In brief: high foreign real interest rates and investment in the 1990s

This article argues that high interest rates abroad have substantially depressed private investment in most foreign members of the Group of Seven during the 1990s. Business investment has been especially hard hit and housing construction disrupted, although the effect on housing has been offset in some countries by stimulative fiscal policies. The author estimates that overall, high interest rates have reduced output in the foreign G-7 by 2 1/2 to 4 1/4 percent per year on average over 1990-93.Interest rates ; Group of Seven countries ; Investments, Foreign

Eroding market stability by proliferation of financial instruments

We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently provides more means for risk diversification, making the market more efficient and complete. In the simple market of interacting traders discussed here, the proliferation of financial instruments erodes systemic stability and it drives the market to a critical state characterized by large susceptibility, strong fluctuations and enhanced correlations among risks. This suggests that the hypothesis of APT may not be compatible with a stable market dynamics. In this perspective, market stability acquires the properties of a common good, which suggests that appropriate measures should be introduced in derivative markets, to preserve stability.Comment: 26 pages, 8 figure

Childhood IQ and cardiovascular disease in adulthood: prospective observational study linking the Scottish Mental Survey 1932 and the Midspan studies

This study investigated the influence of childhood IQ on the relationships between risk factors and cardiovascular disease (CVD), coronary heart disease (CHD) and stroke in adulthood. Participants were from the Midspan prospective cohort studies which were conducted on adults in Scotland in the 1970s. Data on risk factors were collected from a questionnaire and at a screening examination, and participants were followed up for 25 years for hospital admissions and mortality. 938 Midspan participants were successfully matched with their age 11 IQ from the Scottish Mental Survey 1932, in which 1921-born children attending schools in Scotland took a cognitive ability test. Childhood IQ was negatively correlated with diastolic and systolic blood pressure, and positively correlated with height and respiratory function in adulthood. For each of CVD, CHD and stroke, defined as either a hospital admission or death, there was an increased relative rate per standard deviation decrease (15 points) in childhood IQ of 1.11 (95% confidence interval 1.01-1.23), 1.16 (1.03-1.32) and 1.10 (0.88-1.36) respectively. With events divided into those first occurring before and those first occurring after the age of 65, the relationships between childhood IQ and CVD, CHD and stroke were only seen before age 65 and not after age 65. Blood pressure, height, respiratory function and smoking were associated with CVD events. Relationships were stronger in the early compared to the later period for smoking and FEV1, and stronger in the later compared to the earlier period for blood pressure. Adjustment for childhood IQ had small attenuating effects on the risk factor-CVD relationship before age 65 and no effects after age 65. Adjustment for risk factors attenuated the childhood IQ-CVD relationship by a small amount before age 65. Childhood IQ was associated with CVD risk factors and events and can be considered an important new risk factor

Rising rural body-mass index is the main driver of the global obesity epidemic in adults

Body-mass index (BMI) has increased steadily in most countries in parallel with a rise in the proportion of the population who live in cities 1,2 . This has led to a widely reported view that urbanization is one of the most important drivers of the global rise in obesity 3�6 . Here we use 2,009 population-based studies, with measurements of height and weight in more than 112 million adults, to report national, regional and global trends in mean BMI segregated by place of residence (a rural or urban area) from 1985 to 2017. We show that, contrary to the dominant paradigm, more than 55 of the global rise in mean BMI from 1985 to 2017�and more than 80 in some low- and middle-income regions�was due to increases in BMI in rural areas. This large contribution stems from the fact that, with the exception of women in sub-Saharan Africa, BMI is increasing at the same rate or faster in rural areas than in cities in low- and middle-income regions. These trends have in turn resulted in a closing�and in some countries reversal�of the gap in BMI between urban and rural areas in low- and middle-income countries, especially for women. In high-income and industrialized countries, we noted a persistently higher rural BMI, especially for women. There is an urgent need for an integrated approach to rural nutrition that enhances financial and physical access to healthy foods, to avoid replacing the rural undernutrition disadvantage in poor countries with a more general malnutrition disadvantage that entails excessive consumption of low-quality calories. © 2019, The Author(s)

Short-term speculators and the origins of near-random-walk exchange rate behavior

This paper suggests that normal speculative activity could be a source of random-walk exchange rate behavior. Using a noise trader model to analyze very short-term exchange rate behavior, it shows that rational, risk-averse speculators will smooth the impact of shocks to exchange rate fundamentals. With sufficient speculative activity, an exchange rate could become statistically indistinguishable from a random walk, regardless of the generating processes of its fundamental determinants. ; This result may help resolve the apparent inconsistency between the observed behavior of floating exchange rates and the behavior predicted by existing theoretical models given the actual behavior of exchange rate fundamentals. The result also suggests that heavy speculative activity could cause exchange rates to be forecast better via random-walk than via structural models--even when structural forces are correctly identified. Finally, the paper provides an explanation for the observed extended response of exchange rates to sterilized intervention.Foreign exchange rates ; Futures ; Random walks (Mathematics)

Rational speculators and exchange rate volatility

This paper examines whether rational, fully informed speculators will smooth exchange rates. Friedman's (1953) claim that they must do so is challenged, based on the exclusion of interest rate differentials from his interpretation of speculator behavior. Once one recognizes that interest rates matter to speculators, it becomes apparent that rational speculators could sometimes violate Friedman's description of their behavior, and buy currency when its value is relatively high or sell currency when its value is low. For this reason the presence of rational, fully informed speculators may increase exchange rate volatility under floating exchange rates. Whether or not speculators increase exchange rate volatility depends on the extent of speculative activity and the types of economic shocks that dominate. At low levels of speculative activity, speculation will be stabilizing when the dominant shocks to exchange rates are associated exclusively with real economic activity, such as international trade in goods and services. It becomes destabilizing when the dominant shocks are changes in interest rates, perceived risk, or transactions costs--factors whose influence on exchange rates derives in part from their direct effect on speculators' positions.Foreign exchange rates ; Rational expectations (Economic theory)

Head and shoulders: not just a flaky pattern

This paper evaluates rigorously the predictive power of the head-and-shoulders pattern as applied to daily exchange rates. Though such visual, nonlinear chart patterns are applied frequently by technical analysts, our paper is one of the first to evaluate the predictive power of such patterns. We apply a trading rule based on the head-and-shoulders pattern to daily exchange rates of major currencies versus the dollar during the floating rate period (from March 1973 to June 1994). We identify head-and-shoulders patterns using an objective, computer-implemented algorithm based on criteria in published technical analysis manuals. The resulting profits, replicable in real-time, are then compared with the distribution of profits for 10,000 simulated series generated with the bootstrap technique under the null hypothesis of a random walk.Forecasting ; Investments ; Foreign exchange rates