THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL

We develop a structural model of the global market for crude oil that for the first time explicitly allows for shocks to the speculative demand for oil as well as shocks to flow demand and flow supply. The speculative component of the real price of oil is identified with the help of data on oil inventories. Our estimates rule out explanations of the 2003–2008 oil price surge based on unexpectedly diminishing oil supplies and based on speculative trading. Instead, this surge was caused by unexpected increases in world oil consumption driven by the global business cycle. There is evidence, however, that speculative demand shifts played an important role during earlier oil price shock episodes including 1979, 1986 and 1990. Our analysis implies that additional regulation of oil markets would not have prevented the 2003–2008 oil price surge. We also show that, even after accounting for the role of inventories in smoothing oil consumption, our estimate of the short‐run price elasticity of oil demand is much higher than traditional estimates from dynamic models that do not account for for the endogeneity of the price of oil. Copyright © 2013 John Wiley & Sons, Ltd.     

Inside the Crystal Ball: New Approaches to Predicting the Gasoline Price at the Pump

Appropriate real‐time forecasting models for the US retail price of gasoline yield substantial reductions in the mean‐squared prediction error (MSPE) at horizons up to 2 years as well as substantial increases in directional accuracy. Even greater MSPE reductions are possible by constructing a pooled forecast that assigns equal weight to five of the most successful forecasting models. Pooled forecasts have lower MSPE than the US Energy Information Administration gasoline price forecasts and the gasoline price expectations in the Michigan Survey of Consumers. We also show that as much as 39% of the decline in gas prices between June and December 2014 was predictable. Copyright © 2016 John Wiley & Sons, Ltd.     

FTPL-Perspective on Tradable Deficit Permits in the EMU

The Growth and Stability Pact restricts member states in their fiscal policy but also causes inflexibility in the pursuit of wide-ranging economic and social reforms. Tradable deficit permits allow more flexibility for individual member states and provide a stick for those who exceed the deficit limit but also a carrot to those who stay below it. But does the trade in deficit permits affect the monetary objectives of the European Central Bank (ECB)? We argue that from a perspective of fiscal theory of the price level, trade in deficit permits can lead to higher inflation depending on the growth rate and the debt/GDP ratio of the member states.     

How sensitive are consumer expenditures to retail energy prices?

There is growing evidence that the primary effect of energy price shocks on the U.S. economy involves a reduction in consumer spending. We quantify the direct effect on real consumption of unanticipated changes in discretionary income, shifts in precautionary savings, and changes in the operating cost of energy-using durables. The possibility of asymmetries in the response of real consumption to energy price shocks is also considered. We demonstrate that linear models are consistent with the symmetric behavior of real consumption in 1979 (when energy prices increased sharply) and in 1986 (when they fell sharply). It is shown that historically energy price shocks have been an important factor in explaining U.S. real consumption growth, but by no means the dominant factor.     

On the selection of forecasting models

It is standard in applied work to select forecasting models by ranking candidate models by their prediction mean squared error (PMSE) in simulated out-of-sample (SOOS) forecasts. Alternatively, forecast models may be selected using information criteria (IC). We compare the asymptotic and finite-sample properties of these methods in terms of their ability to mimimize the true out-of-sample PMSE, allowing for possible misspecification of the forecast models under consideration. We show that under suitable conditions the IC method will be consistent for the best approximating model among the candidate models. In contrast, under standard assumptions the SOOS method, whether based on recursive or rolling regressions, will select overparameterized models with positive probability, resulting in excessive finite-sample PMSEs.     

Masterful Meisters? Voluntary Certification and Quality in the German Crafts Sector

Voluntary certification systems potentially reduce search costs in markets with imperfect information. Service markets with many heterogeneous firms – such as the crafts market – are prone to information imperfections and can therefore potentially benefit from such informational mechanisms. We examine if the Meister qualification in the German crafts sector improves service quality as perceived by consumers. We find a significant and positive relationship between the Meister title and consumer ratings and conclude that the certificate is a credible sign of quality.     

The victim matters – experimental evidence on lying,moral costs and moral cleansing

In an experiment on moral cleansing with an endogenously manipulated moral self-image, we examine the role of the addressee of an immoral action. We find that cheating is highest and moral cleansing lowest when subjects cheat at the expense of the experimenter, while cheating is lowest and moral cleansing highest once cheating harms another participant. A subsequent measurement of subjects’ moral self-image supports our interpretation that the occurrence of moral cleansing crucially depends on the moral costs resulting from immoral actions directed at individuals in different roles. Our results can help to explain the different propensity to cheat and conduct moral cleansing when immoral actions harm either another person or representatives of organizations.     

Model uncertainty and asset return predictability: an application of Bayesian model averaging

We investigate model uncertainty associated with predictive regressions employed in asset return forecasting research. We use simple combination and Bayesian model averaging (BMA) techniques to compare the performance of these forecasting approaches in short-vs. long-run horizons of S&P500 monthly excess returns. Simple averaging involves an equally-weighted averaging of the forecasts from alternative combinations of factors used in the predictive regressions, whereas BMA involves computing the predictive probability that each model is the true model and uses these predictive probabilities as weights in combing the forecasts from different models. From a given set of multiple factors, we evaluate all possible pricing models to the extent, which they describe the data as dictated by the posterior model probabilities. We find that, while simple averaging compares quite favorably to forecasts derived from a random walk model with drift (using a 10-year out-of-sample iterative period), BMA outperforms simple averaging in longer compared to shorter forecast horizons. Moreover, we find further evidence of the latter when the predictive Bayesian model includes shorter, rather than longer lags of the predictive factors. An interesting outcome of this study tends to illustrate the power of BMA in suppressing model uncertainty through model as well as parameter shrinkage, especially when applied to longer predictive horizons.     

Die Gestaltung der Steuerehrlichkeit durch das Steuerrecht

Ohne Zusammenfassung Kilian Bizer lehrt Wirtschaftspolitik an der Universit?t G?ttingen     

Direct evidence of ending‐digit drop‐off in price information processing

Research has suggested that pricing products at one cent below a whole number (e.g., $4.99 instead of $5.00) can be an effective method for increasing purchases. Although many reasons for this have been suggested, a commonly proposed explanation is that consumers tend to drop off, or pay less attention to, the rightmost two digits. This drop‐off mechanism has garnered much indirect support, but only limited research has been conducted to directly test it. In this study, respondents provided estimates of how many products they could purchase for $73. Analyses indicated that respondents thought they could buy significantly more products priced with 99 endings than products with comparable 00‐ending prices. Follow‐up analyses showed that (a) errors made by respondents showed a pattern consistent with a dropoff mechanism, and (b) motivation to carefully provide quantity estimates moderated the effect. The study therefore provides rare direct evidence that the drop‐off mechanism may contribute to the effectiveness of 9‐ending pricing. © 2005 Wiley Periodicals, Inc.