Exchange rate volatility and trade: a general equilibrium analysis.

In this paper, we use insights from the literature on financial options to analyze the effect of exchange rate volatility on the volume of trade between countries. In contrast to existing work, this analysis is carried out in a model where the exchange rate is determined endogenously, and the volatility of the exchange rate depends on the volatility of the amounts available for consumption of the traded and non-traded goods. Our main result is to show that, in a one-good world, and contrary to the popular conjecture, an increase in exchange rate volatility is associated with an increase in the volume of trade. If a non-traded good is added, the above remains true when the source of exchange rate volatiliy is the uncertainty in the traded goods sector. However, when the source of exchange rate volatility is the non-traded goods sector then the volume of trade may decline. Thus, our model offers at least a partial explanation for the results of empirical studies that find only a weak relation between exchange rate volatility and trade. A policy implication of the model is that the volatility of the real exchange rate can be reduced, and welfare increased, in two ways: by reducing the volatility of fundamentals and by reducing the barriers to trade. However, while a reduction in trade barriers is associated with an increase in trade, a reduction in the volatility of fundamentals leads to a reduction in trade. Thus, more trade does not always mean a higher welfare.Equilibrium; Trade; Volatility;

Estimating the costs of international equity investments.

We generalize the Cooper and Kaplanis (1994) methodology for estimating the costs that couldreconcile international portfolio holdings with CAPM predictions. First, we simultaneouslyestimate inward and outward investment costs and even interactions between home and hostcountry. Second, the risk aversion parameter is estimated rather than postulated. Third, wedetect costs for domestic investments. We ¯nd that the home bias in equity portfolios is relatedto a mixture of market frictions, such as information asymmetries, institutional factors andexplicit costs. Over the period 2001-2004, the average implicit investment costs range from0.26 (US) to 16 (Turkey) percent per annum.Determinants; Investments; Variability; Companies; Size; Variables;

The design, fabrication, and testing of corrugated silicon nitride diaphragms

Silicon nitride corrugated diaphragms of 2 mm×2 mm×1 ¿m have been fabricated with 8 circular corrugations, having depths of 4, 10, or 14 ¿m. The diaphragms with 4-¿m-deep corrugations show a measured mechanical sensitivity (increase in the deflection over the increase in the applied pressure) which is 25 times larger than the mechanical sensitivity of flat diaphragms of equal size and thickness. Since this gain in sensitivity is due to reduction of the initial stress, the sensitivity can only increase in the case of diaphragms with initial stress. A simple analytical model has been proposed that takes the influence of initial tensile stress into account. The model predicts that the presence of corrugations increases the sensitivity of the diaphragms, because the initial diaphragm stress is reduced. The model also predicts that for corrugations with a larger depth the sensitivity decreases, because the bending stiffness of the corrugations then becomes dominant. These predictions have been confirmed by experiments. The application of corrugated diaphragms offers the possibility to control the sensitivity of thin diaphragms by geometrical parameters, thus eliminating the effect of variations in the initial stress, due to variations in the diaphragm deposition process and/or the influence of temperature changes and packaging stres

The equilibrium approach to exchange rates: theory and tests.

We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nomial exchange rate is determined by differences in initial wealths - the currencies of richer countries tend to be overvalued, by PPP standards - and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and, in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration test of the homothecy/ CRRA version of the model. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable.Equilibrium; Theory; Trade;

The exchange rate and purchasing power parity: extending the theory and tests.

This paper analyzes the exchange rate in a ``no-arbitrage' or ``real business cycle' equilibrium model and provides empirical evidence for this model vis-a-vis PPP. Our contribution is to show, based on a generalization of the equilibrium model of exchange rates, that (i) the test equation linking the exchange rate to fundamentals should allow for international heterogeneity in time preferences or risk attitudes, as well as noise---that is, the model should not be tested as an exact relation; (ii) empirical work should use levels of variables rather than first differences; (iii) tests on the existence of long-run relations should be complemented by tests on the signs of the coefficients; (iv) the specification of the regression should offer demonstrated advantages over alternatives, and the significance tests should not rely on asymptotic distributions; and (v) the tests should steer clear of countries that have imposed, for most of the period, capital restrictions or exchange controls, thus violating the integrated-markets assumption of the model. Our empirical work shows that, as a long-run relation, the generalized model outperforms PPP.Purchasing; Purchasing power; Theory; Equilibrium; Model; International; Risk; Variables; Advantages; Distribution;

Dijet imbalance in hadronic collisions

The imbalance of dijets produced in hadronic collisions has been used to extract the average transverse momentum of partons inside the hadrons. In this paper we discuss new contributions to the dijet imbalance that could complicate or even hamper this extraction. They are due to polarization of initial state partons inside unpolarized hadrons that can arise in the presence of nonzero parton transverse momentum. Transversely polarized quarks and linearly polarized gluons produce specific azimuthal dependences of the two jets that in principle are not suppressed. Their effects cannot be isolated just by looking at the angular deviation from the back-to-back situation, rather they enter jet broadening observables. In this way they directly affect the extraction of the average transverse momentum of unpolarized partons that is thought to be extracted. We discuss appropriately weighted cross sections to isolate the additional contributions.Comment: 15 pages, 2 figures; revised version, published in Phys. Rev.

Colour unwound - disentangling colours for azimuthal asymmetries in Drell-Yan scattering

It has been suggested that a colour-entanglement effect exists in the Drell-Yan cross section for the 'double T-odd' contributions at low transverse momentum $Q_T$, rendering the colour structure different from that predicted by the usual factorisation formula [1]. These T-odd contributions can come from the Boer-Mulders or Sivers transverse momentum dependent distribution functions. The different colour structure should be visible already at the lowest possible order that gives a contribution to the double Boer-Mulders (dBM) or double Sivers (dS) effect, that is at the level of two gluon exchanges. To discriminate between the different predictions, we compute the leading-power contribution to the low-$Q_T$ dBM cross section at the two-gluon exchange order in the context of a spectator model. The computation is performed using a method of regions analysis with Collins subtraction terms implemented. The results conform with the predictions of the factorisation formula. In the cancellation of the colour entanglement, diagrams containing the three-gluon vertex are essential. Furthermore, the Glauber region turns out to play an important role - in fact, it is possible to assign the full contribution to the dBM cross section at the given order to the region in which the two gluons have Glauber scaling. A similar disentanglement of colour is found for the dS effect.Comment: 36 pages, 11 figures; v2: typos corrected/ reference added, v3: minor corrections/ small explanations added/ references added, v4: very minor correction/ small explanations added/ references added (this version has been accepted for publication in SciPost

Value and risk reporting practice among listed companies in Belgium.

In this report we describe the general practices, among Belgian public firms, re voluntary disclosure. We provide an overall score, a subtotal for each of ten information categories, and individual scores. We find that only two subtotals, Management & Performance and Organization & Strategy, fare rather well almost across the board. The value drivers, in contrast, tend to come in among the lowest-ranked items, as does Risk Management. For two value drivers, Brands and Customers, around half of the companies even remain utterly silent. Across firms, there often is a pronounced right-skewness among the rankings for one subcategory. On more than half the items that could logically help determine value, more than half of the firms provide no information whatsoever.The top-performing companies are doing spectacularly better on Risk Management, and (relatively) worse on macro information. Manufacturing firms do best, both in terms of total rating as well as on most subcategories, followed by retail/distribution/media (RDM) and then Technology.Optimal; Value; Risk; Reporting; Companies; Firms; Disclosure; Information; Management; Performance; Strategy; Risk management; Brands; Manufacturing;

Happy protest voters: The case of Rotterdam 1997-2009

Protest parties are on the rise in several European countries. This development is commonly attributed to a growing dissatisfaction with life and associated with declining quality of life in modern society of the lowest social strata. This explanation is tested in a cross-sectional analysis of voting and life-satisfactrion in 63 districts of the city of Rotterdam in the Netherlands, where the share of protest voters increased from 10% in 1994 to 31% in 2009. Contrary to this explanation protest voting appeared not to be the most frequent in the least happy districts of Rotterdam, but in the medium happy segment. Also divergent from this explanation was that average happiness in city districts is largely independent of local living conditions, but is rather a matter of personal vulnerability in terms of education, income and health. These results fit alternative explanations in terms of middle class status anxiet