Cointegration and control: Assessing the impact of events using time series data

Control groups can provide counterfactual evidence for assessing the impact of an event or policy change on a target variable. We argue that fitting a multivariate time series model offers potential gains over a direct comparison between the target and a weighted average of controls. More importantly, it highlights the assumptions underlying methods such as difference in differences and synthetic control, suggesting ways to test these assumptions. Gains from simple and transparent time series models are analysed using examples from the literature, including the California smoking law of 1989 and German reunification. We argue that selecting controls using a time series strategy is preferable to existing data‐driven regression methods.     

Brexit: How Will UK Agriculture Fare?

There is little doubt that Brexit would have significant implications for UK agriculture, a sector with strong trade links to the EU and strong reliance on CAP income support. This article reports preliminary results from employing a Computable General Equilibrium Model, a Partial Equilibrium Model and Farm Level Models to explore selected trade and domestic policy scenarios post‐Brexit. These allow for the estimation of changes in producer prices, production and farm incomes against a baseline scenario of continued EU membership. Under a Free Trade Agreement with the EU, agricultural impacts are relatively modest. By contrast, unilateral removal of import tariffs has significant negative impacts on prices, production and incomes. Adoption of the EU's WTO tariff schedule for all imports favours net importers (e.g. dairy) and harms net exporters (e.g. sheep). Given the strong dependence of most UK farms on direct payments, their removal worsens negative impacts of new trade arrangements and offsets positive impacts. Impacts vary across different types and sizes of farm, but also regionally. However, the period of adjustment to new trade and domestic policy conditions may prove very challenging for a large number of farm businesses.     

Exit Options in Corporate Finance: Liquidity versus Incentives

This paper provides a first study of the optimal design of active monitors'exit options in a problem involving a demand for liquidity and costly monitoring of the issuer. Optimal incentives to monitor the issuer may involve restricting the monitor's right to sell her claims on the firm's cash-flow early. But the monitor will then require a liquidity premium for holding such an illiquid claim. In general, therefore, there will be a trade off between incentives and liquidity. The paper highlights a fundamental complementarity between speculative monitoring in financial markets (which increases the informativeness of prices) and active monitoring inside the firm: in financial markets where price discovery is better and securities prices reflect the fundamentals of the issuer better, the incentive cost of greater liquidity may be smaller and active monitoring incentives may be preserved. The paper spells out the conditions under which more or less liquidity is warranted and applies the analysis to shed light on common exit provisions in venture capital financing.     

Price Commitment versus Flexibility: the Role of Exchange Rate Uncertainty and its Implications for Exchange Rate Passthrough

The paper investigates the incentives to commit price or retain price flexibility in a model in which exporting firms face different degrees of exchange rate uncertainty. The result shows that introducing exchange rate uncertainty can lead to the endogenous emergence of a unique leader–follower equilibrium; which firm emerges as price leader depends on the substitutability of products, the magnitude of exchange rate uncertainty, and the cost structure. This study may provide one explanation as to why some exporters set price before the realization of the nominal exchange rates (“sticky price”). The results imply exchange rate variability affects exchange rate passthrough.     

Building Small City and Town Sams and CGE Models

In this paper we attempt to describe both the data sources and organizational methods that allow for effective and easily created SAMs and regional computable general equilibrium (CGE) models. Small cities of around 100,000 people will face very different constraints than a town of 2000 people. Unfortunately, most CGE models typically describe relatively large geographical areas and are therefore not able to capture the uniqueness of individual cities within the region. An illustrative example using these methods demonstrates that the economic impacts vary substantially over different municipalities to the same economic shock.     

Demand fluctuations and capacity utilization under duopoly

Summary.  This paper studies the impact of uncertain demand on firms’ capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game. Received: May 17, 1996; revised version July 31, 1996     

Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality

In this paper we analyze the properties of price equilibria in a duopoly market where firms sell vertically differentiated products, consumers being uncertain about which firm sells which quality. Both existence and properties of price equilibria are characterized by the beliefs of the consumers' population about the distribution of quality between firms.     

Symmetry and order in the portfolio allocation problem

Summary. This research studies the role of multivariate distribution structures on random asset returns in determining the optimal allocation vector for an expected utility maximizer. All our conclusions pertain for the set of risk averters. By carefully disturbing symmetry in the distribution of the, possibly covarying, returns, we ascertain the ordinal structure of the optimized allocation vector. Rank order of allocations is also established when a permutation symmetric random vector is mapped into the returns vector through location and scale shifts. It is shown that increased dispersion in the vectors of location and scale parameters benefit, ex-ante, investors as does a decrease in the rank correlation coefficient between the location and scale parameter vectors. Revealed preference comparative static results are identified for the location and scale vectors of asset returns. For most issues addressed, we arrive at much stronger inferences when a safe asset is available. Received: August 8, 2000; revised version: January 8, 2001     

The right to the city

The right to the city is not merely a right of access to what already exists, but a right to change it. We need to be sure we can live with our own creations. But the right to remake ourselves by creating a qualitatively different kind of urban sociality is one of the most precious of all human rights. We have been made and re‐made without knowing exactly why, how, and to what end. How then, can we better exercise this right to the city? But whose rights and whose city? Could we not construct a socially just city? But what is social justice? Is justice simply whatever the ruling class wants it to be? We live in a society in which the inalienable rights to private property and the profit rate trump any other conception of inalienable rights. Our society is dominated by the accumulation of capital through market exchange. To live under capitalism is to accept or submit to that bundle of rights necessary for endless capital accumulation. Free markets are not necessarily fair. Worse still, markets require scarcity to function. The inalienable rights of private property and the profit rate lead to worlds of inequality, alienation and injustice. The endless accumulation of capital and the conception of rights embedded threin must be opposed and a different right to the city must be asserted politically. Derivative rights (like the right to be treated with dignity) should become fundamental and fundamental rights (of private property and the profit rate) should become derivative. But new rights can also be defined: like the right to the city which is not merely a right of access to what the property speculators and state planners define, but an active right to make the city different, to shape it more in accord with our heart's desire, and to re‐make ourselves thereby in a different image.