bluuebunny/crossref_metadata_2025 huggingface dataset:
Likelihood Ratio Tests for Seasonal Unit Roots
Authors: Smith Richard J. , Taylor A. M. Robert
Published: March 2003

This paper proposes regression‐based likelihood ratio or F tests for the seasonal unit root hypothesis which fully incorporate the implicit restrictions on the parameters associated with the deterministics. These statistics are similar both exactly and asymptotically with respect to initial values and seasonal drift parameters. The limiting representations of the statistics are presented for a general seasonal aspect. These limiting representations allow those for other scenarios concerning the deterministics to be simply obtained and provide an explanation for the similarity between critical values in apparently quite different cases of interest. We re‐examine the seasonal unit root properties of the logarithm of monthly seasonally unadjusted real industrial production in Canada.
On Assessing Prediction Error in Autoregressive Models
Authors: Kabaila Paul , He Zhisong
Published: March 2003

Zhang and Shaman (Assessing prediction error in autoregressive models. Trans. Am. Math. Soc. 347, (1995), 627–37) pose the problem of estimating the conditional mean square one‐step‐ahead prediction error (CMOPE) for a Gaussian first‐order autoregressive process. They put forward a certain estimator (with small asymptotic bias) of CMOPE and propose that its effectiveness be judged by its asymptotic correlation with CMOPE. Unfortunately, the derivation of this correlation by Zhang and Shaman (1995) is incomplete. It is very difficult to complete this derivation. For this reason we use Monte Carlo simulation to gain some insight into the correlation of the estimator with CMOPE. The results of this simulation show that the estimator is extremely poor. We then propose an alternative estimator (with small asymptotic bias) of CMOPE which is shown from Monte Carlo simulation results to have higher large‐sample correlation with CMOPE than the estimator of CMOPE put forward by Zhang and Shaman (1995).
Unit Roots and Asymmetric Smooth Transitions
Authors: Sollis Robert , Leybourne Stephen , Newbold Paul
Published: March 2003

It has been found useful, as an alternative to a difference‐stationary generating model, to consider the possibility of stationarity around a function that permits a smooth transition from one linear trend to another. Previous research has concentrated on functions that are symmetric around the point at which 50% of the transition is completed. Here we permit the possibility of asymmetry in the transition, allowing for example slow entry to and rapid exit from this evolutionary phase. It is shown through simulation and an interesting real data set that this can lead to the detection of further departures from difference stationarity.
Lag length estimation in large dimensional systems
Authors: GONZALO JESÚS , PITARAKIS JEAN‐YVES
Published: March 2003

We study the impact of the system dimension on commonly used model selection criteria (AIC, BIC, HQ) and LR based general to specific testing strategies for lag length estimation in VARs. We show that AIC's well known overparameterization feature becomes quickly irrelevant as we move away from univariate models, with the criterion leading to consistent estimates under sufficiently large system dimensions. Unless the sample size is unrealistically small, all model selection criteria will tend to point towards low orders as the system dimension increases, with the AIC remaining by far the best performing criterion. This latter point is also illustrated via the use of an analytical power function for model selection criteria. The comparison between the model selection and general to specific testing strategy is discussed within the context of a new penalty term leading to the same choice of lag length under both approaches.
Is Arbitration Habit Forming? The Narcotic Effect of Arbitration Use
Authors: Champlin Frederic , Bognanno Mario , Schumann Paul
Published: March 2003

This paper explores the existence of structural state dependence in arbitration use where it is legally mandated to resolve labor–management bargaining disputes. Previous studies have found both positive state dependence (the narcotic effect) and negative state dependence. This paper reports a negative state dependence for the Minnesota public sector during the period 1973 to 1980. A weak positive trend in arbitration probabilities and a positive relationship between current arbitration probabilities and the proportion of bargainers engaging in arbitration during the same calendar year are also found. An analysis of the dynamic implications of these findings does not support fears that compulsory arbitration schemes are unstable or lead to arbitration as the dominant settlement mode.
Testing for the Price‐ and Wage‐Setting Model in Belgium Using Multivariate Cointegration Tests
Authors: Hecq Alain , Mahy Benoît
Published: March 2003

Using multivariate cointegration tests based on Johansen's approach, this paper tests for the existence of long‐run relationships between real wages and other explaining variables in Belgium. We retain two cointegrating vectors which can refer to wage and price setting behaviours.
The Dynamics of International Competitiveness: First Results from an Analysis at the Industry Level
Authors: Paleotti Paolo Guerrieri , Maggiolini Paola , Zezza Gennaro
Published: March 2003

The paper uses the key role of technology as starting point in determining trade flows and international competitiveness at industry and country level as a growing number of theoretical contributions and empirical verifications have recognized over the past decade. The paper uses a set of new data on trade, production, technology and costs at industry level for a certain number of countries to relate trade performance to a set of different economic and technological factors across countries and industrial sectors since the early 1970s. A single model of trade specialization is applied to the data in order to establish the impact of innovation, costs and country specific factors to overall performance, both in the short run and the long run, via a panel data analysis. Model specification follows the cointegration approach, where a long‐run cointegrating vector is estimated along with the dynamic adjustment towards long‐run equilibrium. The paper presents some preliminary results, related to a certain number of different industrial sectors for the major industrialized countries.
Human Capital, Trade Openness and Growth in Argentina in the 20th Century
Authors: Véganzonès Marie‐Ange , Winograd Carlos
Published: March 2003

We estimate a production function that accounts for the economic performance of the country in the 20th century. We elaborate long term time series whereas most of the recent empirical studies on growth are based on cross section analysis. This approach allows us to follow the various regime changes that can be identified in the rich economic history of Argentina. To evaluate Total Factor Productivity (TFP) we initially test the classical Solow Model. We estimate the speed of convergence of TFP and obtain a non convergence result. This speed of convergence has declined since the 1930s, and we find a phenomenon of divergence in the period 1970–90. We then analyse the impact on production of additional variables recently highlighted in the endogenous growth literature such as the process of catch up of foreign technical progress, human capital and trade openness. Chow tests for this extended production function give us a strong probability of changes in the growth regimes. The estimation, that takes into consideration the break points identified, shows that the impact of trade openness and foreign technology is not stable throughout the century. In what concerns the impact of education on economic growth, we find a strong effect of primary education on growth, and a weaker effect of secondary‐university education.
Gender and Promotion in the Academic Labour Market
Authors: Van Der Burg Brigitte , Siegers Jacques , Winter‐Ebmer Rudolf
Published: March 2003

Several hypotheses are put forward with respect to promotion differentials between males and females on the academic labour market. These hypotheses are tested on the basis of a longitudinal data set of academic staff members at Utrecht University. The methods applied include Poisson regression, Negative Binomial analysis and Probit analysis. Full‐time instead of part‐time work and a Ph.D. degree prove to be efficient but not sufficient instruments for women on the academic labour market to catch up with men with respect to promotions.
Jurassic Union Man? A Profile of the British Trade Union Member
Authors: Brown Sarah , Sessions John G.
Published: March 2003

This paper examines the determinants of trade union membership in Great Britain utilising micro‐data taken from the British Social Attitudes Survey over the period 1985–91. Our results suggest that, contrary to previous micro‐studies, personal characteristics and the perceptions of workers' attitudes as regards their working environment impact significantly upon the decision to join a trade union. Moreover, it would appear that the union membership decision is becoming increasingly endogenised, especially in the case of the white‐collar worker.
Employment Illusion, Variable Costs of Migration and Labour Mobility
Authors: Bosco Luigi
Published: March 2003

Why is internal migration in Italy so modest despite the presence of high differentials in employment rates? The paper proposes two different explanations. First, since migration is an investment with non‐recoverable costs, it depends not only on the current differential between incomes in the two regions but also on expectations about the same differential in the future. Therefore, the existence of a relatively low differential between adult employment rates is a strong disincentive against migration in the presence of static expectations. The second explanation of the phenomenon is based on the role played by the network costs of migration. If they are important, it is evident that the changes and productive reallocations that have characterized the Italian economy in recent years are important in explaining the decline of migration.
Taxes and Women in the Labour Force in a Southern European Country: The Case of Portugal
Authors: Marques Ana Cristina Lino , Pereira Pedro Telhado
Published: March 2003

On looking at the female labour supply in Europe, it is immediately noticed that there is a large variation among countries. One possible explanation for this fact is that different countries have different tax policies, leading to variations in incentive and costs. This has been investigated in papers such as that of Gustafsson (1992a,b) for countries such as Germany and Sweden. The same exercise has been performed by the present authors for a low‐income, southern European country, Portugal, which has one of the highest rates of female participation (out of line with neighbouring countries). Female labour supply does not seem to be very sensitive to fiscal policies, as those policies have only a small influence on the take‐home wage. This result appears to be independent of the fact that the female labour supply shows a higher elasticity to wages than that which has been reported for other countries. The present authors also show that Portuguese women contribute a much larger proportion of family earnings than do their counterparts in Sweden and Germany, and that the Portuguese fiscal system is rather neutral. Further studies with data from other countries are needed in order to shed more light on the issue of tax harmonization.
Unemployment Determinants for Women in Spain
Authors: Lázaro Nieves , Moltó Marı´a Luisa , Sánchez Rosario
Published: March 2003

Spain has one of the highest rates of unemployment among OECD countries. Some explanations for this stress the importance of unemployment duration compared with entry rates to the unemployment pool. Long‐term unemployment rates are particularly high among women in Spain. The object of this paper is to investigate the determinants of unemployment duration among women. It will consider personal characteristics (education and age), family background, socio‐economic variables (the number of household earners and household income) and the effect of unemployment benefits, using data from the Household Expenditure Survey 1990–91.
Union Membership and the Union Wage Gap in the UK
Authors: Arabsheibani G. Reza , Marin Alan
Published: March 2003

We consider the choice of union membership in the UK and its effect on the union/non‐union wage differential allowing for the endogeneity of the union choice. We include identifying variables not previously used and find that correcting for selectivity is important and has a large impact on the estimated differential. Moreover, union choice is itself affected by the wage gap.
Employment Policy, the Crowding‐out Effect and Imperfect Competition
Authors: Chang Juin‐jen , Lai Ching‐chong , Liao Chia‐lih , Chang Wen‐ya
Published: March 2003

This paper presents a macroeconomic model with imperfect competition in the commodity market, and uses it to address how the commodity market’s structure is related to the efficacy of government employment policies. It is found that job creation in the public sector may lead to a decrease in output and an increase in prices. In particular, these adverse side‐effects will be alleviated when competition in the goods market is less perfect. We also find that public‐sector job creation definitely has a positive effect on total employment, though it may crowd out private‐sector employment.
The Rise in Union Wage Premiums in South Africa
Authors: Hofmeyr Julian , Lucas Robert
Published: March 2003

The earnings premium received by African, urban, male union members in South Africa, as compared to other regular, urban male employees, is explored using two national sample surveys conducted in 1985 and 1993. The historical setting of this change is of particular interest, in the light of the transformation from the apartheid regime. Union membership grew very rapidly during this interval, as earlier prohibitions on African unions were lifted. Subsequently, the high rates of unemployment and segmentation of the labor force have been issues of central concern to the new government, elected in 1994. In this context, the paper extends prior methodology, by systematically comparing possible approaches to estimation, in addition to contributing fresh empirical results. Four approaches to estimation are adopted, allowing for: a single earnings regime with union dummy variable; the possibility of different earnings regimes among union members as compared to non‐members; endogenous switching between such regimes; sample selection arising from lack of employment and from division between regular and informal work. A series of tests on nested specifications indicate the importance of recognizing endogenous switching between differing pay structures in the covered and uncovered sectors. However (as with previous research on the South African labor market), no sample selection is detected with respect to employment status. The results suggest that collective bargaining resulted in wage compression among the expanding union membership while significantly widening the gap between members and non‐members. The latter widening gap cannot be attributed to the changing composition of union membership as reflected in observed characteristics of employees.
Rehires and Unemployment Duration in the Swedish Labour Market — New Evidence of Temporary Layoffs
Authors: Jansson Fredrik
Published: March 2003

The paper investigates temporary layoffs in the Swedish labour market. Previous reports of few temporary layoffs are rejected. About 45 percent of unemployed people who found a job returned to a previous employer. As a stock measure, 10 percent of the unemployed are on temporary layoff. Using new job and recall as distinct exits in a competing risks model, one cannot reject a horizontal duration dependence for new jobs, while the recall hazard shows a strong, negative duration dependence. Clearer predictions of the effect of education on job probabilities are also found. Further, the results probably have implications for the interpretation of several policy parameters, including labour market programme outcomes.
Comprehensible Output, From Occurrence to Acquisition:An Agenda for Acquisitional Research
Authors: Shehadeh Ali
Published: March 2003

After over a decade of research into Swain’s (1985) comprehensible output (CO) hypothesis, there is still a severe lack of data showing that learner output or output modifications have any effect on second–language (L2) learning. Izumi and Bigelow (2000, p. 245) argued that this is because, in most cases, researchers assumed rather than showed whether and how output helps with language learning. In this article, I will argue that this, in turn, is because existing research on CO was mostly descriptive in nature, focusing primarily on occurrence per se rather than acquisition or whether and how output can be a source of competence in the L2. I will outline a research agenda that makes acquisitional research central to the study of CO.
Processing the Content of Input–Processing and Processing Instruction Research: A Response to DeKeyser, Salaberry, Robinson, and Harrington
Authors: VanPatten Bill
Published: March 2003

In the unenviable position of having to reply in approximately 1,000 words to several noted scholars about their comments on my article “Processing Instruction: An Update,” I apologize in advance for the inability to address all of their comments in detail.
Telecommunications and Crime: Regulatory Dilemmas
Authors: Grabosky P. N. , Smith Russell G.
Published: March 2003

This paper examines the regulatory context of crime arising from the connectivity of computing and communications. Nine varieties of telecommunications‐related crime are considered: theft of services, communications in furtherance of criminal conspiracies, telecommunications piracy, the dissemination of offensive materials, electronic money laundering, electronic vandalism, telemarketing fraud, illegal interception, and electronic funds transfer fraud. The paper concludes that the most appropriate configuration of regulatory strategies for the control of telecommunications‐related crime entails a mixture of law enforcement, and technological and market‐based solutions. The pursuit of a strict regulatory agenda is, in most cases, not feasible because of the limited capacity of the state. Over‐regulation, moreover, may stifle commercial and technological development. It is argued that the marketplace may be able to provide more efficient solutions to the problems of telecommunications crime than state interventions.
Regulatory Enforcement in Local Government in Japan
Authors: Kitamura Yoshinobu
Published: March 2003

The Japanese inspectors usually adopt an “informal measure‐oriented” style in enforcing violations of regulatory statutes. They prefer administrative guidance with no legally binding effect to compliance orders or criminal prosecution. These formal measures, they think, would erode the cooperative relationship with the regulatee, which is believed essential for cost‐effective enforcement. In contrast to that in the United States, the Japanese enforcement process lacks citizen participation and information disclosure, this enabling the inspectors to deal with violations at their own pace.
Adverse Selection and the Market for Building Society Mortgage Finance
Authors: Drake Leigh M. , Holmes Mark J.
Published: March 2003

This study investigates the possibility of adverse selection in the U.K. mortgage market. Long‐ and short‐run equations for the supply and demand for building society net advances are estimated using the Johansen procedure and three‐stage least squares. We identify a long‐run backward‐bending mortgage supply curve with a bank‐optimal nominal mortgage rate of 11·86 per cent, and from the cointegrating vectors we are able to estimate good error‐correction representations of supply and demand using three‐stage least squares. We find that the adjustment of supply and demand towards their long‐run equilibrium values is fairly slow.
On the Proper Use of Ordinal Variables—A Comment
Authors: Skott Peter
Published: March 2003

Human capital theory has been criticized for using an ordinal variable (human capital) as if it were cardinal (Leslie, D. (1995). “On the Proper Use of Ordinal Variables in Labour Market Models”, The Manchester School, Vol. 63, No. 2, pp. 196–205). It is shown in this note that this particular criticism is unwarranted: the use of human capital in the models discussed by Leslie satisfies Leslie's own criterion for the proper use of ordinal variables.
Interest Rate Control in a Model of Monetary Policy
Authors: Dale Spencer , Haldane Andrew G.
Published: March 2003

We extend the model of Bernanke and Blinder (‘Credit, Money, and Aggregate Demand’, American Economic Review, Papers and Proceedings (1988), pp. 435–439) to consider formally interactions between the monetary authorities and the banking sector. Monetary policy is characterized in terms of the authorities' control over prices in the base money market, rather than quantities. But those market rates directly impinging upon real activity are distinct from—although not independent of—this administered rate. Imperfect control over market interest rates obtains. An empirical illustration is given for the UK, and the model is then extended into a stochastic setting.
Laws on Long‐term Prices
Authors: Bidard Christian
Published: March 2003

Long‐term prices depend on distribution in a complex way, especially when choice of technique is allowed. It is shown, however, that the movement of prices in terms of wage obeys certain laws. More precisely the movement is characterized in terms of linear programming problems. Necessary or sufficient conditions connected with the convexity of the wage–profit curves are also obtained. But, with regard to the relative prices of commodities, they vary arbitrarily, so that the Wicksell price effects are not under control.
Lorenz Domination, Utilitarian Deprivation Rule and Equal Sacrifice Principle
Authors: Chakravarty Satya R. , Mukherjee Diganta
Published: March 2003

Of two income distributions x and y, over a given population size, we say that the former dominates the latter by the utilitarian deprivation rule if, for any person, the aggregate utility shortfall from richer persons under x is at least as large as that under y. In this paper we show that if the relative risk aversion associated with the utility function does not exceed unity, then any Lorenz‐consistent income tax function will make the post‐tax distribution no more deprived than the pre‐tax distribution according to the utilitarian deprivation rule. The converse of this proposition holds if the risk‐aversion measure is not less than one. It then follows that if the utility function is of logarithmic type then consistency between the two criteria holds. Finally, we relate our results to the equal sacrifice principle.
Tests of non‐linearity using LIFFE futures transactions price data
Authors: Ap Gwilym O. , Brooks C. , Clare A. , Thomas S.
Published: March 2003

This paper presents and implements a number of tests for non‐linear dependence and a test for chaos using transactions prices on three LIFFE futures contracts: the Short Sterling interest rate contract, the Long Gilt government bond contract, and the FTSE 100 stock index futures contract. While previous studies of high frequency futures market data use only those transactions which involve a price change, we use all of the transaction prices on these contracts whether they involve a price change or not. Our results indicate irrefutable evidence of non‐linearity in two of the three contracts, although we find no evidence of a chaotic process in any of the series. We are also able to provide some indications of the effect of the duration of the trading day on the degree of non‐linearity of the underlying contract. The trading day for the Long Gilt contract was extended in August 1994, and prior to this date there is no evidence of any structure in the return series. However, after the extension of the trading day we do find evidence of a non‐linear return structure.
Contagion and the Asian Currency Crisis
Authors: Reside Jr Renato E. , Gochoco‐Bautista Maria Socorro
Published: March 2003

This study attempts to examine relationships among exchange rates in the Asian region using cointegration methods and to isolate country‐specific effects of contagion using an error correction model. Monthly data covering the period from July 1992 to December 1997 are used. Dynamic simulations of exchange rates with and without short‐run effects of exchange rate shocks are performed. The results indicate that stable long‐run relationships exist among exchange rates in the region. Simulation results for some countries indicate that these countries’ exchange rates would have depreciated in the long run even in the absence of the short‐run effects of potential contagion from other countries, while for other countries the opposite is true.
Domestic Equity Controls of Multinational Enterprises
Authors: Chao Chi‐Chur , Yu Eden S. H.
Published: March 2003

We use a general equilibrium model to examine the welfare effect of domestic equity requirements on multinational firms in the presence of alternative types of trade instruments and varying degrees of the mobility of foreign capital. It turns out that, under quotas, raising equity requirements improves welfare in the short run but reduces welfare in the long run. In contrast, when tariffs are in place, the policy of domestic equity requirements lowers welfare in the short run but raises welfare in the long run.
Banking Economic Efficiency In The Deregulation Period: Results From Heteroscedastic Stochastic Frontier Models
Authors: Christopoulos Dimitris K. , Tsionas Efthymios G.
Published: March 2003

The paper provides quantitative estimates of technical and allocative inefficiency measures of the Greek banking sector in the deregulation period. Such estimates are useful tools for bank managers and policymakers in view of the extensive restructuring of the Greek financial system in recent years, and participation of Greece in the Euro‐zone. The paper generalizes recent approaches based on heteroscedastic stochastic frontier models, and shows how to measure both technical and allocative efficiency in such models. The method is applied to cost function estimation for the banking sector. It is found that technical inefficiency is close to 20 per cent, allocative inefficiency is also a substantial part of costs, averaging 14 per cent, and both components have improved drastically in the deregulation period. This suggests that there is plenty of room for improvement in Greek bank profitability and competitiveness in the new European financial environment.
Real and Nominal Shocks to Exchange Rates: Does the Regime Matter?
Authors: Gallagher Liam A. , Kavanagh Ella
Published: March 2003

In this paper we investigate the source of Irish real and nominal exchange rate movements during the Exchange Rate Mechanism period. A restricted vector autoregression is employed to decompose Irish pound exchange rate movements into changes due to real and nominal factors, for three bilateral exchange rates—sterling–Irish pound, mark–Irish pound and dollar–Irish pound. The pattern of nominal exchange rate overshooting in response to nominal shocks and the relative importance of nominal shocks as drivers of nominal exchange rates differ between the flexible regime (sterling–Irish pound and dollar–Irish pound) and the target zone arrangement (mark–Irish pound). In contrast real shocks predominantly explain variations in real exchange rates and are independent of the exchange rate regime.
Term Structure Forecasts of Inflation: Some Further Results
Authors: Blake N. , Henry S.G.B. , Robertson D.
Published: March 2003

New evidence is presented on the information content of expected inflation derived from index–linked and conventional yield curves. Using monthly data the tests are done over three expectations horizons: 6, 12 and 24 months. In each case we find that there is little information content in this yield–curve–based expected inflation data. In the 12– and 24–month cases, the tests call on an alternative expected inflation series derived from consumer expectations surveys. We show that the use of the latter data renders the yield–curve–based data insignificant over these horizons.
Can Conservatism Be Counterproductive? Delegation and Fiscal Policy in a Monetary Union
Authors: Pina Álvaro Manuel
Published: March 2003

This paper studies central bank independence in a model of a monetary union where fiscal policies remain the responsibility of national governments and generate externalities. Governments may either coordinate fiscal policy or not, and three forms of delegation are considered: Rogoff‐type ‘weight independence’, inflation targets and linear inflation contracts. The key results are as follows. Under fiscal coordination, ‘conservatism’ holds and targets (or contracts) outperform ‘weight independence’. Without fiscal coordination, ‘anti‐conservatism’ may be optimal when fiscal spillovers are negative, as it reduces governments’ activism; and ‘weight independence’ is restored, since it can alleviate distortions in shock stabilization.
An Arbitrage‐free Model of the Yield Gap
Authors: Spencer Peter D.
Published: March 2003

In this paper I adapt the perpetual bond valuation model of Cox, Ingersoll and Ross (Journal of Finance, Vol. 35, No. 2 (1980), pp. 389–404) to allow for non‐linear mean reversion in the short‐term interest rate. In their model, the consol price is inversely proportional to the short‐term interest rate. Allowing appropriately for mean reversion has the effect of adding a positive intercept constant to this elementary valuation formula. This modification also gives the short‐term rate a Γ distribution in steady state. The model is used to develop a coherent econometric model of the relationship between short‐ and long‐term rates in the USA and Japan. In contrast, the Cox, Ingersoll and Ross 1985 model (Econometrica, Vol. 53, No. 2 (1985), pp. 385–407) fails to satisfy the relevant cross‐equation restrictions.
Calibrating a Diffusion Pricing Model with Uncertain Volatility: Regularization and Stability
Authors: SAMPERI DOMINICK
Published: March 2003

A regularized (smoothed) version of the model calibration method of Avellaneda, Friedman, Holmes, and Samperi (1997) is studied. We prove that the regularized formulation is solvable and that the solution depends continuously on the input data (observed derivative security prices). Associated issues of model credibility, stability, and robustness (insensitivity to model assumptions) are discussed. The Implicit Function Theorem for Banach spaces is used for the stability proof, and some numerical illustrations are included.
Backward Stochastic Differential Equations in Finance
Authors: El Karoui N. , Peng S. , Quenez M. C.
Published: March 2003

We are concerned with different properties of backward stochastic differential equations and their applications to finance. These equations, first introduced by Pardoux and Peng (1990), are useful for the theory of contingent claim valuation, especially cases with constraints and for the theory of recursive utilities, introduced by Duffie and Epstein (1992a, 1992b).
Applications of Eigenfunction Expansions in Continuous‐Time Finance
Authors: Lewis Alan L.
Published: March 2003

We provide exact solutions for two closely related valuation problems in continuous‐time finance. The first problem is to value generalized European‐style options on stocks that pay dividends at a constant dollar rate. The second problem is to find the yield curve associated with the economy of R. C. Merton's “An Asymptotic Theory of Growth Under Uncertainty.” In Merton's economic growth model, the interest rate process has a volatility linear in the rate level and a linear/quadratic drift. Both problems are solved by an eigenfunction expansion technique. The main technical difficulty is handling the problem of payoff functions that are not square‐integrable with respect to the natural weight function of the models.
Bounds on European Option Prices under Stochastic Volatility
Authors: Frey Rüdiger , Sin Carlos A.
Published: March 2003

In this paper we consider the range of prices consistent with no arbitrage for European options in a general stochastic volatility model. We give conditions under which the infimum and the supremum of the possible option prices are equal to the intrinsic value of the option and to the current price of the stock, respectively, and show that these conditions are satisfied in most of the stochastic volatility models from the financial literature. We also discuss properties of Black–Scholes hedging strategies in stochastic volatility models where the volatility is bounded.
European‐Type Contingent Claims in an Incomplete Market with Constrained Wealth and Portfolio
Authors: Yong Jiongmin
Published: March 2003

This paper considers the problem of hedgeability and replicability of European‐type contingent claims in an incomplete market with the wealth and the portfolio possibly being constrained. For the case of no constraint, using the idea of a Four Step Scheme (Ma, Protter, and Yong 1994), we prove the replicability of a class of contingent claims (including European call and put options) without assuming ad hoc technical conditions. For the case with the wealth and portfolio being constrained, several positive and negative results concerning hedgeability and replicability are presented.
Value Preserving Strategies and a General Framework for Local Approaches to Optimal Portfolios
Authors: Korn Ralf
Published: March 2003

We present some new general results on the existence and form of value preserving portfolio strategies in a general semimartingale setting. The concept of value preservation is derived via a mean‐variance argument. It is also embedded into a framework for local approaches to the problem of portfolio optimization.
Randomized Stopping Times and American Option Pricing with Transaction Costs
Authors: Chalasani Prasad , Jha Somesh
Published: March 2003

In a general discrete‐time market model with proportional transaction costs, we derive new expectation representations of the range of arbitrage‐free prices of an arbitrary American option. The upper bound of this range is called the upper hedging price, and is the smallest initial wealth needed to construct a self‐financing portfolio whose value dominates the option payoff at all times. A surprising feature of our upper hedging price representation is that it requires the use of randomized stopping times (Baxter and Chacon 1977), just as ordinary stopping times are needed in the absence of transaction costs. We also represent the upper hedging price as the optimum value of a variety of optimization problems. Additionally, we show a two‐player game where at Nash equilibrium the value to both players is the upper hedging price, and one of the players must in general choose a mixture of stopping times. We derive similar representations for the lower hedging price as well. Our results make use of strong duality in linear programming.
Leland's Approach to Option Pricing: The Evolution of a Discontinuity
Authors: Grandits Peter , Schachinger Werner
Published: March 2003

A claim of Leland (1985) states that in the presence of transaction costs a call option on a stock S, described by geometric Brownian motion, can be perfectly hedged using Black–Scholes delta hedging with a modified volatility. Recently Kabanov and Safarian (1997) disproved this claim, giving an explicit (up to an integral) expression of the limiting hedging error, which appears to be strictly negative and depends on the path of the stock price only via the stock price at expiry ST. We prove in this paper that the limiting hedging error, considered as a function of ST, exhibits a removable discontinuity at the exercise price. Furthermore, we provide a quantitative result describing the evolution of the discontinuity: Hedging errors, plotted over the price at expiry, show a peak near the exercise price. We determine the rate at which that peak becomes narrower (producing the discontinuity in the limit) as the lengths of the revision intervals shrink.
The Price‐Volatility Feedback Rate: An Implementable Mathematical Indicator of Market Stability
Authors: Barucci Emilio , Malliavin Paul , Mancino Maria Elvira , Renò Roberto , Thalmaier Anton
Published: March 2003

Geometric analysis of iterated cross‐volatilities of asset prices is adopted to assess the stability of the (risk‐free) measure under infinitesimal perturbations. Perturbations of asset prices evolve through time according to an ordinary linear differential equation (hedged transfer). The decay (feedback) rate is explicitly computed through a Fourier series method implemented on high frequency time series.
Should/Can Philosophy be Ethnic? Varieties of Internationalism in Philosophy
Authors: Sasaki Ken‐Ichi
Published: March 2003

This paper describes the situation of philosophy in Japan with respect to the question of internationalism. For more than a hundred years, Japan took Western culture as its model and European philosophy as the authentic philosophy. This tendency was paradoxically strengthened by the post‐war humanism. It gave us Japanese philosophers a clear discipline to work in but cut us off from our own native culture, history, and philosophical traditions. In wishing to recover this loss, I argue that it is necessary to distinguish between two forms of internationalism: humanistic and merely fashionable. The latter in fact derives from domestic reasons.
The Conditions of Philosophy in Totalitarian and Post‐Totalitarian Poland
Authors: Koczanowicz Leszek , Chmielwski Adam J.
Published: March 2003

This compound paper presents the views of two Polish philosophers on the strong international pressures influencing the development of Polish philosophy in recent times. The first part, by Leszek Koczanowicz, treats the philosophical situation and problems of totalitarian Poland under the influence of Soviet Marxism, while the second part, by Adam Chmielewski, focuses on the main trends and difficulties of post‐totalitarian Poland, dominated by Western influence.
Interpreting Heidegger Across Philosophical Traditions
Authors: Haapala Arto
Published: March 2003

Heidegger’s philosophy has received radically different readings. These different approaches grow from philosophical differences rooted, at least to some extent, in national philosophical traditions. Although it is not possible any longer to draw strict boundaries between different philosophical traditions by reference to nationality or to language, there certainly are tendencies and points of emphasis that differ depending on the context in which Heidegger is read.

There are many different ways of reading Heidegger. I confine myself to two: the orthodox approach and the applicative pragmatist approach. As an example for these approaches I have taken Heidegger’s controversial essay, “The Origin of the Work of Art.”
What’s Wrong With Methodism?
Authors: Lemos Noah M.
Published: March 2003

I distinguish between two theses, DPJ and DGP. DPJ asserts that one’s justification for accepting particular epistemic propositions positively depends on one’s being justified in believing general epistemic principles. DGP claims that one’s justification in believing general epistemic propositions positively depends on one’s being justified in believing particular epistemic propositions. I claim that methodism accepts DPJ and rejects DGP and particularism accepts DGP and rejects DPJ. I argue that we should reject DGP and methodism roughly because these views imply that many of us do not know epistemic propositions that we do know. This point is made by Roderick Chisholm in The Problem of the Criterion and challenged by Robert Amico. I consider Chisholm’s arguments and Amico’s objections. Finally, I argue that even if we reject DPJ and methodism, we need not embrace particularism, since we could reject both DPJ and DGP.
Agency, Personhood, and Identity: Carol Rovan's The Bounds of Agency
Authors: Wallace Kathleen
Published: March 2003

Book reviewed in this article:

Carol Rovan, The Bounds of Agency
Charity, Supervenience, and Skepticism
Authors: Vahid Hamid
Published: March 2003

In a number of articles Donald Davidson has argued that the charitable nature of his method of radical interpretation rules out the possibility of massive error and thus refutes Cartesian skepticism. The diversity of such arguments and the suggestions that are all being made under the name of the principle of charity have prompted a large body of conflicting responses, adding only to the obscurity of the issues that are generally associated with the question of skepticism. In this paper I propose to consider the debate in a new light by reconstruing the principle of charity as a supervenience constraint on belief attribution. This would help explain some of the puzzling features of Davidson's arguments, like the idea of an omniscient interpreter, and the ensuing commentaries. Having provided an analysis of the limitations of Davidson's arguments, I shall then suggest an alternative explanation of the purported necessity of the principle of charity. Finally, having construed the principle of charity as a supervenience constraint, I shall examine what consequences this construal has for the logical status of the principle itself and its alleged epistemic potentials.
Technical Change and the Equilibrium Profit Rate in a Market with Sequential Bargaining
Authors: Skillman Gilbert L.
Published: March 2003

The Marxian theory of the tendentially falling rate of profit is shown to be consistent with a competitive equilibrium scenario for labor markets in which wages are determined by sequential bargaining within a stationary matching process. The central result establishes that if trade is possible, there exists a set of individually rational capital‐using, labor‐saving technical innovations which lower the equilibrium rate of profit if adopted universally. The model yields as an important special case wage conditions under which the universal adoption of any such innovation reduces the equilibrium rate of profit.
The Misuse of Measurement in Economics
Authors: Katzner Donald W.
Published: March 2003

This paper is concerned with the problems that arise in economic analysis when ordinal variables are taken to be cardinal variables in models that require variables to be cardinally quantified for manipulative purposes. The main conclusion is that, in many important cases, this practice results in constructions that are without meaning, significance and power. Such a result applies, for example, to the efficiency wage model if effort, as many believe, is capable of only ordinal measurement. Similar problems arise (i) with the use of proxy variables, and (ii) even when prediction is the only goal.
Competitive Industry Dynamics with Constant Costs
Authors: Currie Martin , Kubin Ingrid
Published: March 2003

This paper integrates investment and production decisions in a dynamic model of a competitive industry where producers, facing a technology involving fixed input–output coefficients, employ quantity adjustment rules. Whether complex dynamic price behaviour is consistent with producers breaking‐even over time is explored. The proportion of costs which are sunk through investment is shown to have a potentially dramatic impact on the price dynamics. The implications of an alternative hypothesis— that producers ‘normally’ use their avail able capacities and only do otherwise if events are sufficiently dramatic—are explored
Compensating Differentials for Dangerous Work in a Labour Discipline Model
Authors: Dorman Peter
Published: March 2003

Wage compensation for occupational risk in Walrasian models has three properties: it generates efficient levels and allocations of risk, it enables workers in dangerous jobs to be just as well off, ceteris paribus, as workers in safe jobs, and it permits the estimation of willingness to pay schedules for safety from labour market data. This paper tests the status of these three properties under a simple model in which variable labour effort is induced by wage–safety rents and the threat of dismissal. It finds that all three must be modified, and that these results are robust over alternative specifications of labour market structure, the cost of providing safety, and the specification of the production function. The implications of this analysis are considered for both public policy questions and the interpretation of wage–risk studies.
Monetary Policy: The Implications of Capacity Constraints and J‐Curve Effects
Authors: Gazioglu Saziye , McCausland W. David
Published: March 2003

We present a stylized model to analyse the short‐ and long‐run effects of monetary policy on international debt and competitiveness. The features of this non‐linear model include both currency and asset substitution in a two‐country framework, paying special attention to the dynamics of international debt. We find, in contrast to conventional wisdom, that, in addition to raising competitiveness and reducing debt, a monetary contraction can generate inflation in the presence of capacity constraints. Furthermore, if the inflation effect is sufficiently strong, there may be adverse short‐run responses. The policy analysis explicitly considers the short‐run dynamics of competitiveness, debt, prices and trade. We find there is a second J‐curve effect which only occurs when the standard J‐curve effect is present together with capacity constraints. The existence of cyclical short‐run behaviour presents a warning to policy‐makers when assessing the progress towards target equilibrium to bear in mind that adverse short‐run movements may be consistent with the long‐run desired aim (i.e. there may be initial movements in the “wrong” direction which are consistent with the “expected” long‐run outcome).
Hysteresis and Emu
Authors: Cross Rod
Published: March 2003

We consider how differences between the way firms react to a common monetary policy affect the performance of a monetary union. A model is presented in which heterogeneous firms respond discontinuously to monetary shocks. The implication is that the level of economic activity has a selective memory of the extremum values of the shocks experienced, and depends on the distribution of switching values for entry and exit.
On the Relationship Between Wages and Monitoring in Shirking Models
Authors: Goerke Laszlo
Published: March 2003

In shirking models of efficiency wages a higher monitoring intensity is often argued to allow for a reduction in the wage. This paper shows that the relationship between wages and monitoring intensity can be positive within a single firm, especially if the monitoring intensity is determined optimally. Moreover, given alternative firm objectives, a positive relationship can also exist across firms. Thus, shirking models do not generate a unique association between wages and monitoring intensity and empirical evidence on their correlation can only provide information on the relevance of shirking models under restrictive assumptions.
A Model of Growth and Conflict Inflation for a Small Open Economy
Authors: Cordero Jose Antonio
Published: March 2003

Several models of conflict inflation have been developed within the structuralist tradition. This paper differs from such works by assuming full capacity utilization in a small open economy. We introduce the exchange rate as a participant in the theory of inflation and distribution, and analyze two closures: the trade deficit as a market clearing mechanism, and a foreign exchange constrained economy. It is found that wage rigidity and exchange rate flexibility can lead to instability. The main conclusions do not change when we allow for continuous substitution between capital and labor.