Exogeneity in structural equation models

The practical relevance of several concepts of exogeneity of treatments for the estimation of causal parameters based on observational data are discussed. We show that the traditional concepts, such as strong ignorability and weak and super-exogeneity, are too restrictive if interest lies in average effects (i.e. not on distributional effects of the treatment). We suggest a new definition of exogeneity, KL-exogeneity. It does not rely on distributional assumptions and is not based on counterfactual random variables. As a consequence it can be empirically tested using a proposed test that is simple to implement and is distribution-free.     

Engineers’ non-scientific models in technology education

Engineers commonly use rules, theories and models that lack scientific justification. Examples include rules of thumb based on experience, but also models based on obsolete science or folk theories. Centrifugal forces, heat and cold as substances, and sucking vacuum all belong to the latter group. These models contradict scientific knowledge, but are useful for prediction in limited contexts and they are used for this when convenient. Engineers’ work is a common prototype for the pupils’ work with product development and systematic problem solving during technology lessons. Therefore pupils should be allowed to use the engineers’ non-scientific models as well as scientific ones when doing design work in school technology. The acceptance of the non-scientific models for action guidance could be experienced as contradictory by pupils and teachers alike: a model that is allowed, or even encouraged in technology class is considered wrong when doing science. To account for this, different epistemological frameworks must be used in science and technology. Technology is first and foremost what leads to useful results, not about finding the truth or generally applicable laws. This could cause pedagogical problems, but also provide useful examples to explain the limitations of models, the relation between model and reality, and the differences between science and technology.     

Derivative Usage by Nonfinancial Firms in Sweden with an International Comparison

This paper provides survey evidence on the use of derivatives among Swedish nonfinancial firms. The evidence is compared with the findings by Bodnar et al. (1995, 1996) and Berkman et al. (1997) for the USA and New Zealand, respectively. By comparing firms in Sweden with firms in New Zealand and the USA differences in derivative usage can be related to differences in their underlying economies and history of trading in derivatives. Among other issues, the results showed that (1) 52% of the nonfinancial firms in Sweden used derivatives compared with 53% in New Zealand and 39% in the USA; (2) the usage of derivatives was more common among larger than among smaller firms; (3) the principal use of derivatives was for hedging purposes and those firms that engaged in speculative activity tended to be larger rather than smaller firms; and (4) lack of knowledge about derivatives within the firm was the issue of most concern for financial directors. The latter was in contrast with the USA where lack of knowledge was the issue of least concern.     

The rise of risk: risk related bills submitted to the Swedish parliament in 1964-65 and 1993-95

Bills submitted to the Swedish parliament in 1964-65 and in 1993-95 were scored according to their major concern: risk, resource allocation or resource growth. It was found that risk related bills had increased strongly, from 11% to 28%, implying that currently almost a third of all bills in the Swedish parliament are related to risk issues. The absolute number of risk bills increased by a factor of four. Resource allocation bills, on the other hand, decreased strongly, and resource growth bills, a minority of bills, remained at a relatively low level. All parties except the Conservatives showed a strong trend towards increased risk concern, especially the Social Democrats. The most frequently encountered type of risks in the 60s were health related, while environmental risks predominated in the 90s. These changes are discussed in relation to the hypothesis that risks become more important during periods of slower economic growth. It is concluded that risk is currently a very important issue on the Swedish political agenda.     

EVALUATING HEDGING ERRORS: AN ASYMPTOTIC APPROACH

We propose a methodology for evaluating the hedging errors of derivative securities due to the discreteness of trading times or the observation times of market prices, or both. Utilizing a weak convergence approach, we derive the asymptotic distributions of the hedging errors as the discreteness disappears in several situations. First, we examine the hedging error due to discrete-time trading when the true strategy is known, which generalizes the result of Bertsimas, Kogan, and Lo (2000) to continuous Itô processes. Then we consider a data-driven strategy, when the true strategy is unknown. This strategy is free of parametric model assumptions, therefore it is expected to serve as a benchmark for the evaluation of parametric strategies. Finally, we consider a case study of the Black-Scholes delta-hedging strategy when the volatility is unknown in the proposed framework. The results obtained give us a prospect for further developments of the framework under which various parametric strategies could be compared in a unified manner.     

A three state model of worker flows in general equilibrium

We develop a simple model featuring search frictions and a nondegenerate labor supply decision along the extensive margin. The model is a standard version of the neoclassical growth model with indivisible labor and idiosyncratic productivity shocks and frictions characterized by employment loss and employment opportunity arrival shocks. We argue that it is able to account for the key features of observed labor market flows for reasonable parameter values. Persistent idiosyncratic productivity shocks play a key role in allowing the model to match the persistence of the employment and out of the labor force states found in individual labor market histories.     

Edgeworth expansions for realized volatility and related estimators

This paper shows that the asymptotic normal approximation is often insufficiently accurate for volatility estimators based on high frequency data. To remedy this, we derive Edgeworth expansions for such estimators. The expansions are developed in the framework of small-noise asymptotics. The results have application to Cornish–Fisher inversion and help setting intervals more accurately than those relying on normal distribution.     

Bank Financing for SMEs: Evidence Across Countries and Bank Ownership Types

Using data for 91 large banks from 45 countries, this paper finds that foreign, domestic private, and government-owned banks use different lending technologies and organizational structures for SME financing. The extent, type, and pricing of SME loans, however, is not strongly correlated with lending technologies and organizational structures, suggesting that SME financing need not be based only on ??relationship lending??. Consistent with these results, we find few significant differences in the extent, type, and pricing of SME loans across bank types. Instead, we find significant differences across developed and developing countries, driven by differences in the institutional and legal environment.     

Foreign ownership and investment: do firms locate investments close to the headquarter?

Using an international panel data set of the European pulp and paper industry, we address the issue of a possible home-bias effect for real investments in plants with foreign and domestic locations. We find that there is no effect after controlling for firm effects and plant and firm size. These findings are rubust to a number of different econometric specifications, including a difference-in-difference approach. Our findings appear to be relevant for the debate on the effect of foreign takeovers. As far as we are aware, home-bias effects in real investments within multinational firms have not been studied previously.     

Worker Absenteeism in Search Equilibrium*

In this paper we introduce a general equilibrium model of search unemployment that incorporates absence from work as a distinct labor force state. Absenteeism is driven by random shocks to the value of leisure that are private information to the workers. Firms maximize profits while recognizing that the compensation package may affect the queue of job applicants and the absence rate. The analysis provides results concerning the effects of social insurance benefits and other determinants of workers' and firms' behavior. The normative analysis identifies externalities associated with firm‐provided sick pay and examines the welfare implications of alternative policies.