Is the yield curve a useful Information variable for the Eurosystem?

The focus of this paper is on the use of the yield curve in monetary policy making. Theoretical arguments and a multi-country empirical analysis with an explicit focus on the euro area suggest the need for caution in case the Eurosystem uses the yield curve as an information variable for monetary policy, because multiple theoretical explanations exist for an observed movement in the yield curve, suggesting that policy reactions cannot be prescribed unambiguously. In addition, the empirical analysis shows that, in contrast with earlier findings of, for example, Hardouvelis (1994) and Bernard and Gerlach (1996), the information content of the yield curve is fairly limited. For the individual European countries participating in the Eurosystem as well as for the euro area as a whole, the yield spread possesses only very limited information relating to future movements in the inflation rate and output growth, over-and-above the information contained in the history of the latter variables. JEL Classification: E43, E52

Dialogues with a talking face for web-based services and transactions

In this paper we discuss our research on interactions in a virtual theatre that has been built using VRML and therefore can be accessed through Web pages. In\ud the virtual environment we employ several agents. The virtual theatre allows navigation input through keyboard and mouse, but there is also a navigation\ud agent which listens to typed input and spoken commands. Feedback of the system is given using speech synthesis. We also have an information agent which allows a natural language dialogue with the system where the input is keyboard-driven and the output is both with tables as with template driven natural language generation. In development are several talking faces for the different agents in the virtual world. At this moment an avatar with a cartoon-like talking face driven by a text-to-speech synthesizer can provide users with information about performances in the theatre

Past trauma and future choices: Differences in discounting in low-income, urban African Americans

AbstractBackgroundExposure to traumatic events is surprisingly common, yet little is known about its effect on decision making beyond the fact that those with post-traumatic stress disorder are more likely to have substance-abuse problems. We examined the effects of exposure to severe trauma on decision making in low-income, urban African Americans, a group especially likely to have had such traumatic experiences.MethodParticipants completed three decision-making tasks that assessed the subjective value of delayed monetary rewards and payments and of probabilistic rewards. Trauma-exposed cases and controls were propensity-matched on demographic measures, treatment for psychological problems, and substance dependence.ResultsTrauma-exposed cases discounted the value of delayed rewards and delayed payments, but not probabilistic rewards, more steeply than controls. Surprisingly, given previous findings that suggested women are more affected by trauma when female and male participants’ data were analyzed separately, only the male cases showed steeper delay discounting. Compared with nonalcoholic males who were not exposed to trauma, both severe trauma and alcohol-dependence produced significantly steeper discounting of delayed rewards.ConclusionsThe current study shows that exposure to severe trauma selectively affects fundamental decision-making processes. Only males were affected, and effects were observed only on discounting delayed outcomes (i.e. intertemporal choice) and not on discounting probabilistic outcomes (i.e. risky choice). These findings are the first to show significant differences in the effects of trauma on men's and women's decision making, and the selectivity of these effects has potentially important implications for treatment and also provides clues as to underlying mechanisms.</jats:sec

Journal of Financial Economics

We propose a new method of testing asset pricing models that relies on quantities rather than just prices or returns. We use the capital flows into and out of mutual funds to infer which risk model investors use. We derive a simple test statistic that allows us to infer, from a set of candidate models, the risk model that is closest to the model that investors use in making their capital allocation decisions. Using our method, we assess the performance of the most commonly used asset pricing models in the literature

Measuring Skill in the Mutual Fund Industry

Using the value that a mutual fund extracts from capital markets as the measure of skill, we find that the average mutual fund has used this skill to generate about $3.2 million per year. Large cross-sectional differences in skill persist for as long as ten years. Investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and a strong positive correlation exists between current compensation and future performance. The cross-sectional distribution of managerial skill is predominantly reflected in the cross-sectional distribution of fund size, not gross alpha

The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary Integration on the Term Structure

An empirical investigation of the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro became closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, the significant structural instability found for the euro area's core country Germany suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU