Market effects of foreign exchange coordinated intervention

In this article we develop a theoretical microstructure model of coordinated central bank intervention based on asymmetric information. We study the economic implications of coordination on some measures of market quality and show that the model predicts higher volatility and more significant exchange rate changes when central banks coordinate compared to when they intervene unilaterally. Both these predictions are in line with empirical evidence. Keywords: coordinated foreign exchange intervention, market microstructure. JEL Classification: D82, E58, F31, G14

All-pay auction equilibria in contests

We analyze (non-deterministic) contests with anonymous contest success functions. There is no restriction on the number of contestants or on their valuations for the prize. We provide intuitive and easily verifiable conditions for the existence of an equilibrium with properties similar to the one of the (deterministic) all-pay auction. Since these conditions are fulfilled for a wide array of situations, the predictions of this equilibrium are very robust to the specific details of the contest. An application of this result contributes to fill a gap in the analysis of the popular Tullock rent- seeking game because it characterizes properties of an equilibrium for increasing returns to scale larger than two, for any number of contestants and in contests with or without a common value. Keywords: (non-) deterministic contest, all-pay auction, contest success functions. JEL Classification Numbers: C72 (Noncooperative Games), D72 (Economic Models of Political Processes: Rent-Seeking, Elections), D44 (Auctions).

Co-movements between US and UK stock prices: the roles of macroeconomic information and time-series varying conditional correlations

This paper provides evidence on the sources of co-movement in monthly US and UK stock price movements by investigating the role of macroeconomic and financial variables in a bivariate system with time-varying conditional correlations. Crosscountry communality in response is uncovered, with changes in the US Federal Funds rate, UK bond yields and oil prices having similar negative effects in both markets. Other variables also play a role, especially for the UK market. These effects do not, however, explain the marked increase in cross-market correlations observed from around 2000, which we attribute to time variation in the correlations of shocks to these markets. A regime-switching smooth transition model captures this time variation well and shows the correlations increase dramatically around 1999-2000. JEL classifications: C32, C51, G15 Keywords: international stock returns, DCC-GARCH model, smooth transition conditional correlation GARCH model, model evaluation.

Long-term citalopram administration reduces responsiveness of HPA axis in patients with major depression: relationship with S-citalopram concentrations in plasma and cerebrospinal fluid (CSF) and clinical response.

RATIONALE: A dysregulation of the hypothalamic-pituitary-adrenal (HPA) axis is a well-documented neurobiological finding in major depression. Moreover, clinically effective therapy with antidepressant drugs may normalize the HPA axis activity. OBJECTIVE: The aim of this study was to test whether citalopram (R/S-CIT) affects the function of the HPA axis in patients with major depression (DSM IV). METHODS: Twenty depressed patients (11 women and 9 men) were challenged with a combined dexamethasone (DEX) suppression and corticotropin-releasing hormone (CRH) stimulation test (DEX/CRH test) following a placebo week and after 2, 4, and 16 weeks of 40 mg/day R/S-CIT treatment. RESULTS: The results show a time-dependent reduction of adrenocorticotrophic hormone (ACTH) and cortisol response during the DEX/CRH test both in treatment responders and nonresponders within 16 weeks. There was a significant relationship between post-DEX baseline cortisol levels (measured before administration of CRH) and severity of depression at pretreatment baseline. Multiple linear regression analyses were performed to identify the impact of psychopathology and hormonal stress responsiveness and R/S-CIT concentrations in plasma and cerebrospinal fluid (CSF). The magnitude of decrease in cortisol responsivity from pretreatment baseline to week 4 on drug [delta-area under the curve (AUC) cortisol] was a significant predictor (p<0.0001) of the degree of symptom improvement following 16 weeks on drug (i.e., decrease in HAM-D21 total score). The model demonstrated that the interaction of CSF S-CIT concentrations and clinical improvement was the most powerful predictor of AUC cortisol responsiveness. CONCLUSION: The present study shows that decreased AUC cortisol was highly associated with S-CIT concentrations in plasma and CSF. Therefore, our data suggest that the CSF or plasma S-CIT concentrations rather than the R/S-CIT dose should be considered as an indicator of the selective serotonergic reuptake inhibitors (SSRIs) effect on HPA axis responsiveness as measured by AUC cortisol response.

Innovation sources and productivity in Catalonian firms: a quantile regression analysis

This paper explores the effects of two main sources of innovation -intramural and external R&D- on the productivity level in a sample of 3,267 Catalonian firms. The data set used is based on the official innovation survey of Catalonia which was a part of the Spanish sample of CIS4, covering the years 2002-2004. We compare empirical results by applying usual OLS and quantile regression techniques both in manufacturing and services industries. In quantile regression, results suggest different patterns at both innovation sources as we move across conditional quantiles. The elasticity of intramural R&D activities on productivity decreased when we move up the high productivity levels both in manufacturing and services sectors, while the effects of external R&D rise in high-technology industries but are more ambiguous in low-technology and knowledge-intensive services. JEL codes: O300, C100, O140. Keywords: Innovation sources, R&D, Productivity, Quantile regression

Foundations for contest success functions

In the literature the outcome of contests is either interpreted as win probabilities or as shares of the prize. With this in mind, we examine two approaches to contest success functions. In the first we analyze the implications of contestants' incomplete information concerning the "type" of the contest administrator. While in the case of two contestants this approach can rationalize prominent contest success functions, we show that it runs into difficulties when there are more agents. Our second approach interprets contest success functions as sharing rules and establishes a connection to bargaining and claims problems which is independent of the number of contestants. Both approaches provide foundations for popular contest success functions and guidelines for the definition of new ones. Keywords: Endogenous Contests, Contest Success Function. JEL Classification: C72 (Noncooperative Games), D72 (Economic Models of Political Processes: Rent-Seeking, Elections), D74 (Conflict; Conflict Resolution; Alliances).

Stock market integration between new EU member states and the Euro-zone

This paper measures the degree in stock market integration between five Eastern European countries and the Euro-zone. A potentially gradual transition in correlations is accommodated by smooth transition conditional correlation models. We find that the correlation between stock markets has increased from 2001 to 2007. In particular, the Czech and Polish markets show a higher correlation to the Euro-zone. However, this is not a broad-based phenomenon across Eastern Europe. We also find that the increase in correlations is not a reflection of a world-wide phenomenon of financial integration but appears to be specific to the European market. JEL classifications: C32; C51; F36; G15 Keywords: Multivariate GARCH; Smooth Transition Conditional Correlation; Stock Return Comovement; New EU Members.

The Complete Information First. Price Auction or the Importance of Being Indivisible

Abstract Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the first-price sealed-bid auction mechanism under complete information. This paper aims to remedy that omission. We show that the existence of pure strategy undominated Nash equilibria requires that the bidding space is not "too divisible" (that is, a continuum). In fact, when bids must form part of a finite grid there always exists a "high price equilibrium". However, there might also be "low price equilibria" and when the bidding space is very restrictive the revenue obtained in these "low price equilibria" might be very low. We discuss the properties of the equilibria and an application of auction theoretical thinking in which "low price equilibria" may be relevant. Keywords: First-price auctions, undominated Nash equilibria. JEL Classification Numbers: C72 (Noncooperative Games), D44 (Auctions).

Progress Towards to Equity Market Integration in Eastern Europe

The advent of the European Union has decreased the diversification benefits available from country based equity market indices in the region. This paper measures the increase in stock integration between the three largest new EU members (Hungary, the Czech Republic and Poland who joined in May 2004) and the Euro-zone. A potentially gradual transition in correlations is accommodated in a single VAR model by embedding smooth transition conditional correlation models with fat tails, spillovers, volatility clustering, and asymmetric volatility effects. At the country market index level all three Eastern European markets show a considerable increase in correlations in 2006. At the industry level the dates and transition periods for the correlations differ, and the correlations are lower although also increasing. The results show that sectoral indices in Eastern European markets may provide larger diversification opportunities than the aggregate market. JEL classifications: C32; C51; F36; G15 Keywords: Multivariate GARCH; Smooth Transition Conditional Correlation; Stock Return Comovement; Sectoral correlations; New EU Members

Individual Aspirations and Satisfaction:Quantifying the Importance of Homeownership

Residential satisfaction is often used as a barometer to assess the performance of public policy and programmes designed to raise individuals' well-being. However, the fact that responses elicited from residents might be biased by subjective, non-observable factors casts doubt on whether these responses can be taken as trustable indicators of the individuals' housing situation. Emotional factors such as aspirations or expectations might affect individuals' cognitions of their true residential situation. To disentangle this puzzle, we investigated whether identical residential attributes can be perceived differently depending on tenure status. Our results indicate that tenure status is crucial not only in determining the level of housing satisfaction, but also regarding how dwellers perceive their housing characteristics. Keywords: Housing satisfaction, subjective well-being, homeownership. JEL classification: D1, R2.

Free Mobility and Taste-Homogeneity of Jurisdiction Structures

We consider a population of agents distributed on the unit interval. Agents form jurisdictions in order to provide a public facility and share its costs equally. This creates an incentive to form large entities. Individuals also incur a transportation cost depending on their location and that of the facility which makes small jurisdictions advantageous. We consider a fairly general class of distributions of agents and generalize previous versions of this model by allowing for non-linear transportation costs. We show that, in general, jurisdictions are not necessarily homogeneous. However, they are if facilities are always intraterritory and transportation costs are superadditive. Superadditivity can be weakened to strictly increasing and strictly concave when agents are uniformly distributed. Keywords: Consecutiveness, stratification, local public goods, coalition formation, country formation. JEL Classification: C71 (Cooperative Games), D71 (Social Choice; Clubs; Committees; Associations), H73 (Interjurisdictional Differentials and Their Effects).

Leading indicator properties of US high-yield credit spreads

In this paper we examine the out-of-sample forecast performance of high-yield credit spreads regarding real-time and revised data on employment and industrial production in the US. We evaluate models using both a point forecast and a probability forecast exercise. Our main findings suggest the use of few factors obtained by pooling information from a number of sector-specific high-yield credit spreads. This can be justified by observing that, especially for employment, there is a gain from using a principal components model fitted to high-yield credit spreads compared to the prediction produced by benchmarks, such as an AR, and ARDL models that use either the term spread or the aggregate high-yield spread as exogenous regressor. Moreover, forecasts based on real-time data are generally comparable to forecasts based on revised data. JEL Classification: C22; C53; E32 Keywords: Credit spreads; Principal components; Forecasting; Real-time data.

Congested hubs

Hub congestion is a major problem and a relevant policy issue because it causes delays and many organizational problems at airports that end up implying unpleasant consequences both for air travelers and airlines. In a competitive framework in which carriers choose aircraft size, this paper suggests that airlines schedule too many flights using overly small aircraft, which constitutes a major contributor to congestion. Two- part congestion tolls, accounting for the congestion imposed on other carriers and the congestion imposed on all passengers, are needed to recover e¢ ciency. Finally, we analyze the validity of the results by studying the effects of network size, airport capacity, competition in layover time, and the formation of airline alliances. Keywords: congestion; hub-and-spoke networks; overprovision of frequency; con- gestion internalization; congestion tolls JEL Classiffication Numbers: L13; L2; L93

Scheduled Service Versus Personal Transportation: The Role of Distance

This paper presents a theoretical and empirical analysis of the relationship be- tween frequency of scheduled transportation services and their substitutability with personal transportation (using distance as a proxy). We study the interaction between a monopoly firm providing a high-speed scheduled service and private transportation (i.e., car). Interestingly, the carrier chooses to increase the frequency of service on longer routes when competing with personal transportation because by providing higher frequency (at extra cost) it can also charge higher fares which can boost its profits. However, in line with the results of earlier studies, frequency decreases for longer flights when driving is not a viable option. An empirical application of our analysis to the European airline industry confirms the predictions of our theoretical model. Keywords: short-haul routes; long-haul routes; flight frequency; distance JEL Classification Numbers: L13; L2; L93

Environmental Kuznets Curves for Carbon Emissions: A Critical Survey

The empirical finding of an inverse U-shaped relationship between per capita income and pollution, the so-called Environmental Kuznets Curve (EKC), suggests that as countries experience economic growth, environmental deterioration decelerates and thus becomes less of an issue. Focusing on the prime example of carbon emissions, the present article provides a critical review of the new econometric techniques that have questioned the baseline polynomial specification in the EKC literature. We discuss issues related to the functional form, heterogeneity, “spurious” regressions and spatial dependence to address whether and to what extent the EKC can be observed. Despite these new approaches, there is still no clear-cut evidence supporting the existence of the EKC for carbon emissions. JEL classifications: C20; Q32; Q50; O13 Keywords: Environmental Kuznets Curve; Carbon emissions; Functional form; Heterogeneity; “Spurious” regressions; Spatial dependence.Residential satisfaction is often used as a barometer to assess the performance of public policy and programmes designed to raise individuals' well-being. However, the fact that responses elicited from residents might be biased by subjective, non-observable factors casts doubt on whether these responses can be taken as trustable indicators of the individuals' housing situation. Emotional factors such as aspirations or expectations might affect individuals' cognitions of their true residential situation. To disentangle this puzzle, we investigated whether identical residential attributes can be perceived differently depending on tenure status. Our results indicate that tenure status is crucial not only in determining the level of housing satisfaction, but also regarding how dwellers perceive their housing characteristics. Keywords: Housing satisfaction, subjective well-being, homeownership. JEL classification: D1, R2.