SECONDARY MORTGAGE MARKET PURCHASE COMMITMENT YIELDS

We provide empirical evidence that quoted secondary market mortgage yields conform to the predictions of option theory. We compare Fannie Mae and Freddie Mac origination yields offered in the secondary market from 1985 to 2003 with the predictions of a two‐state binomial mortgage option valuation model. Our two‐state approach considers a mean‐reverting interest rate process as well as a stochastic housing price. Using predictions from option simulations, we find strong links between market practice and mortgage option prepayment and default factors over time. We also find cross‐sectional differences that are consistent with the institutional structure of the markets.     

Broad‐based Agricultural Development versus Food Self‐sufficiency: A General Equilibrium Analysis in India

Intersectoral linkages are analysed using a CGE model based on a SAM constructed from Indian national accounts data for 1988–89. The model includes the rural non‐farm sector, public sector production and aspects of public policy. Evidence supports the arguments of Chakravarty (1987) and Ahluwalia (1986) regarding the importance of broad‐based agricultural development as opposed to increased production in the food sector alone aimed at achieving food self‐sufficiency.     

Value-based Business Strategy

This paper offers an exact definition of the value created by firms together with their suppliers and buyers. The "added value" of a firm is similarly defined, and shown under certain conditions to impose an upper bound on how much value the firm can capture. The key to a firm's achieving a positive added value is the existence of asymmetries between the firm and other firms. The paper identifies four routes ("value-based" strategies) that lead to the creation of such asymmetries. Our analysis reveals the equal importance of a firm's supplier and buyer relations. Cooperative game theory provides the underpinnings of the analysis.     

RT Delphi: An efficient, “round-less” almost real time Delphi method

The authors have recently developed a new approach to performing a Delphi study that does not involve the use of sequential “rounds” and as a result, greatly improves the efficiency of the process and shortens the time to perform such studies. This paper describes this process, RT Delphi, and illustrates its use in a decision-making application drawn from the Millennium Project of the American Council for the United Nations University. The illustrative application involves setting priorities among strategies for dealing with anticipated terrorist activities that might be initiated by a single deranged individual.     

Learning Dynamics with Private and Public Signals

This paper studies the dynamics of learning in a model of technology adoption. Firms learn about an unknown technology by observing both private and public signals. Because of the externality associated with the public signal, the social planner has firms experiment more in the initial period of the model, relative to the market equilibrium. In certain cases, this more rapid generation of information results in the planner experimenting less in later periods of the model. In contrast, typical models with public signals result in the planner inducing more experimentation in all periods of the model relative to the market equilibrium. I would like to thank Matt Mitchell and Tom Holmes for their advice and encouragement. I would also like to thank Thor Koeppl, Cyril Monnet, John Stevens, and Jason Cummins, and two anonymous referees for their helpful comments. This paper is the second chapter of my dissertation. The views expressed herein are my own and not necessarily those of the Bureau of Economic Analysis or the US Department of Commerce.     

Spectral risk measures and portfolio selection

This paper deals with risk measurement and portfolio optimization under risk constraints. Firstly we give an overview of risk assessment from the viewpoint of risk theory, focusing on moment-based, distortion and spectral risk measures. We subsequently apply these ideas to an asset management framework using a database of hedge funds returns chosen for their non-Gaussian features. We deal with the problem of portfolio optimization under risk constraints and lead a comparative analysis of efficient portfolios. We show some robustness of optimal portfolios with respect to the choice of risk measure. Unsurprisingly, risk measures that emphasize large losses lead to slightly more diversified portfolios. However, risk measures that account primarily for worst case scenarios overweight funds with smaller tails which mitigates the relevance of diversification.     

Confidence sets for partially identified parameters that satisfy a finite number of moment inequalities

This paper proposes a computationally simple way to construct confidence sets for a parameter of interest in models comprised of moment inequalities. Building on results from the literature on multivariate one-sided tests, I show how to test the hypothesis that any particular parameter value is logically consistent with the maintained moment inequalities. The associated test statistic has an asymptotic chi-bar-square distribution, and can be inverted to construct an asymptotic confidence set for the parameter of interest, even if that parameter is only partially identified. Critical values for the test are easily computed, and a Monte Carlo study demonstrates implementation and finite sample performance.     

Risks,Resilience, and Reforms: Indonesia’s Financial System in 2019

Indonesia has managed the complex challenges of the global economy well. The country's capital outflows were smaller in 2018 than during the Taper Tantrum in 2013; the rupiah had regained most of its lost ground by January 2019; the Indonesian stock market has outperformed its peers; growth is forecast to remain stable; inflation is low; unemployment remains below its five-year average; consumer and business confidence are robust; and the government budget has improved through a smaller deficit and cheaper borrowing costs. But significant risks remain. This paper assesses these risks and evaluates the adequacy of Indonesia's crisis management framework. It finds that the framework has serious deficiencies that could see liquidity challenges become systemic solvency crises. The framework effectively removes Bank Indonesia as the lender of last resort, risks politicising the process of crisis response, and could mean slower, less effective responses to crises. This paper explores how the framework could be improved and what reforms could be undertaken to deepen Indonesia's financial system, strengthen financial resilience, and boost the long-term growth outlook.