79,388 research outputs found

    Bayesian Credibility for GLMs

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    We revisit the classical credibility results of Jewell and B\"uhlmann to obtain credibility premiums for a GLM using a modern Bayesian approach. Here the prior distributions can be chosen without restrictions to be conjugate to the response distribution. It can even come from out-of-sample information if the actuary prefers. Then we use the relative entropy between the "true" and the estimated models as a loss function, without restricting credibility premiums to be linear. A numerical illustration on real data shows the feasibility of the approach, now that computing power is cheap, and simulations software readily available

    Trust in Biotechnology Risk Managers: Insights from the United Kingdom, 1996-2002

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    During the late 1990s a series of negative events occurred in the United Kingdom (UK) related to biotechnology. These events signaled potential risks associated with biotech foods and crops and were highly reported. According to the trust asymmetry hypothesis, such events ought to cause public trust in risk managers of biotechnology to decline rapidly and rebound more slowly. We find, based on data taken from the Eurobarometer surveys conducted in 1996, 1999 and 2002, that public trust in risk managers did decline from 1996 to 1999. However, the level of trust rebounded sharply between 1999 and 2002. Canonical discriminant analysis of public trust is used to reveal possible explanatory factors in this response. We find that whether people trust or distrust risk managers depends significantly on the amount of objective knowledge they have. We argue that knowledge of science might moderate the trust asymmetry effect.Research and Development/Tech Change/Emerging Technologies, Risk and Uncertainty,

    Stabilization and growth recovery in Mexico : lessons and dilemmas

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    Before 1988,"orthodox"policies (fiscal discipline and tight money) failed to bring inflation down and induce a sustained economic recovery. The Mexican stabilization plan announced in December 1987 (the Pact) shows that the right combination of orthodox and"heterodox"policies (for example, income policies) can meet, and has met, both objectives. The author shows that although many orthodox adjustments began before the Pact, considerable further adjusting was needed before it could succeed. To make the stabilization credible required significantly tighter fiscal policy and a lengthening of the maturities of domestic debt between 1988 and 1990. A key factor behind high real interest rates during the recent Mexican stabilization plan was the initially low credibility of the fixed - and later the preannounced - exchange rate. While it is difficult to assess what establishes credibility, we can hypothesize about the factors that may hamper it. Crucial among them is the consistency of the macroeconomic policy framework, where fiscal policy plays a key role. Domestic debt management also matters as the probability of a successful run on the peso increases with the amount of government liabilities that could, in a given period, be exchanged for foreign reserves. In the short term, Mexico may not have other options than further tightening its fiscal and monetary policies. Over the medium term, however, a real peso depreciation appears necessary.Economic Theory&Research,Environmental Economics&Policies,Economic Stabilization,Strategic Debt Management,Banks&Banking Reform

    Trust in Biotechnology Risk Managers: Insights from the United Kingdom, 1996-2002

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    The mid to late 1990s saw a series of negative media events in the United Kingdom (UK) related to biotechnology. According to the trust asymmetry hypothesis, such events ought to cause public trust in risk managers of biotechnology to fall quickly but rise slowly. We present evidence from the Eurobarometer surveys that from 1996 to 1999 public trust in the UK declined, but it increased sharply between 1999 and 2002. We seek to explain this apparent contradiction to the asymmetry hypothesis. We use canonical discriminant analysis of public trust to show that whether people trust or distrust risk managers of biotechnology depends significantly on the amount of knowledge people have about science. We speculate that knowledge of science moderates the trust asymmetry effect.Research and Development/Tech Change/Emerging Technologies,

    The Political Economy of FDI flows into Developing Countries: Does the depth of International Trade Agreements Matter?

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    There is considerable debate whether the domestic political institutions (specifically, the country s level of democracy) of the host developing country toward foreign investors are effective in establishing the credibility of commitments are still underway, researchers have also analyzed the effect of international institutions such as (GATT-WTO) membership and Bilateral Investment treaties (BIT) in their role of establishing the credibility of commitment to attract foreign investments. We argue that there are qualitative differences among various types of trade agreements and full-fledged trade agreements (FTA-CU) provide credibility to foreign investors and democracy level in the host country conditions this effect whereas the partial scope agreements (PSA) are not sufficient in providing credibility of commitments and not moderated by democracy. This paper analyses the impact of heterogeneous TAs, and their interaction with domestic institutions, on FDI inflows. Statistical analyses for 122 developing countries from 1970 to 2005 support this argument. The method adopted relies on fixed effects estimator which is robust to control endogeneity on a large panel dataset. The strict erogeneity of results by using a method suggested by Baier and Bergstrand (2007) and no feedback effect found in sample. The results state that (1) More the FTA-CU concluded, larger the amount of FDI inflows are attracted into the developing countries and PSA are insignificant in determining the FDI inflow; (2) FTA CU are complementary to democratic regime whereas the conditional effect of PSA with democracy on levels of FDI inflows is insignificant.Comment: University of Orleans (France

    Interest Rate Smoothing and Macroeconomic Instability under Post-Capital Account Liberalization Turkey

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    This Working Paper studies how the interest rate policy of the Central Bank of the Republic of Turkey (CBRT) has evolved under the post-financial liberalization and deregulation era. Utilizing econometric methods on a generalized form of a Taylor Rule the authors search for the possible revelation of a variety of determinants of monetary policy with different objectives over 1994-2007. They find that over such an extended time horizon during which significant shifts in the macroeconomic environment have occurred, the CBRT’s almost exclusive focus on “interest rate smoothing” has not changed; and that the CBRT has not paid any attention to developments in national income. <p></p> This raises the question whether there is a deeper underlying structural constraint, binding the CBRT’s alleged “independence”. The authors trace the basics of this deep structural constraint to the nature of the global financial system restricting the ability of the central banks to pursue “independent” policy objectives.

    Dynamics of Monetary Policy Uncertainty and the Impact on the Macroeconomy

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    A large literature lauds the benefits of central bank transparency and credibility, but when a central bank like the U.S. Federal Reserve has a dual mandate, is not specific to the extent it targets employment versus price stability, and is not specific to the magnitude interest rates should change in response to these targets, market participants must depend largely on past data to form expectations about monetary policy. We suppose market participants estimate a Taylor-like regression equation to understand the conduct of monetary policy, which likely guides their short-run and long-run expectations. When the Federal Reserve's actions deviate from its historical targets for macroeconomic variables, an environment of greater uncertainty may be the result. We quantify this degree of uncertainty by measuring and aggregating recent deviations of the federal funds rate from econometric forecasts predicted by constant gain learning. We incorporate this measure of uncertainty into a VAR model with ARCH shocks to measure the effect monetary policy uncertainty has on inflation, output growth, unemployment, and the volatility of these variables. We find that a higher degree of uncertainty regarding monetary policy is associated with greater volatility of output growth and unemployment.Uncertainty; learning; volatility; Taylor rule; vector autoregression; ARCH.

    Checks and balances, private information, and the credibility of monetary commitments

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    The authors develop and test several new hypotheses about the anti-inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies. Theory provides strong reason to believe that while central bank independence will prove more effective as a commitment mechanism in countries where multiple players in government have veto power (checks and balances), the number of veto players will have no effect on the credibility of exchange rate pegs. Conversely, the authors argue that central bank independence does not solve the problems of commitment that arise when citizens are imperfectly informed about the contribution of government policy to inflation. Exchange rate pegs, however, mitigate these problems. The authors present extensive evidence from cross-country tests using newly developed data thatprovide strong support for their propositions.Economic Stabilization,Economic Theory&Research,Macroeconomic Management,Environmental Economics&Policies,Financial Intermediation

    Bayesian Model Averaging in the Context of Spatial Hedonic Pricing: An Application to Farmland Values

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    Since 1973, British Columbia created an Agricultural Land Reserve to protect farmland from development. In this study, we employ GIS-based hedonic pricing models of farmland values to examine factors that affect farmland prices. We take spatial lag and error dependence into explicit account. However, the use of spatial econometric techniques in hedonic pricing models is problematic because there is uncertainty with respect to the choice of the explanatory variables and the spatial weighting matrix. Bayesian model averaging techniques in combination with Markov Chain Monte Carlo Model Composition are used to allow for both types of model uncertainty.Bayesian model averaging, Markov Chain Monte Carlo Model Composition, spatial econometrics, hedonic pricing, GIS, urban-rural fringe, farmland fragmentation
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