A Short-Run Crude Oil Price Forecast Model with Ratchet Effect

From 1992 through early 2004, crude oil prices were predictable by using OECD’s relative inventories and OPEC’s excess production capacity. However, since 2004, estimated inventories and excess production capacity under-predict crude oil prices. Using 3-D graphical analyzes, three regimes are identified in crude oil markets during the period from January 1992 to December 2007, reflecting market conditions and OPEC policy changes. These graphics show the changing relationship between crude oil price, inventories and excess production capacity. To reflect this, a ratchet variable, derived from cumulative excess production capacity, is incorporated into the forecasting model to reflect the changing behavior on both demand and supply sides. This model provides improved forecasts for the post Gulf War I time period over models without the ratchet mechanism.

Pump Prices and Oil Prices: A Tale of Two Directions

It has been argued that retail gasoline prices adjust more quickly to crude oil price increases than to price decreases. We investigate this issue using the statewide data on weekly retail gasoline prices in the United States between January 2000 and June 2007. Our analysis does not confirm the prediction that gasoline prices adjust more quickly to price increases in crude oil prices. On the contrary, the results suggest that in some geographic areas gasoline prices could change faster when crude oil prices decrease. These findings suggest that a national or a one size fits all energy policy for the United States may be misguided.

A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility

We study the impact of Japanese foreign exchange intervention on the volatility of the yen/dollar exchange rate since the early 1990’s in a GARCH framework with interventions as exogenous variables. Using daily intervention data provided by the Japanese Ministry of Finance, we show that the effect of interventions varies over time. From 1991 up to the late 1990’s, Japanese foreign exchange intervention is associated with an increase in volatility of the yen/dollar exchange rate. After the year 1997, Japanese foreign exchange intervention correlates with reductions in exchange rate volatility. This can be explained by the fact that Japanese foreign exchange intervention remained quasi unsterilized in the liquidity trap.

Supporting the Endogenous Relationship Between Well-Being and Employment for US Individuals

We test the existence of an endogenous relationship between well-being and employment for US individuals. To that end, we use a simultaneous equation generalized Probit model applied to four recent waves of the National Health Interview Survey (1997–2000). Our results do not enable us to accept the hypothesis that there is a significant effect from employment status to subjective well-being. In contrast, we provide evidence that suggest that well-being is positively correlated to the probability of having a job.

Do Patent Protection and Technology Transfer Facilitate R&D in Developed and Emerging Countries? A Semiparametric Study

This paper examines if patent protection and technology transfer facilitate R&D in a sample that includes both developed and emerging countries. A semiparametric model is used to estimate the relevant parameters using country level data from 21 countries, of which six are emerging, for the period 1981–1997. The results suggest thresholds in patent protection and technology transfer: patent protection has a positive effect which weakens at high levels of protection, and FDI has a positive effect only if the country depends heavily on FDI.

Sowing the seeds for the subprime crisis: does global liquidity matter for housing and other asset prices?

We assess the relationship between global liquidity and two important classes of asset prices on a global scale. For this purpose, we estimate a variety of VAR models for the global economy using aggregated data which represent the major OECD countries. According to the impulse responses obtained a positive shock to global liquidity raises the global house price index and later on via commodity prices also the global GDP deflator to the same extent. Hence, we conclude that there are subsequent spill-over effects from house prices to the overall price level. However, we are not able to find any empirical evidence in favor of the hypothesis that stock prices significantly react to changes in global liquidity.

On Indexed Bonds and Aggregate Demand Elasticity

Bonds indexed to the price level or inflation have become popular and more common in the industrialized world. This paper examines the impact of indexed bonds on the price level elasticity of aggregate demand. With a model of aggregate demand based on the standard IS-LM framework and expanded to differentiate between bonds which are indexed to the price level and bonds which are not so indexed, we find that the existence of indexed bonds decreases the elasticity of aggregate demand with respect to the general price level.

The choice of inflation targeting—an empirical investigation

A growing number of countries have anchored their monetary policy to an explicit numerical rate or range of inflation since such an inflation targeting framework was first adopted by New Zealand in 1989. This paper empirically investigates economic structure and institutional factors associated with a country’s choice of inflation targeting using a dataset of 66 countries for the period of 1980–2000. It is found that a sound fiscal position is significantly and positively associated with the choice of inflation targeting framework; the central bank is more likely to adopt inflation targeting with greater financial depth; institutional capacity including central bank autonomy and flexible exchange rate regime is important for the choice of inflation targeting.

Dutch Disease Scare in Kazakhstan: Is it real?

In this paper we explore the evidence that would establish that Dutch disease is at work in, or poses a threat to, the Kazakh economy. Assessing the mechanism by which fluctuations in the price of oil can damage non-oil manufacturing—and thus long-term growth prospects in an economy that relies heavily on oil production—we find that non-oil manufacturing has so far been spared the perverse effects of oil price increases from 1996 to 2005. The real exchange rate in the open sector has appreciated over the last couple of years, largely due to the appreciation of the nominal exchange rate. We analyze to what extent this appreciation is linked to movements in oil prices and oil revenues. Econometric evidence from the monetary model of the exchange rate and a variety of real exchange rate models show that the rise in the price of oil and in oil revenues might be linked to an appreciation of the U.S. dollar exchange rate of the oil and non-oil sectors. But appreciation is mainly limited to the real effective exchange rate for oil sector and is statistically insignificant for non-oil manufacturing.

The Negligence Rule in the Presence of Judicial Corruption and Social Norms

This paper investigates the phenomenon of judicial corruption and incorporates it into Polinsky, A. M. (1980). Strict liability vs. negligence in a market setting. American Economic Review, 70, 363–367 framework so as to analyze the efficiency of the negligence rule. By shedding light on the role of social norms in regard to the phenomenon of judicial corruption, this analysis provides implications for policy. First, more prevalent corruption at the status quo tends to intensify the extent of the corruption itself and, as a result, the effectiveness of the government’s corruption enforcement is greatly lessened. This implies that an excessively lenient policy of corruption may result in an uncontrollable consequence; once corruption becomes rampant, it is costly to bring it down. Of great importance, in the presence of such a corruption effect, the social optimum cannot be achieved based on the negligence rule and the equivalence between the strict liability and negligence rule fails. Secondly, the attitude of the society toward a corrupt judge plays a crucial role in governing the effectiveness of an efficient wage arrangement. If the society can fully accept a corrupt judge, corruption will never be controlled even with the incentive wage scheme.

The Determinants of Price in Internet Auctions of Used Cars

This study analyzes how auction, seller, and product factors influence the price premium in an eBay used car auction market. In auctions with at least one bid, the reputation of the seller, title status, and the time the auction ended influenced the price premium on the highest bid. For auctions that resulted in a sale, cars with clear title and dealers were able to secure significantly greater price premiums, but seller reputation had no significant effect. Using a binary logit model, cars had a greater probability of selling if the seller had a better reputation. The quality of the presentation and number of pictures did not enhance the price premium in any of the models.

Exchange Rate Risk and Commodity Trade Between the U.S. and India

Floating exchange rates are said to introduce volatility into the foreign exchange market that could deter trade flows. Previous research employed aggregate import and export trade data and provided mixed results. In this paper we disaggregate the trade data between the U.S. and the emerging economy of India and use the bounds testing approach to cointegration and error-correction modeling to show that in 40 industries that trade between the two countries, exchange rate volatility has negative and positive effects in 40% of industries, in the short run. These short-run effects, however, do not last into the long run in many cases.

Is the Middle East an Optimum Currency Area? A Comparison of Costs and Benefits

This paper examines the macroeconomic costs and benefits of adopting a common currency for 13 Middle Eastern countries. Economic theory suggests that the main benefit is enhanced price stability, while the main cost is higher business-cycle volatility if the member country’s output is not sufficiently correlated with the area’s, as a whole. Using data from 1980–2005, the paper finds that the estimated cost and benefit measures exhibit substantial variability across the countries and are sometimes positively correlated. Moreover, focusing on the results for the last decade, it seems that many Middle Eastern countries (such as Bahrain, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria and United Arab Emirates) have achieved remarkable convergence both in business-cycle synchronization and inflation outcomes.

Realism Versus Statistical Efficiency: A Note on Contingent Valuation with Follow-up Queries

This paper shows that we can improve the statistical efficiency of dichotomous choice contingent valuation surveys by asking a second open question (anchored open-ended approach) instead of the traditional double-bounded approach. The former approach is shown to be more efficient than conventional single and double-bounded approaches using a Monte Carlo experiment, even when we allow for strategic behavior from respondents such as protest votes and yea-saying behavior.

The Ex-Dividend Day Stock Price Behavior: The Case of Portugal

This paper examines the ex-dividend day behavior of stock prices in the Lisbon Stock Market over the period 1990–1998, extending on international evidence and discussing the adequacy of competing theories, considering the Portuguese institutional environment. We find that on the ex-day stock prices fall by less than the dividend, which is in line with the findings of several studies based on US and non-US data. The main contributions of this paper are: (1) the rejection of a tax explanation for the stock price drop, because it is inconsistent with the Portuguese tax regime; (2) considering the very small stock price tick and the fact that dividends are always integer multiples of tick size, the discreteness hypothesis of Bali and Hite (Journal of Financial Economics 47(2):127–159, 1998) is also ruled out as a possible explanation for ex-day price movements. We find no evidence of tax related clientele effects. We propose that ex-day price behavior may be an anomaly, reflecting a less than efficient market with low liquidity levels, price stickiness, and insipid arbitrage trading.

The Response to Market Power: Non-Profit Hospitals versus For-Profit Hospitals

In the debate over whether non-profit and for-profit hospitals behave differently in the presence of market concentration and greater individual market power, most scholars have concentrated on the traditional price analysis approach. But this has produced conflicting results. This study attempts to avoid the limitations of price as an indicator of how these hospitals respond to greater market power by examining changes in admissions given the capacity decision. The results indicate that for-profit and public hospitals respond similarly to increased market power. On the other hand, private non-profit hospitals appear to act differently. This presents important implications for antitrust policies and for the management of non-profit hospitals.

Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?

The accumulation of international reserves by emerging markets raises the question of how to best utilize these funds. This paper explores two routes through which the pooling of reserves could enhance stability and welfare. First, the reserve pool could be used for emergency lending in response to sudden stops. Second, a portion of the reserve pool along with borrowed funds could be used to purchase contingent debt securities issued by governments and corporations, helping to solve the first-mover problem that limits the liquidity of markets in these instruments and hinders their acceptance by private investors. This paper argues that the second option is more likely to be feasible and productive.

Monetary Policy in Illiquid Markets: Options for a Small Open Economy

Two impediments to effective monetary policy operation include illiquidity in bond markets and the zero bound of interest rates. Under these conditions alternative means of enacting monetary policy may be required. This paper empirically explores policy options implemented through equity and currency markets that will generate similar inflation responses at different time horizons. In terms of GDP loss the least costly means of achieving a particular long run inflation outcome is via the current monetary policy arrangements. Currency market alternatives are volatile but less expensive than the equity market in terms of output loss for short term inflation horizons.

Preference erosion and market access liberalization: the African dilemma in multilateral negotiations on agriculture

African countries, especially sub-Saharan ones, have conflicting interests in multilateral negotiations on agriculture. On the one hand, their economies may be boosted by the price effect induced by agricultural liberalization. On the other hand, multilateral tariff cuts will result in the erosion of preferential margins. Based on an original methodology, using CGE modeling, detailed tariff calculations and predictive analysis, this paper investigates the potential impact of current multilateral negotiations on the value of preferences for African agriculture. It estimates the preferential value to USD 0.7 billion of welfare and USD 1 billion of exports to the Triad markets. Furthermore, it highlights the “cruel dilemma” African countries face in current negotiations, as they gain from ambitious trade liberalization, despite the large preferential erosion, while they suffer from noticeable trade and welfare losses under conservative scenarios.

The effect of globalization on union bargaining and price-cost margins of firms

In recent years, Europe has witnessed an accelerated process of economic integration. This paper analyzes how increased economic integration has affected labor and product markets. We use a panel of Belgian manufacturing firms to estimate price-cost margins and union bargaining power and show how various measures of globalization affect them. Import competition puts pressure on both markups and union bargaining power, especially when there is increased competition from low wage countries. This suggests that increased globalization is associated with a moderation of wage claims in unionized countries, which should be associated with positive effects on employment.