automate the identification of technical patterns a k nearest neighbour model approach to explore profitable patterns in historical stock prices ordinarily a promising pattern is selected by rule of thumb and then its performance is verified by comparing the conditional return of t

a simple model of growth cycles with technology choice abstract in this study we develop a simple computable overlapping generations model that exhibits endogenous fluctuations the key assumption is that a firm can choose from multiple technologies of production since the model reduces to a piecewise linear map on the unit interval it allows us to conduct an in depth analysis of its dynamic properties particularly this piecewise linearization reveals the ability of the model to exhibit periodic attracting cycles of an arbitrarily large period as well as non periodic attractors furthermore it is demonstrated that the occurrence of periodic patterns is completely characterized by the rotation number or the devil s staircase

public health spending old age productivity and economic growth chaotic cycles under perfect foresight abstract this paper analyses the dynamics of a double cobb douglas economy with overlapping generations and public health investments that affect the supply of efficient labour of the old aged it is shown that the positive steady state of the economy is unique moreover we provide necessary and sufficient conditions for the emergence of endogenous deterministic complex cycles when individuals are perfectly foresighted interestingly i the equilibrium dynamics shows rather complicated phenomena such as a multiplicity of bubblings depending on the size of the public health system and ii the higher the degree of thriftiness the likelier an economy is exposed to endogenous fluctuations because the need to save when young to support consumption when old is reduced

methodical madness technical analysis and the irrationality of exchange rate forecasts substantial empirical research documents that exchange rate forecasts are not formed rationally this paper identifies a common technical trading signal the head and shoulders pattern as a potential source of departures from rationality in exchange rate forecasts forecasts based on this pattern are evaluated for daily dollar exchange rates over 1973 to 1994 using two criteria for rationality profitability and efficiency resulting profits replicable in real time are tested for statistical significance using a bootstrap technique we find that the rule is profitable but not efficient since it is dominated by simpler trading rules

a characterization of erratic dynamics in the overlapping generations model abstract in this paper we characterize and give examples o wide classes of utility functions which generate erratic dynamics in the standard deterministic overlapping generations model erratic dynamics refers to feasible trajectories which are bounded but which do not converge to stationary points or periodic orbits we show that such trajectories are pareto efficient we introduce credit into the model and show how a constant credit expansion rate can result in erratic trajectories in prices and the real value of credit finally we briefly discuss certain technical aspects of the mathematics used and the statistical nature of the dynamics that can arise from deterministic dynamical systems

interregional redistribution and budget institutions under asymmetric information empirical evidence from the u s and the european union suggests that regions which contribute to interregional redistribution face weaker borrowing constraints than regions which benefit from interregional redistribution this paper presents an argument in favor of such differentiated budget institutions it develops a two period model of a federation consisting of two types of regions the federal government redistributes from one type of regions contributors to the other type recipients it is shown that a fiscal constitution with lax budget rules for contributors and strict budget rules for recipients solves the self selection problem the federal government faces in the presence of asymmetric information regarding exogenous characteristics of the regions

coordination and crisis in monetary unions we characterize fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets member country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently a common monetary authority chooses inflation for the union also without commitment we first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over borrow this externality rationalizes the imposition of debt ceilings in a monetary union we then investigate the impact of the composition of debt in a monetary union that is the fraction of high debt versus low debt members on the occurrence of self fulfilling debt crises we demonstrate that a high debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high and low debt members than one where all other members are low debt this contrasts with the conventional wisdom that all countries should prefer a union with low debt members as such a union can credibly deliver low inflation these findings shed new light on the criteria for an optimal currency area in the presence of rollover crises

profitability of time series momentum abstract we propose a continuous time heterogeneous agent model consisting of fundamental momentum and contrarian traders to explain the significant time series momentum we show that the performance of momentum strategy is determined by both time horizon and the market dominance of momentum traders specifically when momentum traders are more active in the market momentum strategies with short long time horizons stabilize destabilize the market and meanwhile the market under reacts over reacts in short run long run this provides profit opportunity for time series momentum strategies with short horizons and reversal with long horizons when momentum traders are less active in the market they always lose the results provide an insight into the profitability of time series momentum documented in recent empirical studies

optimal fiscal and monetary policy with occasionally binding zero bound constraints abstract this paper studies optimal fiscal and monetary policy when the nominal interest rate is subject to the zero lower bound zlb constraint in a stochastic new keynesian economy in the baseline model calibrated to match key features of the u s economy it is optimal for the government to increase its spending when at the zlb in the stochastic environment by about 60 percent more than it would in the deterministic environment the presence of uncertainty creates a unique time consistency problem if the steady state is inefficient although access to government spending policy increases welfare in the face of a large deflationary shock it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the zlb

dusenberry s ratcheting of consumption optimal dynamic consumption and investment given intolerance for any decline in standard of living duesenberry s ratcheting consumption demand is derived as a feature of the optimal dynamic consumption and investment policy given extreme habit formation that prevents consumption from falling over time preferences are in effect non time separable extended real valued von neumann morgenstern preferences consumption increases each time wealth reaches a new maximum risky investment is proportional to the excess of wealth over the perpetuity value of current consumption extensions constrain the net rate of decrease in consumption with a constant other than zero add more consumption goods and constrain on the maximal holding of the risky asset as a proportion of wealth these strategies may be useful for the management of university endowments participatory investment accounts and risky arbitrage funds

fuzzy logic trading uncertainty and technical trading abstract from the market microstructure perspective technical analysis can be profitable when informed traders make systematic mistakes or when uninformed traders have predictable impacts on price however chartists face a considerable degree of trading uncertainty because technical indicators such as moving averages are essentially imperfect filters with a nonzero phase shift consequently technical trading may result in erroneous trading recommendations and substantial losses this paper presents an uncertainty reduction approach based on fuzzy logic that addresses two problems related to the uncertainty embedded in technical trading strategies market timing and order size the results of our high frequency exercises show that fuzzy technical indicators dominate standard moving average technical indicators and filter rules for the euro us dollar eur usd exchange rates especially on high volatility days

the impact of large portfolio insurers on asset prices we develop a simple model in which the presence of portfolio insurers in a market of risk averse traders leads to multiple equilibria for the pricing of financial assets and can cause an increase in volatility including insurance induced price drops we demonstrate however that centralized portfolio insurance firms may actually reduce not increase volatility even if the existence of these firms increases the total amount of funds under insurance a portfolio insurer typically sells equity as stock prices fall in order to limit the losses from holding equity in a declining market and buys equity as prices rise this can be accomplished directly by switching between stocks and cash or indirectly by taking a position in derivative securities whose payoffs are tied to stock market performance 1 the general effects of such dynamic hedging strategies have been studied by authors such as grossman 1988 brennan and schwartz 1989 and gennotte and leland 1990 gammill and marsh 1988 shiller 1989 jacklin kleidon and pfleiderer 1992 and others have studied the role of portfolio insurance in the crash of 1987 since these papers do not differentiate between an economy in which a group of atomistic investors follow their own individual insurance strategies and an economy in which large portfolio insurance firms act on behalf of investors who wish to insure however the specific price effects of large portfolio insurance firms are yet to be investigated this is the purpose of our paper section i develops a rudimentary asset pricing model with two types of traders atomistic portfolio insurers and atomistic ordinary traders this model is essentially a simplified version of gennotte and leland 1990 in which we focus on the stop loss basics of portfolio insurance like gennotte and leland we demonstrate that the existence of atomistic portfolio insurers increases the variance of possible equilibrium prices i e volatility and can lead to situations in which there are many potential equilibrium prices for a single set of fundamentals section ii extends the model by allowing some

regional debt in monetary unions is it inflationary this paper studies the inflationary implications of interest bearing regional debt in a monetary union is this debt simply backed by future taxation with non inflationary consequences or will the circulation of region debt induce monetization by a central bank we argue here that both outcomes can arise in equilibrium in the model economy there are multiple equilibria which reflect the perceptions of agents regarding the manner in which the debt obligations will be met in one equilibrium termed ricardian the future obligations are met with taxation by a regional government while in the other termed monetization the central bank is induced to print money to finance the region s obligations the multiplicity of equilibria reflects a commitment problem of the central bank a key indicator of the selected equilibrium is the distribution of the holdings of the regional debt we show that regional governments anticipating central bank financing of their debt obligations have an incentive to create excessively large deficits we use the model to assess the impact of policy measures within a monetary union

dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand the price quantity dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand curves is analysed we prove that chaotic dynamical behaviour can occur even if both the supply and demand curves are monotonic the introduction of adaptive expectations into the cobweb model leads to price quantity fluctuations with a smaller amplitude however at the same time the price quantity cycles may become unstable and chaotic oscillations may arise we present a geometric explanation why chaos can occur for a large class of nonlinear monotonic supply and demand curves

are there exploitable inefficiencies in the futures market for oil if the crude oil futures market is not efficient in the fama sense profitable trading opportunities may exist this paper uses an artificial neural network model with moving average crossover inputs to predict price in the crude oil futures market the predictions of price are used to construct buy and sell signals for traders compared to those of benchmark models cumulative returns year to year returns returns over a market cycle and sharpe ratios all favor the ann model by a large factor the significant profitability of the ann model casts doubt on the efficiency of the oil futures market

the floor leverage rule for retirement the floor leverage rule is a spending and investment strategy designed for retirees who can tolerate investment risk but insist on sustainable spending the rule calls for purchasing a spending guarantee with 85 of wealth and investing the remaining 15 in equities with 3 leverage surprisingly this leverage is a tool for managing risk the authors compare the rule with some popular strategies illustrate it for a variety of retiree preferences and evaluate its historical performance

a general equilibrium model of portfolio insurance this article examines the effects of portfolio insurance on market and asset price dynamics in a general equilibrium continuous time model portfolio insurers are modeled as expected utility maximizing agents martingale methods are employed in solving the individual agents dynamic consumption portfolio problems comparisons are made between the optimal consumption processes optimally invested wealth and portfolio strategies of the portfolio insurers and normal agents at a general equilibrium level comparisons across economies reveal that the market volatility and risk premium are decreased and the asset and market price levels increased by the presence of portfolio insurance article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market timing a test of a charting heuristic abstract we implement a graphical or charting heuristic the bull flag which accepts a particular pattern of historical prices as a signal for a future market price increase test it with several years of new york stock exchange composite index history and find positive results the results support the validity of technical analysis for stock market price prediction and fail to confirm the efficient markets hypothesis

can markov switching models replicate chartist profits in the foreign exchange market abstract in this paper we show that the markov switching model is a relevant statistical alternative to the classical martingale model for exchange rates by extending the standard markov switching model we decisively reject the martingale model moreover the model generates autocorrelations and linear structures in line with what is observed in reality subsequently we test whether this model can explain chartist profits we find that the extended markov switching model is able to explain the profitability of a simple ma 30 rule finally we decompose the profitability of the ma 30 rule into a linear and nonlinear part we find that although the implied linear structure of the markov model explains a substantial part of the profitability part of the profits of the ma 30 rule can be attributed to the specific nonlinearities implicit in the markov model

twin picks disentangling the determinants of risk taking in household portfolios this paper investigates risk taking in the liquid portfolios held by a large panel of swedish twins we document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth leading to different risk sensitivities across investors human capital which we estimate directly from individual labor income also affects risk taking positively while internal habit and expenditure commitments tend to reduce it our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences furthermore heterogeneous risk sensitivities across investors help reconcile individual preferences with representative agent models

technical analysis and liquidity provision the apparent conflict between the level of resources dedicated to technical analysis by practitioners and academic theories of market efficiency is a long standing puzzle we explore a previously unexamined feature of technical analysis namely its relation to liquidity provision we demonstrate that support and resistance levels coincide with peaks in depth on the limit order book and moving average forecasts reveal information about the relative position of depth on the book furthermore we show that these relationships stem from technical rules locating depth already in place on the limit order book copyright 2004 oxford university press

price barriers and the dynamics of asset prices in equilibrium a price barrier is a price level at which a large number of investors either buy or sell securities we analyze the dynamics of asset prices in an economy in which price barriers exist our analysis suggests that asset prices and volatility can exhibit jumps when the price barrier is reached interestingly the market s anticipation of future trades can influence prices in the opposite direction from what one might expect for example when multiple barriers exist stock prices can be inflated rather than depressed in the proximity of an anticipated stock sale

optimal discretionary monetary and fiscal policies in a country size heterogeneous monetary union abstract this paper develops a new keynesian model of a monetary union where atomistic small economies coexist with a large economy it explores how the level of public debt shapes non cooperative discretionary policies it evaluates welfare losses for small and large member countries the paper demonstrates that higher public debt levels hamper business cycle stabilization for the union as a whole and in particular penalize the stabilization performance of small country members while cooperation and monetary leadership is preferable to fiscal leadership for the union as whole and for the small countries the big country prefers fiscal leadership where it explores a larger strategic power vis a vis the common monetary policy authority political support for cooperation may be hard to achieve under low debt levels cooperative stabilization outcomes are relatively similar to the non cooperative ones

monetary fiscal policy interactions and commitment versus discretion in a monetary union abstract we consider monetary fiscal policy interactions in a monetary union if monetary and fiscal authorities have different ideal output and inflation targets the nash equilibrium output or inflation or both are beyond the ideal points of all authorities leadership of either authority is better fiscal discretion entirely negates the advantage of monetary commitment the optimal monetary rule is equivalent to discretionary leadership of monetary over fiscal policy agreement about ideal output and inflation creates a monetary fiscal symbiosis yielding the ideal point despite disagreement about the relative weights of the two objectives for any order of moves without fiscal co ordination and without monetary commitment

time varying risk premia volatility and technical trading rule profits evidence from foreign currency futures markets abstract this paper re examines the efficiency of foreign currency futures markets by evaluating the role of time varying risk premia and volatility in explaining technical trading rule profits the results show that large parts of the technical rule profits can be explained by the time varying risk premia estimated from a general model for the conditional capm the bootstrap distributions for the profits under the null model average one third to one half of the actual profits and enclose the actual profits well within the 90 confidence intervals time varying conditional volatility explains an additional 10 of the profits

fiscal rules and discretion in a world economy governments are present biased toward spending fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks we compare coordinated rules chosen jointly by a group of countries to uncoordinated rules if governments present bias is small coordinated rules are tighter than uncoordinated rules individual countries do not internalize the redistributive effect of interest rates however if the bias is large coordinated rules are slacker countries do not internalize the disciplining effect of interest rates surplus limits enhance welfare and increased savings by some countries or outside economies can hurt the rest

asset price dynamics and infrequent feedback trades this article combines the continuous arrival of information with the infrequency of trades and investigates the effects on asset price dynamics of positive and negative feedback trading specifically we model an economy where stocks and bonds are traded by two types of agents speculators who maximize expected utility and feedback traders who mechanically respond to price changes and infrequently submit market orders we show that positive feedback strategies increase the volatility of stock returns and the response of stock prices to dividend news conversely the presence of negative feedback traders makes stock returns less volatile and prices less responsive to dividends

using asset allocation to protect spending the management of an educational endowment or other income producing portfolio involves two strategic decisions at the fund level asset allocation and choice of a spending rule traditionally these two decisions are linked for example to preserve capital on average but the optimal link would be more dynamic this article describes a new protective strategy that links spending and asset allocation in a way that preserves spending power in down markets but participates significantly in up markets the strategy is similar to constant proportions portfolio insurance in that part of the fund is maintained in safe assets to preserve the value needed for continued expenditures like portfolio insurance the strategy outperforms traditional strategies when markets are persistently up or persistently down but underperforms when portfolios are whipsawed by alternating ups and downs

the asian financial crisis the role of derivative securities trading and foreign investors in korea abstract this paper is part of a larger research program pertaining to the role of derivatives during financial crisis and also part of the research pertaining to the causes of the asian financial crisis the korean market is studied because of two reasons 1 it is an important example of the asian financial meltdown and 2 there is a detailed data set available of all transactions by different types of protagonists including foreign investors the results in this paper indicate that futures markets and trading by foreign investors played a key role during the korean stock market turbulence in 1997

chaotic dynamics in an overlapping generations model with myopic and adaptive expectations in this paper we study dynamic behavior of an overlapping generations model under three different expectations perfect foresight myopic expectations and adaptive expectations we show that economic transition under myopic or adaptive expectations is very different from that under perfect foresight when agents are perfectly foresighted dynamics is simple with a unique steady state that is globally attracting however cycles and chaotic motion can appear under myopic and adaptive expectations we study the possibility of li yorke chaos under myopic expectations and entropic chaos under adaptive expectations

an isomorphism between asset pricing models with and without linear habit formation we show an isomorphism between optimal portfolio selection or competitive equilibrium models with utilities incorporating linear habit formation and corresponding models without habit formation the isomorphism can be used to mechanically transform known solutions not involving habit formation to corresponding solutions with habit formation for example the constantinides 1990 and ingersoll 1992 solutions are mechanically obtained from the familiar merton solutions for the additive utility case without recourse to a bellman equation or first order conditions more generally recent solutions to portfolio selection problems with recursive utility and a stochastic investment opportunity set are readily transformed to novel solutions of corresponding problems with utility that combines recursivity with habit formation the methodology also applies in the context of hindy huang kreps 1992 preferences where our isomorphism shows that the solution obtained by hindy and huang 1993 can be mechanically transformed to dybvig s 1995 solution to the optimal consumption investment problem with consumption ratcheting this article presents a general method for solving asset pricing or portfolio selection models involving linear habit formation of the type studied by sundaresan 1989 constantinides 1990 detemple and zapatero 1991 ingersoll 1992 chapman 1998 and others the basic idea we pursue is that linear habit formation can be thought of as a redefinition of what constitutes consumption to include not only the current consumption rate but also a fictitious possibly negative consumption rate derived from past actual consumption by pricing out this fictitious consumption rate correctly the economy with linear habit formation can be mechanically transformed to an equivalent economy without habit formation this analysis simplifies and unifies existing results but also generates novel solutions for example together with the results of schroder and skiadas 1997 1999 our method produces optimal lifetime consumption and portfolio policies with preferences that combine recursive utility with habit formation under a stochastic

an adaptive robust portfolio optimization model with loss constraints based on data driven polyhedral uncertainty sets abstract robust portfolio optimization models widely presented in the financial literature usually assume that asset returns lie in a parametric uncertainty set with a controlled level of conservatism expressed in terms of the variability of the uncertain parameters in practice however it is not clear how investors should choose the conservatism parameter to reflect their own preferences while considering price dynamics in this paper we provide a new perspective on robust portfolio optimization where we impose an intuitive loss constraint for the optimal portfolio considering asset returns in a data driven polyhedral uncertainty set adaptively updated in a rolling horizon scheme the proposed model captures price dynamics absorbing new patterns and forgetting old ones by means of a data driven polyhedral based loss constraint and an optimal mixture of asset price signals we perform a case study to illustrate that it is possible to obtain a loss controlled portfolio with higher expected returns than chosen benchmark strategies considering realistic transaction costs out of sample results obtained by applying our model for each day of the historical data 2000 2015 and updating with realized returns indicate that our robust portfolio exhibited an enhanced performance while successfully constraining possible losses

overturning mundell fiscal policy in a monetary union central to ongoing debates over the desirability of monetary unions is a supposed trade off outlined by mundell 1961 a monetary union reduces transactions costs but renders stabilization policy less effective if shocks across countries are sufficiently correlated then according to this argument delegating monetary policy to a single central bank is not very costly and a monetary union is desirable this paper explores this argument in a setting with both monetary and fiscal policies in an economy with monetary policy alone we confirm the presence of the trade off and find that indeed a monetary union will not be welfare improving if the correlation of national shocks is too low however fiscal interventions by national governments combined with a central bank that has the ability to commit to monetary policy overturn these results in equilibrium such a monetary union will be welfare improving for any correlation of shocks

using genetic algorithms to find technical trading rules1 abstract we use a genetic algorithm to learn technical trading rules for the s p 500 index using daily prices from 1928 to 1995 after transaction costs the rules do not earn consistent excess returns over a simple buy and hold strategy in the out of sample test periods the rules are able to identify periods to be in the index when daily returns are positive and volatility is low and out when the reverse is true these latter results can largely be explained by low order serial correlation in stock index returns

intertemporal profitability and the stability of technical analysis evidences from the hong kong stock exchange this study investigates the impact of market integration on the profitability of two simple and popular technical trading rules the simple moving average sma and the trading range break trb in hong kong using data from 1972 to 2006 we find that the sma 1 50 consistently outperforms the market before the integration of stock exchanges in 1986 under the 1 50 rule a variable length moving average performs better than the fixed length moving average rule by 2 5 to 5 annual before transaction costs because it includes the information of the first 9 days into investors decision the results are robust to the out of sample tests for the validity of the profitability of the trading rules the returns of the trading range break rules are insignificant over the 35 year span our results support the conjecture that stock market integration may lead to better information efficiency the findings of significant pre 1986 profits and insignificant post 1986 profits contradict previous findings that r

naive trading rules in financial markets and wiener kolmogorov prediction theory a study of technical analysis this article attempts a formal study of technical analysis which is a class of informal prediction rules often preferred to wiener kolmogorov prediction theory by participants of financial markets yet wiener kolmogorov prediction theory provides optimal linear forecasts this article investigates two issues that may explain this contradiction first the article attempts to devise formal algorithms to represent various forms of technical analysis in order to see if these rules are well defined second the article discusses under which conditions if any technical analysis might capture those properties of stock prices left unexploited by linear models of wiener kolmogorov theory copyright 1991 by university of chicago press

the macroeconomics of social pacts in this paper we analyze macroeconomic interactions between trade unions the central bank and the fiscal policymaker we explicitly model unions concern for public expenditure paving the way for an analysis of the potential gains from cooperation between the fiscal policymaker and the unions i e the so called corporatist or social pacts that have characterized economic policies in a number of european countries in the last few decades we also highlight the profoundly different incentives generated by institutional arrangements such as the maastricht criteria and the stability and growth pact the former has unambiguously induced more efficient outcomes the latter is likely to backfire

do states free ride in antitrust enforcement i introduction recent research has examined the role of state governments in the united states in antitrust enforcement over the past 20 years what has not been explored is the extent to which states make strategic decisions on their involvement in antitrust litigation in particular while most state antitrust cases involve purely local matters a significant number of these concern more than one state states then need to decide whether to invest in leading an investigation or letting other states take the lead and participating in some lesser role which includes simply signing on to a settlement we view the decision by a state to delay entry into antitrust litigation to be a type of free tiding behavior 1 in this paper we analyze this issue of free riding by states in antitrust activity ii previous literature one of the defining characteristics of a pure public good is the nonexcludability of the benefits from its consumption as benefits can be received by individuals without having to pay for the goods this nonexcludability creates the possibility for a free rider problem as a consequence of this free tiding behavior the private market cannot exact a price for this good and this may mean the private market will provide a suboptimal amount of the good free riders are usually used as justification for government intervention into the private market to allocate these so called public goods in order to correct the market failure while this behavior would seem rational it is not easily observed so the extent of free riding is not generally known researchers have employed experimental game evidence to measure the extent of free riding with results ranging from none to an extreme amount factors found in this literature that appear to decrease the degree of free riding behavior under certain conditions include smaller group size isaac walker and thomas 1984 experience through repeated game play fischbacher and gachter 2010 pregame communication among participants and an ability to exclude players from the group or other sanctions delmas and keller 2005 while the free rider problem and the experimental evidence have focused on private market decision makers it is straightforward to extend these behaviors to self interested governments one possibility is that governments reduce the amount of certain appropriations as a result of private contributions becker and linsday 1994 find a considerable degree of government free riding behavior in the context of appropriations to public higher education institutions an alternative source of free riding does not involve the private sector but is between government activities particularly those with significant spillover effects lee 1988 considers the issue of free riding among countries in their efforts devoted to fighting terrorism more recently sav 2010 finds a similar impact chati and kehoe 2007 provide a theoretical discussion of what they call a free rider problem among members of a monetary union in their fiscal and regulatory policies caused by an inability of the monetary authority to commit to their policies sigman 2002 finds that water pollution control is affected by the degree of spillovers crossing international borders somewhat closer to the focus of this paper konisky and woods 2010 investigate whether u s states free tide in environmental regulatory actions their results are somewhat mixed while they report some impact in reducing state enforcement of the clean air act in their counties adjacent to international borders they do not find this pattern in counties bordering other u s states a recent theoretical paper by choi and gerlach 2012 raises the concern that national antitrust enforcement in a global economy with multi market contact among exporters may be suboptimal due to free riding on the antitrust activity of other countries however no empirical evidence is provided

financial returns and efficiency as seen by an artificial technical analyst abstract we introduce trading rules which are selected by an artificially intelligent agent who learns from experience an artificial technical analyst these rules restrict the data mining concerns associated with the use of simple technical trading rules as model evaluation devices and are good at recognising subtle regularities in return processes the relationship between the efficiency of financial markets and the efficacy of technical analysis is investigated and it is shown that the artificial technical analyst can be used to provide a quantitative measure of market efficiency we estimate this measure on the djia daily index from 1962 to 1986 and draw implications for the optimal behaviour of certain classes of investors it is also shown that the structure of technical trading rules commonly used is consistent with utility maximisation for risk neutral agents and in a myopic sense even for risk averse agents

transactions costs and portfolio choice in a discrete continuous time setting abstract this paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of merton 1971 with transaction costs suppose an investor observes his or her current wealth only when making a transaction that transactions are costly and that decisions to transact can be made at any time based on all current information if at each transaction the agent is charged a fixed fraction of current portfolio value an optimal policy exists and the optimal interval of time between transactions is fixed independent of time and current wealth

politics institutions and fiscal performance in a federal system an analysis of the argentine provinces abstract we posit that the fiscal behavior of argentine provinces is determined by a common pool game at two levels within each province and across political units in the latter game the national government has a greater incentive than the provincial governments to internalize the negative externality of fiscal imprudence given relatively strong party discipline the president is able to induce governors from his party to internalize a portion of the externality to a greater extent than opposition governors in argentina party matters for fiscal behavior but it does so for reasons different from those identified in studies of oecd countries

the economics of split ticket voting in representative democracies in u s elections voters often vote for candidates from different parties for president and congress voters also express dissatisfaction with the performance of congress as a whole and satisfaction with their own representative the authors develop a model of split ticket voting in which government spending is financed by uniform taxes the benefits from this spending are concentrated while the model generates split ticket voting overall spending is too high only if the president s powers are limited overall spending is too high in a parliamentary system the authors model can be used as the basis of an argument for term limits copyright 1997 by american economic association

fiscal and monetary rules for a currency union abstract this paper addresses the optimal joint conduct of fiscal and monetary policy in a two country model of a currency union with staggered price setting and distortionary taxes a tractable linear quadratic approximation permits a representation of the optimal policy plan in terms of targeting rules in the optimal equilibrium monetary policy should achieve aggregate price stability following a flexible inflation targeting rule fiscal policy should stabilize idiosyncratic shocks allowing for permanent variations of government debt but should abstain from creating inflationary expectations at the union level simple policy rules can approximate the optimal commitment benchmark through a mix of strict inflation targeting and flexible budget rules conversely the welfare costs of balanced budget rules are at least one order of magnitude higher than conventional estimates of the costs of business cycle fluctuactions

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

excessive deficits sense and nonsense in the treaty of maastricht maastricht s fiscal rules willem buiter giancarlo corsetti and nouriel roubini the maastricht treaty on economic and monetary union in the ec has specified limits on both government debt and fiscal deficits satisfying these criteria is necessary for getting into emu once inside violating these limits will also incur penalties the fiscal requirements especially the debt criterion are much tougher than is required to ensure public sector solvency trying to attain these targets will force the ec initially into substantial deflation and recession failure to correct for real growth inflation and the business cycle makes the nominal deficit a poor basis for any policy or target ambiguity about how fiscal targets will in fact be interpreted might provide a way out but cannot today be relied upon to do so supranational fiscal rules are sometimes claimed to be justified by externalities in national fiscal policies we find this justification wanting both in theory and empirically a better case might be built on the imposition of external commitments to offset domestic political distortions that systematically induce excessive deficits even so we conclude that the fiscal convergence criteria on balance are harmful and should be disregarded or applied very loosely to avoid the risk of serious fiscal overkill

winners and losers from the uro abstract using the synthetic control method this paper estimates the effect of having joined the monetary union on the income per capita of six early adopters of the euro our estimates suggest that while the income per capita of belgium france germany and italy would have been higher without the euro that of ireland would have been considerably lower in contrast the netherlands would have been as well off without the euro we show that these estimates are not contingent on our choice of baseline control groups growth predictors and pre treatment period in addition we use the insights from the literature on the economic determinants of the costs and benefits of monetary unions to explain our estimates we find that early euro adopters with a business cycle more synchronized to that of the union and more open to intra union trade or migration lost less or gained more from the euro a key role in increasing post euro income losses of union members has been played by the integration of capital markets

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

an analysis of the stability and growth pact we use a stylised model to analyse the stability and growth pact for countries that have formed the european monetary union emu in our model shortsighted governments fail to internalise the consequences of their debt policies for the common inflation rate fully therefore while governments have no incentive to sign a stability pact in the absence of a monetary union they do so with monetary union to restrain this externality with uncertainty a monetary union combined with an appropriately designed pact will be strictly preferred to autonomy with differences in initial conditions conflicts of interest arise we study the nash bargaining solution

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

federalism fiscal restraints and european monetary union a prominent feature of the maastricht treaty on european union is the restrictions it places on fiscal policy under the provisions of the excessive deficit procedure or edp the success of member states in avoiding excessive deficits during the transition to economic and monetary union emu is one of four criteria governing admission to the monetary union once monetary union has begun member states are unconditionally required to avoid excessive deficits a state has an excessive deficit when it is so declared by the european council upon a report by the european commission and a judgment by the monetary committee the edp is set in motion if a country s deficit and general government debt respectively exceed 3 percent and 60 percent of gdp the justification for these procedures is that member states participating in the monetary union must be restrained from overborrowing to avoid destabilizing the common currency if excessive deficits cause a debt crisis the european central bank ecb will come under pressure to bail out the imperiled government the bailout could be ex post in which case the ecb would monetize the government s debt or ex ante in which case it would keep interest rates low to lighten the debt service burden either way unfettered fiscal policies could create inflationary pressures that the ecb will find difficult to resist

trading rule profits in european currency spot cross rates abstract the moving average ma trading rule is applied to six european spot cross rates jy bp dm bp jy dm sf dm sf bp and jy sf to see if opportunities for profitable trading exist the results suggest that ma trading rules are marginally profitable only for the jy dm and the jy sf cross rates while trading rules are not profitable for the other four cross rates bootstrapping and out of sample tests provide similar results examination of subsamples characterized by central bank intervention do not produce different results computation of box pierce statistics adjusted for heteroscedasticity show that daily returns for all six cross rates are serially uncorrelated overall the results suggests that cross rates are sufficiently transparent to eliminate ma trading rule profit

consumption commitments and habit formation we analyze the implications of household level adjustment costs for the dynamics of aggregate consumption we show that an economy in which agents have consumption commitments is approximately equivalent to a habit formation model in which the habit stock is a weighted average of past consumption if idiosyncratic risk is large relative to aggregate risk consumption commitments can thus explain the empirical regularity that consumption is excessively sensitive and excessively smooth findings that are typically attributed to habit formation unlike habit formation and other theories but consistent with empirical evidence the consumption commitments model also predicts that excess sensitivity and smoothness vanish for large shocks these results suggest that behavior previously attributed to habit formation may be better explained by adjustment costs we develop additional testable predictions to further distinguish the commitment and habit models and show that the two models have different welfare implications

time inconsistency and free riding in a monetary union in monetary unions a time inconsistency problem in monetary policy leads to a novel type of free rider problem in the setting of non monetary policies the free rider problem leads union members to pursue lax non monetary policies that induce the monetary authority to generate high inflation free riding can be mitigated by imposing constraints on non monetary policies without a time inconsistency problem the union has no free rider problem then constraints on non monetary policies are unnecessary and possibly harmful this theory is here detailed and applied to several non monetary policies labor market policy fiscal policy and bank regulation

market liquidity hedging and crashes in the absence of significant news hedging strategies were blamed for the stock market crash of october 1987 but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop the authors develop a rational expectations model in which prices play an important role in shaping expectations markets are much less liquid in their model than in traditional models discontinuities or crashes can occur even with relatively little hedging the model is consistent with theories as disparate as keynes beauty contest insights and thom s catastrophe analysis and suggests means to reduce volatility copyright 1990 by american economic association

to be or not to be in monetary union a synthesis article i nfo monetary union can benefit countries suffering from policy credibility problems if it eliminates the inflation bias and also allows for more efficient management of certain shocks but it also carries costs as some stabilization may be feasible even in the absence of credibility and this may be more than what an individual country can hope for in a monetary union in this paper we combine the stabilization and credibility branches of the currency union literature and construct a simple welfare criterion that can be used to evaluate alternative monetary arrangements we produce examples where monetary union may be welfare improving even for low modest levels of inflation bias 2 3 as long as business cycles are not too a synchronized across countries

government finance in a common currency area abstract european integration in 1992 may require greater exchange rate coordination thatn currently exists the delors report goes as far as to recommend the eventual adoption of a single currency however the formation of a common currency area raises fears that independent fiscal policies may produce inferior outcomes this paper shows that lack of cooperation in fiscal policy leads to too little inflation too high taxes and too much government spending jel f33

equilibrium analysis of portfolio insurance a martingale approach is used to characterize general equilibrium in the presence of portfolio insurance insurers sell to noninsurers in bad states and general equilibrium requires that the risk premium rises to induce noninsurers to increase their holdings we show that portfolio insurance increases price volatility causes mean reversion in asset returns raises the sharpe ratio and volatility in bad states and causes volatility to be correlated with volume we also explain why out of the money sp that is the demand for an absolute level of price protection is equivalent to a demand for put options 1 we show that a similar argument can be used in a

linear non linear and essential foreign exchange rate prediction with simple technical trading rules abstract this paper investigates the predictability of spot foreign exchange rate returns from past buy sell signals of the simple technical trading rules by using the nearest neighbors and the feedforward network regressions the optimal choices for nearest neighbors hidden units in a feedforward network and the training set are determined by the cross validation method which minimizes the mean square error although this method is computationally expensive the results indicate that it has the advantage of avoiding overfitting in noisy environments and indicate that simple technical rules provide significant forecast improvements for the current returns over the random walk model

optimal consumption and portfolio rules with intertemporally dependent utility of consumption abstract in the usual consumption portfolio problem lifetime utility is assumed to be time additive this assumption has been criticized for failing to capture important intertemporal dependencies in utility such as intertemporal risk aversion and habit formation this paper studies the consumption portfolio problem for a class of intertemporally dependent utility functions

monetary and fiscal policies interaction in monetary unions in this paper the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed by adopting the concept of symbiosis as a starting point the paper highlights the importance of uncertainty policy makers preferences and targets then the role of commitment to policy rules and coordination is addressed the analysis also focuses on the importance of the data considered for the generation of the policy mix as a final step the paper discusses the main results in the literature on public debt management in a monetary union all the reported theoretical results are then adopted to retrieve policy and institutional implications for the european monetary union

when do cooperation and commitment matter in a monetary union abstract this paper offers a framework to study strategic interactions between private players national fiscal authorities and a common central bank in monetary unions we establish general conditions in terms of restrictions on spillover effects of actions by private and public players under which games that differ in the degree of cooperation and commitment can admit the same equilibrium outcome we use these conditions to characterize benchmark results on the irrelevance of cooperation and commitment established in recent literature moreover we show for a general setting in which the benchmark results do not apply that gains from fiscal cooperation depend on the number of countries and increase as this number gets larger

on the need for fiscal constraints in a monetary union the desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to following its policies if it can commit then debt constraints can only impose costs if it cannot commit then fiscal policy has a free rider problem and debt constraints may be desirable this type of free rider problem is new and arises only because of a time inconsistency problem

the competitive externalities and the optimal seignorage this study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank the author derives the sequential rational expectation equilibrium and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax laffer curve the analysis is interpreted for a country consisting of several states or provinces where the centralized government system is weak similar results apply to the case of competing ministers in an economy where the central bank is weak copyright 1992 by ohio state university press

convertible bonds issued in the bear market period evidence from taiwan we argue that the behaviour of enterprises might be modified or even changed completely after black swan events occur we explore why high tech firms preferred to issue convertible bonds in 2001 2003 the bear market period after the tech bubble in taiwan we show that firms issuing convertible bonds are those with low directors holding ratio and high debt ratio results also reveal that corporate governance was worse in the firms that issued convertible bonds as revealed by the finding that the directors holding ratio of these issuing firms declined considerably this finding also implies that corporate governance issues become more serious after black swan events

tradable deficit permits efficient implementation of the stability pact in the european monetary union tradable deficit permits efficient implementation of the stability pact borrowing from the experience of environmental markets this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the european monetary union having chosen an aggregate target for the union and an initial distribution of permits emu countries could be allowed to trade rights to deficit creation the scheme exploits countries incentives to minimize their costs is transparent and flexible in accommodating idiosyncratic shocks and allows for adjustments in case of europe wide recessions in addition it need not treat all countries identically and can be designed to penalize countries with higher debt to gdp ratios finally the scheme rewards countries for reducing their deficit below the initial allowance lending credibility to the stability pact s goal of a balanced budget in the medium run alessandra casella

myopic and perfect foresight in the olg model we compare the dynamics under myopic foresight and under perfect foresight in an overlapping generations model with capital accumulation and two period lived individuals when the rational dynamics are defined and the myopic dynamics are monotonic the study of myopic foresight allows to characterize the dynamics under perfect foresight the study of myopic dynamics also allows to obtain a condition of uniqueness of the steady state that bears only on the second order derivatives of the utility and production functions

technical analysis and the spanish stock exchange testing the rsi macd momentum and stochastic rules using spanish market companies the aim of this research is to examine the result of the application of the indicators relative strength index rsi moving average convergence divergence macd momentum and stochastic in different companies of the spanish continuous market by using these indicators it is intended to give purchase and sale recommendations to small investors the generation of great capital gains depends on the type of the stock exchange company and the indicator which is being used in addition this research solves the problems in case of ambiguity in the indicators for the traders

stable classes of technical trading rules technical analysis includes a huge variety of trading rules this fact has always been a serious hindrance to the large number of market efficiency studies implemented either to demonstrate the profitability of market beating systems or to deny their operational feasibility for evident reasons it is practically impossible and theoretically weak to systematically analyse the entire body of all trading rules we therefore propose a novel method to form natural classes of trading rules which are found to be robust to changing market scenarios in particular groups are formed adopting a similarity measure based on the investing signals of the trading rules our clustering methodology adopts a markov chain bootstrapping technique to generate differentiated scenarios preserving volume and price joint distributional features an application is developed on a sample of 674 trading rules results show that six groups here identified as trading styles are sufficient to explain the large portion of the investing

federal fiscal transfer rules in monetary unions abstract this paper considers simple rules for federal fiscal transfers that automatically redistribute funds among member states of a monetary union to counteract adverse idiosyncratic shocks the transfer rules target regional differences in nominal gdp consumption spending labor income and fiscal deficits targeting regional fiscal deficits is the only rule that reduces consumption fluctuations and that promotes interregional consumption risk sharing but the overall welfare effect is negative in contrast targeting regional differences in labor income yields the largest welfare gains but it also yields the largest fluctuations in consumption and real gdp it is demonstrated that the welfare gains primarily stem from reducing the allocative inefficiency of input factors caused by nominal rigidities the optimal transfer rule essentially implies a combination of consumption spending and labor income targeting and it primarily targets the allocative inefficiency of factor inputs at the cost of lower interregional consumption risk sharing

fiscal federalism and monetary unions a quantitative assessment abstract in this paper i provide a quantitative analysis of three different forms of fiscal federalism in monetary unions fully decentralized regional fiscal authorities as the benchmark fiscal equalization with nominal tax revenue sharing and a common central fiscal authority i assess the capability of the different arrangements to stabilize regional consumption output and employment over the business cycle i also study the implications for interregional income consumption risk sharing and welfare from this analysis the following results emerge first a central fiscal authority stabilizes consumption fluctuations and increases the scope of interregional income and consumption risk sharing second fiscal equalization destabilizes consumption fluctuations and also reduces the scope of interregional income and consumption risk smoothing third a central fiscal authority leads to welfare gains whereas fiscal equalization leads to welfare losses

a comparison of nominal and indexed debt under fiscal constraints this paper makes a welfare comparison between the issuance of price indexed and nominal public debt in the presence of fiscal constraints viz a debt constraint a deficit constraint and a combination of both distortionary taxes or public consumption are regulated to avoid the violation of the relevant fiscal constraint s under a debt constraint indexed debt is generally preferred while under a deficit constraint the results are more mixed introducing inflation persistence and raising the maturity of the debt tend to increase the magnitude of the welfare differences between the two types of debt welfare differences are further affected by the degree to which public consumption and tax revenues are indexed to actual versus structural nominal gdp

commitment and the adoption of a common currency in contrast to mundell s inquiry on the optimality of currency areas this article aims to understand under what circumstances a pareto dominant monetary union will be established using a multicountry overlapping generations model we highlight gains from monetary union arising from reduced transactions costs and lower inflation despite these gains countries acting independently will impose barriers to exchange through local currency restrictions thereby creating transactions costs and providing an incentive for inflation therefore the gains from monetary union are most likely to be lost without collective effort