target zones and interest rate variability abstract for narrow exchange rate bands and for reasonable parameter values the interest rate differential s asymptotic unconditional variability is increasing in the width of the exchange rate band whereas for wide exchange rate bands it is slowly decreasing in the exchange rate band the interest rate differential s instantaneous conditional variability is decreasing in the width of the exchange rate band a narrow target zone differs from a completely fixed exchange rate regime in that the interest rate differential s instantaneous standard deviation is high and even increases when the zone narrows

intrinsic bubbles the case of stock prices several puzzling aspects of the behavior of united states stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends the authors call bubbles of this type intrinsic bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors intrinsic bubbles provide a more plausible empirical account of deviations from present value pricing than do the traditional examples of rational bubbles their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods copyright 1991 by american economic association

central bank intervention and risk in the forward market abstract a two country inter temporal asset pricing model is developed which implies that central bank foreign exchange intervention affects the forward exchange risk premium the model is estimated from daily foreign exchange intervention data for the us german and japanese central banks considerable empirical support is found for the theoretical model with intervention influencing the risk premium in the forward market purchases of dollars by the federal reserve bank are found to be associated with excess denominated returns there is evidence that intervention has increased rather than reduced exchange rate volatility

the out of sample success of term structure models as exchange rate predictors a step beyond abstract a large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate however there is evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities this paper proposes a term structure forecasting model of exchange rates based on a regime switching vector equilibrium correction model which is novel in this context our model significantly outperforms both a random walk and to a lesser extent a linear term structure vector equilibrium correction model for four major dollar rates across a range of horizons

have trading rule profits in the currency markets declined over time abstract previous studies have reported mixed results regarding the success of technical trading rules in currency markets abnormal returns were observed in many studies using data up to the mid 1980s while more recent studies generally report less success for technical trading rules this paper tests whether moving average trading rule profits have declined over the period from 1971 to 2000 if so previous profits may represent a temporary inefficiency that has since been eliminated in the currency markets the hypothesis is tested using 18 exchange rate series over a longer time period than in previous studies rules are optimized for successive 5 year in sample periods from 1971 to 1995 and tested over subsequent 5 year out of sample periods results show that risk adjusted trading rule profits have declined over time from an average of over 3 in the late 1970s and early 1980s to about zero in the 1990s thus market inefficiencies reported in previous studies may have been only temporary inefficiencies

the determinants of realignment expectations under the ems some empirical regularities abstract the stability of the ems depends crucially on realignment expectations of the market participants in this paper we discuss how to measure such expectations and how to relate them to economic fundamentals central bank reputation and institutional arrangements of the ems we find the following empirical regularities for ff dm and il dm exchange rates 1 1 expected devaluations are positively related to the current exchange rate deviation from the central parity 2 2 expected devaluations are negatively related to the length of time since last realignment in the short and medium run 3 3 the basle nyborg agreements seem to have a stabilizing effect for both currencies examined albeit through different channels

forecasting foreign exchange rates with an intrinsically nonlinear dynamic speed of adjustment model forecasting foreign exchange rates is an important but difficult process therefore it is important to use a superior forecasting model the paper takes up this criterion and proposes to describe and forecast foreign exchange rates by developing an intrinsically nonlinear model with variable and dynamic speeds of adjustment it is found that the speed of adjusting the random or expected to the equilibrium rate is very slow implying that fiscal policy statistically insignificat and monetary policy statistically significant may be ineffective to induce changes in the adjustment speed we also find that the nonlinear dynamic model improves forecasting performance implying that nonlinearities in the sense of functional forms are exploitable for improved point forecasting of foreign exchange rates

exchange rate fundamentals forecasting and speculation bayesian models in black markets summary although speculative activity is central to black markets for currency the out of sample performance of structural models in those settings is unknown we substantially update the literature on empirical determinants of black market rates and evaluate the out of sample performance of linear models and non parametric bayesian treed gaussian process btgp models against the random walk benchmark fundamentals based models outperform the benchmark in out of sample prediction accuracy and trading rule profitability measures given future values of fundamentals in simulated real time trading exercises however the btgp achieves superior realized profitability accuracy and market timing while linear models do no better than a random walk copyright 2013 john wiley sons ltd

can learning affect exchange rate behavior the case of the dollar in the early 1980 s this paper demonstrates that a change in parameters of the money market that is not immediately understood will affect the behavior of exchange rate forecast errors while the market is learning the analysis is applied to the behavior of u s dollar german mark forecast errors during the early 1980 s when the market appeared to systematically underpredict the strength of the dollar consistent with this observation empirical estimates of implied forecast errors based upon bayesian learning suggest that forecast errors would have been on average negative during the period as the market came to realize the increase in u s money demand

exchange rate target zones a survey of the literature this work selectively reviews the literature on exchange rate target zones and their theoretical and empirical methodologies and examines whether they can be used to clarify to what extent this type of exchange rate regime could contribute to greater exchange rate stability we discuss the main contributions of the first and second generations of exchange rate target zone models in an attempt to reconcile the poor empirical performance of the krugman model with the reality of exchange rate target zone regimes this line of research integrates target zones with alternative underlying economic models such as imperfect credibility intra marginal interventions and sticky price models it was thus possible to understand the correlations observed between the exchange rate its fundamentals determinants and the interest rate differential and to explain the fact that the statistical distribution of the exchange rate is hump shaped rather than u shaped this implies that the initial emphasis of target zone models on nonlinearities honeymoon effect smooth pasting and marginal interventions has vanished exchange rate target zones are better described as similar to managed floating regimes with intra marginal interventions with some marginal interventions when the exchange rate reaches the edges of the floating band

target zone models with stochastic realignments an econometric evaluation abstract this paper provides empirical support for the second generation of target zone models with stochastic devaluation risk i propose a simple non linear framework with a time varying probability of exchange rate realignment this model nests alternatives i with no devaluation risk ii with constant devaluation risk and iii the random walk i reject these three in favor of a stochastic realignment model where devaluation risk varies with economic fundamentals the model predicts 13 of 17 realignments for the franc and lira including an out of sample episode in august 1993

nonlinear nonparametric nonessential exchange rate estimation a wide variety of empirical exchange rate mo dels have been estimated over the years but despite the considerable energies that have been devoted to this work the economics profession has remarkably little to show for itself there is little evidence that conclusively links the bilateral exchange rates of typical oecd countries to fundamental macroeconomic determinants of exchange rates such as money output relative prices or interest differentials coefficient estimates are notoriously unstable and frequently mis signed compared with theoretical predictions exchange rate equations do not fit particularly well and forecast no better than the simplest naive alternatives recently a new class of exchange rate models was introduced by paul krugman 1988 these models provide a potential reason for the poor performance of traditional exchange rate models because they are nonlinear if the exchange rate actually depends in a nonlinear way on exogenous macroeconomic fundamentals linear exchange rate models may work poorly even though the exchange rate is closely linked to fundamentals in this paper we provide a brief sketch of some of this work as well as some preliminary evidence on the actual performance of these nonlinear models in our empirical analysis we use a nonparametric estimator that can handle a wide variety of nonlinear phenomena we examine fixed exchange rate regimes where nonlinearities should be quite easy to detect however we do not find strong empirical support for the hypothesis that the incorporation of nonlinear effects significantly improves models of exchange rate determination in section i we briefly review the theoretical literature on nonlinear target zone exchange rate models linking this work to the tests for intrinsic bubbles we draw heavily on recent papers by kenneth froot and maurice obstfeld 1989a b our methodology and data are discussed in section ii section iii contains new empirical tests for nonlinearities in exchange rate models

the accuracy of reports of foreign exchange intervention abstract this paper considers both qualitative and quantitative evidence on the accuracy of press reports of foreign exchange intervention by the federal reserve between january 1985 and december 1989 the evidence shows that the likelihood of intervention being reported given that it actually occurred was 72 per cent and that the likelihood of intervention actually occurring given that it was reported was 88 per cent interventions which were reported were larger on average than those which were not reported and this difference is statistically significant multinomial logit analysis also demonstrates that the likelihood of intervention being reported increased with the size of the intervention jel f31

competition from specialized firms and the diversification performance linkage in this study we show that the effect of diversification on performance is not homogeneous across industries and explore analytically and empirically the implications of this finding for the diversification literature diversified firms perform better in industries with a small number of nondiversified competitors or equivalently when specialized firms have a small combined market share but worse as the presence of specialized firms increases in the industries in which they compete the results are robust to the use of methods that alleviate the self selection problem and call for a reassessment of the diversification performance relationship

learning about intervention target zones abstract this paper provides a framework for evaluating how market participants beliefs about foreign exchange target zones change as they learn about central bank intervention policy we generalize the standard target zone model to allow for intra marginal intervention intra marginal intervention implies that market participants beliefs about the target zone can be determined from their beliefs about the likelihood of intervention we then estimate a daily probability of intervention model for the period following the louvre accord we find that the market s views of intervention target zones would have varied quite a bit over time even over this relatively stable period

assessing the accountability of the benefit corporation will this new gray sector organization enhance corporate social responsibility in recent years the benefit corporation has emerged as a new organizational form dedicated to legitimizing the pursuit of corporate social responsibility csr eschewing traditional governmental authority the benefit corporation derives its moral legitimacy from the values of its owners and the oversight of a third party evaluator this research identifies the benefit corporation as a new type of gray sector organization gso and applies extant theory on gsos to analyze its design in particular it shows how the theory of gso accountability can be used to assess the potential of benefit corporations for enhancing csr this research first examines the statutes that have established benefit corporations in five states in the us along with bills in other states to show how legislation defines their specific public benefits and holds them accountable for delivering these benefits it then compares the accountability of the benefit corporation with that of other corporate centric gsos e g gsos that closely resemble traditional corporations it concludes with significant design based concerns about the utility of the benefit corporation as an effective organization for implementing csr

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

the ethical backlash of corporate branding past decades have witnessed the growing success of branding as a corporate activity as well as a rise in anti brand activism while appearing to be contradictory both trends have emerged from common sources the transition from industrial to post industrial society and the advent of globalization the examination of which might lead to a socially grounded understanding of why brand success in the future is likely to demand more than superior product performance placing increasing demand on corporations with regard to a broader envelop of socially responsible behavior directions for strategic and managerial options are suggested

target zones and exchange rates an empirical investigation this paper develops an empirical model of exchange rates in a target zone the distribution of exchange rate changes is conditioned on a latent jump variable where the probability and size of a jump vary over time as a function of financial and macroeconomic variables when there is no jump the target zone is credible and exchange rate changes are constrained to remain within the target zone band the paper revisits the empirical evidence from the european monetary system regarding the conditional distribution of exchange rate changes the credibility of the system and the size of the foreign exchange risk premia in contrast to some previous findings we conclude that the french franc deutschmark rate exhibits considerable nonlinearities realignments are somewhat predictable and the credibility of the system did not increase substantially after 1987 moreover our model implies that the foreign exchange risk premium becomes large during speculative crises

on the impact of fundamentals liquidity and coordination on market stability complex interactions between fundamentals and liquidity during unstable periods in financial markets are succinctly modeled with co ordination games we propose a flexible framework to estimate such a model and use the efficient method of moments as estimation proce dure we illustrate the model by using exchange rates from the yen dollar carry trade induced uncertainty in 1998 interest rate spreads and global market volatility the model fits the data well with ev idence of low information disparities the market is generally very deep where global volatility is more important than fundamental un certainty in the determination of liquidity there is clear evidence of asymmetry between the buy and sell sides of the market

asset stock accumulation and sustainability of competitive advantage given incomplete factor markets appropriate time paths of flow variables must be chosen to build required stocks of assets that is critical resources are accumulated rather than acquired in strategic factor markets barney barney j 1986 strategic factor markets expectations luck and business strategy management sci october 1231 1241 sustainability of a firm s asset position hinges on how easily assets can be substituted or imitated imitability is linked to the characteristics of the asset accumulation process time compression diseconomies asset mass efficiencies inter connectedness asset erosion and causal ambiguity

forecasting and combining competing models of exchange rate determination this article investigates the out of sample forecast performance of a set of competing models of exchange rate determination we compare standard linear models with models that characterize the relationship between exchange rate and the underlying fundamentals by nonlinear dynamics linear models tend to outperform at short forecast horizons especially when deviations from long term equilibrium are small in contrast nonlinear models with more elaborate mean reverting components dominate at longer horizons especially when deviations from long term equilibrium are large the results also suggest that combining different forecasting procedures generally produces more accurate forecasts than can be attained from a single model

using option prices to estimate realignment probabilities in the european monetary system the case of sterling mark abstract this paper describes a procedure for estimating the market s perceived probability distribution of future exchange rates from the prices of risk reversals strangles and other currency options and uses the procedure to estimate the risk neutral ex ante probability of a realignment of the pound sterling the procedure for estimating the realignment probabilities relies on the jump diffusion model of exchange rate behavior and the resulting option pricing formula by fitting this model to market option price data i retrieve the unobserved parameters of the jump diffusion process i then use these parameter estimates to estimate the ex ante probability distribution of exchange rates and thus the realignment probabilities

cartel code attributes and cartel performance an industry level analysis of the national industrial recovery act abstract this paper uses the cartel enabling national industrial recovery act nira of 1933 to gain insight into cartel performance i employ a monthly panel of 66 industries that passed an nira code of fair competition to examine how specific attributes of these cartel codes affected the ability to achieve collusive outcomes i find that output growth was significantly lower during cartel months consistent with cartel theory and that industries with more complex codes were more successful than those with simpler ones furthermore industries with code restrictions on new productive capacity production quotas and requirements to file data with a central board were the most successful at reducing output which suggests that these types of provisions were the most effective in helping firms attain collusive outcomes finally i find that the effectiveness of data filing provisions was limited to the early months of the nira prior to a wave of cartel breakdown occurring in spring 1934

the impact of exchange rate volatility on international trade reduced form estimates using the garch in mean model abstract in this paper we use a multivariate garch in mean model of the reduced form of multilateral exports to examine the relationship between nominal exchange rate volatility and export flows and prices the model imposes rationality on perceived exchange rate volatility unlike conventional two step strategies tests are performed for five industrialized countries over the post bretton woods era we find that the garch conditional variance has a statistically significant impact on the reduced form equations for all countries for most of the countries the magnitude of the effect is stronger for export prices than quantities in addition the estimated magnitude of the impact of volatility on exports is not robust to using the conventional estimation strategy jel f41 f31

multi market contact and competition evidence from the depression era portland cement industry abstract theoretical work has suggested that contact between firms in different markets can facilitate tacit collusion empirical work on this link has been limited we address the paucity of empirical evidence with a novel plant level dataset for the cement industry during the great depression we find that multi market contact fosters tacit collusion and higher prices based on a new measure of contact that accounts for capacity utilization a one standard deviation increase in our measure of contact increases prices by around 4 3 we then examine the effect of the national industrial recovery act s codes of fair conduct introduced in 1933 to stem deflation through cooperative behavior within industries we find that the effects of the codes were most strongly felt in markets with the highest level of multi market contact this suggests that multi market contact can be a useful tool for firms to support collusive outcomes tacit or otherwise

exchange rate dynamics in a multilateral target zone this paper presents a model of exchange rate behaviour in a multilateral target zone the model produces new economic insights beyond the well known bilateral model of krugman 1991 which is obtained as a special case the paper also introduces a new class of stochastic processes in economics namely multidimensional reflected diffusion processes two main features characterize the economics of exchange rates in a multilateral target zone i the restrictions on interventions imposed by cross currency constraints when one country changes its money supply say because its exchange rate with a second country has hit its band all exchange rates involving the currency of that particular country will be affected regardless of their position within their respective bands ii cooperation in sharing the intervention burden in general the exchange rate between any two countries will depend on the fundamentals of third countries in a multilateral target zone this is because if the monetary authorities intervene together a shock in the fundamentals of any country will induce a revision of the expectation of future interventions of other countries the model reverts the counterfactual predictions of the bilateral model that the exchange rate steady state density should be u shaped and that its volatility should be a decreasing function of the distance of the exchange rate to the limits of its band thus accounting for the multilateral feature of real world target zones allows us to reconcile target zone models with the most salient empirical features of exchange rate behaviour

an arbitrage free trilateral target zone model abstract this paper proposes an arbitrage free trilateral model of a credible target zone regime with bands on each bilateral exchange rate the no arbitrage condition reduces the system to only two dimensions any two rates must obey their own boundaries but in addition the free rein for movements is restricted by the band of the redundant rate therefore target zone models defined in bilateral settings do not apply to general systems with a cobweb of bilateral bands such as the european monetary system since the model has no known analytical solution it is estimated by the method of simulated moments

modelling the ff mm rate by threshold cointegration analysis this paper investigates a sticky price model of exchange rate determination extension of krugman s target zone model with price inertia applied to the french franc a novel theoretical argument is considered threshold cointegration such that the long run relationship between the parity and its fundamentals is dormant within a certain range of disequilibria but is restored when the system crosses the boundaries over the period 1987 1993 nonlinearities in the ff dm rate consistent with the credibility of this target zone were detected by pointing out a band reversion mechanism a shock persistence analysis which highlights a nonlinear reversion of the exchange rate deviation is also implemented

target zones and the distribution of exchange rates abstract we develop a parsimonious parameterization of exchange rate density function under target zones that enables us to estimate the approximate shapes of density curves from the exchange rate data we find that the distributions of exchange rates can take several different shapes which may correspond to possibly widely different monetary and exchange rate intervention policies including the marginal and intramarginal intervention policies discussed in previous theoretical models

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

designing a global standardized methodology for measuring social entrepreneurship activity the global entrepreneurship monitor social entrepreneurship study although there is a high level of practitioner policymaker and scholar interest in social entrepreneurship most research is based on case studies and success stories of successful social entrepreneurs in a single country we develop a methodology to measure population based social entrepreneurship activity sea prevalence rates and test it in 49 countries our results provide insights into institutional and individual drivers of sea using the global entrepreneurship monitor gem methodology of total entrepreneurial activity tea we find that countries with higher rates of traditional entrepreneurial activity also tend to have higher rates of social entrepreneurial activity we develop a broad definition of social entrepreneurship and then explore types based on social mission revenue model and innovativeness

do euro exchange rates follow a martingale some out of sample evidence abstract traditional autocorrelation and variance ratio tests are based on serial uncorrelatedness rather than martingale difference as such they do not capture potential nonlinearity in mean which could lead to misleading inferences in favor of the martingale hypothesis this paper employs various parametric and nonparametric nonlinear models as well as several model comparison criteria to examine the potential martingale behavior of euro exchange rates in the context of out of sample forecasts the overall evidence indicates that while martingale behavior cannot be rejected for euro exchange rates with major currencies such as the japanese yen british pound and us dollar there is nonlinear predictability in terms of economic criteria with respect to several smaller currencies

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

multivariate nearest neighbour forecasts of ems exchange rates exchange rate modelling has been a persistent puzzle for international economists forecasts from popular models for the exchange rate generally fail to improve upon the random walk out of sample while a multivariate nonparametric approach provides useful information about exchange rates the model produces forecasts superior to the random walk for only one of the three ems currencies examined using a statistic developed in mizrach 1991 i find that the forecast improvement a 4 5 percent reduction in mean squared error for the lira in daily returns is not statistically significant a cross validation exercise suggests that the improvement is also not robust

what determines cartel success following george stigler 1964 many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output but the potential profits from collusion can create a powerful incentive as well theory cannot tell us a priori which effect will dominate whether or when cartels succeed is thus an empirical question we examine a wide variety of empirical studies of cartels to answer the following questions 1 can cartels succeed 2 if so for how long 3 what impact do cartels have 4 what causes cartels to break up we conclude that many cartels do survive and that the distribution of duration is bimodal while the average duration of cartels across a range of studies is about five years many cartels break up very quickly i e in less than a year but there are many others that last between five and ten years and some that last decades limited evidence suggests that cartels are able to increase prices and profits to varying degrees cartels can also affect other non price variables including advertising innovation investment barriers to entry and concentration cartels break up occasionally because of cheating or lack of effective monitoring but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive price wars that erupt are often the result of bargaining issues that arise in such circumstances sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

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

an empirical reassessment of target zone nonlinearities abstract in this paper we investigate the presence of target zone nonlinearities in the pound sterling german mark exchange rate for the period of the uk european exchange rate mechanism erm membership using data with frequency of every 2 days tests against general nonlinear specifications as well as specifications consistent with a stochastic devaluation risk model of exchange rate target zones are carried out using recursive techniques in addition the significance of nonlinear effects is analysed within a recursive bayesian framework we find evidence of target zone nonlinearities in the whole sample but the recursive analysis yields support for the presence of such nonlinearities only in specific subsamples our results imply that the reduction in the uk inflation rate was most likely a consequence of contractionary policies rather than of the expectational effects associated with the target zone

using non linear methods to search for risk premia in currency futures abstract this paper uses currency futures prices to test the joint null hypotheses of rational expectations and absence of a time varying risk premium in the foreign exchange market we find no linear predictability in the logarithm of futures price changes either using its own past or past interest differentials also we establish that there is no non linear predictability in log price changes conditioning on its own past or past interest rate differentials thus if a time varying risk premium exists in currency futures market it is not related to its own past or past interest rate differentials

the linkage between speculative attack and target zone models of exchange rates in this paper we generalize the target zone exchange rate as model formalized by krugman 1988b to include finite sized interventions in defense of the zone the main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting condition usually invoked as a terminal condition this abstract was borrowed from another version of this item

imperfect credibility and risk premia in the european monetary system the paper deals with the estiamation of models for the expected rate of depreciation within the currency bands of the french franc and the italian lira against the deutshmark both unconditional and conditional upon no realignment as well as the estimastion of models for risk premia using these estimates estimates are constructed for the expected rate of depreciation the expected rate of realignment and the expected rate of devaluation of these exchange rates during their ems period by appropriate adjustment of interest rate differentials it is found that these adjustments are of non trivial magnitude

a univariate analysis of ems exchange rates using a target zone model summary the models in the literature on exchange rate target zones imply a non linear time series model for the exchange rate we show how the parameters of such models can be estimated and develop maximum likelihood and method of simulated moments estimators for the target zone model of krugman 1991 the maximum likelihood estimator is based on a computationally attractive approximation to the exact predictive density of the continuous time model monte carlo experiments are used to assess the properties of this estimator in the empirical part we estimate the model with data on recent ems exchange rates we find that the krugman 1991 target zone model is not able to explain the full observed kurtosis and conditional heteroscedasticity of the exchange rate returns

playing with the band dynamic effects of target zones in an open economy this paper applies techniques of regulated brownian motion to a model of a small open economy to investigate how bands on fundamental driving variables affect the realization of the nominal exchange rate the real exchange rate prices and output the author shows that these bands mitigate the relationship between exogenous fundamentals and endogenous variables through their effects on expectations he also considers the effects of changing the width of the band and finds greater stabilization of endogenous variables with more narrow bands on exogenous fundamentals copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

social business hybrids demand externalities competitive advantage and growth through diversification organization scholars have recently studied the internal challenges and opportunities faced by companies that combine business and social logics i e social business hybrids by adopting a demand side perspective this paper addresses the implications of hybridity for strategic choices with products and businesses by focusing on the role of social business hybrids customers in the conceptual framework social identity theory explains how hybridity generates both positive and negative demand side externalities thus hybridity can be a source of competitive advantage in the marketplace but also create hurdles to firms ability to scale up their business diversification represents a potential choice that simultaneously generates growth preserves hybridity and avoids negative demand side externalities this paper analyzes the optimal type timing and scope of such diversification

stochastic trends and jumps in ems exchange rates abstract in this paper we study the statistical properties of ems exchange rate returns our findings show that jumps time varying parameters and conditional leptokurtosis are pertinent features in the empirical distributions of ems exchange rate returns allowance for fat tails however tends to reduce the measured frequency of jumps in the distributions to more realistic proportions most successful in capturing the relevant features of ems exchange rate returns is a combined jump garch model with conditionally t distributed innovations jel f31

target zones and realignments recent contributions emphasize that the presence of exchange rate target zones has important effects on the within band behavior of exchange rates when agents are forward looking the authors find that the implications of available models are inconsistent with european exchange rate data and they suggest that the frequent realignments occurring in the period they consider may be responsible for this they construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence copyright 1992 by american economic association

social identity and preferences social identities prescribe behaviors for people we identify the marginal behavioral effect of these norms on discount rates and risk aversion by measuring how laboratory subjects choices change when an aspect of social identity is made salient when we make ethnic identity salient to asian american subjects they make more patient choices when we make racial identity salient to black subjects non immigrant blacks but not immigrant blacks make more patient choices making gender identity salient has no effect on intertemporal or risk choices

a jump diffusion model for the european monetary system abstract we propose a general continuous time bivariate jump diffusion representation for the exchange rates of european currencies our model captures key features of the exchange rate mechanism fluctuation within bilateral limits is modeled by appropriate diffusion dynamics while discontinuous variation in the level of the fluctuation band is posited to have a jump structure under specific assumptions the probability distribution of the exchange rate process is derived analytically we also perform an empirical investigation of these exchange rates comparing the fit of alternative models we find some evidence of mean reversion inside the bands for these exchange rates jel f33 c51

the presence of target zone nonlinearities when narrower bands exist within official zones the presence of target zone nonlinearities is generally refuted in empirical research we argue that this may be due to estimation being performed vis a vis official limits when monetary authorities are in fact targeting a narrower band estimation results for the belgian and french franc confirm that nonlinearities are present when narrower zones are accounted for

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

exchange rates and fundamental variables a semi parametric analysis of binary choice this study is motivated by the dearth of models that provide good out of sample fit for exchange rates that is current models of exchange rate behaviour are poor predictors of subsequent currency movements an attempt is made to determine if the relationship between exchange rates and fundamental variables can help explain the more extreme exchange rate movements distributional switches models are developed that relate fundamental economic variables to the resulting estimates based on the mixture of normal probability distributions parametric estimation procedures logit and probit are compared with a semi parametric technique maximum score estimation mscore which is relatively untested in the field of finance the fundamental variables of these models include information on trade balances money supply changes interest rate changes real economic growth relative inflation rates and changes in stock market indexes classification results favour mscore implications of results and improvements

stochastic devaluation risk and the empirical fit of target zone models in the model of this paper an exchange rate fluctuates between given boundaries for random lengths of time and jumps discretely when devaluation occur we provide explicit solutions for the stochastic processes followed by the exchange rate and by the expected rate of depreciation when the likelihood and the size of devaluations vary stochastically over time the model produces realistic patterns of covariation between exchange rates and interest rate differentials and provides interesting interpretations of available empirical evidence we also specify how to infer devaluation risk from target zone data

testing target zone models using efficient method of moments the objectives of this article are threefold 1 to test target zone models using more efficient and direct econometric methodology than previous research 2 to identify an implicit band if it exists from observed data and to test target zone models based on the estimated implicit band rather than the stated official band and 3 to examine whether the exchange rate can be modeled as a managed float system with a central parity that lacks a band we find strong evidence that a model with intramarginal intervention and a narrower implicit unofficial band can describe the dynamics of the french franc deutsche mark exchange rate from january 1 1987 july 30 1993

achieving demand side synergy from strategic diversification how combining mundane assets can leverage consumer utilities we explore the overlooked issue of how certain strategic level interindustry diversification options might increase consumer utility discussions of inter industry diversification typically focus on producer synergies obtainable from economies of scope or from skill transfer across business units discussions of intra industry product diversification generally the province of marketing typically focus on synergies obtainable from product bundling which lowers producer costs or provides convenience for consumers we take a different tack by linking interindustry diversification and consumer utility we first separately examine two possible consumer benefits of interindustry diversification 1 facilitating consumers accomplishment of two tasks simultaneously or 2 attracting diverse consumer groups to a common platform when intergroup externalities exist we then assess a simple empirical context that shows potential for simultaneous consumer utilities and two sided market utility together we analyze this context and concurrently develop a mathematical model showing how these demand side synergies can create unique business value we next introduce asymmetric preferences among consumer subgroups and we refine our arguments by comparing their conclusions with the empirical data we learn that combinations of otherwise mundane i e commonplace assets can create consumer value superior assets are not necessary moreover common ownership is necessary for the pricing flexibility required to deliver and capture maximum value through interindustry diversification especially when consumer groups preferences may change the negotiations and settling up required for cooperation through alliances will without common ownership increase costs and reduce responsiveness we discuss the sustainability of demand side advantages and the implications of these ideas for future research and practice

the output effects of government sponsored cartels during the new deal this paper uses the national industrial recovery act of 1933 which set up industry wide cartels in the manufacturing sector of the us economy to gain empirical insight into the current debate on the output effects of cartels recent theoretical studies have demonstrated ways in which cartels could expand rather than reduce output as is traditionally thought the new deal cartel experiment does not support this efficient cartel view on the contrary the legislation brought about a reduction in manufacturing output as traditional cartel theory would predict

another look at the impact of the national industrial recovery act on cartel formation and maintenance costs alexander s 1994 finding that the national recovery administration s codes of fair competition led to a change in the critical concentration level during the 1930s is questioned no regime switch is detected when a common industry sample is employed also when industries with and without codes are analyzed codes appear to have no effect on price cost margins during the period this absence of effect is postulated to be a result of the unenforceability of trade practice provisions contained in many codes the empirical results of this paper suggest that the existence of codes was not sufficient to enable industries to overcome cartel formation costs only easily enforceable trade practice provisions appear to have affected the structure performance relation in the period following repeal of the national industrial recovery act

intervention policy and mean reversion in exchange rate target zones the swedish the intervention policy of the swedish central bank is studied using daily intervention data for the late 1 980s in contrast to the first generation of target zone models we find that the interventions occur all over the exchange rate band and almost every day based on this evidence we estimate an exchange rate target zone model with intra marginal interventions the results go a long way towards explaining the well established hump shaped exchange rate distribution and lack of non linearities

linear non linear and essential foreign exchange rate prediction with simple technical trading rules abstract this paper investigates the predictability of spot foreign exchange rate returns from past buy sell signals of the simple technical trading rules by using the nearest neighbors and the feedforward network regressions the optimal choices for nearest neighbors hidden units in a feedforward network and the training set are determined by the cross validation method which minimizes the mean square error although this method is computationally expensive the results indicate that it has the advantage of avoiding overfitting in noisy environments and indicate that simple technical rules provide significant forecast improvements for the current returns over the random walk model

implications of nonlinear dynamics for financial risk management this paper demonstrates that when log price changes are not iid their conditional density may be more accurate than their unconditional density for describing short term behavior using the bds test of independence and identical distribution daily log price changes in four currency futures contracts are found to be not iid while there appear to be no predictable conditional mean changes conditional variances are predictable and can be described by an autoregressive volatility model that seems to capture all the departures from independence and identical distribution based on this model daily log price changes are decomposed into a predictable part which is described parametrically by the autoregressive volatility model and an unpredictable part which can be modeled by an empirical density either parametrically or nonparametrically this two step seminonparametric method yields a conditional density for daily log price changes which has a number of uses in financial risk management

banking on currency forecasts how predictable is change in money abstract the paper examines the predictive performance of four structural exchange rate models using both parametric and nonparametric techniques error correction versions of the models are fit so that plausible long run elasticities can be imposed on the fundamental variables of each model a variety of model evaluation statistics are reported our findings confirm that fundamental exchange rate models forecast no better than a random walk model for short term prediction horizons for longer horizons error correction terms can explain exchange rate movements significantly better than a no change forecast for a subset of the models and currencies we consider

quantitative modelling of the eur chf exchange rate during the target zone regime of september 2011 to january 2015 krugman 1991 s target zone model for exchange rate dynamics has become the reference of a large part of this literature despite its simplicity and elegance empirical evidence has been lacking not least because it is difficult to capture the predicted non linear relationship between the observable exchange rate and the non observable fundamental value this is why we propose a different approach by inverting locally the relation between exchange rate and fundamental value we derive analytical expressions for the conditional volatility and the probability density as a function of the exchange rate this allows us to examine krugman s prediction directly from historical data and furthermore enables us to test the smooth pasting condition which is intimately related to the no arbitrage condition concretely we study the performance of the euro swiss franc exchange rate in the extraordinary period from september 6 2011 to january 15 2015 when the swiss national bank enforced a minimum exchange rate of 1 20 swiss francs per euro we show that the data are well explained by the theory and conclude that krugman s target zone model holds after all but apparently only under extreme and sustained pressure that pushes continuously the exchange rate very close to the boundary of the target zone

big effects of small interventions the informational role of intervention in exchange rate policy abstract in this paper we demonstrate how an infintesimal unsterilized foreign exchange intervention may cause a very large discrete change in the exchange rate we analyze an example in which there is a target zone policy in place but the actual width of the target zone is not known by participants in the foreign exchange market in this case intervention both affects fundamentals and conveys information about policy the exchange rate jumps in response to intervention with the size of the jump related to the uncertainty about the true band width also in this model the relationship between the exchange rate and the fundamental depends upon both the history of the path of the exchange rate and whether or not intervention has occured

ems exchange rate bands a monte carlo investigation of three target zone models abstract a monte carlo analysis is used to compare three target zone models in reproducing some stylized facts of weekly deutsche mark exchange rates in the european monetary system for the period january 1987 august 1992 the models are the standard target zone model a model of infracum intramarginal interventions and a model of unfulfilled realignment expectations compared with the corresponding dollar rates returns on deutsche mark rates exhibit much more non normality which can be generated endogenously by the latter two models and more conditional heteroskedasticity which can be produced simultaneously by the infra cum intramarginal interventions model

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

a theory of entangled political economy with application to tarp and nra the recent financial crisis has provoked a raft of contending claims as to whether the cause of the crisis is better attributed to market failure or political failure such claims are predicated on a presumption that markets and polities are meaningfully separate entities to the contrary we argue that contemporary arrangements create an entangled political economy that renders theorizing based on separation often misleading within this alternative framework of entangled political economy we illuminate both the recent troubled assets relief program tarp and the new deal s national recovery administration nra

chaotic behaviour in exchange rate series first results for the peseta u s dollar case abstract we test for the presence of deterministic chaos on daily data for the spot and forward spanish peseta u s dollar exchange rates the finding of a chaotic behaviour in the series allows us to make short run predictions which in general outperform those from the random walk model

oppositional logics and the antecedents of hybridization a country level study of the diffusion of islamic banking windows 1975 2017 little is known about when and where hybrid organizations diffuse we argue that neo institutional perspectives which stress the constraining role of market categories and institutional logics ha

building sustainable hybrid organizations the case of commercial microfinance organizations we explore how new types of hybrid organizations organizations that combine institutional logics in unprecedented ways can develop and maintain their hybrid nature in the absence of a ready to w

target zones and forward rates in a model with repeated realignments abstract this paper studies the term structure of forward premia in a target zone with imperfect credibility the relationship between spot and forward exchange rates which reflects the possibility of realignments of the band is studied for various intervention policies with different degrees of credibility forward market data is used to estimate the implied credibility of the french german target zone during the ems parameter estimates accord with the experience of the ff dm exchange rate during the 1980s although spot exchange rates display little sensitivity to anticipated intervention forward data can be used to detect the effects of intervention on exchange rate dynamics

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

intramarginal intervention in the ems and the target zone model of exchange rate behavior abstract exchange rate data produced by the european monetary system ems contradict important predictions made by the standard target zone model we show that the contradictions reflect a misinterpretation of policies pursued by the ems countries they intervened intramarginally to keep exchange rates will within their bands not at the edges of the bands to keep rates from crossing them in the basle nyborg agreement of 1987 however they agreed to make fuller use of the band and exchange rates behave differently thereafter the effect appears clearly in the behavior of the french franc and less decisively in the behavior of the italian lira we conclude by examining and rejecting other explanations for the observed difference in exchange rate behavior

exchange rate discounting abstract economists often describe nominal exchange rates as forward looking so that they reflect discounted expected future fundamentals this study applies a method for identifying the discount rate involved without knowing or measuring fundamentals identification arises from assumptions on the stochastic process followed by fundamentals combined with non linearity arising from expected future regime changes two applications yield evidence against the present value model in the form of discount rates which are negative and statistically significant

work sharing during the great depression did the president s reemployment agreement promote reemployment the president s reemployment agreement pra of 1933 directed firms to reduce workweeks during the great depression so existing jobs could be spread into additional employment opportunities similar work sharing policies have recently been implemented across europe in hopes of reducing unemployment i find that ceteris paribus the work sharing aspects of the pra created nearly 2 5 million new employment opportunities in around four months however the programme also required firms to raise hourly wage rates offsetting close to half of these gains furthermore most of the remaining employment gains were wiped out after cartel oriented industry specific codes of fair competition supplanted the pra

is it signalling exchange intervention and the dollar deutschemark rate abstract the portfolio balance channel for sterilised intervention is tested by examining the effects of changes in relative asset supplies on the dollar deutschemark rate during the 1980s in contrast to previous studies we control for any signalling effects of central bank intervention and find a weak but statistically significant portfolio balance influence on the exchange rate

competition and the core core theory is a powerful tool to find competitive market clearing prices a familiar economic setting shows this beginning with a single commodity produced using many factors of production and ending with the general case of many outputs and inputs the analysis describes when the market has a core when it has no core there is a least upper bound on the payment each firm that does not participate in a central market must make that serves as an inducement to restore the core since each firm can avoid this penalty by trading in the central market the result is market clearing prices that can support an efficient equilibrium

the scope and organization of production firm dynamics over the learning curve i introduce a bayesian learning model of the firm to account for a variety of empirical facts about firms the many tasks the firm can undertake the scope of the firm are informationally related so that the firm can enjoy some economies of scope from information the model predicts changes in firm size and its comovement with firm scope that are broadly consistent with the empirical evidence it also provides an explanation for the limits to the scope of the firm the firm may lack information or it may be costly to communicate the information necessary to undertake many tasks