Firm Behaviour Under the Threat of Liquidation: Implications for Output, Investment & Business Cycle Transmission

Cash balances of the firm follow a diffusion process, triggering liquidation when they cross a threshold value. Access to external funds is constrained. Shareholders are impatient. With these assumptions there is a precautionary motive for retaining earnings; the internal cost of funds and local risk-aversion are decreasing functions of net worth; and, in extensions of our basic model, output and investment are increasing functions of net worth. We numerically simulate aggregate behaviour of a population of such firms. Shocks to net worth lead to substantial and prolonged deviations from steady state, consistent with a financial mechanism of business cycle transmission.Financing constraints, output, investment

THE IMPACT OF CONSERVATION TILLAGE ON THE PRODUCTIVITY AND STABILITY OF MAIZE CROPPING SYSTEMS: A CASE STUDY IN WESTERN MEXICO

This paper examines the economics of introducing conservation tillage into maize cropping systems in the state of Jalisco, in the western part of Mexico. A stochastic cost-benefit analysis (SCBA) of introducing conservation tillage in two contrasting agro-climatic zones in the four main maize management systems in the area was carried out. The SCBA takes into account the effects of conservation tillage on average returns and fully evaluates its potential risk-reducing aspect. The SCBA results were then used for a stochastic dominance analysis to evaluate farmers' incentives, characterized by their aversion to risk. The analysis reveals that although conservation tillage is economically viable, cash-constrained farmers, especially in the dry areas, may not readily adopt it. This is because conservation tillage is not adapted to small-scale farmers in Mexico, who lack seeding equipment and need techniques that are less reliant on herbicides. It is suggested that more work should be done with the participation of farmers in the region to attain a conservation tillage system that is better adapted to their circumstances.Mexico, Jalisco, Plant production, Production factors, Cropping systems, Conservation tillage, Innovation adoption, Input output analysis, Economic analysis, Small farms, Productivity Analysis,

The monetary analysis of hyperinflation and the appropriate specification of the demand for money

The paper emerges from the failure of the traditional models of hyperinflation with rational expectations or perfect foresight. Using the insights from two standard optimizing monetary settings the paper shows that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. We show that the popular semilogarithmic form of the demand for money is not appropriate to analyse monetary hyperinflation with perfect foresight. We propose a simple test of money essentiality for the appropriate specification of the demand for money equation in empirical studies of hyperinflation.monetary hyperinflation, inflation tax, money essentiality

Pricing and Risk Management of Basket FX Derivatives and Unit-Linked Life Insurance Contracts

This dissertation deals with pure financial derivatives and financial derivatives which are components of life insurance contracts. Chapter 1 focuses on the complex situation of basket foreign exchange (FX) products. A well-known feature of basket options is that it is difficult to specify the distribution of the underlying basket starting from the standard assumption that the price processes of the single assets in the basket follow geometric Brownian motions. In Chapter 1, within an international financial market model, a new approximation method, called the rank one approximation method, is proposed. At the first step, it approximates the covariance structure of the uncertain part of the price processes with a rank one matrix and delivers a vector of stochastic processes driven by the same standard normally distributed variable. Then at the second step several adjustment parameters are introduced into the price process of the synthetic underlying basket approximated at the first step for the purpose of correcting the distribution distorted through the first step approximation.By introducing the rank one approximation method, we enlarge the family of approximation methods for the pricing of basket derivatives. Chapter 2 and 3 are concerned with unit-linked life insurance contracts. The payoffs of unit-linked life insurance contracts depend on mortality risk. In recent years, it has been widely accepted that mortality changes over time in an unpredictable way and stochastic models have been developed to adequately capture the systematic mortality risk. Each mortality model is a possible description of the mortality risk. In Chapter 2, a framework is proposed for assessing the mortality model risk embedded in unit-linked life insurance contracts arising from different specifications for the mortality intensity. The basic assumption of this framework is that we do not know the exact process of the mortality intensity but are able to figure out its upper and lower bound under the statistical measure. This setup allows us to study the impact of mortality model risk on various contract types more efficiently. Chapter 3 studies the valuation of unit-linked life insurance contracts with surrender guarantees. In this chapter, the arrival of the surrender event is described by an intensity-based approach. We assume the surrender intensity to be bounded from below and from above. The lower bound represents the surrender base level due to exogenous reasons. And the upper bound represents the maximal surrender intensity that is attributed to exercise of the surrender option when it is financially optimal to do so. The effect of policyholders' monetary rationality on the fair contract design is studied in detail

Stochastic rounding and reduced-precision fixed-point arithmetic for solving neural ordinary differential equations

Although double-precision floating-point arithmetic currently dominates high-performance computing, there is increasing interest in smaller and simpler arithmetic types. The main reasons are potential improvements in energy efficiency and memory footprint and bandwidth. However, simply switching to lower-precision types typically results in increased numerical errors. We investigate approaches to improving the accuracy of reduced-precision fixed-point arithmetic types, using examples in an important domain for numerical computation in neuroscience: the solution of Ordinary Differential Equations (ODEs). The Izhikevich neuron model is used to demonstrate that rounding has an important role in producing accurate spike timings from explicit ODE solution algorithms. In particular, fixed-point arithmetic with stochastic rounding consistently results in smaller errors compared to single precision floating-point and fixed-point arithmetic with round-to-nearest across a range of neuron behaviours and ODE solvers. A computationally much cheaper alternative is also investigated, inspired by the concept of dither that is a widely understood mechanism for providing resolution below the least significant bit (LSB) in digital signal processing. These results will have implications for the solution of ODEs in other subject areas, and should also be directly relevant to the huge range of practical problems that are represented by Partial Differential Equations (PDEs).Comment: Submitted to Philosophical Transactions of the Royal Society

Indian Economic Outlook 2008-09 and 2009-10

This paper provides an outlook for the Indian economy in the light of the extraordinary global financial crisis, that started in the US, but which has now transformed into the worst economic downturn since the Great Depression. The Indian economy was slowing down even before the onset of global crisis and so the timing of this external shock could not have been worse. The analysis undertaken for this paper shows that the global crisis is likely to bring the Indian GDP growth rate down considerably. This will pose a big challenge requiring urgent and sustained policy attention to prevent this downturn from becoming unnecessarily prolonged. There is real downside risk that the growth rate could plummet to the pre-1980s levels if appropriate countercyclical measures are not taken immediately and are not urgently followed by necessary structural reforms. The paper provides a short-term forecast for GDP growth based on a model of leading economic indicators. We present three scenarios in the paper assuming differentiated impact of the external crisis. Finally the paper suggests a set of policy measures to get the Indian economy back on the path of sustained rapid and inclusive growth.Forecasting, Indian economic growth, Economic outlook and conditions, Financial crises