pricing multiasset equity options how relevant is the dependence function abstract in this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options we conduct the analysis for various 5 dimensional baskets of uk shares and a wide range of payoffs for the multiasset options consistent with the instruments traded on the market we also test the relevance of the dependence specification over both volatile and quiet market scenarios interestingly we find that in most circumstances the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices substantially however the dependence function becomes more relevant in particularly volatile market conditions

firms markets and the state institutional change and manufacturing sector profitability variances in india we assess absolute magnitudes relative importance and intertemporal differences in firm industry and business group effects in explaining the variance of indian manufacturing firms profitability over the 26 year period between 1980 1981 and 2005 2006 we stratify the data by institutional phases to place emphasis on the role of changing institutional factors in an emerging economy first as a regime of command and control transits to partial liberalization between 1985 and 1991 and then to an open competitive market economy after 1991 thereafter financial reforms occur followed by legal reforms we find that liberalization significantly affects and alters the relative importance of firm industry and group effects firm effects are always important whether in a command and control regime with benefits accruing from protectionism and political rent seeking or in liberalized periods where firm specific capabilities and dynamic efficiencies are valued industry effects are significant in the command and control regime when mandatory sector placement benefits firms in industries with superior profits and in the liberalized period when the choice of the industry segment in which to operate is open to firms thereafter industry effects dissipate business group effects matter in explaining profitability variances group effects magnitudes however do not change significantly over time

estimating financial risk measures for options abstract this paper proposes a simulation lattice procedure to estimate financial risk measures for option positions the framework proposed can be applied to many different kinds of options including exotic and vanilla options it can take account of early exercise features heavy tails in underlying processes estimate different risk measures including var expected shortfall and spectral risk measures and in a limited way it can be generalized to accommodate multiple factors it avoids many of the limitations of existing approaches and in particular avoids the problems associated approaches based on delta gamma and similar approximations it also generates some interesting results about the risk measures of some illustrative options positions

openness central bank independence and the sacrifice ratio traditional explanations of the negative correlation between openness and inflation presume that an inverse relationship between the degree of openness and the sacrifice ratio reduces the inflation bias of descretionary monetary policy temple 2002 concludes however that such a relationship fails to emerge in cross country data our analysis of the same cross country data considered by temple indicates that once the degree of central bank independence and its interaction with greater openness and the sacrifice ratio in addition increased openness lessens the positive effect of central bank independence on the sacrifice ratio

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

derivative pricing using multivariate affine generalized hyperbolic distributions abstract in this paper we use multivariate affine generalized hyperbolic magh distributions introduced by schmidt et al 2006 to show how to price multidimensional derivatives when the underlying asset follows a magh distribution we also illustrate the approach using market data from the bovespa sao paulo stock exchange and the exchange rate of the brazilian real vs us dollar to price some multidimensional derivatives

how much does country matter an analysis of firms growth options recent international strategy research emphasizes the importance of understanding the effects of geographic location on firms strategies and performance outcomes we contribute to this research by providing empirical evidence that the interplay of country and industry effects matters substantially in explaining the variation in the value of growth options of firms based in different countries our results show that country industry effects are the second largest source of variation following firm effects while industry and country effects are relatively small when considered in their own right that valuable growth options are tied to country and industry interactions has important implications for international strategy research and practice

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

tempered stable and tempered infinitely divisible garch models abstract in this paper we introduce a new garch model with an infinitely divisible distributed innovation this model which we refer to as the rapidly decreasing tempered stable rdts garch model takes into account empirical facts that have been observed for stock and index returns such as volatility clustering non zero skewness and excess kurtosis for the residual distribution we review the classical tempered stable cts garch model which has similar statistical properties by considering a proper density transformation between infinitely divisible random variables we can find the risk neutral price process thereby allowing application to option pricing we propose algorithms to generate scenarios based on garch models with cts and rdts innovations to investigate the performance of these garch models we report parameter estimates for the dow jones industrial average index and stocks included in this index to demonstrate the advantages of the proposed model we calculate option prices based on the index

foster hart optimal portfolios we reinvestigate the classic portfolio optimization problem where the notion of portfolio risk is captured by the foster hart risk a new bankruptcy proof reserve based measure of risk extremely sensitive to left tail events foster and hart 2009 to include financial market frictions induced by market microstructure we employ a general ex ante transaction cost function with fixed linear and quadratic penalty terms in the objective function we represent the us equity market by the dow jones industrial average djia index and study the performance of the foster hart optimal djia portfolio in order to capture the skewed and leptokurtotic nature of real life stock returns we model the returns of the djia constituents as an arma garch process with multivariate normal tempered stable innovations we demonstrate that the foster hart optimal portfolio s performance is superior to those obtained under several techniques currently in use in academia and industry

does corporate strategy matter a revisionist view that corporate strategy does not matter has gained considerable influence in recent years this view largely stems from empirical results of early variance decomposition studies that found negligible corporate effects associated with profitability differences between businesses our analysis of the variance decomposition literature shows this view to be incorrect not only do the studies as a group show that factors at the corporate level of organizations contribute to profitability differences but also evidence suggests that factors specifically associated with corporate strategy contribute to corporate effects corporate strategy in fact does matter copyright 2001 john wiley sons ltd

openness and inflation a new assessment romer 1993 uses a barro gordon type model to argue that openness puts a check on the government s incentive to engage in unanticipated inflation because of induced exchange rate depreciation 2 therefore in the absence of precommitment in monetary policy more open economies will tend to have lower inflation rates romer finds that empirically over a large sample of countries and over a broad time frame average inflation rates are lower in smaller more open economies this relationship is significant quantitatively large and robust moreover these findings suggest that models in which the absence of precommitment in monetary policy leads to inefficiently high average levels of inflation are essential to understanding inflation in most of the world this comment suggests that the negative link between inflation and openness romer found may be largely driven by the responses of severely indebted countries sics to the debt crisis of the 1980s figures i and ii show the scatterplots of the logarithms of average inflation and openness for the subperiods 1973 to 1981 predebt crisis and 1982 to 1990 the debt crisis period different groups of countries are separated according to their indebtedness level 3 the solid lines in the figures represent the predicted value of inflation obtained from a regression of openness on inflation for the countries in each group as the scatterplots show there is indeed a strong negative relation between openness and inflation among sics during the debt crisis

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

markets vs management what drives profitability this study addresses the issue of the relative degree of variance in roa accounted for by industry corporate and sbu effects while controlling for the business cycle and the interaction between the business cycle and industry two key articles schmalensee 1985 and rumelt 1991 are discussed in detail research results on a recent data base compustat using variance components analysis varcomp are presented that not only confirm most of the rumelt 1991 findings but also suggest the existence of a corporate effect heretofore undetected

what does a small corporate effect mean a variance components simulation of corporate and business effects in a widely cited paper rumelt 1991 presents estimates of the relative influence of corporate business unit and other influences on business unit profitability and finds the corporation explains almost none of the variability in business unit profitability using a monte carlo simulation we examine the relation of variance component magnitudes to other indicators of the importance of a particular effect our results demonstrate that variance components can be an extremely nonlinear indicator of importance we also question whether rumelt s corporate effect represents the possible contributions of corporate strategy to business unit performance this addresses a puzzle raised by rumelt 1991 concerning the small effect of corporations in explaining performance and suggests that rumelt s findings should not be seen as demonstrating the insignificance of corporate strategy 1997 john wiley sons ltd

openness exchange rate regimes and the phillips curve abstract recent research suggests that the phillips curve slope measured using sacrifice ratios from the period 1961 88 is positively related to trade openness contradicting the romer 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 hypothesis that disinflations are less costly in open economies in this paper i consider sacrifice ratios and output inflation trade offs from 1981 98 and allow their dependence on openness to vary with the exchange rate regime sacrifice ratios are weakly negatively related to openness but the strength of the relationship does not increase with exchange rate flexibility output inflation trade offs are negatively related to openness and the strength of the relationship increases with exchange rate flexibility

exchange rate pass through openness and the sacrifice ratio abstract considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation output trade off and suggests that the ultimate effect of openness on the output inflation relationship is influenced by a variety of factors in this paper we consider the impact of exchange rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio we develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output inflation relationship next we empirically explore the nature of these two variables and their interaction results indicate that greater pass through increases the sacrifice ratio that there is statistically significant interaction between pass through and openness and once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio such as central bank independence openness fails to exert an empirically robust effect on the sacrifice ratio

does globalisation discipline monetary policymakers abstract this paper analyses globalisation using a small general equilibrium model it concludes that whether increased openness a reduction in the costs of international trade helps to discipline monetary policy in large open economies depends on the type of trade costs moreover to the extent that globalisation induces stronger competition in the goods market this may also have an adverse effect on monetary policy discipline the latter is due to international expenditure switching which becomes a more forceful channel as competition intensifies thus the answer to the question in the title is not necessarily affirmative

openness and the effects of monetary policy abstract economic theory suggests that an economy s openness reduces the ability of monetary policy to affect output while increasing its effects on inflation using annual data from the 1953 1990 period for a panel of 38 countries the paper s empirical results support the theoretical predictions the more open the economy the smaller larger the output inflation effects of a given change in the money supply this finding is robust across all the different specifications and estimation methods examined

financial market models with levy processes and time varying volatility abstract asset management and pricing models require the proper modeling of the return distribution of financial assets while the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution alternative models for describing return distributions have been proposed since the 1960s with the strongest empirical and theoretical support being provided for the family of stable distributions with the normal distribution being a special case of this distribution since the turn of the century specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions more specifically subclasses of the tempered stable distribution have been proposed in this paper we propose one such subclass of the tempered stable distribution which we refer to as the kr distribution we empirically test this distribution as well as two other recently proposed subclasses of the tempered stable distribution the carr geman madan yor cgmy distribution and the modified tempered stable mts distribution the advantage of the kr distribution over the other two distributions is that it has more flexible tail parameters for these three subclasses of the tempered stable distribution which are infinitely divisible and have exponential moments for some neighborhood of zero we generate the exponential levy market models induced from them we then construct a new garch model with the infinitely divisible distributed innovation and three subclasses of that garch model that incorporates three observed properties of asset returns volatility clustering fat tails and skewness we formulate the algorithm to find the risk neutral return processes for those garch models using the change of measure for the tempered stable distributions to compare the performance of those exponential levy models and the garch models we report the results of the parameters estimated for the s p 500 index and investigate the out of sample forecasting performance for those garch models for the s p 500 option prices

trade openness and inflation the role of real and nominal price rigidities the paper revisits the long standing question of the impact of trade openness on the inflation output trade off by accounting for the effects of product market competition on price flexibility the study develops a new keynesian open economy dynamic stochastic general equilibrium model with non constant price elasticity of demand and calvo price setting in which the frequency of price adjustment is endogenously determined it demonstrates that trade openness has two opposing effects on the sensitivity of inflation to output fluctuations on the one hand it raises strategic complementarity in firms pricing decisions and the degree of real price rigidities which makes inflation less responsive to changes in real marginal cost on the other hand it strengthens firms incentives to adjust their prices thereby reducing the degree of nominal price rigidities and increasing the sensitivity of inflation to changes in marginal cost the study explains the positive relationship between competition and the frequency of price adjustment observed in the data it also provides new insights into the effects of global economic integration on the phillips curve

openness inflation and the phillips curve a puzzle models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output inflation trade off or phillips curve using a variety of measures of the trade off and a standard measure of openness this paper argues that the direct evidence for a correlation is not strong in turn this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by romer 1993 the paper considers some alternative explanations for the romer evidence

exchange rate determination the role of factor price rigidities and nontradeables this paper introduces factor labor markets into the intertemporal monetary model of obstfeld and rogoff and combines this richer market structure with a new utility independent representation of nontradeables this allows us to explore the international monetary transmission mechanism for factor price wage rigidities under different degrees of macroeconomic openness factor price rigidities imply similar properties for the international transmission mechanism as domestic producer price rigidities nontradeables give raise to interesting new effects under asymmetric monetary shocks they create short run ppp deviations increase exchange rate volatility relative to price level volatility and reduce positive consumption and negative output comovements 2000 elsevier science b v all rights reserved

factor decomposition of the eurozone sovereign cds spreads in the present study we examine the factors driving eurozone sovereign credit default swap cds spreads during the eurozone sovereign debt crisis for identifying factors we utilize independent component analysis ica a technique similar to principal component analysis pca we identify three factors that impact spreads and capture the features specific to the crisis such as the breakup risk of the eurozone peripheral factor global factor and eurozone common factor in contrast when pca is applied only a single factor is identified moreover using ica with a garch model we show that the source of volatility for cds spreads shifted from the global factor in 2009 and the peripheral factor in 2010 to the eurozone common factor in 2012 and that the dynamic correlation reflects the decoupling between low credit risk countries such as germany and high credit risk countries such as greece we also show that the goodness of fit of the ica based model is better than other models used such as the student s t copula model

tobin s q and the importance of focus in firm performance using tobin s q as a measure of performance we seek to estimate the relative importance of industry focus and share effects in determining firm performance our methods are analogous to those of richard schmalensee and like him we find that industry effects account for the majority of the explained variance however we also find that firm effects exist in the form of focus effects that is narrowly diversified firms do better than widely diversified firms we interpret this finding as consistent with profit maximization by firms with different factor endowments

time series analysis for financial market meltdowns abstract there appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling more specifically it is alleged that current risk models have failed to properly assess the risks associated with large adverse stock price behavior in this paper we first discuss the limitations of classical time series models for forecasting financial market meltdowns then we set forth a framework capable of forecasting both extreme events and highly volatile markets based on the empirical evidence presented in this paper our framework offers an improvement over prevailing models for evaluating stock market risk exposure during distressed market periods

the new keynesian phillips curve closed economy versus open economy abstract the paper extends woodford s optimizing models with nominal rigidities chapter 3 of interest and prices foundations of a theory of monetary policy princeton university 2000 unpublished manuscript analysis of the closed economy phillips curve to an open economy with both commodity trade and capital mobility we show that consumption smoothing which comes with the opening of the capital market raises the degree of strategic complementarity among monopolistically competitive suppliers thus rendering prices more sticky and magnifying output responses to nominal gdp shocks

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

macroeconomic effects of regulation and deregulation in goods and labor markets product and labor market deregulation reduce and redistribute rents leading economic players to adjust to this new distribution it typically comes with distribution and dynamic effects to study these effects we build a macroeconomic model on two central assumptions monopolistic competition in the goods market which determines the size of rents and bargaining in the labor market which determines the distribution of rents product market regulation determines entry costs and the degree of competition labor market regulation determines the bargaining power of workers we show the effects of deregulation we then use our results to discuss the political economy of deregulation and recent macroeconomic evolutions in europe

an evolutionary perspective on diversification and corporate restructuring entry exit and economic performance during 1981 89 this study proposes a theoretical perspective that firms engage in continuous search and selection activities in order to improve their knowledge base and thereby improve their performance this general framework is applied to the context of corporate evolution entry and exit activities are understood as search and selection undertaken by the firm to improve their performance one of the compelling features of this framework is that firms learn from their past entry experience and approach the next entry in a more focused and directed manner over time also firms acquire additional knowledge from each entry event while applying their existing knowledge base with a longitudinal 1981 89 data base on entry and exit activities of all publicly traded manufacturing firms in the united states this study shows that applicability of the firm s knowledge base plays an important role in predicting which businesses a firm enters or exits finns sequentially enter businesses of similar human resource profiles and firms are more likely to divest lines of business of different profiles corporate level analysis shows that such well directed entry and exit contribute to the improvement of a firm s profitability

the fine structure of asset returns an empirical investigation we investigate the importance of diffusion and jumps in a new model for asset returns in contrast to standard models we allow for jump components displaying finite or infinite activity and variation empirical investigations of time series indicate that index dynamics are devoid of a diffusion component which may be present in the dynamics of individual stocks this leads to the conjecture confirmed on options data that the risk neutral process should be free of a diffusion component we conclude that the statistical and risk neutral processes for equity prices are pure jump processes of infinite activity and finite variation

openness the sacrifice ratio and inflation is there a puzzle abstract the standard time inconsistency based explanation for the negative correlation between openness and inflation requires an inverse relationship between the sacrifice ratio and openness but daniels et al 2005 openness central bank independence and the sacrifice ratio journal of money credit and banking 37 2 371 379 have provided evidence that controlling for central bank independence reveals a positive relationship this paper embeds the time inconsistency approach within a model of a multisector imperfectly competitive open economy in this setting greater openness raises the sacrifice ratio but reduces the inflation bias thus failure to observe an inverse relationship between openness and the sacrifice ratio does not necessarily imply that the time inconsistency approach is irrelevant to understanding the openness inflation relationship

predation mergers and incomplete information this article examines the strategic pricing of duopolists in anticipation of a takeover of one by the other in equilibrium the acquiring firm may expand its output to signal that it is a low cost rival and thereby improve the takeover terms if the merged firm willface potential entry a premerger expansion of output may be necessary to deter entry and to make the merger profitable in that case the acquiringjirm s output expansion increases industry concentration by facilitating the takeover and by deterring entry this establishes the rationality of predatory output expansions even when a merger or a takeover is possible and indeed anticipated a voluminous literature is devoted to exploring the role of pricing in altering industry structure to achieve monopoly power that literature discusses both price cutting to drive existing rivals from the industry predatory pricing and setting low prices to deter potential entrants limit pricing the former has received the lion s share of the attention of antitrust commentators and enforcers but the rationality of predatory pricing has been seriously questioned the major criticism has two parts i takeovers are a superior means of achieving monopoly power and where legal should therefore be used instead of price cutting and ii if a takeover is anticipated premerger price cutting merely dissipates some of the value of the merging parties and would thus be irrational the first argument was originally advanced by mcgee 1958 and later by telser 1965 and bork 1978 the essential idea is that since predation is costly firms should realize that a more profitable arrangement in the form of a merger exists and ought to be negotiated the second argument is a natural extension of the first in response to this criticism yamey 1972 provides two arguments first the aggressor knows that he may face other rivals in the future entrants into this or other markets those potential rivals may draw inferences from his current behavior about the response they will face if they enter in that case the aggressor may wish to develop a reputation for aggressive behavior second even if a takeover is anticipated the terms of the takeover may be affected by the pretakeover pricing

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

a generalized extreme value approach to financial risk measurement this paper develops an unconditional and conditional extreme value approach to calculating value at risk var and shows that the maximum likely loss of financial institutions can be more accurately estimated using the statistical theory of extremes the new approach is based on the distribution of extreme returns instead of the distribution of all returns and provides good predictions of catastrophic market risks both the in sample and out of sample performance results indicate that the box cox generalized extreme value distribution introduced in the paper performs surprisingly well in capturing both the rate of occurrence and the extent of extreme events in financial markets the new approach yields more precise var estimates than the normal and skewed t distributions

an extreme value approach to estimating volatility and value at risk this article determines the type of asymptotic distribution for the extreme changes in u s treasury yields the thin tailed gumbel and exponential distributions are strongly rejected against the fat tailed frechet and pareto distributions the empirical results indicate that the volatility of maximal and minimal changes in interest rates declines as time to maturity rises yielding a downward sloping volatility curve for the extremes the article proposes an extreme value approach to estimating value at risk and shows that the statistical theory of extremes provides a more accurate approach for risk management and value at risk var calculations than the standard models

corporate and industry effects on business unit competitive position we partition the variances of market shares which we use as surrogates for competitive position of the business units of all public manufacturing companies available in the trinet data base into industry factors corporate parent specific factors and business unit specific factors our results differ somewhat from rumelt s 1991 which decomposed variances in profitability we find that corporate parent effects on market share are considerably greater than zero when lines of business are defined more narrowly when small business units are included and when firms are medium sized our results suggest that the relative importance of corporate industry and business unit effects depends on the types of criteria such as the level of industry aggregation whether small business units are included and firm size that are used to construct samples copyright 2000 john wiley sons ltd

cattle as a consistently resilient agricultural commodity this study compares a range of agricultural commodities over periods of varying economic circumstances these commodities are examined over three categories including returns risk and contributi

early warning signals using avars of infinitely divisible garch models evidence from stock index markets classical time series models have failed to properly assess the risks that are associated with large adverse stock price behaviour this article contributes to autoregressive moving average model garch arma garch models with standard infinitely divisible innovations and assesses the performance of these models by comparing them with other time series models that have normal innovation we discuss the limitations of value at risk var and aim to develop early warning signal models using average value at risk avars based on the arma garch model with standard infinitely divisible innovations empirical results for the daily dow jones industrial average index the england financial times stock exchange 100 index and the japan nikkei 225 index reveal that estimating avars for the arma garch model with standard infinitely divisible innovations offers an improvement over prevailing models for evaluating stock market risk exposure during periods of distress in financial markets and provides a suitable early

globalization the output inflation tradeoff and inflation abstract this paper provides comprehensive evidence on the relation between inflation and globalization defined here as trade and financial openness using a large cross section of 91 countries over the period 1985 2004 we establish two main empirical regularities both higher trade and financial openness i reduce central banks inflation bias yielding lower average inflation and ii are associated with a larger output inflation tradeoff this evidence is at odds with the standard barro gordon framework which would require globalization to have a negative effect on the output inflation tradeoff to yield lower equilibrium inflation but it is consistent with a recent strand of new keynesian models emphasizing the role of imperfect competition and nominal rigidities our findings also support the relevance of the time inconsistency hypothesis which underlies the theoretical models predicting a relation between globalization and inflation for the oecd subsample however we do not find an effect of openness on inflation the output inflation tradeoff suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time inconsistency problem

backtesting basel iii evaluating the market risk of past crises through the current regulation are the recommendations from the bank for international settlements bis effective to a broad set of financial crises we submitted two of the main basel iii recommendations for market risk to a b

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

how relevant is volatility forecasting for financial risk management it depends if volatility fluctuates in a forecastable way volatility forecasts are useful for risk management hence the interest in volatility forecastability in the risk management literature volatility forecastability however varies with horizon and different horizons are relevant in different applications moreover existing assessments of volatility forecastability are plagued by the fact that they are joint assessments of volatility forecastability and an assumed model and the results can vary not only with the horizon but also with the assumed model to address this problem we develop a model free procedure for assessing volatility forecastability across horizons perhaps surprisingly we find that volatility forecastability decays quickly with horizon volatility forecastability although clearly of relevance for risk management at the short horizons relevant for say trading desk management may be much less important at longer horizons

the effects of corporate restructuring on aggregate industry specialization it has been widely argued that the purpose of corporate restructuring during the 1980s was to produce a population of more industry specialized competitive firms in response to intensifying global competition a number of studies show that corporate restructuring resulted in increased corporate focus during the 1980s however no study has yet examined whether corporate restructuring resulted in increased specialization at the industry level during the 1980s this study examines this issue first we examine whether or not aggregate industry specialization increased during the 1980s that is we ask did the average firm in any given u s industry become more or less specialized to that industry during the 1980s second we examine whether corporate restructuring was a significant determinant of change in aggregate industry specialization during the 1980s using a sample of 686 four digit sic industries and 64 two digit industry groups this study finds that aggregate industry specialization declined very slightly at both the four digit and two digit level between 1981 and 1989 this study also finds that sell offs of establishments through corporate control transactions or interfirm asset sales had no significant effect on aggregate industry specialization