An Application of Convergence Theory to Japan's Post-WWII Economic “Miracle”

The author provides an interpretation of the post-World War II economic “miracle” of Japan as a process of economic convergence within the framework of the neoclassical Solow-Swan model of economic growth. He shows how the predictions of the Solow-Swan model are qualitatively consistent with the actual economic record of Japan in the decades following World War II. The article is intended to help in the teaching of economic growth and the Japanese economic miracle, either as part of a macroeconomics course or in an advanced elective course in economic growth and development or in Japan's modern economic history.     

A general closed-form spread option pricing formula

We propose a new accurate method for pricing European spread options by extending the lower bound approximation of Bjerksund and Stensland (2011) beyond the classical Black–Scholes framework. This is possible via a procedure requiring a univariate Fourier inversion. In addition, we are also able to obtain a new tight upper bound. Our method provides also an exact closed form solution via Fourier inversion of the exchange option price, generalizing the Margrabe (1978) formula. The method is applicable to models in which the joint characteristic function of the underlying assets forming the spread is known analytically. We test the performance of these new pricing algorithms performing numerical experiments on different stochastic dynamic models.     

Modelling Intra-Group Relationships

Within a group of companies, a model is given for management of the relationships between the parent company and its subsidiaries. This is particularly relevant for groups originating from mergers and takeovers, because firms acquired often differ substantially in organizational structure from each other and from the parent company. The model provides a means of harmonizing the organizational structures of parent company and subsidiaries, so as to provide a complete coverage of necessary activities without duplication, and a means of identifying which activities should, in economic terms, be centralized by the parent company, and which should be delegated to the subsidiary. Finally, there is an empirical application of the model to one of the principal Italian banking groups.     

A Reduced Rank Regression Approach to Coincident and Leading Indexes Building*

This paper proposes a reduced rank regression framework for constructing a coincident index (CI) and a leading index (LI). Based on a formal definition that requires that the first differences of the LI are the best linear predictor of the first differences of the CI, it is shown that the notion of polynomial serial correlation common features can be used to build these composite variables. Concepts and methods are illustrated by an empirical investigation of the US business cycle indicators.     

Back from Beyond the Bid–Ask Spread: Estimating Liquidity in International Markets

Research on the topic of liquidity has greatly benefited from the improved availability of data. Researchers have addressed questions regarding the factors that influence bid–ask spreads and the relationship between spreads and risk, return and liquidity. Intraday data have been used to measure the effective spread, and researchers have been able to refine the concepts of liquidity to include the price impact of transactions on a trade-by-trade analysis. The growth in the creation of tax-transparent securities has greatly enhanced the visibility of securitized real estate, and has naturally led to the question of whether the increased visibility of real estate has caused market liquidity to change. Although the growth in the public market for securitized real estate has occurred in international markets, it has not been accompanied by universal publication of transaction data. Therefore, this article develops an aggregate daily data-based test for liquidity and applies the test to U.S. data in order to check for consistency with the results of prior intraday analysis. If the two approaches produce similar results, we can apply the same technique to markets in which less detailed data are available and offer conclusions on the liquidity of a wider set of markets.     

Procedural fairness in lotteries assigning initial roles in a dynamic setting

We extend the study of procedural fairness in three new directions. Firstly, we focus on lotteries determining the initial roles in a two-person game. One of the roles carries a potential advantage over the other. All the experimental literature has thus far focused on lotteries determining the final payoffs of a game. Secondly, we modify procedural fairness in a dynamic—i.e. over several repetitions of a game—as well as in a static—i.e. within a single game-sense. Thirdly, we analyse whether assigning individuals a minimal chance of achieving an advantaged position is enough to make them willing to accept substantially more inequality. We find that procedural fairness matters under all of these accounts. Individuals clearly respond to the degree of fairness in assigning initial roles, appraise contexts that are dynamically fair more positively than contexts that are not, and are generally more willing to accept unequal outcomes when they are granted a minimal opportunity to acquire the advantaged position. Unexpectedly, granting full equality of opportunity does not lead to the highest efficiency.     

Trade liberalization and the wage gap: the role of vertical linkages and fixed costs

This paper studies the labor market impacts of trade liberalization, and specifically tariff reductions, with a focus on the wage gap between skilled and unskilled workers in presence of vertical linkages in the fixed costs of production. To that purpose, we develop and empirically test a monopolistic competition model with variable elasticity of substitution and labor differentiated by skill level, where skilled workers are the residual claimants of savings on imported inputs. Consistently with the model predictions, we find that a 10% reduction in tariffs implies on average a 3.8% increase in the wage gap. In addition, the same level of tariff reduction is expected to lower unskilled employment in domestic production by 3.3%, which is partially offset by an expansion of unskilled employment in the export segment of production. These results are obtained matching detailed international trade data with World Input–Output Tables and EU KLEMS data on country-sector wage by skill level on 17 OECD countries from 1996 to 2005.     

Linear-quadratic approximation of optimal policy problems

We consider a general class of nonlinear optimal policy problems with forward-looking constraints, and show how to derive a problem with linear constraints and a quadratic objective that approximates the exact problem. The solution to the LQ approximate problem represents a local linear approximation to optimal policy from the “timeless perspective” proposed in Benigno and Woodford (2004, 2005) [6], [7], in the case of small enough stochastic disturbances. We also derive the second-order conditions for the LQ problem to have a solution, and show how to correctly rank alternative simple policy rules, again in the case of small enough shocks.     

Consumers’ attitudes,trust and willingness to pay for food information

Market failure can be corrected using different regulatory approaches ranging from high to low intervention. Recently, classic regulations have been criticized as costly and economically irrational, and thus, policy makers are giving more consideration to soft regulatory techniques such as information remedies. However, despite the plethora of food information conveyed by different media there appears to be a lack of studies exploring how consumers evaluate this information and how trust towards publishers influence their choices for food information. In order to fill such a gap, this study investigates questions related to topics that are more relevant to consumers, who should disseminate trustful food information, and how communication should be conveyed and segmented. Primary data were collected both through qualitative (in‐depth interviews and focus groups) and quantitative research (web and mail surveys). Attitudes, willingness to pay (WTP) for food information and trust towards public and private sources conveying information through a new food magazine were assessed using both multivariate statistical methods and econometric analysis. The study shows that consumer attitudes towards food information topics can be summarized along three cognitive‐affective dimensions: the agro‐food system, enjoyment and wellness. Information related to health risks caused by nutritional disorders and food safety issues caused by bacteria and chemical substances is the most important for about 90% of respondents. Food information related to regulations and traditions is also considered important for more than two‐thirds of respondents, whereas information about food production and processing techniques, lifestyle and food fads are considered less important by the majority of respondents. Trust towards food information disseminated by public bodies is higher than that observed for private bodies. This behaviour directly affects WTP for food information provided by public and private publishers when markets are shocked by a food safety incident. WTP for consumer association (€1.80) and the European Food Safety Authority (€1.30) are higher than WTP for the independent and food industry publishers that cluster around zero euro. Furthermore, trust towards the type of publisher also plays a key role in food information market segmentation together with socio‐demographic and economic variables such as gender, age, presence of children and income. These findings invite policy makers to reflect on the possibility of using information remedies conveyed using trusted sources of information to specific segments of consumers as an interesting soft alternative to the classic way of regulating modern food markets. JEL codes: D12, D18, D89, Q18.