sorting. |
| JEL: | I12 D1 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp399&r=ure |
| By: | Miguel, Edward; Hamory, Joan |
| Abstract: | This study exploits a new longitudinal dataset to examine selective migration among 1,500 Kenyan youth originally living in rural areas. We examine whether migration rates are related to individual “ability”, broadly defined to include cognitive aptitude as well as health, and then use these estimates to determine how much of the urban-rural wage gap in Kenya is due to selection versus actual productivity differences. Whereas previous empirical work has focused on schooling attainment as a proxy for cognitive ability, we employ an arguably preferable measure, a pre-migration primary school academic test score. Pre-migration randomized assignment to a deworming treatment program provides variation in health status. We find a positive relationship between both measures of human capital (cognitive ability and deworming) and subsequent migration, though only the former is robust at standard statistical significance levels. Specifically, an increase of two standard deviations in academic test score increases the likelihood of rural-urban migration by 17%. Accounting for migration selection due to both cognitive ability and schooling attainment does not explain more than a small fraction of the sizeable urban-rural wage gap in Kenya, suggesting that productivity differences across sectors remain large. |
| Keywords: | Migration; selection; human capital; ability; urban-rural wage gap; productivity |
| JEL: | O15 C33 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19228&r=ure |
| By: | Sprietsma, Maresa |
| Abstract: | This paper studies the effect of teacher expectations on essay grades in an experimental setting. To this purpose, we randomly assign Turkish or German first names to a set of essays so that some teachers believe a given essay was written by a German native pupil, whereas others believe it was written by a pupil of Turkish origin. We find that essays obtain significantly lower grades and lower secondary school recommendations when bearing a Turkish sounding name. -- |
| Keywords: | Experiment,discrimination,grading,pupils with migration,background |
| JEL: | I20 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09074&r=ure |
| By: | Alessandro Innocenti; Patrizia Lattarulo; Maria Grazia Pazienza |
| Abstract: | . This study applies experimental methods to analyze travel mode choice. Two different scenarios are considered. In the first scenario, subjects have to decide whether to commute by car or by metro. Metro costs are fixed, while car costs are uncertain and determined by the joint effect of casual events and traffic congestion. In the second scenario, subjects have to decide whether to travel by car or by bus, both modes in which costs are determined by the combination of chance and congestion. Subjects receive feedback information on the actual travel times of both modes. We find that individuals exhibit a marked preference for cars, are inclined to confirm their first choice and demonstrate travel mode stickiness. We conclude that travel mode choice is subject to heuristics and biases that lead to robust deviations from rational choice. |
| Keywords: | travel mode choice, learning, information, heuristics, cognitive biases. |
| JEL: | C91 D83 R41 R48 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:usi:labsit:027&r=ure |
| By: | Hilber, Christian A. L.; Robert-Nicoud, Frédéric |
| Abstract: | We model residential land use constraints as the outcome of a political economy game between owners of developed and owners of undeveloped land. Land use constraints benefit the former group (via increasing property prices) but hurt the latter (via increasing development costs). More desirable locations are more developed and, as a consequence of political economy forces, more regulated. Using an IV approach that directly follows from our model we find strong and robust support for our predictions. The data provide weak or no support for alternative hypotheses whereby regulations reflect the wishes of the majority of households or efficiency motives. |
| Keywords: | housing supply; land ownership; land use regulations; zoning |
| JEL: | H7 Q15 R52 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7604&r=ure |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Alain Kabundi (Department of Economics and Econometrics, University of Johannesburg); Stephen M. Miller (College of Business, University of Las Vegas, Nevada) |
| Abstract: | We employ a 10-variable dynamic structural general equilibrium model to forecast the US real house price index as well as its turning point in 2006:Q2. We also examine various Bayesian and classical time-series models in our forecasting exercise to compare to the dynamic stochastic general equilibrium model, estimated using Bayesian methods. In addition to standard vector-autoregressive and Bayesian vector autoregressive models, we also include the information content of either 10 or 120 quarterly series in some models to capture the influence of fundamentals. We consider two approaches for including information from large data sets – extracting common factors (principle components) in a Factor-Augmented Vector Autoregressive or Factor-Augmented Bayesian Vector Autoregressive models or Bayesian shrinkage in a large-scale Bayesian Vector Autoregressive models. We compare the out-ofsample forecast performance of the alternative models, using the average root mean squared error for the forecasts. We find that the small-scale Bayesian-shrinkage model (10 variables) outperforms the other models, including the large-scale Bayesian-shrinkage model (120 variables). Finally, we use each model to forecast the turning point in 2006:Q2, using the estimated model through 2005:Q2. Only the dynamic stochastic general equilibrium model actually forecasts a turning point with any accuracy, suggesting that attention to developing forward-looking microfounded dynamic stochastic general equilibrium models of the housing market, over and above fundamentals, proves crucial in forecasting turning points. |
| Keywords: | US House prices, Forecasting, DSGE models, Factor Augmented Models, Large-Scale BVAR models |
| JEL: | C32 R31 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200927&r=ure |
| By: | De Martí, Joan; Zenou, Yves |
| Abstract: | We survey the literature on social networks by putting together the economics, sociological and physics/applied mathematics approaches, showing their similarities and differences. We expose, in particular, the two main ways of modeling network formation. While the physics/applied mathematics approach is capable of reproducing most observed networks, it does not explain why they emerge. On the contrary, the economics approach is very precise in explaining why networks emerge but does a poor job in matching real-world networks. We also analyze behaviors on networks, which take networks as given and focus on the impact of their structure on individuals’ outcomes. Using a game-theoretical framework, we then compare the results with those obtained in sociology. |
| Keywords: | centrality measures; game theory; network formation; random graph; weak and strong ties. |
| JEL: | A14 C72 D85 Z13 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7599&r=ure |
| By: | Pfeiffer , Friedhelm; Seiberlich, Ruben R. |
| Abstract: | According to our research, some 12% of young people in Germany between the ages of 17 and 19 are disconnected, i.e. not in school, unemployed, and not living with a partner. The percentage of disconnected youths has been on the rise since 2002. There is evidence that an adverse family environment is the most important variable for being disconnected. Early life adversity influences the development of cognitive and noncognitive skills as well as school and labour market outcomes. Macroeconomic factors also contribute to disconnectedness. Recessions are followed by an increase in the number of disconnected youth. -- |
| Keywords: | Disconnected youth,unemployment,school failure,life adversity |
| JEL: | D87 I12 I21 J13 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09070&r=ure |
| By: | Ortigueira, Luis C. |
| Abstract: | The control is one of the factors that can contribute to the success of any organization. In this paper, research for one of the most important control types is presented: the management and evaluation of the local public policies. The research determines citizen satisfaction with local services of a public organization; and, also the criteria, analysis and prescriptions of a different group of experts. Application of this research to a significantly sized municipal results in a descriptive, explicative and prescriptive model system being offered that will greatly assist those responsible at the moment in which they formulate or reformulate performance level tests of services, social events, programs and policies. |
| Keywords: | Local public policies; public policy evaluation; Image strategy |
| JEL: | D73 L38 H83 |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19364&r=ure |
| By: | Andrabi, Tahir; Das, Jishnu; Khwaja, Asim Ijaz |
| Abstract: | Female education levels are very low in many developing countries. Does maternal education have a causal impact on children's educational outcomes even at these very low levels of education? By combining a nationwide census of schools in Pakistan with household data, the authors use the availability of girls'schools in the mother's birth village as an instrument for maternal schooling to address this issue. Since public schools in Pakistan are segregated by gender, the instrument affects only maternal education rather than the education levels of both mothers and fathers. The analysis finds that children of mothers with some education spend 75 minutes more on educational activities at home compared with children whose mothers report no education at all. Mothers with some education also spend more time helping their children with school work; the effect is stronger (an extra 40 minutes per day) in families where the mother is likely the primary care-giver. Finally, test scores for children whose mothers have some education are higher in English, Urdu (the vernacular), and mathematics by 0.24-0.35 standard deviations. There is no relationship between maternal education and mother’s time spent on paid work or housework - a posited channel through which education affects bargaining power within the household. And there is no relationship between maternal education and the mother's role in educational decisions or in the provision of other child-specific goods, such as expenditures on pocket money, uniforms, and tuition. The data therefore suggest that at these very low levels of education, maternal education does not substantially affect a mother's bargaining power within the household. Instead, maternal education could directly increase the mother's productivity or affect her preferences toward children’s education in a context where her bargaining power is low. |
| Keywords: | Education For All,Primary Education,Access&Equity in Basic Education,Early Childhood Development,Youth and Governance |
| Date: | 2009–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5143&r=ure |
| By: | Annamaria Fiore (Agenzia Regionale per la Tecnologia e l’Innovazione - ARTI); Maria Jennifer Grisorio (Agenzia Regionale per la Tecnologia e l’Innovazione - ARTI); Francesco Prota (Department of Economics & Mathematics, University of Bari) |
| Abstract: | Increasing globalization, if properly exploited, can provide interesting opportunities for regional economies. Nevertheless, when they are not managed with a far-sighted approach, regions, and particularly those at an intermediate level of development, can lose their comparative advantages compared to regions of developing countries. Innovation is the main instrument for improving and ensuring competitiveness to enterprises and growth opportunities to local economies. The aim of this paper is to discuss the importance of public policies in reinforcing regional innovation systems, and the role of regional innovation agencies. With this in mind, we describe the policies implemented by the Regional Agency for Technology and Innovation (ARTI) of Apulia, a region in Southern Italy. We also provide the first assessment of ARTI’s activities and provide some suggestions on how to improve regional R&D policies. |
| Keywords: | public policy, innovation, regional innovation system, regional competitiveness |
| JEL: | O18 O38 R58 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:wp0025&r=ure |
| By: | Meghan R. Busse; Christopher R. Knittel; Florian Zettelmeyer |
| Abstract: | The dramatic increase in gasoline prices from close to $1 in 1999 to $4 at their peak in 2008 made it much more expensive for consumers to operate an automobile. In this paper we investigate whether consumers have adjusted to gasoline price changes by altering what automobiles they purchase and what prices they pay. We investigate these effects in both new and used car markets. We find that a $1 increase in gasoline price changes the market shares of the most and least fuel-efficient quartiles of new cars by +20% and -24%, respectively. In contrast, the same gasoline price increase changes the market shares of the most and least fuel-efficient quartiles of used cars by only +3% and -7%, respectively. We find that changes in gasoline prices also change the relative prices of cars in the most fuel-efficient quartile and cars in the least fuel-efficient quartile: for new cars the relative price increase for fuel-efficient cars is $363 for a $1 increase in gas prices; for used cars it is $2839. Hence the adjustment of equilibrium market shares and prices in response to changes in usage cost varies dramatically between new and used markets. In the new car market, the adjustment is primarily in market shares, while in the used car market, the adjustment is primarily in prices. We argue that the difference in how gasoline costs affect new and used automobile markets can be explained by differences in the supply characteristics of new and used cars. |
| JEL: | L10 L50 L62 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15590&r=ure |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Christian K. Tipoy (Department of Economics, University of Pretoria); Sonali Das (LQM, CSIR, Pretoria) |
| Abstract: | This paper analyzes the ability of a random walk and, classical and Bayesian versions of autoregressive, vector autoregressive and vector error correction models in forecasting home sales for the four US census regions (Northeast, Middlewest, South, West), using quarterly data over the period of 2001:Q1 to 2004:Q3, based on an in-sample of 1976:Q1 till 2000:Q4. In addition, we also use our models to predict the downturn in the home sales of the four census regions over the period of 2004:Q4 to 2009:Q2, given that the home sales in all the four census regions peaked in 2005:Q3. Based on our analysis, we draw the following conclusions: (i) Barring the South, there always exists a Bayesian model which tends to outperform all other models in forecasting home sales over the out-of-sample horizon; (ii) When we expose our classical and ‘optimal’ Bayesian forecast models to predicting the peaks and declines in home sales, we find that barring the South again, our models did reasonably well in predicting the turning point exactly at 2005:Q3 or with a lead. In general, the fact that different models produce the best forecasting performance for different regions, highlights the fact that economic conditions prevailing at the start of the out-of-sample horizon are not necessarily the same across the regions, and, hence, vindicates our decision to look at regions rather than the economy as a whole. In addition, we also point out that there is no guarantee that the best performing model over the out-of-sample horizon is also well-suited in predicting the downturn in home sales. |
| Keywords: | Forecast Accuracy, Home Sales, Vector Autoregressive Models |
| JEL: | C32 R31 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200926&r=ure |
| By: | Hamerle, Alfred; Liebig, Thilo; Schropp, Hans-Jochen |
| Abstract: | “Arbitrage CDOs” have recorded an explosive growth during the years before the outbreak of the financial crisis. In the present paper we discuss potential sources of such arbitrage opportunities, in particular arbitrage gains due to mispricing. For this purpose we examine the risk profiles of Collateralized Debt Obligations (CDOs) in some detail. The analyses reveal significant differences in the risk profile between CDO tranches and corporate bonds, in particular concerning the considerably increased sensitivity to systematic risks. This has farreaching consequences for risk management, pricing and regulatory capital requirements. A simple analytical valuation model based on the CAPM and the single-factor Merton model is used in order to keep the model framework simple. Then, the conditional expected loss curve (EL profile) is studied in some detail. In the next step, the asset correlation associated with a CDO tranche is estimated treating the structured instrument as a single-name credit instrument (i.e., a loan equivalent). While tractable, the loan-equivalent approach requires appropriate parameterization to achieve a reasonable approximation of the tranche´s risk profile. We consider the tranche as a “virtual” borrower or bond for which a single-factor model holds. Then, the correlation parameter is calculated via a non-linear optimization. This “bond representation” allows to approximate the risk profile (expressed by the EL profile) using a single-factor model and to express the dependence on the systematic risk factor via the corresponding asset correlation. It turns out that the resulting asset correlation is many times higher than that of straight bonds. Then, the Merton type valuation model for the corresponding bond representations is applied for valuation of the CDO tranches. Using a sample CDO portfolio, some opportunities for “CDO arbitrage” are described where it is assumed that investors are guided solely by the tranches’ rating and ignore the increased systematic risk for pricing. In the next section we discuss how tranches with high systematic risk can be generated and how CDO arrangers can exploit this to their advantage. It comes as no surprise that precisely these types of structures featured in many of the CDOs issued prior to the outbreak of the financial crisis. -- |
| Keywords: | Collateralized debt obligations (CDO),arbitrage CDOs,credit rating,expected loss profile,bond representation,systematic risk of CDO tranches,CDO pricing |
| JEL: | C13 G12 G24 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:200913&r=ure |