Modeling Volatility Spillovers between the Variabilities of US Inflation and Output: the UECCC GARCH Model

This paper employs the unrestricted extended constant conditional correlation GARCH specification proposed in Conrad and Karanasos (2008) to examine the intertemporal relationship between the uncertainties of inflation and output growth in the US. We find that inflation uncertainty effects output variability positively, while output variability has a negative effect on inflation uncertainty.Bivariate GARCH process, negative volatility feedback, inflation uncertainty, output variability

Nonparametric Regression on Latent Covariates with an Application to Semiparametric GARCH-in-Mean Models

We consider time series models in which the conditional mean of the response variable given the past depends on latent covariates. We assume that the covariates can be estimated consistently and use an iterative nonparametric kernel smoothing procedure for estimating the conditional mean function. The covariates are assumed to depend (non)parametrically on past values of the covariates and of the observations. Our procedure is based on iterative ¯ts of the covariates and nonparametric kernel smoothing of the conditional mean function. An asymptotic theory for the resulting kernel estimator is developed and the estimator is used for testing parametric speci¯cations of the mean function. Our leading example is a semiparametric class of GARCH-in-Mean models. In this set-up our procedure provides a formal framework for testing economic theories that postulate functional relations between macroeconomic or ¯nancial variables and their conditional second moments. We illustrate the usefulness of the methodology by testing the linear risk-return relation predicted by the ICAPM.Speci¯cation test, GARCH-M, semiparametric regression, risk premium, ICAPM.

Modeling and explaining the dynamics of European Union allowance prices at high-frequency

In this paper we model the adjustment process of European Union Allowance (EUA) prices to the releases of announcements at high-frequency controlling for intraday periodicity, volatility clustering and volatility persistence. We find that the high-frequency EUA price dynamics are very well captured by a fractionally integrated asymmetric power GARCH process. The decisions of the European Commission on second National Allocation Plans have a strong and immediate impact on EUA prices. On the other hand, our results suggest that EUA prices are only weakly connected to indicators about the future economic development as well as the current economic activity. --EU ETS,EUA,Announcement Effects,Price Formation,Long Memory

Increase in Hand-Alcohol Consumption Among Medical Staff in a General Hospital as a Result of Introducing a Training Program and a Visualization Test

To assess the impact of training programs, including a visualization test for hand disinfection, we monitored the hand-alcohol consumption of medical staff. The consumption increased steadily from 5.7 L of hand alcohol per capita per year in 1990 to 9.1 L in 1998. There was no significant increase in skin problem

Multivariate Fractionally Integrated APARCH Modeling of Stock Market Volatility: A multi-country study

Tse (1998) proposes a model which combines the fractionally integrated GARCH formulation of Baillie, Bollerslev and Mikkelsen (1996) with the asymmetric power ARCH speci¯cation of Ding, Granger and Engle (1993). This paper analyzes the applicability of a multivariate constant conditional correlation version of the model to national stock market returns for eight countries. We ¯nd this multivariate speci¯cation to be generally applicable once power, leverage and long-memory e®ects are taken into consideration. In addition, we ¯nd that both the optimal fractional di®erencing parameter and power transformation are remarkably similar across countries. Out-of-sample evidence for the superior forecasting ability of the multivariate FIAPARCH framework is provided in terms of forecast error statistics and tests for equal forecast accuracy of the various models.Asymmetric Power ARCH, Fractional integration, Stock returns, Volatility forecast evaluation

The European Commission and EUA prices: a high-frequency analysis of the EC's decisions on second NAPs

This paper empirically examines price formation in the European Union Emissions Trading Scheme (EU ETS). Our analysis shows that unexpected allocations of European Union Allowances (EUAs) lead to pronounced price reactions of the expected signs. Moreover, we find evidence that the adjustment of EUA prices to the European Commission's decisions on second National Allocation Plans (NAPs) is not instantaneous, but takes up to six hours after the decision announcement. --EU ETS,price formation,European Union Allowance (EUA),European Commission

Testing the Phillips Curve: Inflation or Unemployment? Evidence from a Behavioral Experiment

The central thesis of the Phillips Curve is that inflation leads to less unemployment. The link between inflation and employment has been tested empirically many times using econometrics but never by behavioral science. The purpose of this paper is to use behavioral science to test the Phillips Curve thesis. A simplified company was used as a model, where labor demand was related to investments. Our experiments have shown that inflation reduces unemployment in the short term, thus confirming the Phillips hypothesis. This would mean that the central banks are able to counteract unemployment through an inflationary, expansive monetary policy and generate growth in the short term, but there are strong distributional effects

The Image of Man in the Economic Sciences In Light of the Financial Crisis and Recent Research Results

The image of Man in the Economic Sciences is examined in this paper from the perspective of behavioral economics and expanded using new interdisciplinary research findings. Experiments show that there are many people who selflessly do good deeds and feel better for doing so, not worse. This demonstrates a selfless motivation that contradicts the theory of utility maximization, or the concept of homo economicus. The fact that selfless, or even self-sacrificing, acts exist shows that such ethical behavior is part of human behavior. The experiments also show the influence of group behavior on economic decisions, which has been heretofore neglected in economic science. Not bad characters but moral hazards like unilateral compensation schemes are to blame for the subprime crisis. However teaching of ethical values is also needed

The Effects of Money Supply and Interest Rates on Stock Prices, Evidence from Two Behavioral Experiments

What is the impact of interest rate and monetary policy on the stock market? Some studies find a positive impact of expansive monetary policy on stock prices others prove the opposite. This paper examines the effects of monetary expansion and interest rate changes on investment behavior on the stock market by illustrating two behavioral experiments with students. In our experiments the increase of money supply and the decrease of interest rates had a direct positive impact on share prices. These findings support the hypothesis that extreme expansive monetary policy with low, zero or negative interest rates encourage financial bubbles on the stock market. To avoid a crash the exit from such a policy must be slow. As happened in 1929, crashes can damage the financial system and the real economy. Central banks must take this into account in their monetary policy

The Effects of Demand and Interest Rates on Investments, Evidence of Overinvestment from Two Behavioral Experiments

This article analyzes the causes of overinvestment and thus investment cycles with two behavioral experiments. In the experimental simulations increases in demand and cuts in interest rates increased unit profits, which led to uncoordinated and thus collectively too high investments (collective error). This made it possible to demonstrate collective errors that led to overinvestment and investment cycles (boom and bust cycles). Central banks and companies should take this into account when making their decisions. The experiments show the fundamental problem of uncoordinated supply adjustment and a tendency on the part of market participants to neglect the behavior of other actors and to underestimate the influence of the market on their own investment decisions