An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architecture

This paper compares the so-called gross and net architectures for securities settlement. It studies the settlement risk arising from exogenous operational delays and compares the importance of settlement failures under the two architectures, as a function of the length of the settlement cycle and of different market conditions. Under both architectures, settlement failures are non-monotonically related to the length of settlement cycle. There is no evidence that continuous time settlement provides always higher stability. Gross systems appear to be more stable than net systems

A Practical, Accurate, Information Criterion for Nth Order Markov Processes

The recent increase in the breath of computational methodologies has been matched with a corresponding increase in the difficulty of comparing the relative explanatory power of models from different methodological lineages. In order to help address this problem a Markovian information criterion (MIC) is developed that is analogous to the Akaike information criterion (AIC) in its theoretical derivation and yet can be applied to any model able to generate simulated or predicted data, regardless of its methodology. Both the AIC and proposed MIC rely on the Kullback–Leibler (KL) distance between model predictions and real data as a measure of prediction accuracy. Instead of using the maximum likelihood approach like the AIC, the proposed MIC relies instead on the literal interpretation of the KL distance as the inefficiency of compressing real data using modelled probabilities, and therefore uses the output of a universal compression algorithm to obtain an estimate of the KL distance. Several Monte Carlo tests are carried out in order to (a) confirm the performance of the algorithm and (b) evaluate the ability of the MIC to identify the true data-generating process from a set of alternative models

An agent based decentralized matching macroeconomic model

In this paper we present a macroeconomic microfounded framework with heterogeneous agents-individuals, firms, banks-which interact through a decentralized matching process presenting common features across four markets-goods, labor, credit and deposit. We study the dynamics of the model by means of computer simulation. Some macroeconomic properties emerge such as endogenous business cycles, nominal GDP growth, unemployment rate fluctuations, the Phillips curve, leverage cycles and credit constraints, bank defaults and financial instability, and the importance of government as an acyclical sector which stabilize the economy. The model highlights that even extended crises can endogenously emerge. In these cases, the system may remain trapped in a large unemployment status, without the possibility to quickly recover unless an exogenous intervention takes place

When is it Optimal to Exhaust a Resource in a Finite Time?

Exhaustion of a natural resource stock may be a rational choice for an individual and/or a community, even if a sustainable use for the resource is feasible and the resource users are farsighted and well informed on the ecosystem. We identify conditions under which it is optimal not to sustain resource use. These conditions concern the discounting of future benefits, instability of social system or ecosystem, nonconvexity of natural growth function, socio-psychological value of employment, and strategic interaction among resource users. The identification of these conditions can help design policies to prevent unsustainable patterns of resource use

On the efficiency-effects of private (dis-)trust in the government

Dawid H, Deissenberg C. On the efficiency-effects of private (dis-)trust in the government. JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION. 2005;57(4):530-550.We consider a version of the seminal Kydland-Prescott model where, in each period, some private agents believe the policy announcements made by the government. The other agents follow a standard optimizing strategy. The fraction of agents who believe the government changes over time according to a word-of-mouth learning process. We show that the initial number of believers and the speed of learning can have drastic consequences for the policy followed and the losses experienced by the different agents. In particular, the utility of the private sector may jump upwards if the initial number of believers exceeds a given threshold. (c) 2005 Elsevier B.V. All rights reserved

A simple model of optimal exploration for oil Pt. 1

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