Housing appreciation, mortgage interest rates, and homeowner mobility

This paper presents a model of the optimal timing of tradeup, which considers consumption and investment motives of homeownership. Households determine the optimal timing of trading up so as to maximize their intertemporal utility of both housing and nonhousing consumption. First we consider current homeowners, who already own a house and expect that they trade up to a more valuable house at some point in the future. Housing appreciation tends to induce an earlier optimal timing of trading up. Moreover, housing appreciation makes current homeowners better off in terms of welfare. However, current homeowners suffer from a rise in mortgage interest rates. Second, we consider first-time home buyers, who have decided to buy a house and expect to trade up to a more valuable house in the future. Their initial housing consumption is determined by an initial downpayment constraint. In this case, the effect of housing appreciation on the optimal timing of trading up is ambiguous and, unlike current homeowners, first-time home buyers suffer from housing appreciation. Moreover, as current homeowners, first-time home buyers suffer from a rise in mortgage interest rates. Most of the theoretical analytic results are ambiguous. Accordingly, we perform numerical simulations based on the theoretical model in order to determine the most likely comparative effects for a stylized set of parameters.As is apparent, the model captures the recent observations on homewner mobility and suggests that macroeconomic variables such as housing appreciation and mortgage interest rates effect the optimal timing of trading up and homeowner's welfare. Nevertheless, the model in this paper has several shortcomings, which should be the subject of future research. First, transaction costs are ignored. If transaction costs are incorporated, the lock-in effect from a rise in mortgage interest rates is well explained. However, the general analysis above is not altered in any essential way. Second, multiple moves are not considered in this model. Therefore, we concentrate on the timing of one tradeup as opposed to the timing and frequency of trading up. In a different vein, it would be interesting to test empirically the importance of the effects of macroeconomic variables on trading up by using microdata.     

Time-frequency co-movements between oil prices and interest rates: Evidence from a wavelet-based approach

This paper investigates time–frequency co-movements between crude oil prices and interest rates. To test this relationship, the study applied a continuous wavelet and cross wavelet approaches to data from West Texas Intermediate (WTI) crude oil prices and interest rates in the United States (U.S.). Results from the sample period revealed significant relationships, in the intermediate term, between WTI crude oil prices and U.S. interest rates. Moreover, co-movements between oil price and interest rate variables were especially sensitive during abnormal political events and periods of financial ‘meltdown’. We further use Partial Wavelet Coherence (PWC) and Multiple Wavelet Coherence (MWC) methods to investigate the impacts of five major control variables namely GDP growth, unemployment, three-month Treasury bill, CPI index and industrial production index. The results show a powerful impact of control variables on oil-interest rates co-movements under different frequencies. Finally, we show evidence of co-integrating long run relationship between oil markets and control variables. These results have important implications for energy investors and policy makers.     

Using methods of Multi-Criteria Decision Making to provide decision support concerning local bioenergy projects

The public sector plays an important role in the German “Energiewende”. Besides energy management in municipal properties the local government can also support the switch to renewable energy sources through a change in energy supply structures within in their region. Methods of Multi-Criteria Decision Making (MCDM) from Operations Research are helpful regarding that challenge, as they are able to assess the sustainability of local energy concepts, since they not only offer stakeholders the opportunity to participate, but also consider multiple conflicting criteria. In that way, the acceptance of local energy projects and the participation of stakeholders in the decision process are supported. The case study presented in this paper illustrates the results of a MCDM process employed to identify a sustainable bioenergy concept in a rural village in Lower Saxony, Germany. Our analysis revealed not only the opportunities and challenges associated with executing an MCDM process to support the realization of local bioenergy projects, but also discusses potential limitations of the methods.     

Residential investment and house prices in a multi-sector monetary business cycle model

This paper develops a three-sector quantitative dynamic stochastic general equilibrium model to account for some of the salient business cycle properties concerning residential investment and house prices. We depart from the traditional Real Business Cycle setup by incorporating monetary frictions and credit market activities into the model economy. The model generates the high volatility of residential investment and hours worked in the house investment goods producing sector, as well as the procyclicality of house prices. The lead-lag pattern of house investment also roughly conforms with the data. We find that monetary policy and nominal interest rates play a special role in the determination of house prices. Money shocks generate remarkably volatile residential investment and house prices.     

The role of interest rates during the transition to a market economy

We construct a simple two period model of an economy in transition from being centrally planned to being market oriented. Using this model, we draw certain positive conclusions about economic policies that reduce distortions during the transition period. In particular, we focus on the role of interest rates, a market parameter that has previously been almost entirely ignored in planned economies. Using stylized data derived from Czechoslovakia, we show that increase in nominal interest rates can actually be welfare-improving by partially compensating for the distortions induced by the transition process.The model is sufficiently general to be applied to a number of transition economies, and we use the cases of Czechoslovakia, the USSR, and China as examples of some of the phenomena that we are trying to explain. We show that the model generates a constrained, suboptimal equilibrium. In particular, we see that raising interest rates during the transition period reduces repressed savings, brought about by shortages in the controlled market. An improvement in consumer utility can therefore be brought about.A large part of the work in this paper was carried out while I was a Visiting Scholar in the Research Department of the International Monetary Fund. I would like to thank Mario Blejer, Nadeem Ul-Haque, and Sweder Van Wijnbergen for helpful comments. The views expressed here do not necessarily represent the opinions of the International Monetary Fund.     

Consumption, house prices, and collateral constraints: a structural econometric analysis

If borrowing capacity of indebted households is tied to the value of their home, house prices should enter a correctly specified aggregate Euler equation for consumption. I develop a simple two-agent, dynamic general equilibrium model in which home (collateral) values affect debt capacity and consumption possibilities for a fraction of the households. I then derive and estimate an aggregate consumption Euler equation, and estimate its structural parameters. The results provide robust support for housing prices as a driving force of consumption fluctuations.     

Budget deficits and real interest rates: a regime-switching reflection on Ricardian Equivalence

This paper investigates the relevance of the Ricardian Equivalence theorem for the relationship between the budget deficit and real interest rate. In contrast to the existing literature, we focus on regime-change over a long study period and consider nonlinearities. Using a Markov regime-switching model applied to two centuries of annual data, we find evidence that the US economy switches between a Ricardian Equivalence regime, characterized by an insignificant relationship between the adjusted primary budget deficit and real long-term interest rate, and a regime characterized by the traditional view of a positive relationship. We also find evidence that the transition probabilities between regimes are time-varying insofar as a weaker level of economic activity, a lower real interest rate differential between the US and abroad, or higher national debts, is associated with a weaker relationship between budget deficits and interest rates.     

Degrees of tax indexation and nominal interest rates: Effects of inflation on incentives to save and invest

This paper examines the effects of inflation expectations on nominal interest rates, and incentives to save and invest under partial and complete tax indexation schemes. One would expect that a partially indexed structure would be better than a non-indexed system. However, this is not the case—it reduces the adverse effects of inflation on the incentives to save, but accentuates them on the incentives to invest. Moreover, a change from a non-indexed tax structure to a fully-indexed structure will, ceteris paribus, lead to lower equilibrium interest rates, whereas a switch to a partially indexed system will imply higher rates.

Using decision modeling to examine management consensus: A study of a maintenance management control system

Using a decision modeling approach, this research examined differences across levels of management in a large construction company concerning the criteria for a maintenance management control system. The six criteria were cost efficiency, productivity improvement, materials management, unification of work control, planning and scheduling, and information and retrieval. A decision-making exercise was constructed that asked the respondent to make recommendations concerning the approval or disapproval of 32 hypothetical maintenance management systems. Among the 60 managers who completed the exercise, there was evidence of significant differences across levels of management concerning the criteria for a maintenance management control system. Additionally, distortions were observed between what the managers said was important and what their decisions indicated. These data demonstrate that the decision modeling approach presented can be effectively used to examine the degree of consensus within an organization.     

Solution of a problem concerning a 6-person simple game from “theory of games and economic behavior” by von Neumann and Morgenstern

A particular 6-person simple game is examined; the question concerning the existence of solutions in special form is answered negatively.Versione definitiva pervenuta il 4-2-81     

Stability in consumer credit scores: Level and direction of FICO score drift as a precursor to mortgage default and prepayment

This article represents an extension of the expansive credit risk and credit migration literature, prominent in the corporate bond and securities risk pricing literature, to an analysis of the drift of consumer credit scores. A rich data set of residential mortgages is used to observe credit score migration post loan origination and in a test of the ability of credit score transition to serve as a precursor to potential default and prepayment. The results indicate credit scores provide signals and information to investors and servicing agents in a fashion similar to credit ratings on commercial paper as to default potential.     

Shocks and final straws: Using exit‐interview data to examine the unfolding model's decision paths

The unfolding model emphasizes the role of shocks (jarring events that initiate exit cognitions) in the turnover process. In contrast to earlier survey‐based research, we used exit interviews to classify organizational leavers along the model's paths. The data provide support for the model but highlight several aspects of shocks not addressed by previous research. Employees on the same path may experience distinctly different shock subgroups (e.g., work or nonwork), some employees require shock combinations (e.g., push and pull shocks) to motivate leaving, and some dissatisfied employees experience shock‐like events (final straws) that confirm previous exit cognitions rather than initiate them. The research demonstrates how organizations can use exit interviews to better understand their employee exit patterns. © 2012 Wiley Periodicals, Inc.     

General‐interest versus specialty journals: Using intellectual influence of econometrics research to rank economics journals and articles

This paper demonstrates the potential problem in using existing economics journal rankings to evaluate the research productivity of scholars by constructing a new ranking of economics journals and articles. Based on 2142 econometrics sample articles published from 2000 to 2005, our ranking results show that the intellectual influence of an econometrics article published in several econometrics/statistics journals is much higher than if it were published in the most prestigious general‐interest journal. Given that a study's potential influence is integrated into the submission decision, this suggests a substantial downward bias toward econometricians when existing rankings are used to evaluate their research productivity. Copyright © 2009 John Wiley & Sons, Ltd.     

Business ethics: A model to position a relative business ethics decision and a model to strengthen its application

The maxims of normative ethics are often in conflict. Thus business practitioners facing ethical questions often find themselves operating in the area of relative ethics. There are arguably two dimensions to this area. One lies on a spectrum from weak companies in highly competitive industries to strong companies in protected industries. The second dimension places the would-be ethical manager in awkward situations imposed from either the hierarchy or from corrupt markets. This article develops an analysis model to portray this relative ethics dilemma. Then, an argument is made that the more the individual manager practices good ethics, the higher the level of ethics the individual is able to maintain. This article proposes an adaptation of the 1950s feedback model of group dynamics known as the “Johari Window” to show this improvement in ethical behavior.     

Perceived risk and consumer decision making related to health services: a comparative study

It is acknowledged[Weinstein, N. and Nicolich, M. (1993) ‘Correct and Incorrect Interpretations of Correlation Between Risk Perceptions and Risk Behaviours’, Health Psychology, Vol. 12, No. 3, pp. 235–45.] that with the development of services marketing specifically related to health services comes a need to understand the aspects of consumer risk behaviour. This paper examines differences in perceived risk between health services, general services and goods and will seek to substantiate and develop a previous US study,[Murray, K. B. and Schlacter, J. L. (1990) ‘The Impact of Services Versus Goods on Consumer's Assessment of Perceived Risk and Variability’, Journal of the Academy of Marketing Science, Vol. 18, No. 1, pp. 51–65.] utilising a quantitative methodology with repeated measures and nested factors. The conclusions support the hypotheses that there are significant differences in perceptions of social and psychological risks when purchasing health services. Copyright © 2000 Henry Stewart Publications     

Convergence to competitive equilibria and elimination of no-trade (in a strategic market game with limit prices)

The strategic market games literature contains many results that predict Walrasian equilibria in the competitive limit. However, they usually come at the expense of ad hoc assumptions that rule out “pathological” no trade equilibria. This paper studies a strategic market game with limit prices. The set of Nash equilibrium allocations of this game converges to the set containing all competitive equilibria and no-trade, when players are replicated. Moreover, two rounds of iterated deletion of weakly dominated strategies eliminate the no-trade equilibria. Hence, replication paired with two rounds of iterated dominance gives a clean prediction of competitive equilibrium.     

Developing a decision rule to predict failure: The case of savings and loan associations

The relative costs of misclassifying institutions by their financial health is an issue that concerns researchers. In this paper, a model and decision rule are developed that improve the probability of identifying those Savings and Loans that are predicted not to fail, but are actually failing. For obvious reasons, stakeholders in those institutions are very much interested in avoiding this type I error. The study also makes available evidence that the examination of Z-scores can be useful in identifying other financial institutions that may experience financial failure.     

Allocation of public funds to R&;D: a portfolio choice-styled decision model and a biotechnology case study

A decision problem—allocating public research and development (R&D) funding—is faced by a planner who has ambiguous knowledge of welfare effects of the various research areas. We model this as a reverse portfolio choice problem faced by a Bayesian decision-maker. Two elements of the planner’s inferential system are developed: a conditional distribution of welfare ‘returns’ on an allocation, given stated preferences of citizens for the different areas, and a minimum risk criterion for re-allocating these funds, given the performance of a status quo level of funding. A case study of Canadian public research funds expended on various applications of agricultural biotechnology is provided. The decision-making methodology can accommodate a variety of collective expenditure and resource allocation problems.