innovation in the energy sector lessons learnt from r d expenditures and patents in selected iea countries abstract long time series of the iea and international patent offices offer a huge potential for scientific investigations of the energy innovation process thus this paper deals with a broad literature review on innovation drivers and barriers and an analysis of the knowledge induced by public research and development expenditures r d and patents in the energy sector the cumulative knowledge stock induced by public r d expenditures in 14 investigated iea countries is 102 3 bn eur in 2013 nuclear energy has the largest share of 43 9 bn eur followed by energy efficiency accounting for 14 9 bn eur fossil fuels with 13 5 bn eur and renewable energy with 12 1 bn eur a regression analysis indicates a linear relation between the gdp and the cumulative knowledge with each billion eur of gdp leading to an additional knowledge of 3 1 mil eur however linearity is not given for single energy technologies further the results show that appropriate public r d funding for research and development associated with a subsequent promotion of the market diffusion of a niche technology may lead to a breakthrough of the respective technology

relative trading volume risk measures and other firm characteristics during the market crash abstract the crash of 1987 led to significant increases in the trading volume in the n y s e the paper uses individual data of 473 s p 500 firms to analyze the relation between said increases in trading volume and firm and security characteristics

the predictive content of the output gap for inflation resolving in sample and out of sample evidence this paper evaluates potential explanations for the sometimes poor forecasting performance of the phillips curve one explanation is that out of sample metrics are noisy or equivalently have relatively low power another potential explanation is instability in the coefficients of the model to assess these forces this paper compares sample forecasting results to results from bootstrap simulations of models that either assume stability or allow breaks in the coefficients of the model this analysis indicates that a significant portion of the weakness of the out of sample evidence is attributable to power limitations but instabilities in the coefficients on the output gap also play a role

on the relationship between volume reaction and consensus of investors implications for interpreting tests of information content associate professor university of chicago i gratefully acknowledge the generous assistance of nicholas dopuch and richard leftwich in the preparation and editing of this manuscript as well as comments and suggestions offered by the ohio state accounting colloquium i also acknowledge earlier correspondence with nils hakansson concerning the proof employed in this paper and jerold zimmerman concerning the issue of volume reaction any remaining errors are solely my responsibility accepted for publication july 1980 this is somewhat in contrast to discussion of the relationship between volume reaction and information when the information is distributed asymmetrically among investors copeland 1976 for example discusses a sequential information arrival model in which an element of information is disclosed at no cost to homogeneous traders one at a time during a trading period morse 1979 surveys more recent work on the effect of asymmetrically distributed information however information which is distributed asymmetrically is fundamentally different from information which is made publicly available in the former situation trading occurs because one group of investors has access to information not available to some other group whereas in the latter situation trading occurs despite the fact that all investors come to know the information simultaneously

the behavior of option price around large block transactions in the underlying security this paper investigates the behavior of stock and option prices around block trades in stocks the results indicate that for both uptick and downtick block trades the stock prices adjust within a fifteen minute period after the block trade moreover for uptick blocks there is no evidence of any stock price reaction before the block trade however the adjustment of stock price for downtick blocks begins about fifteen minutes before the block trade we also find that option price behavior differs considerably from stock price behavior specifically our results suggest that options exhibit abnormal price behavior starting thirty minutes before the block and ending one hour after the block the pattern is more pronounced for downtick blocks and for put options we interpret this abnormal price behavior of options before the block trade as consistent with intermarket frontrunning this paper compares the price effect of block transactions in the stock market with the price effect in the derivative options market the analysis is motivated by the suggestion in the literature that options provide a superior investment vehicle because of their inherent leverage and lower transaction costs and because of their ability to avoid stock market restrictions on short sales this implies that informed investors may prefer to trade in options thereby causing the option market to lead the stock market

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

an equilibrium model of asset trading with sequential information arrival in an effort to better understand the dynamic market price adjustment process this paper develops a model which describes the impact of new information on a financial market the primary emphasis is on the price change volume relationship in the presence of a margin requirement we find that the margin requirement significantly affects the relation of price change to volume furthermore this relationship is shown to be affected by the number of investors in the market the degree of information dissemination differences in interpretation of information and the implicit cost of the margin requirement

nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

a model of target changes and the term structure of interest rates abstract we investigate the effects of short term rate targeting by the federal reserve on the term structure of interest rates and make contributions at two levels using a new series of interest rate targets made available by the federal reserve bank of new york we develop a family of models that highlight the implications of discrete changes in interest rate targets for the term structure of interest rates we show that spreads between short term rates and the overnight federal reserve funds rate are mainly driven by expectations of changes in the target not by the transitory dynamics of the overnight rate around the target hence the bias in tests of the expectations hypothesis that we document can be mainly attributed to the erroneous anticipation of future changes in monetary policy our modeling assumptions and newly available data make it possible to extract a series of market expectations of the next target change which are compared with a series of realized target changes

structural evolution of the postwar u s economy we consider a time varying parameter vector autoregressive model with stochastic volatility and mixture innovations to study the empirical relevance of the lucas critique for the postwar u s economy the model allows blocks of parameters to change at endogenously estimated points of time contrary to the lucas critique there are large changes at certain points of time in the parameters associated with monetary policy that do not correspond to changes in reduced form parameters for inflation or the unemployment rate however the structure of the u s economy has evolved considerably over the postwar period with an apparent reduction in the late 1980s in the impact of monetary policy shocks on inflation though not on the unemployment rate related we find changes in the phillips curve tradeoff between inflation and cyclical unemployment measured as the deviation from the time varying steady state unemployment rate implied by the model in the 1970s and especially since the mid 1990s

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

the interrelation of stock and options market trading volume data this research empirically investigates the relation between common stock and call option trading volumes the paper hyothesizes and tests a sequential flow of information between the stock and option markets if information trading for cboe listed firms is predominantly accomplished through option trading then existing research methodologies may be biased against finding any significant economic consequences in those instances where option listing is an important variable results indicate that trading in call options leads trading in the underlying shares with a one day lag black 2 suggests that information traders may prefer trading in options rather than shares due to economic incentives provided by reduced transaction costs capital requirements and trading restrictions and due to the greater action afforded by option trading manaster and rendleman 12 empirically support black s 2 option information trading preference finding incremental information content in option prices up to twenty four hours prior to its reflection in stock prices jennings and starks 10 report that the stock price adjustment process upon arrival of new information differs for those firms listed on the chicago board option exchange cboe and they demonstrate that stock price adjustment to new information occurs more rapidly for firms with listed call options the results in both papers appear to warrant consideration of an optiontrading variable in the design of empirical tests both manaster and rendleman 12 and jennings and starks 10 investigate the price relation between shares and call options this paper investigates trading volume copeland 4 posits the use of trading volume as a proxy for the rate of information arrival he concludes that the relation between absolute value of price changes and volume is positive and linear if one accepts a sequentialinformation arrival hypothesis as valid the present research hypothesizes and tests a sequential flow of information between the stock and option markets analyses presented are based on econometric tests for causality1 derived from the works of granger 6 and sims 22 if information trading takes place

option prices as predictors of equilibrium stock prices the black scholes option pricing model modified for dividend payments is used to calculate jointly implied stock prices and implied standard deviations a comparison of the implied stock prices with observed stock prices reveals that the implied prices contain information regarding equilibrium stock prices that is not fully reflected in observed stock prices the implications of this finding are discussed this study investigates the role of call option prices as predictors of the equilibrium prices of their underlying stocks using the black scholes 3 bs model previous tests of the bs model have shown that the formula is highly successful in explaining the observed market prices of options see black and scholes 2 galai 8 chiras and manaster 6 and macbeth and merville 12 according to the model the option price is a function of the current value of the underlying stock the instantaneous variance of the stock s rate of return the time to maturity of the option the risk free rate of interest and the exercise price of the option 1 given an observed option price and known values of all input parameters to the bs model except the stock price one can determine the price of the underlying stock that equates the observed option price to its calculated value it follows from the underlying logic of the model that the implied price is the value of the underlying stock for which a continuously revised option bond portfolio would be a perfect substitute for the stock hence if options are actually priced according to the model implied stock prices will be the option market s assessment of equilibrium stock values previous empirical studies have assumed that observed stock prices are the relevant stock prices for option valuation however just as stock prices may differ in the short run from one exchange to another i e nyse midwest

dynamic inconsistencies counterfactual implications of a class of rational expectations models a number of recent papers have developed dynamic macroeconomic models that incorporate rational expectations and optimizing foundations while the theoretical motivation behind these models is sound the dynamic implications of many of the specifications that assume rational expectations and optimizing behavior can be seriously at odds with the data for both inflation and real side variables exhibit gradual and hump shaped responses to real and monetary shocks for models that are intended for monetary policy analysis these dynamic shortcomings should be considered quite serious when monetary policy has only short run effects on real variables the inability to approximately capture the short run responses of inflation or real variables to policy shocks makes a model unsuitable for policy analysis this paper identifies a simple feature common to many dynamic specifications for prices and real variables that causes the problem the paper also discusses several potential solutions to the problem including alterations to the expectations assumption to the order of differencing implicit in the model and to the underlying behavioral assumptions this abstract was borrowed from another version of this item

the interaction between trading volume of stocks and options some statistical evidence abstract the finance literature provides several examples of research into the interaction between stock and option prices this paper examines the feedback hypothesis for trading volume on the amsterdam stock and options markets using a generalized granger sims framework the most important finding of this paper is that very often causality runs from options trade to the stock market which seems to support the feeling of the business profession and the main hypothesis of this paper statistically it is interesting that the results indicate very convincingly that the relations reveal no stability over time jel c13 c52

interest rate volatility and monetary policy in october 1979 the federal reserve shifted from an interest rate oriented operating procedure to a reserves oriented procedure it is argued in this paper that part of the very large increase in interest rate volatility which resulted from the policy switch may have been due to shifts in the parameters of the money demand equation shifts due to the adoption of a reserve aggregates operating procedure this result is derived by comparing rational expectations equilibria in a simple theoretical model under alternative policy rules this allows the variance of interest rates to be explicitly expressed as a function of the policy rule this abstract was borrowed from another version of this item

monetary policy regime shifts new evidence from time varying interest rate rules i introduction interest rate policies are complex decisions they rely on a multitude of indicators and models and are by nature associated to events not always captured by relatively simple econometric tools nonetheless there is now a widespread consensus that the class of simple policy rules examined by recent microfounded models of the economy generates stabilization properties that are very close to those of optimal feedback rules woodford 2003 feedback rules nowadays are customary tools for monetary policy analysis furthermore rule based policymaking is generally accepted as the reference framework of monetary policy strategies bank of england 1999 european central bank 2004 monetary policy reaction functions summarize the importance that policymakers attach to policy objectives as well as their views on the structure of the economy traditionally those functions are estimated as constant parameters policy rules this is a plausible simplification but a number of reasons suggest that rules should allow for instability and parameter variation over time constant parameter reaction functions might blur the role played by various real world factors 1 model uncertainty 2 conflicting objectives 3 shifting preferences on policymakers choices and 4 nonlinearities in particular reduced form policy models that do not allow for shifts and asymmetries in behavioral relationships could produce misleading results dynamic stochastic general equilibrium dsge models represent one potentially promising way of overcoming these problems this increasingly popular approach is based on microfounded descriptions of the economy recent studies also provide novel techniques to estimate and evaluate linearized dsge models using bayesian methods del negro et al 2007 the bayesian framework represents a natural setup to account for model and parameter uncertainty however the dsge approach imposes a large number of restrictions on the data in the specific context of interest rate rules its ability to generate qualitative and robust assessments on monetary policy conduct appears problematic this article provides some new evidence on interest rate policies in five large economies united states united kingdom germany france and italy through the implementation of a time varying parameters approach tvp henceforth we estimate policy rules as summarized by simple reaction functions defined in terms of expected inflation and output gaps in contrast with most existing analyses we employ a tvp methodology based on the kalman filter algorithm to estimate our instrument rules in practice we allow the policy rules coefficients to vary over time what we obtain are estimates of the state vector for each observation in our sample these estimates can then describe the evolution of monetary policy over time moreover we evaluate the conditional variance of interest rates implied by our tvp methodology a host of factors may cause shifts in the estimated parameters of monetary policy reaction functions some of them may be due to institutional reforms like the introduction of inflation targets or the move to an exchange rate peg or a fixed exchange rate in estimating reaction functions defined in terms of final policy objectives one aims at capturing the relative emphasis placed by policymakers on the attainment of output and inflation targets over time such emphasis might evolve therefore one needs to model the observer s view on the likelihood that these shifts are smooth transitions or abrupt regime changes by allowing the weights of the policy rule to vary only gradually we are able to identify relevant shifts in policy conduct regardless of their exact configuration as argued at length in the next section our approach is better suited than conventional fixed parameter techniques to deal with lucas critique and more in general with the issue of structural change

open innovation in the power energy sector bringing together government policies companies interests and academic essence the power and energy p e sector needs to respond to several challenges fostering investments in research and development according to the open innovation oi paradigm key stakeholders like utilities vendors laboratories universities etc should take advantage of external knowledge to improve their innovation performance several studies have demonstrated that firms adopting the oi paradigm are more likely to innovate despite the interest of p e firms in enhancing their innovation capabilities surprisingly few articles usually case studies described the implementation of the oi paradigm in p e firms this article fills the gap by identifying the key drivers that encourage a firm in the p e sector to embrace the oi paradigm the authors adopt a hybrid research approach collecting evidence from the literature and through a multiple case study analysis involving seven british firms and universities operating in the p e industry as the drivers of oi have mutual influence this article describes them with a fuzzy cognitive map finally the authors identify appropriated policies to enhance the oi adoption and consequently the sustainability of innovation in the p e sector a salient research agenda closes the paper

option volume and stock prices evidence on where informed traders trade this paper investigates the informational role of transactions volume in options markets we develop an asymmetric information model in which informed traders may trade in option or equity markets we show conditions under which informed traders trade options and we investigate the implications of this for the linkage between markets our model predicts an important informational role for the volume of particular types of option trades we empirically test our model s hypotheses with intraday option data our main empirical result is that negative and positive option volumes contain information about future stock prices the information content of trading activity is a subject of widespread interest if trades are correlated with private information then the outcome of the transaction process may portend future movements in price the extension of trading to different venues or to derivative instruments however means that this link between transactions and information need not be easily discernible if there are alternative markets in which informed traders can profit from their information then where informed traders choose to trade may have important implications not only for security p rice movements but for the behavior of related prices as well this suggests that transactions in derivative markets may be an important predictor of future security price movements in this paper we investigate the informational role of transactions volume in options markets for some readers this focus may seem puzzling an option is a derivative security so its price should be dictated unilaterally by the behavior of the stock price this unidirectional linkage is only true however in complete markets if information is impounded into prices by trading then the ability of informed traders to transact in options markets mearns

regime shifts and the stability of backward looking phillips curves in open economies abstract we assess the stability of open economy backward looking phillips curves estimated over two different exchange rate regimes we calibrate a new keynesian monetary policy model and employ it for producing artificial data a monetary policy break replicating the move from a target zone regime to a free floating regime implemented in sweden in 1992 is modeled we employ two different plausibly calibrated taylor rules to describe the swedish monetary policy conduct and fit a reduced form phillips curve to the artificial data while not rejecting the statistical relevance of the lucas critique we find that its economic importance does not seem to be overwhelming

stop go monetary policy we propose and estimate several discrete choice models of monetary policy decision making that feature time varying inertia the models permit us to account for three stylized facts characterizing monetary policymaking in the united states 1 target interest rates are gradually adjusted in small discrete movements 2 there are some long stretches of time in which rates are repeatedly moved and 3 there are other long stretches in which the policy rate does not change our models are used to account for the fed s failure to adopt promptly an easier policy stance during the recession of 2001 they are also used to explain delay in tightening the policy stance during the 2003 2006 period that featured a bubble in house prices and was followed by a financial crisis in 2008

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

dynamic is curves with and without money an international comparison abstract when money is added to a dynamic is model evidence from six countries indicates that money growth usually helps predict the gdp gap and that the predictive power of a short term real interest is much weaker than previous work suggests thus for dynamic is models such as that used by rudebusch g d svensson l e o 1999 policy rules and inflation targeting in taylor j b ed monetary policy rules university of chicago press chicago pp 203 246 2002 eurosystem monetary targeting lessons from us data european economic review 46 417 442 the omission of money appears to come at a high cost

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

the ex ante and ex post price effects of quarterly earnings announcements reflected in option and stock prices the subject of this study is the effect of investors anticipations of impending informative disclosures on the behavior of option and stock prices our approach introduced in a previous paper patell and wolfson 1979 and substantially extended here represents the following significant departure from traditional information content studies instead of analyzing security price reactions to announcements we analyze preannouncement option prices in order to discern investors beliefs about the range of possible stock price reactions expected to accompany a forthcoming disclosure whose actual content is not yet known in the tests reported here we focus on quarterly earnings announcements as disclosure events whose timing is predictable and we attempt to detect their systematic influence on the relationship between stock and option prices our operational definition of information content emphasizes changes in the variability of common stock returns in response to earnings disclosures while market efficiency precludes investors from predicting the direction of the stock price change which will accompany a future earnings announcement it is likely that investors will anticipate increased price variability at the time of disclosure and indeed several studies have documented announcement date increases in stock price volatility

a characterization of the daily and intraday behavior of returns on options the daily and intraday behavior of returns on chicago board options exchange options is examined option returns contain systematic patterns even after adjusting for patterns in the means and variances of the underlying assets this is consistent with the hypothesis that informed trading in options can make the order flow in the options market informative about the value of the underlying asset making options nonredundant the intraday patterns in adjusted option return variances are further consistent with a model of strategic trading by informed and discretionary liquidity traders this paper examines the daily and intraday behavior of returns on options we have two goals our first objective is to identify systematic patterns in the means and variances of daily and intraday returns on options our second objective is to decompose option returns into patterns that are related to the means and variances of the underlying stocks and by inference those patterns that are independent of patterns in the means and variances of the underlying assets 1 our work is important for a number of reasons first options have become as important as common stocks yet there is no detailed investigation of the behavior of returns on options second it is important to identify similarities and differences in return patterns across different securities and market structures an understanding of these similarities and differences would allow us to develop better models of returns that capture these properties closely related to this it is instructive to examine option returns in light of the partial equilibrium models we use to value them specifically are the return patterns in options driven exclusively by the underlying stocks or do option returns contain patterns of their own identifying independent yet similar patterns in options returns may lead to an identification of factors that are common across two different market structures the new york

why option prices lag stock prices a trading based explanation while many studies find that option prices lead stock prices stephan and wvhaley 1990 find that stocks lead options we find no evidence that options even deep out of the money options lead stocks after confirming stephan and whaley s results we show their results can be explained as spurious leads induced by infrequent trading of options we show that the stock lead disappears when the average of the bid and ask prices is used instead of transaction prices hence we find no evidence of arbitrage opportunities associated with the stock lead in a perfect market price discrepancies should be instantly arbitraged away in particular option prices should neither lead nor lag stock prices in real markets only very short leads should occur traders with private information who are confident that their information is valid and that they will not be detected generally want highly leveraged positions to exploit their advantage thus we might expect options with their greater leverage to lead stocks if information trading is important manaster and rendleman 1982 bhattacharya 1987 and anthony 1988 find evidence that options

monetary policy shifts and long term interest rates the pure expectations hypothesis peh serves as the benchmark model for the relationship between yields on bonds of different maturities when coupled with rational expectations however empirical renderings of the model fail miserably i explore the possibility that failure to account for changes in monetary policy regime explains much of the failure of the peh estimating changing monetary regimes in conjunction with the peh significantly improves its performance the predicted spread between the long and short rates is highly correlated with the actual spread the standard deviation of the theoretical spread is nearly identical to that of the actual spread

earnings announcements stock price adjustment and the existence of option markets this paper employs a new approach to study the effects of option trading on the behavior of underlying stock prices extant research compares distributional properties of the stock price at two points in time divided by an event in the option market that might affect price behavior as an alternative we examine the stock price adjustment to the release of quarterly earnings using samples of firms with and without listed options we find the two samples exhibit different adjustment processes with the nonoption firms requiring substantially more time to adjust since the advent of organized stock option trading the investment community

the informational role of stock and option volume this article analyzes the intraday interdependence of order flows and price movements for actively traded nyse stocks and their chicago board options exchange cboe traded options stock net trade volume buyer initiated volume minus seller initiated volume has strong predictive ability for stock and option quote revisions but option net trade volume has no incremental predictive ability this suggests that informed investors initiate trades in the stock market but not in the option market on the other hand both stock and option quote revisions have predictive ability for each other thus while information in the stock market is contained in both quote revisions and trades information in the option market is contained only in quote revisions copyright 2002 oxford university press

is there price discovery in equity options abstract we use tick by tick quote data for 39 liquid us stocks and options on them and we focus on events when the two markets disagree about the stock price in the sense that the option implied stock price obtained from the put call parity relation is inconsistent with the actual stock price option market quotes adjust to eliminate the disagreement while the stock market quotes behave normally as if there were no disagreement the disagreement events are typically precipitated by stock price movements and display signed option volume in the direction that tends to eliminate the disagreements these results show that option price quotes do not contain economically significant information about future stock prices beyond what is already reflected in current stock prices i e no economically significant price discovery occurs in the option market we also find no option market price discovery using a much larger sample of disagreement events based on a weaker definition of a disagreement which verifies that the findings for the primary sample are not due to unusual or unrepresentative market behavior during the put call parity violations

inflation targeting some extensions previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks consequences of model uncertainty and effects of interest rate smoothing and stabilization model uncertainty output stabilization and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target the conditional inflation forecast is the natural intermediate target during inflation targeting the optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action jel classification e42 e52 e58

testing for the lucas critique a quantitative investigation this thesis contains four essays which studies the macroeconomic effects of fiscal and monetary policy quantitatively the first essay investigates whether swedish postwar business cycles have been generated by domestic or foreign shocks and finds that they are about equally important in the second essay the effects of government budget deficits on interest rates in sweden are studied in a small open economy framework the empirical results which have high power due to very large swings in deficits and interest rates provide support that larger deficits produce higher interest rates and thus give support against the ricardian view the third essay seeks to identify optimal social insurance and redistribution levels in sweden and the u s with respect to temporary and permanent idiosyncratic productivity risks the results indicate that sweden should reduce the social security level while the u s should approximately maintain the current level in the last essay the small sample properties of a well known statistical test for the lucas critique the super exogeneity test is studied in a general equilibrium environment the results indicate that the super exogeneity test do not have sufficient power in small samples

monetary policy and the stability of macroeconomic relationships summary estimates of the effect of different international monetary regimes on the parameters of the phillips curve the keynesian consumption function and other reduced form macroeconomic relationships are given the estimates provide a quantitative assessment of the importance of the lucas critique for such regime shifts the estimates are calculated by stochastically simulating an estimated multicountry economic model with rational expectations under a fixed exchange rate regime and a flexible exchange rate regime in both regimes interest rates are the primary instrument of monetary policy noticeable shifts occur in most of the macroeconomic relationships especially in the consumption function and the phillips curve and these shifts have simple economic interpretations based on the changes in the variance and the serial correlation of income and prices in the two regimes however in most cases the shifts are not large quantitatively at least as implemented here this type of regime shift does not seem to generate much instability in the conventional macroeconomic relationships several possible reasons for this finding are discussed in the paper in this paper i plan to follow in a tradition pioneered by a w phillips almost 40 years ago phillips 1954 evaluated monetary and fiscal policy by examining the operating properties of simple policy rules in a fully specified economic model he did this by applying control theory ideas from the engineering literature by examining the performance of the model economy under different types of policy rules for example proportional derivative and integral rules he attempted to determine which policy rule would work well and which would not work well in practice following in the phillips tradition does not mean that i will use the same theoretical models econometric methods or computational techniques that phillips used to do so would in my view pass by fundamental developments in dynamic economic theory econometrics and solution procedures that have been achieved since the time that phillips wrote phillip s 1954 analysis was based on keynesian islm multiplier accelerator models that were popular in the early 1950s the policy evaluation i describe in this lecture differs from phillips s policy evaluation in several ways first it makes use of a dynamic rational expectations model with forward looking behaviour in consumption investment wage setting and interest rates second the model is international and exchange rate determination reflects the current high degree of international capital mobility which did not exist when phillips wrote third the model is empirically estimated most of phillips s work was based on simulation models with calibrated parameters fourth the simulations are done stochastically with an empirically

scope and patterns of innovation cooperation in spanish service enterprises abstract examining 2148 innovating service firms from the spanish technological innovation panel 2004 this paper utilizes latent class analysis to appraise the scope of innovation cooperation in services in the spanish economy in accordance with the growing weight of external information flows throughout innovation processes the empirical evidence indicates that the nature of the service activity affects both the partner chosen and the cooperation intensity the results lead to the creation of a typology of cooperation composed of three broad profiles service firms intensive in techno scientific cooperation intensive in interactions with clients and a profile with low intensity in cooperation called lonely innovators the probability that a firm belongs to the latter profile is 59 which makes it reasonable to affirm that innovation cooperation is not a common practice in spanish innovating service enterprises innovation output variables have been included in order to examine the relationship between patterns of cooperation and innovation performance the findings also underline the co existence of different cooperation patterns within the same industry

the marginal and double threshold effects of regional innovation on energy consumption structure evidence from resource based regions in china abstract innovation driven energy consumption structure optimisation is crucial in developing countries china as a typical developing country has been shifting its economic development model from a traditional approach to innovation driven high quality development we select nine resource based regions in china as our research subject and employ a varying coefficient panel model and a hansen panel threshold model to quantify the marginal and threshold effects of innovation capacity in optimising energy consumption structure the results indicate that the overall energy consumption structure index for the analysed regions is 0 563 revealing that the structure is rather low and regional economic development relies mainly on low ranked energy astonishingly the marginal effect reflects obvious heterogeneity a positive effect in sichuan 0 208 yunnan 0 207 and xinjiang 0 431 nearly no effect in chongqing gansu and qinghai and a negative effect in guangxi 0 104 shaanxi 0 244 and ningxia 1 282 in previous studies such negative effects have been totally ignored further there are double thresholds and a unique driving mechanism namely negative driving strong positive driving weak positive driving interestingly below the first threshold improvement in innovation will lead to energy consumption structure degradation current policies such as introducing extensive talent are not feasible for all resource based regions the concerns of policy making for the three different threshold intervals should be upgrading industrial structures optimising the structure of human resources and preventing brain drain respectively

spectral welfare cost functions if preferences are not time separable economic agents care not only about the magnitude of fluctuations in consumption but also about the persistence and other temporal characteristics of those fluctuations this paper extends and develops the theory of spectral utility functions which measure utility frequency by frequency to illustrate the interaction between consumption volatility and time non separable preferences to highlight the economic implications of the interaction spectral welfare cost functions are developed to provide a quantitative measure of the importance to economic agents of the temporal delivery of consumption volatility

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

price and trading volume reaction surrounding earnings announcements a closer examination the process of information dissemination and interpretation in securities markets is very complex and mostly unobservable while changes in prices and the amount of trading that takes place at the market level provide evidence of information processing verrecchia 1981 demonstrated that these are not sufficient to describe completely the dissemination of information and its interpretation by investors a descriptive study of price changes and trading volume however may still provide some insights into how investors react to information this paper is an empirical investigation of price changes and trading volume during the days surrounding the announcement of quarterly and annual earnings in the wall street journal wsj in the original paper investigating trading volume and price changes surrounding earnings announcements beaver 1968 was primarily concerned with whether the annual earnings announcement had information content i e led to changes in investors assessments of the probability distribution of future returns if there were any significant price changes and or trading volume during the week of the announcement then the annual earnings announcement was assumed to have had

forward looking behavior and optimal discretionary monetary policy abstract this paper derives a closed form solution for the optimal discretionary monetary policy in a model that allows for varying degrees of forward looking behavior we show that forward looking behavior can either attenuate or magnify the optimal policy response to inflation and the output gap depending on which part of the model economy is affected by expectations

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

a macro finance model of the term structure monetary policy and the economy this paper develops and estimates a macro finance model that combines a canonical affine no arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation from this new empirical formulation we obtain several interesting results 1 the latent term structure factors from finance no arbitrage models appear to have important macroeconomic and monetary policy underpinnings 2 there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the federal reserve and 3 both forward looking and backward looking elements play important roles in macroeconomic dynamics

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

an integrated view of tests of rationality market efficiency and the short run neutrality of monetary policy abstract this paper analyzes an important class of models in which expectations play an important role topics included in the analysis are tests of 1 rationality of forecasts in either market or survey data 2 capital market efficiency 3 the short run neutrality of monetary policy and 4 granger causality in macroeconometric models the common elements of these tests are highlighted in particular cross equation tests for rationality or the short run neutrality of money are shown to be equivalent to more common regression tests in the literature these results demonstrate that the exact specification of the relevant information set used in rational forecasts is not necessary for the cross equation tests to have desirable asymptotic properties also discussed are the conditions for identification of coefficients and testability of hypotheses

the benefits of r d and breadth in innovation strategies a comparison of finnish service and manufacturing firms this empirical study compares the determinants of innovation in manufacturing and services through descriptive and regression analyses of sales from innovative products and services a particular focus is on the effects of r d investments and breadth in knowledge sourcing and innovation objectives the results suggest that contrary to earlier research r d investments play a statistically and economically significant role in service innovation we suggest that this results from the growing engagement of service firms in regular r d activity both service and manufacturing firms also benefit from breadth in external knowledge sourcing strategies in contrast breadth in terms of pursuing parallel innovation objectives appears to have detrimental effects on innovation in service industries we interpret the latter results through reference to service firms r d management capabilities managing multiple innovation projects is challenging and some service firms may not have accumulated the requisite managerial processes and capabilities to benefit from these strategies the available data provide support for this conjecture the detrimental effects of breadth in innovation objectives are significantly mitigated by regular r d activities copyright 2012 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

slow diffusion of information and price momentum in stocks evidence from options markets this paper investigates the source of price momentum in the stock market using information from options markets we provide direct evidence of the gradual information diffusion model in hong and stein 1999 momentum profits are larger for stocks whose information diffuses slowly into the stock market we exploit the options markets to identify stocks with slow information diffusion speed as informed traders trade options to realize the information that has not been fully incorporated in the stock price we are able to enhance the momentum strategy by selecting winner loser stocks with high growth large drop in call option implied volatility our empirical strategy generates a risk adjusted alpha of 1 8 per month over the 1996 2011 period during which the simple momentum strategy fails to perform the results are robust to the impact of earnings announcement transaction costs industry concentration and choice of options moneyness and time to maturity finally our finding is not driven by existing stock or option related characteristics that are known to improve momentum

flexible inflation targeting and financial stability is it enough to stabilize inflation and output abstract we investigate empirically whether a central bank can promote financial stability by stabilizing inflation and output and whether additional stabilization of asset prices and credit growth would enhance financial stability in particular we employ an econometric model of the norwegian economy to investigate the performance of simple interest rate rules that allow a response to asset prices and credit growth in addition to inflation and output we find that output stabilization tends to improve financial stability additional stabilization of house prices equity prices and or credit growth enhances stability in both inflation and output but has mixed effects on financial stability in general financial stability as measured by e g asset price volatility improves while financial stability measured by indicators that depend directly on interest rates deteriorates mainly because of higher interest rate volatility owing to a more active monetary policy

derivatives traders reaction to mispricing in the underlying equity this article examines trading behavior in the options market conditioned on mispricing in the underlying stock we investigate the price equilibrium between the observed equity asset and the options implied synthetic share as well as the relative divergence between the two prices we find a consistently positive relation between the level of stock mispricing and violations of the upper boundary condition using derivatives along with an increase in price divergence to control for the effect of shorting limitations on mispricing we further examine prices during the short sale ban in 2008 the results hold and in many instances are more significant during the ban period given the persistent disequilibria between the synthetic and observed stock prices we argue the results are evidence of informed trading in the derivatives market

the behavior of interest rates implied by the term structure of eurodollar futures this paper considers an equilibrium model of the term structure that is determined by two stochastic factors a short term interest rate and a target level to which the short rate is expected to revert a kalman filter technique that uses a time series cross section of eurodollar futures prices is developed to estimate the parameters of the model the term structures of spot libor and eurodollar futures volatility are compared to that predicted by the model the empirical results indicate that the two factor specification represents a significant improvement over its one factor version copyright 1996 by ohio state university press

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

price adjustment delays and arbitrage costs evidence from the behavior of convertible preferred prices price adjustment delays occur between in the money convertible preferred stock prices and common stock prices convertible preferred prices systematically deviate from the prices predicted from their conversion relations with common stocks the price predictability stems from price changes in the underlying common stocks leading the price changes in the convertible preferred stocks by up to nine hours cross sectionally about 70 percent of the variation in the unsigned size of the price deviations is explained by proxies for costs of arbitrage

a happy half way house medium term inflation targeting in new zealand abstract the 2002 policy targets agreement pta between the government and central bank of new zealand asks the central bank to target inflation over the medium term rather than over an annual target delegating such a medium term objective to the central bank shifts inflation targeting towards a halfway house between inflation targeting and price level targeting we show empirically that this helps time consistent policy approximate the first best commitment policy even when the government asks the central bank to weight output stabilisation differently to society we estimate the new zealand economy with a small open economy dsge model and show that the happiest halfway house is located around a two year averaging horizon at most which leads to mild improvements in monetary policy efficiency

the taylor rule and interest rates in the emu area abstract we demonstrate that average interest rates in the emu countries in 1990 98 with the exception of the period of exchange market turmoil in 1992 93 moved very closely with average output gaps and inflation as suggested by the taylor rule

complete markets informed trading and equity option introductions this paper proposes and tests a new hypothesis concerning the price impact of option introductions on the underlying asset we argue that the leverage properties of options induce a higher level of informed trading in the aggregate market underlying plus derivative resulting in excess listing day price movements in the newly optioned equity using an alternative dataset our results suggest that this may be an explanation for the observed positive than negative excess listing day returns of us optioned stocks over the past thirty years

eurosystem monetary targeting lessons from u s data abstract using a small empirical model of inflation output and money estimated on u s data we compare the relative performance of monetary targeting and inflation targeting the results show monetary targeting to be quite inefficient yielding both higher inflation and output variability this is true even with a nonstochastic money demand formulation our results are also robust to using a p model of inflation therefore in these popular frameworks there is no support for the prominent role given to money growth in the eurosystem s monetary policy strategy

does the fed act gradually a var analysis abstract the tendency for changes in the federal funds rate to be implemented gradually has been considered evidence of an interest rate smoothing objective for the federal reserve this paper investigates whether gradual funds rate movements can be explained by the dynamic structure of the economy and the uncertainty surrounding that structure without recourse to including an ad hoc interest rate smoothing argument in the fed s objective function in the absence of parameter uncertainty the optimal policy involves more aggressive movements in the funds rate than observed parameter uncertainty however limits the responsiveness of the interest rate as a result the optimal policy under parameter uncertainty can account for a considerable portion of the gradualism observed

has euro area inflation persistence changed over time this paper analyzes the stability over time of the econometric process for euro area inflation since 1970 focusing in particular on the behavior of the so called persistence parameter the sum of the coefficients on the lagged dependent variables perhaps surprisingly in light of the lucas critique our principal finding is that there appears to be relatively little instability in the parameters of the euro area inflation process full sample estimates of the persistence parameter are generally close to 1 and we fail to reject the hypothesis that this parameter has been stable over time we discuss how these results provide some indirect evidence against rational expectations models with strong forward looking elements such as the new keynesian phillips curve

the impact of a product harm crisis on marketing effectiveness product harm crises are among a firm s worst nightmares a firm may experience i a loss in baseline sales ii a reduced own effectiveness for its marketing instruments iii an increased cross sensitivity to rival firms marketing mix activities and iv a decreased cross impact of its marketing mix instruments on the sales of competing unaffected brands we find that this quadruple jeopardy materialized in a case study of an australian product harm crisis faced by kraft peanut butter we arrive at this conclusion by using a time varying error correction model that quantifies the consequences of this crisis on base sales and on own and cross brand short and long term effectiveness the proposed modeling approach allows managers to make more informed decisions on how to regain the brands pre crisis performance levels

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

more on the speed of adjustment in inventory models when empirical stock adjustment models of manufacturers inventories of finished goods are estimated there appear to be two local minima in the sum of squared residuals functions at one local minimum the estimated adjustment speed is typically quite high at the other it is typically quite low furthermore finding two sets of estimates that fit the data almost equally well does not appear to be a quirk of this particular application rather it stems from a fundamental identification problem that afflicts partial adjustment models of all kinds in the specific context of manufacturers inventories of finished goods the estimation procedure employed by maccini and rossana seems to pick out the solution with rapid adjustment and high serial correlation in the disturbances whereas the solution with slow adjustment and little serial correlation is more often the global minimum this abstract was borrowed from another version of this item

the lucas critique and the stability of empirical models this paper re considers the empirical relevance of the lucas critique using a dsge sticky price model in which a weak central bank response to inflation generates equilibrium indeterminacy the model is calibrated on the magnitude of the historical shift in the federal reserve s policy rule and is capable of generating the decline in the volatility of inflation and real activity observed in u s data using monte carlo simulations and a backward looking model of aggregate supply and demand we show that shifts in the policy rule induce breaks in both the reduced form coefficients and the reduced form error variances the statistics of popular parameter stability tests are shown to have low power if such heteroskedasticity is neglected in contrast when the instability of the reduced form error variances is accounted for the lucas critique is found to be empirically relevant for both artificial and actual data

optimal monetary policy using an unrestricted var this paper proposes a simple benchmark for monetary policy assuming the true model of the economy is unknown it is based on an unrestricted vector autoregression var the key result is that instead of deriving optimal policy using the original var equations as the constraint when no restriction is placed on the correlation structure of the var disturbances the constraint should be formed from a transformation of the var this method is applied to the usa 1964 2009 significant welfare gains are found compared with actual policy and using a taylor rule incorporating a zero interest rate lower bound lowers output and inflation

anticipation of quarterly earnings announcements a test of option market efficiency abstract this study tests chicago board options exchange efficiency by examining option price behavior in the weeks surrounding a firm s quarterly earnings announcement the evidence presented here suggests that a first order autoregressive seasonal process describes quarterly earnings behavior and demonstrates that the information content of an earnings announcement is fully incorporated in option prices by the end of the announcement week

spite and development in a wide variety of settings spiteful preferences would constitute an obstacle to cooperation trade and thus economic development this paper shows that spiteful preferences the desire to reduce another s material payoff for the mere purpose of increasing one s relative payoff are surprisingly widespread in experiments conducted in one of the least developed regions in india uttar pradesh in a one shot trust game the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects in experiments to study coordination and to measure social preferences the findings reveal empirical patterns suggesting that the willingness to reduce another s material payoff either for the sake of achieving more equality or for the sake of being ahead is stronger among individuals belonging to high castes than among those belonging to low castes because extreme social hierarchies are typically accompanied by a culture that stresses status seeking it is plausible that the observed social preference patterns are at least partly shaped by this culture thus an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development

expectation horizon and the phillips curve the solution to an empirical puzzle estimates of the slope of the phillips curve reported in the literature cover a range from roughly 0 6 to zero depending on specification forward looking specifications favored by theory produce the smallest slope estimates this paper addresses this puzzle by studying the bivariate process of inflation and unemployment in a fairly general unobserved components framework allowing for stochastic trends and related cycles analysis reveals that the slope of the implied phillips curve will depend critically on the horizon of the forward looking inflation expectation provided the cyclical component of unemployment is highly persistent empirical analysis results show that is the case suggesting that the choice of expectation horizon generally set at one quarter in the new keynesian literature may play an important role in this debate copyright 2007 john wiley sons ltd

bayesian counterfactual analysis of the sources of the great moderation we use counterfactual experiments to investigate the sources of the large volatility reduction in us real gdp growth in the 1980s contrary to an existing literature that conducts counterfactual experiments based on classical estimation and point estimates we consider bayesian analysis that provides a straightforward measure of estimation uncertainty for the counterfactual quantity of interest using blanchard and quah s 1989 structural var model of output growth and the unemployment rate we find strong statistical support for the idea that a counterfactual change in the size of structural shocks alone with no corresponding change in the propagation of these shocks would have produced the same overall volatility reduction as what actually occurred looking deeper we find evidence that a counterfactual change in the size of aggregate supply shocks alone would have generated a larger volatility reduction than a counterfactual change in the size of aggregate demand shocks alone we show that these results are consistent with a standard monetary var for which counterfactual analysis also suggests the importance of shocks in generating the volatility reduction but with the counterfactual change in monetary shocks alone generating a small reduction in volatility copyright 2007 john wiley sons ltd

a time varying natural rate of interest for the euro area abstract we estimate a time varying natural rate of interest tvnri for a synthetic euro area over the period 1979q1 2004q4 using a small macroeconomic model broadly following a methodology developed by laubach and williams 2003 measuring the natural rate of interest the review of economics and statistics 85 4 1063 1070 for the united states the kalman filter simultaneously estimates the output gap and the natural rate of interest our identifying assumptions include a close relationship between the tvnri and the low frequency fluctuations of potential output growth the difference between the real rate of interest and its estimated natural level offers valuable insights into the monetary policy stance over the last two decades and a half

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

recent changes in macro policy and its effects some time series evidence has the macroeconomic policy regime changed in the united states in the last few years if so has this change had an effect on macroeconomic relationships and in particular on the relationship between inflation and unemployment these two questions have been on the minds of most macroeconomists since the october 1979 switch from interest rates to reserves as an intermediate target for the federal reserve and the explicit endorsement of monetarism by the reagan administration in early 1981 the questions are important not only for predicting the course of the economy in the future but also for assessing the practical significance of the lucas critique according to this critique a change in policy regime should cause changes in the way the economy operates comparing economic relations before and after a change in regime should provide a test of the critique the approach in many recent studies has been to assume that the answer to the first question is yes that there has been a significant change in the macroeconomic policy regime and to look for changes in the phillips curve as a test of the lucas critique thus far the results have been mixed otto eckstein 1983 steven englander and cornelis los 1983 and george perry 1983 conclude that there has been no significant change in the phillips curve relationship phillip cagan and william fellner 1983 and wayne vroman 1983 find some evidence of a change wage inflation has come down more quickly especially in 1982 and early 1983 than would be predicted from a phillips curve however the assumption that there has been a regime change has received little empirical attention the october 1979 switch from interest rate targetting to reserve targetting at the fed is usually taken as prima facie evidence of a significant change in policy regime but such changes in operating procedures per se do not necessarily entail a change in policy regime relevant for macroeconomic purposes if they did then the renewed emphasis on interest rates rather than reserves starting in late 1982 should be cited as evidence of a return to the old regime a view which few researchers have taken in fact studies have shown that either interest rates or reserves can be used as intermediate targets for controlling the money supply and ultimately aggregate demand the choice between the two depends on whether shocks to the money markets are from the demand side or the supply side the issue of importance for assessing whether a regime change has taken place is how much the fed reacts by adjusting the money supply appropriately defined in response to conditions in the economy the procedure it uses to bring about this response is irrelevant 2 implicit in a macroeconomic policy regime is a rule relating the money supply to economic con 404 woodrow wilson school princeton university princeton nj 08544 this research was supported by a grant from the national science foundation at the national bureau of economic research and conducted in part at the federal reserve bank of philadelphia i am grateful to steve fries for research assistance and to steven englander and comelis los for comments on an earlier draft see robert lucas 1976 william fellner s 1978 credibility hypothesis is similar to the lucas critique in this context and has been tested in similar ways 2some have argued that for political reasons by focusing on reserves the fed would be able to let interest rates go higher than under interest rate targetting with reserve targetting fed officials could shift the blame for high interest rates elsewhere

intraday price change and trading volume relations in the stock and stock option markets this study investigates intraday relations between price changes and trading volume of options and stocks for a sample of firms whose options traded on the cboe during the first quarter of 1986 after purging the price change series of the effects of bid ask spreads multivariate time series analysis is used to estimate the lead lag relation between the price changes in the option and stock markets the results indicate that price changes in the stock market lead the option market by as much as fifteen minutes the analysis of trading volume indicates that the stock market lead may be even longer the intense trading activity in and in fact the very existence of organized stock option markets attest to the economic benefits that these financial contracts provide reduced transaction costs and increased financial leverage are two reasons why trading in the stock option market may be more attractive than trading in the market for the underlying stock in addition these cheaper and more flexible trading opportunities attract new and differently informed investors to the marketplace the resulting increase in trading activity together with the inextricable arbitrage linkage between stock and option prices imply an increase in market efficiency this study investigates empirically the intraday price change and trading volume relations between stocks and options for a sample of firms whose options were actively traded on the chicago board options exchange during the first quarter of 1986 in particular intraday call option price changes are translated into implied stock price changes using the american call option pricing model these intraday implied stock price changes are then compared with the actual stock price changes to identify which if either market leads the other in perfectly functioning capital markets there should be complete simultaneity between the series that is new information disseminating into the marketplace should be reflected in the prices and the trading activity of both securities simultaneously institutional factors however may make the stock option market more attractive to information traders this may cause price changes and trading activity due to new information to be observed in the option market first followed by price

temporal patterns in foreign exchange returns and options although the foreign exchange market is believed to be one of the most efficient financial markets in the world there is significant evidence that technical analysis is profitable in this market in this study we investigate the ability of information from the options market to supplement the commonly used information on past prices to predict temporal patterns in foreign exchange returns we find that information from the options market improves the performance of technical trading strategies strategies using information from at the money options were more consistently profitable than the most commonly used strategies based on only historical spot exchange rates past prices our results hold out of sample as well as in the late nineties a period when few sources of information have proven reliable consequently options appear to contain valuable information regarding future spot exchange rate movements

assessing the lucas critique in monetary policy models empirical estimates of monetary policy rules suggest that the behavior of u s monetary policymakers changed during the past few decades however for that same time period statistical analyses of lagged representations of the economy such as vars often have not rejected the null of structural stability these two sets of empirical results appear to contradict the lucas critique this paper reconciles these results with the lucas critique by showing that the apparent policy invariance of reduced forms is consistent with the magnitude of historical policy shifts and the relative insensitivity of the reduced forms of plausible forward looking macroeconomic specifications to policy shifts

accounting for a shift in term structure behavior with no arbitrage and macro finance models this paper examines a shift in the dynamics of the term structure of interest rates in the u s during the mid 1980s we document this shift using standard interest rate regressions and using dynamic a ne no arbitrage models estimated for the pre and post shift subsamples the term structure shift largely appears to be the result of changes in the pricing of risk associated with a level factor using a macro nance model we suggest a link between this shift in term structure behavior and changes in the dynamics and risk pricing of the federal reserve s in ation target as perceived by investors

reaching inflation stability inflation volatility has significantly declined over the last 20 years in the u s to find out why i follow a structural approach i estimate a complete new keynesian model which imposes cross equation restrictions on the time series of inflation the output gap and the interest rate i perform counterfactual analysis with two commonly used measures of inflation consumer price index cpi and gross domestic product deflator gdpd while the change in the propagation mechanism of the economy induced most of the cpi volatility drop it played a smaller role in the reduction of gdpd volatility our maximum likelihood estimates imply that the most important factor behind the drop in inflation volatility was the more forward looking price setting behavior of the 1980s and 1990s