quantile dependence of oil price movements and stock returns we examine the impact of quantile and interquantile oil price movements on different stock return quantiles by testing the hypothesis of equality in conditional and unconditional quantile distribution functions of stock returns we capture quantile dependence under different stock market conditions while taking into account different kinds of oil price movements by computing unconditional and conditional stock return quantiles through marginal models for stock returns and copula functions for oil stock dependence analyzing stock return data for three developed economies the us the uk and the european monetary union and the five brics countries brazil russia india china and south africa for 2000 to 2014 our results indicate that 1 the impact of extreme upward and downward oil price changes on upper and lower stock price quantiles was much smaller before compared to after crisis onset 2 the downside spillover effects were larger than the upside spillover effects for most countries before crisis onset and for all countries after crisis onset and 3 small positive and negative oil price movements had no impact on any stock return quantiles neither before nor after crisis onset

a time varying copula approach to oil and stock market dependence the case of transition economies abstract we employ the time varying copula approach to investigate the conditional dependence between the brent crude oil price and stock markets in the central and eastern european cee transition economies our results show evidence of a positive dependence between the oil and the stock markets of the six cee countries which is indicative of a contagion between those markets regardless of the changes in the oil price or the cee stock index moreover the dependence patterns in both the center and left tails of the return distributions change over time particularly during the heart of the financial crisis and are best described by the survival gumbel copulas the empirical evidence also suggests that the lower tail dependence is much stronger than that of the upper tail highlighting the importance of contagion during severe contractionary business cycles among the sample markets poland is shown to be particularly sensitive in this regard while hungary and slovenia are the least sensitive

unemployment hysteresis and the natural rate hypothesis i introduction rod cross et al university of st andrews ii reflections on hysteresis and the natural rate 1 the irrelevance of the natural rate lawrence summers harvard university 2 on the history of hysteresis rod cross university of st andrews iii the characteristics of the unemployed 1 unemployment vacancies and the long term unemployed peter smith l b s paul levine south bank polytechnic alan budd l b s 2 characteristics of the long term unemployed evidence from the labour force survey stephen creigh department of employment 3 is unemployment irreversible peter r hughes department of employment gillian hutchinson queen mary college london iv analysis of hysteresis effects 1 union activity and wage employment movements assar lindbeck institute for international studies university of stockholm and dennis snower birkbeck college london 2 a simple model of imperfect competition with walrasian features huw dixon birkbeck college london 3 unemployment and worker quality simon price university of bristol 4 screening in labour markets with heterogeneous workers inge schnell university of bonn and l s e iv hysteresis effects and the explanation of aggregate unemployment 1 testing for multiple natural rates of unemployment in the british economy alan carruth university of kent and andrew oswald centre for labour economics l s e 2 why is wage inflation in britain so high stephen nickell university of oxford 3 phillips curve estimates incorporating a natural rate with hysteresis effects david coe o e c d 4 hysteresis and european unemployment olivier blanchard m i t and lawrence summers harvard university 5 the natural rate empirical fact or theoretical straitjacket tim jenkinson merton college oxford iv panel discussion the implications of hysteresis effects for unemployment policy 1 david stanton employment market research unit department of employment 2 charles adams i m f 3 marcus miller university of warwick 4 peter mcgregor fraser of allander institute university of strathclyde

cost externalities and corporate diversification abstract this paper examines the optimal time of entry by established firms that strategically exploit cost externalities resulting from experience transfer from their core product line to the entered market established firms may delay entry even under conditions when newborn firms would enter early the paper can also explain other entry scenarios including early diversification at an initial loss into markets that newborn firms would never enter the shape of the experience curve in the entered market strongly affects these differences in scenarios

multimarket competition theory and evidence the multimarket perspective identifies potential entrants as existing firms in related markets the paper uses this new framework to analyze entry strategies and entry deterrence successful entry permitting and entry deterring strategies require understanding of the feedbacks from the entry market to the home market and vice versa the multimarket perspective integrates literature on industrial organization and strategic management

volatility spillovers between oil prices and stock sector returns implications for portfolio management abstract in this article we take a recent generalized var garch approach to examine the extent of volatility transmission between oil and stock markets in europe and the united states at the sector level the empirical model is advantageous in that it typically allows simultaneous shock transmission in the conditional returns and volatilities insofar as volatility transmission across oil and stock sector markets is a crucial element for portfolio designs and risk management we also analyze the optimal weights and hedge ratios for oil stock portfolio holdings with respect to the results our findings point to the existence of significant volatility spillover between oil and sector stock returns however the spillover is usually unidirectional from oil markets to stock markets in europe but bidirectional in the united states our back testing procedures finally suggest that taking the cross market volatility spillovers estimated from the var garch models often leads to diversification benefits and hedging effectiveness better than those of commonly used multivariate volatility models such as the ccc garch of bollerslev 1990 the diagonal bekk garch of engle and kroner 1995 and the dcc garch of engle 2002

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

interest rate bands of inaction and play hysteresis in domestic investment evidence for the euro area abstract the interest rate is an important monetary policy tool to steer investment to safeguard price stability knowledge about the exact shape of the interest rate investment nexus is thus decisive for the european central bank s efficacy this is especially so in the currently observed low interest rate environment we first present a theoretical framework of the hysteretic impact of changes in the interest rate on macroeconomic investment under certainty and under uncertainty to investigate whether uncertainty over future interest rates in the euro area hampers monetary policy transmission in this non linear model strong reactions in investment activity occur as soon as changes of the interest rate exceed a zone of inaction that we call play area second we apply an algorithm describing path dependent play hysteresis to estimate investment hysteresis using data on domestic investment and interest rates on corporate loans for 5 countries of the euro area in the period ranging from 2001q1 to 2018q1 we find hysteretic effects of interest rate changes on investment in most countries however their shape and magnitude differ widely across countries which poses a challenge for a unified monetary policy by introducing uncertainty into the regressions the results do not change much which may be due to the interest rate implicitly incorporating uncertainty effects in investment decisions e g by risk premia

a floor and ceiling model of us output abstract building on previous nonlinear time series models we further examine the form of nonlinearity in us output we develop a model of us output that allows for floor and ceiling effects to alter the dynamics of output growth the model estimated on post korean war quarterly data displays features similar to nonlinear trade cycle models of the 1940s and 1950s thus as predicted by many of the earlier theoretical models our empirical results suggest that the turning points of the business cycle provide new initial conditions for the ensuing growth process we also find important asymmetries in the responses of output to positive and negative shocks this history and shock dependence property is not present in linear or approximately linear models of the type that arise in the standard implementations of real business cycle theory

learning curve spillovers and market performance this paper examines the effect of learning curve spillovers on market structure and performance we derive a simple characterization of the true marginal cost for a broad class of learning curves and use calculated examples to show that spillovers substantially undercut the barriers to entry erected by proprietary learning unlike the case of cost reducing research and development spillovers also tend to improve market performance the increased efficiency of the industrywide reduction process typically outweighs the decrease in firms incentives to reduce costs by expanding output

dynamic relations between international equity and currency markets the role of currency order flow previous research on the dynamic linkages between international financial markets focused on bivariate interequity or intercurrency relationships and do not allow a specific role for the currency or equity market respectively in this paper we hypothesize that there are important yet not well understood dynamic relationships between international equity and currency markets and these are driven by information spillover via the mechanism of currency order flow using a trivariate asymmetric garch framework we find that the relationships between equity and currency markets are significant bidirectional and pervasive these relationships which coexist with the relationships between u s and foreign equity markets are much stronger in the volatilities than in the means importantly we find strong support for our information spillover hypothesis where currency order flow is the economic mechanism by which information is transmitted

exchange rate hysteresis large versus small policy misalignments abstract using a monetary model in the spirit of dornbusch 1976 and a sunk cost model of trade hysteresis we show that a sufficiently large policy misalignment can induce hysteresis in the trade balance and thereby alter the steady state real exchange rate hence exchange rate dynamics are path dependent since hysteresis in our model can entail industrial dislocation and the scrapping of sunk assets we suggest that these factors constitute a welfare cost of large policy misalignments that have not been considered formally additionally since the long run exchange rate is path dependent standard empirical tests of exchange rate models may involve a misspecification

testing for hysteresis against nonlinear alternatives abstract a number of studies have hypothesised certain economic behaviour to be hysteretic but few have actually been able to establish hysteretic behaviour in the data this is because of the lack of an effective test for hysteresis this paper compares and contrasts two new measures of hysteretic behaviour designed explicitly for detecting hysteresis in economic systems using monte carlo techniques we show that one has considerably more power than the other against nonlinear cyclical or multiple equilibria alternatives in the presence of random disturbances the key properties of this measure appear to be functional form independence and rate independence

an advantage of the multiproduct firm the transferability of firm specific capital abstract in a world of uncertainty particular benefits of multiproduct organization arise out of a need to revise production plans when transactions for inputs are costly production involves inputs which are firm specific the ability to transfer firm specific inputs withi n the multiproduct firm yields benefits not available to the single product firm these benefits to firm diversification are not dependent on the assumption of managerial risk aversion and cannot be replicated by investors diversifying their portfolios

the foreign exchange exposure of japanese multinational corporations we find that about 25 percent of our sample of 171 japanese multinationals stock returns experienced economically significant positive exposure effects for the period january 1979 to december 1993 the extent to which a firm is exposed to exchange rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs highly leveraged firms or firms with low liquidity tend to have smaller exposures foreign exposure is found to increase with firm size we also find that keiretsu multinationals are more exposed to exchange rate risk than nonkeiretsu firms it is conventional wisdom that exchange rate movements affect both the cash flows of a firm s operations and the discount rate employed to value these cash flows measuring foreign exchange exposure is now a central issue of international financial management and this issue has spawned a considerable amount of research existing empirical evidence on foreign exchange exposure however seems perplexing studies have so far documented a weak link between contemporaneous exchange rate fluctuations and stock returns of u s multinational firms 2 gendreau 1994 finds it difficult and unconvincing that the weak results imply that exchange rate changes have no effect on exporters stock returns bartov arnd bodnar 1994 attribute the observed insignificant relationship between exchange rate changes and st ock returns to probable problems associated with the previous studies samiple selection procedure or to mispricing caused by investors errors in estimat

volatility dependence and contagion in emerging equity markets abstract in this paper we use weekly stock market data for a group of latin american countries to analyze the behavior of volatility through time we are particularly interested in understanding whether periods of high volatility are correlated across countries the analysis uses both on univariate and bivariate switching volatility models our results do not rely on the correlation coefficients but on the co dependence of volatility regimes the results indicate that high volatility episodes are in general short lived lasting from 2 to 12 weeks we find strong evidence of volatility co movements across countries especially among the mercosur countries

hyteresis in import prices the beachhead effect this paper shows that temporary real exchange rate fluctuations can have persistent hysteretic effects on trade specifically when market entry costs are sunk sufficiently large exchange rate shocks alter domestic market structure and thereby induce hysteresis this simple result has strong implications for exchange rate theory t rade policy and estimation of trade equations empirical evidence su ggests that the recent dollar overvaluation induced hysteresis in u s import prices namely the aggregate pass through equation of exchange rates to import prices shifted in the 1980s the shift s nature and timing is broadly consistent with the hysteresis hypothesis copyright 1988 by american economic association

disentangling the role of the exchange rate in oil related scenarios for the european stock market abstract the literature has been analysing so far the response of the stock market to a distress scenario for oil prices considering prices in domestic currency this assumption implies merging commodity risk and exchange rate risk this article proposes to generate oil related scenario depending on the source of risk the same distress oil related scenario in euros could generate an opposite impact on the european stock market depending on the source of risk results show higher losses for eurostoxx when oil prices in euros experience a downward movement due to a decrease of oil price in us dollars and when oil prices in euros experience an upward movement due to a depreciation of the euro against the us dollar this framework can improve our understanding of how the exchange rate interacts in global markets also it contributes to the design of tailor made international scenarios for stress testing

the learning curve and optimal production under uncertainty this article examines the implications of the learning curve in a world of uncertainty we consider a competitive firm whose costs decline with cumulative output because the price of the firm s output evolves stochastically future production and cumulative output are unknown and are contingent on future prices and costs we derive an optimal decision rule that maximizes the firm s market value produce when the price exceeds a critical level which is a declining function of cumulative output we show how the shadow value of cumulative production the total value of the firm and the decision to produce depend on the volatility of the price and other parameters uncertainty increases the critical price required for the firm to produce but also increases the value of thefirm thus during periods of high volatility firms facing a learning curve ought to be producing less but are worth more

systemic risk measurement multivariate garch estimation of covar abstract we modify adrian and brunnermeier s 2011 covar the var of the financial system conditional on an institution being in financial distress we change the definition of financial distress from an institution being exactly at its var to being at most at its var this change allows us to consider more severe distress events to backtest covar and to improve its consistency monotonicity with respect to the dependence parameter we define the systemic risk contribution of an institution as the change from its covar in its benchmark state defined as a one standard deviation event to its covar under financial distress we estimate the systemic risk contributions of four financial industry groups consisting of a large number of institutions for the sample period june 2000 to february 2008 and the 12 months prior to the beginning of the crisis we also investigate the link between institutions contributions to systemic risk and their characteristics

exchange rate exposure abstract in this paper we examine the relationship between exchange rate movements and firm value we estimate the exchange rate exposure of publicly listed firms in a sample of eight non us industrialized and emerging markets we find that exchange rate movements do matter for a significant fraction of firms though which firms are affected and the direction of exposure depends on the specific exchange rate and varies over time suggesting that firms dynamically adjust their behavior in response to exchange rate risk exposure is correlated with firm size multinational status foreign sales international assets and competitiveness and trade at the industry level

some evidence on hysteresis in unemployment rates abstract we propose an unobserved components model to evaluate unemployment data for evidence on hysteresis effects unemployment is decomposed into a natural rate component assumed to be nonstationary and a cyclical component assumed to be stationary hysteresis effects are modelled by allowing lagged cyclical unemployment to affect the current natural rate the model is estimated using canadian german u k and u s unemployment rate series we find substantive hysteresis effects in the canadian german and u k unemployment series hysteresis effects in the u s unemployment series are negligible

oil prices stock markets and portfolio investment evidence from sector analysis in europe over the last decade this article extends the understanding of oil stock market relationships over the last turbulent decade unlike previous empirical investigations which have largely focused on broad based market indices national and or regional indices we examine short term linkages in the aggregate as well as sector by sector levels in europe using different econometric techniques our main findings suggest that the reactions of stock returns to oil price changes differ greatly depending on the activity sector in the out of sample analysis we show that introducing oil asset into a diversified portfolio of stocks allows to significantly improve its risk return characteristics

causes and consequences of hysteresis aggregate demand productivity and employment in this work we develop an agent based model where hysteresis in major macroeconomic variables e g gross domestic product productivity unemployment emerges out of the decentralized interactions of heterogeneous firms and workers building upon the schumpeter meeting keynes family of models cf in particular dosi et al 2016b 2017c we specify an endogenous process of accumulation of workers skills and a state dependent process of firms entry indeed hysteresis is ubiquitous however this is not due to market imperfections but rather to the very functioning of decentralized economies characterized by coordination externalities and dynamic increasing returns so contrary to the insider outsider hypothesis blanchard and summers 1986 the model does not support the findings that rigid industrial relations may foster hysteretic behavior in aggregate unemployment on the contrary this contribution provides evidence that during severe downturns and thus declining aggregate demand phenomena like decreasing investment and innovation rates skills deterioration and declining entry dynamics are better candidates to explain long run unemployment spells and reduced output growth in that more rigid labor markets may well dampen hysteretic dynamics by sustaining aggregate demand thus making the economy more resilient

entry exit and diffusion with learning by doing early entry has the advantage of higher revenues per unit of output early on late entry has the benefit of learning from the experience of earlier entrants and hence lower production costs the advantages are balanced off in a continuous time perfect foresight equilibrium competition generates s shaped diffusion and staggered entry and exit a monopolist will innovate less than a competitive industry but the innovation that he does do he will do sooner copyright 1989 by american economic association

exchange rate fluctuations and stability in the oil market abstract this paper attempts to assess the impact of exchange rate fluctuations on the ability of opec to stabilize the oil market since oil prices are denominated in us dollars changes in the exchange rate parity influence the cost of imported oil of major european countries and japan which in turn influences the demand for oil and eventually demand for opec oil these variations become important factors for the stability of the market when opec output is at either maximum or minimum limits of the organization s production capacity

oil prices and exchange rates the quotations show a sharply divergent pattern in the response of the foreign exchange market to announcements of oil price increases during the first oil shock news about oil price rises led to a strengthening of the dollar whereas during the i979 surge of oil prices the reverse was generally true when the news was not so bad as feared the dollar fell back in i974 but rose in i979 in 1980 the pattern shifted once again back to dollar appreciation is there a rational fundamental explanation for the behaviour of the foreign exchange market or is it a matter of traders responding to what other traders arbitrarily think it is difficult to resolve this question but some insight can be provided through an analytical examination of the relationship between oil price increases and exchange rates the paper begins with a theoretical framework for analysing the relation between oil prices and exchange rates and then uses the theory to explain the behaviour of the foreign exchange market

how do crude oil prices co move a copula approach abstract this paper examines the dependence structure between crude oil benchmark prices using copulas by considering several copula models with different conditional dependence structures and time varying dependence parameters we find evidence of significant symmetric upper and lower tail dependence between crude oil prices these findings suggest that crude oil prices are linked with the same intensity during bull and bear markets thus supporting the hypothesis that the oil market is one great pool in contrast with the hypothesis that states that the oil market is regionalized our findings on crude oil price co movements also have implications for risk management hedging strategies and asset pricing

a revisit to the dependence structure between the stock and foreign exchange markets a dependence switching copula approach abstract this paper develops a dependence switching copula model to examine dependence and tail dependence for four different market statuses namely rising stocks appreciating currency falling stocks depreciating currency rising stocks depreciating currency and falling stocks appreciating currency the model is then applied to daily stock returns and exchange rate changes for six major industrial countries over the 1990 2010 period the dependence and tail dependence among the above four market statuses are asymmetric for most countries in the negative correlation regime but symmetric in the positive correlation regime these results enrich the findings in the existing literature and suggest that analyzing cross market linkages within a time invariant copula framework may not be appropriate

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

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

phillips curves and unemployment dynamics a critique and a holistic perspective the conventional wisdom that inflation and unemployment are unrelated in the long run implies that these phenomena can be analysed by separate branches of economics the macro literature tries to explain inflation dynamics and estimates the nairu the labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment we show that the orthodox view that the new keynesian phillips curve is vertical in the long run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate in the light of these results we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment

oil price movements and stock markets revisited a case of sector stock price indexes in the g 7 countries abstract applying sector stock prices and oil prices in 1991 01 2009 05 from the g7 countries we find oil price shocks do not significantly impact the composite index in each country however stock price changes in germany the uk and the us were found to lead oil price changes as for the interaction between oil price changes and sector stock price changes we find short run negative causal relationships 4 of 7 sector index returns were impacted by oil price changes in germany 2 in the us and 1 in france in particular stock returns of information technology and consumer staples sectors were found to be impacted most by oil price shocks followed by financial utilities and transportation sectors in terms of causality from sector stock price changes to oil price changes we find stock price changes lead oil price changes in 8 of 9 sectors in germany most in the g7 countries followed by the uk italy france canada and the us no such a causal relationship however is found for japan with respect to specific sectors stock price changes in consumer staples and materials sectors were impacted most significantly by oil price changes followed by transportation financial energy health care industrials utilities information technology and telecommunication sectors with the exception of consumer discretionary sector in addition short term stock price changes are found to lead positively oil price changes