improvement of technical efficiency of firm groups abstract cooperation between firms can never improve the technical efficiency of any firm coalition the directional distance function by virtue of its additive nature is a useful tool that outlines this impossibility in this paper the additive aggregation scheme of input output vectors is generalized according to an aggregator accordingly cooperation between firms may increase the technical efficiency of the firm group this improvement is shown to be compatible with nonjoint semilattice technologies that bring out either output or input weak complementarity firm games are investigated to show that firms may merge on the basis of their inputs due to constraints imposed on outputs conversely they may merge with respect to the outputs they can produce because of limitations imposed on inputs

on the international spillovers of us quantitative easing this article analyses the effects of the federal reserve s quantitative easing qe on global portfolio flows differentiating across recipient region of the flows type of flow and qe rounds furthermore the analysis differentiates between the impact of qe expansionary announcements and the actual market operations the analysis shows that qe1 resulted in slight rebalancing towards the us while qe2 and qe3 resulted in rebalancing towards non us assets this suggests that qe increased the pro cyclicality of flows outside the us in particular into emerging market equities the results also suggest a link between us macro financial conditions and the transmission of qe to portfolio flows

information sharing in dea a cooperative game theory approach abstract in this paper a cooperative dea game is proposed based on the idea that different organizations can gain if they share data on the input consumption and output production of their processing units a larger data sample allows a more complete description of the production possibility set and consequently of the efficient frontier however since not all organizations will benefit in the same way it is convenient to use cooperative game theory in order to share the benefits of the cooperation the proposed cooperative dea game is shown to be subadditive and balanced models for computing the value of the game and checking its stability taking into account the exponential number of coalitions that exist when the number of organizations is large are also presented the approach is illustrated with a dataset from the literature

bilateral portfolio dynamics during the global financial crisis abstract there has been considerable bilateral variation in the pattern of portfolio capital flows during the global financial crisis for a given destination investors from different countries adjusted their holdings to different degrees we show that the size of the initial bilateral holding geographical distance common language the level of trade and common institutional linkages help to explain the pattern of adjustment these bilateral factors are more important for equities than for bonds and for investors from developing countries than for investors from advanced countries

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

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

china s official rates and bond yields abstract recent research shows that bond yields are influenced by monetary policy decisions to learn how this works in a bond market that differs significantly from those in the us and europe we model chinese bond yields using the one year deposit interest rate as a state variable we also include the spread between the one year market interest rate and the one year deposit interest rate as another factor the model is developed in an affine framework and closed form solutions are obtained we then test the model empirically with a markov chain monte carlo simulation procedure the results show that the new model that incorporates the official rate in china characterizes the changing shape of the yield curve well

a buyer seller game model for selection and negotiation of purchasing bids extensions and new models abstract a number of efficiency based vendor selection and negotiation models have been developed to deal with multiple attributes including price quality and delivery performance the efficiency is defined as the ratio of weighted outputs to weighted inputs by minimizing the efficiency talluri eur j operat res 143 1 2002 171 proposes a buyer seller game model that evaluates the efficiency of alternative bids with respect to the ideal target set by the buyer the current paper shows that this buyer seller game model is closely related to data envelopment analysis dea and can be simplified the current paper also shows that setting the ideal target actually incorporates implicit tradeoff information on the multiple attributes into efficiency evaluation we develop a new buyer seller game model where the efficiency is maximized with respect to multiple targets set by the buyer the new model allows the buyer to evaluate and select the vendors in the context of best practice by both minimizing and maximizing efficiency the buyer can obtain an efficiency range within which the true efficiency lies given the implicit tradeoff information characterized by the targets the current study establishes the linkage between buyer seller game models and dea such a linkage can provide the buyer with correct evaluation methods based upon existing dea models regarding the nature of bidding

a model of the term structure of interest rates in an open economy with regime shifts abstract this paper presents a term structure model driven by three factors the foreign real interest rate the domestic inflation rate and the real exchange rate the model is designed to capture effects originating from exchange rate fluctuations and actions by central banks special attention is paid to regime shifts such as changes in the target inflation rate and devaluations an interesting result is that imperfect credibility of a target zone for the exchange rate mainly affects short term interest rates whereas a loss in an inflation target s credibility is likely to increase long term interest rates jel e43 f3 1997 elsevier science ltd

allocating the fixed cost as a complement of other cost inputs a dea approach in cost allocation problem traditional dea approaches allocate the fixed cost among a group of decision making units dmus and treat the allocated cost as an extra input of each dmu if costs except for the fixed cost are regarded as inputs in the cost allocation problem then it is obvious that the fixed cost is a complement of other inputs rather than an extra independent input therefore it is necessary to combine the allocated cost with other cost measures in cost allocation problem based on this observation this paper investigates the relationship between the allocated cost and the dea efficiency score and develops a dea based approach to allocate the fixed cost among various dmus an example of allocating advertising expenditure between a car manufacturer and its dealers is presented to illustrate the method proposed in this paper

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

home bias in global bond and equity markets the role of real exchange rate volatility abstract this paper focuses on the role of real exchange rate volatility as a driver of portfolio home bias and in particular as an explanation for differences in home bias across financial assets we present a markowitz type portfolio selection model in which real exchange rate volatility induces a bias towards domestic financial assets as well as a stronger home bias for assets with low local currency return volatility we find empirical support in favour of this hypothesis for a broad set of industrialized and emerging market countries not only is real exchange rate volatility an important factor behind bilateral portfolio home bias but we find that a reduction of monthly real exchange rate volatility from its sample mean to zero reduces bond home bias by up to 60 percentage points while it reduces equity home bias by only 20 percentage points

on the mean reverting properties of target zone exchange rates a cautionary note abstract we estimate a franc mark target zone model and find a very limited honeymoon effect monte carlo experiments calibrated with the estimates caution against the use of standard linear tests for non mean reversion as indirect tests of the target zone model

central bank interventions and exchange rate band regimes abstract this paper presents an endogenous switching regression model for the exchange rate process where the switch is defined by the central bank criteria functions for intervening we study the signal effect of interventions on the exchange rate using norwegian daily data on official interventions we first find that interventions seemed to have been more effective in moving the exchange rate in the expected desired direction in the regime when the exchange rate was kept away from the edges of the band this type of intervention regime also reduces significantly the conditional volatility of the exchange rate thus when the exchange rate was near the weakest edge of the currency band its conditional variance was significantly larger than when it was moving around its central parity finally we show that in order to obtain consistent estimates intervention variables cannot enter as exogenous variables in the conditional mean or conditional variance of the exchange rate

determinants of the implied shadow exchange rates from a target zone abstract the paper provides a continuous time model of the dynamic behavior of exchange rates and interest rates when exchange rates are managed within a target zone with the possibility of realignments in the case of a realignment the exchange rate jumps to a shadow exchange rate the timing of realignments is modelled by a cox process with an intensity that depends on the location of the exchange rate in the target zone band as well as the distance to the shadow exchange rate we set up an approximate maximum likelihood estimation approach and provide parameter estimates for six erm target zones moreover in the empirical analysis we filter out the shadow exchange rates and investigate which fundamental macroeconomic factors are able to explain the short run and long run behavior of the filtered shadow exchange rates

modelling probabilities of devaluations i show why when the realized rates of depreciation within the exchange rate band are regressed on a given information set and conditioned on ex post actual no realignment a la drift adjustment a peso problem is still encountered the reason is that the frequency of realignments in the data need not be the same as the frequency of the even small subjective probabilities that a realignment may take place i suggest an alternative approach to solve the peso problem and provide consistent estimates my estimates of the expected realignment rates are greater than the ones obtained using the drift adjustment method

assessing target zone credibility mean reversion and devaluation expectations in the erm 1979 1992 abstract the paper presents estimates of devaluation expectations for six erm currencies relative to the deutsche mark for the period march 1979 april 1992 both the simplest test and the drift adjustment method are used the simplest test adjusts interest rate differentials for the maximum and minimum expected rate of depreciation within the exchange rate band the drift adjustment method adjusts interest rate differentials by the estimated expected rate of depreciation within the band the latter method gives more precise estimates especially for short horizons and allows statistical inference and hypothesis testing expected rates of devaluation have generally fallen during the period still some devaluation expectations relative to the deutsche mark remain in 1992 except for the belgian luxembourg franc and the netherlands guilder expected rates of devaluation have fluctuated more than interest rate differentials

why are excess returns on china s treasury bonds so predictable the role of the monetary system abstract it is well documented that the time varying bond excess returns can be explained by predetermined variables such as information in the term structure and macro economic variables recent studies suggest that demand and supply of bonds influence bond excess returns we extend the literature and find that monetary system attributes affect return dynamics in the bond market by introducing a theoretical model to forecast excess returns on treasury bonds in the context of china s unique monetary system this paper attributes the predicted components of bond excess returns mainly to the inflexible term structures of official interest rates set by china s central bank

political and institutional factors in regime changes in the erm an application of duration analysis this paper analyses the functioning of the european exchange rate mechanism erm to that end we apply duration models to estimate an augmented target zone model explicitly incorporating political and institutional factors into the explanation of european exchange rate policies the estimations are based on quarterly data of eight currencies participating in the erm covering the complete history of the european monetary system our results suggest that both economic and political factors are important determinants of erm currency policies concerning economic factors the money supply the real exchange rate the interest rate in germany and the central parity deviation would have negatively affected the duration of a given central parity while credibility and the price level in germany would have positively influenced such duration regarding political variables elections central bank independence and left wing administrations would have increased the probability of maintaining the current regime while unstable governments would have been associated with more frequent regime changes moreover we show how the political augmented model outperforms the model which just incorporates pure economic determinants both in terms of explanatory power and goodness of fit

soft versus hard targets for exchange rate intervention when targeting money prices or credit monetary authorities typically follow rules that combine flexibility over short horizons with discipline over longer horizons usually by committing to average targets for monetary aggregates or inflation over pre specified periods yet when targeting exchange rates monetary authorities typically follow rules that require strict adherence to announced targets in both the short and the long run in this paper we explore the implications of a policy for exchange rate intervention that combines flexibility over short horizons with discipline over long horizons our version of this soft target zone related to an idea ofjohn williamson 1985 requires a monetary authority to maintain the exchange rate on average rather than at all times as in the erm within a pre announced band we study the implications of this policy for the volatility of exchange rates and for the vulnerability of the exchange rate arrangement to speculative attacks practical reasons including the difficulty of targeting money and inflation on a continuous basis contribute to common use of soft i e average rules when targeting these aggregates more important however average targets allow

are exchange rate bands better than fixed exchange rates the imported credibility approach this paper explicitly incorporates exchange rate bands into the barro gordon model of inflation this is a non trivial extension focusing on markov perfect equilibria we specify the properties of the optimal policy functions exchange rate dynamics and hence the arguments for and against target zones the attractiveness of alternative exchange rate regimes i e fixed flexible and target zones and the position of exchange rates inside the band depend on the inflationary performance of the center country

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

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

dea production games abstract in this paper linear production games are extended so that instead of assuming a linear production technology with fixed technological coefficients the more general non parametric dea production technology is considered different organizations are assumed to possess their own technology and the cooperative game arises from the possibility of pooling their available inputs collectively processing them and sharing the revenues two possibilities are considered using a joint production technology that results from merging their respective technologies or each cooperating organization keeping its own technology this gives rise to two different dea production games both of which are totally balanced and have a non empty core a simple way of computing a stable solution using the optimal dual solution for the grand coalition is presented the full cooperation scenario clearly produces more benefits for the organizations involved although the implied technology sharing is not always possible examples of applications of the proposed approach are given

do trade costs in goods market lead to home bias in equities abstract two of the main puzzles in international economics are the consumption and the portfolio home biases we solve for international equity portfolios in a two country two good stochastic equilibrium model with trade costs in goods markets we show that introducing trade costs as suggested by obstfeld and rogoff obstfeld m rogoff k 2000a the six major puzzles in international macroeconomics is there a common cause nber macroeconomics annual 15 is not sufficient to explain these two puzzles simultaneously on the contrary we find that trade costs create a foreign bias in portfolios for reasonable parameter values this result is robust to the addition of non tradable goods for standard calibrations of the preferences

assessing the credibility of a target zone evidence from the ems this paper provides some new evidence on the credibility of the exchange rate mechanism erm of the european monetary system ems the study differs from previous research in the literature in three main respects first the main contribution is the use of several credibility indicators some of which have never been applied before to all of the currencies under study this allows one to strengthen the results obtained in this paper second a longer period than that of previous studies is analysed covering the complete ems history third a comparison has been made of the prediction qualities of the different indicators in order to explore their ability to capture the main erm events realignments changes in the fluctuations bands and speculative pressures fourth the indicators are applied to the experience of the new modified erm linking the currencies of non euro area member states to the euro showing the relevance of this approach in the near future with the enlargement of the european union

a bargaining game model for measuring performance of two stage network structures abstract data envelopment analysis dea is a method for measuring the efficiency of peer decision making units dmus where the internal structures of dmus are treated as a black box recently dea has been extended to examine the efficiency of dmus that have two stage network structures or processes where all the outputs from the first stage are intermediate measures that make up the inputs to the second stage the resulting two stage dea model not only provides an overall efficiency score for the entire process but also yields an efficiency score for each of the individual stages the current paper develops a nash bargaining game model to measure the performance of dmus that have a two stage structure under nash bargaining theory the two stages are viewed as players and the dea efficiency model is a cooperative game model it is shown that when only one intermediate measure exists between the two stages our newly developed nash bargaining game approach yields the same results as applying the standard dea approach to each stage separately two real world data sets are used to demonstrate our bargaining game model

the term structure with semi credible targeting the federal reserve sets targets for interest rates which it enforces through direct market intervention these targets are changed periodically in this paper we develop a term structure model in which the short rate is subject to a control which keeps it close to a target which changes from time to time the probability of target changes is not constant in the model but changes as a function of observables the model performs well at explaining the shifts in the yield curve that accompany target changes in u s financial markets the federal reserve bank the fed is a unique player usually we assume that market participants are price takers in financial markets however there is evidence that this is not true of the fed in fact the fed sets targets for short term rates which it attempts to maintain by market intervention injecting or withdrawing funds from the market to keep the rates near their targets targets are changed from time to time and market participants know when such a target change occurs they may in fact have some limited ability to forecast such target changes several recent papers have provided evidence that models which allow the short rate to revert toward a mean which is itself a random process perform

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

the burden of intervention externalities in multilateral exchange rates arrangements abstract in this paper we consider a multilateral target zone model that generalizes krugman s model of a bilateral target zone parities are defended by manipulating money supplies in participating countries this means that interventions aimed at one given exchange rate influence other exchange rates as well as a result of these externalities shocks on each fundamental affect the whole range of exchange rates involved moreover intra marginal interventions arise endogenously and the exchange rate distribution does not exhibit the u shaped pattern which is typical of traditional target zones instead our model gives rise to intra marginal targets to which exchange rates tend to return the location of these targets is shown to depend on the intervention sterilization mix adopted by monetary authorities

interest rate speculative attacks and target zones abstract we study the behavior of the interest rate differential in a non sustainable exchange rate target zone we show that the relation between the interest rate differential and the fundamentals before the speculative attack is dependent on the expected post attack monetary policy

a new breed of exchange rate bands chile israel and mexico following inflation stabilization programmes where a fixed exchange rate is used as an anchor a number of countries have gradually shifted towards a regime of increased flexibility in particular chile israel and mexico have adopted for a few years a regime of crawling exchange rate bands this article documents and analyzes their unique experience of immediate concern is the question whether the shift from fixed to crawling bands is perceived as the signal of a tilt towards policy relaxation on the contrary it could be seen as a way of restoring external competitiveness after a period of real appreciation the evidence collected in this article supports the latter view as a way of moving towards a sustainable equilibrium the shift to crawling bands is found to have a stabilizing influence on financial markets on inflation expectations and on the passthrough from exchange rates to prices

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

cross country differences in monetary policy execution and money market rates volatility abstract volatility patterns in overnight interest rates display differences across industrial countries that existing models designed to replicate the features of individual countries markets cannot account for this paper presents an equilibrium model of the overnight interbank market that matches cross country differences in patterns in interest volatility by incorporating differences in how central banks manage liquidity in response to shocks our model is consistent with central banks practice of rationing access to marginal facilities when the objective of stabilizing short term interest rates conflicts with another high frequency objective such as an exchange rate target

price barriers in the dow jones industrial average this study tests the popular claim that the djia s movements around key reference points affect investor sentiment and thus price behavior it is found that the djia s rise and fall is indeed restrained by support and resistance levels at multiples of 100 e g 2800 2900 3000 etc but that having broken through a 100 level the djia then moves by more than otherwise warranted a monte carlo study and comparisons with other indices confirm the significance of these findings this suggests that some agents may trade on the basis of the djia but does not necessarily suggest that the market is inefficient

the erosion of colonial trade linkages after independence high trade between countries with colonial ties may be explained by government policies that establish preferential access or as a consequence of networks formed through social interactions using bilateral trade data from 1948 to 2003 we examine the eect of independence on post colonial trade the severing of formal colonial relations can lead to an immediate reduction in trade as preferential access is eliminated as well as a gradual reduction corresponding to the deterioration of trading networks our results reveal that independence reduces colonial trade with its colonizer metropole the reduction cumulates over a 30 year period and the disruption is particularly severe for hostile separations we also find that overall colonial trade falls subsequent to independence but to a lesser extent than trade with the metropole

financial markets views about the euro swiss franc floor exchange rates and option prices incorporate market participants views about the credibility and the effects of exchange rate targets i present a model to determine exchange rates under policy targets that can be used to price options the model is estimated with euro swiss franc exchange rate and options price data in the first few months of the minimum exchange rate policy the implied survival probability of the policy for a 3 month horizon was typically less than 75 over time the credibility increased and this probability reached 95 in august 2014

implicit bands in the yen dollar exchange rate this article attempts to identify implicit exchange rate regimes for the yen dollar exchange rate to that end we apply a sequential procedure that considers both the dynamics of exchange rates and central bank interventions to data covering the period from 1971 to 2003 our results suggest that implicit bands existed in two subperiods april december 1980 and march october 1987 the latter coinciding with the louvre accord furthermore the study of the credibility of such implicit bands indicates the high degree of confidence attributed by economic agents to the evolution of the yen dollar exchange rate within the detected implicit band rate thus lending further support to the relevance of such implicit bands

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

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

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

interest rate targeting and the dynamics of short term rates a feature of u s monetary policy has been active targeting of overnight fed funds rates the authors show that during a period of tight targeting 1989 96 term fed funds spreads from the target displayed pronounced volatility and persistence which increase with the maturity of the loan they show that the increase in persistence is consistent with a model of infrequent but predictable revisions of the target in the authors model the autoco variance of the spreads of term fed funds rates from the target increases with the maturity because longer term rates reflect persistent expectations of the next target change coauthors are giuseppe bertola silverio foresi and leora klapper

game theory and cost allocation problems problems of allocating joint costs in a reasonable way arise in many practical situations where people decide to work together to save costs cost allocation methods based on game theoretical concepts take into account the strategic aspects of cost allocation situations we give a survey of cost allocation methods based on the nucleolus and the shapley value and introduce also a new one the so called cost gap allocation method which is based on the i value it is shown that for some large subclasses of cost allocation problems this new cost allocation method coincides with old separable cost methods proposed in the thirties by the tennessee valley authority and also with the separable costs remaining benefits scrb method properties of this cost gap allocation method are also treated

history gravity and international finance abstract we analyse patterns of bilateral financial investment using data on us holdings of foreign bonds we document a history effect in which holdings seven decades ago continue to influence holdings today 10 15 of the cross country variation in us investors foreign bond holdings is explained by holdings 70 years ago plausibly reflecting fixed costs of market entry and exit and endogenous learning this effect is twice as large for bonds denominated in currencies other than the dollar suggesting the existence of even higher fixed costs of initiating us foreign investment in such currencies our findings point to history and path dependence as key sources of financial market segmentation

characterizing an equitable allocation of shared costs a dea approach abstract in many applications to which dea could be applied there is often a fixed or common cost which is imposed on all decision making units this would be the case for example for branches of a bank which can be accessed via the numerous automatic teller machines scattered throughout the country a problem arises as to how this cost can be assigned in an equitable way to the various dmus in this paper we propose a dea approach to obtain this cost allocation which is based on two principles invariance and pareto minimality it is shown that the proposed method is a natural extension of the simple one dimensional problem to the general multiple input multiple output case

allocating fixed costs and resources via data envelopment analysis abstract in this paper we show that data envelopment analysis dea can be viewed as maximising the average efficiency of the decision making units dmus in an organisation building upon this we present dea based models for a allocating fixed costs to dmus and b allocating input resources to dmus simultaneous to allocating input resources output targets are also decided for each dmu numeric results are presented for a number of example problems taken from the literature

gravity in international finance abstract the past decade has witnessed an explosion of papers estimating gravity equations for cross border financial holdings without much of a theoretical foundation in this paper we develop a theory for bilateral asset holdings that takes a gravity form we discuss how to estimate international financial frictions and conduct comparative statics analysis within the context of the theory we also find though that reasonable extensions of the model no longer generate a gravity form while this does not significantly complicate estimation and comparative statics analysis it raises questions about the empirical validity of gravity specifications for cross border financial holdings that need to be addressed in future work

international capital market frictions and spillovers from quantitative easing abstract this paper analyzes the impact of large scale unconventional asset purchases by advanced country central banks on emerging market economies emes from 2008 to 2014 i show that there was substantial heterogeneity in the way these purchases affected eme currency equity and long term sovereign bond markets drawing on the gravity in international finance literature i show that the degree of capital market frictions between emes and advanced countries is significant in explaining the observed heterogeneity in how these asset prices were affected this result is robust to considerations of domestic monetary policy exchange rate regime and capital control policies in emes furthermore i show that the size and direction of asset price movements in emes depended both on the type of assets purchased and on whether it was the u s federal reserve or other advanced country central banks engaging in the purchases

information and capital flows the determinants of transactions in financial assets abstract we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions our results support the hypothesis that informational asymmetries are responsible for the strong negative relationship between asset trade and distance this result is very important for theories of asset trade portfolio adjustments and home bias we strengthen it by investigating the roles of explicit informational variables as well as distance in explaining separately cross border trade in corporate equities corporate bonds and government bonds

exchange rates under ems target zones an econometric investigation this study tests krugman s model on exchange rate target zones using four old ems exchange rates those of the currencies of belgium france italy and the netherlands against the deutsche mark vast theoretical literature is available but there are very few empirical studies testing the main results of krugman s model namely the honeymoon effect smooth pasting and the overall s curved relationship between fundamental and exchange rate the present study supports the honeymoon effect but does not find any evidence in support of smooth pasting or of an s curved relationship between the exchange rate and fundamentals for the belgian franc french franc and italian lira against the deutsche mark the dutch guilder very closely follows movements in the german mark throughout the period 1981 90 end of month exchange rates and euro currency interest rates data are used

efficient firm groups allocative efficiency in cooperative games abstract the concept of efficiency in groups postulates that a coalition of firms has to record a smaller distance toward the aggregate technology frontier compared with the sum of individual distances efficiency analysis either allocative or technical is defined with respect to cooperative firm game in order to provide operational distance functions the so called pseudo distance functions these pseudo distances belong to the core interior of the allocative firm game in other terms any given firm coalition may always improve its allocative efficiency we prove that such a result is impossible for technical efficiency i e the technical efficiency cannot increase for all possible coalitions

target zone models with price inertia solutions and testable implications many recent papers suggest that the basic flex price target zone model does not perform well empirically this paper investigates the testable implications of a sticky price target zone model and finds that to a limited extent it has a better empirical performance than the simplest flex price model however in terms of nominal variables the sticky price model is found to be observationally equivalent to the flex price model when the latter is extended to include intramarginal intervention and realignments copyright 1994 by royal economic society

likelihood based specification analysis of continuous time models of the short term interest rate an extensive collection of continuous time models of the short term interest rate is evaluated over data sets that have appeared previously in the literature the analysis which uses the simulated maximum likelihood procedure proposed by durham and gallant 2002 provides new insights regarding several previously unresolved questions for single factor models i find that the volatility not the drift is the critical component in model specification allowing for additional flexibility beyond a constant term in the drift provides negligible benefit while constant drift would appear to imply that the short rate is nonstationary in fact stationarity is volatility induced the simple constant elasticity of volatility model fits weekly observations of the three month treasury bill rate remarkably well but is easily rejected when compared with more flexible volatility specifications over daily data the methodology of durham and gallant can also be used to estimate stochastic volatility models while adding the latent volatility component provides a large improvement in the likelihood for the physical process it does little to improve bond pricing performance

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

implied exchange rate distributions evidence from otc option markets abstract this paper uses a rich new dataset of option prices on the dollar mark dollar yen and key ems cross rates to extract the entire risk neutral probability density function pdf over horizons of 1 and 3 months we compare three alternative smoothing methods cubic splines an implied binomial tree trimmed and untrimmed and a mixture of lognormals for transforming option data into the pdf despite their methodological differences the three approaches lead to a similar pdf clearly distinct from the lognormal benchmark and typically characterized by skewness and leptokurtosis we then document a striking positive correlation between skewness in these pdfs and the spot rate the stronger a currency the more expectations are skewed towards a further appreciation of that currency we interpret this finding as a rejection that innovations in these exchange rates are independent of the level or characteristic of a credible target zone explicit or implicit instead this positive correlation is consistent with target zones with endogenous realignment risk we discuss two interpretations of our results on skewness when a currency is stronger the actual probability of further large appreciation is higher or because of risk such states are valued more highly

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

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

the political economy under monetary union has the euro made a difference economic and monetary union emu has transformed europe and has created an integrated pan european economy much research has focused on understanding this integration process and what benefits and costs it entails this paper identifies a political economy channel of emu as the monetary union implies that member states had to transfer or at least curtail their policy autonomy in several areas such as monetary policy and fiscal policy the paper shows that emu has helped reduce the impact of political shocks on the domestic economy of member states but magnified the transmission of political shocks within the euro area equally importantly economies with weak domestic policies and institutions exhibited a significantly higher sensitivity to domestic political shocks before emu but not thereafter while this may entail that emu has brought benefits to countries with weaker policies and institutions by insulating them from adverse political developments at home a potential drawback is that it may provide weaker market discipline for domestic political stability marcel fratzscher and livio stracca

global banks and crisis transmission abstract we study the effect of financial integration through banks on the transmission of international business cycles in a sample of 18 20 developed countries between 1978 and 2009 we find that in periods without financial crises increases in bilateral banking linkages are associated with more divergent output cycles this relation is significantly weaker during financial turmoil periods suggesting that financial crises induce co movement among more financially integrated countries we also show that countries with stronger direct and indirect financial ties to the u s experienced more synchronized cycles with the u s during the recent 2007 2009 crisis we then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity the model suggests that the relation between integration and synchronization depends on the type of shocks hitting the world economy and that shocks to global banks played an important role in triggering and spreading the 2007 2009 crisis

global corporate bond issuance what role for us quantitative easing the paper analyses the link between global corporate bond issuance and us quantitative easing qe it finds that purchases and holdings of mbs and treasuries by the fed have a strong impact on gross corporate bond issuance across advanced and emerging economies the results are robust to a large number of checks including controlling for the reduced supply of domestic and international bank loans in the aftermath of the global crisis which might have induced the corporate sector to issue more bonds our results support the gap filling theory greenwood et al 2010 where corporate bonds replace the assets removed from the market by large scale asset purchases specifically asset holdings and purchases crowded out investors from the markets where the fed intervened and accelerated portfolio rebalancing across assets and countries leading to stronger corporate bond issuance across the globe a counterfactual analysis shows that bond issuance in emerging markets since 2009 would have been halved without qe

constrained games for evaluating organizational performance abstract this paper develops a class of two person game theoretic models that provide insight into exceptional aspects of organizational performance in contrast to earlier games used for performance evaluations the new model permits constraints on the strategies available to each of the players a restriction that is frequently imposed in practice despite the more complicated nonlinearities involved in these games compared to classical finite two person forms the players solutions nash equilibria can still be described as the optimal solutions to a primal dual linear programming lp pair if the game s data elements are replaced with the observed inputs and outputs obtained from competing organizations then the resulting lps resemble those currently used in the core ratio models of data envelopment analysis dea apart from furthering the intertwinement of game theory and dea the constrained games feature additional improvements such as the ability to handle zeros in the data a well defined sensitivity analysis and the unification of previous dea principles within the context of constrained strategies

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

cross country causes and consequences of the crisis an update abstract we update rose and spiegel forthcoming rose and spiegel 2010 and search for simple quantitative models of macroeconomic and financial indicators of the great recession of 2008 09 we use a cross country approach and examine a number of potential causes that have been found to be successful indicators of crisis intensity by other scholars we check a number of different indicators of crisis intensity and a variety of different country samples while countries with higher income and looser credit market regulation seemed to suffer worse crises we find few clear reliable indicators in the pre crisis data of the incidence of the great recession countries with current account surpluses seemed better insulated from slowdowns

option arbitrage and strategy with large price changes abstract arbitrage pricing theorems are derived for options on stocks with jumps as a well as local movements the resulting valuation formulas depend on observable variables only closed form valuation expressions are obtained in the case of large positive and negative jumps these results translate into a simple algebra for characterizing the risk of arbitrage and investment portfolios a continuous time formulation of the infinite variance hypothesis leads to isomorphic pricing expressions

target zones and small realignments abstract we study the behaviour of the exchange rate in a target zone in the case where a realignment may occur at the edges of the band we show in contrast to the previous result that the stabilizing property of the target zone may remain even when the credibility is very low

the impact of money on short term interest rates this study reviews empirical evidence from four research methods related to the impact of money on short term nominal rates the studies consistently fail to find evidence supporting the much hypothesized short term negative relationship between money and nominal rates since at least april 1975 reasons for the absence of a negative relationship include the tendency of financial markets to anticipate corrective action by the fed whenever ml deviates from targeted growth ranges and a rapid adjustment of inflationary expectations to changes in money growth

bond yields and the federal reserve bond yields respond to policy decisions by the federal reserve and vice versa to learn about these responses i model a high frequency policy rule based on yield curve information and an arbitrage free bond market in continuous time the fed s target is a pure jump process jump intensities depend on the state of the economy and the meeting calendar of the federal open market committee the model has closed form solutions for yields as functions of a few state variables introducing monetary policy helps to match the whole yield curve because the target is an observable state variable that pins down its short end and introduces important seasonalities around fomc meetings the volatility of yields is snake shaped which the model explains with policy inertia the policy rule crucially depends on the two year yield and describes fed policy better than taylor rules

mars or mercury the geopolitics of international currency choice we assess the role of economic and security considerations in the currency composition of international reserves we contrast the mercury hypothesis that currency choice is governed by pecuniary factors familiar to the literature such as economic size and credibility of major reserve currency issuers against the mars hypothesis that this depends on geopolitical factors using data on foreign reserves of 19 countries before world war i for which the currency composition of reserves is known and security alliances proliferated our results lend support to both hypotheses we find that military alliances boost the share of a currency in the partner s foreign reserve holdings by 30 percentage points these findings speak to current discussions about the implications of possible u s disengagement from global geopolitical affairs in a hypothetical scenario where the u s withdraws from the world our estimates suggest that long term u s interest rates could rise by as much as 80 basis points assuming that the composition of global reserves changes but their level does not

computing core allocations in cooperative games with an application to cooperative procurement abstract cooperative game theory defines several concepts for distributing outcome shares in a cooperative game with transferable utilities one of the most famous solution concepts is the core which defines a set of outcome allocations that are stable such that no coalition has an incentive to leave the grand coalition in this paper we propose a general procedure to compute a core element or to detect that no core allocation exists which is based on mathematical programming techniques the procedure proposed in this paper can be applied to a wide class of cooperative games where the characteristic function is given by the optimum objective function value of a complex optimization problem for cooperative procurement which is an example from the field of supply chain management where some literature on the core concept already exists we prove the applicability and provide computational results to demonstrate that games with 150 players can be handled

a structural threshold model of the exchange rate under optimal intervention abstract by considering a social trade off between targeting the exchange rate and minimizing intervention costs nonlinear exchange rate dynamics can be captured by a structural threshold model this article provides a theory based empirical exchange rate model and shows how to put the model into an empirical investigation to estimate the structural threshold model we propose a two step procedure which separately estimates the permanent and temporary fundamentals of the foreign exchange market a demonstration of our approach is applied to 1981q3 2008q3 taiwan s foreign exchange market with a brief review of its monetary policies and central bank given prior estimation results are consistent with theoretical predictions and many intervention operations of taiwan s central bank are successfully identified

analysis of exchange rate target zones using a limited dependent rational expectations model with jumps this article examines the exchange rate determination in a target zone regime when the bounds can be fixed for an extended period but are subject to occasional jumps in this case the behavior of the endogenous variable is affected by the agents expectations about both the occurrence and the size of the jump empirical results using data for the franc mark exchange rate provide support for the nonlinear model with time varying realignment probability and indicate that the agents correctly anticipated most of the observed changes in the central parity

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

the term structure of interest rate differentials in a target zone theory and swedish data abstract the term structure of interest rate differentials is derived in a model of a small open economy with a target zone exchange rate regime for given time to maturity the interest rate differential is decreasing in the exchange rate and for given exchange rate the interest rate differential s absolute value and its instantaneous variability are both decreasing in the time to maturity devaluation realignment risks are incorporated and imply upward shifts of the interest rate differentials several implications of the theory are found to be broadly consistent with data on swedish exchange rates and interest differentials for the period 1986 1989

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