3,895 research outputs found
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External financing of US corporations: Are loans and securities complements or substitutes?
āMultiple avenues of intermediationā (Greenspan 2000) suggest substitutability of
corporate loan and bond finance which smooths external financing flows. Holmstrom and
Tirole (1997) stress complementarity; for most firms bank finance and consequent monitoring
is essential for bond finance. Econometric work based on their model is consistent with
complementarity both on average over time and during financial crises, and for levels and
volatilities. It implies that āmultiple avenuesā may not be effective as a buffer in a bank credit
crunch, and hence supply-side blockages of bank credit may impact on real activity. There are
important implications for regulation, not least Basel II
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Should Monetary Policy Respond to Asset Price Misalignments?
This paper analyses the relationship between monetary policy and asset prices using a structural
rational expectations model that allows for the effect of asset prices on aggregate demand. We assume that
asset prices follow a partial adjustment mechanism whereas they are positively affected by past changes,
thus allowing for āmomentum tradingā, while at the same time we allow for reversion towards
fundamentals. We then conduct stochastic simulations using two alternative monetary policy rules,
inflation-forecast targeting and the standard Taylor rule. The results indicate that, under both rules, interest
rate setting that takes into account asset price misalignments leads to lower overall macroeconomic
volatility, as measured by the postulated loss function of the central bank
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Liquidity effects due to information costs from changes
In this paper we examine effect on the returns of firms that have been included to
and deleted from the FTSE 100 over the time period of 1984-2001. Like the S&P
500 listing studies, we find that the price and trading volume of newly listed
(deleted) firms increases (decreases). The evidence is consistent with the
information cost/liquidity explanation. This is because investors hold stocks with
more (less) available information, consequently implying that they have lower
(higher) trading costs. This explains the increase (decrease) in the stock price and
trading volume of newly listed (deleted) stocks to (from) the FTSE 100 List
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Identification and Identifiability of non-linear IV/GMM Estimators
In this article, the identiĀÆcation of instrumental variables and generalised
method of moment (GMM) estimators is discussed. It is common
that representations of such models are derived from the solution to linear
quadratic optimisation problems. Here, it is shown that even though
the rank condition on the Jacobian and the instrument set is valid, that
the transversality condition may not be satisĀÆed by the estimated model.
Further, acceptance of the transversality condition does occur when identi
ĀÆcation fails or the forward model vanishes. As a result the parameters
of such models irrespective of any correction for serial correlation may not
be identiĀÆed in a fundamental sense. This suggests that either forward
looking models should be estimated directly or more complex non-linear
restrictions should be imposed
Long-Range Dependence in Daily Interest Rate
We employ a number of parametric and non-parametric techniques to
establish the existence of long-range dependence in daily interbank o er
rates for four countries. We test for long memory using classical R=S
analysis, variance-time plots and Lo's (1991) modi ed R=S statistic. In
addition we estimate the fractional di erencing parameter using Whittle's
(1951) maximum likelihood estimator and we shu e the data to destroy
long and short memory in turn, and we repeat our non-parametric tests.
From our non-parametric tests we And strong evidence of the presence of
long memory in all four series independently of the chosen statistic. We
nd evidence that supports the assertion of Willinger et al (1999) that
Lo's statistic is biased towards non-rejection of the null hypothesis of no
long-range dependence. The parametric estimation concurs with these
results. Our results suggest that conventional tests for capital market
integration and other similar hypotheses involving nominal interest rates
should be treated with cautio
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Identifying and Solving Multivariate Rational Expectations Models (Updated: 01/2005)
This article discuses the identification of Generalised Rational Expectations Models. It is
shown that the necessary and sufficient conditions for local identification of the Quasi-Structural
Form (Q-SF) derive from the first derivatives of the Non-Linear Instrumental Variables (NLIV)
criterion. The necessary and sufficient conditions for local identification consist of an appropriately
defined and informative instrument set and a Jacobian matrix with appropriate rank.
However, these conditions do not identify the full structural form (SF) linked to either the
true expectations or the full solution. For the identification of SF, the parameters need to be
associated with a model that satisfies the transversality condition. It is shown that the testing
of this condition is impossible when relying exclusively on the existing instruments
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GMM and present value test of the C-CAPM under transactions costs: Evidence from the UK stock market
In this paper we test for the inclusion of the bid-ask spread in the consumption
CAPM, in the UK stock market over the time period of 1980-2000. Two
econometric models are used; first, Fisherās (1994) asset pricing model is
estimated by GMM, and secondly, the VAR approach proposed by Campbell and
Shiller is extended to include the bid-ask spread. Overall the statistical tests are
unable to reject the bid-ask spread as an independent explanatory variable in the
C-CAPM. This leads to the conclusion that transactions costs should be included
in asset pricing models
Identifying asymmetric, multi-period Euler equations estimated by non-linear IV/GMM
In this article, the identification of instrumental variables and generalized method of moment (GMM) estimators with multi-period perceptions is discussed. The state space representation delivers a conventional first order condition that is solved for expectations when the Generalized BĆ©zout Theorem holds. Here, it is shown that although weak instruments may be enough to identify the parameters of a linearized version of the Quasi-Reduced Form (Q-RF), their existence is not sufficient for the identification of the structural model. Necessary and sufficient conditions for local identification of the Quasi-Structural Form (Q-SF) derive from the product of the data moments and the Jacobian. Satisfaction of the moment condition alone is only necessary for local and global identification of the Q-SF parameters. While the conditions necessary and sufficient for local identification of the Q-SF parameters are only necessary to identify the expectational model that satisfies the regular solution. If the conditions required for the decomposition associated with the Generalized BĆ©zout Theorem are not satisfied, then limited information estimates of the Q-SF are not consistent with the full solution. The Structural Form (SF) is not identified in the fundamental sense that the Q-SF parameters are not based on a forward looking expectational model. This suggests that expectations are derived from a forward looking model or survey data used to replace estimated expectations
Optimal Monetary Policy and the Asset Market: A Non-cooperative Game
In this paper we construct a model of a policy game in order to analyse the optimal reaction function of
the Central Bank to a shock in the asset market. In doing so, we consider three different noncooperative
games: Nash equilibrium, Stackelberg equilibrium with āFEDā as leader and āECBā
Stacklberg as leader. Three major conclusions can be drawn from our work in the presence of asset
market shocks. First, in the Nash equilibrium the ECB will adopt a less restrictive monetary policy
compared to the FEDās behaviour. Second, comparing the Nash and Stackelberg non-cooperative
equilibria, the Stackelberg solution is certainly superior when the FED is the leader, but the Nash
solution is superior for the follower. Finally, irrespective of where the shocks originate, if the FED
would choose the Stackelberg leader equilibrium the ECB would minimize its social loss along with a
lower level of interest rates
Measuring consumer detriment under conditions of imperfect information
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