Too Many Cooks? Committees in Monetary Policy

How many people should decide monetary policy? In this article, we take an empirical perspective on this issue and analyze the relationship between the number of monetary policy decision makers and monetary policy outcomes. Using a new data set that characterizes central bank monetary policy committees (MPCs) in more than 30 countries from 1960 through 2006, we find a U‐shaped relationship between MPC size and inflation; our results suggest that the lowest level of inflation is reached at MPCs with an intermediate size of about five to nine members. Similar results are obtained for inflation variability. Other MPC characteristics also matter for monetary policy outcomes, though to a smaller degree. For instance, the membership composition of the MPC as well as the frequency of MPC membership turnover appears to affect economic variables.     

BERTRAND COMPETITION CAN YIELD HIGHER PRICES THAN MONOPOLY

If we take into account the spatial dimension of markets, prices of incumbent firms may be higher and consumer surplus may be lower with competition than with monopoly. This result obtains unambiguously, even in the supposedly highly competitive case of Bertrand competition. Moreover, we are able to show that consumers of the commodity may be worse off with duopoly, if the distance between the firms' sites is sufficiently large.     

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Positive uncertainty: the benefit of the doubt in advertising

Positive uncertainty refers to uncertainty surrounding an anticipated positive outcome. It provides consumers with the opportunity to imagine and speculate on a product's or experience's potentially positive characteristics. Research has shown that when uncertainty is associated with something positive, consumers may prefer uncertainty to certainty. In a between-subjects experimental design with a large US (n = 446) and Japanese sample (n = 453), the present study demonstrates that positive uncertainty increases consumers’ positive feelings when they evaluate a product, particularly for high-involvement products that allow consumers to imagine and speculate about potentially positive product benefits. Unexpectedly, the study findings are consistent across the two different markets, which vary substantially in terms of consumers’ level of uncertainty avoidance. Specifically, results show that future-framed advertisements are effective in generating positive uncertainty and that positive uncertainty generates positive attitudes, both in countries scoring high (Japan) and low (USA) on uncertainty avoidance.     

Do Alternative Real Estate Investment Vehicles Add Value to REITs? Evidence from German Open-ended Property Funds

Besides the more commonly used REITs, German investors can also invest in a lesser-known real estate vehicle, Open-ended Property Funds. OPFs are considered a compromise between listed and direct real estate investments. OPF fund managers generally provide daily (perfect) liquidity. However, if liquidity falls below 5%, share redemptions in these funds can be temporarily suspended for a period of up to two years. During this time, investors will only be able to sell shares on the secondary market (exchange), and are thus subject to significant liquidity risk. The objective of this paper is to analyze whether OPFs add value to investor portfolios above that provided by REITs. We show that OPFs have a diversification advantage over REITs in low-risk portfolios, despite their larger potential liquidity risk. REIT liquidity is comparable to that of ordinary common stock, but OPFs exhibit an average initial discount to funds’ NAV of about 6% when share redemptions are temporarily suspended. However, in the long-run, this potential redemption suspension does not negatively influence OPF performance (in case OPFs reopen again). This makes OPFs an attractive investment alternative to REITs for investors who have a high level of risk aversion and a long-term investment horizon, such as endowments, insurance companies, and pension funds.     

Risk as feelings or risk and feelings? A cross‐lagged panel analysis

This article focuses on affective and cognitive processes underlying the perception of risk. A limitation with most process models of affect/cognition is that they include only concurrent emotions. By following a group (n?=?129) of military sailors prospectively during an international operation, we explored longitudinal relations between perceived risk and related feelings.

Longitudinal cross‐lagged path models were estimated to explore the relationships between perceived risk, worry, and emotional distress. Results gave support to earlier studies by showing that cross‐sectional measures of risk and worry were weakly related. Across time, worry and emotional distress were reciprocally related. Perceived risk had impact on worry but not on emotional distress. Neither worry nor emotional distress influenced perceived risk.

The risk‐as‐feelings hypothesis postulates a direct effect of feelings onto behavioural choice, and a reciprocal relation between cognitive evaluations and feelings.

Our findings do not support a reciprocal relation between judgements of risk and feelings, but an impact from risk on to worry. Between various measures of feelings reciprocity seems to exist. Further replications, including also behavioural measures, are needed.     

The impact of service innovation on firm-level financial performance

This article empirically investigates if firms focusing on service innovation perform better financially than firms not focusing on service innovation. Analysis of the financial performance of 3575 Norwegian firms in the manufacturing industries supports the proposition that firms focusing on service innovation have significantly higher growth of operating results than firms not focusing on service innovation. However, this proposition is not supported in a corresponding analysis of 1132 Norwegian firms in the service industries. We elaborate on these results by investigating a variety of performance measures and by comparing the effects of service innovation between manufacturing and service industries. The article contributes to the service innovation measurement literature and to a better general understanding of the determinants of service innovation performance effects.