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.

The change of behavior of two strains of Leishmania after cultivation in a defined medium

Attempts have been made to characterize two strains of Leishmania that became infective to golden hamsters only after they had been maintained for several years in a chemically defined culture medium. Observations were made on the growth rates of promastigotes in vitro, course of infection in hamsters, morphology of amastigotes, and electrophoretic mobility patterns of eight isoenzymes. Information was obtained about the buoyant densities of n-DNA and k-DNA, and one strain was tested against monoclonal antibodies. The identity of both strains remains obscure.

Political alliances and organisational change in political parties: a framework for analysis

This article sets out a theoretical framework for the study of organisational change within political alliances. To achieve this objective it uses as a starting point a series of premises, the most notable of which include the definition of organisational change as a discrete, complex and focussed phenomenon of changes in power within the party. In accordance with these premises, it analyses the synthetic model of organisational change proposed by Panebianco (1988). After examining its limitations, a number of amendments are proposed to adapt it to the way political alliances operate. The above has resulted in the design of four new models. In order to test its validity and explanatory power in a preliminary manner, the second part looks at the organisational change of the UDC within the CiU alliance between 1978 and 2001. The discussion and conclusions reached demonstrate the problems of determinism of the Panebianco model and suggest, tentatively, the importance of the power balance within the alliance as a key factor.

The long run relationship between stock prices and goods prices: new evidence from panel cointegration

We examine the long run relationship between stock prices and goods prices to gauge whether stock market investment can hedge against inflation. Data from sixteen OECD countries over the period 1970-2006 are used. We account for different inflation regimes with the use of sub-sample regressions, whilst maintaining the power of tests in small sample sizes by combining time-series data across our sample countries in a panel unit root and panel cointegration econometric framework. The evidence supports a positive long-run relationship between goods prices and stock prices with the estimated goods price coefficient being in line with the generalized Fisher hypothesis.

Do Productivity Improvements Move Us Along the Environmental Kuznets Curve?

The Environmental Kuznets Curve (EKC) hypothesis focuses on the argument that rising prosperity will eventually be accompanied by falling pollution levels as a result of one or more of three factors: (1) structural change in the economy; (2) demand for environmental quality increasing at a more-than-proportional rate; (3) technological progress. Here, we focus on the third of these. In particular, energy efficiency is commonly regarded as a key element of climate policy in terms of achieving reductions in economy-wide CO2 emissions over time. However, a growing literature suggests that improvements in energy efficiency will lead to rebound (or backfire) effects that partially (or wholly) offset energy savings from efficiency improvements. Where efficiency improvements are aimed at the production side of the economy, the net impact of increased efficiency in any input to production will depend on the combination and relative strength of substitution, output/competitiveness, composition and income effects that occur in response to changes in effective and actual factor prices, as well as on the structure of the economy in question, including which sectors are targeted with the efficiency improvement. In this paper we consider whether increasing labour productivity will have a more beneficial, or more predictable, impact on CO2/GDP ratios than improvements in energy efficiency. We do this by using CGE models of the Scottish regional and UK national economies to analyse the impacts of a simple 5% exogenous (and costless) increase in energy or labour augmenting technological progress.

When is Monetary Policy All we Need?

We consider optimal monetary and scal policies in a New Keynesian model of a small open economy with sticky prices and wages. In this benchmark setting monetary policy is all we need - analytical results demonstrate that variations in government spending should play no role in the stabilization of shocks. In extensions we show, rstly, that this is even when true when allowing for in ation inertia through backward-looking rule-of-thumb price and wage-setting, as long as there is no discrepancy between the private and social evaluation of the marginal rate of substitution between consumption and leisure. Secondly, the optimal neutrality of government spending is robust to the issuance of public debt. In the presence of debt government spending will deviate from the optimal steady-state but only to the extent required to cover the deficit, not to provide any additional macroeconomic stabilization. However, unlike government spending variations in tax rates can play a complementary role to monetary policy, as they change relative prices rather than demand.

Simulating Wages and House Prices Using the NEG

The paper incorporates house prices within an NEG framework leading to the spatial distributions of wages, prices and income. The model assumes that all expenditure goes to firms under a monopolistic competition market structure, that labour efficiency units are appropriate, and that spatial equilibrium exists. The house price model coefficients are estimated outside the NEG model, allowing an econometric analysis of the significance of relevant covariates. The paper illustrates the methodology by estimating wages, income and prices for small administrative areas in Great Britain, and uses the model to simulate the effects of an exogenous employment shock.

Optimal Climate Change Policies When Governments Cannot Commit

This paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future. The conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment. However this argument requires governments to be able to commit to these future taxes, and it is far from clear that governments have this degree of commitment. We assume instead that governments cannot commit, and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different (relative) weights to the environment. We show that this lack of commitment has a significant asymmetric effect. Compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken, but reduces the incentive of the private sector to invest. Consequently governments may need to use additional policy instruments – such as R&D subsidies – to stimulate the required investment.

Both Sides of the Story: Skill-biased Technological Change, Labour Market Frictions, and Endogenous Two-Sided Heterogeneity

This paper presents a stylised framework to examine how skill-biased technological change and labour market frictions affect the relationship between economic expansion and unskilled unemployment. The first part of the analysis focuses on the investment decisions in skill-acquisition and technology adoption activities faced by workers and firms in response to the introduction of an innovative technology. The second part examines how endogenous two-sided heterogeneity in the labour market affects the macroeconomic outcomes in terms of unemployment, technological diffusion, and economic expansion. To conclude, the framework is used to discuss the effects of alternative forms of policy intervention on agents' investment decisions and on the macroeconomic outcomes.

Second-Order Approximation to the Rotemberg Model around a Distorted Steady State

Less is known about social welfare objectives when it is costly to change prices, as in Rotemberg (1982), compared with Calvo-type models. We derive a quadratic approximate welfare function around a distorted steady state for the costly price adjustment model. We highlight the similarities and differences to the Calvo setup. Both models imply inflation and output stabilization goals. It is explained why the degree of distortion in the economy influences inflation aversion in the Rotemberg framework in a way that differs from the Calvo setup.

Future of the Clean Development Mechanism in Tackling Climate Change

Using a theoretical framework, we explain the impact of the Clean Development Mechanism (CDM) on emissions in Annex I and non-Annex I countries. We show that on one hand, emissions in the non-Annex I country decline because of abatement sponsored by the Annex I country under the CDM; on the other hand, emissions may increase because (i) the Annex I country increases emissions in its own country, and (ii) the non-Annex I country crowds out the bene ts from the CDM projects by increasing its domestic emissions. For the CDM to be e¤ective in reducing global emissions, we show that partial Certi ed Emissions Reduction credits should be given to the Annex I country that sponsors CDM projects in the non-Annex I country. We also suggest that the CDM Executive Board should not allow the CDM projects to be hosted by non-Annex I countries that are too conscious about their emission levels.