Pass-through in dollarized countries: should Ecuador abandon the U.S. Dollar?

In this article we examine the convenience of dollarization for Ecuador today. As Ecuador is strongly integrated financially and commercially with the United States, the exchange rate pass-through should be zero. However, we sustain that rising rates of imports from trade partners other than the United States and subsequent real effective exchange rate depreciations are causing the pass-through to move away from zero. Here, in the framework of the Vector Error Correction Model, we analyse the impulse response function and variance decomposition of the inflation variable. We show that the developing economy of Ecuador is importing inflation from its main trading partners, most of them emerging countries with appreciated currencies. We argue that if Ecuador recovered both its monetary and exchange rate instruments it would be able to fight against inflation. We believe such an analysis could be extended to other countries with pegged exchange rate regimes.

Comparison of electricity generation costs

The economical competitiveness of various power plant alternatives is compared. The comparison comprises merely electricity producing power plants. Combined heat and power (CHP) producing power will cover part of the future power deficit in Finland, but also condensing power plants for base load production will be needed. The following types of power plants are studied: nuclear power plant, combined cycle gas turbine plant, coal-fired condensing power plant, peat-fired condensing power plant, wood-fired condensing power plant and wind power plant. The calculations are carried out by using the annuity method with a real interest rate of 5 % per annum and with a fixed price level as of January 2008. With the annual peak load utilization time of 8000 hours (corresponding to a load factor of 91,3 %) the production costs would be for nuclear electricity 35,0 €/MWh, for gas based electricity 59,2 €/MWh and for coal based electricity 64,4 €/MWh, when using a price of 23 €/tonCO2 for the carbon dioxide emission trading. Without emission trading the production cost of gas electricity is 51,2 €/MWh and that of coal electricity 45,7 €/MWh and nuclear remains the same (35,0 €/MWh) In order to study the impact of changes in the input data, a sensitivity analysis has been carried out. It reveals that the advantage of the nuclear power is quite clear. E.g. the nuclear electricity is rather insensitive to the changes of nuclear fuel price, whereas for natural gas alternative the rising trend of gas price causes the greatest risk. Furthermore, increase of emission trading price improves the competitiveness of the nuclear alternative. The competitiveness and payback of the nuclear power investment is studied also as such by using various electricity market prices for determining the revenues generated by the investment. The profitability of the investment is excellent, if the market price of electricity is 50 €/MWh or more.

Essays on pricing of risk and international linkage of Russian stock market

Last two decades have seen a rapid change in the global economic and financial situation; the economic conditions in many small and large underdeveloped countries started to improve and they became recognized as emerging markets. This led to growth in the amounts of global investments in these countries, partly spurred by expectations of higher returns, favorable risk-return opportunities, and better diversification alternatives to global investors. This process, however, has not been without problems and it has emphasized the need for more information on these markets. In particular, the liberalization of financial markets around the world, globalization of trade and companies, recent formation of economic and regional blocks, and the rapid development of underdeveloped countries during the last two decades have brought a major challenge to the financial world and researchers alike. This doctoral dissertation studies one of the largest emerging markets, namely Russia. The motivation why the Russian equity market is worth investigating includes, among other factors, its sheer size, rapid and robust economic growth since the turn of the millennium, future prospect for international investors, and a number of important major financial reforms implemented since the early 1990s. Another interesting feature of the Russian economy, which gives motivation to study Russian market, is Russia’s 1998 financial crisis, considered as one of the worst crisis in recent times, affecting both developed and developing economies. Therefore, special attention has been paid to Russia’s 1998 financial crisis throughout this dissertation. This thesis covers the period from the birth of the modern Russian financial markets to the present day, Special attention is given to the international linkage and the 1998 financial crisis. This study first identifies the risks associated with Russian market and then deals with their pricing issues. Finally some insights about portfolio construction within Russian market are presented. The first research paper of this dissertation considers the linkage of the Russian equity market to the world equity market by examining the international transmission of the Russia’s 1998 financial crisis utilizing the GARCH-BEKK model proposed by Engle and Kroner. Empirical results shows evidence of direct linkage between the Russian equity market and the world market both in regards of returns and volatility. However, the weakness of the linkage suggests that the Russian equity market was only partially integrated into the world market, even though the contagion can be clearly seen during the time of the crisis period. The second and the third paper, co-authored with Mika Vaihekoski, investigate whether global, local and currency risks are priced in the Russian stock market from a US investors’ point of view. Furthermore, the dynamics of these sources of risk are studied, i.e., whether the prices of the global and local risk factors are constant or time-varying over time. We utilize the multivariate GARCH-M framework of De Santis and Gérard (1998). Similar to them we find price of global market risk to be time-varying. Currency risk also found to be priced and highly time varying in the Russian market. Moreover, our results suggest that the Russian market is partially segmented and local risk is also priced in the market. The model also implies that the biggest impact on the US market risk premium is coming from the world risk component whereas the Russian risk premium is on average caused mostly by the local and currency components. The purpose of the fourth paper is to look at the relationship between the stock and the bond market of Russia. The objective is to examine whether the correlations between two classes of assets are time varying by using multivariate conditional volatility models. The Constant Conditional Correlation model by Bollerslev (1990), the Dynamic Conditional Correlation model by Engle (2002), and an asymmetric version of the Dynamic Conditional Correlation model by Cappiello et al. (2006) are used in the analysis. The empirical results do not support the assumption of constant conditional correlation and there was clear evidence of time varying correlations between the Russian stocks and bond market and both asset markets exhibit positive asymmetries. The implications of the results in this dissertation are useful for both companies and international investors who are interested in investing in Russia. Our results give useful insights to those involved in minimising or managing financial risk exposures, such as, portfolio managers, international investors, risk analysts and financial researchers. When portfolio managers aim to optimize the risk-return relationship, the results indicate that at least in the case of Russia, one should account for the local market as well as currency risk when calculating the key inputs for the optimization. In addition, the pricing of exchange rate risk implies that exchange rate exposure is partly non-diversifiable and investors are compensated for bearing the risk. Likewise, international transmission of stock market volatility can profoundly influence corporate capital budgeting decisions, investors’ investment decisions, and other business cycle variables. Finally, the weak integration of the Russian market and low correlations between Russian stock and bond market offers good opportunities to the international investors to diversify their portfolios.

Sähkön tuotantokustannusvertailu

Työssä vertaillaan eri sähköntuotantovaihtoehtojen taloudellista kannattavuutta. Kannattavuusvertailu suoritetaan pelkkää sähköä tuottaville voimalaitoksille. Raportti on jatkoa aikaisemmille tutkimuksille, joista viimeisin julkaistiin 2008. Tutkittavat voimalaitostyypit ovat: ydinvoimalaitos, maakaasukombilauhdevoimalaitos, kivihiililauhdevoimalaitos, turvelauhdevoimalaitos, puulauhdevoimalaitos, tuulivoimala ja uutena aurinkovoimala. Kannattavuustarkastelu suoritetaan annuiteettimenetelmällä käyttäen 5 % reaalikorkoa ja maaliskuun 2012 hintatasoa. Laskelmien perusteella 8000 tunnin huipunkäyttöajalla ydinsähkön tuotantokustannus, kun laitos rakennetaan olemassaolevalle tontille olisi 43,7 €/MWh, täysin uuden ydinvoimalaitoksen 57,9 €/MWh, kaasusähkön 75,4 €/MWh, turvelauhteen 75,4 €/MWh ja hiilisähkön hiilidioksidin talteenotolla 64,4 €/MWh, kun hiilidioksidipäästöoikeuden hintana käytetään 23 €/t. Vastaavasti uusiutuvista puupolttoainelauhdesähkön tuotantokustannus olisi 70,2 €/MWh kun taas 2200 tunnin huipunkäyttöajalla maalla sijaitsevan tuulivoimalaitoksen sähkön tuotantokustannus 52,7 €/MWh ja merellä sijaitsevan tuulivoimalaitoksen 76,8 €/MWh. Erillistarkastelussa arvioitiin suurien keskittävää teknologiaa käyttävän aurinko-voimalaitoksen tuotantokustannuksen ylittävän 100 €/MWh ollen todennäköisesti lähempänä 150 €/MWh. Arvio piensähkön tuotantokustannuksista aurinkosähköisillä paneeleilla vaihtelee 90 – 130 €/MWh. Merkittävin kustannussäästö syntyy, jos aurinkosähköpaketteja voidaan tarjota kuluttajalle kokonaistoimituksena avaimet käteen. Aurinkosähkön tuottaminen kotikeräimillä näyttääkin olevan vaiheessa, jossa se on selkeästi pienkäyttäjälle edullista mikäli sijoitettava pääoma 6000 – 18000 € ei vaadi ulkopuolista rahoitusta.

Can tourism be sustainable? : service experiences from tourism destinations in Europe

The tourism industry is growing rapidly, and thus there is an urgent need to developing sustainable tourism. The research objective of the thesis is to explore and discuss the concept of sustainability within the tourism industry from a marketing point of view, focusing on the perspective of tourist producers’. The thesis consists of four studies, each of which contains different perspectives to support this overall objective. The first study deals with how a hotel can achieve economic sustainability by creating a high level of customer service delivery using a refined GAP-model. The second study examines how tourist producers at mass tourism destinations work with sustainable tourism as a strategic marketing tool in their tourism product development. The third study addresses economic sustainability at the macro level by estimating the tourism demand for Sweden and Norway in five different countries. In the fourth study, the concept of sustainable mass tourism is developed and analyzed from a conceptual standpoint. Study 1 and study 3 concentrate on economic sustainability from a micro and national perspective. The main contribution of Study 1 is the refined GAP-model, which can be seen as a theoretical contribution to the service marketing research. Study 3 shows that exchange rate trends strongly affect tourists’ choice of destination. Study 2 examines sustainable mass tourism as a strategic marketing tool at the destination level. The conclusions of Study 2 contribute to the findings of Study 4 and consider the tourist producers approach to sustainable tourism. One of the contributions of Study 4 is that the concept of sustainable tourism should be divided into three separate parts; economic sustainability, social sustainability and environmental sustainability.

Pressure-assisted cold denaturation of hen egg white lysozyme: the influence of co-solvents probed by hydrogen exchange nuclear magnetic resonance

COSY proton nuclear magnetic resonance was used to measure the exchange rates of amide protons of hen egg white lysozyme (HEWL) in the pressure-assisted cold-denatured state and in the heat-denatured state. After dissolving lysozyme in deuterium oxide buffer, labile protons exchange for deuterons in such a way that exposed protons are substituted rapidly, whereas "protected" protons within structured parts of the protein are substituted slowly. The exchange rates k obs were determined for HEWL under heat treatment (80ºC) and under high pressure conditions at low temperature (3.75 kbar, -13ºC). Moreover, the influence of co-solvents (sorbitol, urea) on the exchange rate was examined under pressure-assisted cold denaturation conditions, and the corresponding protection factors, P, were determined. The exchange kinetics upon heat treatment was found to be a two-step process with initial slow exchange followed by a fast one, showing residual protection in the slow-exchange state and P-factors in the random-coil-like range for the final temperature-denatured state. Addition of sorbitol (500 mM) led to an increase of P-factors for the pressure-assisted cold denatured state, but not for the heat-denatured state. The presence of 2 M urea resulted in a drastic decrease of the P-factors of the pressure-assisted cold denatured state. For both types of co-solvents, the effect they exert appears to be cooperative, i.e., no particular regions within the protein can be identified with significantly diverse changes of P-factors.

Value at Risk in Foreign Exchange Risk Management

This thesis examines the suitability of VaR in foreign exchange rate risk management from the perspective of a European investor. The suitability of four different VaR models is evaluated in respect to have insight if VaR is a valuable tool in managing foreign exchange rate risk. The models evaluated are historical method, historical bootstrap method, variance-covariance method and Monte Carlo simulation. The data evaluated are divided into emerging and developed market currencies to have more intriguing analysis. The foreign exchange rate data in this thesis is from 31st January 2000 to 30th April 2014. The results show that the previously mentioned VaR models performance in foreign exchange risk management is not to be considered as a single tool in foreign exchange rate risk management. The variance-covariance method and Monte Carlo simulation performs poorest in both currency portfolios. Both historical methods performed better but should also be considered as an additional tool along with other more sophisticated analysis tools. A comparative study of VaR estimates and forward prices is also included in the thesis. The study reveals that regardless of the expensive hedging cost of emerging market currencies the risk captured by VaR is more expensive and thus FX forward hedging is recommended

Application of a modified sequential organ failure assessment score to critically ill patients

The purpose of the present study was to explore the usefulness of the Mexican sequential organ failure assessment (MEXSOFA) score for assessing the risk of mortality for critically ill patients in the ICU. A total of 232 consecutive patients admitted to an ICU were included in the study. The MEXSOFA was calculated using the original SOFA scoring system with two modifications: the PaO2/FiO2 ratio was replaced with the SpO2/FiO2 ratio, and the evaluation of neurologic dysfunction was excluded. The ICU mortality rate was 20.2%. Patients with an initial MEXSOFA score of 9 points or less calculated during the first 24 h after admission to the ICU had a mortality rate of 14.8%, while those with an initial MEXSOFA score of 10 points or more had a mortality rate of 40%. The MEXSOFA score at 48 h was also associated with mortality: patients with a score of 9 points or less had a mortality rate of 14.1%, while those with a score of 10 points or more had a mortality rate of 50%. In a multivariate analysis, only the MEXSOFA score at 48 h was an independent predictor for in-ICU death with an OR = 1.35 (95%CI = 1.14-1.59, P < 0.001). The SOFA and MEXSOFA scores calculated 24 h after admission to the ICU demonstrated a good level of discrimination for predicting the in-ICU mortality risk in critically ill patients. The MEXSOFA score at 48 h was an independent predictor of death; with each 1-point increase, the odds of death increased by 35%.

A substituição de importações no Brasil entre 1995 e 2000

This work estimates the import substitution process in Brazilian industrial sectors in a recent period and evaluates whether it is occurring naturally or is in part induced by some kind of external commercial policy. An index to measure import substitution was calculated for forty nine sectors of industry. A regression analysis with this index against effective tariffs and real effective exchange rate, during the period 1995-2000, shows that these variables (effective tariffs and real effective exchange rates) did affect the substitution index. From 1999 on, the influence of the exchange rate over the import substitution index was greater than the influence of the effective tariff, suggesting that the process of import substitution post the Brazilian currency depreciation occurred in 1999 contains elements that characterizes it as a "natural" process.

The Dutch disease and its neutralization: a Ricardian approach

The Dutch disease is a major market failure originated in the existence of cheap and abundant natural or human resources that keep overvalued the currency of a country for an undetermined period of time, thus turning non profitable the production of tradable goods using technology in the state-of-the-art. It is an obstacle to growth on the demand side, because it limits investment opportunities. The severity of the Dutch disease varies according to the extent of the Ricardian rents involved, i.e., according to the difference between two exchange rate equilibriums: the ‘current’ or market rate and the ‘industrial’ rate - the one that make viable efficient tradable industries. Its main symptoms, besides overvalued currency, are low rates of growth of the manufacturing industry, artificially high real wages, and unemployment. Its neutralization requires managing the exchange rate. The principal instrument for that is a sales or export tax on the commodities that give origin to the Dutch disease. In order to neutralize it policymakers face major political obstacles since it involves taxing exports and reducing wages. Finally, this papers argues that there is an extended concept of Dutch disease: besides having its origin in natural resources, it may arise from cheap labor provided that the ‘wage spread’ in the developing country is considerably larger than in the developed one - a condition that is usually present.

Juros, câmbio e o sistema de metas de inflação no Brasil

Interest rate, exchange rate and the system of inflation target in Brazil. In the consensus view of the Brazilian system of inflation targeting, the core of inflation is due to demand shocks; the rate of interest is set to control demand; and some variation in the exchange rate happens as "collateral damage". In this note we argue that in reality core inflation comes from cost push; the interest rate affects the exchange rate; changes in the exchange rate affect costs and prices; it is the effect of interest rates on demand that is the "collateral damage" and that the long run anchor of the system is low average real wage rigidity.

Quinze anos de rigidez monetária no Brasil pós-Plano Real: uma agenda de pesquisa

Fifteen years of monetary rigidity in Brazil after the Real Plan: a research agenda.The paper makes a review of literature and a research agenda on the anomaly of Brazilian monetary policy. Following a retrospect of the first 15 years after the Real Plan, there is a review of studies aiming to explain the high real interest rate. None of the summarized theses can completely explain the phenomenon. The main research opportunities are: deepening of empirical evidence of monetary policy efficacy loss; improvement in mensuration of its inefficacy; and improvement of alternative instruments to control inflation. The field of political economy is also fertile. One should assess the relevance of oligopolies as an explaining factor of persistence of high inflation.

Por que as taxas de juros são tão elevadas no Brasil?: uma avaliação empírica

This paper aims at exploring some hypothesis to explain why real interest rate and bank spread are so high. We argue that the interest rate problem and bank spread problem are connected. More precisely, one important cause of bank spread is the high level of BCB interest rate. So, the solution of interest rate problem, so that it can converge to the levels observed in other countries, will help to reduce bank spread, and doing so contributing to the reduction of the capital cost of the Brazilian economy.

Competitividade e restrição externa na Zona do Euro

The recent debt crisis in Greece, Ireland and Portugal has exposed the fragility existing in the Eurozone for promoting development and economic convergence between the countries that have adopted the currency. Way beyond the fear of insolvency, what is observed is a growing disparity of the most-developed countries in comparison to the less-developed ones, with perverse consequences for the last ones. Once the nominal exchange rates are fixed, the divergent movements in relative prices and wages between the countries have led to totally distinct paths for the real exchange rates. Worsening the scenario, one can observe the incompleteness of the political union, the monetarist focus of the ECB and the lack of labor mobility between the countries, what distances from the argument stated by the theory and puts in jeopardize the future of the Monetary Union.

Macroeconomic News and Exchange Rates: Evidence of Unstable Effect

Although the link between macroeconomic news announcements and exchange rates is well documented in recent literature, this connection may be unstable. By using a broad set of macroeconomic news announcements and high frequency forex data for the Euro/Dollar, Pound/Dollar and Yen/Dollar from Nov 1, 2004 to Mar 31, 2014, we obtain two major findings with regards to this instability. First, many macroeconomic news announcements exhibit unstable effects with certain patterns in foreign exchange rates. These news effects may change in magnitude and even in their sign over time, over business cycles and crises within distinctive contexts. This finding is robust because the results are obtained by applying a Two-Regime Smooth Transition Regression Model, a Breakpoints Regression Model, and an Efficient Test of Parameter Instability which are all consistent with each other. Second, when we explore the source of this instability, we find that global risks and the reaction by central bank monetary policy to these risks to be possible factors causing this instability.