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Did the Federal Reserves’ Quantitative Easing (QE) in the aftermath of the financial crisis have macroeconomic effects? To answer this question, the authors estimate a large-scale DSGE model over the sample from 1998 to 2020, including data of the Fed’s balance sheet. The authors allow for QE to affect the economy via multiple channels that arise from several financial frictions. Their nonlinear Bayesian likelihood approach fully accounts for the zero lower bound on nominal interest rates. They find that between 2009 to 2015, QE increased output by about 1.2 percent. This reflects a net increase in investment of nearly 9 percent, that was accompanied by a 0.7 percent drop in aggregate consumption. Both, government bond and capital asset purchases were effective in improving financing conditions. Especially capital asset purchases significantly facilitated new investment and increased the production capacity. Against the backdrop of a fall in consumption, supply side effects dominated which led to a mild disinflationary effect of about 0.25 percent annually.
A stochastic forward-looking model to assess the profitability and solvency of european insurers
(2016)
In this paper, we develop an analytical framework for conducting forward-looking assessments of profitability and solvency of the main euro area insurance sectors. We model the balance sheet of an insurance company encompassing both life and non-life business and we calibrate it using country level data to make it representative of the major euro area insurance markets. Then, we project this representative balance sheet forward under stochastic capital markets, stochastic mortality developments and stochastic claims. The model highlights the potential threats to insurers solvency and profitability stemming from a sustained period of low interest rates particularly in those markets which are largely exposed to reinvestment risks due to the relatively high guarantees and generous profit participation schemes. The model also proves how the resilience of insurers to adverse financial developments heavily depends on the diversification of their business mix. Finally, the model identifies potential negative spillovers between life and non-life business thorugh the redistribution of capital within groups.
A stochastic forward-looking model to assess the profitability and solvency of European insurers
(2016)
In this paper, we develop an analytical framework for conducting forward-looking assessments of profitability and solvency of the main euro area insurance sectors. We model the balance sheet of an insurance company encompassing both life and non-life business and we calibrate it using country level data to make it representative of the major euro area insurance markets. Then, we project this representative balance sheet forward under stochastic capital markets, stochastic mortality developments and stochastic claims. The model highlights the potential threats to insurers solvency and profitability stemming from a sustained period of low interest rates particularly in those markets which are largely exposed to reinvestment risks due to the relatively high guarantees and generous profit participation schemes. The model also proves how the resilience of insurers to adverse financial developments heavily depends on the diversification of their business mix. Finally, the model identifies potential negative spillovers between life and non-life business thorugh the redistribution of capital within groups.
In this paper we estimate a small model of the euro area to be used as a laboratory for evaluating the performance of alternative monetary policy strategies. We start with the relationship between output and inflation and investigate the fit of the nominal wage contracting model due to Taylor (1980)and three different versions of the relative real wage contracting model proposed by Buiter and Jewitt (1981)and estimated by Fuhrer and Moore (1995a) for the United States. While Fuhrer and Moore reject the nominal contracting model in favor of the relative contracting model which induces more inflation persistence, we find that both models fit euro area data reasonably well. When considering France, Germany and Italy separately, however, we find that the nominal contracting model fits German data better, while the relative contracting model does quite well in countries which transitioned out of a high inflation regime such as France and Italy. We close the model by estimating an aggregate demand relationship and investigate the consequences of the different wage contracting specifications for the inflation-output variability tradeoff, when interest rates are set according to Taylor 's rule.
A safe core mandate
(2023)
Central banks have vastly expanded their footprint on capital markets. At a time of extraordinary pressure by many sides, a simple benchmark for the scale and scope of their core mandate of price and financial stability may be useful.
We make a case for a narrow mandate to maintain and safeguard the border between safe and quasi safe assets. This ex-ante definition minimizes ambiguity and discourages risk creation and limit panic runs, primarily by separating market demand for reliable liquidity from risk-intolerant, price-insensitive demand for a safe store of value. The central bank may be occasionally forced to intervene beyond the safe core but should not be bound by any such ex-ante mandate, unless directed to specific goals set by legislation with explicit fiscal support.
We review distinct features of liquidity and safety demand, seeking a definition of the safety border, and discuss LOLR support for borderline safe assets such as MMF or uninsured deposits.
A safe core formulation is close to the historical focus on regulated entities, collateralized lending and attention to the public debt market, but its specific framing offers some context on controversial issues such as the extent of LOLR responsibilities. It also justifies a persistently large scale for central bank liabilities (Greenwood, Hansom and Stein 2016), as safety demand is related to financial wealth rather than GDP. Finally, it is consistent with an active central bank role in supporting liquidity in government debt markets trading and clearing (Duffie 2020, 2021).
This paper was presented at the workshop “Goods, Languages, and Cultures along the Silk Road” at Goethe University Frankfurt am Main, October 18 and 19, 2019. While many contributions to the workshop focused on recent developments in China’s current “New Silk Road” politics, on forms of communication, and on contemporary exchange of goods and ideas across so-called Silk Road countries in the Caucasus and Central Asia and with China, this short essay focuses on the history of the so-called Silk Road as an important transport connection. Although what is now called the “Silk Road” was not a pure East-West binary in antiquity but rather developed into a network that also led to the South and North, the focus here will be on describing the East-West connection.
I will start with a few brief remarks on the origins of the connection referred to as the Silk Road and will then introduce the different great empires that shaped this connection between antiquity and the Middle Ages through military campaigns and by using it as a trading route and network. But the Silk Road was by no means only of economic and military importance. Its significance for the exchange and dissemination of religions should also be mentioned. This paper does not detail the importance of the numerous individual religions in the area of the Silk Road but discusses the phenomenon of the spread of religions and the loss of some of their own distinguishing characteristics in this spread, a phenomenon that could be described as a “unity of opposites” (coincidentia oppositorum). Finally, the essay asks who, in the face of the regular replacement of powers, held sovereignty over the transport connection: the subject (in the form of the empires) or the object (in the form of the road).
Who were the main protagonists of and along the Silk Road in the course of history? Who were the people who became the great powers of the ancient Silk Road, building up the material route, governing parts of it, and organizing trade and relationships from the far East to the extreme West of the Eurasian continent?
This study examines the recent literature on the expectations, beliefs and perceptions of investors who incorporate Environmental, Social, Governance (ESG) considerations in investment decisions with the aim to generate superior performance and also make a societal impact. Through the lens of equilibrium models of agents with heterogeneous tastes for ESG investments, green assets are expected to generate lower returns in the long run than their non- ESG counterparts. However, at the short run, ESG investment can outperform non-ESG investment through various channels. Empirically, results of ESG outperformance are mixed. We find consensus in the literature that some investors have ESG preference and that their actions can generate positive social impact. The shift towards more sustainable policies in firms is motivated by the increased market values and the lower cost of capital of green firms driven by investors’ choices.
This paper analyzes how on-the-job search (OJS) by an agent impacts the moral hazard problem in a repeated principal-agent relationship. OJS is found to constitute a source of agency costs because efficient search incentives require that the agent receives all gains from trade. Further, the optimal incentive contract with OJS matches the design of empirically observed compensation contracts more accurately than models that ignore OJS. In particular, the optimal contract entails excessive performance pay plus efficiency wages. Efficiency wages reduce the opportunity costs of work effort and hence serve as a complement to bonuses. Thus, the model offers a novel explanation for the use of efficiency wages. When allowing for renegotiation, the model generates wage and turnover dynamics that are consistent with empirical evidence. I argue that the model contributes to explaining the concomitant rise in the use of performance pay and in competition for high-skill workers during the last three decades.
High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. The authors address these concerns in two ways: First, they expand the set of monetary policy announcements to include speeches by the Fed Chair, which essentially doubles the number and importance of announcements in our dataset. Second, they explain the predictability of the monetary policy surprises in terms of the “Fed response to news” channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data. Their subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on financial markets are largely unchanged. Second, estimates of the macroeconomic effects of monetary policy are substantially larger and more significant than what most previous empirical studies have found.
This paper examines the interaction of G7 real exchange rates with real output and interest rate differentials. Using cointegration methods, we generally find a link between the real exchange rate and the real interest differential. This finding contrasts with the majority of the extant research on the real exchange rate - real interest rate link. We identify a new measure of the equilibrium exchange rate in terms of the permanent component of the real exchange rate that is consistent with the dynamic equilibrium given by the cointegration relation. Furthermore, the presence of cointegration also allows us to identify real, nominal and transitory disturbances with only minimal identifying restrictions. Our findings suggest that persistent deviations of real exchange rates from their equilibrium value can have feedback effects on the underlying fundamentals, hence altering the equilibrium exchange rate itself. This has important implications for the persistence measures of real exchange rates that are reported elsewhere in the literature.
A question of Mesorah?
(2009)
In the upcoming Krias Hatorah in Parshat Shoftim and Parshat Ki Savo there are a number of instances where the meaning of a phrase changes completely based on the pronunciation of a single word – םד – with either a Komatz or Patah. Until recently, most Chumashim and Tikunim which generally followed the famous Yaakov Ben Hayyim 1525 edition of Mikraot Gedolot published in Venice that printed a seemingly inconsistent pattern in the pronunciation of the different occurrences of this word.
Using a novel dataset, we develop a structural model of the Very Large Crude Carrier (VLCC) market between the Arabian Gulf and the Far East. We study how fluctuations in oil tanker rates, oil exports, shipowner profits, and bunker fuel prices are determined by shocks to the supply and demand for oil tankers, to the utilization of tankers, and to the cost of operating tankers, including bunker fuel costs. Our analysis shows that time charter rates are largely unresponsive to tanker cost shocks. In response to higher costs, voyage profits decline, as cost shocks are only partially passed on to round-trip voyage rates. Oil exports from the Arabian Gulf also decline, reflecting lower demand for VLCCs. Positive utilization shocks are associated with higher profits, a slight increase in time charter rates and lower fuel prices and oil export volumes. Tanker supply and tanker demand shocks have persistent effects on time charter rates, round-trip voyage rates, the volume of oil exports, fuel prices, and profits with the expected sign.
The nineteenth century in Britain saw tumultuous changes that reshaped the fabric of society and altered the course of modernization. It also saw the rise of the novel to the height of its cultural power as the most important literary form of the period. This paper reports on a long-term experiment in tracing such macroscopic changes in the novel during this crucial period. Specifically, we present findings on two interrelated transformations in novelistic language that reveal a systemic concretization in language and fundamental change in the social spaces of the novel. We show how these shifts have consequences for setting, characterization, and narration as well as implications for the responsiveness of the novel to the dramatic changes in British society.
This paper has a second strand as well. This project was simultaneously an experiment in developing quantitative and computational methods for tracing changes in literary language. We wanted to see how far quantifiable features such as word usage could be pushed toward the investigation of literary history. Could we leverage quantitative methods in ways that respect the nuance and complexity we value in the humanities? To this end, we present a second set of results, the techniques and methodological lessons gained in the course of designing and running this project.
Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under "the opportunistic approach to disinflation" a central bank controls inflation aggressively when inflation is far from its target, but concentrates more on output stabilization when inflation is close to its target, allowing supply shocks and unforeseen fluctuations in aggregate demand to move inflation within a certain band. We use stochastic simulations of a small-scale rational expectations model to contrast the behavior of output and inflation under opportunistic and linear rules. Klassifikation: E31, E52, E58, E61. July, 2005.
We raise some critical points against a naïve interpretation of “green finance” products and strategies. These critical insights are the background against which we take a closer look at instruments and policies that might allow green finance to become more impactful. In particular, we focus on the role of a taxonomy and investor activism. We also describe the interaction of government policies with green finance practice – an aspect, which has been mostly neglected in policy debates but needs to be taken into account. Finally, the special case of green government bonds is discussed.
We raise some critical points against a naïve interpretation of “green finance” products and strategies. These critical insights are the background against which we take a closer look at instruments and policies that might allow green finance to become more impactful. In particular, we focus on the role of a taxonomy and investor activism. We also describe the interaction of government policies with green finance practice – an aspect, which has been mostly neglected in policy debates but needs to be taken into account. Finally, the special case of green government bonds is discussed.
We create an alternative version of the present utility value formula to explicitly show that every store-of-value in the economy bears utility-interest (non-pecuniary income) for ist holder regardless of possible interest earnings from financial markets. In addition, we generalize the well-known welfare measures of consumer and producer surplus as present value concepts and apply them not only for the production and usage of consumer goods and durables but also for money and other financial assets. This helps us, inter alia, to formalize the circumstances under which even a producer of legal tender might become insolvent. We also develop a new measure of seigniorage and demonstrate why the well-established concept of monetary seigniorage is flawed. Our framework also allows us to formulate the conditions for liability-issued money such as inside money and financial instruments such as debt certificates to become – somewhat paradoxically – net wealth of the society.
[I]n its present form, the bibliography contains approximately 1100 entries. Bibliographical work is never complete, and the present one is still modest in a number of respects. It is not annotated, and it still contains a lot of mistakes and inconsistencies. It has nevertheless reached a stage which justifies considering the possibility of making it available to the public. The first step towards this is its pre-publication in the form of this working paper. […]
The bibliography is less complete for earlier years. For works before 1970, the bibliographies of Firbas and Golkova 1975 and Tyl 1970 may be consulted, which have not been included here.
The Russian war of aggression against Ukraine since 24 February 2022 has intensified the discussion of Europe’s reliance on energy imports from Russia. A ban on Russian imports of oil, natural gas and coal has already been imposed by the United States, while the United Kingdom plans to cease imports of oil and coal from Russia by the end of 2022. The German Federal Government is currently opposing an energy embargo against Russia. However, the Federal Ministry for Economic Affairs and Climate Action is working on a strategy to reduce energy imports from Russia. In this paper, the authors give an overview of the German and European reliance on energy imports from Russia with a focus on gas imports and discuss price effects, alternative suppliers of natural gas, and the potential for saving and replacing natural gas. They also provide an overview of estimates of the consequences on the economic outlook if the conflict intensifies.
In this paper we consider the dynamics of spot and futures prices in the presence of arbitrage. We propose a partially linear error correction model where the adjustment coefficient is allowed to depend non-linearly on the lagged price difference. We estimate our model using data on the DAX index and the DAX futures contract. We find that the adjustment is indeed nonlinear. The linear alternative is rejected. The speed of price adjustment is increasing almost monotonically with the magnitude of the price difference.
A partial rehabilitation of side-effecting I/O : non-determinism in non-strict functional languages
(1996)
We investigate the extension of non-strict functional languages like Haskell or Clean by a non-deterministic interaction with the external world. Using call-by-need and a natural semantics which describes the reduction of graphs, this can be done such that the Church-Rosser Theorems 1 and 2 hold. Our operational semantics is a base to recognise which particular equivalencies are preserved by program transformations. The amount of sequentialisation may be smaller than that enforced by other approaches and the programming style is closer to the common one of side-effecting programming. However, not all program transformations used by an optimising compiler for Haskell remain correct in all contexts. Our result can be interpreted as a possibility to extend current I/O-mechanism by non-deterministic deterministic memoryless function calls. For example, this permits a call to a random number generator. Adding memoryless function calls to monadic I/O is possible and has a potential to extend the Haskell I/O-system.
We build a novel leading indicator (LI) for the EU industrial production (IP). Differently from previous studies, the technique developed in this paper is able to produce an ex-ante LI that is immune to “overlapping information drawbacks”. In addition, the set of variables composing the LI relies on a dynamic and systematic criterion. This ensures that the choice of the variables is not driven by subjective views. Our LI anticipates swings (including the 2007-2008 crisis) in the EU industrial production – on average – by 2 to 3 months. The predictive power improves if the indicator is revised every five or ten years. In a forward-looking framework, via a general-to-specific procedure, we also show that our LI represents the most informative variable in approaching expectations on the EU IP growth.
Riley (1979)'s reactive equilibrium concept addresses problems of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild-Stiglitz (1976)/Riley (1979) allocation as an equilibrium allocation, however multiplicity of equilibrium emerges. In this note we imbed the reactive equilibrium's logic in a dynamic market context with active consumers. We show that the Riley/Rothschild-Stiglitz contracts constitute the unique equilibrium allocation in any pure strategy subgame perfect Nash equilibrium.
This note argues that in a situation of an inelastic natural gas supply a restrictive monetary policy in the euro zone could reduce the energy bill and therefore has additional merits. A more hawkish monetary policy may be able to indirectly use monopsony power on the gas market. The welfare benefits of such a policy are diluted to the extent that some of the supply (approximately 10 percent) comes from within the euro zone, which may give rise to distributional concerns.
The Box-Cox quantile regression model using the two stage method introduced by Chamberlain (1994) and Buchinsky (1995) provides an attractive extension of linear quantile regression techniques. However, a major numerical problem exists when implementing this method which has not been addressed so far in the literature. We suggest a simple solution modifying the estimator slightly. This modification is easy to implement. The modified estimator is still [square root] n-consistent and its asymptotic distribution can easily be derived. A simulation study confirms that the modified estimator works well.
We extend the important idea of range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator that is motivated by financial economic considerations (the absence of arbitrage), in addition to statistical considerations. We show that, unlike other univariate and multivariate volatility estimators, the range-based estimator is highly efficient yet robust to market microstructure noise arising from bid-ask bounce and asynchronous trading. Finally, we provide an empirical example illustrating the value of the high-frequency sample path information contained in the range-based estimates in a multivariate GARCH framework.
We develop a utility based model of fluctuations, with nominal rigidities, and unemployment. In doing so, we combine two strands of research: the New Keynesian model with its focus on nominal rigidities, and the Diamond-Mortensen-Pissarides model, with its focus on labor market frictions and unemployment. In developing this model, we proceed in two steps. We first leave nominal rigidities aside. We show that, under a standard utility specification, productivity shocks have no effect on unemployment in the constrained efficient allocation. We then focus on the implications of alternative real wage setting mechanisms for fluctuations in unemployment. We then introduce nominal rigidities in the form of staggered price setting by firms. We derive the relation between inflation and unemployment and discuss how it is influenced by the presence of real wage rigidities. We show the nature of the tradeoff between inflation and unemployment stabilization, and we draw the implications for optimal monetary policy. JEL Classification: E32, E50
A new governance architecture for european financial markets? Towards a european supervision of CCPs
(2018)
Does the new European outlook on financial markets, as voiced by the EU Commission since the beginning of the Capital Market Unions imply a movement of the EU towards an alignment of market integration and direct supervision of common rules? This paper sets out to answer this question for the case of common supervision for Central Counterparties (CCPs) in the European Union. Those entities gained crucial importance post-crisis due to new regulation which requires the mandatory clearing of standardized derivative contracts, transforming clearing houses into central nodes for cross-border financial transactions. While the EU-wide regulatory framework EMIR, enacted in 2012, stipulates common regulatory requirements, the framework still relies on home-country supervision of those rules, arguably leading to regulatory as well as supervisory arbitrage. Therefore, the regulatory reform to stabilize the OTC derivatives market replicated at its center a governance flaw, which had been identified as one of the major causes for the gravity of the financial crisis in the EU: the coupling of intense competition based on private risk management systems with a national supervision of European rules. This paper traces the history of this problem awareness and inquires which factors account for the fact that only in 2017 serious negotiations at the EU level ensued that envisioned a common supervision of CCPs to fix the flawed system of governance. Analyzing this shift in the European governance architecture, we argue that Brexit has opened a window of opportunity for a centralization of supervision for CCPs. Brexit aligns the urgency of the problem with material interests of crucial political stakeholder, in particular of Germany and France, providing the possibility for a grand European bargain.
One of the dangers of harmonisation and unification processes taking place within the framework of the EU is that they may result in the codification of the lowest common denominator. This is precisely what is threatening to happen in respect of assignment. Referring the transfer of receivables by way of assignment to the law of the assignor’s residence, as article 13 of the Proposal does, would be opting for the most conservative solution and would for many Member States be a step backward rather than forward. A conflict rule referring assignment to the law of the assignor's residence is too rigid to do justice to the dynamic nature of assignments in cross-border transactions and it is unjustly one-sided. It offers no real advantages when compared to other conflict rules; it even has serious disadvantages which make the conflict rule unsuitable for efficient assignment-based cross-border transactions. It is not unconceivable that this conflict rule would even be contrary to the fundamental freedoms of the ECTreaty. The Community legislators in particular should be careful not to needlessly adopt rules which create insurmountable obstacles for cross-border business where choice-of-law by the parties would perfectly do. Community legislation has a special responsibility to create a smooth legal environment for single market transactions.
In the aftermath of the global financial crisis, the state of macroeconomic modeling and the use of macroeconomic models in policy analysis has come under heavy criticism. Macroeconomists in academia and policy institutions have been blamed for relying too much on a particular class of macroeconomic models. This paper proposes a comparative approach to macroeconomic policy analysis that is open to competing modeling paradigms. Macroeconomic model comparison projects have helped produce some very influential insights such as the Taylor rule. However, they have been infrequent and costly, because they require the input of many teams of researchers and multiple meetings to obtain a limited set of comparative findings. This paper provides a new approach that enables individual researchers to conduct model comparisons easily, frequently, at low cost and on a large scale. Using this approach a model archive is built that includes many well-known empirically estimated models that may be used for quantitative analysis of monetary and fiscal stabilization policies. A computational platform is created that allows straightforward comparisons of models’ implications. Its application is illustrated by comparing different monetary and fiscal policies across selected models. Researchers can easily include new models in the data base and compare the effects of novel extensions to established benchmarks thereby fostering a comparative instead of insular approach to model development.
In the aftermath of the global financial crisis, the state of macroeconomicmodeling and the use of macroeconomic models in policy analysis has come under heavy criticism. Macroeconomists in academia and policy institutions have been blamed for relying too much on a particular class of macroeconomic models. This paper proposes a comparative approach to macroeconomic policy analysis that is open to competing modeling paradigms. Macroeconomic model comparison projects have helped produce some very influential insights such as the Taylor rule. However, they have been infrequent and costly, because they require the input of many teams of researchers and multiple meetings to obtain a limited set of comparative findings. This paper provides a new approach that enables individual researchers to conduct model comparisons easily, frequently, at low cost and on a large scale. Using this approach a model archive is built that includes many well-known empirically estimated models that may be used for quantitative analysis of monetary and fiscal stabilization policies. A computational platform is created that allows straightforward comparisons of models’ implications. Its application is illustrated by comparing different monetary and fiscal policies across selected models. Researchers can easily include new models in the data base and compare the effects of novel extensions to established benchmarks thereby fostering a comparative instead of insular approach to model development
Central banks have faced a succession of crises over the past years as well as a number of structural factors such as a transition to a greener economy, demographic developments, digitalisation and possibly increased onshoring. These suggest that the future inflation environment will be different from the one we know. Thus uncertainty about important macroeconomic variables and, in particular, inflation dynamics will likely remain high.
This paper reviews social network analysis (SNA) as a method to be utilized in biographical research which is a novel contribution. We argue that applying SNA in the context of biography research through standardized data collection as well as visualization of networks can open up participants’ interpretations of relations throughout their lives, and allow a creative and innovative way of data collection that is responsive to participants’ own meanings and associations while allowing the researchers to conduct systematical data analysis. The paper discusses the analytical potential of SNA in biographical research, where the efficacy of this method is critically discussed, together with its limitations, and its potential within the context of biographical research.
We present an empirical study focusing on the estimation of a fundamental multi-factor model for a universe of European stocks. Following the approach of the BARRA model, we have adopted a cross-sectional methodology. The proportion of explained variance ranges from 7.3% to 66.3% in the weekly regressions with a mean of 32.9%. For the individual factors we give the percentage of the weeks when they yielded statistically significant influence on stock returns. The best explanatory power – apart from the dominant country factors – was found among the statistical constructs „success“ and „variability in markets“.
We focus on the role of social media as a high-frequency, unfiltered mass information transmission channel and how its use for government communication affects the aggregate stock markets. To measure this effect, we concentrate on one of the most prominent Twitter users, the 45th President of the United States, Donald J. Trump. We analyze around 1,400 of his tweets related to the US economy and classify them by topic and textual sentiment using machine learning algorithms. We investigate whether the tweets contain relevant information for financial markets, i.e. whether they affect market returns, volatility, and trading volumes. Using high-frequency data, we find that Trump’s tweets are most often a reaction to pre-existing market trends and therefore do not provide material new information that would influence prices or trading. We show that past market information can help predict Trump’s decision to tweet about the economy.
This paper solves a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. It uses a zero-profit condition for mortgage lenders to solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable vs. fixed mortgage rates, loan-to-value ratios, and mortgage affordability measures on mortgage premia and default. Heterogeneity in borrowers' labor income risk is important for explaining the higher default rates on adjustable-rate mortgages during the recent US housing downturn, and the variation in mortgage premia with the level of interest rates.
The Inuit inhabit a vast area of--from a European point of view--most inhospitable land, stretching from the northeastern tip of Asia to the east coast of Greenland. Inuit peoples have never been numerous, their settlements being scattered over enormous distances. But nevertheless, from an ethnological point of view, all Inuit peoples shared a distinct culture, featuring sea mammal and caribou hunting, sophisticated survival skills, technical and social devices, including the sharing of essential goods and strategies for minimizing and controlling aggression.
On average, "young" people underestimate whereas "old" people overestimate their chances to survive into the future. We adopt a Bayesian learning model of ambiguous survival beliefs which replicates these patterns. The model is embedded within a non-expected utility model of life-cycle consumption and saving. Our analysis shows that agents with ambiguous survival beliefs (i) save less than originally planned, (ii) exhibit undersaving at younger ages, and (iii) hold larger amounts of assets in old age than their rational expectations counterparts who correctly assess their survival probabilities. Our ambiguity-driven model therefore simultaneously accounts for three important empirical findings on household saving behavior.
Based on a cognitive notion of neo-additive capacities reflecting likelihood insensitivity with respect to survival chances, we construct a Choquet Bayesian learning model over the life-cycle that generates a motivational notion of neo-additive survival beliefs expressing ambiguity attitudes. We embed these neo-additive survival beliefs as decision weights in a Choquet expected utility life-cycle consumption model and calibrate it with data on subjective survival beliefs from the Health and Retirement Study. Our quantitative analysis shows that agents with calibrated neo-additive survival beliefs (i) save less than originally planned, (ii) exhibit undersaving at younger ages, and (iii) hold larger amounts of assets in old age than their rational expectations counterparts who correctly assess their survival chances. Our neo-additive life-cycle model can therefore simultaneously accommodate three important empirical findings on household saving behavior.
We consider an imperfectly competitive loan market in which a local relationship lender has an information advantage vis-à-vis distant transaction lenders. Competitive pressure from the transaction lenders prevents the local lender from extracting the full surplus from projects, so that she inefficiently rejects marginally profitable projects. Collateral mitigates the inefficiency by increasing the local lender’s payoff from precisely those marginal projects that she inefficiently rejects. The model predicts that, controlling for observable borrower risk, collateralized loans are more likely to default ex post, which is consistent with the empirical evidence. The model also predicts that borrowers for whom local lenders have a relatively smaller information advantage face higher collateral requirements, and that technological innovations that narrow the information advantage of local lenders, such as small business credit scoring, lead to a greater use of collateral in lending relationships. JEL classification: D82; G21 Keywords: Collateral; Soft infomation; Loan market competition; Relationship lending
A hero in the box
(1998)
Zu den bizarrsten und gleichzeitig eindrucksvollsten Passagen im nachgelassenen Teil von Musils Mann ohne Eigenschaften gehören die fragmentarischen Entwürfe, in denen Clarisse die Befreiung des Frauenmörders Moosbrugger aus der Irrenanstalt betreibt. Clarisse zählt zum engen Kreis der Hauptfiguren des Romans. Die Lebensgefährtin Walters ist eine hitzige Nietzsche-Adeptin: im Verein mit Ulrich, dem Mann ohne Eigenschaften, ergibt das eine Dreier-Konstellation, deren Spannung sich bei fortschreitendem Romangeschehen mehr und mehr in szenischen Gewittern entlädt. Es kommt also nicht von ungefähr, daß die Fragmente, die um die Befreiung Moosbruggers kreisen, sowohl einen intellektuellen als auch einen pathologischen Bezug aufweisen. Ausführen soll die Tat Ulrich, und es existiert eine Fassung aus den Jahren 1923/25, in der das Unternehmen mißlingt und der Patient fortan in strengeren Gewahrsam genommen wird. In später geschriebenen Passagen befindet sich Moosbrugger aber auf freiem Fuß. Er begeht sogar einen weiteren Mord, so daß an der Absicht des Autors, an die Stelle des mißlingenden Ausbruchs den gelingenden zu setzen, nicht gut zu zweifeln sein dürfte, wenn nicht im Dickicht der späten Entwürfe der Zweifel und die Zurücknahme selbst bereits zu den entscheidenden Werkzeugen geworden wären, mit deren Hilfe der Erzähler seine Route bestimmt.
As part of the Next Generation EU (NGEU) program, the European Commission has pledged to issue up to EUR 250 billion of the NGEU bonds as green bonds, in order to confirm their commitment to sustainable finance and to support the transition towards a greener Europe. Thereby, the EU is not only entering the green bond market, but also set to become one of the biggest green bond issuers. Consequently, financial market participants are eager to know what to expect from the EU as a new green bond issuer and whether a negative green bond premium, a so-called Greenium, can be expected for the NGEU green bonds. This research paper formulates an expectation in regards to a potential Greenium for the NGEU green bonds, by conducting an interview with 15 sustainable finance experts and analyzing the public green bond market from September 2014 until June 2021, with respect to a potential green bond premium and its underlying drivers. The regression results confirm the existence of a significant Greenium (-0.7 bps) in the public green bond market and that the Greenium increases for supranational issuers with AAA rating, such as the EU. Moreover, the green bond premium is influenced by issuer sector and credit rating, but issue size and modified duration have no significant effect. Overall, the evaluated expert interviews and regression analysis lead to an expected Greenium for the NGEU green bonds of up to -4 bps, with the potential to further increase in the secondary market.
We examine how U.S. monetary policy affects the international activities of U.S. Banks. We access a rarely studied US bank‐level dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affects changes in cross‐border claims by U.S. banks across countries, maturities and sectors, and also affects changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross‐border claims in both the pre and post‐crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions.
Futures markets are a potentially valuable source of information about market expectations. Exploiting this information has proved difficult in practice, because the presence of a time-varying risk premium often renders the futures price a poor measure of the market expectation of the price of the underlying asset. Even though the expectation in principle may be recovered by adjusting the futures price by the estimated risk premium, a common problem in applied work is that there are as many measures of market expectations as there are estimates of the risk premium. We propose a general solution to this problem that allows us to uniquely pin down the best possible estimate of the market expectation for any set of risk premium estimates. We illustrate this approach by solving the long-standing problem of how to recover the market expectation of the price of crude oil. We provide a new measure of oil price expectations that is considerably more accurate than the alternatives and more economically plausible. We discuss implications of our analysis for the estimation of economic models of energy-intensive durables, for the debate on speculation in oil markets, and for oil price forecasting.
The human mind may produce prototypization within virtually any realm of cognition and behavior. A "comparative prototype-typology" might prove to be an interesting field of study – perhaps a new subfield of semiotics. This, however, would presuppose a clear view on the samenesses and differences of prototypization in these various fields. It seems realistic for the time being that the linguist first confine himself to describing prototypization within the realm of language proper. The literature on prototypes has steadily grown in the past ten years or so. I confine myself to mentioning the volume on Noun Classes and Categorization, edited by C. Craig (1986), which contains a wealth of factual information on the subject, along with some theoretical vistas. By and large, however, linguistic prototype research is still basically in a taxonomic stage - which, of course, represents the precondition for moving beyond. The procedure is largely per ostensionem, and by accumulating examples of prototypes. We still lack a comprehensive prototype theory. The following pages are intended, not to provide such, a theory, but to do the first steps in this direction. Section 2 will feature some elements of a functional theory of prototypes. They have been developed by this author within the frame of the UNITYP model of research on language universals and typology. Section 3 will bring a discussion of prototypization with regard to selected phenomena of a wide range of levels of analysis: Phonology, morphosyntax, speech acts, and the lexicon. Prototypization will finally be studied within one of the universal dimensions, that of APPREHENSION - the linguistic representation of the concepts of objects – as proposed by Seiler (1986).