Bid-ask spreads and volatility in the foreign exchange market. An empirical analysis

Consistent with the implications from a simple asymmetric information model for the bid-ask spread, we present empirical evidence that the size of the bid-ask spread in the foreign exchange market is positively related to the underlying exchange rate uncertainty. The estimation results are based on an ordered probit analysis that captures the discreteness in the spread distribution, with the uncertainty of the spot exchange rate being quantified through a GARCH type model. The data sets consists of more than 300,000 continuously recorded Deutschemark/dollar quotes over the period from April 1989 to June 1989. © 1994.

Confidence intervals for half-life deviations from purchasing power parity

Existing point estimates of half-life deviations from purchasing power parity (PPP), around 3-5 years, suggest that the speed of convergence is extremely slow. This article assesses the degree of uncertainty around these point estimates by using local-to-unity asymptotic theory to construct confidence intervals that are robust to high persistence in small samples. The empirical evidence suggests that the lower bound of the confidence interval is between four and eight quarters for most currencies, which is not inconsistent with traditional price-stickiness explanations. However, the upper bounds are infinity for all currencies, so we cannot provide conclusive evidence in favor of PPP either. © 2005 American Statistical Association.

The enduring impact of transient emotions on decision making

People often do not realize they are being influenced by an incidental emotional state. As a result, decisions based on a fleeting incidental emotion can become the basis for future decisions and hence outlive the original cause for the behavior (i.e., the emotion itself). Using a sequence of ultimatum and dictator games, we provide empirical evidence for the enduring impact of transient emotions on economic decision making. Behavioral consistency and false consensus are presented as potential underlying processes. © 2009 Elsevier Inc. All rights reserved.

Contrasting Models of Posttraumatic Stress Disorder: Reply to Monroe and Mineka (2008)

The authors address the 4 main points in S. M. Monroe and S. Mineka's (2008) comment. First, the authors show that the Diagnostic and Statistical Manual of Mental Disorders (4th ed., text rev.; American Psychiatric Association, 2000) posttraumatic stress disorder (PTSD) diagnosis includes an etiology and that it is based on a theoretical model with a distinguished history in psychology and psychiatry. Two tenets of this theoretical model are that voluntary (strategic) recollections of the trauma are fragmented and incomplete while involuntary (spontaneous) recollections are vivid and persistent and yield privileged access to traumatic material. Second, the authors describe differences between their model and other cognitive models of PTSD. They argue that these other models share the same 2 tenets as the diagnosis and show that these 2 tenets are largely unsupported by empirical evidence. Third, the authors counter arguments about the strength of the evidence favoring the mnemonic model. Fourth, they show that concerns about the causal role of memory in PTSD are based on views of causality that are generally inappropriate for the explanation of PTSD in the social and biological sciences. © 2008 American Psychological Association.

A tale of two market failures: Technology and environmental policy

Market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies. These combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology. Both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives, and can be cost-effectively harnessed through the use of economic-incentive based policy. In the presence of weak or nonexistent environmental policies, investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable. Positive knowledge and adoption spillovers and information problems can further weaken innovation incentives. While environmental technology policy is fraught with difficulties, a long-term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success. © 2005 Elsevier B.V. All rights reserved.