Stock Prices and Exchange Rates in Australia: Are Commodity Prices the Missing Link?

There are still significant gaps in our knowledge of the relationship between stock prices and exchange rates; not least, the ambiguity about the sign of the coefficient linking them. One explanation which we explore in the Australian context in this paper is the omission of commodity prices. We show that a relationship which omits commodity prices performs poorly but, once commodity prices are added, our results are plausible and robust. We also throw light on the commodity‐currency issue: the link from the exchange rate to commodity prices is stronger and more consistent than that in the opposite direction.     

Why Do the Rich Save More? A Theory and Australian Evidence*

We provide a theory to explain the existence of inequality in an economy where agents have identical preferences and have access to the same production technology. Agents consume a ‘health’ good which determines their subjective discount factor. Depending on initial distribution of capital the economy gets separated into different permanent‐income groups. This leads to a testable hypothesis: ‘The rich save a larger proportion of their permanent‐income’. We test this implication for savings behaviour in Australia. We find that even after controlling for lifecycle and health characteristics, higher permanent income is positively related with higher savings rates and better saving habits.     

Transfers and the Samuelson Rule in Stock Externality Provision—Why Do We Need Them Both?

This paper examines the relationship between the Samuelson rule for efficient provision of stock externality and unilateral transfers for equalization of mitigation costs among the agents. Using a generic model of stock externality provisions, we proved that the revised Samuelson rule that allows transfers is a necessary and sufficient condition for efficient provision of stock externalities. In addition, selection of social welfare weights of the agents plays a key role in directions and magnitudes of the transfers. We discuss the implications of the revised Samuelson rule in economic modeling of climate change, an empirical case of stock externality, through numerical simulations in the RICE model.     

Do Speculative Stocks Lower Prices and Increase Volatility of Value Stocks?

The influence of speculative stocks on value stocks is examined through a set of economics experiments. The speculative asset is designed to model a company involved in a rapidly growing market that will be saturated at some unknown point. Using a control experiment where both assets are similar value stocks, we find statistical support for the assertion that the presence of a speculative stock increases the volatility and diminishes the price of the value stock. In addition, the temporal minimum price of the value stock during the last phase of the experiment is lower in the presence of the speculative stock (when the trading price of the speculative asset is declining sharply). These results indicate that an overreaction in the speculative stock tends to divert investment capital away from other assets. An examination of the relative magnitude of monthly closing price changes confirm strong correlations between the Dow Jones Average and the more speculative Nasdaq index during the time period 1990 to 2001 and particularly during the two years prior to the peak in March 2000 (0.72 correlation) and the March 2000 to August 2001 decline (0.79 correlation). Supplementary experiments using independent (or legally separate) markets trading the same asset show that a higher price in one market does not lead to a higher one in the other.     

Do High Oil Prices Matter? Evidence on the Mobility Behavior of German Households

Focusing on travel survey data from Germany, this paper investigates the determinants of automobile travel, with the specific aim of quantifying the effects of fuel prices and fuel economy. The analysis is predicated on the notion that car mileage is a two-stage decision process, comprising the discrete choice of whether to own a car and the continuous choice of distance traveled. To capture this process, we employ censored regression models consisting of Probit and OLS estimators, which allows us to gauge the extent to which sample selectivity may bias the results. Our elasticity estimates indicate a significant positive association between increased fuel economy and increased driving, and a significantly negative fuel-price elasticity, which ranges between − 35% and − 41%. Taken together, these results suggest that fuel taxes are likely to be a more effective policy measure in reducing emissions than fuel-efficiency standards.      

Do cheaters in the lab also cheat in the field?

In this paper, we study the correlation between cheating in the lab and cheating in the field. We conduct a laboratory experiment using a variant of the Mind game (Jiang, 2013). Payoffs above a certain threshold are indicative of cheating behavior. Subjects are paid their earnings by bank transfer. A fraction of the subjects is deliberately paid more than their earnings. We send subjects a reminder e-mail stating their earnings and asking them if they have received their payment. We find a significant correlation of 0.31 between cheating in the lab and in the field. Subjects with higher payoffs in the Mind game are also less likely to report the overpayment. Our results speak to the lab-field generalizability of cheating behavior.     

Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?

We offer an explanation of why changes in house price are predictable. We consider a housing market with loss‐averse sellers and anchoring buyers in a dynamic setting. We show that when both cognitive biases are present, changes in house prices are predicted by price dispersion and trade volume. Using a sample of housing transactions in Hong Kong from 1992 to 2006, we find that price dispersion and transaction volume are, indeed, powerful predictors of housing return. For both in and out of sample, the two variables predict as well as conventional predictors such as the real interest rate and real stock return.     

Why was the euro weak? Markets and policies

Against all odds, the euro turned out to be a weak currency. We argue that this outcome can readily be explained by the policy-mix that was chosen at the onset of the period: tight fiscal policies following the convergence mechanism that was imposed by the Maastricht treaty and loose monetary policy that resulted from the convergence of interest rates to the lower point of the spectrum. We investigate this outcome empirically and show that the euro's weakness can be understood as the result of an excess supply in the zone, which is channelled abroad in the usual beggar my neighbor way.     

What Do the Elderly Do?

The most direct way to find out what elderly Americans do is to study how they occupy their time and, if they are still in the labor force, in what occupations can they be found. This essay focuses on three key issues regarding the activities of those 65 and over: their average use of time in 41 different activities, especially how they employ the greater discretionary time available to them in comparison to younger adults; the factors underlying their rising participation in the labor in the first decade of the twenty-first century; and the occupations that elderly men and women are most likely to be found and how this has changed.     

Do Urban Neighborhoods Benefit from Homeowners? Evidence from Housing Prices

Homeownership is heavily subsidized in most countries. The adverse effects of this policy on economic efficiency and income distribution are well documented in the economics literature. The main argument in favor of subsidizing homeownership is that it creates positive externalities that offset these adverse effects. In this paper, we test whether homeowners create positive externalities that capitalize into housing prices in multi‐storey buildings. Using semi‐parametric hedonic regressions with and without instrumental variables, we find no evidence of positive externalities, although the results with instrumental variables are somewhat imprecise. This result is robust to several sensitivity checks and to a relaxation of the identification assumptions of our instrument using set identification.     

Why does the investment rate not increase? Capital accumulation and stabilization policy in the 1990s and 2000s in Brazil

The stabilization of inflation was conquered in the mid-1990s, but since then the Brazilian economy has not shown a stable growth trend. This article discusses how the maintenance of a high interest rate in Brazil has affected growth through its impact on investment decision. In a macroeconomic environment with a relatively high degree of uncertainty, decisions to accumulate capital rely heavily on retained earnings and are negatively affected by the persistent high level of interest rates. Our econometric exercise reveals that the interest rate is the most important variable to explain the investment rate, and that financialization negatively impacts physical capital accumulation.     

Do Energy Prices Affect U.S. Investor Sentiment?

The current literature has examined the effect of investor sentiment on energy prices, but no study ever has explored the validity of the reverse question. Therefore, this article explore whether energy prices (i.e., crude oil and natural gas prices) affect U.S. investor sentiment, using the methodology of quantile regression. The empirical results document that controlling for a number of U.S. macroeconomic and financial factors, there exists a statistically significant association between oil and natural gas prices and investor sentiment. However, only natural gas prices appear to retain their statistical significance over the majority of quantiles. These findings received robust support under alternative measures of the investor sentiment index.     

Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics

Simplistic aggregation in idealized “markets” versus structural emergence in complex and path-dependent processes have always marked a “continental divide” between neoclassical mainstream economics and all kinds of evolutionary and institutional social economics. This paper deals with institutional, or structural, emergence and argues that the meso level (to be specific) is the proper aggregate level for social economic analyses of complex systems and processes. Also, neo-Schumpeterian economists have stressed recently the issue of an “institutional trajectory” taking place on the meso economic level. This paper argues that the creative ideas of a Schumpeterian entrepreneur are not a sufficient explanation in this case. Using an evolutionary interpretation of a simple game-theoretic formalism (the Folk Theorem), the paper strives to demonstrate that the meso level, as the proper level of institutional emergence, must and can be endogenously explained from a process of interactive problem-solving of interdependent agents, in their struggle for coordination under strong uncertainty. It will be illustrated that a meso-sized socio-economic group co-evolves, and is constituted, together with the institution that in turn serves as the solution to the coordination problem. The practical and policy implications of the argument are discussed.

Why is Income Inequality Increasing in the Developed World?

We address empirically the factors affecting the dynamics of income inequality among industrialized economies. Using a panel for 32 developed countries spanning the last four decades, our results indicate that the predictions of the Stolper–Samuelson theorem concerning the effects of international trade on income inequality find support in the data if we concentrate on imports from developing countries as a trade measure, as theory would imply. We find that democratization, the interaction of technology and education, and changes in the relative power of labor unions affect inequality dynamics robustly.     

Why culture in economics?

This article responds to the points raised by Deirdre McCloskey, Emily Chamlee-Wright, Rob Garnett and Solomon Stein in the symposium on my book Understanding the Culture of Markets (Routledge 2013).     

Why Would She? Polygyny and Women's Welfare in Ghana

This study examines whether polygynous marriages are beneficial to women in Ghana. While some scholars claim that women benefit from such marriages in terms of higher consumption or leisure time, others believe that such relationships can be oppressive for women, as compared to monogamous relationships. Using household data from the 2005/6 Ghanaian Living Standards Measurement Survey V and the 2008 Ghanaian Demographic Health Survey, this study finds little evidence to support the view that women experience economic benefits from these unions. Polygynous women in Ghana tend to be more accepting of and experience more domestic violence, and they have less decision-making power within the household than women in monogamous marriages. Thus, there seems to be more evidence to support the view of polygyny as an oppressive institution rather than the outcome of a woman's rational choice.