Estimating Correlated Jumps and Stochastic Volatilities

We formulate a bivariate stochastic volatility jump-diffusion model with correlated jumps and volatilities. An MCMC Metropolis-Hastings sampling algorithm is proposed to estimate the model's parameters and latent state variables (jumps and stochastic volatilities) given observed returns. The methodology is successfully tested on several artificially generated bivariate time series and then on the two most important Czech domestic financial market time series of the FX (CZK/EUR) and stock (PX index) returns. Four bivariate models with and without jumps and/or stochastic volatility are compared using the deviance information criterion (DIC) confirming importance of incorporation of jumps and stochastic volatility into the model

Survival Analysis in LGD Modeling

The paper proposes an application of the survival time analysis methodology to estimations of the Loss Given Default (LGD) parameter. The main advantage of the survival analysis approach compared to classical regression methods is that it allows exploiting partial recovery data. The model is also modified in order to improve performance of the appropriate goodness of fit measures. The empirical testing shows that the Cox proportional model applied to LGD modeling performs better than the linear and logistic regressions. In addition a significant improvement is achieved with the modified pseudo Cox LGD model

The Decentralization Tradeoff for Complementary Spillovers

We examine a symmetric two-district setting with spillovers of local public spending where a spill-in from the foreign spending is not a substitute, but a complement to domestic spending. Specifically, we assume production of two district-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and cooperative centralization for different spillovers, complementarities and cost-division rules, and control for the effects of strategic delegation and the feasibility of voluntary contributions to the input in the foreign district. We find that centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three novelties: In the absence of transfers, welfare in decentralization increases in spillovers, strategic delegation in decentralization improves welfare, and centralized provision may be non-monotonic in spillovers

Local Government Efficiency: Evidence from the Czech Municipalities

We measure cost efficiency of 202 Czech municipalities of extended scope in period 2003-2008. The study is the first application of overall efficiency measurement of the local governments in the new EU member states, and the second in post-communist countries. We measure government efficiency through established quantitative and qualitative indicators of the provision of education, cultural facilities, infrastructure and other local services. First, we employ non-parametric approach of the data envelopment analysis and adjust the efficiency scores by bootstrapping. Second, we employ the stochastic frontier analysis and control for effects of various demographic, economic, and political variables. We compare scores under our preferred specification, i.e. pseudo-translog time-variant stochastic-frontier analysis with determinants, with alternative scores. The determinants that robustly increase inefficiency are population size, distance to the regional center, share of university-educated citizens, capital expenditures, subsidies per capita, and the share of self-generated revenues. Concerning political variables, increase in party concentration and the voters' involvement increases efficiency, and local council with a lower share of left-wing representatives also tend to be more efficient. We interpret determinants both as indicators of slack, non-discretionary inputs, and unobservable outputs. The analysis is conducted also for the period 1994-1996, where political variables appear to influence inefficiency in a structurally different way. From comparison of the two periods, we obtain that small municipalities improve efficiency significantly more that large municipalities