The efficient paths to infinity in closed leontief models

For a simple Leontief technology, the results of finite-horizon turnpike theorems are extended to the case of infinite horizon. Further qualitative information is obtained about the set of efficient programs. Uniqueness is discussed, and shown by an example to be not true in general.     

Optimal monetary policy in an economy with incomplete markets and idiosyncratic risk

This study investigates an incomplete markets economy in which the saving behavior of a continuum of infinitely lived agents is influenced by precautionary saving motives and borrowing constraints. Agents can use two types of assets (interest bearing IOUS and money) to smooth consumption. Money is valued because of a timing friction in the bond market. In particular, the bond market closes before agents observe their idiosyncratic productivity shock. I find that the Friedman rule is not optimal for this economy. The results indicate that the optimal allocation has a rate of inflation of 10%, and a positive amount of private credit held by the government. A positive inflation rate transfers resources from agents with big endowments to those holding bonds which improves risk sharing, and therefore, welfare. However, for higher rates of inflation, agents economize on money holdings, offsetting the insurance effects, and causing a reduction in welfare. Furthermore, higher rates of inflation discourage agents from borrowing, and the endogenous lower bound on bond holdings is higher than the exogenous borrowing limit. High rates of inflation, therefore, exacerbate frictions in the bond market.     

Impact of sovereign rating changes on stock market co-movements: the case of Latin America

We aim to determine if long-term foreign currency sovereign rating assessments (from S&P, Moody’s and Fitch) for the advanced emerging Latin American countries (Brazil, Mexico and Chile) have any significant effect on the correlation between their stock market returns in the last decade. With that purpose in mind, we obtain the time-varying correlation by cDCC modeling using ARX-APARCH filtered returns. The analysis shows that the rating changes do not have a significant effect on the correlations in general. After testing for robustness, we reveal that an upgrade to an investment grade level for a country is more likely to positively diversify it from others in the region instead of creating a common positive regional investment environment. Results have important implications for investors and policymakers.     

Religiosity versus rationality: Depositor behavior in Islamic and conventional banks

This study investigates the behavioral aspects of Islamic bank depositors in a dual banking system. By categorizing depositors into groups based on the amount of their deposited funds, we estimate the responses of these groups to interest rate changes. We take the findings of conventional banks as a comparative baseline and investigate the extent to which the changes in different Islamic depositor groups differ from conventional depositor groups. The findings show that depositors in both Islamic and conventional banks respond to interest rate changes. The analysis indicates that Islamic bank depositors are more responsive when their deposit sizes are larger. When Islamic bank depositors’ opportunity costs rise due to a rise in the interest rate, they do not hesitate to withdraw deposits. The relation between interest rate changes and deposits is more robust in Islamic banks than in conventional banks.     

Does Homeownership Prolong the Duration of Unemployment?

We examine the effects of homeownership on individuals' unemployment durations. An unemployment spell can terminate with a job or with nonparticipation. The endogeneity of homeownership is addressed by estimating a full maximum likelihood function jointly modeling the competing hazards and the probability of being a homeowner. Unobserved factors contributing to the probability of being a homeowner are allowed to be correlated with unobservable heterogeneity in the hazard rates. Not controlling for ownership selection, there is neither a significant difference in the job‐finding hazard nor in the nonparticipation hazard of unemployed owners and renters. If we jointly model the ownership selection, we find that unemployed homeowners are more likely to find a job than renters.     

On the emergence of an MFN club: equal treatment in an unequal world

Abstract .  Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tariff levels across countries, it increases aggregate world welfare; makes non-members worse off; and can immiserize its high cost members. These results imply that (i) core WTO rules such as MFN are valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional effects of MFN maybe one reason why developing countries have been granted Special and Differential treatment at the WTO.     

Possible Best Currency Basket Selection from the Perspective of Real Effective Exchange Rate

We calculated the real effective exchange rate indexes and measured their volatilities based on four currency baskets to find which currency basket is optimal for achieving China's policy target of keeping exchange rates stable. The volatility of the bilateral exchange rate between the RMB and the US dollar is also calculated to make a comparative analysis. Results showed that the bilateral exchange rate of the RMB and the US dollar is only stable in special time periods. In most time periods, pegging to the G3 currency basket is optimal to achieve the goal of stabilizing exchange rates while pegging to the AMU currency basket will result in the most volatile exchange rates.