SEAM: A Small-Scale Euro Area Model With Forward-Looking Elements

This paper presents a small-scale estimated macro model for the euro area (SEAM) designed primarily to generate forecasts and to evaluate the dynamic response of the economy to unanticipated and anticipated shocks. One crucial feature of SEAM is the presence of forward-looking elements, which makes the model forecasts more robust to the 'Lucas critique', since it allows economic decisions to be moulded by the future impact of 'surprise' policy actions. In what concerns the reliability of the model-simulations, the inclusion of forward-looking behaviour enriches the dynamics of the response of the model's endogenous variables to exogenous shocks. Although the SEAM does not have the richness of full-scale macroeconometric models, as apparent interalia, by the absence of a steady-state analogue and also of some relationships important for a better characterisation of the euro area economy, the model has been shown to deliver reasonable forecasts and responses to shocks that are consistent with conventional wisdom.

The timing and the probability of FDI: an application to the US multinational enterprises

An 'option-pricing' model is employed to analyse when a firm should expand its production capabilities abroad. In a framework where the firm's profits are determined by some average of the attractiveness of the home and foreign countries, and attractiveness in each country follows differentiated Brownian motions, this paper derives an optimal trigger value for FDI. The model shows that, contrary to the NPV rule, FDI entry should be optimally delayed the greater the uncertainty surrounding the future path of attractiveness in both locations. The second part of the paper is devoted to empirically test the results of the model. Drawing on data of FDI from the US into a panel of developed and developing countries and using labour costs as a proxy for (the reciprocal of) attractiveness, our estimation overwhelmingly confirms the results of the model, namely that FDI entry events are negatively related to the uncertainty surrounding attractiveness.Foreign Direct Investment, Multinational Enterprises, Option-Pricing Model; Ordered Probit Model for Panel Data.

The Timing and Probability of FDI: An Application to the United States Multinational Enterprises

An "option-pricing" model is employed to analyse when a firm should expand its production capabilities abroad. In a framework where the firm's profits are determined by some average of the attractiveness of the home and foreign countries, and attractiveness in each country follows differentiated Brownian motions, this paper derives an optimal trigger value for FDI. The model shows that, contrary to the NPV rule, FDI entry should be optimally delayed the greater the uncertainty surrounding the future path of attractiveness in both locations. Another important result is that MNEs do not regard FDI as a risk diversification tool. The second part of the paper is devoted to empirically test the results of the model. Drawing on data of FDI from the US into a panel of developed and developing countries and using labour costs as a proxy for (the reciprocal of) attractiveness, our estimation confirms the results of the model, in particular that FDI entry events are negatively related to the uncertainty surrounding attractiveness.

The Locational Determinants of the U.S. Multinationals Activities

This paper examines empirically a range of theoretical hypotheses about the determinants of FDI location in a panel data regression framework. The results of the estimation of a gravity model lend support to the proximity-concentration and internalisation hypotheses. Also, the fact that FDI has been found to be decreasing in the competition posed by alternative locations is suggestive of the superiority of the share version of the gravity model over its classical formulation. A panel data cointegration-type analysis between FDI and GDP, and per capita income differential suggests that GDP has a positive impact on FDI, but provide mixed evidence as to whether per capita income differential reflects demand or supply determinants of FDI. Causality tests between income, income differential and FDI points to FDI playing a positive role on economic growth and convergence.

A stochastic model for daily climate

Includes bibliography.This thesis describes the results of a study to establish whether climate variables could be usefully modelled on a daily basis. Three stochastic models are considered for the description of daily climate sequences, which can then be used to generate artificial sequences. The climate variables under consideration are rainfall, maximum and minimum temperature, evaporation, sunshine duration, windrun and maximum and minimum humidity. A simple Markov chain-Weibull model is proposed to model rainfall. Three multivariate models (one proposed by Richardson (1981), two new) are suggested for modelling the remaining climate variables. The model parameters are allowed to vary seasonally, while the error term is assumed to follow an autoregressive process. The models were validated and their general performance·was found to be satisfactory. Some weaknesses were identified and are discussed. The. main conclusion of this study is that daily climate sequences can indeed be usefully described by means of stochastic models