An analysis of the effect of noise in a heterogeneous agent financial market model

Heterogeneous agent models (HAMs) in finance and economics are often characterised by high dimensional nonlinear stochastic differential or difference systems. Because of the complexity of the interaction between the nonlinearities and noise, a commonly used, often called indirect, approach to the study of HAMs combines theoretical analysis of the underlying deterministic skeleton with numerical analysis of the stochastic model. However, it is well known that this indirect approach may not properly characterise the nature of the stochastic model. This paper aims to tackle this issue by developing a direct and analytical approach to the analysis of a stochastic model of speculative price dynamics involving two types of agents, fundamentalists and chartists, and the market price equilibria of which can be characterised by the stationary measures of a stochastic dynamical system. Using the stochastic method of averaging and stochastic bifurcation theory, we show that the stochastic model displays behaviour consistent with that of the underlying deterministic model when the time lag in the formation of price trends used by the chartists is far away from zero. However, when this lag approaches zero, such consistency breaks down.     

The financial instability hypothesis: A stochastic microfoundation framework

This paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy. The analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model with firms that have heterogeneous capital structures. The model is solved both numerically and analytically, by means of a stochastic approximation that is able to replicate quite well the numerical solution. These methodologies, by overcoming the restrictions imposed by the traditional microfounded approach, enable us to provide some insights into the stabilization policies which may be effective in a financially fragile system.     

Correct cointegration tests of the long-run relationship between nominal interest and inflation

The Fisher (1930) hypothesis suggests that a long-run equilibrium relationship exists between the non-stationary series: nominal interest and expected inflation. Testing such a cointegrating relationship is complicated by the presence of the unobserved ex antereal rate of interest in residuals from the cointegrating regression. Assumptions concerning the stochastic properties of the expected real rate of interest are examined, and two proxies for the ex antereal rate are employed in multivariate cointegration tests of the Fisher hypothesis.     

Trade and Turnover: Theory and Evidence

Is the pattern of trade correlated with cross‐sector differences in job turnover? Theoretically, external shocks feed through to changes in domestic employment and cross‐sector differences in turnover give rise to compensating wage differentials, which feed through to output prices. Using two different datasets on turnover, we find strong evidence that normalized US net exports by sector are negatively correlated with job destruction and worker separation rates. Weaker evidence suggests a positive correlation between normalized net exports and job acquisition. Using sector‐specific job destruction data for both Canada and the US, we find confirmation of the theoretical prediction that normalized net exports to Canada are negatively related to the ratio of the US job destruction rate to the Canadian job destruction rate.     

A preference free partial differential equation for the term structure of interest rates

The objectives of this paper are two-fold: the first is the reconciliation of the differences between the Vasicek and the Heath-Jarrow-Morton approaches to the modelling of term structure of interest rates. We demonstrate that under certain (not empirically unreasonable) assumptions prices of interest-rate sensitive claims within the Heath-Jarrow-Morton framework can be expressed as a partial differential equation which both is preference-free and matches the currently observed yield curve. This partial differential equation is shown to be equivalent to the extended Vasicek model of Hull and White. The second is the pricing of interest rate claims in this framework. The preference free partial differential equation that we obtain has the added advantage that it allows us to bring to bear on the problem of evaluating American style contingent claims in a stochastic interest rate environment the various numerical techniques for solving free boundary value problems which have been developed in recent years such as the method of lines.     

Tipped Wage Effects on Earnings and Employment in Full‐Service Restaurants

We exploit more than 20 years of changes in state‐level tipped wage policy and estimate earnings and employment effects of the tipped wage using county‐level panel data on full‐service restaurants (FSR). We extend earlier work by Dube, Lester, and Reich ( 2010 ) and compare outcomes between contiguous counties that straddle a state border. We find a 10‐percent increase in the tipped wage increases earnings in FSRs about 0.4 percent. Employment elasticities are sensitive to the inclusion of controls for unobserved spatial heterogeneity. In our preferred models, we find small, insignificant effects of the tipped wage on FSR employment.     

RESILIENCE AND ADAPTATION IN GENTRIFYING URBAN INDUSTRIAL DISTRICTS: The Experience of Cultural Manufacturers in San Francisco and Melbourne

Recent urban scholarship shows how zoning and real estate dynamics shape ongoing processes of gentrification and deindustrialization. While studies demonstrate the impact of planning and property market pressures on the arts, less research has examined their effect on urban manufacturers in gentrifying industrial districts. Given the differential impact of zoning and real estate pressures, our research focuses specifically on how ‘cultural manufacturers’ negotiate changing land use patterns in gentrifying urban industrial areas in San Francisco and Melbourne. Our findings show how cultural manufacturers develop flexible workspace arrangements, business models and professional networks to negotiate urban restructuring and avoid displacement. Though innovative, these survival strategies provide limited ability to navigate structural barriers. Here, the presence of intermediary organizations can help coordinate a strategic response to industrial gentrification and indifferent planning policy. In our research we highlight the everyday practices of adaptation and collective action in an under-researched cultural sector to provide a counterweight to macro-scale transitional narratives. While cities have deindustrialized owing to technological and competitive pressures, to focus exclusively on this misses a range of resilience practices that have sustained manufacturers in restructuring cities.