Markets as communication systems

As the information relative to endowments, costs and preferences is dispersed among many agents, the quality of resource allocation depends on the ability of markets to communicate information inside the economic system. Because information is transferred through negotiation and transaction behaviors, the network of trading relations defines the channels through which it flows. In the present study, we use new computational tools to analyze the performance of two wholesale trade institutions widely used around the world: network trading and marketplace trading. Whilst network trading and marketplace trading disseminate far fewer bits of information than a perfectly transparent benchmark market, they often manage to generate an allocation of resources that is almost as good. In many cases, network trading proves more effective than marketplace trading (contrary to a common preconception). This surprising performance of network trading is linked to a form of indirect arbitrage induced by connections between networks. Implications for market design and public policy making are presented, along with prospects for further research.     

How Sensitive Are Bank Managers to Shareholder Value?

We test for the existence of market discipline by shareholders of banks with a wide range of ownership structures. Discipline by shareholders manifests itself through monitoring banks’ level of risk as well as through influencing banks’ management actions. We find that shareholders utilize the relation between stock returns and different types of risk measures to monitor risky banks. Shareholders partially influence bank management by responding to decreasing stock returns with a demand to improve loan quality. Moreover, the influence on management in small banks is more pronounced compared to large banks.     

What can price volatility tell us about market efficiency? Conditional heteroscedasticity in historical commodity price series

The development in the working of markets has been an important topic in economic history for decades. The volatility of market prices is often used as an indicator of market efficiency in the broadest sense. Yet, the way in which volatility is estimated often makes it difficult to compare price volatility across regions or over time for two reasons. First, if prices are non-stationary, the variance is inflated. Second, the variance of commodity prices contains information on a number of region- and time-specific factors that are not related to market efficiency. Hence, the popular coefficient of variation and related indicators are not adequate measures of the efficiency of markets and are incomparable across regions. As a solution, we suggest using a conditional heteroscedasticity model to estimate the residual (conditional) variance of commodity prices. This measure reflects how markets react to unexpected events and can therefore be seen as a measure of market efficiency. Using this approach on grain prices from the Early Modern Pisa, Paris, Vienna, and Japan, we find that the residual price volatility had declined (and market efficiency increased) in the European markets in the late sixteenth century while it remained stable in Japan.     

The new goods margin in new markets

We analyze the role of the new goods margin in the Baltic countries’ exports and imports growth during the 1995–2008 period. Using the methodology developed in Kehoe and Ruhl (2013), we define the set of least-traded goods as those that account for the lowest 10% of total exports and imports in 1995, and then trace its growth in several markets including the Baltics’ main trade partners, the European Union and Russia. We find that, on average, by 2008 least-traded goods accounted for nearly 50% of total Baltic exports to their main trade partners. Moreover, we find that increases in the share of least-traded exports coincided with the timing of the trade liberalization reforms implemented by the Baltic countries. Least-traded imports also grew at robust rates, but their growth was lower than that of exports, accounting for slightly less than a quarter of total imports, that is, about half of the exports value. Moreover, we find that the shares of least-traded imports from the EU 15 and from Russia started diverging around the time the Baltic countries joined the EU, with the EU 15 share increasing and the Russian one declining. We also find that the Baltics’ share of least-traded exports outpaced that of other economies in Central and Eastern Europe. Finally, exports of new goods from the Baltic countries suffered noticeably during the Global Financial Crisis. After the crisis ended, the restart in new goods exports growth displayed mixed patterns.     

Nonlinear models with panel data

Panel data play an important role in empirical economics. With panel data one can answer questions about microeconomic dynamic behavior that could not be answered with cross sectional data. Panel data techniques are also useful for analyzing cross sectional data with grouping. This paper discusses some issues related to specification and estimation of nonlinear models using panel data.JEL Classification: C230The research behind this paper was supported by the National Science Foundation, the Gregory C. Chow Econometric Research Program at Princeton University, and Danish National Research Foundation (through CAM at the University of Copenhagen). The author thanks Ekaterini Kyriazidou, Hong Li, Marina Sallustro, and the editors for helpful suggestions.     

Das neue Energiewirtschaftsgesetz—Regelungen für einen erweiterten Zielkatalog

Mehr als ein Jahr nach dem EU-rechtlich vorgegebenen Endtermin wurde im Juli 2005 das neue Energiewirtschaftsgesetz verabschiedet. Von welchen Zielen geht dieses Gesetz aus? Wie lauten seine wichtigsten Neuregelungen? Und welche Auswirkungen sind von ihnen zu erwarten?     

External adjustment

Gross stocks of foreign assets have increased rapidly relative to national outputs since 1990, and the short-run capital gains and losses on those assets can amount to significant fractions of GDP. These fluctuations in asset values render the national income and product account measure of the current account balance increasingly inadequate as a summary of the change in a country's net foreign assets. Nonetheless, unusually large current account imbalances, especially deficits, should remain high on policymakers' list of concerns, even, for the richer and less credit-constrained countries. Extreme imbalances signal the need for large and perhaps abrupt real exchange rate changes in the future, changes that might have undesired political and financial consequences given the incompleteness of domestic and international asset markets. Furthermore, of the two sources of the change in net foreign assets—the current account and the capital gain on the net foreign asset position—the former is better understood and more amenable to policy influence. Systematic government attempts to manipulate international asset values in order to change the net foreign asset position could have a destabilizing effect on market expectations. JEL no. F21, F32, F36, F41     

Nominal shocks and the current account: A structural VAR analysis of 14 OECD countries

This paper provides some empirical evidence on one of the most controversial theoretical implications of the new open economy literature, which refers to the role of the current account in the international monetary transmission mechanism. In order to throw some light on this issue, two structural VAR models are estimated separately for 14 industrialized countries. The main empirical results highlight the importance of the role of nominal disturbances for current account fluctuations. Additionally, it is found that expansionary nominal shocks generate temporary current account surpluses, whose size is positively correlated with the openness of the individual countries. JEL no. C32, E40, F41, F42     

ITC voting behavior on sunset reviews

This paper is the first attempt to analyze ITC Commissioner voting behavior on sunset reviews of antidumping cases. Sunset determinations entail greater complexity than initial antidumping investigations because ITC commissioners must account for the impact of dumping protection as well as competitive forces on industry conditions. Empirical findings indicate that ITC voting is based on both sunset regulation and nonstatutory factors. Results reveal apparent biases against Chinese competitors and poorer nations generally, and favorable treatment toward U.S. steel producers and high-wage industries. There is also evidence of preferential treatment of industries located in states of Senate oversight committee members. JEL no. F13