international spillovers from us forward guidance to equity markets we quantify the international spillovers of explicit federal open market committee fomc policy rate guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on international equity markets considering equity indices of both advanced and emerging economies we find that stimulatory explicit fomc policy rate guidance announcements at the zero lower bound led to higher equity prices in a number of advanced and emerging economies moreover we find that equity indices of economies with lower sovereign ratings rose by more consistent with the risk taking channel of monetary policy

fiscal policy interventions at the zero lower bound we build on a new keynesian dynamic stochastic general equilibrium dsge model to explore the macroeconomic consequences of fiscal expansionary shocks during the economic crisis of 2008 in the eurozone in this setting we find that the big four eurozone economies france germany italy and spain can effectively escape from their liquidity trap through fiscal policy interventions caused by government purchases we estimate the government spending multiplier to be above 1 8 when this policy is associated with a long term commitment to keeping the nominal interest rate at the zero lower bound as suggested by krugman 1998 notably the short term deficit effect on the budget balance can be offset five years after the implementation of a large spending program we also show that alternative policies with tax cuts that expand the supply do not appear to have the same power in the short run moreover we provide novel empirical evidence that a large government debt renders a government spending policy ineffective

50th anniversary article option pricing valuation models and applications this paper surveys the literature on option pricing from its origins to the present an extensive review of valuation methods for european and american style claims is provided applications to complex securities and numerical methods are surveyed emphasis is placed on recent trends and developments in methodology and modeling

a simplified jump process for common stock returns the specification of a statistical distribution which accurately models the behavior of stock returns continues to be a salient issue in financial economics with the introduction of arithmetic and geometric brownian motion models much attention has recently focused on a poisson mixture of distributions as an appropriate specification of stock returns for example see 12 3 8 10 5 and 1 consistent with empirical evidence these models yield leptokurtic security return distributions and furthermore the specification has much economic intuition in particular one may always decompose the total change in stock price into normal and abnormal components the normal change may be due to variation in capitalization rates a temporary imbalance between supply and demand or the receipt of any other information which causes marginal price changes this component is modelled as a lognormal diffusion process the abnormal change is due to the receipt of any information which causes a more than marginal change in the price of the stock and is usually modeled as a poisson process

option pricing for a jump diffusion model with general discrete jump size distributions we obtain a closed form solution for pricing european options under a general jump diffusion model that can incorporate arbitrary discrete jump size distributions including nonparametric distributions such as an empirical distribution the flexibility in the jump size distribution allows the model to better capture leptokurtic features found in real world data the model uses a discrete time framework and leads to a pricing formula that is provably convergent to the continuous time price as the discretization is increased the solution is easy to implement with fast convergence properties numerical results illustrate the efficiency and accuracy of the proposed model and highlight its robustness and flexibility this paper was accepted by noah gans stochastic models and simulation

financial market illiquidity shocks and macroeconomic dynamics evidence from the uk we examine the link between financial market illiquidity and macroeconomic dynamics by fitting a bayesian time varying parameter var with stochastic volatility to uk data from 1988q1 to 2016q4 we capture liquidity conditions in the stock market using a battery of illiquidity proxies this paper departs from previous studies examining macro financial linkages by using theoretically grounded sign restrictions and conducting structural inference in a non linear framework we document both statistically significant differences in the transmission of these shocks and substantial increases in the economic importance of these shocks during the 2008 recession

effects of asset purchases and financial stability measures on term premia in the euro area we study the effects of the announcements of ecb asset purchases and of financial stability measures in the euro area in the wake of the global financial crisis and the euro area sovereign debt cri

the variance gamma v g model for share market returns a new stochastic process termed the variance gamma process is proposed as a model for the uncertainty underlying security prices the unit period distribution is normal conditional on a variance that is distributed as a gamma variate its advantages include long tailedness continuous time specification finite moments of all orders elliptical multivariate unit period distributions and good empirical fit the process is pure jump approximable by a compound poisson process with high jump frequency and low jump magnitudes applications to option pricing show differential effects for options on the money compared to in or out of the money copyright 1990 by the university of chicago

assessing monetary policies in the eurozone u s u k and japan new evidence from the post crisis period abstractthe global financial crisis of 2007 changed the way central banks implement monetary policies this article examines the transmission of both conventional and unconventional monetary polici

from conventional to unconventional monetary policies the failure of the market maker of last resort this paper analyses the new role of market maker of last resort openly assumed by central banks since the 2008 financial crisis revealed the increasing impact of noninterest income activities on banks balance sheets a brief review of the distinction between conventional and unconventional monetary policies shows that the inflexion point from lender of last resort to market maker of last resort is given by the extension of central bank intervention to other markets than the bank reserves markets herein it is explained how the market maker of last resort role is as counterproductive as its predecessor in putting the economy back on track we show that the main problem of both conventional and unconventional monetary policies is that they distort price signals particularly asset prices in their attempt to reignite economic growth instead of correcting cyclical fluctuations the policies of the market maker of last resort prevent the cyclical divergences between financial and goods sectors from readjusting

an empirical procedure to evaluate monetary management under exogenous changes in the money supply this article proposes an empirical procedure to evaluate central banks monetary management in a presence of exogenous changes in the money supply monetary shocks deviate the market intere

a simple general equilibrium model of large excess reserves abstract in a general equilibrium macroeconomic model with a banking system that can hold large excess reserves and is subject to possibly binding capital constraints i study how the quantity of government provided monetary assets is related to the price level in steady state when the central bank does not pay interest on reserves the price level moves one for one with the monetary base if instead the central bank can pay interest on reserves at market rates the price level can decouple from the quantity of monetary assets in the economy a larger monetary base need not imply a higher price level however for large enough levels of reserves the capital constraint binds and the tight link between money and prices reemerges

what is the effect of unconventional monetary policy on bank performance this paper examines the relationship between unconventional monetary policy and the us banking performance unconventional monetary policy is captured through the central bank s assets and excess reserves results show that unconventional monetary policy has a negative relationship with bank performance further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding we also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions finally we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value

central bank announcements of asset purchases and the impact on global financial and commodity markets abstract we present evidence on the effects of large scale asset purchases by the federal reserve and the bank of england since 2008 we show that announcements about these purchases led to lower long term interest rates and depreciations of the u s dollar and the british pound on announcement days while commodity prices generally declined despite this more stimulative financial environment we suggest that lsap announcements likely involved signaling effects about future growth that led investors to downgrade their u s growth forecasts lowering long term us yields depreciating the value of the u s dollar and triggering a decline in commodity prices moreover our analysis illustrates the importance of controlling for market expectations when assessing these effects we find that positive u s monetary surprises led to declines in commodity prices even as long term interest rates fell and the u s dollar depreciated in contrast on days of negative u s monetary surprises i e when markets evidently believed that monetary policy was less stimulatory than expected long term yields the value of the dollar and commodity prices all tended to increase

evolutionary finance and central banking this article considers minsky s contribution to evolutionary economics paying attention to his concepts of evolutionary finance and central banking evolutionary finance is defined by minsky as the process through which changes in effective demand uncertainty and cash flows trigger solvency and liquidity risk that increase financial fragility and the possibility of financial instability and debt deflation emphasis is placed on the role of ponzi position making operations and failed margins of safety in inducing low quality leverage and liability structures evolutionary central banking is defined by minsky as the process that central banks use by applying qualitative monetary policy through discount window procedures and lender of last resort interventions to target ponzi leverage structures and financial stability evolutionary central banking provides operational guidelines and objectives that help us understand the monetary policies adopted by central banks after the global financial crisis of 2007 2008 as well as the limitations of the non conventional monetary policies

the effects of the ecb s expanded asset purchase programme abstract this paper provides empirical evidence on the financial and macroeconomic impact of the news associated to the announcement launching the ecb s expanded asset purchase programme app we proxy the app announcement shock with an announcement variable derived from the institutional features of the app and survey based evidence the variable is used in a time varying coefficient var model with stochastic volatility to estimate the effects of the announcement shock the evidence suggests that this shock had a significant upward effect on both real economic activity and hicp inflation in the euro area the response of long term interest rates gave rise to a flattening of the yield curve in the short term followed by a steepening in the medium term several channels of transmission appear to have been activated including the portfolio rebalancing channel the exchange rate channel and the credit channel

jump risks and the intertemporal capital asset pricing model the specification of the stochastic process for stock prices is an important assumption underlying most equilibrium and option pricing models in modern finance this is particularly true of the continuous time capital asset pricing models where it is assumed that asset prices follow diffusion processes with continuous sample paths see merton 1973a breeden 1979 grossman and shiller 1982 the extent to which the implications of these models generalize to discontinuous sample paths is an unanswered question in theoretical finance however the answer to this question is of more than just theoretical interest since accumulated empirical evidence appears to be inconsistent with the continuous sample path assumption see rosenberg 1972 oldfield rogalski and jarrow 1977 rosenfeld 1982 one purpose of this paper is to provide some answers to this question we do this by extending merton s 1973a intertemporal asset pricing model in the special case of a constant investment opportunity set to include discontinuous sample paths for asset prices the constant investment opportunity set assumption is imposed because we are interested in obtaining sufficient conditions under which an instantaneous capital asset pricing model capm results the extension of our model to a stochastic opportunity set is discussed briefly in the text this paper investigates an economy where stock prices follow a jump diffusion process the first part of the analysis derives a sufficient condition under which an instantaneous capm will characterize equilibrium expected returns the sufficient condition is that the jump component of a stock s return must be unsystematic and diversifiable in the market portfolio the second part of the paper is an empirical investigation of the satisfaction of this condition the evidence is seen to be inconsistent with the satisfaction of this hypothesis that is the market portfolio appears to contain a jump component

the interbank market after august 2007 what has changed and why after the onset of the financial crisis spreads between interbank interest rates on unsecured and secured deposits for the major world currencies became exceptionally large and volatile first we find that the phenomenon was mainly driven by aggregate rather than bank specific factors notably risk aversion and accounting practices by contrast funding liquidity capital shortage and central bank interventions were not important determinants second prior to august 2007 the spread was broadly insensitive to key borrower characteristics whereas afterward it became somewhat more reactive to measures of creditworthiness third conditions for big borrowers became relatively more favorable during the crisis suggesting that moral hazard risks related to the too big to fail argument have increased these results are discussed in the light of theories on the interbank market during a crisis

asset market responses to conventional and unconventional monetary policy shocks in the united states abstract we quantify the responses of a wide range of united states financial market variables to domestic monetary policy shocks over conventional and unconventional monetary policy environments our results show that responses to policy shocks are in the same direction but generally larger and more significant in the unconventional period the larger responses are mostly due to larger shocks in the unconventional period but some variables show evidence of a larger transmission of shocks we separately use our framework to test shadow short rate estimates as a proxy for short maturity interest rates across conventional and unconventional periods

pricing american style derivatives with european call options we present a new approach to pricing american style derivatives that is applicable to any markovian setting i e not limited to geometric brownian motion for which european call option prices are readily available by approximating the value function with an appropriately chosen interpolation function the pricing of an american style derivative with arbitrary payoff function is converted to the pricing of a portfolio of european call options leading to analytical expressions for those cases where analytical european call prices are available e g the merton jump diffusion process furthermore in many settings the approach yields upper and lower analytical bounds that provably converge to the true option price we provide computational results to illustrate the convergence and accuracy of the resulting estimators

unconventional monetary policy fiscal side effects and euro area im balances we study the macroeconomic effects of unconventional monetary policy in the euro area using structural vector autoregressions identified with external instruments the instruments are based on the common unexpected variation in euro area sovereign yields for different maturities on policy announcement days we first show that expansionary monetary surprises are effective at lowering public and private interest rates and increasing economic activity consumer prices and inflation expectations we then document that the shocks lead to a rise in primary public expenditures and a widening of internal trade balances

quantitative easing in the 1930s during the 1934 39 recovery from the u s great depression overnight interest rates were usually at a lower bound meanwhile american monetary authorities followed policies related to today s debates on quantitative easing they tried to stabilize yields on treasury bonds with open market operations they created rapid growth in high powered money and they allowed transitory factors to affect high powered money effects of these policies on bond yields reveal a portfolio effect of short duration asset supply on term premiums this portfolio effect helps explain why high powered money growth was associated with recovery of real activity over 1934 39

tenure security private time preference and use of natural resources among lowland bolivian amerindians abstract to estimate the effect of tenure security and private time preference on the use of different types of natural resources such as old growth and fallow forests fish and game we did a survey and a psychological experiment with 443 households in 42 villages of yuracare mojeno tsimane and chiquitano indians in the bolivian lowlands results of multivariate tobit regressions suggest that 1 among the yuracare tsimane and mojeno rates of private time preference had a small economic and statistical effect on the use of natural resources and 2 tenure security proxied by residence duration in the village and by conflict with abutters only affected the consumption of wildlife principally of game results suggest that public policies to improve property rights over natural resources among indigenous people might have greater immediate impact on the conservation of wildlife than on the conservation of forest cover

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

jump diffusion option valuation in discrete time we develop a simple discrete time model to value options when the underlying process follows a jump diffusion process multivariate jumps are superimposed on the binomial model of cox ross and rubinstein 1979 to obtain a model with a limiting jump diffusion process this model incorporates the early exercise feature of american options as well as arbitrary jump distributions it yields an efficient computational procedure that can be implemented in practice as an application of the model we illustrate some characteristics of the early exercise boundary of american options with certain types of jump distributions jump diffusion processes are popular in option valuation models these processes were incorporated by merton 1976 into the theory of option valuation and constitute an important alternative to the lognormal diffusion process assumed in the black and scholes 1973 model in this paper we develop a tractable discrete time model for valuing options with these processes many authors have suggested that incorporating jumps in option valuation models may explain some of the large empirical biases exhibited by the black scholes model 1 however in many cases closed form solutions for valuing options are not available for example this is true when there is a positive probability of early exercise when the jump distribution is neither lognormal nor discrete or when the option is based on the term structure of interest rates see ahn and thompson 1988 and jarrow and madan 1991 in these important cases the model developed in this paper can be used to value options another aim of this paper is to provide a model which relies on only simple mathematics to price options with jump diffusion processes it is hoped that the key economic relationships underlying jump diffusion models are transparent in this model we provide enough details to make the procedure readily accessible

stock market reaction to fed funds rate surprises state dependence and the financial crisis this paper examines the response of us stock returns to federal funds rate ffr surprises between 1989 and 2012 focusing on the impact of the recent financial crisis we find that outside the crisis period stock prices increased as a response to unexpected ffr cuts state dependence is identified with stocks exhibiting larger increases when interest rate easing coincided with recessions bear markets and tightening credit conditions however an important structural shift occurred during the crisis changing the stocks response to ffr shocks and the nature of state dependence throughout the crisis period stocks did not react positively to unexpected ffr cuts which were interpreted as signals of worsening future economic conditions this triggered a rebalancing of investment portfolios away from falling equities and towards safe haven assets our results highlight the severity of the crisis and the ineffectiveness of conventional monetary policy close to the zero lower bound

mortgage debt consumption and illiquid housing markets in the great recession using a model with housing search endogenous credit constraints and mortgage default this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross sectional consumption during the great recession left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers an endogenous decline in housing liquidity amplifies the recession by increasing foreclosures contracting credit and depressing consumption balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution low interest rate policies accelerate the recovery in housing and consumption

the relevance or otherwise of the central bank s balance sheet abstract this paper explores the impacts on an economy of a central bank changing the size and composition of its balance sheet one of the ways in which such asset purchases could influence prices and demand is via portfolio balance effects we develop and calibrate a simple olg model in which risk averse households hold money and bonds to insure against risk central bank asset purchases have the potential to affect households choices by changing the composition and return of their asset portfolios we find that the effect is weak and that its size depends on how fiscal policy is conducted that is not to say that the big expansion of central bank balance sheets in recent years has been ineffective our finding is rather that the portfolio balance channel evaluated in an environment of normally functioning though nonetheless incomplete asset markets is weak that is not inconsistent with the evidence that large scale asset purchases by central banks since 2008 have had significant effects because those purchases were made when financial markets were to varying extents dysfunctional nonetheless our results are relevant to those purchases because they may be unwound in an environment where financial markets are no longer dysfunctional

tobin s imperfect asset substitution in optimizing general equilibrium in this paper we present a dynamic optimizing model that allows explicitly for imperfect substitutability between different financial assets this is specified in a manner which captures tobin s 1969 view that an expansion of one asset s supply affects both the yield on that asset and the spread or risk premium between returns on that asset and alternative assets our estimates of this model on u s data confirm that some of the observed deviations of long term rates from the expectations theory of the term structure can be traced to movements in the relative stocks of financial assets the richer aggregate demand and asset specifications imply that there exists an additional channel of monetary policy our results suggest that central bank operations exercise a modest influence on the relative prices of alternative financial securities and so exert an extra effect on long term yields and aggregate demand separate from their effect on the expected path of short term rates

the euro area bond free float and the implications for qe this paper examines how shocks to government bond duration risk held by price sensitive investors affect the euro area term structure of interest rates and the wider macroeconomy we construct a new measure of the bond free float which adjusts total debt for foreign official holdings and weights by residual maturity using a small macrofinance bayesian vector autoregression var model we estimate that the first round of asset purchases under the european central bank s ecb public sector purchase program reduced euro area 10 year bond yields by around 30 bps in 2015 the positive impact on the output gap and inflation in 2016 was about 0 2 and 0 3 ppt respectively

measuring euro area monetary policy abstract we map ecb policy communication into yield curve changes and study the information flow on policy dates a byproduct is the publicly available euro area monetary policy event study database ea mpd containing intraday asset price changes we find that policy target forward guidance and quantitative easing factors capture about all the variation in the yield curve with different factors appearing in the windows covering the policy decision announcement and the press conference and having time varying variance shares we study sovereign yields exchange rates stock prices persistence of effects and response asymmetry our methodology can be implemented for any policy related event

international effects of a compression of euro area yield curves abstract in this paper we use a bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves our findings indicate positive effects on real activity and prices both within the euro area as well as in neighboring economies spillovers transmit through an exchange rate channel and a broad financial channel we complement our analysis by conducting a portfolio optimization exercise our results show that multi step ahead forecasts conditional on the euro area yield curve shock improve sharpe ratios relative to other investment strategies

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

monetary policy in exceptional times this paper describes the way in which the european central bank ecb the federal reserve and the bank of england conducted monetary policy since the beginning of the financial crisis in august 2007 we argue that both quantitative easing and the other non standard measures introduced by central banks that changed the composition of the asset side of their balance sheets so called qualitative easing acted mainly through their effects on interest rates and in particular on money market spreads rather than solely through quantity effects in terms of the money supply we perform a quantitative exercise on the euro area which estimates the effect of the reduction of these spreads to the broader economy michele lenza huw pill and lucrezia reichlin

what does monetary policy do to long term interest rates at the zero lower bound this article uses a structural var with daily data to identify the effects of monetary policy shocks on various longer term interest rates since the federal funds rate has been stuck at the zero lower bound the var is identified using the assumption that monetary policy shocks are heteroskedastic monetary policy shocks have especially high variance on days of fomc meetings and certain speeches while there is otherwise nothing unusual about these days a complementary high frequency event study approach is also used i find that stimulative monetary policy shocks lower treasury and corporate bond yields but the effects die off fairly fast

measuring the effects of federal reserve forward guidance and asset purchases on financial markets i extend the methods of gurkaynak sack and swanson 2005 to separately identify the effects of federal reserve forward guidance and large scale asset purchases lsaps during the 2009 15 u s zero lower bound zlb period i find that both forward guidance and lsaps had substantial and highly statistically significant effects on medium term treasury yields stock prices and exchange rates comparable in magnitude to the effects of the federal funds rate before the zlb forward guidance was more effective than lsaps at moving short term treasury yields while lsaps were more effective than forward guidance and the federal funds rate at moving longer term treasury yields corporate bond yields and interest rate uncertainty however the effects of forward guidance were not very persistent with a half life of 1 4 months the effects of lsaps seem to be more persistent i conclude that overall in terms of these criteria lsaps were a more effective policy tool than forward guidance during the zlb period

optimal monetary interventions in credit markets in an environment based on lagos and wright 2005 but with two rounds of pairwise meetings we introduce imperfect monitoring that resembles operations of unsecured loans we characterize the set of implementable allocations satisfying individual rationality and pairwise core in bilateral meetings we introduce a class of expansionary monetary policies that use the seignorage revenue to purchase privately issued debts we show that under the optimal trading mechanism both money and debt circulate in the economy and the optimal in ation rate is positive except for very high discount factors under which money alone achieves the rstbest our model captures the view that unconventional monetary policy encourages lending while it may create in ation

the impact of monetary policy on corporate bonds under regime shifts abstract we study the effects of a conventional monetary expansion quantitative easing and the maturity extension program on corporate bond yields using impulse response functions obtained from flexible models with regimes using a three state markov switching model with time homogeneous vector autoregressive var coefficients that emerges from a systematic model specification search we find that unconventional policies may have been generally expected to decrease both corporate yields and spreads however even though the sign of the responses is the one desired by policymakers the size of the estimated effects depends on the assumptions regarding the decline in long term treasury yields caused by unconventional policies on which considerable uncertainty remains further tests based on yield spreads and a variable that measures inflation expectations show that in the crisis regime unconventional monetary policies do not produce any perverse effects on expected inflation these results prove robust to adopting a framework that allows var coefficients to break to imposing coefficient restrictions that increase parsimony and to a range of different ordering schemes that identify shocks in alternative ways

new evolutionary foundations theoretical requirements for a science of sustainability abstract ecological economics stands in theoretical and ethical opposition to many aspects of neoclassical economic theory despite their sound critiques of that theory ecological economists have not settled on an alternative theory of human behavior as a potential alternative norgaard s socioecological coevolutionary framework remains underspecified in terms of variation heredity and selection i review concepts and insights on human behavior from evolutionary biology and evolutionary social science in order to supply new theoretical tools for ecological economic problems and help refine the coevolutionary framework i argue that a synthetic evolutionary theory of human behavior provides a sufficient alternative to the neoclassical perspective and that cultural evolutionary theory is a necessary prerequisite of a mature economic science ecological coevolutionary or otherwise finally i suggest some potential topics that such a mature theory might begin to tackle

conducting monetary policy at very low short term interest rates can monetary policy committees accustomed to describing their plans and actions in terms of the level of a short term nominal interest rate find effective means of conducting and communicating their policies when that rate is zero or close to zero the very low levels of interest rates in japan switzerland and the united states in recent years have stimulated much interesting research on this question and have led some central banks to make changes in their operating procedures and communications strategies in this paper we will give a brief overview of current thinking on the conduct of monetary policy when short term interest rates are very low or even zero monetary policy works for the most part by influencing the prices and yields of financial assets which in turn affect economic decisions and thus the evolution of the economy when the short term policy rate is at or near zero the conventional means of effecting monetary ease lowering the target for the policy rate is no longer feasible however it would be a mistake to think that monetary policy was impotent we discuss three strategies for stimulating the economy at an unchanged level of the policy rate these involve i providing assurance to investors that short rates will be kept lower in the future than they currently expect ii changing the relative supplies of securities in the marketplace by altering the composition of the central bank s balance sheet and iii increasing the size of the central bank s balance sheet beyond the level needed to set the short term policy rate at zero quantitative easing we also discuss the costs and benefits of very low interest rates an issue that bears on the question of whether the central bank should take the policy rate all the way to zero before undertaking alternative policies

the response of interest rates to us and uk quantitative easing we analyse declines in government bond yields following announcements by the federal reserve and the bank of england of plans to buy longer term debt using dynamic term structure models we decompose us and uk yields into expectations about future short term interest rates and term premiums we find that declines in us yields mainly reflected lower expectations of future short term interest rates while declines in uk yields appeared to reflect reduced term premiums thus the relative importance of the signalling and portfolio balance channels of quantitative easing may depend on market institutional structures and central bank communication policies

do credit markets discipline sovereign borrowers evidence from u s states the degree to which credit markets discipline sovereign borrowers is investigated by estimating the supply curve for debt faced by u s states the results generally support an optimistic view of the market discipline hypothesis with credit markets providing incentives for sovereign borrowers to restrain borrowing while the risk premium on bond yields is estimated to increase only gradually at low levels of debt this effect appears to become much larger as debt rises there is also some evidence that credit markets may withhold access to credit at very high levels of debt copyright 1995 by ohio state university press

expectation and duration at the effective lower bound abstract with risk averse arbitrageurs and an effective lower bound elb on nominal rates nonlinear interactions among short rate expectations bond supply and term premia emerge in equilibrium these interactions which are absent from affine models help explain the observed behavior of the yield curve near the elb including evidence about unconventional monetary policy the impact of both short rate expectations and bond supply are attenuated at the elb however in simulations of the post crisis experience in the u s shocks to investors duration risk exposures have much smaller effects than shocks to the anticipated path of short rates the latter shocks matter in part because of the reduction in interest rate volatility associated with a longer expected stay at the elb a novel channel of unconventional policy

a jump diffusion model for option pricing brownian motion and normal distribution have been widely used in the black scholes option pricing framework to model the return of assets however two puzzles emerge from many empirical investigations the leptokurtic feature that the return distribution of assets may have a higher peak and two asymmetric heavier tails than those of the normal distribution and an empirical phenomenon called volatility smile in option markets to incorporate both of them and to strike a balance between reality and tractability this paper proposes for the purpose of option pricing a double exponential jump diffusion model in particular the model is simple enough to produce analytical solutions for a variety of option pricing problems including call and put options interest rate derivatives and path dependent options equilibrium analysis and a psychological interpretation of the model are also presented

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

international money supply and real estate risk premium the case of the london office market abstract the main purpose of this study is to deeply investigate the determinants of the risk premium for the central london market between q2 2002 and q3 2015 using a vector autoregression var model we shed new light on the role of central banks in the historical level of the commercial real estate risk premium indeed since the global financial crisis gfc central banks have used unconventional monetary policies increasing the quantity of money available in the economy and creating structural changes therefore we have described the link between monetary policies and real estate using a theoretical is lm mundell fleming framework for a small open economy with a flexible exchange rate to empirically explore this phenomenon we have constructed a monetary index adapted to the office market we find that throughout the whole period 2002 2015 the vacancy rate the employment in services the ftse 100 the new monetary index and the autoregressive parameter are the main determinants of the historical risk premium however this result hides the complex realities of different sub periods finally we study the structural changes introduced by the monetary policy using a structural var model and impulse response function

the ecb and the interbank market this paper analyses the impact on the macroeconomy of the ecb s non standard monetary policy implemented in the aftermath of the collapse of lehman brothers in the fall of 2008 we study in particular the effect of the expansion of the intermediation of transactions across central bank balance sheets as dysfunctional financial markets seize up which we regard as a key channel of transmission for non standard monetary policy measures our approach is similar to lenza et al 2009 but we introduce the important innovation of distinguishing between private intermediation of interbank transactions in the money market and central bank intermediation of bank to bank transactions across the eurosystem balance sheet we do this by exploiting data drawn from the aggregate monetary and financial institutions mfi balance sheet which allows us to construct a new measure of the policy shock represented by the ecb s increasing role as a financial intermediary we find that bank loans to households and in particular to non financial corporations are higher than would have been the case without the ecb s intervention in turn the ecb s support has a significant impact on economic activity two and a half years after the failure of lehman brothers the level of industrial production is estimated to be 2 higher and the unemployment rate 0 6 percentage points lower than would have been the case in the absence of the ecb s non standard monetary policy measures

the evolution of social norms in common property resource use the problem of extracting commonly owned renewable resources is examined within an evolutionary game theoretic framework it is shown that cooperative behavior guided by norms of restraint and punishment may be stable in a well defined sense against invasion by narrowly self interested behavior the resource stock dynamics are integrated with the evolutionary game dynamics effects of changes in prices technology and social cohesion on extraction behavior and the long run stock are analyzed when threshold values of the parameters are crossed social norms can break down leading generally to the lowering of the long run stock and possibly to its extinction copyright 1996 by american economic association

the buddha mushroom conservation behavior and the development of institutions in bhutan abstract common pool resource management institutions can be an effective means by which communities can regulate resource use while we are gaining a greater understanding of the characteristics that are associated with successful institutions we know less about why and how such institutions emerge and what role individual behaviors play in this process the bottom up emergence of institutions may depend on the patterns of heterogeneity in the cooperative behaviors of individual resource users likewise the emerging institutions serve to constrain subsequent resource collection behaviors and alter those patterns because institutions both emerge from and alter the behaviors of individual resource users it is useful to view the relationship between the two levels from a coevolutionary perspective here i focus on the motivations for the adoption of conservation behavior and discuss how these behaviors can impact emerging institutions this study is based on the harvest of a newly utilized commercially valuable mushroom in two communities geogs in bhutan i examined which collectors exhibited each of two cooperative conservation behaviors willingness to reduce one s harvest and punishment of non compliant harvesting techniques and determined the traits associated with these behaviors using logistic regression i found that predictors from each of four domains namely economic factors attitudes values knowledge perceptions of resource scarcity and social capital are important for fostering conservation behavior other regarding values high and low levels of wealth perceptions of resource scarcity and education are positively associated with a willingness to reduce ones harvest selfish values high and low levels of wealth and low levels of trust are associated with punishment changes in these individual characteristics may affect the frequency of cooperative acts and subsequently influence the success of the emerging institutions as such identifying the traits associated with the behaviors exhibited by individuals is an important step in understanding the dynamics of institutional evolution because this study captures perceptions and behaviors in the early stages of the harvest it can be used as the baseline for a longitudinal study exploring the coevolutionary dynamics between individual level behaviors and community level resource management institutions

monetary policy bond returns and debt dynamics abstract using the government s intertemporal budget constraint we quantify the contribution of returns paid on the u s government s debt portfolio to the evolution of the debt to gdp ratio we show that announcements of unconventional monetary policy measures by the federal reserve between 2008 iv and 2012 as a part of macroeconomic stabilization were associated with a sizable increase in returns and debt to gdp ratios and contributed to fiscal imbalances we use the federal reserve s portfolio composition as a proxy for unconventional monetary policy measures and show that it is significantly related to future bond returns and fiscal balances

inflation employment and monetary policy objectives and outcomes in the uk and u s compared this paper explores how sensitive is monetary policy to the precise preferences of the central bank over inflation and economic activity it does so in order to address a puzzle which is that the u s fed and the bank of england appear to have quite different objectives and yet have adopted strikingly similar policies in recent years i use a calibrated model to assess how policy might be sensitive to attaching different weights to inflation output and the output gap in central bank objectives i find that a wide range of weights can give rise to rather similar monetary policies

escaping from a liquidity trap and deflation the foolproof way and others existing proposals to escape from a liquidity trap and deflation including my foolproof way are discussed in the light of the optimal way to escape the optimal way involves three elements 1 an explicit central bank commitment to a higher future price level 2 a concrete action that demonstrates the central bank s commitment induces expectations of a higher future price level and jump starts the economy and 3 an exit strategy that specifies when and how to get back to normal a currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations furthermore an intentional currency depreciation and a crawling peg as in the foolproof way can implement the optimal way and in particular induce the desired expectations of a higher future price level i conclude that the foolproof way is likely to work well for japan which is in a liquidity trap now as well as for the euro area and the united states in case either would fall into a liquidity trap in the future

vix derivatives hedging and vol of vol risk we study the empirical hedging performance of alternative vix option pricing models recent advances in the literature find evidence of asymmetric volatility of volatility similar to the leverage effect in equity markets stochastic mean reversion and jumps using such findings in our model framework we show that while sophisticated models have superior pricing performance and can explain a range of stylized facts in the vix derivatives market their hedging performance is inferior to a simple black model hedge we also study the empirical performance of regime dependent hedge ratio adjustments commonly applied in equity markets

assessing the effects of unconventional monetary policy and low interest rates on pension fund risk incentives this study quantifies the effects of persistently low interest rates near to the zero lower bound and unconventional monetary policy on pension fund risk incentives in the united states using two structural vector autoregressive var models and a counterfactual scenario analysis the results show that monetary policy shocks as identified by changes in treasury yields following changes in the central bank s target interest rates lead to a substantial increase in pension funds allocation to equity assets notably the shift from bonds to equity securities is greater during the period where the us federal reserve launched unconventional monetary policy measures additional findings show a positive correlation between pension fund risk taking low interest rates and the decline in treasury yields across both well funded and underfunded public pension plans which is thus consistent with a structural risk shifting incentive

unconventional economic policies and sentiment an international assessment this paper estimates using bayesian and global vars the spillover effects of unconventional fiscal and monetary policies implemented in the united states and in the eurozone during the last decade consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass through of economic policies to the real sector in times of crisis and zero lower bound interest rates in particular the signalling channel plays an important role in successful unconventional economic policies moreover if unconventional economic policies have an impact abroad the effects are similar to those measured in the domestic country region consequently coordination and transparency are a prerequisite for ensuring short term growth after a global financial crisis

unconventional monetary policy and bank risk taking abstract we analyze the presence of bank risk taking associated with unconventional monetary policy in the united states between 2008 and 2015 using corporate syndicated loan data at the bank firm level we measure monetary policy using the identification through heteroskedasticity approach with a var model to identify the risk taking channel we control for time varying heterogeneity in credit demand and supply our results indicate that accommodating monetary conditions are associated with overall lower loan spreads however the spread reduction is lower for riskier firms suggesting that there is no risk taking behavior in the syndicated loan market during the ump period

a general distribution for describing security price returns this paper introduces a generalized distribution called the gb2 distribution for describing security returns the distribution is extremely flexible containing a large number of well known distributions such as the lognormal log t and log cauchy distribu tions as special or limiting cases and allowing large even infinite higher moments this flexibility allows a direct representation of different degrees of fat tails in the distribution the properties of the gb2 make it useful in empirical estimation of security returns and in facilitating the development of option pricing models and other models that depend on the specification and mathematical manipulation of distributions copyright 1987 by the university of chicago

asymmetry in the jump size distribution of the s p 500 evidence from equity and option markets this paper studies alternative distributions for the size of price jumps in the s p 500 index we introduce a range of new jump diffusion models and extend popular double jump specifications that have become ubiquitous in the finance literature the dynamic properties of these models are tested on both a long time series of s p 500 returns and a large sample of european vanilla option prices we discuss the in and out of sample option pricing performance and provide detailed evidence of jump risk premia models with double gamma jump size distributions are found to outperform benchmark models with normally distributed jump sizes

international monetary policy surprise spillovers abstract this is the first paper to examine international monetary surprise spillovers and to estimate the response of security prices to monetary and nonmonetary surprises monetary surprises have a slope effect on the domestic yield curve short maturity yields adjust much more than longer maturity yields these results are similar to other studies the following results are new us monetary surprises spill over and affect australian yields and equity returns australian monetary surprises do not spill over to the us nonmonetary surprises are much more important than monetary policy surprises in explaining longer maturity yield changes and equity returns

identifying vars based on high frequency futures data abstract using the prices of federal funds futures contracts we measure the impact of the surprise component of federal reserve policy decisions on the expected future trajectory of interest rates we show how this information can be used to identify the effects of a monetary policy shock in a standard var this alternative approach to identification is quite different and we argue more plausible than the conventional identifying restrictions we find that a usual recursive identification of the model is rejected as is any identification that insists on a monetary policy shock having an exactly zero effect on prices contemporaneously we nevertheless agree with the conclusion of much of the var literature that only a small fraction of the variance of output can be attributed to monetary policy shocks

the effectiveness of alternative monetary policy tools in a zero lower bound environment this paper reviews alternative options for monetary policy when the shortterm interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates we use a model of risk averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level slope and curvature term structure risk we find that these treasury factors historically were quite helpful for predicting both yields and excess returns over 1990 2007 the historical correlations are consistent with the claim that if in december 2006 the fed were to have sold off all its treasury holdings of less than 1 year maturity about 400 billion and use the proceeds to retire treasury debt from the long end this might have resulted in a 14 basis point drop in the 10 year rate and an 11 basis point increase in the 6 month rate we also develop a description of how the dynamic behavior of the term structure of interest rates changed after hitting the zero lower bound in 2009 our estimates imply that at the zero lower bound such a maturity swap would have the same effects as buying 400 billion in long term maturities outright with newly created reserves and could reduce the 10 year rate by 13 basis points without raising short term yields

the effectiveness of the ecb s unconventional monetary policy comparative evidence from crisis and non crisis euro area countries abstract during the european financial crisis the european central bank implemented a series of unconventional monetary policy measures we argue that these programs lowered the bond yield spreads of euro area countries this hypothesis is tested using pooled ols estimations and two different datasets monetary policy event dummies and the purchase volumes of the securities markets programme smp overall we find significantly negative effects on bond yield spreads for both datasets leading us to accept the hypothesis while the omt reduces the spreads of both crisis and non crisis countries ltros and the lowering of the deposit rate to 0 percent are mainly effective in non crisis countries the smp lowers the spreads of crisis countries but it has the opposite effect on non crisis countries this converse effect is explained by the risk that increasingly accumulates on the ecb s balance sheet through the smp and that way constitutes a fiscal risk for non crisis countries the results are confirmed by pooled ols estimations that measure the effect of unconventional monetary policy on central government debt

the federal reserve s large scale asset purchase programmes rationale and effects we provide empirical estimates of the effect of large scale asset purchases lsaps on longer term us treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred habitat literature and the duration channel associated with interest rate risk we also clarify lsaps role in the broader context of historical monetary policy strategy results indicate that lsap style operations mainly impact longer term rates via the nominal term premium within that premium the response is predominantly embodied in the real term premium the scarcity and duration channels both seem to be of considerable importance

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation

the economics of options implied inflation probability density functions recently a market in options based on cpi in ation in ation caps and oors has emerged in the us this paper uses quotes on these derivatives to construct probability densities for in ation we study how these pdfs respond to news announcements and nd that the implied odds of de ation are sensitive to certain macroeconomic news releases we compare the option implied probability densities with those obtained by time series methods and use this information to construct empirical pricing kernels the options implied densities assign considerably more mass to extreme in ation outcomes either de ation or high in ation than do their time series counterparts this yields a u shaped empirical pricing kernel with investors having high marginal utility in states of the world characterized by either de ation or high in ation

cross border spillover effects of unconventional monetary policies on swiss asset prices abstract unconventional monetary policies umps announced by the federal reserve the european central bank the bank of england and the bank of japan exert important spillover effects on asset prices in switzerland using a broad ump event set and a long term bond futures based measure of market anticipation we show that surprisingly expansionary umps lower swiss government and corporate bond yields induce the swiss franc to appreciate and dampen swiss equity prices four extensions provide further insights first the estimated effects are strongest for announcements by the ecb second the impact on government bonds is largest for bonds with residual maturities of 7 10 years third the impact of foreign ump shocks on exchange rates and swiss bond yields is less pronounced after the introduction of the minimum rate of 1 20 swiss franc per euro by the swiss national bank on september 6 2011 indicating that domestic monetary policy action partially affects the impact of external monetary shocks on domestic financial markets fourth the sign of spillover effects differs for positive and negative ump surprises but their strength does not

risk assessment on euro area government bond markets the role of governance abstract since the announcement of the outright monetary transactions program omt government bond yield spreads have decreased substantially but have not fallen to pre crisis levels this paper argues that the debt to gdp ratio has become less relevant as a determinant for government bond spreads while financial markets have become more concerned about the willingness and the capability to cooperate with the institutions that conduct the adjustment programs since the announcement of omt the paper links the willingness and the capability to cooperate to political stability and the quality of governance for which the indicators are available from the world bank by means of a time varying coefficient approach it can be shown that the coefficient for a composite world bank indicator on the quality of governance has outpaced other possible determinants of government bond spreads since the announcement of omt

the risk taking channel of monetary policy transmission in the euro area abstract in this paper we provide evidence for a risk taking channel of monetary policy transmission in the euro area that works through the relaxation of lending standards for borrowers our dataset covers the period 2003q1 2016q2 and includes in addition to the standard variables for real gdp growth inflation and the monetary policy stance indicators of bank lending standards and bank lending margins based on vector autoregressive models with i recursive identification and ii sign restrictions we show that banks react aggressively to an expansionary monetary policy shock by lowering their lending standards the banks efforts to keep their lending margin stable however are not successful as we detect a significant compression we document these findings for the euro area as a whole and for its individual member states in particular banks in the netherlands portugal spain and ireland lowered their lending standards after expansionary monetary policy shocks the compression of the lending margin is most pronounced in the five crisis countries greece ireland italy portugal and spain

announcements of ecb unconventional programs implications for the sovereign spreads of stressed euro area countries abstract this paper studies the effects of ecb communications about unconventional monetary policy operations on the sovereign spreads of greece ireland italy portugal and spain relative to germany between 2008 and 2012 more than fifty events concerning non standard operations are identified and classified with respect to the specific ecb program the empirical results suggest that the ecb announcements about unconventional monetary policies substantially reduced long term government bond yield spreads relative to german counterparts in all countries except greece particularly among the different types of measures news about the securities markets programme strongly affected the perceived sovereign risk of the five stressed euro area countries while the announcements of the outright monetary transactions seem to have a significant impact only in italy and spain

quantitative easing and unconventional monetary policy an introduction this article assesses the impact of quantitative easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007 we consider the implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies we also provide an overview of the contributions of the other articles in this feature

a reexamination of finite and infinite variance distributions as models of daily stock returns this study investigates the general asymmetric stable paretian distribution and three finite variance time independent distributions applied to daily stock return series previous empirical comparisons have in general ignored the existence and effects of skewness on the process parameters of stable laws the results of log likelihood ratio and log odds tests indicate that finite variance models still dominate after accounting for documented skewness in particular the mixed diffusion jump and compound normal models appear to be the most descriptive time independent models

assessing the economy wide effects of quantitative easing this article examines the macroeconomic impact of the first round of quantitative easing qe by the bank of england we attempt to quantify the effects of these purchases by focusing on the impact of lower long term interest rates on the wider economy we use three different models to estimate the impact of qe on output and inflation a large bayesian vector autoregression var a change point structural var and a time varying parameter var our estimates suggest that qe may have had a peak effect on the level of real gdp of around and a peak effect on annual cpi inflation of about points