Assessing the benefits of international portfolio diversification in bonds and stocks.

This paper considers a stylized asset pricing model where the returns from exchange rates, stocks and bonds are linked by basic risk-arbitrage relationships. Employing GMM estimation and monthly data for 18 economies and the US (treated as the domestic country), we identify through a simple test the countries whose assets strongly comove with US assets and the countries whose assets might other larger diversification benefits. We also show that the strengthening of the comovement of returns across countries is neither a gradual process nor a global phenomenon, reinforcing the case for international diversification. However, our results suggest that fund managers are better other constructing portfolios selecting assets from a subset of countries than relying on either fully inter-nationally diversified or purely domestic portfolios. JEL Classification: F31, G10asset pricing, Exchange Rates, international parity conditions, market integration, stochastic discount factor

What do asset prices have to say about risk appetite and uncertainty?

Implied volatility indices should have information about risk parameters, once they are cleansed of the influence of normal volatility dynamics and macro-economic uncertainty. Building on intuition from the dynamic asset pricing literature, we uncover unobserved risk aversion and fundamental uncertainty from the observed time series of the VIX and the credit spreads while controlling for realized volatility, expectations about the macroeconomic outlook, and interest rates. We apply this methodology to monthly data from both Germany and the US. We find that implied volatilities contain a substantial amount of information regarding risk aversion whereas credit spreads have a lot to say about both risk aversion and uncertainty. Moreover, there is a significant comovement in the German and US risk aversion. JEL Classification:Credit Spread, Economic uncertainty, risk aversion, Time variation in risk and return, Volatility dynamics

Assessing the benefits of international portfolio diversification in bonds and stocks.

This paper considers a stylized asset pricing model where the returns from exchange rates, stocks and bonds are linked by basic risk-arbitrage relationships. Employing GMM estimation and monthly data for 18 economies and the US (treated as the domestic country), we identify through a simple test the countries whose assets strongly comove with US assets and the countries whose assets might other larger diversification benefits. We also show that the strengthening of the comovement of returns across countries is neither a gradual process nor a global phenomenon, reinforcing the case for international diversification. However, our results suggest that fund managers are better other constructing portfolios selecting assets from a subset of countries than relying on either fully inter-nationally diversified or purely domestic portfolios

Sticky wages: evidence from quarterly microeconomic data

This paper documents nominal wage stickiness using an original quarterly firm-level dataset. We use the ACEMO survey, which reports the base wage for up to 12 employee categories in French firms over the period 1998 to 2005, and obtain the following main results. First, the quarterly frequency of wage change is around 35 percent. Second, there is some downward rigidity in the base wage. Third, wage changes are mainly synchronized within firms but to a large extent staggered across firms. Fourth, standard Calvo or Taylor schemes fail to match micro wage adjustment patterns, but fixed duration "Taylor-like" wage contracts are observed for a minority of firms. Based on a two-thresholds sample selection model, we perform an econometric analysis of wage changes. Our results suggest that the timing of wage adjustments is not state-dependent, and are consistent with existence of predetermined of wage changes. They also suggest that both backward- and forward-looking behavior is relevant in wage setting. JEL Classification: E24, J3wage predetermination, Wage stickiness

The Maastricht Convergence Criteria and Optimal Monetary Policy for the EMU Accession Countries.

The EMU accession countries are obliged to fulfill the Maastricht convergence criteria prior to entering the EMU. This paper uses a DSGE model of a two-sector small open economy, to address the following question: How do the Maastricht convergence criteria modify optimal monetary policy in an economy facing domestic and external shocks? First, we derive the micro founded loss function that represents the objective function of the optimal monetary policy not constrained to satisfy the criteria. We find that the optimal monetary policy should not only target inflation rates in the domestic sectors and aggregate output fluctuations but also domestic and international terms of trade. Second, we show how the loss function changes when the monetary policy is constrained to satisfy the Maastricht criteria. The loss function of such a constrained policy is characterized by additional elements penalizing fluctuations of the CPI inflation rate, the nominal interest rate and the nominal exchange rate around the new targets which are potentially different from the steady state of the unconstrained optimal monetary policy. Under the chosen parameterization, the unconstrained optimal monetary policy violates two criteria: concerning the CPI inflation rate and the nominal interest rate. The constrained optimal policy results in targeting the CPI inflation rate and the nominal interest rate that are 0.7% lower (in annual terms) than the CPI inflation rate and the nominal interest rate in the countries taken as a reference. The welfare costs associated with these constraints need to be offset against credibility gains and other benefits related to the compliance with the Maastricht criteria that are not modelled. JEL Classification: F41, E52, E58, E61EMU accession countries, Maastricht convergence criteria, optimal monetary policy

The yield curve and macroeconomic dynamics

We show that microfounded DSGE models with nominal rigidities can be successful in replicating features of bond yield data which have previously been considered puzzling in general equilibrium frameworks. Consistent with empirical evidence, we obtain average holding period returns that are positive, increasing in maturity and sizable, as well as long-maturity bond yields that are almost as volatile as short-term interest rates. At the same time, we are able to fit sample moments of consumption and inflation relatively well. To improve our understanding of these results, we derive analytical solutions for yields that are valid up to a second order approximation and generally applicable, We demonstrate that the improved model performance does not arise directly from the presence of nominal rigidities: ceteris paribus, the introduction of sticky-prices in a simple model tend to reduce premia. Sticky prices help indirectly because they imply (short-run) monetary non-neutrality, so that the policy rule followed by the central bank affects consumption dynamics and the pricing of yields. A very high degree of “interest rate smoothing” in the policy rule is essential for our results

Risky single occasion drinking frequency and alcohol-related consequences: can abstinence during early adulthood lead to alcohol problems?

QUESTIONS UNDER STUDY: the main purpose of this longitudinal study was to determine the impact of risky single occasion drinking (RSOD) frequency on alcohol dependence and drinking consequences reported 15 months later. METHODS: As a baseline sample, 5,990 young men were assessed on their drinking habits including the frequency of RSOD. Of them, 5,196 were reassessed at follow-up 15 months later on RSOD frequency, alcohol dependence and alcohol related consequences in thze interceding year. Drop out biases were investigated. RESULTS: Around 45% of the baseline participants reported regular RSOD (every month or more frequently). Despite the fact that RSOD distribution was generally stable during the initial sample, 47.4% reported a variation of their RSOD frequency 15 months later. Around 25% of the sample reported reduced RSOD frequency. Nonetheless, occasional RS drinkers were more likely to become regular (monthly) RSO drinkers at follow up. Daily and weekly RSOD were associated with high proportions of alcohol dependence and detrimental consequences of drinking. Surprisingly, abstainers at baseline were more likely to be at risk of alcohol dependence and consequences at follow up than non-RSO drinkers. CONCLUSIONS: Despite the fact that alcohol abstinence is logically the best way to avoid the detrimental consequences of alcohol drinking, abstainers at baseline reported as many problems due to alcohol use at follow up as occasional or monthly RSO drinkers. The few participants who had become RSO drinkers during the follow up period were indeed likely to engage in detrimental behaviour. Non-RSO drinkers had the fewest problems due to alcohol use. This substantiates the early occurrence of drinking consequences among inexperienced RSO drinkers

Identification of new Keynesian Phillips Curves from a global perspective.

New Keynesian Phillips Curves (NKPC) have been exten-sively used in the analysis of monetary policy, but yet there are a number of issues of concern about how they are estimated and then related to the underlying macro-economic theory. The first is whether such equations are identified. To check identification requires specifying the process for the forcing variables (typically the output gap) and solving the model for inflation in terms of the observables. In practice, the equation is estimated by GMM, relying on statistical criteria to choose instruments. This may result in failure of identification or weak instruments. Secondly, the NKPC is usually derived as a part of a DSGE model, solved by log-linearising around a steady state and the variables are then measured in terms of deviations from the steady state. In practice the steady states, e.g. for output, are usually estimated by some statistical procedure such as the Hodrick-Prescott (HP) filter that might not be appropriate. Thirdly, there are arguments that other variables, e.g. interest rates, foreign inflation and foreign output gaps should enter the Phillips curve. This paper examines these three issues and argues that all three benefit from a global perspective. The global per-spective provides additional instruments to alleviate the weak instrument problem, yields a theoretically consistent measure of the steady state and provides a natural route for foreign inflation or output gap to enter the NKPC

A contextual framework for the development of a building sustainability assessment method for Iran

As one of the fastest growing countries in the Middle East, and the one most vulnerable to climate change, the main challenge now facing Iran today is how to house its growing population in a socially, economically, and environmentally sustainable way. However, in the absence of a national framework to guide the sustainable development of the built environment, responding to this challenge is problematic. The articulation of a comprehensive assessment method that would enable issues of sustainability to be addressed and incorporated within building construction projects is urgently required. The research that underpins this paper takes account of current tools in aiming to support the development of a national building sustainability assessment method (BSAM) for use in Iran that involves the identification of sources of impact, specific benchmarks, and priorities for a weighting system for assessment criteria. This paper profiles the basis of a contextual framework that will inform the development of such a regional-based tool, taking account of Iran’s current climate change adaptation policies and priorities, its environmental conditions and socio-economic challenges, building typologies, standards and benchmarks