asset prices credit and the business cycle abstract this paper uses the multivariate unobserved components model with phase shifts to analyse the interaction of interest rates output asset prices and credit in the us we find close linkages amongst cyclical fluctuations in the variables

birth order schooling and earnings birth order effects are posited by many to affect earnings and schooling we show how such effects can be interpreted to shift either the earnings possibility frontier for siblings or parental preferences we find empirical evidence for birth order effects on age adjusted schooling and on earnings for young u s adults though the latter is not robust for all specifications the examination of intrahousehold allocations suggests that these birth order differences occur despite parental preferences or prices by birth order favoring later borns apparently because of stronger endowment effects that favor firstborns

sex and earnings in industrial society a nine nation comparison a substantial difference in average earnings between men and women employed full time is documented for each of nine industrial nations and several hypothesized explanations for the earnings gap are explored a human capital hypothesis women earn less because they have less education and experience a dual career hypothesis women earn less because they adjust their work behavior to meet the demands of family obligations and an occupational segregation hypothesis women earn less because they are concentrated in lowlevel jobs none of these hypotheses receives much support in any country leaving open the possibility that the earnings differences are due to deeply entrenched institutional arrangements that limit women s opportunities and achievements

does increasing women s schooling raise the schooling of the next generation the positive cross sectional relationship between the schooling of mothers and their children is substantially biased upward due to correlations between schooling and heritable ability as well as assortative mating an increase in the schooling of women would not have beneficial effects in terms of the schooling of children increased maternal schooling leads to reduced home time for mothers anticipating the consequences of investing in women s schooling requires attention to the role that schooling plays in the marriage market as well as to opportunities in the labor market for women

roughing it up including jump components in the measurement modeling and forecasting of return volatility a rapidly growing literature has documented important improvements in financial return volatility measurement and forecasting via use of realized variation measures constructed from high frequency returns coupled with simple modeling procedures building on recent theoretical results in barndorff nielsen and shephard 2004a 2005 for related bi power variation measures the present paper provides a practical and robust framework for non parametrically measuring the jump component in asset return volatility in an application to the dm exchange rate the s p500 market index and the 30 year u s treasury bond yield we find that jumps are both highly prevalent and distinctly less persistent than the continuous sample path variation process moreover many jumps appear directly associated with specific macroeconomic news announcements separating jump from non jump movements in a simple but sophisticated volatility forecasting model we find that almost all of the predictability in daily weekly and monthly return volatilities comes from the non jump component our results thus set the stage for a number of interesting future econometric developments and important financial applications by separately modeling forecasting and pricing the continuous and jump components of the total return variation process

semi parametric comparison of stochastic volatility models using realized measures this paper proposes a procedure to test for the correct specification of the functional form of the volatility process within the class of eigenfunction stochastic volatility models the procedure is based on the comparison of the moments of realized volatility measures with the corresponding ones of integrated volatility implied by the model under the null hypothesis we first provide primitive conditions on the measu rement error associated with the realized measure which allow to construct asymptotically valid specification tests then we establish regularity conditions under which the considered realized measures namely realized volatility bipower variation and modified subsampled realized volatility satisfy the given primitive assumptions finally we provide an empirical illustration based on thr ee stocks from the dow jones industrial average 2006 the review of economic studies limited

birth order family size and achievement family structure and wage determination do birth order and the size of one s childhood family influence environment thereby potentially affecting future achievement this article investigates the hypothesis that they do presenting two major empirical findings first neither birth order nor childhood family size significantly influences the level or growth rate of wages a result that is consistent with previous research second family size is both a statistically and economically significant determinant of women s employment status women from small families work less than women from large families when they are young and more than women from large families when they are more mature

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

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

testing macroprudential stress tests the risk of regulatory risk weights we compare the capital shortfall measured by regulatory stress tests to that o fa benchmark methodology the v lab stress test that employs only publicly available market data we find that when capital shortfalls are measured relative to risk weighted assets the ranking of financial institutions is not well correlated to the ranking of the v lab stress test whereas rank correlations increase when required capitalization is a function of total assets we show that the risk measures used in risk weighted assets are cross sectionally uncorrelated with market measures of risk as they do not account for the risk that risk will change furthermore the banks that appeared to be best capitalized relative to risk weighted assets were no better than the rest when the european economy deteriorated into the sovereign debt crisis in 2011

saving taxes through foreign plant ownership this paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership we employ a model of endogenous foreign subsidiary ownership to derive a set of empirically testable hypotheses about the differential taxation of foreign and domestically owned subsidiaries we assess these hypotheses in a data set of 33 577 european foreign and domestically owned manufacturing plants we identify a significant tax saving of endogenous foreign owner ship on average foreign owners pay 594 euros per employee or about 56 percent less than domestic owners of similar subsidiaries this effect is larger in thinner markets with fewer plants in markets with a greater relative presence of foreign owners and for foreign owners of larger plants

risk financial stability and fdi all foreign direct investment fdi involves risk augmenting the international finance literature we assess the effects of financial system risk on fdi trends through considering both origin and host country effects motivated by the sovereign debt crisis and based on a dataset including bilateral fdi holdings this paper investigates the implications of sovereign and bank related risk on fdi in the eurozone strikingly we find that in terms of banking risk it is only that encountered in the country of origin that has an impact on fdi choices however we find that sovereign risk in both origin and host countries have effects as a corollary we suggest that although poor financial discipline by host governments has been widely blamed as the primary factor likely to frighten off overseas investors it is amongst fdi supplying nations that the effects of sovereign yields seem most pronounced policymakers in countries seeking to attract fdi should not only be attentive to domestic conditions but also be aware of the financing environment that multinational enterprises mnes encounter in their home countries and how this might impact on their choices

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

the effect of sibship size on educational attainment in china period variations in industrialized nations sibship size generally depresses educational attainment the larger the number of siblings the lower the educational attainment presumably because of the reduction of family resources both material and intellectual available to each child however this association is much less consistent in developing nations and there is some evidence of substantial change over time in this paper we study the effect of number of siblings on educational attainment in china a nation that has experienced sharp vacillations between policies designed to promote equality between urban and rural residents and between men and women and policies designed to promote economic development the implementation of these policies in the educational arena has alternately reduced and increased competition for educational resources and we show has correspondingly reduced and increased the effect of the number of children in a family on their educational attainment

sovereign bond yield spreads a time varying coefficient approach abstract we study the determinants of sovereign bond yield spreads across 10 emu countries between q1 1999 and q1 2010 we apply a semiparametric time varying coefficient model to identify to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing we find that at the beginning of emu the government debt level and the general investors risk aversion had a significant impact on interest differentials in the subsequent years however financial markets paid less attention to the fiscal position of a country and the safe haven status of germany diminished in importance by the end of 2006 two years before the fall of lehman brothers financial markets began to grant germany safe haven status again one year later when financial turmoil began the market reaction to fiscal loosening increased considerably the altering in risk pricing over time period confirms the need of time varying coefficient models in this context

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

infrastructure endowment and corporate income taxes as determinants of foreign direct investment in central and eastern european countries this paper analyses the importance of taxes on corporate income and production related tangible infrastructure as determinants of foreign direct investment fdi in central and eastern european countries ceecs we operationalise taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment in the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of fdi an issue usually neglected in the literature specifically a favourable infrastructure endowment may compensate for relatively high taxes hence higher taxes may not deter fdi the results from our panel econometric analysis of bilateral outward fdi flows of seven home countries in eight ceecs for the 1995 2004 period in an augmented gravity model setting show that i both taxes and infrastructure play a role in the location decisions made by multinational enterprises ii telecommunication and transport infrastructure are of special significance to fdi and iii the tax rate sensitivity of fdi indeed decreases with the level of infrastructure endowment copyright 2009 the authors journal compilation 2009 blackwell publishing ltd

the external wealth of nations measures of foreign assets and liabilities for industrial and developing countries abstract although capital flows are closely monitored surprisingly little is known about the accumulated stocks of foreign assets and liabilities held by various countries especially in the developing world this paper constructs estimates of foreign assets and liabilities and their equity and debt subcomponents for a sample of 67 industrial and developing countries it characterizes the stylized facts of international balance sheets and asks whether there are trends in net foreign asset positions and shifts in debt equity ratios over time finally it explores the sensitivity of estimated stock positions to the treatment of valuation effects not captured in balance of payments data

the more the merrier the effect of family size and birth order on children s education there is an extensive theoretical literature that postulates a tradeoff between child quantity and quality within a family however there is little causal evidence that speaks to this theory using a rich dataset on the entire population of norway over an extended period of time we examine the effects of family size and birth order on the educational attainment of children while we find a negative correlation between family size and children s education when we include indicators for birth order and or use twin births as an instrument family size effects become negligible in addition birth order has a significant and large negative effect on children s education we also study adult earnings employment and teenage childbearing and find strong evidence for birth order effects with these outcomes particularly among women these findings suggest the need to revisit economic models of fertility and child production focusing not only on differences across families but differences within families as well

measuring bilateral spillover and testing contagion on sovereign bond markets in europe abstract the global financial crisis rapidly spread across borders and financial markets and also distressed eu bond markets the crisis did not hit all markets in the same way we measure the strength and direction of linkages between 16 eu sovereign bond markets using a factor augmented version of the var model in diebold and yilmaz 2009 we then provide a novel test for contagion by applying the multivariate structural break test of qu and perron 2007 on this favar detecting significant sudden changes in shock transmission results indicate substantial spillover especially between emu countries with belgium italy and spain being key markets during the financial crisis contagion has been a rather rare phenomenon limited to a few well defined moments of uncertainty on financial assistance packages for greece ireland and portugal most of the frequent surges in market co movement are driven by larger shocks rather than by contagion

moment based estimation of stochastic volatility abstract this paper makes use of the distributional information contained in high frequency data to test for the specification of the functional form of the volatility process within the class of stochastic volatility models it s calculus is implemented in order to obtain the first and second conditional moment of the driving stochastic differential equation for the volatility process these analytical expressions are augmented by their lag and lag squared and are used to form the corresponding gmm estimator the base case stochastic volatility model is extended to allow for the leverage effect and jumps in returns empirical estimation confirms the presence of fast mean reversion in volatility and jumps in returns for the 5 min s p 500 stock market index further estimation results also seem to indicate the presence of jumps in the volatility process that are correlated to the jumps in returns

double tax discrimination to attract fdi and fight profit shifting the role of cfc rules abstract governments worldwide use targeted tax policies to trade off the gains from increased fdi against the cost of excessive profit shifting by multinational firms we show that nationally optimal tax systems generally incorporate both thin capitalization rules which tax discriminate between purely national and multinational firms and controlled foreign company cfc rules which discriminate between home based and foreign based multinationals in the non cooperative policy equilibrium both thin capitalization rules and cfc rules are set more lenient than if tax policies were chosen cooperatively implying an excessive tax discrimination in favor of multinationals we also analyze the effects of reduced transaction costs for fdi and reduced costs for debt shifting on the optimal policy mix our results correspond to the observed developments of anti avoidance rules in oecd countries

bank sovereign risk spillovers in the european debt crisis this paper investigates contagion between bank risk and sovereign risk in europe over the period 2006 2011 since this period covers various stages of the banking and sovereign crisis it oers a fertile ground to analyze bank sovereign risk spillovers we de ne contagion as excess correlation i e correlation between banks and sovereigns over and above what is explained by common factors using cds spreads at the bank and at the sovereign level moreover we investigate the determinants of contagion by analyzing bank speci c as well as country speci c variables and their interaction we provide empirical evidence that various contagion channels are at work including a strong home bias in bank bond portfolios using the eba s disclosure of sovereign exposures of banks we nd that banks with a weak capital and or funding position are particularly vulnerable to risk spillovers at the country level the debt ratio is the most important driver of contagion

the trade off between child quantity and quality an empirical investigation of trade offs between number of children and their scholastic performance confirms that family size directly affects children s achievement though parents show no favori

whatever it takes to resolve the european sovereign debt crisis bond pricing regime switches and monetary policy effects this paper investigates the role of unconventional monetary policy as a source of time variation in the relationship between sovereign bond yield spreads and their fundamental determinants we use a two step empirical approach first we apply a time varying parameter panel modelling framework to determine shifts in the pricing regime characterising sovereign bond markets in the euro area over the period january 1999 to july 2016 second we estimate the impact of ecb policy interventions on the time varying risk factor sensitivities of spreads our results provide evidence of a new bond pricing regime following the announcement of the outright monetary transactions omt programme in august 2012 this regime is characterised by a weakened link between spreads and fundamentals but with higher spreads relative to the pre crisis period and residual redenomination risk we also find that unconventional monetary policy measures affect the pricing of sovereign risk not only directly but also indirectly through changes in banking risk overall the actions of the ecb have operated as catalysts for reversing the dynamics of the european sovereign debt crisis

the statistical and economic role of jumps in continuous time interest rate models this paper analyzes the role of jumps in continuous time short rate models i first develop a test to detect jump induced misspecification and using treasury bill rates find evidence for the presence of jumps second i specify and estimate a nonparametric jump diffusion model results indicate that jumps play an important statistical role estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps finally i investigate the pricing implications of jumps jumps generally have a minor impact on yields but they are important for pricing interest rate options