The Incidence of Long-Term Unemployment in Australia 1978-2003

This paper explores the following question - Has there been any long-run increase (or decrease) in the ‘incidence’ of long-term unemployment once we have corrected for cyclical factors? Our research leads us to conclude: (i) that the incidence of male long-term unemployment has been neither rising nor falling, once we allow for ‘cyclical factors’ and, (ii) that the incidence of female long-term unemployment has been rising, once we allow for ‘cyclical factors’. We conjecture that there is a link between increasing female participation (which we take to be a proxy for ‘attachment to the labour market’ – and thus attachment to unemployment as well as employment) and an increasing incidence of long-term unemployment. Experimenting with policy dummies, we find no evidence of policy effects on the incidence of long-term unemployment in the case of males and females but there is some evidence that policy had temporary effects on females.Unemployment Business Cycle

Interest Rate Smoothing and Inflation-Output Variabilityin a Small Open Economy

This paper is concerned with the relationship between the interest rate smoothing behavior of a central bank and the variability of inflation and output. The issue is analyzed through the lens of a small open economy dynamic stochastic general equilibrium model with nontraded goods price rigidities and habit persistence. The benchmark model is calibrated to match certain key business cycle features of a small open economy like Australia. Relative to the benchmark model, experiments on a Taylor rule with interest rate smoothing are conducted. Due to the existence of a short run expectational Phillips curve in the model, monetary policy will imply certain trade-offs between inflation and output variance, under sensible parameter values of the model. More importantly, in a world where there exists such a trade-off, greater interest rate smoothing in the Taylor rule can potentially yield lower sacrifices in terms of output variability in return for lower inflation, thus increasing policy effectiveness.Interest rate smoothing; monetary policy; business cycles; stickyprices; habit formation; dynamic stochastic general equilibrium

Regional Beveridge Curves: A Latent Variable Approach

It is important to understand how labour markets in different regions are affected by ‘common’ or ‘national’ shocks including national macroeconomic, monetary and fiscal policies. This paper applies a new econometric approach - involving an unobserved components model - to identify the direction and timing of the shifts in regional Beveridge Curves. The method allows for the presence of common national factor(s) and region specific factor(s) in the determination of activity in labour markets including regional specific loadings on the common factor. The method is applied to Australian data. The results show that equilibrium unemployment rate vary by region and over time. In terms of implications for policies to reduce unemployment, these results suggest a key potential role for regional policies.

Parametric Pricing of Higher Order Moments in S&P500 Options.

A general parametric framework is developed for pricing S&P500 options. Skewness and leptokurtosis in stock returns as well as time-varying volatility are priced. The parametric pricing model nests the Black-Scholes model and can explain volatility smiles and skews in stock options. The data consist of S&P500 options traded on select days in April, 1995, a total sample of over 500,000 observations. A number of performance criteria are used to evaluate the alternative models. The empirical results show that pricing higher order moments yield improvements in the pricing of options over the Black-Scholes model as well as other models.Option Pricing; Volatility Smiles and Skews; Generalized Student t; Skewness; Kurtosis; Time-Varying Volatility.

Discounting The Equity Premium Puzzle

This paper applies recent tests of stochastic dominance of several orders proposed by Linton, Maasoumi and Whang (2003) to reexamine the equity premium puzzle. An advantage of this nonparametric framework is that it provides a means to assess whether the existence of a premium is due to an incorrect choice of either the utility function or the underlying returns distribution. The approach is applied to a range of data sets including the S&P500Equity premium puzzle, stochastic dominance, nonparametric, subsampling.

Pricing Currency Options in Tranquil Markets: Modelling Volatility Frowns

Volatility smiles arise in currency option markets when empirical exchange rate returns distributions exhibit leptokurtosis. This feature of empirical distributions is symptomatic of turbulent periods when exchange rate movements are in excess of movements based on the assumption of normality. In contrast, during periods of tranquility, movements in exchange rates are relatively small, resulting in unconditional empirical returns distributions with thinner tails than the normal distribution. Pricing currency options during tranquil periods on the assumption of normal returns yields implied volatility frowns, with over-pricing at both deep-in and deep-out-of-the-money contracts and under-pricing for at-the-money contracts. This paper shows how a parametric class of thin-tailed distributions based on the generalized Student t family of distributions can price currency options during periods of tranquility.Option pricing; volatility frowns; thin-tails; generalized Student t.

Web crippling design of cold-formed duplex stainless steel lipped channel-sections with web openings under end-one-flange loading condition

Cold-formed stainless steel sections are becoming more widely used in the residential and commercial sectors due to their high corrosion resistance and high strength-to-weight ratio. However, their susceptibility to web crippling at points of concentrated loading is well-known to be an important design issue. In addition, web openings are also become popular, as they improve ease of installation of services. This paper presents the results of an investigation into the effect of web crippling on cold-formed duplex stainless steel lipped channel-sections, having such openings, under the end-one-flange (EOF) loading condition. 728 non-linear elasto-plastic finite element analyses are undertaken, with web openings located either centred above the bearing plate or offset to bearing plate. The effect of the size of the web opening, length of bearing plate and location of the web opening is considered. Strength reduction factor equations are proposed, that can be used to take into account such openings in design

Monetary Regime Choice in Singapore: Would a Tayor Rule Outperform Exchange-Rate Management?

under review at the Journal of Asian Economics

Parametric Pricing of Higher Order Moments in S&p500 Options

A general parametric framework is developed for pricing S&P500 options. Skewness and leptokurtosis in stock returns as well as time-varying volatility are priced. The parametric pricing model nests the Black-Scholes model and can explain volatility smiles and skews in stock options. The data consist of S&P500 options traded on select days in April, 1995, a total sample of over 500,000 observations. A number of performance criteria are used to evaluate the alternative models. The empirical results show that pricing higher order moments yield improvements in the pricing of options over the Black-Scholes model as well as other models