CRE workshop part I : comprehending the context

CRE (Corporate Real Estate) decisions should not simply deal with the management of individual facilities, but should especially be concerned with the relationships that a facility has with the corporate business strategy and with the larger real estate markets. Both the practice and the research of CRE management have historically tended to emphasize real estate issues and ignore the corporation’s business issues, causing real estate strategies to be disconnected from the goal and priorities of the corporation’s senior management. With regard to office cycles, a large number of econometric models have been proposed during the last 20 years. However, evidence from historical data and previous research in the field of real estate forecasting seem to agree only on one thing: the existence of interconnected property cycles that are concentrated on vacancy rates (demand). Vacancy also represents the linkage between the inadequacy of existing CRE strategies and the inability of existing econometric models to correctly forecast office rent cycles. Business cycles, across different industry sectors, have decreased from 5-7 years to 1-3 years today, yet corporations are still entering into leases of 5-10 years, causing hidden vacancy levels to rise. Possibly, once CRE strategies are totally in tune with the overall business, hidden vacancy will fade away providing forecasters with better quality data. The aim of this paper is not to investigate whether and when the supply-side will eventually evolve to provide flexible occupancy arrangements to accommodate corporate agility requirements, but rather to propose a general framework for corporations to improve the decision making process of their CRE executives, while emphasizing the importance of understanding the context as a precondition to effective real estate involvements.

Variety matters

Countercyclical markups are a key transmission mechanism in many endogenous business cycle models. Yet, recent findings suggest that aggregate markups in the US are procyclical. The current model addresses this issue. It extends Galí's (1994) composition of aggregate demand model by endogenous entry and exit of firms and by product variety effects. Endogenous business cycles emerge with procyclical markups that are within empirically plausible ranges.

Joseph A. Schumpeter's Theory of Social and Economic Evolution : a Reconstruction and Critique

The book presents a reconstruction, interpretation and critical evaluation of the Schumpeterian theoretical approach to socio-economic change. The analysis focuses on the problem of social evolution, on the interpretation of the innovation process and business cycles and, finally, on Schumpeter s optimistic neglect of ecological-environmental conditions as possible factors influencing social-economic change. The author investigates how the Schumpeterian approach describes the process of social and economic evolution, and how the logic of transformations is described, explained and understood in the Schumpeterian theory. The material of the study includes Schumpeter s works written after 1925, a related part of the commentary literature on these works, and a selected part of the related literature on the innovation process, technological transformations and the problem of long waves. Concerning the period after 1925, the Schumpeterian oeuvre is conceived and analysed as a more or less homogenous corpus of texts. The book is divided into 9 chapters. Chapters 1-2 describe the research problems and methods. Chapter 3 is an effort to provide a systematic reconstruction of Schumpeter's ideas concerning social and economic evolution. Chapters 4 and 5 focus their analysis on the innovation process. In Chapters 6 and 7 Schumpeter's theory of business cycles is examined. Chapter 8 evaluates Schumpeter's views concerning his relative neglect of ecological-environmental conditions as possible factors influencing social-economic change. Finally, chapter 9 draws the main conclusions.

Talouskäsitysten vaikutus hallituksen suosioon Puolassa 2006–2007

Tutkimuksessa tarkastellaan äänestäjien talouskäsitysten vaikutusta hallituksen suosioon Puolassa vuosina 2006 ja 2007. Tutkimusasetelma juontaa juurensa poliittisten suhdannevaihteluiden teoriaan, jonka mukaan poliitikot pyrkivät manipuloimaan taloutta vaalien alla tullakseen uudelleen valituiksi. Vastuullisuushypoteesin mukaan äänestäjät palkitsevat poliitikot hyvästä taloustilanteesta. Näin ollen mikäli äänestäjät ovat tyytyväisiä talouteen he äänestävät hallitusta. Mikäli eivät, he äänestävät oppositiota. Miten äänestäjät sitten tekevät arvionsa taloudesta? Tutkielmassa selvitetään vaikuttiko äänestäjien mielipiteisiin käsitys nykyisestä vai tulevaisuuden taloustilanteesta. Käsitys nykyisestä taloustilanteesta perustuu havaintoihin jo toteutuneesta talouspolitiikasta. Tätä käsitystä kutsutaan retrospektiiviseksi näkemykseksi. Prospektiiviset talousnäkemykset koostuvat näkemyksestä ja odotuksista talouden tulevasta tilasta ja uskosta hallituksen kykyyn tarjota paras vaihtoehto suotuisalle talouskehitykselle. Aikaulottuvuuden lisäksi tutkielmassa testataan, vaikuttaako äänestäjiin enemmän heidän oma taloustilanteensa vai näkemys yleisestä talouden tilanteesta. Mikäli hallituksen suosio perustuu näkemyksiin henkilökohtaisen talouden tilasta, ovat äänestäjät egotrooppisia. Mikäli kannatuspäätös perustuu näkemykseen kansantalouden tilasta, ovat äänestäjät puolestaan sosiotrooppisia. Aineistona tutkielmassa käytetään uusinta saatavilla olevaa Puolan mielipidetiedustelun (Centrum Badania Opinii Publicznej) keräämää kyselyaineistoa vuosilta 2006 ja 2007. Tutkielmassa on yhdistetty kyselyaineistot 22:n kuukauden ajalta. Aineistoa on analysoitu logistisen regressioanalyysin menetelmin. Tutkielman perusteella talousnäkemyksistä suurin vaikutus hallituksen suosioon on äänestäjien näkemyksillä kansantalouden tulevaisuuden tilasta. Henkilökohtaisen talouden osalta positiiviset tulevaisuudennäkymät vaikuttavat positiivisesti myös hallituksen kannatukseen. Retrospektiivinen arvio henkilökohtaisesta taloudesta toimii kuitenkin teorian vastaisesti; oman taloudellisen tilanteen hyväksi arvioineiden todennäköisyys kannatta hallitusta oli pienempää kuin niillä, jotka arvioivat oman taloustilanteensa huonoksi. Kontrollimuuttujiksi valittiin joukko aiemmassa tutkimuksessa äänestyskäyttäytymiseen Puolassa vaikuttaneita tekijöitä. Näitä olivat ikä, sukupuoli, koulutus, asuinpaikka, näkemys työllisyystilanteesta, ideologinen sijoittuminen oikeisto–vasemmisto-akselilla sekä uskonnollisuus. Kontrollimuuttujista merkitseviksi osoittautuivat uskonnollisuus, oikeisto–vasemmisto-ideologia, koulutus, asuinpaikka sekä ikä. Kun edellä mainitut taustamuuttujat on kontrolloitu, taloustekijät selittävät noin viidesosan hallituksen kannatuksen todennäköisyyden vaihtelusta.

Pricing Defaultable Bonds in a Markov Modulated Market

We address the problem of pricing defaultable bonds in a Markov modulated market. Using Merton's structural approach we show that various types of defaultable bonds are combination of European type contingent claims. Thus pricing a defaultable bond is tantamount to pricing a contingent claim in a Markov modulated market. Since the market is incomplete, we use the method of quadratic hedging and minimal martingale measure to derive locally risk minimizing derivative prices, hedging strategies and the corresponding residual risks. The price of defaultable bonds are obtained as solutions to a system of PDEs with weak coupling subject to appropriate terminal and boundary conditions. We solve the system of PDEs numerically and carry out a numerical investigation for the defaultable bond prices. We compare their credit spreads with some of the existing models. We observe higher spreads in the Markov modulated market. We show how business cycles can be easily incorporated in the proposed framework. We demonstrate the impact on spreads of the inclusion of rare states that attempt to capture a tight liquidity situation. These states are characterized by low risk-free interest rate, high payout rate and high volatility.

Unions, Monetary Shocks and the Labour Market Cycle

Published as an article in: Economic Modelling, 2011, vol. 28, issue 3, pages 1140-1149.

Consumer Confidence and Yield Spreads in Europe

This paper shows the extraordinary capacity of yield spreads to anticipate consumption growth as proxy by the Economic Sentiment Indicator elaborated by the European Commission in order to predict turning points in business cycles. This new evidence complements the well known results regarding the usefulness of the slope of the term structure of interest rates to predict real economic conditions and, in particular, recessions by using a direct measure of expectations. A linear combination of European yield spreads explains a surprising 93.7% of the variability of the Economic Sentiment Indicator. Yield spreads seem to be a key determinant of consumer confidence in Europe.

Data Revisions in the Estimation of DSGE Models

Revisions of US macroeconomic data are not white-noise. They are persistent, correlated with real-time data, and with high variability (around 80% of volatility observed in US real-time data). Their business cycle effects are examined in an estimated DSGE model extended with both real-time and final data. After implementing a Bayesian estimation approach, the role of both habit formation and price indexation fall significantly in the extended model. The results show how revision shocks of both output and inflation are expansionary because they occur when real-time published data are too low and the Fed reacts by cutting interest rates. Consumption revisions, by contrast, are countercyclical as consumption habits mirror the observed reduction in real-time consumption. In turn, revisions of the three variables explain 9.3% of changes of output in its long-run variance decomposition.

An Estimated New-Keynesian Model with Unemployment as Excess Supply of Labor

Wage stickiness is incorporated to a New-Keynesian model with variable capital to drive endogenous unemployment uctuations de ned as the log di¤erence between aggregate labor supply and aggregate labor demand. We estimated such model using Bayesian econometric techniques and quarterly U.S. data. The second-moment statistics of the unemployment rate in the model give a good t to those observed in U.S. data. Our results also show that wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fl uctuations. Compared to an estimated New-Keynesian model without unemployment (Smets and Wouters, 2007): wage stickiness is higher, labor supply elasticity is lower, the slope of the New-Keynesian Phillips curve is flatter, and the importance of technology innovations on output variability increases.

Multidimensional scaling analysis of the dynamics of a country economy

This paper analyzes the Portuguese short-run business cycles over the last 150 years and presents the multidimensional scaling (MDS) for visualizing the results. The analytical and numerical assessment of this long-run perspective reveals periods with close connections between the macroeconomic variables related to government accounts equilibrium, balance of payments equilibrium, and economic growth. The MDS method is adopted for a quantitative statistical analysis. In this way, similarity clusters of several historical periods emerge in the MDS maps, namely, in identifying similarities and dissimilarities that identify periods of prosperity and crises, growth, and stagnation. Such features are major aspects of collective national achievement, to which can be associated the impact of international problems such as the World Wars, the Great Depression, or the current global financial crisis, as well as national events in the context of broad political blueprints for the Portuguese society in the rising globalization process.

Complex dynamics of financial indices

This paper presents a novel method for the analysis of nonlinear financial and economic systems. The modeling approach integrates the classical concepts of state space representation and time series regression. The analytical and numerical scheme leads to a parameter space representation that constitutes a valid alternative to represent the dynamical behavior. The results reveal that business cycles can be clearly revealed, while the noise effects common in financial indices can elegantly be filtered out of the results.

Electoral opportunism and fiscal policy before and after the EMU

A Masters Thesis, presented as part of the requirements for the award of a Research Masters Degree in Economics from NOVA – School of Business and Economics

Using a Bayesian model for bankruptcy prediction : a comparative approach

The purpose of this study is to examine the impact of the choice of cut-off points, sampling procedures, and the business cycle on the accuracy of bankruptcy prediction models. Misclassification can result in erroneous predictions leading to prohibitive costs to firms, investors and the economy. To test the impact of the choice of cut-off points and sampling procedures, three bankruptcy prediction models are assessed- Bayesian, Hazard and Mixed Logit. A salient feature of the study is that the analysis includes both parametric and nonparametric bankruptcy prediction models. A sample of firms from Lynn M. LoPucki Bankruptcy Research Database in the U. S. was used to evaluate the relative performance of the three models. The choice of a cut-off point and sampling procedures were found to affect the rankings of the various models. In general, the results indicate that the empirical cut-off point estimated from the training sample resulted in the lowest misclassification costs for all three models. Although the Hazard and Mixed Logit models resulted in lower costs of misclassification in the randomly selected samples, the Mixed Logit model did not perform as well across varying business-cycles. In general, the Hazard model has the highest predictive power. However, the higher predictive power of the Bayesian model, when the ratio of the cost of Type I errors to the cost of Type II errors is high, is relatively consistent across all sampling methods. Such an advantage of the Bayesian model may make it more attractive in the current economic environment. This study extends recent research comparing the performance of bankruptcy prediction models by identifying under what conditions a model performs better. It also allays a range of user groups, including auditors, shareholders, employees, suppliers, rating agencies, and creditors' concerns with respect to assessing failure risk.

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.

Macroeconomic News Effects and Foreign Exchange Jumps

This thesis investigates how macroeconomic news announcements affect jumps and cojumps in foreign exchange markets, especially under different business cycles. We use 5-min interval from high frequency data on Euro/Dollar, Pound/Dollar and Yen/Dollar from Nov. 1, 2004 to Feb. 28, 2015. The jump detection method was proposed by Andersen et al. (2007c), Lee & Mykland (2008) and then modified by Boudt et al. (2011a) for robustness. Then we apply the two-regime smooth transition regression model of Teräsvirta (1994) to explore news effects under different business cycles. We find that scheduled news related to employment, real activity, forward expectations, monetary policy, current account, price and consumption influences forex jumps, but only FOMC Rate Decisions has consistent effects on cojumps. Speeches given by major central bank officials near a crisis also significantly affect jumps and cojumps. However, the impacts of some macroeconomic news are not the same under different economic states.