the effectiveness of keynes tobin transaction taxes when heterogeneous agents can trade in different markets a behavioral finance approach abstract we develop a model in which boundedly rational agents apply technical and fundamental analysis to identify trading signals in two different speculative markets whether an agent trades and if so in which market with which strategy depends on profit considerations as it turns out an ongoing evolutionary competition between the trading strategies causes complex price dynamics which closely resembles the behavior of actual speculative prices moreover we find that if the agents have to pay a transaction tax in one market price variability decreases in this market but increases in the other market however the imposition of a uniform tax on all transactions stabilizes both markets our results suggest that if regulators of a market introduce a transaction tax other markets are likely to follow

a cointegration analysis of petroleum futures prices abstract this paper presents evidence concerning the number of common stochastic trends in a system of three petroleum futures prices crude oil heating oil and unleaded gasoline using daily data from 3 december 1984 to 30 april 1993 johansen s maximum likelihood approach for estimating long run relations in multivariate vector autoregressive models is used the results indicate the presence of only one common trend

what drives capital flows to emerging markets a survey of the empirical literature this paper reviews the rapidly growing empirical literature on the drivers of capital flows to emerging markets the empirical evidence is structured based on the recognition that the drivers of capital flows vary over time and across different types of capital flows the drivers are classified using the traditional push vs pull framework which is augmented by a distinction between cyclical and structural factors push factors are found to matter most for portfolio flows somewhat less for banking flows and least for fdi pull factors matter for all three components but most for banking flows a historical perspective suggests that the recent literature may have overemphasized the importance of cyclical factors at the expense of longer term structural trends

the shifting drivers of global liquidity abstract the sensitivities of the main global liquidity components international loan and bond flows to global factors varied considerably over the past decade the estimated sensitivity to us monetary policy rose substantially in the immediate aftermath of the global financial crisis peaked around the time of the 2013 fed taper tantrum and then reverted towards pre crisis levels conversely the responsiveness of international bank lending to global risk conditions declined steadily throughout the post crisis period we show that the main driver of the fluctuations in the estimated sensitivities to us monetary policy was the degree of convergence among advanced economy monetary policies meanwhile the post crisis fall in the sensitivity of international bank lending to global risk was mainly driven by increases in the lending shares of better capitalized banking systems

costs of entry and exit from financial markets and capital flows to developing countries abstract though the theory of irreversible investment under uncertainty is now well understood no attempt has been made to empirically evaluate its predictions for foreign investment decisions yet costs of entry and exit from financial markets due to government restrictions certainly represent an important source of irreversibility in this paper a model with partial irreversibility of investment is used to derive a negative relation between costs of entry and exit from financial markets and foreign investment such a theoretical relation is consistent with empirical findings from a panel of 25 developing countries in 1987 1991

do complex financial models really lead to complex dynamics agent based models and multifractality abstract agent based models are usually claimed to generate complex dynamics however the link to such complexity has not been subject to rigorous examination this paper studies this link between the complexity of financial time series measured by their multifractal properties and the design of various small scale agent based frameworks used to model the heterogeneity of financial markets nine popular models are analyzed and while some of the models do not generate interesting multifractal patterns we observe the strongest tendency towards multifractal behavior for the bornholdt ising model the discrete choice based models by gaunersdorfer hommes and schmitt westerhoff and the transition probabilities based framework by franke westerhoff complexity is thus not an automatic feature of the time series generated by any agent based model but generated only by models with specific properties in addition because multifractality is considered a financial stylized fact its presence can be used as a new means to validate such models

money and financial markets introduction money and financial markets mark p taylor part 1 assessing the literature money demand analysis an outline keith cuthbertson david barlow financial market analysis an outline ronald macdonald and mark p taylor part 2 money demand studies money demand in five major countries estimating and interpreting error correction models james m boughton modelling broad and narrow money a study using cointegration martin brookes et al endogenous financial innovation and the demand for mo peter westaway and david walton money demand in high inflation countries a south american perpsective kate phylakis and mark p taylor the demand for money in four countries in the interwar period a study using monthly data jonathan slow et al part 3 money and financial markets some news on covered interest arbitrage mark p taylor patricia fraser monitoring bank risk a market based approach david miles stephen hall information interest rates and the volatility of asset prices laurence copeland richard c stapleton the decision to disclose research and development expenditure in the presence of a takeover threat jane black ian tonks persistence in stock market returns a disaggregated perspective roanld macdonald david power global capital market integration and the current account michael artis tamim bayoumi financial disorder and the theory of crisis e p davis part 4 new directions in financial market analysis neural networks and asset prices paul ormerod chartists fundamentalists and the transmission of opinion alan kirman

equilibrium interest rates and financial liberalisation in developing countries it is a central argument of the financial repression literature that interest rates should be determined by the market to reflect the true cost of capital this article suggests that the notion of an equilibrium interest rate may be undefined since the rate required to balance financial markets differs from that required to equilibrate savings and investment thus liberalisation introduces an intrinsic instability into the financial system as a result of portfolio adjustment the article examines the chilean and korean experiences and concludes that a sustainable reform requires positive but low real interest rates and broad regulation of the financial system to ensure macroeconomic stability

assessing the impact of financial liberalisation on stock market volatility in selected developing countries this article argues for the importance of measuring stock market volatility following financial liberalisation in developing countries three alternative indices for measuring volatility are developed these are used to examine the view that financial liberalisation induces increased asset price volatility based on the limited data available this view is corroborated in the majority of countries investigated

what is the major determinant of cross border banking flows abstract this study examines the major determinant of cross border credit flows through global banks across 70 countries employing a bayesian dynamic latent factor model we decompose volatilities of banking flows into the contribution of a global common factor regional common factor and country specific factor the results indicate that the global and regional common factor explains about 40 50 percent of volatility in overall cross border banking flows in particular the contribution of the global common factor increased in the 2000s simultaneously main determinants are largely heterogeneous across countries this implies that the desirable policy response to credit inflows may differ for each host country

moral hazard asset price bubbles capital flows and the east asian crisis the first tests we examine the view that the recent east asian crisis was precipitated by bursting asset price bubbles which had been fuelled by strong capital inflows that were largely the result of a moral hazard problem in financial intermediation and was exacerbated by a vicious cycle of asset price deflation and incipient and actual capital flight we find evidence of stock market bubbles in all east asian economies examined although not in australia we examine various categories of capital flows to these countries and find in particular relatively high reversible components in portfolio flows to east asian economies

modeling and forecasting cointegrated relationships among heavy oil and product prices abstract in this paper we investigate heavy crude oil and product price dynamics we present a comparison among ten prices series of heavy crude oils and fourteen price series of petroleum products in two distinct areas europe and americas over the period 1994 2002 we provide a complete analysis of crude oil and product price dynamics using cointegration and error correction models ecm subsequently we use the ecm specification to predict crude oil prices over the horizon january 2002 june 2002 finally we compare the forecasting performance of ecm with a naive model in first differences which does not exploit any cointegrating relation

commodity markets price limiters and speculative price dynamics abstract we develop a behavioral commodity market model with consumers producers and heterogeneous speculators to characterize the nature of commodity price fluctuations and to explore the effectiveness of price stabilization schemes within our model we analyze how nonlinear interactions between market participants can create either bull or bear markets or irregular price fluctuations between bull and bear markets through a global homoclinic bifurcation both the imposition of a bottoming price level to support producers or a topping price level to protect consumers can eliminate such homoclinic bifurcations and hence reduce market price volatility however simple policy rules such as price limiters may have unexpected consequences in a complex environment a minimum price level decreases the average price while a maximum price limit increases the average price in addition price limiters influence the price dynamics in an intricate way and may cause volatility clustering

representativeness of news and exchange rate dynamics abstract guided by psychological evidence we develop a behavioral exchange rate model in which investors perception of fundamental shocks switches between two states according to the representativeness heuristic agents underestimate the informational content of news in calm periods whereas they overreact to news if they encounter a series of distinct exchange rate changes simulations indicate that the model mimics the behavior of actual exchange rates quite well for instance we observe fat tails for the distribution of the returns and volatility clustering

the impact of the north american shale gas revolution on regional natural gas markets evidence from the regime switching model this paper investigates the impact of the north american shale gas revolution on price movement regimes in the north american and european gas markets using the markov regime switching model it then measures price spreads between oil and gas from 1998 to 2015 to identify the impact of the revolution on the relationship between oil and regional gas prices the results show that the typical movement regime of henry hub prices changes from slightly upward to sharply downward in addition the clear seasonal effect of henry hub prices has disappeared after the shale gas revolution the typical movement of national balancing point nbp prices has changed gradually from a sharply upward regime to the alternative regimes between sharply downward and slightly upward tending to follow oil prices this indicates that the shale gas revolution has had little impact on nbp price movement meanwhile henry hub prices have decoupled from wti prices while nbp and brent prices have continued to exhibit a long term equilibrium level around which they have swung in the short time frame since the shale gas revolution pertinent energy policy makers and energy market participants should pay attention to these changes and adjust their trade production and investment strategies accordingly

error correction mechanisms the interface between economic theory and applied econometrics is often one of uneasy compromise with the pragmatic justification for many accepted procedures resting on a theoretical base this paper examines the surprisingly strong arguments that exist in terms of economic theory for the use of error correction mechanisms in the specification of short run dynamic adjustment a common heresy exists that while economic theory provides a detailed analysis of comparative static equilibria it can offer no guidance as to the appropriate specification of dynamic adjustment towards an equilibrium perhaps in consequence it is not uncommon to find examples where the necessary dynamic specification is achieved by tacking onto an existing equilibrium specification some relatively ad hoc short run adjustment scheme the intercession of stochastic arguments in this process is confused and critical implications are frequently ignored in practice but perhaps more importantly there will typically be no guarantee that the dynamic specification is consistent with the prescribed equilibrium consistency in this sense requires that the short run dynamic adjustment be directed by the perceived disequilibrium and that eventual convergence to the equilibrium position be ensured that two separate theoretical arguments co exist within the final specification is the root cause of many difficulties both theoretical and empirical this abstract was borrowed from another version of this item

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

asset price and wealth dynamics in a financial market with heterogeneous agents abstract this paper considers a discrete time model of a financial market with one risky asset and one risk free asset where the asset price and wealth dynamics are determined by the interaction of two groups of agents fundamentalists and chartists in each period each group allocates its wealth between the risky asset and the safe asset according to myopic expected utility maximization but the two groups have heterogeneous beliefs about the price change over the next period the chartists are trend extrapolators while the fundamentalists expect that the price will return to the fundamental we assume that investors optimal demand for the risky asset depends on wealth as a result of crra utility a market maker is assumed to adjust the market price at the end of each trading period based on excess demand and on changes of the underlying reference price the model results in a nonlinear discrete time dynamical system with growing price and wealth processes but it is reduced to a stationary system in terms of asset returns and wealth shares of the two groups it is shown that the long run market dynamics are highly dependent on the parameters which characterize agents behaviour as well as on the initial condition moreover for wide ranges of the parameters a locally stable fundamental steady state coexists with a stable non fundamental steady state or with a stable closed orbit where only chartists survive in the long run such cases require the numerical and graphical investigation of the basins of attraction other dynamic scenarios include periodic orbits and more complex attractors where in general both types of agents survive in the long run with time varying wealth fractions

hot money in bank credit flows to emerging markets during the banking globalization era this paper investigates the relative importance of hot money in bank credit and portfolio flows from the us to 18 emerging markets over the period 1988 2012 we deploy state space models a la kalman filter to identify the unobserved hot money as the temporary component of each type of flow the analysis reveals that the importance of hot money relative to the permanent component in bank credit flows has significantly increased during the 2000s relative to the 1990s this finding is robust to controlling for the influence of push and pull factors in the two unobserved components the evidence supports indirectly the view that global banks have played an important role in the transmission of the global financial crisis to emerging markets and endorses the use of regulations to manage international capital flows

crack spread hedging accounting for time varying volatility spillovers in the energy futures markets crude oil heating oil and unleaded gasoline futures contracts are simultaneously analysed for their effectiveness in reducing price volatility for an energy trader a conceptual model is developed for a trader hedging the crack spread various hedge ratio estimation techniques are compared to a multivariate garch model that directly incorporates the time to maturity effect often found in futures markets modelling of the time variation in hedge ratios via the multivariate garch methodology and thus taking into account volatility spillovers between markets is shown to result in significant reductions in uncertainty even while accounting for trading costs copyright 2002 john wiley sons ltd

analysing inflation by the fractionally integrated arfima garch model this paper considers the application of long memory processes to describing inflation for ten countries we implement a new procedure to obtain approximate maximum likelihood estimates of an arfima garch process which is fractionally integrated i d with a superimposed stationary arma component in its conditional mean additionally this long memory process is allowed to have garch type conditional heteroscedasticity on analysing monthly post world war ii cpi inflation for ten different countries we find strong evidence of long memory with mean reverting behaviour for all countries except japan which appears stationary for three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the friedman hypothesis

some effects of transaction taxes under different microstructures we show that the effectiveness of transaction taxes depends on the market microstructure within our model heterogeneous traders use a blend of technical and fundamental trading strategies to determine their orders in addition they may become inactive if the profitability of trading decreases we find that in a continuous double auction market the imposition of a transaction tax is not likely to stabilize financial markets since a reduction in market liquidity amplifies the average price impact of a given order in a dealership market however abundant liquidity is provided by specialists and thus a transaction tax may reduce volatility by crowding out speculative orders

capital flows to developing countries this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries

is the business cycle characterized by deterministic chaos abstract tests are conducted on u s macroeconomic data for the presence of low dimensional deterministic chaos where deterministic chaos is defined as in grandmont s 1985 walras bowley lecture or in brock 1986 the idea is to test for evidence of endogenous instability causing the business cycle low order autoregressions are hard to reject with our methods evidence of chaos is weak but our tests may be too weak to detect it evidence of nonlinearity is present in employment 1950 i to 1983 iv unemployment 1949 i to 1982 iv monthly post war industrial production and pig iron production 1877 1937

a vector autoregressive model of the british columbia regional economy we construct a small vector autoregressive var model to investigate the usefulness of this approach to forecasting the british columbia bc macro economy the forecasts are compared with univariate arima forecasts overall our results suggest that the accuracy of the var matches or exceeds that of the univariate arima the accuracy of the predictions from our var model indicates that var as a forecasting tool is a promising approach for regional forecasting and warrants further investigation formal tests for granger causality are conducted and we find evidence of bi directional causality between bc employment and prices and uni directional causality from bc gdp to both bc employment and canadian gdp our results also suggest uni directional causality from canadian gdp to both bc employment and prices and from prices to gdp within bc

forecasting business and consumer surveys indicators a time series models competition the objective of this article is to compare different time series methods for the short run forecasting of business and consumer survey indicators we consider all available data taken from the business and consumer survey indicators for the euro area between 1985 and 2002 the main results of the forecast competition are offered not only for raw data but we also consider the effects of seasonality and removing outliers on forecast accuracy in most cases the univariate autoregressions were not outperformed by the other methods as for the effect of seasonal adjustment methods and the use of data from which outliers have been removed we obtain that the use of raw data has little effect on forecast accuracy the forecasting performance of qualitative indicators is important since enlarging the observed time series of these indicators with forecast intervals may help in interpreting and assessing the implications of the current situation and can be used as an input in quantitative forecast models

do stationary risk premia explain it all evidence from the term structure abstract predictable variations in excess returns have often been attributed to the presence of time varying risk premia in this paper we use an insight based upon new techniques from time series analysis to test whether stationary risk premia can alone explain the behavior of excess returns to long bonds relative to rolling over short rates surprisingly we reject this hypothesis using u s t bill returns we then show that either permanent shocks to the risk premia and or rationally anticipated shifts in the interest rate process could produce anomalous results

long memory in inflation rates international evidence we examine monthly inflation rates of five industrial countries the application of tests against stationarity as well as tests against a unit root yield contradictory results thus fractional integration allowing for long memory is a plausible model we discuss and apply the periodogram regression to estimate the difference parameters for all countries we find estimates significantly different from 1 as well as from 0 this is evidence in favor of long memory specification tests and maximum likelihood estimates support the fitted models finally we relate our empirical results to the construction of the data

seminonparametric estimation of conditionally constrained heterogeneous processes asset pricing applications the overidentifying restrictions of the intertemporal capital asset pricing model are usually rejected when tested using data on consumption growth and asset returns particu larly when additively separable constant relative risk utility is attributed to the representa tive agent this article investigates the extent to which specification error can explain these rejections the empirical strategy is limited information maximum likelihood in conjunc tion with seminonparametric expanding parameter space representations for both the law of motion and utility we find that consumption growth and asset returns display conditional heterogeneity but this fact does not account for rejection of the overidentifying restrictions as might be anticipated from the work of hansen singleton and others using generalized method of moments methods we also find that expansion of the parameter space in the direction of nonseparable utility causes the overidentifying restrictions to be accepted our estimation strategy provides information on the manner in which the restrictions distort the law of motion in particular imposition of additively separable constant relative risk aversion utility causes the conditional variance of consumption growth to be overpredicted the conditional covariance of asset returns with consumption growth to be overpredicted and an equity premium imposition of nonseparable seminon parametric utility causes distortion in these same directions though the distortions are much smaller which is consistent with the outcomes of the tests of the restrictions

international capital mobility in the long run and the short run can we still learn from saving investment data the idea to learn about international capital mobility from saving and investment data remains appealing our approach is based on var methods and overcomes some of the problems associated with saving investment regressions when the data are non stationary we propose a new measure of long run capital mobility that can be easily calculated as a by product of the estimation procedure of a cointegrated var in an application to historical us and british data we find long run capital mobility to have been remarkably stable over the century whereas variations in the mobility of capital primarily seem to have affected short run capital flows

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

risk management in the oil industry can information on long run equilibrium prices be utilized abstract we analyze co movements between the prices of crude oil and major refined products during the period 1992 1998 specifically we explore the existence of long run equilibrium price relationships and whether deviations from estimated equilibrium can be utilized for predictions of short term price changes and for risk management the econometric evidence strongly supports the hypothesis that crude and product prices are co integrated past deviations from long term equilibrium are significant in an error correction specification of short term product price changes the results represent valuable information for hedging particularly in integrated oil companies for which price risk is related to margin variations

modelling portfolio capital flows in a global framework multilateral implications of capital controls abstract in the aftermath of the global financial crisis many emerging market countries resorted to capital controls to tackle the excessive surge of capital inflows a number of recent research papers have suggested that the imposition of controls may have imposed negative externalities on other countries by deflecting flows our aim in the research reported in this paper is to assess the efficacy of capital controls and potential deflection effects on other countries by constructing a comprehensive global econometric model which captures the dynamic interactions of capital flows with domestic and global fundamentals the results suggest that capital controls are effective for some countries in the short run but have no lasting effects moreover there is only limited evidence of deflection effects for a small number of emerging market countries

understanding interdependence the macroeconomics of the open economy list of figureslist of tablesintroduction1the endogeneity of exchange rate regimes32exchange rate behavior under alternative exchange rate arrangements343panel one money for how many 844exchange rates prices and external adjustment in the united states and japan1075the dynamic optimizing approach to the current account theory and evidence1696international capital mobility in the 1990s2017a retrospective on the debt crisis2628trade liberalization in disinflation2919inflation and growth in an integrated approach31310panel the outlook for stabilization and reform in central and eastern europe36811international cooperation in the making of national macroeconomic policies where do we stand 39112the political economy of monetary union44813what do we need to know about the international monetary system 509conference participants531author index535subject index543

a robust rational route to randomness in a simple asset pricing model abstract we investigate asset pricing dynamics in an adaptive evolutionary asset pricing model with fundamentalists trend followers and a market maker agents can choose between a fundamentalist strategy at positive information cost or choose a trend following strategy for free price adjustment is proportional to the excess demand in the asset market agents asynchronously update their strategy according to realized net profits in the recent past as agents become more sensitive to differences in strategy performance the fundamental steady state becomes unstable and multiple steady states may arise as the traders sensitivity to differences in fitness increases a bifurcation route to chaos sets in due to homoclinic bifurcations of stable and unstable manifolds of the fundamental steady state

heterogeneous speculators endogenous fluctuations and interacting markets a model of stock prices and exchange rates abstract we develop a discrete time model in which the stock markets of two countries are linked via and with the foreign exchange market the foreign exchange market is characterized by nonlinear interactions between technical and fundamental traders such interactions may generate complex dynamics and recurrent switching between bull and bear market phases via a well known pitchfork and period doubling bifurcation path when technical traders become more aggressive the two stock markets are populated by fundamentalists and prices tend to evolve towards stable steady states driven by linear laws of motion a connection between such markets is established by allowing investors to trade abroad and the resulting three dimensional dynamical system is analyzed one goal of our paper is to explore potential spill over effects between foreign exchange and stock markets a second related goal is to study how the bifurcation sequence which characterizes the market with heterogeneous speculators is modified in the presence of interactions with other markets

on the link between forward energy prices a nonlinear panel cointegration approach abstract this paper investigates the relationship between forward prices of oil gas coal and electricity using a nonlinear panel cointegration framework to this end we consider a panel of 35 maturities and control for the economic and financial environment using equity futures prices estimating the cointegrating relationship we find that oil gas and coal forward prices are positively linked while the negative link between oil and electricity prices is consistent with a substitution effect between the two energy sources on the long run estimating panel smooth transition regression pstr models we show that the forward oil price adjustment process toward its equilibrium value is nonlinear and asymmetric putting forward the key role played by self sustaining dynamics and speculation phenomena

hot money accounting labels and the permanence of capital flows to developing countries an empirical investigation using maximum likelihood kalman filtering techniques and non parametric variance ratio statistics we gauge the relative importance of permanent and temporary components of capital flows to latin american and asian developing countries over the period 1988 1997 for the broad categories of flows in the capital account equity flows ef bond flows bf official flows of commercial bank credit bc and foreign direct investment fdi we find relatively low permanent components in ef bf and of while commercial bc flows appear to contain quite large permanent components and fdi flows are almost entirely permanent these results have a natural interpretation and clear policy implications

network structure and n dependence in agent based herding models abstract we derive microscopic foundations for a well known probabilistic herding model in the agent based finance literature while the model is quite robust with respect to behavioral heterogeneity the network structure describing the very feasibility of agent interaction turns out to have a crucial and non trivial impact on the macroscopic properties of the model

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

order aggressiveness pre trade transparency and long memory in an order driven market abstract recent empirical research has documented that the state of the limit order book influences stock investors strategies investors place more aggressive orders when the same side of the order book is thicker and less aggressive orders when it is thinner we conjecture and demonstrate that this behavior is related to long memories of trading volume volatility and order signs in stock markets we investigate our conjecture in two types of artificial stock markets a transparent market in which agents observe all limit orders on both sides of the book and order volumes at those prices before they trade and a less transparent market in which agents observe only the best five bid and ask quotes with the depth available at these limit prices the first market structure resembles certain actual stock exchanges in the level of pre trade transparency such as the australian stock exchange nyse openbook and the london stock exchange whereas the second market structure is consistent with stock exchanges such as euronext paris the toronto stock exchange the tokyo stock exchange and hong kong exchanges and clearing we demonstrate that our long memory results are robust with different levels of pre trade transparency implying that the strategy constructed by the state of the order book is key for explaining long memories in many actual stock exchanges

liberalization fdi and growth in developing countries a panel cointegration approach using a panel cointegration framework the article explores the two way link between fdi and growth for a panel of 23 developing countries in addition it investigates the impact of liberalization on the dynamics of the fdi and gdp relationship a long run cointegrating relationship is found between fdi and gdp after allowing for heterogeneous country effects the cointegrating vectors reveal a bidirectional causality between gdp and fdi for more open economies for relatively closed economies long run causality appears unidirectional and runs from gdp to fdi implying that growth and fdi are not mutually reinforcing under restrictive trade and investment regimes

cointegration and unit roots this paper provides an updated survey of a burgeoning literature on testing estimation and model specification in the presence of integrated variables integrated variables are a specific class of non stationary variables which seem to characterise faithfully the properties of many macroeconomic time series the analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories special emphasis is put on the empirical researcher s point of view

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

forecasting oil price movements with crack spread futures abstract in oil markets the crack spread refers to the crude product price relationship refiners are major participants in oil markets and they are primarily exposed to the crack spread in other words refiner activity is substantially driven by the objective of protecting the crack spread moreover oil consumers are active participants in the oil hedging market and they are frequently exposed to the crack spread from another perspective hedge funds are heavily using crack spread to speculate in oil markets based on the high volume of crack spread futures trading in oil markets the question we want to raise is whether the crack spread futures can be a good predictor of oil price movements we investigated first whether there is a causal relationship between the crack spread futures and the spot oil markets in a vector error correction framework we found the causal impact of crack spread futures on spot oil market both in the long and the short run after april 2003 where we detected a structural break in the model to examine the forecasting performance we use the random walk model rwm as a benchmark and we also evaluate the forecasting power of crack spread futures against the crude oil futures the results showed that a both the crack spread futures and the crude oil futures outperformed the rwm and b the crack spread futures are almost as good as the crude oil futures in predicting the movements in spot oil markets

on the reinterpretation of money demand regressions a stylized fact concerning estimated money demand relationships is that lagged dependent variables have high explanatory power and large estimated coefficients which is hard to explain at a theoretical level marvin s goodfriend 1985 suggests that this may be due to the presence of serially correlated measurement errors in the independent variables the author demonstrates how consistent estimates of the short run demand function can be obtained even if the goodfriend hypothesis is accepted and also how the hypothesis might be tested application of the suggested test using the goldfeld 1973 data set leads to decisive rejection of the hypothesis copyright 1994 by ohio state university press

wheels within wheels within wheels the importance of capital inflows in the origin of the spanish financial crisis with the creation of the euro the spanish economy established an exchange rate regime similar to that adopted by many emerging economies during the 1990s at the same time the eurozone as a whole adopted a currency system with features similar to the us currency regime in emerging economies as in the us economy the adoption of these models was accompanied by strong growth in capital inflows as well as severe financial mostly banking and or macroeconomic mostly trade imbalances several authors have linked capital inflows with imbalances as cause and effect this work uses some of those arguments along with statistical data on the characteristics and evolution of capital inflows registered by the spanish economy and by the eurozone as a whole in order to propose a causal link between post euro exchange rate regimes adopted in spain capital inflows and the imbalances that preceded the financial crisis of 2008

exchange rate dynamics central bank interventions and chaos control methods abstract we use a simple chartist fundamentalist model developed by day and huang to explore recent chaos control algorithms as potential candidates for central bank intervention rules we find that methods such as delayed feedback control ogy and constant feedback have in principle the potential to reduce exchange rate variability and deviations from fundamentals even in the presence of large dynamic noise

examining the effectiveness of price limits in an artificial stock market abstract this paper proposes an agent based framework to examine the effectiveness of price limits in an artificial stock market the market is composed of many boundedly rational and heterogeneous traders whose learning behavior is represented by a genetic programming algorithm we calibrate the model to replicate several stylized facts observed in real financial markets based on this environment the impacts of price limits are analyzed from the perspectives of volatility price distortion volume and welfare we find that the imposition of price limits possesses both positive and negative effects however compared with the market without price limits appropriate price limits help to reduce volatility and price distortion and increase the liquidity and welfare

on the complicated price dynamics of a simple one dimensional discontinuous financial market model with heterogeneous interacting traders abstract we develop a financial market model with heterogeneous interacting agents market makers adjust prices with respect to excess demand chartists believe in the persistence of bull and bear markets and fundamentalists bet on mean reversion moreover speculators trade asymmetrically in over and undervalued markets and while some of them determine the size of their orders via linear trading rules others always trade the same amount of assets the dynamics of our model is driven by a one dimensional discontinuous map despite the simplicity of our model analytical graphical and numerical analysis reveals a surprisingly rich set of interesting dynamical behaviors

heterogeneous expectations exchange rate dynamics and predictability abstract this paper proposes a simple chartist fundamentalist model in which we allow for nonlinear time variation in chartists extrapolation rate estimation of the model using monthly data for the major currencies vis a vis the us dollar shows that the model is significant in sample and that it has out of sample predictive power for some of the currencies we investigate the power of tests of the random walk model to detect predictability against the alternative of the proposed model we find that the evidence of short term unpredictability and the long term predictability are consistent with our model

speculative markets and the effectiveness of price limits abstract the aim of this paper is to study the effectiveness of price limits in speculative markets we construct a nonlinear stochastic asset pricing model in which traders rely on technical and fundamental analysis to determine their orders the dynamics of the model mimic stylized facts such as the emergence of bubbles excess volatility fat tails for returns or volatility clustering quite well using this model as a laboratory we find that price limits have the potential to reduce both volatility and deviations from fundamentals the more traders lend themselves to trend extrapolating behavior the better price limits work

price relationships in the petroleum market an analysis of crude oil and refined product prices in this paper the relationships between crude oil and refined product prices are investigated in a multivariate framework this allows us to test several partly competing assumptions of earlier studies in particular we find that the crude oil price is weakly exogenous and that the spread is constant in some but not all relationships moreover the multivariate analysis shows that the link between crude oil prices and several refined product prices implies market integration for these refined products this is an example of supply driven market integration and producers will change the output mix in response to price changes

co integration of ice gas oil and crude oil futures abstract in this paper the relationship between gas oil and brent crude oil futures prices is investigated the analysis is based on daily price series for five different contract lengths traded on ice futures europe the price series and their first differences are tested for stationarity linear relationships between the pair wise gas oil and crude oil contracts are then tested for co integration a co integrated relationship is found for the 1 and 2 month contracts covering data from 1994 to 2009 and error correction models are established to estimate the relationships no co integrated relationships are found for the 3 6 and 12 month contracts covering the period 2002 2009 nor for the 1 and 2 month contracts for this period the futures prices for this period are collected from a volatile market including hurricane katrina the economic boom and the following financial crises which might explain these results thus in such volatile periods the spread between gas oil and crude oil is likely to deviate and it might take several years until it reverts to its equilibrium value for energy traders and hedgers this will imply that exposures to the crack spread should be treated with great care in such market environments

a functional coefficient model view of the feldstein horioka puzzle what does the saving investment si relation really measure and how should the si relation be measured these are two of the most discussed issues triggered by the so called feldstein horioka puzzle based on panel data we introduce a new variant of functional coefficient models that allows to separate long and short to medium run parameter dependence the new modeling framework is applied to uncover the determinants of the si relation macroeconomic state variables such as openness the age dependency ratio government current and consumption expenditures are found to affect the si relation significantly in the long run

global economic divergence and portfolio capital flows to emerging markets this paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows pcfs to emerging markets ems results suggest that pcfs to ems depend mainly on economic activity at the global level and monetary policy in america and asia positively on the former and negatively on the latters pcfs are procyclical with respect to global activity but countercyclical to regional activity in aggregate regional variations contribute more than global variations this implies that economic divergence in the developed world can have significant effects on ems via pcfs

correlation between chinese and international energy prices based on a hp filter and time difference analysis abstract to establish a reasonable system and mechanism for chinese energy prices we use the granger causality test hodrick prescott hp filter and time difference analysis to research the pricing relationship between chinese and international energy prices we find that chinese and international crude oil prices changed synchronously while chinese refined oil prices follow the changes of international oil prices with the time difference being about 1 month to 2 months further australian coal prices granger causes chinese coal prices and there is a high correlation between them the u s electricity price is influenced by the wti crude oil price the u s gasoline price and the henryhub gas price due to the unreasonable price setting mechanism and regulation from the central government china s terminal market prices for both electricity and natural gas do not reflect the real supply demand situation this paper provides quantitative results on the correlation between chinese and international energy prices to better predict the impact of international energy price fluctuations on china s domestic energy supply and guide the design of more efficient energy pricing policies moreover it provides references for developing countries to improve their energy market systems and trading and to coordinate domestic and international energy markets

what drives international portfolio flows understanding what drives international portfolio flows has important policy implications for countries wishing to exert some control on the size direction and volatility of the flows this paper empirically assesses the relative contribution of common push and country specific pull factors to the variation of bond and equity flows from the us to 55 other countries using a bayesian dynamic latent factor model we find that more than 80 of the variation in bond and equity flows is due to push factors from the us to other countries hence global economic forces seem to prevail over domestic economic forces in explaining movements in international portfolio flows the dynamics of push and pull factors can be partially explained by us and foreign economic fundamentals

rice prices and income distribution in thailand a non parametric analysis rice is a staple crop in thailand significantly entering both household production and consumption this paper examines the effect of rice prices on the distribution of real income across households taking into account household characteristics and geographical location the data set is a large scale survey of 11 893 households simple nonparametric techniques for regression and density estimation are used these methods depend on few assumptions and generate flexible graphical results that are directly informative about the problem at hand the main results are that higher rice prices should benefit all rural households but the largest benefits accrue to rural households in the middle of the income distribution copyright 1989 by royal economic society

varieties of agents in agent based computational economics a historical and an interdisciplinary perspective in this paper we trace four origins of agent based computational economics ace namely the markets origin the cellular automata origin the tournaments origin and the experiments origin along with this trace we examine how these origins have motivated different concepts and designs of agents in ace which starts from the early work on simple programmed agents randomly behaving agents zero intelligence agents human written programmed agents autonomous agents and empirically calibrated agents and extends to the newly developing cognitive agents psychological agents and culturally sensitive agents the review also shows that the intellectual ideas underlying these varieties of agents cross several disciplines which may be considered as a part of a general attempt to study humans and their behavior with an integrated interdisciplinary foundation

capital flows to developing countries long and short term determinants this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries copyright 1997 by oxford university press

an empirical model comparison for valuing crack spread options in this paper we investigate the pricing of crack spread options particular emphasis is placed on the question of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable therefore we contrast a bivariate garch volatility model for cointegrated underlyings with the alternative of modeling the crack spread directly conducting an empirical analysis of crude oil heating oil and crude oil gasoline crack spread options traded on the new york mercantile exchange the more simplistic univariate approach is found to be superior with respect to option pricing performance

do oil spot and futures prices move together abstract this paper investigates the time varying correlation and the causal relationship between crude oil spot and futures prices using a newly developed approach wavelet coherency analysis in time frequency domain first we find evidence of a long run cointegration relationship between oil spot and futures prices moreover the short run causality is more significant in shorter maturity pairs versus longer maturity pairs in the vector error correction framework second the results from wavelet coherency analysis show significant dynamic correlations between variables in the time frequency domain third the illustration of the phase difference series around zero suggests that spot and futures prices contribute to the dynamics of the long run equilibrium fourth and finally we provide reasons for the structural changes in oil prices and also recommend investment strategies corresponding to risk diversification future studies focusing on the behavior of oil prices should consider the characteristics of the time frequency space and lead lag dynamic relationships

globalization and the decline of the welfare state in less developed countries why have trends in government welfare spending in developing countries diverged from those in developed countries i address this question by investigating the effects of capital and trade flows on government welfare spending in fifty three developing countries using an original measure of labor power in developing countries i test the links between international markets labor s political strength and the welfare state i argue that labor s collective action problems caused by large populations of low skilled and surplus workers offset labor s potential political gains from globalization i show that when the proportion of low skilled workers in a nation is high globalization will lead to a decline in welfare spending most significantly the results suggest that in nations where labor market institutions are not yet well developed government social welfare spending is constrained by international market forces

international capital crunches the time varying role of informational asymmetries we examine the determinants of capital flows to four developing countries during the 1990s using an explicitly disequilibrium econometric framework in which the supply and demand for capital are not necessarily equal and the actual amount of the flow is determined by the short side of the market we are thus able to detect instances of international capital crunch where capital flows are curtailed because of supply side rationing and to relate these instances to movements in the underlying fundamentals the analysis highlights the role of asymmetric information as distinct from the traditional concern with default risk in conditioning capital flows

the feldstein horioka puzzle revisited abstract this paper confirms the evidence that the feldstein horioka test does not reflect capital mobility in the real side world economy but only the variability between external and domestic saving

non parametric estimation of econometric functionals in this paper we have reviewed and explored the non parametric density estimation approach for analysing various econometric functionals the applications of density estimation have been emphasized in the specification estimation and testing problems arising in econometrics some limitations of the non parametric approach are also examined and potential future areas of applied and theoretical research have been indicated

controls on capital inflows do they work abstract this paper analyzes the effectiveness of controls on capital inflows in particular we analyze in great detail the chilean experience with the use of the unremunerated reserve requirement we examine the effects of the controls applied in chile in 1991 1998 on interest rates real exchange rate and the volume and composition of capital inflows the effects are elusive and it is difficult to pin down long run effects although after the unremunerated reserve requirement was introduced there was an increase in the interest rate differential the econometric evidence does not show it has a significant long run effect also we detect very small effects on the real exchange rate however the more persistent and significant effect is on the composition of capital inflows tilting composition toward longer maturity

the surge in capital inflows to developing countries an analytical overview after being excluded from world capital markets during the debt crisis many developing countries have experienced large capital inflows during the past five years the challenges that these inflows pose for domestic policy in recipient countries have generated a substantial literature this article presents an overview of that literature describing the characteristics of the new inflows analyzing the policy issues they raise assessing their causes and likely sustainability and evaluating potential policy responses the desirable policy response is tied to characteristics of the flows themselves as well as to the characteristics of the recipient economy

the use of fundamental and technical analyses by foreign exchange dealers hong kong evidence abstract this article reports the results of a questionnaire survey conducted in february 1995 on the use by foreign exchange dealers in hong kong of fundamental and technical analyses to form their forecasts of exchange rate movements our findings reveal that 85 of respondents rely on both fundamental and technical analyses for predicting future rate movements at different time horizons at shorter horizons there exists a skew towards reliance on technical analysis as opposed to fundamental analysis but the skew becomes steadily reversed as the length of horizon considered is extended technical analysis is considered slightly more useful in forecasting trends than fundamental analysis but significantly more useful in predicting turning points interest rate related news is found to be a relatively important fundamental factor in exchange rate forecasting while moving average and or other trend following systems are the most useful technical technique