Monetary policy rules and estimated reaction functions for the European Central Bank

This thesis studies the interest-rate policy of the ECB by estimating monetary policy rules using real-time data and central bank forecasts. The aim of the estimations is to try to characterize a decade of common monetary policy and to look at how different models perform at this task.The estimated rules include: contemporary Taylor rules, forward-looking Taylor rules, nonlinearrules and forecast-based rules. The nonlinear models allow for the possibility of zone-like preferences and an asymmetric response to key variables. The models therefore encompass the most popular sub-group of simple models used for policy analysis as well as the more unusual non-linear approach. In addition to the empirical work, this thesis also contains a more general discussion of monetary policy rules mostly from a New Keynesian perspective. This discussion includes an overview of some notable related studies, optimal policy, policy gradualism and several other related subjects. The regression estimations are performed with either least squares or the generalized method of moments depending on the requirements of the estimations. The estimations use data from both the Euro Area Real-Time Database and the central bank forecasts published in ECB Monthly Bulletins. These data sources represent some of the best data that is available for this kind of analysis. The main results of this thesis are that forward-looking behavior appears highly prevalent, but that standard forward-looking Taylor rules offer only ambivalent results with regard to inflation. Nonlinear models are shown to work, but on the other hand do not have a strong rationale over a simpler linear formulation. However, the forecasts appear to be highly useful in characterizing policy and may offer the most accurate depiction of a predominantly forward-looking central bank. In particular the inflation response appears much stronger while the output response becomes highly forward-looking as well.

Diagnostic Tests Based on Quantile Residuals for Nonlinear Time Series Models

This thesis studies quantile residuals and uses different methodologies to develop test statistics that are applicable in evaluating linear and nonlinear time series models based on continuous distributions. Models based on mixtures of distributions are of special interest because it turns out that for those models traditional residuals, often referred to as Pearson's residuals, are not appropriate. As such models have become more and more popular in practice, especially with financial time series data there is a need for reliable diagnostic tools that can be used to evaluate them. The aim of the thesis is to show how such diagnostic tools can be obtained and used in model evaluation. The quantile residuals considered here are defined in such a way that, when the model is correctly specified and its parameters are consistently estimated, they are approximately independent with standard normal distribution. All the tests derived in the thesis are pure significance type tests and are theoretically sound in that they properly take the uncertainty caused by parameter estimation into account. -- In Chapter 2 a general framework based on the likelihood function and smooth functions of univariate quantile residuals is derived that can be used to obtain misspecification tests for various purposes. Three easy-to-use tests aimed at detecting non-normality, autocorrelation, and conditional heteroscedasticity in quantile residuals are formulated. It also turns out that these tests can be interpreted as Lagrange Multiplier or score tests so that they are asymptotically optimal against local alternatives. Chapter 3 extends the concept of quantile residuals to multivariate models. The framework of Chapter 2 is generalized and tests aimed at detecting non-normality, serial correlation, and conditional heteroscedasticity in multivariate quantile residuals are derived based on it. Score test interpretations are obtained for the serial correlation and conditional heteroscedasticity tests and in a rather restricted special case for the normality test. In Chapter 4 the tests are constructed using the empirical distribution function of quantile residuals. So-called Khmaladze s martingale transformation is applied in order to eliminate the uncertainty caused by parameter estimation. Various test statistics are considered so that critical bounds for histogram type plots as well as Quantile-Quantile and Probability-Probability type plots of quantile residuals are obtained. Chapters 2, 3, and 4 contain simulations and empirical examples which illustrate the finite sample size and power properties of the derived tests and also how the tests and related graphical tools based on residuals are applied in practice.

Tax havens and their impacts on the non-haven countries

Tax havens have attracted increasing attention from the authorities of non-haven countries. The financial crisis exacerbates the negative attitude to tax havens. Offshore zones are now under strong pressure from the international, both financial and political institutions. Thus, the thesis will focus on the current problem of the modern economy, namely tax havens and their impact on the non-haven countries. This thesis will be based on the several articles, in particular “Tax Competition With Parasitic Tax Havens” by Joel Slemrod and John D. Wilson (University of Michigan, 2009) and “Do Havens Divert Economic Activity” by James R. Hines Jr., C. Fritz Foley and Mihir A. Desai (Ross School of Business, 2005). This paper provides two completely different and contradictory viewpoints on the problem of coexisting tax havens and non-haven countries. There are two models, examined in this work, present two important researches. The first one will be concentrated on the positive effect from tax havens whereas the last model will be focused on the completely negative effect from offshore jurisdictions. The first model gives us a good explanation and proof of its statement why tax havens can positively influence on nearby high-tax countries. It describes that the existence of offshore jurisdictions can stimulate the growth of operations and facilitates economic activity in non-haven countries. In contrast to above mentioned, the model with quite opposite view was presented. This economic model and its analysis confirms the undesirability of the existence of offshore areas. Taking into consideration, that the jurisdictions choose their optimal policy, the elimination of offshores will have positive impact on the rest of countries. The model proofs the statement that full or partial elimination of tax havens raises the equilibrium level of the public good and increases country welfare. According to the following study, it can be concluded that both of the models provide telling arguments to prove their assertions. Thereby both of these points of view have their right to exist. Nevertheless, the ongoing debate concerning this issue still will raise a lot of questions.

Maidontuottajatila ja ravinnepolitiikka: Tilan toimintamekanismit, politiikan tarve ja ohjauskeinojen vaikuttavuus

Tutkielman tarkoituksena on rakentaa malli, jolla voidaan arvioida maitotilan toimintaa monipuolisesti ravinnehuuhtouman kannalta. Tavoitteena on ennen muuta analyyttinen tarkastelu siten, että kuitenkin huomioiden maidontuotannon ominaispiirteet, keskeisinä esimerkkeinä ravinnon, maidontuotannon ja lannan ominaisuuksien väliset riippuvuudet. Analyysissa tarkastellaan tilanomistajan yksityisen hyödynmaksimoinnin ja yhteiskunnan tavoitteiden eroavaisuutta. Lisäksi johdetaan optimaaliset ohjauskeinot ja arvioidaan eräiden yksinkertaisten ohjauskeinojen vaikuttavuutta. Mallin analysoinnin perusteella yksityinen ja yhteiskunnallinen optimiratkaisu eroavat toisistaan kaikkien päätösmuuttujien osalta. Ei voida kuitenkaan yleispätevästi sanoa muutosten merkittävyyttä tai suuntaa ottamatta kantaa mallin funktiomuotoihin ja parametriarvoihin. Optimaaliset ohjauskeinot tulisi asettaa keinolannoitteen ja lannan levitykselle, väkirehuruokinnalle ja säilörehun viljelylle, mutta ei eläinten määrälle. Toisaalta optimaaliset ohjauskeinot ovat hyvin monimutkaisia. Tarkasteltujen yksinkertaisempien ohjauskeinojen vaikuttavuutta ei voida tarkasti arvioida analyyttisella tasolla. Numeeristen tulosten perusteella yhteiskunnallisessa optimissa eläinmäärä olisi hieman yksityistä optimia pienempi, väkirehun käyttö vähäisempää, enemmän peltoa allokoitaisiin säilörehun viljelyyn ja lannoitustasot olisivat kautta linjan hieman pienemmät. Lannanlevitykset eroavat etäisyyden suhteen: molemmissa tapauksissa lannanlevityksen intensiteetti kasvaa kohti tilan keskusta kuljettaessa, mutta yksityisessä optimissa lähimmälle pellolle dumpataan kaikki ylimääräinen lanta, kun taas yhteiskunnallisessa optimissa lanta levitetään tasaisemmin eri pelloille. Ero kokonaishyvinvoinnissa jää pieneksi, mutta eläinmäärän kasvu kärjistäisi lannan dumppauksen aiheuttamia huuhtoumahaittoja. Yksinkertaisista ohjauskeinoista lannoitusrajoitus sekä ravinne- ja keinolannoitevero osoittautuivat kohtalaisen käyttökelpoisiksi numeeristen tulosten perusteella. Sen sijaan eläinmäärän rajoittaminen ja lannan kuljetuskustannuksia kompensoivat tuet vaikuttavat tulosten perusteella huonoilta ratkaisuilta.

Essays on macroeconomic effects of fiscal policy rules

Economic and Monetary Union can be characterised as a complicated set of legislation and institutions governing monetary and fiscal responsibilities. The measures of fiscal responsibility are to be guided by the Stability and Growth Pact, which sets rules for fiscal policy and makes a discretionary fiscal policy virtually impossible. To analyse the effects of the fiscal and monetary policy mix, we modified the New Keynesian framework to allow for supply effects of fiscal policy. We show that defining a supply-side channel for fiscal policy using an endogenous output gap changes the stabilising properties of monetary policy rules. The stability conditions are affected by fiscal policy, so that the dichotomy between active (passive) monetary policy and passive (active) fiscal policy as stabilising regimes does not hold, and it is possible to have an active monetary - active fiscal policy regime consistent with dynamical stability of the economy. We show that, if we take supply-side effects into ac-count, we get more persistent inflation and output reactions. We also show that the dichotomy does not hold for a variety of different fiscal policy rules based on government debt and budget deficit, using the tax smoothing hypothesis and formulating the tax rules as difference equations. The debt rule with active monetary policy results in indeterminacy, while the deficit rule produces a determinate solution with active monetary policy, even with active fiscal policy. The combination of fiscal requirements in a rule results in cyclical responses to shocks. The amplitude of the cycle is larger with more weight on debt than on deficit. Combining optimised monetary policy with fiscal policy rules means that, under a discretionary monetary policy, the fiscal policy regime affects the size of the inflation bias. We also show that commitment to an optimal monetary policy not only corrects the inflation bias but also increases the persistence of output reactions. With fiscal policy rules based on the deficit we can retain the tax smoothing hypothesis also in a sticky price model.

Optimal Risk Adoption: A Real Options Approach

This study develops a real options approach for analyzing the optimal risk adoption policy in an environment where the adoption means a switch from one stochastic flow representation into another. We establish that increased volatility needs not decelerate investment, as predicted by the standard literature on real options, once the underlying volatility of the state is made endogenous. We prove that for a decision maker with a convex (concave) objective function, increased post-adoption volatility increases (decreases) the expected cumulative present value of the post-adoption profit flow, which consequently decreases (increases) the option value of waiting and, therefore, accelerates (decelerates) current investment.

Pitch discrimination in optimal and suboptimal acoustic environments: electroencephalographic, magnetoencephalographic, and behavioral evidence

Pitch discrimination is a fundamental property of the human auditory system. Our understanding of pitch-discrimination mechanisms is important from both theoretical and clinical perspectives. The discrimination of spectrally complex sounds is crucial in the processing of music and speech. Current methods of cognitive neuroscience can track the brain processes underlying sound processing either with precise temporal (EEG and MEG) or spatial resolution (PET and fMRI). A combination of different techniques is therefore required in contemporary auditory research. One of the problems in comparing the EEG/MEG and fMRI methods, however, is the fMRI acoustic noise. In the present thesis, EEG and MEG in combination with behavioral techniques were used, first, to define the ERP correlates of automatic pitch discrimination across a wide frequency range in adults and neonates and, second, they were used to determine the effect of recorded acoustic fMRI noise on those adult ERP and ERF correlates during passive and active pitch discrimination. Pure tones and complex 3-harmonic sounds served as stimuli in the oddball and matching-to-sample paradigms. The results suggest that pitch discrimination in adults, as reflected by MMN latency, is most accurate in the 1000-2000 Hz frequency range, and that pitch discrimination is facilitated further by adding harmonics to the fundamental frequency. Newborn infants are able to discriminate a 20% frequency change in the 250-4000 Hz frequency range, whereas the discrimination of a 5% frequency change was unconfirmed. Furthermore, the effect of the fMRI gradient noise on the automatic processing of pitch change was more prominent for tones with frequencies exceeding 500 Hz, overlapping with the spectral maximum of the noise. When the fundamental frequency of the tones was lower than the spectral maximum of the noise, fMRI noise had no effect on MMN and P3a, whereas the noise delayed and suppressed N1 and exogenous N2. Noise also suppressed the N1 amplitude in a matching-to-sample working memory task. However, the task-related difference observed in the N1 component, suggesting a functional dissociation between the processing of spatial and non-spatial auditory information, was partially preserved in the noise condition. Noise hampered feature coding mechanisms more than it hampered the mechanisms of change detection, involuntary attention, and the segregation of the spatial and non-spatial domains of working-memory. The data presented in the thesis can be used to develop clinical ERP-based frequency-discrimination protocols and combined EEG and fMRI experimental paradigms.

Effect of waiting time on health outcomes and service utilization : A prospective randomized study on patients admitted to hospital for hip or knee replacement

Although the principle of equal access to medically justified treatment has been promoted by official health policies in many Western health care systems, practices do not completely meet policy targets. Waiting times for elective surgery vary between patient groups and regions, and growing problems in the availability of services threaten equal access to treatment. Waiting times have come to the attention of decision-makers, and several policy initiatives have been introduced to ensure the availability of care within a reasonable time. In Finland, for example, the treatment guarantee came into force in 2005. However, no consensus exists on optimal waiting time for different patient groups. The purpose of this multi-centre randomized controlled trial was to analyse health-related quality of life, pain and physical function in total hip or knee replacement patients during the waiting time and to evaluate whether the waiting time is associated with patients health outcomes at admission. This study also assessed whether the length of waiting time is associated with social and health services utilization in patients awaiting total hip or knee replacement. In addition, patients health-related quality of life was compared with that of the general population. Consecutive patients with a need for a primary total hip or knee replacement due to osteoarthritis were placed on the waiting list between August 2002 and November 2003. Patients were randomly assigned to a short waiting time (maximum 3 months) or a non-fixed waiting time (waiting time not fixed in advance, instead the patient followed the hospitals routine practice). Patients health-related quality of life was measured upon being placed on the waiting list and again at hospital admission using the generic 15D instrument. Pain and physical function were evaluated using the self-report Harris Hip Score for hip patients and a scale modified from the Knee Society Clinical Rating System for knee patients. Utilization measures were the use of home health care, rehabilitation and social services, physician visits and inpatient care. Health and social services use was low in both waiting time groups. The most common services used while waiting were rehabilitation services and informal care, including unpaid care provided by relatives, neighbours and volunteers. Although patients suffered from clear restrictions in usual activities and physical functioning, they seemed primarily to lean on informal care and personal networks instead of professional care. While longer waiting time did not result in poorer health-related quality of life at admission and use of services during the waiting time was similar to that at the time of placement on the list, there is likely to be higher costs of waiting by people who wait longer simply because they are using services for a longer period. In economic terms, this would represent a negative impact of waiting. Only a few reports have been published of the health-related quality of life of patients awaiting total hip or knee replacement. These findings demonstrate that, in addition to physical dimensions of health, patients suffered from restrictions in psychological well-being such as depression, distress and reduced vitality. This raises the question of how to support patients who suffer from psychological distress during the waiting time and how to develop strategies to improve patients initiatives to reduce symptoms and the burden of waiting. Key words: waiting time, total hip replacement, total knee replacement, health-related quality of life, randomized controlled trial, outcome assessment, social service, utilization of health services

Impact of Tobacco Control Policy on Smoking and Exposure to Environmental Tobacco Smoke

The aim of the study was to evaluate the impact of the Finnish tobacco control measures for reduction of smoking. First, the trends and patterns in ever smoking among adult Finns in 1978 2001 as well as the associations of trends with the Tobacco Control Act in 1976 were examined. Secondly, the impact of the 1976 TCA on the proportion of ever daily smokers in different socioeconomic groups was studied. Thirdly, the impact of the 1995 TCAA on recent trends in the prevalence of daily smoking was evaluated by gender and employment status. Fourthly, the trends of exposure to environmental tobacco smoke (ETS) at workplaces and homes were investigated. The study is based on data of the Health Behaviour among the Finnish Adult Population surveys. Among Finnish men smoking initiation declined from earlier to later cohorts, whereas among women it increased in successive birth cohorts born before 1956. The lasting differences between birth cohorts as regards ever daily smoking reflected well the impact of measures to reduce smoking in Finland in 1976. Smoking initiation in the birth cohorts (born in 1961 or later) which were in critical age as regards the risk of smoking initiation when the TCA came into force was less common than could be expected according to the trends seen in the earlier birth cohorts. Marked socioeconomic differences were found in smoking in the different birth cohorts. Smoking was more prevalent in the lower socioeconomic groups than in the higher ones, and the differences were larger in the later birth cohorts compared to the earlier ones. The differences between the birth cohorts in ever daily smoking were compatible with the hypothetical impact of the TCA in almost all socioeconomic groups, except farmers. Among men the 1976 TCA appears to have had the greatest impact on white-collar employees. Among women the effect of the act was highly significant in all socioeconomic groups. However, female smoking prevalence continues to show wide socioeconomic disparities. Daily smoking decreased among employees after the 1995 TCAA, supporting the hypothesis of the lowering impact of the amendment on daily smoking due to increased smoking cessation. No parallel change in daily smoking was found in the population without direct expose to ETS legislation (farmers, students, housewives, pensioners or unemployed). Exposure to ETS decreased markedly among non-smokers at work after the 1995 TCAA. The 1976 TCA and the 1995 TCAA were useful in controlling smoking initiation and cessation, but their impact was not equal across the population groups. The results of this study strongly suggested that tobacco control policies markedly contribute to the decrease in smoking and in exposure to environmental tobacco smoke.

Metsän kiertoajan vaikutus hiilensidontaan ja metsänkasvatuksen kannattavuuteen

Cost-effective mitigation of climate change is essential for both climate and environmental policy. Forest rotation age is one of the silvicultural measures by which the forest carbon stocks can be influenced with in accordance with the Kyoto Protocol, Article 3.4. The purpose of this study is to evaluate how forest rotation age affects carbon sequestration and the profitability of forestry. The relation between the forest rotation period optimizing forest owners’ discounted net returns over time and rotations which are 10, 20 and 30 years longer than the optimal rotation is examined. In addition, the cost of lengthening the rotation period is studied as well as whether carbon sequestration revenues can improve the profitability of forestry. The data used in the study consist of 16 stands located in Southern Finland. The main tree species in these stands were Norway spruce and Scots pine. Forest simulation tool MOTTI was used in the analysis. The results indicate that by lengthening the rotation period forest carbon stocks increase. However, as the rotation period is lengthened by more than 10 years, as a result of the diminishing growth curve, the rate of carbon sequestration slows down. The average discounted cost of carbon sequestration varied between 2.4 – 14.1 €/tCO2. Carbon sequestration rates in spruce stands were higher and the costs lower than those obtained from pine stands. The absence of carbon trading schemes is an obstacle for the commercialization of forest carbon sinks. In the future, research should concentrate on analysing what kind of operational models of carbon trading could be feasible in Finland.

Essays on the Bioeconomics of the Northern Baltic Fisheries

World marine fisheries suffer from economic and biological overfishing: too many vessels are harvesting too few fish stocks. Fisheries economics has explained the causes of overfishing and provided a theoretical background for management systems capable of solving the problem. Yet only a few examples of fisheries managed by the principles of the bioeconomic theory exist. With the aim of bridging the gap between the actual fish stock assessment models used to provide management advice and economic optimisation models, the thesis explores economically sound harvesting from national and international perspectives. Using data calibrated for the Baltic salmon and herring stocks, optimal harvesting policies are outlined using numerical methods. First, the thesis focuses on the socially optimal harvest of a single salmon stock by commercial and recreational fisheries. The results obtained using dynamic programming show that the optimal fishery configuration would be to close down three out of the five studied fisheries. The result is robust to stock size fluctuations. Compared to a base case situation, the optimal fleet structure would yield a slight decrease in the commercial catch, but a recreational catch that is nearly seven times higher. As a result, the expected economic net benefits from the fishery would increase nearly 60%, and the expected number of juvenile salmon (smolt) would increase by 30%. Second, the thesis explores the management of multiple salmon stocks in an international framework. Non-cooperative and cooperative game theory are used to demonstrate different "what if" scenarios. The results of the four player game suggest that, despite the commonly agreed fishing quota, the behaviour of the countries has been closer to non-cooperation than cooperation. Cooperation would more than double the net benefits from the fishery compared to a past fisheries policy. Side payments, however, are a prerequisite for a cooperative solution. Third, the thesis applies coalitional games in the partition function form to study whether the cooperative solution would be stable despite the potential presence of positive externalities. The results show that the cooperation of two out of four studied countries can be stable. Compared to a past fisheries policy, a stable coalition structure would provide substantial economic benefits. Nevertheless, the status of the salmon stocks would not improve significantly. Fourth, the thesis studies the prerequisites for and potential consequences of the implementation of an individual transferable quota (ITQ) system in the Finnish herring fishery. Simulation results suggest that ITQs would result in a decrease in the number of fishing vessels, but enables positive profits to overlap with a higher stock size. The empirical findings of the thesis affirm that the profitability of the studied fisheries could be improved. The evidence, however, indicates that incentives for free riding exist, and thus the most preferable outcome both in economic and biological terms is elusive.

Essays on socially optimal phosphorus policies in crop production

Phosphorus is a nutrient needed in crop production. While boosting crop yields it may also accelerate eutrophication in the surface waters receiving the phosphorus runoff. The privately optimal level of phosphorus use is determined by the input and output prices, and the crop response to phosphorus. Socially optimal use also takes into account the impact of phosphorus runoff on water quality. Increased eutrophication decreases the economic value of surface waters by Deteriorating fish stocks, curtailing the potential for recreational activities and by increasing the probabilities of mass algae blooms. In this dissertation, the optimal use of phosphorus is modelled as a dynamic optimization problem. The potentially plant available phosphorus accumulated in soil is treated as a dynamic state variable, the control variable being the annual phosphorus fertilization. For crop response to phosphorus, the state variable is more important than the annual fertilization. The level of this state variable is also a key determinant of the runoff of dissolved, reactive phosphorus. Also the loss of particulate phosphorus due to erosion is considered in the thesis, as well as its mitigation by constructing vegetative buffers. The dynamic model is applied for crop production on clay soils. At the steady state, the analysis focuses on the effects of prices, damage parameterization, discount rate and soil phosphorus carryover capacity on optimal steady state phosphorus use. The economic instruments needed to sustain the social optimum are also analyzed. According to the results the economic incentives should be conditioned on soil phosphorus values directly, rather than on annual phosphorus applications. The results also emphasize the substantial effects the differences in varying discount rates of the farmer and the social planner have on optimal instruments. The thesis analyzes the optimal soil phosphorus paths from its alternative initial levels. It also examines how erosion susceptibility of a parcel affects these optimal paths. The results underline the significance of the prevailing soil phosphorus status on optimal fertilization levels. With very high initial soil phosphorus levels, both the privately and socially optimal phosphorus application levels are close to zero as the state variable is driven towards its steady state. The soil phosphorus processes are slow. Therefore, depleting high phosphorus soils may take decades. The thesis also presents a methodologically interesting phenomenon in problems of maximizing the flow of discounted payoffs. When both the benefits and damages are related to the same state variable, the steady state solution may have an interesting property, under very general conditions: The tail of the payoffs of the privately optimal path as well as the steady state may provide a higher social welfare than the respective tail of the socially optimal path. The result is formalized and an applied to the created framework of optimal phosphorus use.

Suomen maatalouden tuottamat kasvihuonekaasujen päästöt eri politiikkaskenaarioissa

Climate change is the single biggest environmental problem in the world at the moment. Although the effects are still not fully understood and there is considerable amount of uncertainty, many na-tions have decided to mitigate the change. On the societal level, a planner who tries to find an eco-nomically optimal solution to an environmental pollution problem seeks to reduce pollution from the sources where reductions are most cost-effective. This study aims to find out how effective the instruments of the agricultural policy are in the case of climate change mitigation in Finland. The theoretical base of this study is the neoclassical economic theory that is based on the assumption of a rational economic agent who maximizes his own utility. This theoretical base has been widened towards the direction clearly essential to the matter: the theory of environmental eco-nomics. Deeply relevant to this problem and central in the theory of environmental economics are the concepts of externalities and public goods. What are also relevant are the problems of global pollution and non-point-source pollution. Econometric modelling was the method that was applied to this study. The Finnish part of the AGMEMOD-model, covering the whole EU, was used for the estimation of the development of pollution. This model is a seemingly recursive, partially dynamic partial-equilibrium model that was constructed to predict the development of Finnish agricultural production of the most important products. For the study, I personally updated the model and also widened its scope in some relevant matters. Also, I devised a table that can calculate the emissions of greenhouse gases according to the rules set by the IPCC. With the model I investigated five alternative scenarios in comparison to the base-line scenario of Agenda 2000 agricultural policy. The alternative scenarios were: 1) the CAP reform of 2003, 2) free trade on agricultural commodities, 3) technological change, 4) banning the cultivation of organic soils and 5) the combination of the last three scenarios as the maximal achievement in reduction. The maximal achievement in the alternative scenario 5 was 1/3 of the level achieved on the base-line scenario. CAP reform caused only a minor reduction when com-pared to the base-line scenario. Instead, the free trade scenario and the scenario of technological change alone caused a significant reduction. The biggest single reduction was achieved by banning the cultivation of organic land. However, this was also the most questionable scenario to be real-ized, the reasons for this are further elaborated in the paper. The maximal reduction that can be achieved in the Finnish agricultural sector is about 11 % of the emission reduction that is needed to comply with the Kyoto protocol.

Computationally Efficient Methods for MDL-Optimal Density Estimation and Data Clustering

The Minimum Description Length (MDL) principle is a general, well-founded theoretical formalization of statistical modeling. The most important notion of MDL is the stochastic complexity, which can be interpreted as the shortest description length of a given sample of data relative to a model class. The exact definition of the stochastic complexity has gone through several evolutionary steps. The latest instantation is based on the so-called Normalized Maximum Likelihood (NML) distribution which has been shown to possess several important theoretical properties. However, the applications of this modern version of the MDL have been quite rare because of computational complexity problems, i.e., for discrete data, the definition of NML involves an exponential sum, and in the case of continuous data, a multi-dimensional integral usually infeasible to evaluate or even approximate accurately. In this doctoral dissertation, we present mathematical techniques for computing NML efficiently for some model families involving discrete data. We also show how these techniques can be used to apply MDL in two practical applications: histogram density estimation and clustering of multi-dimensional data.