fragmentation and stability of markets trading skills are highly rewarded in practice but largely ignored in theoretical models of financial markets this paper demonstrates the importance of skills by examining their interaction with market fragmentation and market stability we consider a computational model where traders abilities to accurately price assets are endogenous in contrast to models that do not consider skills we find that centralising markets can lead to higher price volatility and less resilience to shocks because it increases the equilibrium proportion of unskilled traders

closely competing firms and price adjustment some findings from an online marketplace we investigate retailers price setting behavior using a unique dataset containing by the second records of prices offered by closely competing retailers on a major japanese price comparison website first we find that when the average price of a product across retailers falls rapidly the frequency of price adjustments increases and the size of price adjustments becomes larger second we find positive autocorrelation in the frequency of price adjustments implying that there tends to be clustering where price adjustments occur in succession in contrast there is no such autocorrelation in the size of price adjustments these two findings indicate that the behavior of competing retailers is characterized by state dependent pricing rather than time dependent pricing

the short run demand for money a reconsideration the partial adjustment approach to the specification of the short run demand for money has dominated the literature for more than a decade there are three basic problems with this approach first the same lag structure is imposed on all variables and each independent variable enters only as a current value in contrast a rational individual would respond to different variables income interest rates prices with quite different lags second when the general price levelis subject to gradual adjustment hut can move quickly in response to supply shocks the influence of these supply shocks should enter with a negative sign third the estimated equation for real balances may not be a money demand equation at all but rather its coefficients may represent a shifting mixture of demand and supply responses the empirical work examines several alternative dynamic specifications including a generalized partial adjustment framework and the error correction model both of the latter specifications exhibit greater structural stability after 1973 than the standard partial adjustment specification and the generalized partial adjustment model also yields relatively small errors in post sample dynamic simulations shifts in coefficients as the sample period is extended after 1973 are consistent with the interpretation that the real balance equation no longer traces out structural demand parameters hut rather a mixture of demand and supply responses this abstract was borrowed from another version of this item

steepness and deepness in the australian macroeconomy this study uses nonparametric tests the triples test and the bds test to examine whether key australian macroeconomic aggregates exhibit nonlinearities and important steepness and deepness asymmetries at the business cycle frequency evidence is found of nonlinearities but there is little evidence of deepness in the australian macroeconomy however there is evidence of steepness especially concerning labour market variables as well as both the cpi and m3 the evidence suggests that unemployment employment rises falls rapidly in recessions and only recovers slowly over time also positive asymmetries in m3 are reflected in similar asymmetries in the cpi but not in output consumption or investment

the determinants of household risky asset holdings australian evidence on background risk and other factors we study the portfolio allocation decisions of australian households using the relatively new household income and labour dynamics in australia hilda survey we focus on household allocations to risky financial assets our empirical analysis considers a range of hypothesised determinants of these allocations we find background risk factors posed by labor income uncertainty and health risk are important credit constraints and observed risk preferences play the expected role a positive age gradient is identified for risky asset holdings and home ownership is associated with greater risky asset holdings a unifying theme for many of our empirical findings is the important role played by financial awareness and knowledge in determining risky asset holdings many non stockholding households appear to lack the experience and financial literacy that might enable them to benefit from direct investment in stocks

financial markets and investment externalities this address explores the link between financial market shocks investment choices and various externalities that can arise from these choices my analysis which emphasizes differences between shocks to debt and equity markets provides insights about some stylized facts from the macro finance literature these insights are illustrated with a discussion of the technology boom and bust in the late 1990s and early 2000s and the housing boom and bust in the mid 2000s

market frictions and consumption based asset pricing a fundamental equilibrium condition underlying most utility based asset pricing models is the equilibration of intertemporal marginal rates of substitution imrs previous empirical research however has found that the comovements of consumption and asset return data fail to satisfy the restrictions imposed by this equilibrium condition in this paper we examine whether market frictions can explain previous findings our results suggest that a combination of short sale borrowing solvency and trading cost frictions can drive a large enough wedge between imrs so that the apparent violations may not be inconsistent with market equilibrium

stock market participation and the internet theory indicates that frictions e g information and transaction costs could account for the lower than expected stock market participation rates this paper examines the hypothesis that there has been a fundamental change in participation and links this change to the reduction of these frictions by the advent of the internet using panel data on household participation rates over the past decade the results show computer internet using households raised participation substantially more than non computer using households the increased probability of participation was equivalent to having over 27 000 in additional household income or over two more mean years of education

stockholding behavior of u s households evidence from the 1983 1989 survey of consumer finances most households persistently invest in riskless assets but not stocks and may do so because they perceive information required for market participation to be costly relative to expected benefits in a consumption capital asset pricing model ccapm increased risk aversion income risk and lower resources reduce the information expense sufficient to deter stockholding bivariate probit analysis using the 1983 1989 survey of consumer finances shows that households with lower risk aversion higher education and greater wealth who were nonstockholders in 1983 had an increased conditional probability of entering by 1989 whereas 1983 stockholders with lower resources more limited education and greater risk aversion were more likely to be nonstockholders by 1989

implications of state dependent pricing for dynamic macroeconomic models abstract state dependent pricing sdp models treat the timing of price changes as a profit maximizing choice symmetrically with other decisions of firms using quantitative general equilibrium models which incorporate a generalized s s approach we investigate the implications of sdp for topics in two major areas of macroeconomic research the early 1990s sdp literature and more recent work on persistence mechanisms first we show that state dependent pricing leads to unusual macroeconomic dynamics which occur because of the timing of price adjustments chosen by firms as in the earlier literature in particular we display an example in which output responses peak at about a year while inflation responses peak at about 2 years after the shock second we examine whether the persistence enhancing effects of two new keynesian model features namely specific factor markets and variable elasticity demand curves depend importantly on whether pricing is state dependent in an sdp setting we provide examples in which specific factor markets perversely work to lower persistence while variable elasticity demand raises it

household investment decisions and offspring gender parental accounting numerous behavioural factors have been identified as having an impact on household stockholding decisions given there is both theoretical and empirical evidence to support the premise that offspring gender can influence specific types of parental preferences i test the theory that offspring gender has an effect on parental investment decision making i find that offspring gender does influence household stock market participation specifically i find that having only female offspring can significantly increase the probability of stockholding given stockholding can have large effects on household wealth levels and that family wealth levels affect intergenerational transfers this finding could have important implications for understanding distributional welfare issues

microeconomic rigidities and aggregate price dynamics abstract this paper is an attempt to enrich the characterization of the sluggish behavior of the aggregate price level our contribution to this vast literature is to explicitly consider microeconomic heterogeneity and its interaction with nonlinear microeconomic price adjustment policies the model we propose outperforms the constant probability of adjustment partial adjustment model in describing the path of postwar u s inflation using only aggregate data we infer that the probability that a firm adjusts its price depends on the sign and the magnitude of the deviation of the price from its target level at the aggregate level we find that the aggregate price level responds less to negative shocks than to positive shocks that the size of this asymmetry increases with the size of the shock and that the number of firms changing their prices and therefore the flexibility of the price level to aggregate shocks varies endogenously over time in response to changes in economic conditions

cognitive abilities and portfolio choice we study the relation between cognitive abilities and stockholding using the recent survey of health ageing and retirement in europe share which has detailed data on wealth and portfolio composition of individuals aged 50 in 11 european countries and three indicators of cognitive abilities mathematical verbal fluency and recall skills we find that the propensity to invest in stocks is strongly associated with cognitive abilities for both direct stock market participation and indirect participation through mutual funds and retirement accounts since the decision to invest in less information intensive assets such as bonds is less strongly related to cognitive abilities we conclude that the association between cognitive abilities and stockholding is driven by information constraints rather than by features of preferences or psychological traits

heterogeneity in consumer price stickiness we examine heterogeneity in price stickiness using a large original set of individual price data collected at the retail level for the computation of the french consumer price index for that purpose we estimate at a very high level of disaggregation a piecewise constant hazard model as well as competing risks duration models that distinguish between price increases price decreases and product replacements the main findings are the following a at the product outlet type level the baseline hazard function of a price spell is nondecreasing b cross product and cross outlet type heterogeneity is pervasive both in the shape and the level of the hazard function as well as in the impact of covariates c there is strong evidence of state dependence especially for price increases d there is an asymmetry because determinants of price increases differ from those of price decreases

inflation and output dynamics with state dependent pricing decisions this paper studies a state dependent pricing model in which firms face a fixed cost of changing their pricing plans a pricing plan specifies an entire sequence of time varying future prices allowing firms to choose a pricing plan rather than a single price generates inflation inertia in the response of the economy to small changes in the growth rate of money allowing firms to choose when to change their pricing plan generates a non linear response of inflation and output to small and large changes in the money growth rate the non linear solution method also reveals that the model generates an asymmetric response of output and inflation to monetary expansions and contractions

transmission of government default risk in the eurozone abstract this paper analyzes the reasons behind the rising ten year government bond spreads in the eurozone during the recent euro debt crisis we develop a structural vector autoregressive model that allows us to test whether the upsurges in the spreads reflect breaks in the instantaneous shock propagation mechanisms between the spreads contagion changing dynamical effects or changing country specific risk factors especially a new approach to test the stability of the instantaneous shock propagation mechanisms is introduced our results show that although contagion appears as the single most important reason for the increasing spreads there are notable differences between the countries for example and ireland spain and italy see statistically significant increases in their country specific risk factors

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

relative price variability and inflation in europe the relationship between inflation and the relative variability of prices has been the subject of careful investigation in the united states using data for product groups at the city level yet in europe where the relationship could have profound effects on the viability of monetary integration no attempt has been made to study the relationship this paper fills the gap by examining data disaggregated to the commodity level across 10 eu countries evidence is found for logistic smooth transitions in the relative price variability measures within countries and within product groups when this deterministic component is removed the stochastic element is not persistent and does not always have the positive relationship with inflation commonly found in us city data

household asset allocation offspring education and the sandwich generation abstract this paper finds households with children and elderly dependents the sandwich generation significantly reduce both college savings and stockholding having any elderly dependents decreases the probability of both stockholding and college savings by twice as much as poor personal health hence these results have critical implications as they demonstrate the importance and magnitude of links between the pension system college financial aid and wealth accumulation elderly dependents limiting parental funds for offspring education can decrease offspring long term earnings potential via decreased human capital accumulation furthermore decreased stock holdings can decrease long term wealth accumulation and thus intergenerational wealth transfers

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

in a world without borders the impact of taxes on internet commerce the rapid rise in sales over the internet and the fact that most internet buyers pay no sales tax has ignited a considerable debate over taxes and the internet this paper uses new data on the purchase decisions of approximately 25 000 online users to examine the effect of local sales taxes on internet commerce the results suggest that controlling for observable characteristics people living in high sales taxes locations are significantly more likely to buy online the results are quite robust and cannot be explained by unobserved technological sophistication shopping costs or other alternative explanations the magnitudes in the paper suggest that applying existing sales taxes to internet commerce might reduce the number of online buyers by up to 24 percent

structural vector autoregressions checking identifying long run restrictions via heteroskedasticity long run restrictions have been used extensively for identify ing structural shocks in vector autoregressive var analysis such restric tions are typically just identifying but can be checked by utilizing changes in volatility this paper reviews and contrasts the volatility models that have been used for this purpose three main approaches have been used exoge nously generated changes in the unconditional residual covariance matrix changing volatility modelled by a markov switching mechanism and multi variate generalized autoregressive conditional heteroskedasticity garch models using changes in volatility for checking long run identifying restric tions in structural var analysis is illustrated by reconsidering models for identifying fundamental components of stock prices

explaining investment dynamics in u s manufacturing a generalized s s approach we are grateful to olivier blanchard whitney newey james stock an editor three anonymousreferees and seminar participants at brown cepr champoussin chicago columbia econometric society meetings caracas and tokyo efcc harvard impa lse nber princeton rochester site toronto u de chile and yale for their comments financial support to caballero from the national science and sloan foundations and to engel from fondecyt grant 195 510 and the mellon foundation grant 9608 is gratefully acknowledged 2since plants entry is excluded from their sample these statistics are likely to represent lowerbounds on the degree of lumpiness in plants investment patterns 3we use the word project to emphasize the fact that the actual implementation of a projectmay cover more than a year observation realistic time to build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature 4 see chirinko 1994 for a survey of the empirical investment literature

when and how is the internet likely to decrease price competition conventional wisdom seems to claim that by lowering the cost of distribution and by making search easier for consumer the introduction of the internet is likely to intensify price competition this paper intends to challenge this view by asking when and how is the internet likely to decrease the level of price competition between firms to answer this question we develop an analytic model with the following characteristics on the demand side consumers need to gather information on two types of product attributes digital attributes which can be communicated on the web at very low cost and nondigital attributes for which physical inspection of the product is necessary consumers choose between two brands but are familiar with the nondigital attributes of only the brand purchased on the last purchase occasion on the supply side firms use traditional stores and the internet to inform consumers about their products attributes and to sell their products in this setup we show that the impact of the internet on competition will be radically different depending on the relative importance of parameters describing the relevant shopping and distribution context specifically we find that the introduction of the internet might lead to monopoly pricing when 1 the proportion of internet users is high enough 2 when nondigital attributes are relevant but not overwhelming 3 when consumers have a more favorable prior about the brand they currently own and 4 when the purchase situation can be characterized by destination shopping more surprising we also show that in such cases the use of the internet not only leads to higher prices but can also discourage consumers from engaging in search as such an important message of the paper is that under some conditions the internet might represent an opportunity for firms to leverage their brand loyalty and increase their profits the intuition behind our results is the following the internet allows consumers to evaluate digital attributes easily i e without visiting the stores however nondigital attributes can only be evaluated through physical presence as such for goods where both types of attributes are important the introduction of the net changes the effective cost of search for consumers without the internet the cost of search is the cost of visiting more than one store with the introduction of the net however nonsearching consumers do not have to undertake the shopping trip at all because they can order products on the net thus in the presence of the internet the cost of search is related to the cost of undertaking the entire shopping trip in the case of destination shopping i e when the fixed cost of undertaking the shopping trip is higher than the cost of visiting an additional store the presence of the internet creates higher effective search costs for consumers given this shift of paradigm in search costs due to the internet consumers may not take the risk of searching for products with better nondigital attributes but instead remain with the product they are familiar with this results in increased consumer loyalty which induces firms to increase their prices our results have important managerial implications first they provide guidelines for firms on when i e for which product categories they should consider expanding their distribution network to the internet in this respect an important additional insight of the paper is that the internet can lower price competition and lead to reduced consumer search even if it is more expensive than the traditional distribution channel this can easily be the case if distribution through the internet represents additional costs such as the costs associated with shipping and handling and return policies second the paper also provides guidelines on how to plan the firm s internet strategy interestingly the results suggest that with the general availability of the internet the role of stores might actually become more important while we do not explicitly model a dynamic market our findings together with klemperer s 1987 results suggest that stores might have a key role in consumer acquisition while the internet can help leverage the acquired customer base through demand fulfillment this might imply that for certain product categories firms should actually allocate additional resources to improve their in store environment when considering the internet as a complementary distribution channel

prices output and hours an empirical analysis based on a sticky price model abstract i show that a simple sticky price model based on rotemberg 1982 is consistent with a variety of facts concerning the correlation of prices hours and output it is consistent with the negative correlation between forecastable movements in prices and output as well as the smaller negative correlation between forecastable movements in prices and hours it is also consistent with the positive correlations of unexpected movements in prices output and hours these patterns are harder to reconcile with the flexible price version of the model in particular they require that money respond differently to forecastable and to unforecastable real shocks

how children with mental disabilities affect household investment decisions we analyze how children with mental disabilities influence parental portfolio allocation we find that risky asset holding decreases among households with special needs children however conditional on participating in financial markets households with special needs children invest a larger portion of their wealth in risky assets as risky asset holding is a key component of wealth building these findings have important implications for both policy and household wealth inequality

dynamic s s economies in this paper the authors provide a framework to study the aggregate dynamic behavior of an economy where individual units follow s s policies and are subject to aggregate and idiosyncratic shocks they characterize structural and stochastic heterogeneities that ensure convergence of the economy s aggregate to that of its stochastic frictionless counterpart determine the speed at which convergence takes place and describe the transitional dynamics of this economy they study the evolution of the economy s aggregate and the evolution of the difference between this aggregate and that of the difference between this aggregate and that of an economy without microeconomic friction where the latter pertains to a situation where individual units adjust with no delay to all shocks copyright 1991 by the econometric society

the impact of health insurance on stockholding a regression discontinuity approach economic theory predicts that a reduction in background risk should induce financial risk taking particularly for individuals with low stock market participation costs hence health insurance coverage could affect financial risk taking by offsetting health related background risk we use a regression discontinuity design to examine whether medicare eligibility at age 65 increases stockholding in the us and find that it does so for those with college education but not for their less educated counterparts who face higher stock market participation costs our results are unlikely due to the reduction of medical expenses associated with medicare coverage because the latter does not affect bondholding

microdata evidence on the empirical importance of selection effects in menu cost models we use microdata on product prices linked to information on the producing firms that set them to study to what extent the timing of price changes reacts to changes in marginal cost this self selec

price setting in the euro area some stylized facts from individual producer price data this paper summarizes the microevidence on the setting of producer prices in the euro area the main findings are i 21 of producer prices are adjusted each month ii producer prices are changed more frequently and by smaller amounts than consumer prices even after controlling for product characteristics iii price decreases are relatively frequent iv inflation correlates positively with the difference between the frequency of price increases and decreases and v there is substantial variation in price flexibility across sectors which can be explained in part by differences in the cost structure the degree of competition and the level of sectoral inflation

state dependent pricing local currency pricing and exchange rate pass through this paper presents a two country dsge model with state dependent pricing as in dotsey et al 1999 in which firms discriminate across countries by setting prices in local currency in this model a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time dependent pricing in addition the predictions of the state dependent pricing model match the business cycle moments better than the predictions of the time dependent pricing model when driven by monetary policy shocks

precautionary price stickiness abstract this paper proposes a model in which retail prices are sticky even though firms can always change their prices at zero cost instead of imposing a menu cost we assume that more precise decisions are more costly in equilibrium firms optimally make some errors in price setting thus economizing on managerial time both the time cost of choice and the resulting risk of errors give firms an incentive to leave their prices unchanged until they perceive a sufficiently costly deviation from the optimal price we show that this error prone control cost framework helps explain many puzzling observations from microdata however on the macroeconomic side pricing errors do little to explain the real effects of monetary shocks

risk tolerance and entrepreneurship a theoretical tradition argues that more risk tolerant individuals are more likely to become entrepreneurs but perform worse we test and confirm these predictions with several risk tolerance proxies using investment data for 400 000 individuals we find that common stock investors are around 50 more likely to subsequently start up a firm firms started up by common stock investors have about 25 lower sales and 15 lower return on assets the results are similar using personal leverage and other risk tolerance proxies we do not find support for alternative explanations such as unobserved wealth or behavioral effects

price stickiness in ss models new interpretations of old results abstract what is the relation between infrequent price adjustment and the dynamic response of the aggregate price level to monetary shocks the answer to this question ranges from a one to one link calvo g 1983 prices in a utility maximizing framework journal of monetary economics 12 383 398 to no connection whatsoever caplin a spulber d 1987 menu costs and the neutrality of money quarterly journal of economics 102 703 726 the purpose of this paper is to provide a unified framework to understand the mechanisms behind this wide range of results in doing so we propose new interpretations of key results in this area which in turn suggest the kind of ss model that is likely to generate substantial price rigidity among these new interpretations we revisit caplin and spulber s monetary neutrality result we show that when price stickiness is measured in terms of the impulse response function this result is not a consequence of aggregation as is often assumed but is due instead to the absence of price stickiness at the microeconomic level we also show that the selection effect according to which units that adjust their prices are those that benefit the most is neither necessary nor sufficient to account for the higher aggregate flexibility of ss type models compared to calvo models instead the key concept is the contribution of the extensive margin of adjustment to the aggregate price response the aggregate price level is more flexible than suggested by the microeconomic frequency of adjustment if and only if this term is positive

price adjustments in a general model of state dependent pricing we study the distribution of retail price adjustments under the assumption that firms are more likely to adjust their prices when doing so is more valuable our setup nests calvo 1983 at one extreme and a fixed menu cost model at the other all parameterizations are ranked by a measure of state dependence high state dependence implies counterfactually that there are no small price changes and that the variance of price changes falls sharply with trend inflation the parameterization that best fits microdata has low state dependence implying a phillips curve coefficient 60 as large as that of the calvo model but is nonetheless well behaved at high inflation rates

a fallacy of composition the representative agent framework has endowed macroeconomists with powerful microeconomic tools unfortunately it has also blurred the distinction between statements that are valid at the individual level and those that apply to the aggregate in this paper the author argues that probability theory puts strong restrictions on the joint behavior of a large number of units that are less than fully synchronized many fallacies arise from disregarding these restrictions for example asymmetric factor adjustment costs at the firm level need not imply asymmetric responses of aggregate employment flows to positive and negative shocks copyright 1992 by american economic association

microeconomic adjustment hazards and aggregate dynamics the basic premise of this paper is that understanding aggregate dynamics requires considering that agents are heterogeneous and that they do not adjust continuously to the shocks they perceive we provide a general characterization of lumpy behavior at the microeconomic level in terms of an adjustment hazard function which relates the probability that a unit adjusts to the deviation of its state variable from its moving target we characterize rich cross sectionally dependent aggregate dynamics generated by nonconstant hazards we present an example based on u s manufacturing employment and job flows and find that increasinghazard models outperform constant hazard partial adjustment models in describing aggregate employment dynamics

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

structural vector autoregressions with smooth transition in variances abstract in structural vector autoregressive analysis identifying the shocks of interest via heteroskedasticity has become a standard tool unfortunately the approaches currently used for modeling heteroskedasticity all have drawbacks for instance assuming known dates for variance changes is often unrealistic while more flexible models based on garch or markov switching residuals are difficult to handle from a statistical and computational point of view therefore we propose a model based on a smooth change in variance that is flexible as well as relatively easy to estimate and illustrate its use by analysis of the interaction between monetary policy and the stock market based on a five dimensional system of u s variables for the benchmark setup it is found that previously used conventional identification schemes in this context are rejected by the data if heteroskedasticity is allowed for we also illustrate the implications of using different transition variables and varying the sample period

microfoundations of macroeconomic price adjustment survey evidence from swedish firms this paper presents the results of a survey on price setting behavior conducted on a large random sample of swedish firms the median firm adjusts the price once a year state and time dependent price setting are about equally important the four highest ranked explanations for price rigidity in this study implicit contracts sluggish costs explicit contracts and the kinked demand curve have close correspondents among the top five places in two similar large scale surveys carried out in the uk and the u s the results point to the importance of the long term relations with customers for the rigidity of prices the estimated share of sales that go to regular customers is more than 80

structural vector autoregressions with nonnormal residuals in structural vector autoregressive svar modeling sometimes the identifying restrictions are insufficient for a unique specification of all shocks in this paper it is pointed out that specific distributional assumptions can help in identifying the structural shocks in particular a mixture of normal distributions is considered as a possible model that can be used in this context our model setup enables us to test restrictions which are just identifying in a standard svar framework the results are illustrated using a u s macro data set and a system of u s and european interest rates

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

precautionary portfolio behavior from a life cycle perspective abstract the literature on household asset accumulation draws a sharp distinction between short run precautionary motives to buffer consumption from annual income shocks and long run life cycle considerations under income certainty however estimates of shock persistence imply considerable career uncertainty we study long run precautionary motives for life cycle wealth accumulation and portfolios allowing for uncertain returns incomes and lifespan we separate the effects of various factors on mean and median asset holdings including education risk aversion household heterogeneity bequests impatience variance and serial correlation of income shocks numerical solutions are compared with data from the 1992 survey of consumer finances

phillips curve instability and optimal monetary policy this paper assesses the implications for optimal discretionary monetary policy if the slope of the phillips curve changes the paper first derives a phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment the second aspect of the paper constructs a utility based welfare criterion a novel feature of this criterion is that is has a relative weight on output gap deviations that changes synchronously with changes in the cost of price adjustment the systematic component of the targeting rule that implements the optimal discretionary policy under the utility based criteria is constant in contrast the systematic component of the targeting rule under an ad hoc criteria changes along with changes in the slope of the phillips curve

asymmetries in price setting behavior new microeconometric evidence from switzerland in this paper we follow the recent empirical literature that has specified reduced form models for price setting that are closely tied to s s pricing rules our contribution to the literature is twofold first we propose an estimator that relaxes distributional assumptions on the unobserved heterogeneity second we use the estimator to examine the prevalence of positive price changes in a low inflation environment our model estimates suggest that if inflation falls from 0 9 to zero the share of positive price changes in all price changes falls from 63 6 to 56 2

telltale tails a new approach to estimating unique market information shares the trading of securities on multiple markets raises the question of each market s share in the discovery of the informationally efficient price we exploit salient distributional features of multivariate financial price processes to uniquely determine these contributions thereby resolving the main drawback of the widely used hasbrouck 1995 methodology which merely provides upper and lower bounds of a market s information share we show how tail dependence of price changes which may emerge as a result of differences in market design can be exploited to estimate unique information shares two empiricalapplications illustrate the practical use of the new methodology

testing for arch in the presence of additive outliers in this paper we investigate the properties of the lagrange multiplier lm test for autoregressive conditional heteroskedasticity arch and generalized arch garch in the presence of additive outliers ao s we show analytically that both the asymptotic size and power are adversely affected if ao s are neglected the test rejects the null hypothesis of homoskedasticity too often when it is in fact true while the test has difficulty detecting genuine garch effects several monte carlo experiments show that these phenomena occur in small samples as well we design and implement a robust test which has better size and power properties than the conventional test in the presence of ao s applications to the french industrial production series and weekly returns of the spanish peseta us dollar exchange rate reveal that sometimes apparent garch effects may be due to only a small number of outliers and conversely that genuine garch effects can be masked by outliers

state dependent transmission of monetary policy in the euro area we estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 1999 2015 in contrast to other classes of nonlinear vector autoregressive models regime affiliation is neither strictly binary nor binary with a transition period and based on multiple variables we show that monetary policy transmission in the euro area can be described as a mixture of two states in both states output and prices are found to decrease after contractionary monetary policy shocks however the effects of monetary policy are less enduring in the crisis state

precious metals oil and the exchange rate contemporaneous spillovers abstractwe investigate the contemporaneous spillovers among precious metals crude oil and the us exchange rate we contend that conventional reduced form vector autoregressive var models based on lead lag relations do not fully capture the interactions among these series as these models ignore the contemporaneous effects using a structural var model we identify these contemporaneous spillovers which are shown to be strong and asymmetric we further show that not taking into consideration the contemporaneous interactions among these assets leads to inaccurate findings and inevitably to inaccurate interpretations of the causal relations among them

expectations and exchange rate dynamics a state dependent pricing approach abstract this paper presents a two country dsge model with state dependent pricing as in dotsey et al dotsey m king r g and wolman a l 1999 state dependent pricing and the general equilibrium dynamics of money and output quarterly journal of economics 114 655 690 and variable demand elasticity as in kimball kimball m s 1995 the quantitative analytics of the basis neomonetarist model journal of money credit and banking 27 1241 1277 following a domestic monetary expansion the model predicts i positive hump shaped responses of domestic output and consumption ii positive spillover effects on foreign output and consumption iii a high international output correlation relative to consumption correlation iv a delayed increase in domestic and foreign inflation v a delayed nominal exchange rate overshooting vi a deterioration in the terms of trade and vii a j curve in the trade balance the model matches the impulse responses from an identified var more closely than an otherwise identical model with time dependent pricing