Assessing French Inflation Persistence with Impulse Saturation Break Tests and Automatic General-to-Specific Modelling

This paper has three different motivations. Firstly, we wish to contribute to the debate on whether French inflation has been persistent since the mid-eighties. Empirical evidence in this domain has been mixed. We use the standard method of testing for breaks in the mean of the inflation series to conclude whether possible unit root findings are the result of neglected breaks. Then, we build standard autoregressive representations of inflation, using an automatic general-to-specific approach. We conclude against inflation persistence in the sample period, and the point estimates of persistence we obtain are several percentage points below those achieved with other break tests and model selection methods. Moreover, our final model is congruent. Secondly, we provide the first empirical application of the new impulse saturation break test. The resulting estimates of the break dates are in line with other literature findings and have a sound economic meaning, confirming the good performance the test had revealed in theoretical and simulation studies. Finally, we also illustrate the shortcomings of the Bai-Perron test when applied to a small sample with high serial correlation. Indeed, we show the Bai- Perron break dates’ estimates would not allow us to build a congruent autoregressive representation of inflation.Inflation Persistence, Break Tests, Model Selection, General-to-Specific

Modelling the German Yield Curve and Testing the Lucas Critique

info:eu-repo/semantics/publishedVersio

Assessing French inflation persistence with impulse saturation break tests and automatic general-to-specific modelling

This paper has three different motivations. Firstly, we wish to contribute to the debate on whether French inflation has been persistent since the mid-eighties. Empirical evidence in this domain has been mixed. We use the standard method of testing for breaks in the mean of the inflation series to conclude whether possible unit root findings are the result of neglected breaks. Then, we build standard autoregressive representations of inflation, using an automatic general-to-specific approach. We conclude against inflation persistence in the sample period, and the point estimates of persistence we obtain are several percentage points below those achieved with other break tests and model selection methods. Moreover, our final model is congruent. Secondly, we provide the first empirical application of the new impulse saturation break test. The resulting estimates of the break dates are in line with other literature findings and have a sound economic meaning, confirming the good performance the test had revealed in theoretical and simulation studies. Finally, we also illustrate the shortcomings of the Bai-Perron test when applied to a small sample with high serial correlation. Indeed, we show the Bai-Perron break dates’ estimates would not allow us to build a congruent autoregressive representation of inflation

An Overlapping Generations Model of the Savings Rate Decline: The Case of Portugal

Using an overlapping generations model, we argue that a decline in the savings rate, such as the one that has been observed in Portugal over the past 30 years, may be motivated by an increase in the discount factor. This is a standard result for macroeconomic models with agents that live for two periods. However, we innovate in proxying empirically the discount factor by a number of items, such as the fertility rate and the marriage rate. A decline in these suggests that people value the present over the future. As such the discount factor increases. As it turns out, both variables are empirically significant in our econometric analysis and have the correct sign. Furthermore, Ricardian Equivalence effects seem to be absent from the savings behavior of Portuguese households, as increases in public debt are met with decreases in savings by households. Government expenditure is not being perceived as levying higher taxes in the future. Finally, we also show that precautionary saving motivated by the increase in the unemployment rate is only relevant for rates below 6,5%. Above this threshold, the decline in savings due to the decline in income is estimated to be the dominant effect, which becomes dramatic when we consider the current rate of nearly 16%. Portuguese households are simply unable to save currently. The empirical implications of our analysis are staggering, as they question the effectiveness of any austerity program that does rely on higher taxes: these are a tantamount to lower savings rate, which in turn increase country default probabilities, as measured in CDS and bond markets.info:eu-repo/semantics/publishedVersio

Sovereign CDS contagion in the European Union: a multivariate GARCH-in-variables analysis of volatility spill-overs

GARCH-with-variables model is used to assess volatility contagion in the Eurozone Debt Crisis. Credit Default Swaps on sovereign debt with 3 years maturity are used as a reference financial instrument, covering the sample period from 2008-2013. Daily data on Credit Default Swaps is used. We conclude that there is strong statistical evidence of volatility contagion in CDS spreads from the Eurozone periphery to its core. However, the direction of contagion is contingent on the periphery and core countries being assessed. As such, German 3 year CDS on sovereign debt mean equation is to vulnerable to Portuguese and to Greek CDS volatility, whilst German sovereign CDS volatility is vulnerable to greek one day lagged sovereign volatility. Differently, France’s sovereign debt Credit Default Swaps are only exposed to Spanish and Italian sovereign CDS in the mean equation. Exposure to greek lagged one day volatility exists as well.info:eu-repo/semantics/publishedVersio

The budgeting of portuguese public museums: a dynamic panel data approach

In this paper, the first panel on sources of funding for Portuguese publicly owned museums is explored. There has been little work in this field worldwide, and none for Portugal. Evidence in this paper seems contrary to that relating to the UK and to the US. We find that incremental budgeting still plays a major role on the funding of Portuguese museums, allowing for inefficient management and moral hazard: the interests of museums’ management may diverge clearly from those of the authorities ruling them and from those of the general public. We also find that the ability to generate their own revenues plays no role in the funding allocated to museums every year. Budgeting is mainly determined by past operating costs. Policy changes seem to be advisable. The scarce relevance of museum patronage by the private sector makes a discussion of possible crowding out effects irrelevant in the current Portuguese context.info:eu-repo/semantics/publishedVersio

A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?

In this paper, the authors provide an explanation of the abnormal behavior of gold returns between the 1st of January 2008 and the 31st of December 2013. The authors suggest a behavioral finance foundation to the fact that gold returns exceed those of a wide range of other assets over this period. The approach rests on the safe haven (SH) motif for flights to gold during heavy financial stress periods. The prevailing Baur-Lucey-McDermott paradigm on gold as a SH is shown to be insufficient, as it ignores the roles of volatility and risk preferences. The auhors suggest a formal SH definition, recovering those elements from behavioral finance. Contrary to the previous paradigm, the approach is data-consistent, in the sample period. The authors find that gold is a SH for all stock markets considered, some exchange rates, and even Euro Area sovereign bonds (including German bunds). They estimate the SH risk premium in all cases. The authors find that investors perceive the distinction between good and bad volatility, and that they do not ask for excess returns when gold volatility is high for SH reasons. This is consistent with the literature on the low frequency of idiosyncratic shocks in the gold market. Furthermore, the authors find evidence that, in a period of high financial uncertainty, fund managers building portfolios consisting only of gold might be acting rationally, contrary to the finance common sense for normal periods. In fact, in the sample period, gold is even strictly dominant in mean-variance terms, when compared to equity. Keywords: safe haven, gold, euro debt crisis, risk preferences, fund management. JEL Classification: C22, C58, G01, G11, G1

Determinants of credit default swaps implied ratings during the crisis: was sovereign risk mispriced?

This paper addresses the question of whether sovereign risk pricing was related to macroeconomic fundamentals, between 2007 and 2015, in a sample of OECD countries. The authors argue that the conflicting evidence in the literature is due to poor methodology options. The researchers innovate by modelling sovereign credit default swaps implied ratings as our sovereign risk proxy, instead of spreads, avoiding common pitfalls. Furthermore, the authors improve the variable selection, model specification and the econometric procedures used. A panel ordered probit model is chosen, assuring robust inference. The authors relax the parallel lines assumption, allowing for rating-varying coefficients of explanatory variables. The result is the first congruent model of sovereign risk during the years of the financial crisis and of the Euro Area crisis. Fiscal space variables, economic activity indicators, variables pertaining to external imbalances, and contagion proxies are relevant, with effects matching theory priors. The scientists clarify conundrums in the previous literature, posed by lack of significance of some macro fundamentals and by puzzling signs of some estimated coefficients. Moreover, this is the first paper to estimate not only the global risk premium, but also the impact of changing risk aversion. The authors find no support for claims of sovereign risk mispricing during the sample period. The results allow relevant policy conclusions, namely concerning the validity of different fiscal consolidation paths in financially distressed countries

Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities

Sovereign credit default swaps (SCDSs) have been at the core of the Euro Area (EA) debt crisis, particularly in its periphery. Both EU politicians and a wide range of EU academics have asked for tighter regulation of these over-the-counter (OTC) derivatives, following similar pressures to the ones that had resulted from the 2008 financial crisis for corporate reference entities. As such, the SCDSs regulatory framework experienced a number of changes from 2009 to 2014, in the EU. This paper provides a seminal assessment on whether these new rules have succeeded in preventing SCDSs exuberance episodes in the EU. Using daily data for 5 years maturity Greek SCDSs, comprising the period between the latest regulatory reform, in September 2014, and mid-March 2015, we find clear evidence of explosive behavior in SCDSs spreads, and even in upfront quotes. The authors take advantage of the new Phillips et al. (2015a, 2015b) test for multiple exuberance episodes, which had rarely been used in derivatives markets, and conduct an event study to conclude that Greek elections, in early 2015, and the associated turmoil has led to a surge in momentum trading, with significant potential returns for SCDSs buyers. The regulatory measures aiming at deleveraging these markets, standardizing contracts, and dissociating sovereign and banking risk, do not seem to have achieved their purposes, as the political and financial anxiety in Greece, starting in December 2014, has led to explosive behavior episodes in the market for Greek SCDSs, of the type regulators had tried to avoid.info:eu-repo/semantics/publishedVersio

Characterization of MSlys, the endolysin of Streptococcus pneumoniaephage MS1

Despite the use of pneumococcal conjugate vaccines, the number of infections related to Streptococcus pneumoniae continues to be alarming. Herein, we identified, characterized the MSlys endolysin encoded in the phage MS1. We further tested its antimicrobial efficacy against planktonic and biofilm cells, assessing the culturability of cells and biofilm structure by scanning electron microscopy, and confocal laser scanning microscopy. The modular MSlys endolysin consists of an amidase catalytic domain and a choline-binding domain. MSlys is active against isolates of children with otitis media, and conditions close to those found in the middle ear. Treatment with MSlys (2h, 4 µM) reduced planktonic cultures by 3.5 log10 CFU/mL, and 24- and 48-h-old biofilms by 1.5 and 1.8 log10 CFU/mL, respectively. Imaging of the biofilms showed thinner and damaged structures compared to control samples. The recombinantly expressed MSlys may be a suitable candidate for treating pneumococcal infections, including otitis media.MDS acknowledges the Portuguese Foundation for Science and Technology (FCT) grant (SFRH/BD/128825/2017). This study was supported by the Portuguese Foundation for Science and Technology (FCT) under the scope of the strategic funding of UID/BIO/04469/2019 unit and BioTecNorte operation (NORTE-01-0145-FEDER-000004) funded by the European Regional Development Fund under the scope of Norte2020 - Programa Operacional Regional do Norte. This project also received funding from the European Union's Horizon 2020 research and innovation programme under grant agreement No 713640. This study was also supported by the grant PTDC/CVT-CVT/29628/2017 [POCI-01-0145-FEDER-029628].info:eu-repo/semantics/publishedVersio