an assessment of labour s record on income inequality and poverty we document the evolution of average incomes poverty and inequality over the period of labour government from 1997 to 2010 comparing these trends with those seen over other periods in recent history we also relate these changes to labour s stated distributional objectives which we argue were clear in relation to the bottom of the income distribution and absolutely explicit in relation to child poverty but much less clear in relation to inequality more generally it is thus perhaps no surprise that we observe substantial falls in child and pensioner poverty alongside increases in overall income inequality with the latter largely driven by growth in top incomes we also use micro simulation techniques to demonstrate the crucial importance of direct tax and benefit reforms in driving the changes observed over this period copyright 2013 oxford university press

simulating stock returns under switching regimes a new test of market efficiency a model of profits switches between four regimes with fixed probabilities the rationally expected profits stream implies the stock market value this efficient market model is not rejected by uk post war time series behaviour of either profits or the ftse index

business cycle theory and econometrics we outline in turn criticisms made by econometricians of the methods used in empirical business cycle research and then criticisms made by business cycle researchers of some methods used by econometricians the aim is to clarify and in some cases correct thesecriticisms overall there is no conflict in using rigourous statistical procedures to study modern dynamic stochastic general equilibrium models we also provide a concise bibliographyof recent research on statistical methods for business cycle models

solving asset pricing models when the price dividend function is analytic we present a new method for solving asset pricing models which yields an analytic price dividend function of one state variable to illustrate our method we give a detailed analysis of abel s asset pricing model a function is analytic in an open interval if it can be represented as a convergent power series near every point of that interval in addition to allowing us to solve for the exact equilibrium price dividend function the analyticity property also lets us assess the accuracy of any numerical solution procedure used in the asset pricing literature

can a well fitted equilibrium asset pricing model produce mean reversion in recent papers cecchetti et al 1990 and kandel and stambaugh 1990 showed that negative serial correlation in long horizon returns was consistent with an equilibrium model of asset pricing in this paper we show that their results rely on misspecified markov switching models for the endowment process once the proper markov specification is chosen for the endowment process the model does not produce mean reversion of the magnitude detected in the data furthermore the small amount of mean reversion produced by the model is due only to small sample bias we also show that this model is unable to predict negative excess returns contrary to empirical evidence

common marketing agency as a device for facilitating collusion in a variety of markets firms voluntarily and independently delegate control over certain aspects of marketing to common agents in this article we present an explicit model of agency delegation where firms noncooperatively select agents name output prices and choose compensation schemes we exhibit an equilibrium in which all strategic variables not merely the marketing choices delegated to agents but prices as well are selected perfectly cooperatively this cooperative equilibrium is very simple and attractive each firm sets the collusive output price and employs a commission scheme to compensate the agent although each

the econometrics of the general equilibrium approach to business cycles early in this century american institutionists and members of the german historical school attacked and rightfully so neoclassical economic theory for not being quantitative this deficiency bothered ragnar frisch and motivated him along with irving fisher joseph schumpeter and others to organize the econometric society in 1930 the aim of the society was to foster the development of quantitative economic theory that is the development of what frisch labeled econometrics soon after its inception the society started the journal econometrica frisch was the journal s first editor and served in this capacity for twenty five years

using regional variation in wages to measure the effects of the federal minimum wage the imposition of a national minimum wage standard provides a natural experiment in which the treatment effect varies across states depending on the fraction of workers initially earning less than the new minimum the author exploits this fact to evaluate the effect of the april 1990 increase in the federal minimum wage on teenagers wages employment and school enrollment comparisons of grouped and individual state data confirm that the rise in the minimum wage increased teenagers wages there is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment

mean reversion in g 10 nominal exchange rates according to conventional wisdom industrial country floating exchange rates contain unit roots sur tests on panels of monthly group of ten g 10 log nominal rates reject the null of unit roots for various samples over the current float with significance levels from 0 5 to 15 on average in out of sample forecasts mean reversion models beat random walks significantly in some forecast periods for monthly data the range of expected usd dem appreciation rates exceeds 15 per year in the mean reversion model mean reversion places strong restrictions on international models over the sample period the g 10 had to run monetary policies consistent with stable long run nominal rates

measuring business cycles a modern perspective in the first half of this century special attention was given to two features of the business cycle 1 the comovement of many individual economic series and 2 the different behavior of the economy during expansions and contractions both of these attributes were ignored in many subsequent business cycle models which were often linear representations of a single macroeconomic aggregate however recent theoretical and empirical research has revived interest in each attribute separately notably dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables and nonlinear models have been used to describe the regime switching nature of aggregate output we survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business cycle dynamics

decentralization hierarchies and incentives a mechanism design perspective separation of ownership from management multidivisional firm organizations delegation of production decisions to worker teams delegation of pricing and advertising decisions to retail franchisers reliance on intermediaries in trade or finance and distribution of regulatory authority across different agencies represent examples of organizations that delegate and distribute decision making authority instead of centralizing it this paper reviews literature on costs and benefits of delegated decision making in hierarchical organizations or contracting networks with regard to problems of incentives and coordination it starts by describing incentive and coordination costs of delegation in simple canonical examples of hierarchies where both information and incentives of different decisionmakers differ one class of models pertain to contexts where the classical revelation principle applies i e where costs of contractual complexity information processing or communication are absent agents do not collude and the mechanism designer can commit to the mechanism delegation may conceivably entail a loss of control and coordination arising from the divergence of information and incentives sufficient and necessary conditions for this loss to be mitigated entirely include risk neutrality top down contracting and monitoring of transfers or production assignments between subordinates the next class of models introduces communication costs that restrict the performance of centralized arrangements relative to delegation owing to a resulting loss of flexibility which has to be traded off against possible control losses of delegation finally consequences of collusion among agents is discussed which typically enlarge the range of circumstances under which delegation can attain optimal second best outcomes the paper concludes with a discussion of the relevance of this theoretical literature to recently emerging empirical studies of industrial organizations where delegated decision making plays an important role adoption of innovative human resource management practices new information technologies and retail franchising

price determination for a collectible good the case of rare united states coins researchers investigating markets for collectible goods such as paintings 1 2 6 12 antique furniture 7 stradivarius violins 14 wine 8 10 and postage stamps 15 often report rates of return to holding collectibles that are both low 2 6 7 8 12 and volatile 6 7 8 12 baumol 2 argues that the market for paintings of noted deceased artists has no long run equilibrium price because the market is characterized by infrequent trades of unique assets which are available in fixed supply his empirical analysis supports the idea that paintings experience unpredictable price changes and highly dispersed rates of return with a mean near zero in contrast anderson 1 reports estimated equations explaining approximately 60 percent of the variation in log prices of paintings based on the size of painting date of sale and a constructed measure of repute of the artist other researchers have examined markets with more frequent transactions and greater substitutability among the goods traded schnitzel 15 finds that year to year changes in prices of postage stamps are predictable based on age of the stamp and quantity printed ross and zondervan 14 report that variations in quality affect prices but not rates of return of stradivarius violins a result which is consistent with user benefits being invariant with respect to quality among markets for collectibles the market for rare u s coins is active and well organized and faces the potential for increased federal regulation annual sales are estimated at 5 billion 16 two wall street brokerages recently have formed multimillion dollar limited partnerships to invest in rare coins and some coins now are traded on electronic exchanges 5 these innovations have come amid calls for increased regulation to guard against fraudulent grading of coins 5 16 a major determinant of the price of a collectible coin is its grade a measure of condition reflecting qualities such as sharpness of features regulators accuse coin dealers of defrauding collectors of millions of dollars annually by assigning higher than warranted grades to the coins dealers sell while downgrading coins they buy for example the federal trade commission ftc

trading between agents for a better match this paper studies externalities that arise when agents can trade outcomes ex post i show that when agents can trade outcomes ex post principals are incentivized to contract with agents ex ante to reduce ex post transfers to outside agents with whom the principals do not directly contract this causes principals to offer agents piece rates that are inefficiently low and lower than the piece rates they would offer if trading was not allowed although trading reduces an agent s effort and could increase the agent s outside option of rejecting a principal s ex ante contract principals ultimately gain from allowing ex post trading because such trading results in outcomes that better match their tastes

likelihood ratio based tests for markov regime switching markov regime switching models are widely considered in economics and nance although there have been persistent interests see e g hansen 1992 garcia 1998 and cho and white 2007 the asymptotic distributions of likelihood ratio based tests have remained unknown this paper considers such tests and establishes their asymptotic distributions in the context of nonlinear models allowing for multiple switching parameters the analysis simultaneously addresses three di culties i some nuisance parameters are unidenti ed under the null hypothesis ii the null hypothesis yields a local optimum and iii the conditional regime probabilities follow stochastic processes that can only be represented recursively addressing these issues permits substantial power gains in empirically relevant situations besides obtaining the tests asymptotic distributions this paper also obtains four sets of results that can be of independent interest 1 a characterization of conditional regime probabilities and their high order derivatives with respect to the model s parameters 2 a high order approximation to the log likelihood ratio permitting multiple switching parameters 3 a re nement to the asymptotic distribution and 4 a uni ed algorithm for simulating the critical values for models that are linear under the null hypothesis the elements needed for the algorithm can all be computed analytically the above results also shed light on why some bootstrap procedures can be inconsistent and why standard information criteria such as the bayesian information criterion bic can be sensitive to the hypothesis and the model s structure when applied to the us quarterly real gdp growth rates the methods suggest fairly strong evidence favoring the regime switching speci cation consistently over a range of sample periods

testing the unbiased forward exchange rate hypothesis using a markov switching model and instrumental variables this paper develops a model for the forward and spot exchange rate which allows for the presence of a markov switching risk premium in the forward market and considers the issue of testing the unbiased forward exchange rate ufer hypothesis using us uk data it is shown that the ufer hypothesis cannot be rejected provided that instrumental variables are used to account for within regime correlation between explanatory variables and disturbances in the markov switching model on which the test is based copyright 2005 john wiley sons ltd

endogenous trading volume and momentum in stock return volatility this article examines the ability of volume data to shed light on the source of persistence in stock return volatility a mixture model in which a latent common factor restricts the joint density of volume and returns is used to relax the assumption of exogenous volume used in previous studies we use a point in time signal extraction procedure to identify this latent process and a calibrated simulation to conduct analysis of the viability of the model to explain important properties of the data using daily returns and volume on individual stocks our procedure cannot accommodate serial dependence in squared returns

the reaction of stock returns to news about fundamentals in good times stock prices react negatively to good news and positively to bad news whereas in bad times they react positively to good news and negatively to bad news to account for this stylized fact we consider an asset pricing model where the dividend growth rate switches between different values depending on the underlying state of the economy investors never observe the true dividend growth rate but learn about it through not only its realizations but also external signals such as macroeconomic indicators under plausible assumptions the differing precision of external signals across different states of the economy can change the sign of the market reaction to news from external signals in good and bad times this paper was accepted by brad barber finance

gender inequalities in regional development perrons d 1995 gender inequalities in regional development reg studies 29 465 476 gender inequality is a universal phenomenon but there are cross national and regional variations in its extent different degrees of gender inequality in employment in the european union are identified and explained in terms of a synthesis of ideas drawn from the literature on welfare regimes and regulation theory the structure and degree of involvement of women in paid employment also varies within and between regions and these regional variations in gender inequality require further explanation a number of approaches drawing on historical explanations gender contracts and forms and degrees of patriarchy are examined although these approaches reject the idea of economic determinism the evolution of the regional economic structures especially in relation to gender inequality in employment seems to play an important role recently there has been a widening of regional inequalities in the uk associated with the dev

minimum wage impacts on han minority workers wage distribution and inequality in urban china abstract this paper examines the distributional impacts of the minimum wage on the urban wages of han minority workers and the implications for urban inequality county level minimum wage data is combined with recent proprietary household survey data representative of china s ethnically diverse areas the identification strategy relies on an unconditional quantile regression framework that takes into account policy endogeneity using an instrument variable approach the findings show that minimum wages lead to wage compression along the bottom and middle parts of the urban wage distribution the minimum wage effects are larger for lower skilled workers located in ethnic minority counties or that belong to an ethnic minority group counterfactual analysis further shows that minimum wages help to significantly reduce aggregate urban wage inequality increasing minimum wages from a counterfactual benchmark to their observed levels an average increase of 26 reduces the gini coefficient of wages by 10 12

comparing the new earnings survey nes and the labour force survey lfs an analysis of the differences between the data sets and their implications for the pattern of geographical pay in the uk ma a roberts e elliott r f bell d and scott a 2006 comparing the new earnings survey nes and the labour force survey lfs an analysis of the differences between the data sets and their implications for the pattern of geographical pay in the uk regional studies 40 645 665 the labour force survey lfs and the new earnings survey nes are the most widely used data sets for analysing pay in britain the paper details the key differences between the two and assesses the impact of their use for studying geographical wage differences the pattern observed is sensitive to the differences in data sets to differences in the sample populations the questions asked about pay and working hours and how hourly pay is measured recommendations are made on which data set should be used for what purposes as well as comments on the expected improvements that will result from the introduction of the annual survey of hours and earnings ashe ma a roberts e elliott r f bell d et scott a 2006

option pricing with mean reversion and stochastic volatility many underlying assets of option contracts such as currencies commodities energy temperature and even some stocks exhibit both mean reversion and stochastic volatility this paper investigates the valuation of options when the underlying asset follows a mean reverting lognormal process with stochastic volatility a closed form solution is derived for european options by means of fourier transform the proposed model allows the option pricing formula to capture both the term structure of futures prices and the market implied volatility smile within a unified framework a bivariate trinomial lattice approach is introduced to value path dependent options with the proposed model numerical examples using european options american options and barrier options demonstrate the use of the model and the quality of the numerical scheme

the effect of mean reversion on investment under uncertainty abstract mean reverting processes are appropriate for most real option investment models yet geometric brownian motion gbm processes are generally used for tractability hassett and metcalf j econom dyn control 19 1995 1471 1488 argue that using a gbm process is justified because mean reversion has two opposing effects it brings the investment trigger closer and also reduces the conditional volatility thereby lowering the likelihood of reaching the trigger and the overall effect on investment should be negligible for most reasonable parameter values this paper extends the hassett and metcalf model by incorporating a third factor the effect of mean reversion on systematic risk the main result is that mean reversion in general does have a significant impact on investment moreover this effect could be either positive or negative depending on various factors such as project duration cost of investing interest rate etc thus it is generally inappropriate to use the gbm process to approximate a mean reverting process

a joint analysis of market indexes in credit default swap volatility and stock markets abstractthis paper analyses the joint dynamics of the cds volatility and stock markets using both var and markov regime switching var models with market index data it shows that the joint behaviour of the three markets is better characterized by the markov model with two regimes corresponding to low and high volatile market conditions the relationship between changes in the market indexes under a regime is consistent with theory and persistent the information transmission process of shocks to the markets is similar for the two regimes with a more important role for cds shock and the volatility in the money market is an important determinant of regime switching the findings have practical implications particularly for hedging strategies with market indexes under different market conditions

on the fluctuations in consumption and market returns in the presence of labor and human capital an equilibrium analysis abstract we examine the effects of human capital on consumption stock market and other fluctuations in a general equilibrium continuous time model a representative consumer worker investor derives utility from consumption and leisure a representative firm demands labor as the sole input to a stochastic production technology driven by general possibly nonmultiplicative shocks for cobb douglas utility and multiplicative shocks labor is nonstochastic and consumption and stock market volatility are equated as under no human capital deviations from this are analyzed for logarithmic utility and constant elasticity of substitution production technology cases are identified where the presence of labor causes consumption to be smoother than the stock market

intrinsic bubbles and regime switching abstract froot and obstfeld 1991 allow for an intrinsic bubble in stock prices using approximately a century of annual data for the us in an attempt to model the widely documented deviations from the prices predicted by present values or fundamentals however they assume that the log of real dividends follows a constant random walk with drift over the whole period we show that this assumption is invalid and that a markov switching model is a more appropriate representation of dividends we then generalise the formulation of stock prices including the intrinsic bubble to allow for this and show that regime switching provides a better explanation for stock prices than the bubble we show that when allowance is made both for the bubble and for regime switching in the dividend process the incremental explanatory contribution of the bubble is low

nonlinear dynamical model of regime switching between conventions and business cycles abstract we introduce and study a non equilibrium continuous time dynamical model of the price of a single asset traded by a population of heterogeneous interacting agents in the presence of uncertainty and regulatory constraints the model takes into account i the price formation delay between decision and investment by the second order nature of the dynamical equations ii the linear and nonlinear mean reversal or their contrarian in the form of speculative price trading iii market friction iv uncertainty in the fundamental value that controls the amplitude of mispricing v nonlinear speculative momentum effects and vi market regulations that may limit large mispricing drifts we find markets with coexisting equilibrium conventions and business cycles that depend on a the relative strength of value investing versus momentum investing b the level of uncertainty on the fundamental value and c the degree of market regulation the stochastic dynamics is characterized by nonlinear geometric random walk like processes with spontaneous regime shifts between different conventions or business cycles this model provides a natural dynamical framework to model regime shifts between different market phases that may result from the interplay between the effects i vi

are stock returns predictable a test using markov chains this paper uses a markov chain model to test the random walk hypothesis of stock prices given a time series of returns a markov chain is defined by letting one state represent high returns and the other represent low returns the random walk hypothesis restricts the transition probabilities of the markov chain to be equal irrespective of the prior years annual real returns are shown to exhibit significant nonrandom walk behavior in the sense that low high returns tend to follow runs of high low returns in the postwar period

dividend variability and stock market swings this paper examines the extent to which swings in stock prices can be related to variations in the discounted value of expected future dividends when investors face uncertainty about their future behaviour i develop an econometric model that accounts for the instability of u s dividend growth and discount rates during the past 120 years estimates of the model reveal that changing forecasts of future dividend growth account for more than 90 of the predictable variations in dividend prices the estimates also imply that instability in the dividend and discount rate processes contribute significantly to the predictability of long horizon stock returns

consumption asset pricing with stable shocks exploring a solution and its implications for mean equity returns abstract we study the consumption based asset pricing model due to lucas econometrica 46 1978 1429 the exogenous endowment sequence is modeled as a linear stochastic process driven by stable shocks in an otherwise standard framework the gaussian process emerges as a special case we derive exact analytical solutions for asset prices and returns and provide conditions under which these exist we also study the ability of the model to generate realistic values of observed mean rates of return

testing the term structure of interest rates using a stationary vector autoregression with regime switching abstract the expectations model of the term structure for us data on three and six month treasury bills for the period 1962 1 1987 3 is explored the analysis allows for the nonstationarity of the data and for unobserved stochastic switches of regime by estimating vars in the yield spread and the change in the three month rate which allow the time series processes to change between regimes in contrast to other results for the expectations model such as those of hamilton 1988 mankiw and miron 1986 and others we find that the data do not reject the model

learning regime switches and equilibrium asset pricing dynamics abstract we examine the autocorrelation properties of equilibrium returns when the growth rate of dividends consumption or gnp follows a markov switching process in contrast to earlier studies we assume that the agent learns the current growth state using observed dividends and bayes rule for the model with switching in the mean growth rate we find that learning significantly alters the pattern of returns often generating positive rather than negative autocorrelation for the model calibrated to gnp with switching in the variance of the growth rate we show that learning induces negative autocorrelation

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

principals competing for an agent in the presence of adverse selection and moral hazard abstract this paper analyzes competition between two principals for the exclusive services of an agent of unknown ability the principals differ in their marginal and average valuations for the agent s input they compete by offering menus of incentive contracts a prominent feature of the equilibrium when neither principal fully dominates is that they both offer identical pooling contracts to an interval of intermediate ability types all these types supply a constant input level receive the same monetary rewards and yield zero profits to the principals in addition the effort of low ability types is greater than the efficient level and welfare may be lower than if there was only one principal journal of economic literature classification numbers d82 c72

spotting sunspots some evidence in support of models with self fulfilling prophecies abstract this paper adds financial assests to roger farmer s business cycle model with increasing returns and self fulfilling beliefs by using information from the financial markets in conjunction with the structure of the model we can uncover from financial data the belief shocks that drive the model specifically we assume that belief shocks drive both economic fluctuations and asset returns the financial market information allows us to identify these shocks we use our methods to generate dynamic simulations of the model and show that it has incremental predictive power for key us time series

market expectations in the uk before and after the erm crisis the british pound left the erm on 16 september 1992 after a period of turbulence uk monetary policy soon shifted to lower short interest rates and an inflation target was announced this paper uses daily option prices to estimate how the market s probability distribution of the future marks pound exchange rate and uk and german interest rates changed over the summer and autumn of 1992 the results show among other things how various policy decisions affected the market s assessment of the probabilities of realignments and lending rate cuts

information quality and stock returns revisited this paper investigates the relation between information on the state of the economy and equity risk premium we use a setup where investors have epstein zin preferences and the economy randomly switches between booms and recessions we are able to establish 2 key results first investors with high elasticity of intertemporal substitution eis will require lower excess returns for holding stocks if they are provided with better information on the state of the economy second we find that this also holds for investors with moderate eis if they are sufficiently risk averse

the interaction between nonexpected utility and asymmetric market fundamentals this paper studies a nonexpected utility general equilibrium asset pricing model in which market fundamentals follow a bivariate markov switching process the results show that nonexpected utility is capable of exactly matching the means of the risk free rate and the risk premium asymmetric market fundamentals are capable of generating a negative sample correlation between the risk free rate and the risk premium moreover an equilibrium asset pricing model endowed with asymmetric market fundamentals is consistent with all five first and second moments of the risk free rate and the risk premium in the u s data in their seminal work mehra and prescott 1985 argue that the observed historical average for the equity risk premium is too large and the average risk free rate is too small to be rationalized by a complete and frictionless asset pricing model the result of mehra and prescott which is known as the equity premium puzzle has triggered a great deal of research much of this research has attempted to resolve the puzzle by relaxing the assumptions of their analysis the agent has von neumann morgenstern time additive expected utility the return to the stock market is approximately equal to the return on the market portfolio and the consumption growth rate follows a symmetric markov chain one branch of research focuses on nonexpected utility functions of the kreps and porteus 1978 1979 type as a means of resolving the puzzle it is well known that von neumann morgenstern time additive expected utility has an intrinsic restriction that the reciprocal of the coefficient of relative risk aversion equals the elasticity of intertemporal substitution kreps and porteus establish a nonexpected utility framework which is capable of distinguishing the coefficient of relative risk aversion from the elasticity of intertemporal substitution however kocherlakota 1990a and weil 1989 demonstrate that relaxing the restriction between the coefficient of relative risk aversion and the elasticity of intertemporal substitution is not capable of resolving the puzzle

the risk premium and long run global imbalances this study proposes that heterogeneous household portfolio choices within a country and across countries offer an explanation for global imbalances we construct a stochastic growth multi country model in which heterogeneous agents face the following restrictions on asset trade first the degree of us equity market participation is higher than that of the rest of the world second a fraction of households in each country maintains a fixed share of equity in its portfolios in our calibrated model which matches the us net foreign asset position and the equity premium the average us household loads up more aggregate risk than the average foreign household by investing in risky assets abroad and issuing risk free assets as a result the us is compensated by a high risk premium and runs trade deficits even as a debtor country the long run average trade deficit in our model accounts for 50 of the observed us trade deficit

a model of carbon price interactions with macroeconomic and energy dynamics abstract this paper develops a model of carbon pricing by considering two fundamental drivers of european union allowances economic activity and energy prices on the one hand economic activity is proxied by aggregated industrial production in the eu 27 as it provides the best performance in a preliminary forecasting exercise vs other indicators on the other hand brent natural gas and coal prices are selected as being the main carbon price drivers as highlighted by previous literature the interactions between the macroeconomic and energy spheres are captured in a markov switching var model with two states that is able to reproduce the boom bust business cycle hamilton 1989 first industrial production is found to impact positively negatively the carbon market during periods of economic expansion recession thereby confirming the existence of a link between the macroeconomy and the price of carbon second the brent price is confirmed to be the leader in price formation among energy markets bachmeier and griffin 2006 as it impacts other variables through the structure of the markov switching model taken together these results uncover new interactions between the recently created eu emissions market and the pre existing macroeconomic energy environment

spikes and spill overs the impact of the national minimum wage on the wage distribution in a low wage sector the uk national minimum wage nmw has had a minimal impact on uk wage inequality because it has been set at a modest level and because aggregate evidence suggests very small spill over effects but the small spill over effects might be because of the small numbers of workers affected and widespread anticipation of the introduction of the nmw might make the impact effect appear very small this paper investigates these issues using data collected from care homes where the nmw affected 40 of workers but we still find no evidence of large spill over effects and very small amounts of anticipation of the nmw

the potential impact of the minimum wage in rural areas this article explores the extent to which the potential impact of the national minimum wage might differ in rural areas using pre 1999 data from the british household panel survey a number of dimensions of the policy s potential impact in rural areas are considered in particular the number of workers affected their typical characteristics and the effects on pay inequality and household income distribution the results show that for the majority of rural areas that are accessible to urban labour markets the impact is likely to be broadly similar in contrast the potential impacts and particularly the distributional effects of the national minimum wage are found to be greatest in remoter rural areas

an exploration of the effects of pessimism and doubt on asset returns the subjective distribution of growth rates of aggregate consumption is characterized by pessimism if it is first order stochastically dominated by the objective distribution uniform pessimism is a leftward translation of the objective distribution of the logarithm of the growth rate the subjective distribution is characterized by doubt if it is mean preserving spread of the objective distribution pessimism and doubt both reduce the riskfree rate and thus can help resolve the riskfree rate puzzle uniform pessimism and doubt both increase the average equity premium and thus can help resolve the equity premium puzzle

the hamilton model with a general autoregressive component estimation and comparison with other models of economic time series abstract this paper generalizes the hamilton model to the important case in which the autoregressive component need not contain a unit root using u s quarterly real gnp data the model is estimated and the results are compared to those of hamilton some monte carlo evidence for the model is presented and its in sample forecasting performance is discussed and compared to the original hamilton model the arima model and the deterministic time trend model

regional evidence on the effect of the national minimum wage on the gender pay gap robinson h 2005 regional evidence on the effect of the national minimum wage on the gender pay gap regional studies 39 855 872 this paper provides evidence on employment rates and the extent of the change in the gender wage gap across regions around the introduction of the national minimum wage nmw the variation in the proportions of low paid workers across britain provides a quasi natural experiment with which to try and measure the effect of the introduction of the nmw all things being equal if women are over represented amongst the low paid and the proportion of low paid workers varies across regions one might expect to see the introduction of the nmw narrowing the overall gender pay gap by varying degrees across the country using difference in differences type estimation on labour force survey data it is concluded that there is variation in the limited narrowing of the overall gender pay gap across regions consistent with regional differences in the incidence and magnitude of low pay

a markov model of switching regime arch in this article i present a new approach to model more realistically the variability of financial time series i develop a markov arch model that incorporates the features of both hamilton s switching regime model and engle s autoregressive conditional heteroscedasticity arch model to examine the issue of volatility persistence in the monthly excess returns of the three month treasury bill the issue can be resolved by taking into account occasional shifts in the asymptotic variance of the markov arch process that cause the spurious persistence of the volatility process i identify two periods during which there is a regime shift the 1974 2 1974 8 period associated with the oil shock and the 1979 9 1982 8 period associated with the federal reserve s policy change the variance approached asymptotically in these two episodes is more than 10 times as high as the asymptotic variance for the remainder of the sample i conclude that regime shifts have a greater impact on the properties of the data and i ca

mean reversion in equilibrium asset prices this paper demonstrates that negative serial correlation in long horizon stock returns is consistent with an equilibrium model of asset pricing when investors display only a moderate desire to smooth their consumption commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the monte carlo distributions implied by the authors equilibrium model from this evidence the authors conclude that the degree of serial correlation in the data could plausibly have been generated by their model copyright 1990 by american economic association

efficient gradualism in intertemporal portfolios abstract this paper examines intertemporal portfolio plans under autocorrelation in asset returns and considers whether these plans conform to the common advice that risky assets be bought gradually and then held in decreasing amounts as the investment horizon approaches given elliptical returns optimal portfolio plans with precommitment must be mean variance efficient then for arma 1 1 parameterizations with negative autocorrelation the age effect gradual diminishing of risky holdings as the horizon approaches is confirmed as is dollar cost averaging gradual entry into the risky asset for sufficiently distant horizons for a numerically analyzed alternative bivariate returns process only the age effect is confirmed

ratings migration and the business cycle with application to credit portfolio stress testing the turmoil in the capital markets in 1997 and 1998 has highlighted the need for systematic stress testing of banks portfolios including both their trading and lending books we propose that underlying macroeconomic volatility is a key part of a useful conceptual framework for stress testing credit portfolios and that credit migration matrices provide the specific linkages between underlying macroeconomic conditions and asset quality credit migration matrices which characterize the expected changes in credit quality of obligors are cardinal inputs to many applications including portfolio risk assessment modeling the term structure of credit risk premia and pricing of credit derivatives they are also an integral part of many of the credit portfolio models used by financial institutions by separating the economy into two states or regimes expansion and contraction and conditioning the migration matrix on these states we show that the loss distribution of credit portfolios can differ greatly as can the concomitant level of economic capital to be assigned

the labor market impact of state level anti discrimination laws 1940 1960 by the time congress passed the 1964 civil rights act 98 of non southern blacks 40 of all blacks already resided in states with fair employment laws prohibiting labor market discrimination using census data from the integrated public use microdata series the author assesses the impact of fair employment legislation on black workers relative income unemployment labor force participation migration and occupational and industrial distributions in general the fair employment laws adopted in the 1940s appear to have had larger effects than those adopted in the 1950s and the laws had considerably smaller effects on the labor market outcomes of black men than on those of black women

robust measures of skewness and kurtosis for macroeconomic and financial time series abstractthe sample skewness and kurtosis of macroeconomic and financial time series are routinely scrutinized in the early stages of model building and are often the central topic of studies in eco