Optimization of Monte Carlo Procedures for Value at Risk Estimates

This paper proposes a methodology which improves the computational efficiency of the Monte Carlo simulation approach of value at risk (VaR) estimates. Principal components analysis is used to reduce the number of relevant sources of risk driving the portfolio dynamics. Moreover, large deviations techniques are used to provide an estimate of the minimum number of price scenarios to be simulated to attain a given accuracy. Numerical examples are provided and show the good performance of the methodolgy proposed.
(J.E.L.: C15, G1).     

Combining stated and revealed choice research to simulate the neighbor effect: The case of hybrid-electric vehicles

According to intuition and theories of diffusion, consumer preferences develop along with technological change. However, most economic models designed for policy simulation unrealistically assume static preferences. To improve the behavioral realism of an energy–economy policy model, this study investigates the “neighbor effect,” where a new technology becomes more desirable as its adoption becomes more widespread in the market. We measure this effect as a change in aggregated willingness to pay under different levels of technology penetration. Focusing on hybrid-electric vehicles (HEVs), an online survey experiment collected stated preference (SP) data from 535 Canadian and 408 Californian vehicle owners under different hypothetical market conditions.Revealed preference (RP) data was collected from the same respondents by eliciting the year, make and model of recent vehicle purchases from regions with different degrees of HEV popularity: Canada with 0.17% new market share, and California with 3.0% new market share. We compare choice models estimated from RP data only with three joint SP–RP estimation techniques, each assigning a different weight to the influence of SP and RP data in coefficient estimates. Statistically, models allowing more RP influence outperform SP influenced models. However, results suggest that because the RP data in this study is afflicted by multicollinearity, techniques that allow more SP influence in the beta estimates while maintaining RP data for calibrating vehicle class constraints produce more realistic estimates of willingness to pay. Furthermore, SP influenced coefficient estimates also translate to more realistic behavioral parameters for CIMS, allowing more sensitivity to policy simulations.     

A METHOD FOR IMPROVED CAPITAL MEASUREMENT BY COMBINING ACCOUNTS AND FIRM INVESTMENT DATA

We propose a new method for estimating capital stocks at the firm level by combining business accounts information and investment data. The method also produces capital estimates at the sector or industry level by summing individual firms' capital stocks and appropriately inflating this sum to account for firms not included in the data set. Our approach has two major advantages compared with the much used Perpetual Inventory Method (PIM). First, long investment series are not necessary. Second, sector capital estimates are automatically adjusted for changes in the capital stock because of entry and exit of firms. While capital growth rates in Norwegian manufacturing were only 1 percent on average during 1993–2004 according to national accounts figures, our method yields much higher growth rates of 5.5 percent on average.     

SOME ESTIMATES OF TRADE FLOWS IN BANKING SERVICES

This paper presents some estimates of international trade in banking services. We use IMF data on assets and liabilities of both domestic banks and non-banks with foreign banks, and of foreigners with the domestic banking system to construct measures of the volume of transactions on which banking intermediation services are provided across national borders. We then use estimates of the spread between borrowing and lending rates for depositors and borrowers with the financial institutions involved to estimate the value of international flows of intermediation services. Estimates are presented for 1982–84 and 1991–93 for the U.S., the U.K., and Canada.     

Comparing benefit estimates from travel cost and contingent valuation using confidence intervals for Hicksian welfare measures

An approach to determining whether benefit estimates derived from the travel cost method and contingent valuation method are statistically different is presented. Unlike past comparisons compensating variation is estimated for both methods. Benefit comparisons are made more rigorous by use of confidence intervals which are developed using the same Krinsky and Robb simulation technique for both valution mothods. The techniques are applied to deer hunting in California. While point estimates of benefits from both truncated and untruncated adjusted travel cost methods are lower than the contingent valuation method, the confidence intervals on the untruncated travel cost method do overlap the contingent valution method benefit estimates.     

The Australian Economy

This article deals with developments in the Australian economy in the period from the fourth quarter of 1971 (the quarter for which the latest official estimates of national income and expenditure are available) through to the end of the financial year 1972–73. It was prepared in May 1972.
Annual periods shown as 1970–71, 1971–72, etc. refer to years ended 30 June.     

THE ECONOMIC VALUE OF PREVENTING RESPIRATORY AND CARDIOVASCULAR HOSPITALIZATIONS

This article provides estimates of the economic benefits of reducing respiratory and cardiovascular hospitalizations based on cost of illness and willingness to pay. The willingness-to-pay estimates indicate that individuals value prevention of a five-day hospitalization event at an average of approximately $2,400. Average total costs of illness per hospitalization are $22,000–39,000. A comprehensive cost-of-illness estimate that includes value of time losses for the hospitalization and at-home recovery periods provides a close approximation of total costs borne by third parties plus individual willingness to pay. Both exceed previous cost-of-illness estimates by about 10–25%. (JEL D61, I18, Q25 )     

The Target Zone Model, Non-Linearity and Mean Reversion: is the Honeymoon Really Over?

We estimate a target zone model for three ERM exchange rates for 1983–6 and 1987–91 by the method of simulated moments, taking account of the continuous time specification by using daily data with the interruptions of holidays and weekends. Specification tests are unable to reject the model. The estimates imply, however, an essentially linear relationship between the exchange rate and the fundamentals, with a very limited 'honeymoon effect'. Using Monte Carlo simulations, calibrated on the estimates, we find that standard tests for mean reversion of the exchange rate would largely reject the target zone model when, in fact, it held.     

Gaussian Estimation of a Two-factor Continuous Time Model of the Short-term Interest Rate

This paper considers the econometric estimation of a two-factor model of the short-term interest rate. We develop a procedure for the time series estimation of its parameters, based on recently developed Gaussian estimation methods which are extended to handle unobservable state variables. The main methodological contribution is the derivation of an exact discrete model and the exact Gaussian likelihood function in terms of the discrete observations and structural parameters of the two-factor model. The model is estimated on one month euro-currency interest rate data for seven currencies – the Belgium franc, Canadian dollar, Dutch guilder, French franc, German mark, Italian lira, and the US dollar over the period February 1981 to December 1995 – and our results indicate that the method works well in practice. The empirical estimates reported in this study can be used to compare estimates from the calibration of an arbitrage-free analogue of the model to market prices of interest rate caps and swaptions for use in the financial markets. (J.E.L.: C13, E43).     

The Australian Economy

This article deals with developments in the Australian economy in the period from the second quarter of 1973 (the quarter for which the latest official estimates of national income and expenditure are available) through to the end of the financial year 1974–75. It was prepared in October and early November 1973.
Annual periods shown as 1971–72, 1972–73, etc. refer to years ended 30 June.     

NEW ZEALAND'S GROSS NATIONAL PRODUCT: 1859–1939

In this paper the author continues the work of Hawke, who used Australian velocity of money data to estimate New Zealand's GDP for 1870–1918, and whose results have been incorporated into international studies through the work of Bairoch. He also provides an alternative set of estimates for the inter-war years to those published by Lineham. The important findings of the paper are: (i) that Australian data show a significant relationship between the velocity of money and the price level; (ii) that New Zealand's income was significantly higher in 1870 than Hawke's estimates suggest; (iii) that sustained per capita growth has not been New Zealand's normal experience; (iv) that previous GDP estimates for the inter-war period have failed to reflect the fluctuations of the New Zealand economy and the extent to which it was operating below its production possibilities frontier during the Great Depression of the 1930s.     

DISENTANGLING THE EFFECTS OF POLITICAL FRAGMENTATION ON VOTER TURNOUT: THE FLEMISH MUNICIPAL ELECTIONS

Political fragmentation has been shown to be an important determinant of electoral turnout. We introduce an empirical approach that allows disentangling the impact of two dimensions of such fragmentation: the number of parties and the size inequalities between those parties. This is important as it allows us to assess the size, significance, and direction of the individual effects of each element – an aspect disregarded in previous research. Our empirical analysis of the 2000 Flemish municipal elections shows that a higher number of parties competing in the election lowers turnout. The size inequalities between the parties exert a positive – though insignificant – influence on voter participation.     

Reply to Gebhard Kirchgässner

In this reply to Kirchgässner, four issues are addressed: (1) the extent of double counting in attempts to reconcile estimates of the shadow economy based on the survey method and estimates based on the MIMIC (cum currency demand) approach, (2) advantages and disadvantages of the survey method, (3) of macro methods like the MIMIC approach and (4) the potential role of plausibility checks of estimates from the MIMIC approach with the survey method.     

ON THE APPLICATION OF EFFICIENCY ANALYSIS TO THE STUDY OF THE DIMENSIONS OF HUMAN DEVELOPMENT

This paper is an attempt to translate empirically some of the categorizations of human development reviewed by Alkire (2002) . It compares the estimates of human development obtained on the basis of Sen's (1985 ) capability approach, Narayan et al.'s (2000 ) dimensions of well‐being, Cummins (1996 ) domains of life satisfaction and Allardt's (1993 ) comparative Scandinavian welfare study. To obtain these estimates of human development use is made of techniques developed in efficiency analysis, an approach rarely applied to the study of consumption and standards of living (see, however, Lovell et al., 1994 ). Our database is the British Household Panel Survey. Our findings vindicate the multidimensional approach to human development but show a great empirical resemblance between the four conceptual approaches to well‐being.     

Average Derivative Estimation of Hedonic Price Models

Conventional parametric techniques for estimatinghedonic price models require a correct functionalform. In this paper, we side-step this parametricshortcoming by estimating a hedonic price model usingaverage derivative estimation (ADE). Thissemiparametric approach produces robust estimates ofthe marginal effects without assuming a specificfunctional form a priori. In our application ofthe model to a unique data set on Korean home prices,ADE produced estimates consistent with priorexpectations, providing initial evidence that themodel may represent a viable alternative when usingthe hedonic approach.     

An alternative interpretation of multiple bounded WTP data—Certainty dependent payment card intervals

This paper analyzes the multiple bounded format, in which uncertainty is directly incorporated into the WTP question. A new approach for analyzing multiple bounded uncertainty data is presented. The intuition underlying the approach is that uncertain individuals would like to state their WTP as intervals rather than precise values and that the width of the intervals is determined by the degree of uncertainty. The approach is compared to the one applied in Welsh and Poe [Welsh, M., Poe, G.L., 1998. Elicitation effects in contingent valuation: comparisons to a multiple bounded discrete choice approach. Journal of Environmental Economics and Management 36, 170–185] which treats uncertainty by conditioning responses on specific verbal probability statements. We argue that the conditioning approach overestimates mean and median WTP and that conditioning WTP estimates on probability statements like “probably” and “unsure” make them “fuzzy”. To empirically compare the two approaches we use data from 2004 concerning implementation of a predator protection policy in Sweden. Our analysis show that the suggested approach: (1) is more intuitive; (2) better fits the data; (3) estimates mean and median WTP with better precision; (4) is less sensitive to distributional assumptions; and (5) it is better suited for policy analysis.     

ESTIMATION OF THE STOCK OF CAPITAL IN SPAIN

The paper presents the methodology and results of the estimation of the endowments of capital in the Spanish economy. It distinguishes between endowments of public capital and private capital. The series corresponding to the public sector cover the period 1955–97 and consider seven categories (or functions). The estimates are disaggregated by 17 regions and 50 provinces. The level of disaggregation is regional and provincial (NUTS2 and NUTS3 in European terminology). The private capital series cover the period 1964–97 and consider 17 sectors of production, with disaggregation at regional level. The information refers to two variables: gross formation of fixed capital (in current and constant pesetas) and capital stock in constant pesetas (base year 1990).     

Latent Multilateral Trade Resistance Indices: Theory and Evidence

Anderson and van Wincoop (American Economic Review (2003), 69 :106) make a convincing argument that traditional gravity equation estimates are biased by the omission of multilateral resistance terms. They show that these multilateral resistance terms are implicitly defined by a system of non‐linear equations involving all regions' GDP shares and a global interdependence structure involving trade costs. We show how linearizing the system of non‐linear relationships around a free trade world leads to an interdependence structure that can be used as a Bayesian prior to produce statistical estimates of the inward and outward multilateral resistance indices. This reflects a statistical approach that has advantages over the non‐stochastic numerical approach used by Anderson and van Wincoop (2003) to solve for these indices.