Time‐Varying Dynamics of the Norwegian Economy

We use time‐varying parameter vector autoregressive models to investigate possible changes in the time‐series properties of key Norwegian macroeconomic variables since the 1980s. Notably, we find that inflation persistence falls during the inflation targeting period, while the volatility of inflation and nominal exchange rates increases. The observed time‐variation in the correlations between the interest rates and the macro variables largely reflects the prevailing monetary policy regimes. An increase in the correlations between oil prices and other macro variables over time is also documented. Using a counterfactual analysis, we discuss the observed time‐varying dynamics of the Norwegian economy in the light of monetary policy and oil price shocks.     

After‐tax Valuation of Convertible Bonds and Participation Exemption

This paper studies the after‐tax valuation of convertible bonds in the light of Europe's participation exemption (PEX) rules and International Financial Reporting Standards (IFRS). The focus is on Italy's representative case. PEX rules exempt from company taxation capital gains realized by companies selling stocks. PEX rules raise the value of convertibles as investor companies can strategically convert the bond into stock to enjoy PEX. Historical cost‐based national accounting standards imply taxation upon realization and valuable tax timing options (TTOs). ‘Fair value’ based IFRS entail mark‐to‐market taxation, which ‘kills’ TTOs, but investor companies can convert the bond early in order to enjoy PEX. Early conversion can be valuable.     

PERIODIC,COMPLETE‐PARTICIPATION TRADE IN THE LAGOS‐ROCHETEAU MODEL

This paper contributes to a recent policy discussion regarding the costs and benefits of setting up a centralized electronic trading platform to replace over‐the‐counter (OTC) markets. We modify the Lagos and Rocheteau (2009, henceforth LR) asset trading model by replacing their investor‐dealer random matching and bilateral trade with a centralized competitive market that opens periodically. This arrangement preserves the main tension and trade‐off in LR. We then analyse and quantify when to introduce a centralized market and how frequently it should open in order to make it as efficiently as the decentralized OTC market in LR.     

GOVERNANCE OF PRODUCTION CO‐OPERATIVES IN RUSSIAN AGRICULTURE

Many Soviet kolkhozy and sovkhozy were transformed into agricultural production co‐operatives, because the farm workers would have had large transaction costs in any other type of organization. These co‐operatives still hold a strong market position. This study explores the hypothesis that this market strength could be due to low governance costs, obtained through strong manager power. As managers want the co‐operative to survive, they make limited investments in the co‐operative and pay low wages. The members, however, do not consider this to be problematic. They appreciate the community within the village, their private plots of land and the co‐operative's services. Hence the existence of the co‐operatives is not threatened.     

Life‐Cycle Patterns of Interest‐Rate Mark‐Ups in Small‐Firm Finance*

We derive empirical implications from a theoretical model of bank–borrower relationships. The interest‐rate mark‐ups of banks are predicted to follow a life‐cycle pattern over the age of the borrowing firms. Because of endogenous bank monitoring by competing banks, borrowing firms initially face a low mark‐up, and thereafter an increasing mark‐up as a result of informational lock‐in, until it falls for older firms when the lock‐in is resolved. By applying a large sample of predominantly small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric‐information problems have a more pronounced life‐cycle pattern of interest‐rate mark‐ups. Additionally, we examine the effects of concentrated banking markets on interest‐rate mark‐ups. The results indicate that the life cycle of mark‐ups is mainly driven by asymmetric‐information problems and not by concentration. However, we find evidence that bank market concentration matters for older firms ? 2 Correction added after online publication on 20^th February 2012; the original text read ‘However, we find evidence that bank market concentration for older firms’, omitting the word ‘matters’.
     

Does low‐pay persist across different regimes? Evidence from German Unification

Using German administrative data, we study across‐regime low‐pay persistence in the context of an economic transformation process. We first show that individuals' initial allocation to the post‐unification low‐wage sector was close to random in terms of market‐regime unobservables. Consistent with a weak connection between individuals' true productivity and their pre‐unification low‐wage status, the extent of across‐regime state dependence is found to be small and appears to vanish over time. For males, across‐regime state dependence is most pronounced among the medium‐ and high‐skilled, suggesting the depreciation of human capital as an explanation.     

Strength of co-movement between sector CDS indexes and relationship with major economic and financial variables over time and during investment horizons

The main purpose of this article is to analyse the co-movement in both time and frequency between financial sector CDS indexes and between these indexes and their main economic and financial control variables for the period 2004–2014. Empirically, we implement the wavelet-squared coherence methodology to analyse the co-movement through time, frequency and power. Our results unveil that the co-movement between the three financial sectors’ CDSs changes through time and investment horizons, stressing the importance of hedging portfolios in real time. Also, we uncover that the changes in co-movement to relatively higher frequencies coincide with the inception of the recent global financial crisis. This result is collaborated with the co-movement between each CDS index and other global risk factors, including crude oil prices, interest rates and equity market volatility. Finally, we compare the wavelet coherence results with those of the DCC-FIAPARCH model and find that the two different approaches provide quite similar conditional correlations over time. Our results are important for investors, debtors, creditors and other decision-makers which are interested in CDS spread co-movements at different frequencies or investment horizons. It would be useful for all market participants to resort to an appropriate frequency domain to have better understanding of the sector CDS interrelationship behaviour in this domain.     

BREAKING OUT OF CO‐OPERATION'S ‘IRON CAGE’:FROM MOVEMENT DEGENERATION TO BUILDING A DEVELOPMENTAL MOVEMENT

ABSTRACT: This article focuses on co‐operative movements’ role in developing new firms and sectors. In contrast to ‘developmental movements’ which secure legislative, policy, program, and promotional, financial, and technical assistance supports for co‐operative development campaigns, this paper investigates the problem of co‐operative ‘movement degeneration’ – why some movements’ developmental commitments gradually erode. The paper next investigates the project of ‘movement regeneration’ – how mature movements become reoriented toward movement goals, including fostering successful co‐operative formations. This discussion includes the role of institutional intermediaries, educational and cultural interventions, and mobilizing networks in regenerative movement action.     

The Impact of Monetary Surprises on Australian Financial Futures Markets: An Insight into Cash Rate Target Announcements

This paper investigates the impact of unanticipated Australian monetary policy changes on AUD/USD exchange rate futures, and 3‐year and 10‐year Australian Treasury bond futures, during the period from January 1997 to April 2010. Our study contributes to the literature by using both the 30‐day and the 90‐day bank accepted bill (BAB) rates to disentangle the unexpected surprise component of monetary policy changes from overall cash rate target changes in the Australian money market, and by concurrently modelling the effects of monetary surprises and other key macroeconomic announcements in Australia. The empirical results suggest that the 30‐day BAB rate is the best proxy for the expected monetary policy actions. We find that the effect of monetary surprises on the volatility of the 3‐ and 10‐year bond future instruments is significant and persistent. We have also documented a strong monetary policy effect on the mean returns of the exchange rate futures, indicating that unexpected monetary policy adjustments have a significant impact on the level of the exchange rate movements rather than on the volatility of the FX futures market.     

CO‐MOVEMENT OF AUSTRALIAN STATE BUSINESS CYCLES*

We use a variety of techniques to examine the nature and degree of co‐movement among Australian state business cycles. Consistent with the results of Dixon and Shepherd (2001 ), we find that these cycles move quite closely together, with particularly strong links between the cycles of the larger states. We then seek to understand the causes of this co‐movement by using an unobserved components model to distinguish between various shocks and their transmission. Our model implies that the major source of this co‐movement in state activity is the commonality of shocks affecting state cycles. In contrast, spillovers of region‐specific shocks appear to play only a minor role in creating co‐movement, though region‐specific shocks themselves have a moderate influence on cyclical fluctuations. These findings are consistent with the results of recent studies for the United States, Canada and Europe, where common shocks have also been found to dominate regional cyclical activity.     

Housing markets,monetary policy,and the international co‐movement of housing bubbles

We analyze whether there was co‐movement in bubbles at the international level from the mid‐1990s to 2018 using a data set of developed and emerging economies. We first identify the markets that were more prone to volatility and speculation before the crisis. Second, we determine and compare the responses of bubbles in housing markets to monetary policy in a Bayesian time‐varying framework. We then study the co‐movement of bubble responses to monetary shocks before and after the crisis using a dynamic factor model. This approach allows us to disentangle a common global factor from factors specific to high/low speculative housing markets.     

Do Market‐based Indicators Anticipate Rating Agencies? Evidence for International Banks

This paper analyses the ability of credit default swap (CDS) spreads, bond spreads and stock prices to anticipate the decisions of the main rating agencies, regarding the largest international banks. Conditional on negative rating events, all the three indicators show significant abnormal changes before both announcements of review and actual credit rating changes, but rating actions still seem to convey new information to the market. Results for positive rating events are less clear‐cut with the market indicators generally showing abnormal behaviours only in conjunction with the events. As for the predictive power of the financial indicators examined, the CDS market is particularly useful for negative events and stock prices for positive events. However, all indicators also send many false signals and are to be interpreted with care.     

Are exchange rates interdependent? Evidence using wavelet analysis

We examine the co-movement in daily returns of USD–INR, EUR–INR, GBP–INR, and JPY–INR currency pair futures contracts traded on the National Stock Exchange of India (NSE) using the wavelet cohesion approach. This study contributes to the literature by examining the scantly studied area of co-movement in exchange rates and using the wavelet approach, which allows us to analyse time–frequency-wise co-movement of the time series. The empirical results indicate that the currency futures markets are nearly perfectly integrated in the long run (monthly, quarterly and biannual scales) offering little potential gains from international portfolio diversification. The discrepancies between currency futures markets are small and almost fade away within 3–6 months. Moreover, international currency diversification might offer relatively higher potential gains at intraweek, weekly, and fortnightly time horizons owing to lower correlations among the currencies under consideration. Finally, our multiple-wavelet correlation and cross-correlation analysis shows that GBP acts as a potential leader/follower across scales. The results of our analysis indicate the dynamic pattern of co-movement among the major currency futures contracts, which provides several implications for portfolio managers and international investors participating in the Indian market.     

EXCHANGE RATE PASS‐THROUGH INTO RETAIL PRICES

We study exchange rate pass‐through and its determinants using scanner data on fast moving consumer goods sold by 1,041 outlets in the United Arab Emirates between 2006 and 2010. The data are augmented with country of origin information. Our main finding is that exchange rate pass‐through varies more across retailers within regions than across regions, and in particular that pass‐through increases with retailer market share. We also find that exchange rate pass‐through is negatively correlated with both product quality and the elasticity of substitution of the product category and positively correlated with the frequency of price adjustment.     

ALLOWING FOR JUMP MEASUREMENTS IN VOLATILITY: A HIGH‐FREQUENCY FINANCIAL DATA ANALYSIS OF INDIVIDUAL STOCKS

Following recent advances in the non‐parametric realized volatility approach, we separately measure the discontinuous jump part of the quadratic variation process for individual stocks and incorporate it into heterogeneous autoregressive volatility models. We analyse the distributional properties of the jump measures vis‐à‐vis the corresponding realized volatility ones, and compare them to those of aggregate US market index series. We also demonstrate important gains in the forecasting accuracy of high‐frequency volatility models.     

China's liberalizing stock market,crude oil,and safe-haven assets: A linkage study based on a novel multivariate wavelet-vine copula approach

China is the world's largest oil importer, and therefore the correlations between stock indices and highly volatile oil prices deserve close examination when investing in China's gradually liberalizing stock market. Another concern for international investors is whether safe-haven assets can reduce portfolio risks for investment in China. The paper makes two main contributions. First, we develop a novel method of examining a multivariate dependence structure by combining wavelet analysis with the vine copula model. Second, we apply the proposed methodology to study the correlations between China's liberalizing stock market, petroleum, and safe-haven assets at different frequencies. We find that the multidimensional dependence of these assets has been altered as a result of the 2008 global financial crisis. Moreover, the vine structures exhibit dependence patterns that vary over time horizons, indicating that the multidimensional dependence is sensitive to time scales.     

TRANSATLANTIC CAPITAL MARKET PRICE DISCOVERY DURING A FINANCIAL CRISIS

Previous results show relatively small amounts of time variation in the Hasbrouck (1995) information share across international markets. Using data from a security that was cross‐listed on the New York and London Stock Exchanges in the 1860s, we find that the information share changes dramatically during a financial crisis that began in the foreign market.     

TRADER TYPE EFFECTS ON THE VOLATILITY‐VOLUME RELATIONSHIP EVIDENCE FROM THE KOSPI 200 INDEX FUTURES MARKET

We investigate whether the trading activity generated by investors with different access to information and trading motives has positive or negative impact on index futures volatility. Surprises in non‐member institutional, individual and foreign investors' trading volume are positively associated with volatility in most of the cases. For member institutional investors, unexpected trading volume is positively related to volatility. Long‐run changes in the trading activity also affect volatility differently across trader types. Finally, allowing for time‐to‐maturity effects, surprises in open interest are associated with more volatility towards contract expiration, contrary to the negative effect we find during normal times.     

The efficiency of the Scandinavian banking sector – a wavelet quantile regression analysis

In this article, the Scandinavian housing financing market is analysed in order to determine whether the interest rate price-discovery processes of Denmark, Norway and Sweden are efficient. Based on wavelet quantile regression analysis, we find systematic positive asymmetric price transmission (APT) inefficiencies. We conclude that there is a very high propensity for mortgage lenders to directly increase its customers’ mortgage interest rates subsequently to an increase in its borrowing costs. However, after a corresponding borrowing cost decrease, the same mortgage lenders are very slow to decrease its customers’ mortgage rates. These positive coefficients for so-called APT effects are found in all Scandinavian countries, even if the coefficients for Norway were not statistically significant. Wavelet quantile regression analysis, with a focus on the relevant higher percentiles, is easily motivated since the mortgage rates are adjusted very infrequently. Moreover, wavelet decomposition allows a robust analysis at different time frequency scales, while simultaneously controlling for nonstationary trends, autocorrelation and structural breaks. Except for the still positive but yet insignificant and inconclusive coefficients for Norway, the result is very clear-cut. Regardless of which wavelet scaling decomposition or quantile coefficient that is studied – positive APT effects are clearly identified and confirmed on the Scandinavian mortgage market.     

Counteracting Unemployment in Crises: Non‐Linear Effects of Short‐Time Work Policy*

Short‐time work (STW) is a labor‐market policy that subsidizes working‐time reductions among firms in financial difficulty to prevent lay‐offs. Many OECD countries have used this policy in the Great Recession. In this paper, we show that the effects of STW are strongly time‐dependent and non‐linear over the business cycle. Discretionary STW policy might save up to 0.87 jobs per short‐time worker in deep economic crises. In expansions, the effects are smaller and might turn negative. We disentangle discretionary STW from automatic stabilization in German data using smooth‐transition vector autoregressions.