938 research outputs found
More on A Statistical Analysis of Log-Periodic Precursors to Financial Crashes
We respond to Sornette and Johansen's criticisms of our findings regarding
log-periodic precursors to financial crashes. Included in this paper are
discussions of the Sornette-Johansen theoretical paradigm, traditional methods
of identifying log-periodic precursors, the behavior of the first differences
of a log-periodic price series, and the distribution of drawdowns for a
securities price.Comment: 12 LaTex pages, no figure
"Thermometers" of Speculative Frenzy
Establishing unambiguously the existence of speculative bubbles is an
on-going controversy complicated by the need of defining a model of fundamental
prices. Here, we present a novel empirical method which bypasses all the
difficulties of the previous approaches by monitoring external indicators of an
anomalously growing interest in the public at times of bubbles. From the
definition of a bubble as a self-fulfilling reinforcing price change, we
identify indicators of a possible self-reinforcing imitation between agents in
the market. We show that during the build-up phase of a bubble, there is a
growing interest in the public for the commodity in question, whether it
consists in stocks, diamonds or coins. That interest can be estimated through
different indicators: increase in the number of books published on the topic,
increase in the subscriptions to specialized journals. Moreover, the well-known
empirical rule according to which the volume of sales is growing during a bull
market finds a natural interpretation in this framework: sales increases in
fact reveal and pinpoint the progress of the bubble's diffusion throughout
society. We also present a simple model of rational expectation which maps
exactly onto the Ising model on a random graph. The indicators are then
interpreted as ``thermometers'', measuring the balance between idiosyncratic
information (noise temperature) and imitation (coupling) strength. In this
context, bubbles are interpreted as low or critical temperature phases, where
the imitation strength carries market prices up essentially independently of
fundamentals. Contrary to the naive conception of a bubble and a crash as times
of disorder, on the contrary, we show that bubbles and crashes are times where
the concensus is too strong.Comment: 15 pages + 10 figure
Peso Problems, Bubbles, and Risk in the Empirical Assessment of Exchange-Rate Behavior
One of the most puzzling aspects of the post-1973 floating exchange rate system has been the apparently inefficient predictive performance of forward exchange rates. This paper explores some aspects of each of three leading explanations of forward-rate behavior. The paper first develops a simple rational-expectations model of the "peso problem" that generates some key empirical regularities of the foreign exchange market: seemingly predictable and conditionally heteroskedastic forward forecast errors, along with possible directional misprediction by the forward premium. The implications of bubbles for tests of forward-rate predictive efficiency are discussed next. It is argued that the existence of bubbles is extremely difficult (if not impossible) to establish empirically. Even though some types of bubble would distort standard tests on the relation between spot and forward exchange rates, it seems unlikely that there bubbles have been an important factor. Finally, the paper examines foreign-exchange asset pricing under risk aversion and suggests that a convincing account of forward-rate behavior should also help explain the results found in testing other asset-pricing theories, such as the expectations theory of the interest-rate term structure.
Bubble-free interest-rate rules.
This paper designs, for a broad class of rational-expectations dynamic stochastic general-equilibrium models, interest-rate rules which not only ensure the local determinacy of the targeted equilibrium within the neighbourhood of the targeted steady state, but also prevent the economy from gradually leaving this neighbourhood. We show that in most models these interest-rate rules are necessarily forward-looking (i.e. make necessarily the interest rate conditional on the private agents' expectations), while in all models non-forward-looking interest-rate rules exist which ensure only the local determinacy of the targeted equilibrium. We also discuss the robustness of the effectiveness of these rules to departures from various assumptions and show in particular that they can still be effective when the central bank has imperfect knowledge of the model's structural parameters. We finally argue that such rules could also serve as a useful guide in the reflections on the best monetary policy reaction to perceived asset-price bubbles or exchange-rate misalignments.DSGE models ; Interest-rate rules ; Local determinacy ; Global determinacy ; Rational bubbles
Evaluating critical bits in arithmetic operations due to timing violations
Various error models are being used in simulation of voltage-scaled arithmetic units to examine application-level tolerance of timing violations. The selection of an error model needs further consideration, as differences in error models drastically affect the performance of the application. Specifically, floating point arithmetic units (FPUs) have architectural characteristics that characterize its behavior. We examine the architecture of FPUs and design a new error model, which we call Critical Bit. We run selected benchmark applications with Critical Bit and other widely used error injection models to demonstrate the differences
Credit Termination and the Technology Bubbles
We study the role of firms' credit histories in a business cycle model. Loans are dynamic contracts between banks and firms, and credit terminations are used as an incentive device. Banks deny future loans to an entrepreneur according to his credit histories in order to affect his choice of project ex ante. This will generate fluctuations from technology shocks to the riskiness of different types of projects as occurred during the technology bubbles. The model is used to explain the boom-and-bust of the dot-com bubble, one leading example of technology bubbles in the economy, in the late 1990s.credit terminations; technology bubbles
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