reversing disbursement rates to estimate stationary wealth processes for endowments with recursive preferences endowments have been accused of hoarding their wealth however the theoretically ideal spending plan remains unclear and in practice endowments follow a range of rules here we derive and estimate the optimal spending plans of an infinitely lived charity or endowment with an epstein zin weil utility function given general markovian returns to wealth we analyse two special cases first where spending is a power function of last period s wealth and second where the endowment uses payout smoothing via non linear least squares we estimate the optimal spending rate and the elasticity of inter temporal substitution for an endowment with a typical diversified portfolio and for a portfolio of hedge funds in a new approach we use maximum entropy methods to characterize the returns distribution of an endowment whose spending plan conforms with the optimality condition we confirm that the estimated returns distribution is largely consistent with the optimal spending plan

sectoral shocks and aggregate fluctuations abstract this paper presents a multisector dynamic general equilibrium model of business cycles with a distinctive feature aggregate fluctuations are driven by independent sectoral shocks the model hypothesizes that trade among sectors provides a strong synchronization mechanism for these shocks due to the limited but locally intense interaction that is characteristic of such input trade flows limited interaction characterized by a sparse intermediate input use matrix reduces substitution possibilities among intermediate inputs which strengthens comovement in sectoral value added and leads to a postponement of the law of large numbers in the variance of aggregate value added the chief virtue of this model is that reliance on implausible aggregate shocks is not necessary to capture the qualitative features of macroeconomic fluctuations building on horvath 1998 review of economic dynamics 1 781 808 which establishes the theoretical foundation for the relevance of limited interaction in the context of a stylized multisector model this paper specifies a more general multisector model calibrated to the us 2 digit standard industrial code economy simulations prove the model is able to match empirical reality as closely as standard one sector business cycle models without relying on aggregate shocks

media exposure and internal migration evidence from indonesia abstract this paper investigates the impact of television on internal migration in indonesia we exploit the differential introduction of private television throughout the country and the variation in signal reception due to topography to estimate the causal effect of media exposure our estimates reveal important long and short run effects an increase of one standard deviation in the number of private tv channels received in the area of residence as an adolescent reduces future inter provincial migration by 1 7 2 7 percentage points and all migration inter and intra provincial by 3 9 6 8 percentage points short run effects are similar in magnitude we also show that respondents less exposed to private television are more likely to consider themselves among the poorest groups in society as we discuss in a stylized model of migration choice under imperfect information these findings are consistent with indonesian citizens over estimating the net gains from internal migration when access to television is limited

the impact of oil price shocks on the term structure of interest rates in a structural var framework we study the impact of oil price shocks in the global crude oil market on the dynamics of the entire yield curve in four industrialised countries with different positions on the oil market the us canada norway and south korea responses of the term structure factors to oil market shocks are shown to differ contingent on the underlying sources that drive oil price shocks and the country s dependence on oil oil market specific demand shocks result in increases in the level factor in oil importing countries but have no such effect in oil exporting countries oil supply disruptions have short lived negative responses of the slope factors in the us and canada associated with loosening monetary policy whilst demand side shocks tend to lead to increases the slope in all countries overall oil supply and demand shocks jointly account for a considerable amount of the observed variation in the term structure of interest rates

do central banks respond to exchange rate movements a structural investigation abstract we estimate a small scale structural general equilibrium model of a small open economy using bayesian methods our main focus is the conduct of monetary policy in australia canada new zealand and the uk we consider generic taylor type rules where the monetary authority reacts in response to output inflation and exchange rate movements we perform posterior odds tests to investigate the hypothesis whether central banks do target exchange rates the main result of this paper is that the central banks of australia and new zealand do not whereas the bank of canada and the bank of england do include the nominal exchange rate in its policy rule this result is robust for various specification of the policy rule we also find that terms of trade movements do not contribute significantly to domestic business cycles

the value of fiscal discipline for oil exporting countries abstract the value of fiscal discipline is assessed by analyzing the role of fiscal policy as a transmission mechanism of oil price shocks in oil exporting small open economies fiscal policy is an important propagation channel taking policy as given by the data the model can successfully explain the responses of key macroeconomic variables but it is unable to explain these responses under counterfactual fiscal frameworks interestingly fiscal policy also seems capable of regulating the size of pass through furthermore fiscal policies that insulate the economy from oil price shocks seem to be welfare improving over procyclical ones

the rise and fall of performance investing performance investing has enjoyed a remarkably long life cycle but the costs of active investment are so high and the incremental returns so low that for clients the money game is no longer a game worth playing investors both institutions and individuals are increasingly shifting toward indexing as acceptance of indexing grows clients and managers have an opportunity to stop focusing on price discovery which has made our markets so efficient and refocus on values discovery whereby investment professionals can help investors achieve good performance by structuring an appropriate long term investment program and staying with it

evaluating an estimated new keynesian small open economy model abstract this paper estimates and tests a new keynesian small open economy model in the tradition of christiano et al 2005 nominal rigidities and the dynamic effects of a shock to monetary policy journal of political economy 113 1 1 45 and smets and wouters 2003 an estimated stochastic dynamic general equilibrium model of the euro area journal of the european economic association 1 5 1123 1175 using bayesian estimation techniques on swedish data to account for the switch to an inflation targeting regime in 1993 we allow for a discrete break in the central bank s instrument rule a key equation in the model the uncovered interest rate parity uip condition is well known to be rejected empirically therefore we explore the consequences of modifying the uip condition to allow for a negative correlation between the risk premium and the expected change in the nominal exchange rate the results show that the modification increases the persistence in the real exchange rate and that this model has an empirical advantage compared with the standard uip specification

business cycles in an oil economy abstract the recent oil price fall has created concern among policy makers regarding the consequences of terms of trade shocks for resource rich countries this concern is not a minor one the world s commodity exporters combined are responsible for 15 20 of global value added we develop and estimate a two country new keynesian model in order to quantify the importance of oil price shocks for norway a large prototype petroleum exporter domestic supply chains link mainland non oil norway to the off shore oil industry while fiscal authorities accumulate income in a sovereign wealth fund oil prices and the international business cycle are jointly determined abroad these features allow us to disentangle the structural sources of oil price fluctuations and how they affect mainland norway the estimated model provides three key results first oil price movements represent an important source of macroeconomic volatility in mainland norway second while no two shocks cause the same dynamics conventional trade channels make an economically less significant difference for the transmission of global shocks to the oil exporter than to oil importers third the domestic oil industry s supply chain is an important transmission mechanism for oil price movements while the prevailing fiscal regime provides substantial protection against external shocks

using asset allocation to protect spending the management of an educational endowment or other income producing portfolio involves two strategic decisions at the fund level asset allocation and choice of a spending rule traditionally these two decisions are linked for example to preserve capital on average but the optimal link would be more dynamic this article describes a new protective strategy that links spending and asset allocation in a way that preserves spending power in down markets but participates significantly in up markets the strategy is similar to constant proportions portfolio insurance in that part of the fund is maintained in safe assets to preserve the value needed for continued expenditures like portfolio insurance the strategy outperforms traditional strategies when markets are persistently up or persistently down but underperforms when portfolios are whipsawed by alternating ups and downs

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

beyond gdp an overview of measurement issues in redefining wealth in the last decades a growing quantity of literature has been written about concepts such as quality of life and well being as a proxy for evaluating societal prosperity and progress this paper analyses the theoretical foundations and the empirical validity of multi dimensional technical tools that can be used for well being measurement there is no doubt that there is a lot of complexity and fuzziness inherent in multi dimensional concepts such as well being a possible reduction of this complexity a pre condition for policy making introduces the problem of the descriptors used indicators and indexes in a multi dimensional framework multi criteria evaluation is a consistent approach for the construction of so called composite indicators often some individual indicators improve while others deteriorate this is the classical conflictual situation dealt with in multi criteria evaluation in particular non compensatory methods are quite relevant since compensability implies complete substitutability between different types of capital uncertainty and sensitivity analysis can estimate the robustness of the results obtained and help the framing of the debate around the conceptual framework used that is which representation of reality and thus which societal values and interests has been considered

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

non compensatory non linear composite indicators for ranking countries a defensible setting composite indicators or indexes are very common in economic and business statistics for benchmarking the mutual and relative progress of countries in a variety of policy domains such as industrial competitiveness sustainable development globalization and innovation the proliferation of the production of composite indicators by all the major international organizations is a clear symptom of their political importance and operational relevance in policy making as a consequence improvements in the way these indicators are constructed and used seem to be a very important research issue from both the theoretical and operational points of view this article aims at contributing to the improvement of the overall quality of composite indicators or indexes by looking at one of their technical weaknesses that is the aggregation convention used for their construction for this aim we build upon concepts coming from multi criteria decision analysis measurement theory and social choice we start from the

the place of portfolio management in the keynesian canon recent publications such as the two volume oxford handbook of post keynesian economics harcourt and kreisler 2013 and the elgar companion to post keynesian economics king 2012 provide authoritative summaries of the current state of the art on a very wide range of relevant topics in particular the contents pages of these books define the field as seen by adherents the obvious implication being that those topics excluded have not yet acquired the necessary status by passing appropriate academic tests of relevance and coherence inter alia the focus of this article portfolio management is on one of these omitted topics starting from the fundamental recognition of uncertainty we examine the whole range of characteristics of the keynesian approach demonstrating the coherence and applicability of its multidimensional nature in the process pointing by contrast to the one dimensional sterility of the conventional approach our general conclusion is that there is a rightful place in the keynesian canon for portfolio management by which we mean not only investment management but also speculative management where these two qualifiers are used in the keynes graham sense

the british origins of the us endowment model the us endowment model is an approach to investing popularized by yale university that emphasizes diversification and active management of equity oriented illiquid assets the writings of the british economist john maynard keynes were a considerable influence on the investment philosophy of yale s chief investment officer david swensen how did keynes gain these insights we track keynes s experiences managing the king s college cambridge endowment and show how some of the lessons he learned remain relevant to endowments and foundations today

retrospectives john maynard keynes investment innovator john maynard keynes made a major contribution to the development of professional investment management based on detailed archival research at king s college cambridge we describe keynes investment philosophy his investment performance and the evolution of his investment approach as the manager of a large educational endowment his portfolios were actively managed and unconventional he was an investment innovator both in making a substantial allocation to the then new institutional asset class of common stocks as well as in championing value investing

the equity premium stock and bond returns since 1802 1992 the equity premium stock and bond returns since 1802 financial analysts journal vol 48 no 1 pp 28 38 46

cross country differences in the effects of oil shocks abstract we compare the macroeconomic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in the economy the results crucially depend on the underlying source of the oil price shift when a rise in oil prices is caused by increased global economic activity or a rise in oil specific demand almost all countries experience respectively a temporary increase and transitory decline of real gdp the role of oil and other forms of energy cannot explain the differences in the effects of both shocks across countries in contrast this role is very important to explain asymmetries in the effects of exogenous oil supply shocks whereas net oil and energy importing countries typically face a permanent fall in economic activity the impact is insignificant or even positive in net energy exporting countries in addition countries that improved their net energy position the most over time became less vulnerable to oil supply shocks relative to other countries

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

the transmission of monetary policy in a multisector economy this article constructs and estimates a sticky price dynamic stochastic general equilibrium model with heterogeneous production sectors firms in different sectors vary in their price rigidity production technology and the combination of material and investment inputs in particular firms buy inputs from all sectors using the actual input output matrix and capital flow table of the u s economy by relaxing the standard assumption of symmetry this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks the model is estimated by the generalized method of moments using sectoral and aggregate u s time series

a sustainable spending rate without simulation financial commentators have called for more research on sustainable spending rates for individuals and endowments holding diversified portfolios we present a forward looking framework for analyzing spending rates and introduce a simple measure stochastic present value that parsimoniously meshes investment risk and return mortality estimates and spending rates without resorting to opaque monte carlo simulations applying it with reasonable estimates of future returns we find payout ratios should be lower than those many advisors recommend the proposed method helps analysts advise their clients how much they can consume from their savings whether they can retire early and how to allocate their assets

secrets of the academy the drivers of university endowment success university endowments have received much attention recently for their superior investment returns compared with other institutional investors this study documents trends in college and university endowment returns and investments in the united states between 1992 and 2005 using data on over a thousand schools such endowments have generally performed well over this time period with a median growth rate of 7 4 percent per year and median return of 6 9 percent this sector has been dominated both in size and performance by the endowments of elite universities such as the ivy league schools the top 20 endowments grew more than 9 percent annually on a real basis between 1992 and 2005 as of 2007 the two largest endowments belonging to harvard and yale have grown to 35 billion and 22 billion in size respectively much of the growth in endowment size has been driven by investment performance as we will show in the paper the top endowments posted impressive returns in 2005 averaging a net real return of 12 3 percent compared to 4 4 percent posted by the s p 500 index in the same year we investigate the underlying drivers of these high returns and show that performance is related to the size of endowment the quality of the student body and the use of alternative investments we caution ordinary investors that mimicking the strategies of the top endowments would not necessarily result in similar returns

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

what would yale do if it were taxable corrected january 2016 the distinctive financial goals and constraints of ultra high net worth individuals together with their aggregate growth in assets have led to the emergence of new institutional investing which includes the best practices from institutional investors but also incorporates the critical element of tax management the authors design new institutional asset allocations that incorporate traditional investment metrics in a tax aware setting specifically they show how risk and after tax returns need to be combined from inception when seeking an optimal after tax asset allocation diversification is especially important for taxable investors because low asset class correlations can facilitate the inclusion of attractive but tax inefficient asset classes in a tax aware allocation

short termism of long term investors the investment behaviour of dutch insurance companies and pension funds countercyclical investment strategies of large institutional investors such as insurance companies and pension funds can support financial stability while procyclical investment behaviour is consi

migration and asymmetric information comment a comment on an article by viem kwok and hayne leland concerning the relationship between asymmetric information and the brain drain of skilled labor from developing countries is presented a reply by kwok and leland p 535 is also included annotation

international migration under asymmetric information international migration under asymmetric information usually differs from international migration under symmetric information and often quite dramatically so and in counterintuitive ways since in real life information is indeed asymmetric it is somewhat surprising that hitherto the study of international migration has by and large proceeded without explicit recognition of the effect of informational asymmetry in this paper we show that when at the lowest skill level migration is desirable i e if the discounted wage differential is positive for the lowest skill level the introduction of asymmetric information results in a reduction of the quality and quantity of international migration or has no effect at all when at the lowest skill level migration is not desirable the discounted differential is not positive at the lowest skill level the introduction of asymmetric information may either result in migration by all or none when under asymmetric information workers can at some cost to themselves report to foreign employers their individual skill thus dissociate themselves from the group effect then provided the cost is small either a u pattern of migration with respect to skill level emerges or migration is uniformly pursued by all though some do and some do not invest in signalling when the source consists of more than 1 poor country it is impossible to predict migration under asymmetric information from a given country without explicitly accounting for changes in the parameters of the other for example a favorable change encouraging less migration taking place in 1 country will through a distinct impact on the overall composition of migration reduce migration from the other country finally allowing employers to discover after a while the true productivity of individual migrant workers we obtain the somewhat surprising result that under a reasonable set of assumptions eventual discovery may increase the quantity and quality of migration and also increase the wage enjoyed by the low quality migrants eventual discovery serves to mitigate the impact of group averaging that deters migration by the high skill workers due to migration of some such workers the prediscovery wage of the low skill workers arises in our case sufficiently to outweigh the effect of the future wage decline due to discovery authors

seventy five years of investing for future generations university endowments invest for future generations so their strategy should reflect their long horizon we researched whether they really do behave like long term investors we examined the behav

an analysis of the s p 500 index and cowles s extensions price indexes and stock returns 1870 1999 this article provides a consistent monthly stock price index from january 1871 through 1999 the broadly defined s p weekly index is reconstructed from 1918 and carried forward as the s p 500 composite index to the present cowles s monthly index is improved in order to provide month end estimates from february 1885 cowles s estimates of dividends and earnings for this index from 1871 are reevaluated and are carried forward until spliced to the s p daily estimates that began in 1957 the result is a monthly index of prices dividends and earnings based on consistent definitions over a period of 130 years

portfolio choice with illiquid assets we present a model of optimal allocation to liquid and illiquid assets where illiquidity risk results from the restriction that an asset cannot be traded for intervals of uncertain duration illiquidity risk leads to increased and state dependent risk aversion and reduces the allocation to both liquid and illiquid risky assets uncertainty about the length of the illiquidity interval as opposed to a deterministic nontrading interval is a primary determinant of the cost of illiquidity we allow market liquidity to vary from normal periods when all assets are fully liquid to illiquidity crises when some assets can only be traded infrequently the possibility of a liquidity crisis leads to limited arbitrage in normal times investors are willing to forgo 2 of their wealth to hedge against illiquidity crises occurring once every 10 years this paper was accepted by itay goldstein finance

introducing financial frictions and unemployment into a small open economy model the current nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from nancial factors it is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations some questions which the dominating extant business cycle models are mute on but that we would like to answer are how important are nancial and labor market frictions for the business cycle dynamics of a

international migration imperfect information and brain drain we consider a model of international migration where skills of workers are imperfectly observed by firms in the host country and where information asymmetries are more severe for immigrants than f

background risk and university endowment funds abstract this paper tests the effect of background risk on university endowment portfolios where background risk is defined as the volatility of universities nonfinancial income the results show that higher background risk is associated with lower portfolio standard deviations universities with higher background risk invest significantly more in fixed income and less in alternative assets a 1 standard deviation increase in background risk increases the allocation to fixed income by approximately 15 relative to the mean there is also evidence that wealthier highly selective universities hold riskier portfolios

evaluating spending policies in a low return environment for an endowment seeking to minimize payout variability while preserving the long run health of the institution appropriate spending policy is a crucial choice we study two competing methods for setting spending policy the moving average method and the snake in the tunnel sit approach we show that the sit approach may significantly decrease the possibility of spending reductions in the short run additionally the sit approach with 3 7 bands allows for a smooth evolution of payouts over time which enhances spending predictability while preserving the endowment s real inflation adjusted long run purchasing power

international labour migration under alternative informational regimes a diagrammatic analysis abstract international migration under asymmetric information usually diners from international migration under symmetric information in this paper we show that when at the lowest skill level migration is desirable the introduction of asymmetric information results in a reduction of the quality and quantity of international migration or has no effect at all when at the lowest skill level migration is not desirable the introduction of asymmetric information may either result in migration by all or by none allowing employers to discover after a while the true productivity of individual migrant workers we obtain the somewhat surprising result that under a reasonable set of assumptions eventual discovery may increase the quantity and quality of migration and also increase the wage enjoyed by the low quality migrants

notes on the underground monetary policy in resource rich economies how should monetary policy respond to a commodity price shock in a resource rich economy as in the baseline new keynesian model the central bank of a small oil exporting economy faces a tradeoff between the stabilization of domestic infl ation and an appropriately defined output gap but in our framework the output gap depends on oil technology and the weight on output gap stabilization is increasing in the importance of the oil sector given substantial spillovers to the rest of the economy optimal policy calls for a reduction of the interest rate following a drop in the oil price in contrast a central bank with a mandate to stabilize consumer price infl ation would raise interest rates to limit the infl ationary impact of an exchange rate depreciation

on keynes as an investor as keynes himself admitted in 1938 his approach to portfolio management changed dramatically during the course of his career he abandoned speculation in favour of investment namely a careful selection of a few investments having regard to their cheapness and potential intrinsic value over a period of years ahead in other words he was applying the margin of safety a concept we particularly associate nowadays with benjamin graham who incorporated it inter alia into his magnum opus of 1934 security analysis an examination of the writings of keynes on the one hand and graham on the other reveals considerable overlap between not to say unity of their respective conceptions such is their complementarity that it is reasonable to speak of a keynes graham schema we conclude that this is the natural starting point for the 2011 kay review of uk equity markets as it should have been for the myners review of uk institutional investment a decade ago copyright oxford university press

boom or gloom examining the dutch disease in two speed economies traditional studies of the dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors we put forward a simple theory model that allows for such spillovers we then identify and quantify these spillovers using a bayesian dynamic factor model the model allows for resource movements and spending effects through a large panel of variables while also identifying disturbances to other shocks using australia and norway as representative cases studies we find that a booming resource sector has substantial productivity spillovers on non resource sectors effects that have not been captured in previous analysis

an economic model of the brain drain asymmetric information in the labor market is discussed as a major cause of the exodus of foreign trained students from developing countries the authors suggest that employers in the country in which the students have been trained have a more accurate judgment of the true productivity of students than have employers in the students native country an illustrative numerical model is developed and its implications are analyzed annotation

labor mobility under asymmetric information with moving and signalling costs abstract information about the true skill level of individual workers may not flow freely across labor markets or between firms and though available to the workers themselves may not be equally available to some employers consequently the level and composition of labor mobility is affected in this paper we derive some results concerning the impact of moving costs in conjunction with informational asymmetry upon the level of labor mobility the skill level of those who move and the effect upon both these variables of costly signalling