Volatility Relationship between Crude Oil and Petroleum Products

This paper utilizes calculated historical volatility and GARCH models to compare the historical price volatility behavior of crude oil, motor gasoline and heating oil in U.S. markets since 1990. We incorporate a shift variable in the GARCH/TARCH models to capture the response of price volatility to a change in OPEC’s pricing behavior. This study has three major conclusions. First, there was an increase in volatility as a result of a structural shift to higher crude oil prices after April 1999. Second, volatility shocks from current news are not important since GARCH effects dominate ARCH effects in the variance equation. Third, persistence of volatility in all commodity markets is quite transitory, with half-lives normally being a few weeks.

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.

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.

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.

Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule

This paper estimates forward-looking and forecast-based Taylor rules for France, Germany, Italy, and the euro area. Performing extensive tests for over-identifying restrictions and instrument relevance, we find that asset prices can be highly relevant as instruments in policy rules. While asset prices improve Taylor rule estimates, different assets prove most relevant across countries and this result could be seen as complicating the tasks of the European Central Bank. Encompassing tests show that forecast-based outperform forward-looking Taylor rules. A policy implication is that central banks ought to release their own forecasts and the basis upon which they are generated.

Imperfect Competition in German Food Retailing: Evidence from State Level Data

An increase in the level of retail concentration in food markets across Europe has raised concerns about the implications of retail dominance in the food supply. This paper measures oligopoly and oligopsony market power in the German food retail industry and incorporate specific details about the German meat market and the European BSE crisis. In this paper, simultaneous estimates of the degree of oligopoly and oligopsony market power in the German food retail industry are derived by applying a set of monthly state level retail beef and pork marketing data in the federal state of Hessen, Germany, from 1995–2000. Results strongly suggest evidence of retail oligopoly and oligopsony power. Lerner index estimates indicate retail market power accounts for 0.5% to 11% of the retail unit margins of beef and pork.

Implications of Monetary Union for Catching-up Member States

We examine the implications of monetary union for macroeconomic stabilization in catching-up participating countries. We allow member states’ supply conditions to differ, especially with regard to sectoral characteristics. Sectoral productivity shocks of the type associated with the Balassa–Samuelson effect tend to hamper the stabilization properties of a currency union. In the face of aggregate supply disturbances, the stabilization costs of renouncing monetary autonomy diminish with a steeper supply curve (as induced by higher trade openness) and—barring idiosyncratic shocks—with a larger reference country size, more homogeneous supply slopes and a higher preference for price stability.

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 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.

Foreign Direct Investment Liberalization Between Canada and the USA: A CGE Investigation

In this paper, we develop a computable general equilibrium (CGE) model to shed quantitative light on the implications of a scenario of deeper economic integration between Canada and the United States, where the barriers for foreign direct investment are preferentially eliminated. Our model distinguishes between the activities of domestic and foreign-owned firms at the microeconomic level, both in terms of demand and production characteristics. Overall our findings suggest that further investment liberalization between the two countries will accelerate the shaping of Canada’s industrial structure, as manifested by recent trends.

Exchange Rates and Concurrent Leasing and Selling in Durable-Goods Monopoly

Theoretical durable-goods models suggest that a monopolist will prefer to lease rather than sell units of output due to the seller’s commitment problem with potential buyers. However, many monopolistic durable-goods manufactures are commonly observed simultaneously leasing and selling output. We provide a theoretical rationale for this observed behavior in firms engaged in trade with a foreign country. In a simple two-period setting we show that a foreign durable-goods monopolist will concurrently lease and sell output if the expected future exchange rate is lower than the current rate. With this concurrent strategy the firm earns higher profit than a pure rental or sales regime. Additionally, our model provides additional theoretical underpinnings for the empirical finding that increases in expected future exchange rates increase the current sales price of durable products. Finally, our analysis examines the role of product durability in determining exchange rate pass-though to domestic prices.

Single Versus Multi-market Approach: An Application to the Greek Cotton Market

Estimation of the price-induced welfare effects in vertical and horizontal market settings may prove a tricky task when multiple price changes are taken into account. Whether a multi-market sequential approach or a single-market approach is used the well-established, theoretical result suggests that these two partial equilibrium methods are equivalent in terms of implied welfare changes. This paper develops the methodology to empirically compare these two methods. We estimate the welfare changes to Greek cotton–yarn producers induced by the simultaneous change in the prices of cotton–yarn and the cost of labor. Results substantiate the multi-market approach offers more accurate welfare estimates than the single-market approach, in empirical work.

Cantor’s Diagonal Argument: An Extension to the Socialist Calculation Debate—A Comment

In a recent article Robert P. Murphy (2006) uses Cantor’s diagonal argument to prove that market socialism could not function, since it would be impossible for the Central Planning Board to complete a list containing all conceivable goods (or prices for them). In the present paper we argue that Murphy is not only wrong in claiming that the number of goods included in the list should be uncountable, but also that the number of equations/prices is irrelevant from the point of view of market socialism.

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.

Efficient interconnection charges and capacity-based pricing

Capacity-based interconnection (CBI) prices vary exactly with the costs a network provider incurs when supplying an interconnecting party. That is, they equal incremental costs, rather than being averaged over any output measure. We argue such prices (1) are as practicable and more efficient than per minute rates based on long run incremental cost, (2) are more efficient than bill and keep, and (3) with mark-ups for cost recovery, are a practical and relatively efficient means of pricing wholesale interconnection services, being well-suited to both circuit and packet-based networks.

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.

The Determinants of the Secondary Market Price of Less Developed Countries’ Debt

A present-value model of less developed countries’ (LDC) debt is developed to understand the factors that affect the discount on the secondary market. LDC debt trades at a substantial discount on the secondary market. This paper investigates the determinants of the discount for a sample of 13 countries over a 9 year period. The findings show that debt–exports, foreign currency reserves–imports and total debt service to exports ratios are significant determinants of the secondary market prices of LDC debt. The discount is higher in countries where debt–exports ratios are higher and is lower for those with lower foreign currency reserves–imports ratios. Concentration of debt with money center banks has a positive and significant effect on the secondary market price of debt.

Local School Finance and Productive Efficiency: Evidence from Ohio

This paper examines the relationship between local financing of education and school district efficiency. In a system of local school finance, the capitalization of school quality in housing prices provides homeowners with verifiable information regarding the impact of school officials’ actions and strong incentives to act upon that information. I find evidence that school districts with a higher percentage of revenues from local sources perform better on state math tests. In addition, the amount of residential property within a school district is positively related to math test passage rates.

Openness and Real Exchange Rate Volatility: In Search of an Explanation

The puzzle that real exchange rates are less volatile in open economies is an important challenge to exchange rate theory. Adjustment of domestic prices to nominal exchange rate movements can account for only a small proportion of this effect. Real and nominal shocks display no obvious correlation with openness. It is shown here that real effective exchange rates are more strongly mean-reverting in more open economies, even after controlling for exchange rate regime effects. This is predicted by the theory of current account sustainability, because of its emphasis on ratios to GDP rather than to trade flows.

What Drives Price Differentials of Consumables in Europe? Size? Affluence? Or Both?

Prices of many consumables differ substantially across the European Union (EU) due to natural segmentation and to the survival of residual man-made barriers. However, we do not know much about the direction and the cause of deviations among countries differing mainly in size and income of their citizens. Here, we wish to fill this gap. We go through some simple theoretical analysis and show that, in the presence of mild barriers to trade, as those persisting among EU countries, prices should be lower in large countries. On the contrary, prices will be higher where people enjoy better standards of living which translate into higher marginal willingness to pay by consumers. We perform a parallel empirical investigation to assess the relative weight of the two main forces driving prices apart across countries and we test our theoretical proposition through a simple econometric analysis of prices of consumables across the EU. Country size and affluence explain price differentials in a convincing manner. However, the relative importance of the two variables changes as we consider the EU after the establishment of the Single Market or when we analyse a subsample of fast growing EU members.