What will be the risk-free rate and benchmark yield curve following European monetary union?

Using a linear factor model, we study the behaviour of French, Germany, Italian and British sovereign yield curves in the run up to EMU. This allows us to determine which of these yield curves might best approximate a benchmark yield curve post EMU. We find that the best approximation for the risk free yield is the UK three month T-bill yield, followed by the German three month T-bill yield. As no one sovereign yield curve dominates all others, we find that a composite yield curve, consisting of French, Italian and UK bonds at different maturity points along the yield curve should be the benchmark post EMU.

Evaluation of cumulative externality: environmental economics, oligopoly and the private provision of public goods

This paper evaluates environmental externality when the structure of the externality is cumulative. The evaluation exercise is based on the assumption that the agents in question form conjectural variations. A number of environments are encompassed within this classification and have received due attention in the literature. Each of these heterogeneous environments, however, possesses considerable analytical homogeneity and permit subscription to a general model treatment. These environments include environmental externality, oligopoly and the analysis of the private provision of public goods. We highlight the general analytical approach by focusing on this latter context, in which debate centers around four issues: the existence of free-riding, the extent to which contributions are matched equally across individuals, the nature of conjectures consistent with equilibrium, and the allocative inefficiency of alternative regimes. This paper resolves each of these issues, with the following conclusions: A consistent-conjectures equilibrium exists in the private provision of public goods. It is the monopolistic-conjectures equilibrium. Agents act identically, contributing positive amounts of the public good in an efficient allocation of resources. There is complete matching of contributions among agents, no free-riding, and the allocation is independent of the number of members within the community. Thus the Olson conjecture—that inefficiency is exacerbated by community size—has no foundation in a consistent-conjectures, cumulative-externality, context (212 words).

Determinants of biosecurity behaviour of British cattle and sheep farmers: a behavioural economics analysis

The paper analyses the impact of a priori determinants of biosecurity behaviour of farmers in Great Britain. We use a dataset collected through a stratified telephone survey of 900 cattle and sheep farmers in Great Britain (400 in England and a further 250 in Wales and Scotland respectively) which took place between 25 March 2010 and 18 June 2010. The survey was stratified by farm type, farm size and region. To test the influence of a priori determinants on biosecurity behaviour we used a behavioural economics method, structural equation modelling (SEM) with observed and latent variables. SEM is a statistical technique for testing and estimating causal relationships amongst variables, some of which may be latent using a combination of statistical data and qualitative causal assumptions. Thirteen latent variables were identified and extracted, expressing the behaviour and the underlying determining factors. The variables were: experience, economic factors, organic certification of farm, membership in a cattle/sheep health scheme, perceived usefulness of biosecurity information sources, knowledge about biosecurity measures, perceived importance of specific biosecurity strategies, perceived effect (on farm business in the past five years) of welfare/health regulation, perceived effect of severe outbreaks of animal diseases, attitudes towards livestock biosecurity, attitudes towards animal welfare, influence on decision to apply biosecurity measures and biosecurity behaviour. The SEM model applied on the Great Britain sample has an adequate fit according to the measures of absolute, incremental and parsimonious fit. The results suggest that farmers’ perceived importance of specific biosecurity strategies, organic certification of farm, knowledge about biosecurity measures, attitudes towards animal welfare, perceived usefulness of biosecurity information sources, perceived effect on business during the past five years of severe outbreaks of animal diseases, membership in a cattle/sheep health scheme, attitudes towards livestock biosecurity, influence on decision to apply biosecurity measures, experience and economic factors are significantly influencing behaviour (overall explaining 64% of the variance in behaviour).

Coase and international business: the origin and development of internalisation theory

The internalisation theory of the multinational enterprise is a significant intellectual legacy of Ronald Coase. US direct investment in Europe became highly political in the 1960s, and neoclassical trade theory had no explanation. A theory of the multi-plant enterprise was required, and internalisation theory filled this gap. Using Coasian economics to explain the ownership of production plants, and the geography of trade to explain their location, internalisation theory offered a comprehensive account of MNEs and their role in the international economy. This paper outlines the development of the theory, explains the Coasian contribution, and examines in detail the early work of Hymer, McManus and Buckley and Casson. It then reviews the current state of internalisation theory and suggests some future developments.

Does energy efficiency matter to home-buyers? An investigation of EPC ratings and transaction prices in England

This paper investigates whether energy performance ratings, as measured by mandatory Energy Performance Certificates (EPCs), are reflected in the sale prices of residential properties. This is the first large-scale empirical study of this topic in England involving 333,095 dwellings sold at least twice in the period from 1995 to 2012. Applying hedonic regression and an augmented repeat sales regression, we find a positive relationship between the energy efficiency rating of a dwelling and the transaction price per square metre. The price effects of superior energy performance tend to be higher for terraced dwellings and flats compared to detached and semi-detached dwellings. The evidence is less clear-cut for rates of house price growth but remains supportive of a positive association. Overall, the results of this study suggest that energy efficiency labels have a measurable and significant impact on house prices in England

The transaction cost economics theory of the family firm: family-based human asset specificity and the bifurcation bias

We develop a transaction cost economics theory of the family firm, building upon the concepts of family-based asset specificity, bounded rationality, and bounded reliability. We argue that the prosperity and survival of family firms depend on the absence of a dysfunctional bifurcation bias. The bifurcation bias is an expression of bounded reliability, reflected in the de facto asymmetric treatment of family vs. nonfamily assets (especially human assets). We propose that absence of bifurcation bias is critical to fostering reliability in family business functioning. Our study ends the unproductive divide between the agency and stewardship perspectives of the family firm, which offer conflicting accounts of this firm type's functioning. We show that the predictions of the agency and stewardship perspectives can be usefully reconciled when focusing on how family firms address the bifurcation bias or fail to do so.

Gender and the business cycle: an analysis of labour markets in the US and UK

Starting from an improved understanding of the relationship between gender labour market stocks and the business cycle, we analyse the contributing role of flows in the US and UK. Focusing on the post 2008 recession period, the subsequent greater rise in male unemployment can mostly be explained by a less cyclical response of flows between employment and unemployment for women, especially the entry into unemployment. Across gender and country, the inactivity rate is generally not sensitive to the state of the economy. However, a flows based analysis reveals a greater importance of the participation margin over the cycle. Changes in the rates of flow between unemployment and inactivity can each account for around 0.8-1.1 percentage points of the rise in US male and female unemployment rates during the latest downturn. For the UK, although the participation flow to unemployment similarly contributed to the increase of the female unemployment rate, this was not the case for men. The countercyclical flow rate from inactivity to employment was also more significant for women, especially in the US, where it accounted for approximately all of the fall in employment, compared with only 40% for men.

Prediction of the economic activity from the short and long-term interest rate differential: new evidences in Chile and the United States of America cases

The purpose of this work is to verify the stability of the relationship between real activity and interest rate spread. The test is based on Chen (1988) and Osorio and Galea (2006). The analysis is applied to Chile and the United States, from 1980 to 1999. In general, in both cases the relationship was statistically significant in early 80s, but a break point is found in both countries during that decades, suggesting that the relationship depends on the monetary rule follow by the Central Bank.

Preparers’ and non-preparers’ lobbying on the proposed prohibition of goodwill amortisation in ED3 ‘business combinations’

In this paper preparers’ and non-preparers’ positions regarding accounting for goodwill are examined through studying submitted comment letters on ED3 ‘Business Combinations’. Preparers have, because of economic consequences, incentives to lobby for the non-amortisation approach and non-preparers for the amortisation approach. As hypothesised, non-preparers are found to support amortisation of goodwill to a greater extent than do preparers. Moreover, the two groups’ supportive arguments, i.e. how they argue for or against the non-amortisation or amortisation approach, are studied. Again, as hypothesised, the results show that the two groups use the same type of ‘sophisticated’ framework based arguments instead of economic consequences arguments. Taken together the examination of the comment letters thus indicates that both preparers and non-preparers point at conceptual strengths and weaknesses, instead of pointing at the real cause of the lobbying activities, i.e. perceived economic consequences, when they try to affect the final outcome of the standard. These findings confirm earlier research which has suggested that self-interested lobbyists use accounting theories and concepts as useful justifications.

Tayloring Brazil: a system dynamics model for monetary policy feedback

The thesis introduces a system dynamics Taylor rule model of new Keynesian nature for monetary policy feedback in Brazil. The nonlinear Taylor rule for interest rate changes con-siders gaps and dynamics of GDP growth and inflation. The model closely tracks the 2004 to 2011 business cycle and outlines the endogenous feedback between the real interest rate, GDP growth and inflation. The model identifies a high degree of endogenous feedback for monetary policy and inflation, while GDP growth remains highly exposed to exogenous eco-nomic conditions. The results also show that the majority of the monetary policy moves during the sample period was related to GDP growth, despite higher coefficients of inflation parameters in the Taylor rule. This observation challenges the intuition that inflation target-ing leads to a dominance of monetary policy moves with respect to inflation. Furthermore, the results suggest that backward looking price-setting with respect to GDP growth has been the dominant driver of inflation. Moreover, simulation exercises highlight the effects of the new BCB strategy initiated in August 2011 and also consider recession and inflation avoid-ance versions of the Taylor rule. In methodological terms, the Taylor rule model highlights the advantages of system dynamics with respect to nonlinear policies and to the stock-and-flow approach. In total, the strong historical fit and some counterintuitive observations of the Taylor rule model call for an application of the model to other economies.

The macroeconomics of price adjustments under information frictions and menu costs

Esta tese se dedica ao estudo de modelos de fixação de preços e suas implicações macroeconômicas. Nos primeiros dois capítulos analiso modelos em que as decisões das firmas sobre seus preços praticados levam em conta custos de menu e de informação. No Capítulo 1 eu estimo tais modelos empregando estatísticas de variações de preços dos Estados Unidos, e concluo que: os custos de informação são significativamente maiores que os custos de menu; os dados claramente favorecem o modelo em que informações sobre condições agregadas são custosas enquanto que as idiossincráticas têm custo zero. No Capítulo 2 investigo as consequências de choques monetários e anúncios de desinflação usando os modelos previamente estimados. Mostro que o grau de não-neutralidade monetária é maior no modelo em que parte da informação é grátis. O Capítulo 3 é um artigo em conjunto com Carlos Carvalho (PUC-Rio) e Antonella Tutino (Federal Reserve Bank of Dallas). No artigo examinamos um modelo de fixação de preços em que firmas estão sujeitas a uma restrição de fluxo de informação do tipo Shannon. Calibramos o modelo e estudamos funções impulso-resposta a choques idiossincráticos e agregados. Mostramos que as firmas vão preferir processar informações agregadas e idiossincráticas conjuntamente ao invés de investigá-las separadamente. Este tipo de processamento gera ajustes de preços mais frequentes, diminuindo a persistência de efeitos reais causados por choques monetários.

Essays on the credit channel of monetary policy: a case study for Brazil

The onset of the financial crisis in 2008 and the European sovereign crisis in 2010 renewed the interest of macroeconomists on the role played by credit in business cycle fluctuations. The purpose of the present work is to present empirical evidence on the monetary policy transmission mechanism in Brazil with a special eye on the role played by the credit channel, using different econometric techniques. It is comprised by three articles. The first one presents a review of the literature of financial frictions, with a focus on the overlaps between credit activity and the monetary policy. It highlights how the sharp disruptions in the financial markets spurred central banks in developed and emerging nations to deploy of a broad set of non conventional tools to overcome the damage on financial intermediation. A chapter is dedicated to the challenge face by the policymaking in emerging markets and Brazil in particular in the highly integrated global capital market. This second article investigates the implications of the credit channel of the monetary policy transmission mechanism in the case of Brazil, using a structural FAVAR (SFAVAR) approach. The term “structural” comes from the estimation strategy, which generates factors that have a clear economic interpretation. The results show that unexpected shocks in the proxies for the external finance premium and the credit volume produce large and persistent fluctuations in inflation and economic activity – accounting for more than 30% of the error forecast variance of the latter in a three-year horizon. Counterfactual simulations demonstrate that the credit channel amplified the economic contraction in Brazil during the acute phase of the global financial crisis in the last quarter of 2008, thus gave an important impulse to the recovery period that followed. In the third articles, I make use of Bayesian estimation of a classical neo-Keynesian DSGE model, incorporating the financial accelerator channel developed by Bernanke, Gertler and Gilchrist (1999). The results present evidences in line to those already seen in the previous article: disturbances on the external finance premium – represented here by credit spreads – trigger significant responses on the aggregate demand and inflation and monetary policy shocks are amplified by the financial accelerator mechanism. Keywords: Macroeconomics, Monetary Policy, Credit Channel, Financial Accelerator, FAVAR, DSGE, Bayesian Econometrics

Financial constraints and house prices: an international perspective

In this paper, we show substantial empirical evidence that house prices are more sensitive to shocks to percapita income, in countries where housing finance is more developed. This result is consistent with the theoretical framework developed in the paper, where we study the impact ofprogressive relaxation of financiai constraints on housing demand and equilibrium house prices. Our results are consistent with recent literature on financiai constraints and business investment, which argues that the investment of less constrained firms can be more sensitive to changes in cash flow. More broadly, our results challenge the traditional view that financiai development leads to smaller fluctuations in key economic variables. The policy implications are c1ear and important. Even iffinancial development is desirable for other reasons, the potential associated increase in volatility should be an explicit policy concern.

Interests prices and the Barosky - Summers resolution of the Gibson paradox under the gold standard

This paper presents a structural monetary úamework featunng a demand function for non-monetary uses of gold, such as the one drawn by Barsky and Summers in their 1988 analy8ÚI of the Gibson Paradox as a natural concomitant of the gold standard period. That structural model predicts that the laws of behavior of nominal prices and interest rates are functions of the rules set by the government to command the money supply. !ta fiduciary vemon obtaina Fisherian relationships &8 particular cases. !ta gold atandard 801ution yields a modelsimilar to the Barsky and Summers model, in which interest rates are exogeneous and subject to shocb. This paper integrates governnment bonds into the analysis, treats interest rates endogenously, and ahifts the responsibility for the shocb to the government budgetary financing policies. The Gibson paradox appears as "practically" the only cl&18 of behavioral pattern open for interest rates and price movements under apure gold standard economy. Fisherian-like relationshipe are utterly ruled out.

Optimal exchange rate policy, optimal incomplete taxation and business cycles

Implementation and collapse of exchange rate pegging schemes are recur- rent events. A currency crisis (pegging) is usually followed by an economic downturn (boom). This essay explains why a benevolent government should pursue Þscal and monetary policies that lead to those recurrent currency crises and subsequent periods of pegging. It is shown that the optimal policy induces a competitive equilibrium that displays a boom in periods of below average de- valuation and a recession in periods of above average devaluation. A currency crisis (pegging) can be understood as an optimal policy answer to a recession (boom).