Dynamic stability of portfolio balance models of the exchange rate

The conditions for stability of a portfolio balance model of exchange rate determination with an endogenous current account are examined for various expectational assumptions. It is shown that unless strongly stabilizing expectational assumptions are made, if the economy is a net debtor in foreign currency assets there is the possibility that its exchange rate will exhibit instability.     

Did the AFL equalization policy achieve the evenness of the league?

In this article, we investigate whether the Australian Football League intervention policies coincided with a more even-playing field in the league, as captured by individual match margins. We find that only two out of the eight major policies implemented over the last hundred years are correlated with lower margin.     

The “Services” Explanation for Resale Price Maintenance: Deleterious Results Missed in the Economics Literature and in Legal Decisions

Policy discussions and a U.S. Supreme Court decision interpret retailer services induced by retail price maintenance (RPM) as enhancing consumer surplus (CS) and welfare enhancing, marginalizing dissenting opinions that use similar models but with different parameters. However, if presales services stimulate demand by providing information about a product's value, they need not raise postsale value in use. Inframarginal consumers' presales perceived value may increase, but their postsale value may be unchanged, so their supposed CS gains are ephemeral, and their actual surplus falls proportional to price increase. We show that, even adding in gains to marginal consumers, effects on CS are far more negative than conceived of in this literature. Consequently, in a rule‐of‐reason antitrust environment, if RPM is challenged without alleging collusion or exclusion, presales demand‐inducing information provision is a flimsy defense if CS is the standard and not always convincing if total surplus is the standard.     

Option Bounds and the Pricing of the Volatility Smile

This paper presents a new approach forthe estimation of the risk-neutral probability distribution impliedby observed option prices in the presence of a non-horizontalvolatility smile. This approach is based on theoretical considerationsderived from option pricing in incomplete markets. Instead ofa single distribution, a pair of risk-neutral distributions areestimated, that bracket the option prices defined by the volatilitybid/ask midpoint. These distributions define upper and lowerbounds on option prices that are consistent with the observableoption parameters and are the tightest ones possible, in thesense of minimizing the distance between the option upper andlower bounds. The application of the new approach to a sampleof observations on the S&P 500 option market showsthat the bounds produces are quite tight, and also that theirderivation is robust to the presence of violations of arbitragerelations in option quotes, which cause many other methods tofail.