Exchange rate pass-through to prices in macrodata: a comparative sensitivity analysis

This paper compares exchange rate pass-through to aggregate prices in the US, Germany and Japan across a number of dimensions. Building on the empirical approaches in the recent literature, our contribution is to perform a thorough sensitivity analysis of pass-through estimates. We find that the econometric method, data frequency and variable proxy employed matter for the precision of details, yet they often agree on some general trends. Thus, pass-through to import prices has declined in the 1990s relative to the 1980s, pass-through to export prices remains country-specific and pass-through to consumer prices is nowadays negligible in all three economies we considered.

Effects of beverage alcohol taxes and prices on drinking: a meta-analysis of 1003 estimates from 112 studies

Aims: We conducted a systematic review of studies examining relationships between measures of beverage alcohol tax or price levels and alcohol sales or self-reported drinking. A total of 112 studies of alcohol tax or price effects were found, containing 1003 estimates of the tax/price–consumption relationship. Design: Studies included analyses of alternative outcome measures, varying subgroups of the population, several statistical models, and using different units of analysis. Multiple estimates were coded from each study, along with numerous study characteristics. Using reported estimates, standard errors, t-ratios, sample sizes and other statistics, we calculated the partial correlation for the relationship between alcohol price or tax and sales or drinking measures for each major model or subgroup reported within each study. Random-effects models were used to combine studies for inverse variance weighted overall estimates of the magnitude and significance of the relationship between alcohol tax/price and drinking. Findings: Simple means of reported elasticities are -0.46 for beer, -0.69 for wine and -0.80 for spirits. Meta-analytical results document the highly significant relationships (P < 0.001) between alcohol tax or price measures and indices of sales or consumption of alcohol (aggregate-level r = -0.17 for beer, -0.30 for wine, -0.29 for spirits and -0.44 for total alcohol). Price/tax also affects heavy drinking significantly (mean reported elasticity = -0.28, individual-level r = -0.01, P < 0.01), but the magnitude of effect is smaller than effects on overall drinking. Conclusions: A large literature establishes that beverage alcohol prices and taxes are related inversely to drinking. Effects are large compared to other prevention policies and programs. Public policies that raise prices of alcohol are an effective means to reduce drinking.

Principal-agent issues in asset acquisition: UK institutions and their investment agents

This paper explores principal‐agent issues in the stock selection processes of institutional property investors. Drawing upon an interview survey of fund managers and acquisition professionals, it focuses on the relationships between principals and external agents as they engage in property transactions. The research investigated the extent to which the presence of outcome‐based remuneration structures could lead to biased advice, overbidding and/or poor asset selection. It is concluded that institutional property buyers are aware of incentives for opportunistic behaviour by external agents, often have sufficient expertise to robustly evaluate agents’ advice and that these incentives are counter‐balanced by a number of important controls on potential opportunistic behaviour. There are strong counter‐incentives in the need for the agents to establish personal relationships and trust between themselves and institutional buyers, to generate repeat and related business and to preserve or generate a good reputation in the market.

Depreciation and its impact on the total return of UK commercial real estate, 1994-2003

Depreciation is a key element of understanding the returns from and price of commercial real estate. Understanding its impact is important for asset allocation models and asset management decisions. It is a key input into well-constructed pricing models and its impact on indices of commercial real estate prices needs to be recognised. There have been a number of previous studies of the impact of depreciation on real estate, particularly in the UK. Law (2004) analysed all of these studies and found that the seemingly consistent results were an illusion as they all used a variety of measurement methods and data. In addition, none of these studies examined impact on total returns; they examined either rental value depreciation alone or rental and capital value depreciation. This study seeks to rectify this omission, adopting the best practice measurement framework set out by Law (2004). Using individual property data from the UK Investment Property Databank for the 10-year period between 1994 and 2003, rental and capital depreciation, capital expenditure rates, and total return series for the data sample and for a benchmark are calculated for 10 market segments. The results are complicated by the period of analysis which started in the aftermath of the major UK real estate recession of the early 1990s, but they give important insights into the impact of depreciation in different segments of the UK real estate investment market.

Capturing UK real estate volitility

Volatility, or the variability of the underlying asset, is one of the key fundamental components of property derivative pricing and in the application of real option models in development analysis. There has been relatively little work on volatility in real terms of its application to property derivatives and the real options analysis. Most research on volatility stems from investment performance (Nathakumaran & Newell (1995), Brown & Matysiak 2000, Booth & Matysiak 2001). Historic standard deviation is often used as a proxy for volatility and there has been a reliance on indices, which are subject to valuation smoothing effects. Transaction prices are considered to be more volatile than the traditional standard deviations of appraisal based indices. This could lead, arguably, to inefficiencies and mis-pricing, particularly if it is also accepted that changes evolve randomly over time and where future volatility and not an ex-post measure is the key (Sing 1998). If history does not repeat, or provides an unreliable measure, then estimating model based (implied) volatility is an alternative approach (Patel & Sing 2000). This paper is the first of two that employ alternative approaches to calculating and capturing volatility in UK real estate for the purposes of applying the measure to derivative pricing and real option models. It draws on a uniquely constructed IPD/Gerald Eve transactions database, containing over 21,000 properties over the period 1983-2005. In this first paper the magnitude of historic amplification associated with asset returns by sector and geographic spread is looked at. In the subsequent paper the focus will be upon model based (implied) volatility.