Monday returns and asset pricing

The seasonal patterns observed on Monday stock returns are still unexplained by different asset pricing models. We attempt to fill this gap in the finance literature by using the Fama-French (Journal of Financial Economics 33:3–56, 1993) risk factors to explain the Monday seasonal. The results in the study show that Monday returns are explained by risk factors such as the market return, the size of the firms, and the book-to-market ratios of firms.     

Roles played by financial development in economic growth: application of the flexible regression model

This study presents the nonlinear relationship that exists between financial development and economic growth. This study applies the flexible nonlinear regression model of Hamilton (Econometrica 69(3):537–573, 2001) because it imposes no specification restrictions. Two empirical results are obtained. First, an inverted U-shaped relation between banking sector development and economic growth is identified. Namely, the two variables are positively linked before the turning point, but negatively linked after it. Second, a positive relationship with asymmetric √-shape between stock market development and economic growth is found.     

An alternative bivariate zero-inflated negative binomial regression model using a copula

We propose an alternative bivariate zero-inflated negative binomial (BZINB) regression model based on a copula. The empirical result shows that the proposed model performs better than the existing BZINB models in terms of the maximum log-likelihood and the AIC.     

Gold dinar for the Islamic countries?

The Malaysian state of Kelantan has made a historical launch of Gold Dinar and Silver Dirham on 12th August 2010. For the first time in almost 100 years since the fall of the Ottoman Caliphate, a Muslim government introduces Shariah currency. In the eyes of many Muslim scholars, the present interest-based fiat monetary system is flawed as it is incompatible with the objectives of the Islamic law or the Shariah. There have been calls for the resurgence of Islamic Gold Dinar (together with the silver dirham) as it is deemed to be the most appropriate medium of exchange to be used in the Islamic economies. Using data from 1970 to 2007, this paper assesses the empirical desirability of the Organization of Islamic Conferences (OIC) countries to an alternative monetary system (Islamic Gold Dinar) that can potentially enhance the exchange rate stability and credibility. The Structural Vector Autoregression (VAR) method is employed to assess the nature of macroeconomic disturbances among the OIC countries. Specifically, the symmetry in macroeconomic disturbances of the OIC economies is examined as satisfying one of the preconditions for forming an Optimum Currency Area (OCA). In addition, this paper also investigates the output and price responses of OIC countries of the underlying structural shocks used to shed light on the suitability of these countries to form a monetary union. The preliminary findings of this study suggest the lack of broad linkages within the entire OIC, although there exists scope among some smaller clusters for potential monetary integration based on the symmetry of their business cycles.     

The distributional impact of large dams: Evidence from cropland productivity in Africa

We examine the distributional impact of large dams on cropland productivity in Africa. As our unit of analysis we use a hydrology based spatial breakdown of the continent that allows one to exactly define regions in terms of their upstream/downstream relationship at a highly disaggregated level. We then use satellite data to derive measures of cropland productivity within these areas. Our econometric analysis shows that while regions downstream benefit from large dams, no beneficial effects accrue to cropland within the vicinity. Moreover, we find that the productivity enhancing impact of upstream dams is dependent on the local climate. Overall our results suggest that upstream dams have quantitatively on average provided up to 12% of the minimum daily per capita amount of kilocalorie needs in downstream communities and increased agricultural production by 1%.     

Income distribution, efficiency and rationing

This paper studies the impacts of income distribution on the efficiency of trade mechanism and rationing of agents who are priced out of trade in a dynamic search model with two-sided asymmetric information. Buyers and sellers have asymmetric information about valuations and incomes respectively. In such a frictional environment, the effects of several variants of changes in income distribution on efficiency of trading mechanism and the population of rationed buyers and sellers are elaborated.     

Tourists and traditional divers in a common fishing ground

We study socio-ecological models for a fishing ground open to tourists. On Jeju Island, Korea, women traditional divers called “Haenyeo” harvest resources in a common fishing ground. To investigate the impact of introducing tourists on the benefit to the fishing association and the resource level, we examine two models that differ in the way the number of tourists is controlled. In the first model, the fishing association charges an entrance fee to tourists and the level of the fee is chosen to regulate tourist number. In the second, only a part of the fishing ground is made open to tourists, and the fraction of the ground open is chosen to control the tourist number. In both models, the fishing association seeks to maximize its total benefit. Analysis shows that the way the number of tourists increases with the availability of resources strongly influences the distribution of benefits among the fishing ground stakeholders. Finally, we discuss policy implications of our results and how local government can reduce the risk of introducing tourism.     

A dynamic two country Heckscher–Ohlin model with non-homothetic preferences

We examine the properties of a two-country dynamic Heckscher–Ohlin model that allows for preferences to be non-homothetic. We show that the model has a continuum of steady state equilibria under free trade, with the initial conditions determining which equilibrium will be attained. We establish conditions under which a static Heckscher–Ohlin theorem will hold in the steady state, and also conditions for a dynamic Heckscher–Ohlin theorem to hold. If both goods are normal, each country will have a unique autarkic steady state, and all steady state equilibria are saddle points. We also consider the case in which one good is inferior, and show that this can lead to multiple autarkic steady states, violations of the static Heckscher–Ohlin theorem in the steady state. Furthermore, there may exist steady state equilibria that Pareto dominate other steady states. These steady states will be unstable if discount factors are the same in each country, although they may exhibit dynamic indeterminacy if discount factors differ.     

Monetary–fiscal policy interactions and fiscal stimulus

Increases in government spending trigger substitution effects—both inter- and intra-temporal—and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption: higher future taxes create a strong negative wealth effect, while the active monetary response increases the real interest rate. This paper estimates Markov-switching policy rules for the United States and finds that monetary and fiscal policies fluctuate between active and passive behavior. When the estimated joint policy process is imposed on a conventional new Keynesian model, government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized. The paper reports the model's predictions of the macroeconomic impacts of the American Recovery and Reinvestment Act's implied path for government spending under alternative monetary–fiscal policy combinations.     

Inflation and the fiscal limit

We use a rational expectations framework to assess the implications of rising debt in an environment with a “fiscal limit”. The fiscal limit is defined as the point where the government no longer has the ability to finance higher debt levels by increasing taxes, so either an adjustment to fiscal spending or monetary policy must occur to stabilize debt. We give households a joint probability distribution over the various policy adjustments that may occur, as well as over the timing of when the fiscal limit is hit. One policy option that stabilizes debt is a passive monetary policy, which generates a burst of inflation that devalues the existing nominal debt stock. The probability of this outcome places upward pressure on inflation expectations and poses a substantial challenge to a central bank pursuing an inflation target. The distribution of outcomes for the path of future inflation has a fat right tail, revealing that only a small set of outcomes imply dire inflationary scenarios. Avoiding these scenarios, however, requires the fiscal authority to renege on some share of future promised transfers.