Time Inhomogeneous Multiple Volatility Modeling

Price variations at speculative markets exhibit positive autocorrelationand cross correlation. Due to large parameter spaces necessaryfor joint modeling of variances and covariances, multivariateparametric volatility models become easily intractable in practice.We propose an adaptive procedure that identifies periods ofsecond-order homogeneity for each moment in time. To overcomethe high dimensionality of the problem we transform the multivariateseries into a set of univariate processes. We discuss thoroughlythe implementation of the adaptive technique. Theoretical andMonte Carlo results are given. We provide two applications ofthe new method. For a bivariate exchange rate series we comparethe multivariate GARCH approach with our method and find thelatter to be more in line with the underlying assumption ofindependently distributed innovations. Analyzing a 23-dimensionalvector of asset returns we underscore the case for adaptivemodeling in high-dimensional systems.     

Determinants of Current Account Imbalances in 16 OECD Countries: An Out-Of-Sample Perspective

We employ panel data as well as country-specific models to uncover empirically the determinants of current account imbalances. We find evidence of slope heterogeneity likely rendering the fixed-effect estimator inconsistent. Mean group estimation is followed to overcome the latter difficulty. Both estimation techniques are evaluated by means of in- and out-of-sample criteria. The mean group estimator outperforms the fixed-effect approach and, moreover, only three economic variables are found to impact on the current account balance significantly. These are the government budget balance, the domestic output gap and the changes of the terms of trade. We finally propose a parsimonious dynamic model of the current account, including only these variables and illustrate that it has similar predictive accuracy as country-specific benchmark models. JEL no. F32, C23, C53     

Random Advertising and Monopolistic Price Dispersion

We investigate the role of price advertising in a market where consumers are imperfectly informed about prices. We consider a monopolist whose demand depends on price and advertising expenditure. This demand function is derived from optimizing behavior of consumers. Uninformed consumers may pay a cost to visit the seller and obtain price information. Advertising enables the monopolist to increase the number of informed consumers. In equilibrium the uninformed consumers form rational price expectations, and the seller necessarily adopts a random pricing and advertising strategy.     

Analysis of cointegrated VARMA processes

VARMA (vector autoregressive moving average) processes are proposed for modelling cointegrated variables. For this purpose the echelon form is combined with the error correction form. Procedures for estimating the Kronecker indices which characterize the echelon form and for specifying the cointegration rank are discussed. The asymptotic distribution of the coefficient estimators is given. An example based o n US macroeconomic data illustrates the procedure and demonstrates its feasibility in practice.     

Infrastructure provision and international market share rivalry

The paper examines a model of strategic infrastructure investment. Two oligopolistic firms compete on home and foreign product markets for market shares. The national governments support the firms in the market rivalry by providing cost reducing public infrastructure services that are financed out of taxing an input used in the production process. It is shown, that infrastructure policy can be used as an instrument for strategic trade policy. However, governments are facing the problem of balancing the burden of taxation and the benefits of infrastructures. The theoretical model also raises some critical issues with respect to the policy relevance of recent empirical infrastructure research.     

A landscape approach for assessing the biodiversity value of indigenous forest remnants: Case study of the Manawatu/Wanganui region of New Zealand

To halt the decline of biodiversity in New Zealand, the government has formulated a strategy of maintaining and restoring a full range of remaining natural habitats to a healthy functioning state. Many indigenous forest remnants exist on private land, and these could be utilised to increase biodiversity. Resources for conservation of forest remnants are limited, so they must be used wisely to deliver the greatest possible biodiversity gain. This paper presents a rapid method for valuing the biodiversity of a region's indigenous forest remnants to help prioritise conservation resources. The region is divided into environmentally distinct areas called land environments. A detailed land-cover map is derived from satellite imagery and used to estimate the proportion of natural habitats remaining in each land environment; from this the biodiversity value of any forest remnant may be calculated. The method is rapid and does not require detailed biodiversity information. When combined with conservation costs, it may be used to create a priority list of forest remnants for conservation. The Manawatu/Wanganui region of New Zealand is used as a case study to demonstrate the method.