unobservable shocks as carriers of contagion we propose an identified structural garch model to disentangle the dynamics of financial market crises we distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non crisis markets and the contagion imported to a tranquil domestic market from foreign crises the model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses to illustrate we apply the method to data from the 1997 1998 asian financial crisis which consists of a complicated set of interacting crises we find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken impulse response functions for an equally weighted equity portfolio show the increasing dominance of korean and hong kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects

on the risk spillover across the oil market stock market and the oil related cds sectors a volatility impulse response approach abstract compared to credit default swap cds literature this study focuses on the magnitude of volatility transmission and the risk spillover mechanism across the oil market financial market risks and the oil related cds sectors our dataset includes futures prices of west texas intermediate wti and seven different measures of markets and credit risks four of the vast risk measures are the oil related cdss for auto chemicals natural gas and utility sectors in addition three measures of the financial market risk the one month expected equity volatility measured by vix move and smove are included the daily dataset covers the period from 6 january 2004 to 2 february 2016 the volatility transmission mechanism across the oil and financial markets and cds sectors is examined using the volatility impulse response model we evaluate the risk transmission due to several recent crisis shocks around the world and the results show complicated transmission mechanisms that spread over long periods among these events the lehman brothers bankruptcy has destabilizing effects on all oil related sectors findings also show that all oil market related shocks have significant risk transmission effects

common persistence in conditional variances since the introduction of the autoregressive conditional heteroskedastic arch model in engle 1982 numerous applications of this modeling strategy have already appeared a common finding in many of these studies with high frequency financial or monetary data concerns the presence of an approximate unit root in the autoregressive polynomial in the univariate time series representation for the conditional second order moments of the process as in the so called integrated generalized arch igarch class of models proposed in engle and bollerslev 1986 in the igarch models shocks to the conditional variance are persistent in the sense that they remain important for forecasts of all horizons this idea is readily extended to a multivariate framework even though many time series may exhibit persistence in variance it is likely that several different variables share the same common long run component in that situation the variables are naturally defined to be co persistent in variance and the co persistent linear combination is interpretable as a long run relationship conditions for co persistence to occur in the multivariate linear garch model are presented these conditions parallel the conditions for linear co integration in the mean as developed by engle and granger 1987 the presence of co persistence has important implications for asset pricing relationships and in optimal portfolio allocation decisions an empirical example relating to the time series properties of nominal u s dollar exchange rates for the deutschemark and the british pound provides a simple illustration of the ideas

food aid pitfalls and potential abstract in this article the author asks if it is possible to use food aid so that it meets short run needs while supporting and not undermining the achievement of long term goals of self reliance at household and national level the pitfalls and possibilities to elucidate methods of achieving this are explored after looking at the specific effects on nutrition and incentives to local agriculture it is concluded that most objectives are better achieved by the use of cash rather than food aid

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

volatility transmission and volatility impulse response functions in european electricity forward markets using daily data from march 2001 to june 2005 we estimate a var bekk model and find evidence of return and volatility spillovers between the german the dutch and the british forward electricity markets we apply hafner and herwartz 2006 journal of international money and finance 25 719 740 volatility impulse response function virf to quantify the impact of shock on expected conditional volatility we observe that a shock has a high positive impact only if its size is large compared to the current level of volatility the impact of shocks are usually not persistent which may be an indication of market efficiency finally we estimate the density of the virf at different forecast horizon these fitted distributions are asymmetric and show that extreme events are possible even if their probability is low these results have interesting implications for market participants whose risk management policy is based on option prices which themselves depend on the volatility level

volatility impulse response functions for multivariate garch models an exchange rate illustration we introduce a new concept of impulse response functions tracing the effects of independent shocks on volatility through time while avoiding typical orthogonalization and ordering problems in an empirical study of a bivariate foreign exchange fx rate series we use volatility impulse response functions to discuss the effects of central bank decisions such as direct interventions in the fx market or open market activities on fx market volatility comparing our concept with conditional moment profiles introduced by gallant et al gallant a r rossi p e tauchen g 1993 nonlinear dynamic structures econometrica 61 871 907 we show that for shocks affecting fx rates in an asymmetric way the difference between the two methodologies and their interpretation can be substantial

impulse response function for conditional volatility in garch models this article defines and analyzes the impulse response function for conditional volatility in generalized autoregressive conditional heteroscedasticity garch models it first derives the function from a vector autoregressive and moving average representation of the garch models and obtains the corresponding standard errors from the first order derivatives of the function and the covariance matrix of the estimated parameters then this article employs a monte carlo study to assess the finite sample properties of the standard errors and provides an empirical example of the dependence of exchange rate volatility to demonstrate its use in empirical applications

alternative estimators for factor garch models a monte carlo comparison this paper proposes four estimators for factor garch models two stage univariate garch 2sue two stage quasi maximum likelihood 2sml quasi maximum likelihood with known factor weights rmle quasi maximum likelihood with unknown factor weights mle a monte carlo study is designed for bivariate one factor garch models to examine the finite sample properties results are presented for biases ratios of standard errors to standard deviations ratios of variances coverage of confidence intervals effects of misspecified factor weights and finite sample properties of the 2sue for factor garch in mean models

volatility transmission and volatility impulse response functions in crude oil markets abstract using daily data from july 2005 to february 2011 for wti dubai and brent futures contracts we employ a var bekk model to investigate crude oil markets integration on the second moment we also quantify the size and persistence of these connections through the analysis of volatility impulse response functions virf for two historical shocks namely the 2008 financial crisis and the bp deepwater horizon oil spill we observe that brent and dubai crude are highly responsive to market shocks whereas wti crude shows the least responsiveness of the three benchmarks which creates questions about its predominance as a benchmark crude oil furthermore we fit the density of the virf at different forecast horizons these fitted distributions are asymmetric showing that the probability of observing a large impact of a shock is lower while the probability of a relatively smaller impact is much higher finally we simulate the virf for a given probability of a random shock the virf shows that only a large shock derived from a smaller probability will result in an increase in expected conditional volatilities these results provide useful insights into the volatility transmission mechanism in crude oil markets and their associated risk estimation and may have significant implications for various market participants and regulators

employment in the british coal industry a test of the labour demand model the authors test the conventional model of labor demand against the alternative that bargaining takes place over both wages and employme nt for a time series cross section data set covering the british coal industry they note the difficulty of identifying the contract curve under the alternative hypothesis and suggest the use of variables affecting the union and management status quo points as instruments for the endogenous wage they find that outside variables such as benefits and manufacturing wages are important in determining the level of employment thus rejecting the labor demand model copyright 1988 by royal economic society

volatility spillover and multivariate volatility impulse response analysis of gfc news events abstractthis article applies two measures to assess spillovers across markets the diebold and yilmaz s 2012 spillover index and the hafner and herwartz s 2006 analysis of multivariate garch models using volatility impulse response analysis we use two sets of data daily realized volatility rv estimates taken from the oxford man rv library for the s p500 and the ftse plus 10 years of daily returns series for the new york stock exchange index and the ftse 100 index both data sets capture both the global financial crisis gfc and the subsequent european sovereign debt crisis esdc the spillover index captures the transmission of volatility to and from markets plus net spillovers the volatility impulse responses virf have to be calibrated to conditional volatility estimated at a particular point in time we explore the impact of three different shocks the onset of the gfc the height of the gfc and the impact of the esdc our modelling includes leverage and asymmetric effects applying a mu

intraday volatility in the stock index and stock index futures markets we examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets our results indicate a strong intermarket dependence in the volatility of the cash and futures returns price innovations that originate in either the stock or futures markets can predict the future volatility in the other market we show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken the findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index our results have implications for understanding the pattern of information flows between the two markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

famine in north korea causes and cures in this paper we start from incomplete data ridden with gross measurement errors to construct the underlying data base for a computable general equilibrium model cge of the north korean economy using cross entropy estimation techniques this model incorporates fragmentary information in a rigorous way and allows us to examine the implications of a number of alternative scenarios first we model a production oriented recovery program as the restoration of flood affected lands we then model an external assistance program as the acquisition of all food aid necessary to attain the united nations organizations estimates of minimum human needs the trade oriented recovery program is modeled as a relaxation of agricultural import quotas and the importation of food on commercial terms finally we model a systemic reform program as the elimination of quantitative restrictions on all external trade

cash versus direct food relief abstract the usual method of providing relief to a famine region is to import food and distribute it to the needy direct food relief if there are markets for food in the region however a relief agency could just as easily distribute money to the needy and let them purchase food in the market cash relief this alternative has been much discussed in the famine literature recently the purpose of this paper is to clarify the conditions under which cash relief will be more or less effective than direct food relief by analyzing the relative effectiveness of the two policies in a formal model

meteor showers or heat waves heteroskedastic intra daily volatility in the foreign exchange market this paper seeks to explain the causes of volatility clustering in exchange rates careful examination of intra daily exchange rates provides a test of two hypotheses heat waves and meteor showers the heat wave hypothesis is that the volatility has only country specific autocorrelation alternatively the meteor shower is a phenomenon of intra daily volatility spillovers from one market to the next using the garch model to specify the heteroskedasticity across intra daily market segments we find that the empirical evidence is generally against the null hypothesis of the heat wave using a volatility type of vector autoregression we examine the impact of news in one market on the time path of per hour volatility in other markets

stock returns and volatility most asset pricing models postulate a positive relationship between a stock portfolio s expected returns and risk which is often modeled by the variance of the asset price this paper uses garch in mean models to examine the relationship between mean returns on a stock portfolio and its conditional variance or standard deviation after estimating a variety of models from daily and monthly portfolio return data we conclude that any relationship between mean returns and own variance or standard deviation is weak the results suggest that investors consider some other risk measure to be more important than the variance of portfolio returns

steady state unemployment under profit sharing this paper demonstrates how asymmetric treatment of high seniority insider workers and non tenured outsiders gives rise to bad macroeconomic st eady states in a wage economy the framework uses a nash bargaining solution where workers may bargain over pay but firms control hiring profit sharing is then considered as an alternative payment mechanism having the automatically corrective incentive property that employers want to hire more outsiders given the assumptions of the model it is shown that widespread profit sharing results in lower unemployment and more output even though it is individually rational for insiders to prefer wages over profit shares copyright 1987 by royal economic society

flexible exchange rates a closer look abstract the stochastic properties of flexible exchange rates are investigated by looking at a sample of intradaily sfr quotes for 231 trading days in 1983 estimated moments of the distribution of returns over five minute intervals often exhibit large changes which are mostly unpredictable even from one day to the next autocorrelation in returns is generally absent even inside a given day specific days of the week do not exhibit any special characteristics during a single day both relative changes in exchange rates as well as their volatility show some distinct patterns

rigorous speculation the collapse and revival of the north korean economy abstract in this paper we use cross entropy estimation techniques to construct the underlying data base for a computable general equilibrium model cge of the north korean economy starting from incomplete data ridden with gross measurement errors the cross entropy estimation approach is powerful and flexible allowing us to make full use of what information we have in whatever form cge modeling forces internal consistency the end product is a model that incorporates fragmentary information in a rigorous way and allows us to examine the implications of a number of alternative scenarios including rehabilitation of flood affected lands liberalization of the international trade regime and military demobilization north korea has been experiencing a famine its economy is characterized by systemic distortions and comparative disadvantage in the production of grains as a consequence the potential payoffs to economy wide reforms even defined narrowly in terms of domestic food availability dwarf more targeted attempts to raise agricultural productivity to many this finding that a famine might be better addressed by the export of manufactures than the recovery of flood damaged lands is a striking and counterintuitive result moreover we find that if reforms were to be undertaken the country could generate a significant additional peace dividend by partially demobilizing its enormous military

intra day and inter market volatility in foreign exchange rates four foreign exchange spot rate series recorded on an hourly basis for a six month period in 1986 are examined a seasonal garch model is developed to describe the time dependent volatility apparent in the percentage nominal return of each currency hourly patterns in volatility are found to be remarkably similar across currencies and appear to be related to the opening and closing of the worlds major markets robust lm tests designed to deal with the extreme leptokurtosis in the data fails to uncover any evidence of misspecification or the presence of volatility spillover effects between the currencies or across markets

are efficient contracts on the labour demand curve abstract this note introduces a dynamic element into recent models of wage determination in unionized firms this element is the probability of promotion to a higher rank a non zero probability of promotion generates interesting results in particular one can show that there exists a substantial range of employment growth where the distinction between labour demand and contract curve is meaningful even if the median union voter has a survival probability equal to one

conditional variance and the risk premium in the foreign exchange market abstract we investigate the existence of a risk premium in the foreign exchange market based on the conditional variance of market forecast errors the forecast errors are assumed to follow the arch process introduced by engle 1982 estimation and diagnostic testing of the model are discussed and results are presented for the currencies of the united kingdom france germany japan and switzerland