Communicating quality: a unified model of disclosure and signalling

Firms communicate product quality to consumers through a variety of channels. Economic models of such communication take two alternative forms when quality is exogenous: (i) disclosure of quality through a credible direct claim; or (ii) signalling of quality via producer actions that influence buyers' beliefs about quality. In general, these two literatures have ignored one another. We argue that firms should be viewed as choosing which means of communication they will employ. We show that integration of these two alternatives leads to new implications about disclosure, signalling, firm preferences over type, and the social efficiency of the channel of communication employed.     

Pricing Options under Generalized GARCH and Stochastic Volatility Processes

In this paper, we develop an efficient lattice algorithm to price European and American options under discrete time GARCH processes. We show that this algorithm is easily extended to price options under generalized GARCH processes, with many of the existing stochastic volatility bivariate diffusion models appearing as limiting cases. We establish one unifying algorithm that can price options under almost all existing GARCH specifications as well as under a large family of bivariate diffusions in which volatility follows its own, perhaps correlated, process.     

The use of Research Planning Diagrams

Abstract . The use of Research Planning Diagrams as an aid for project planning and evaluation is described. A computerized simulation technique for the analysis of the probabilities associated with a diagram is illustrated by means of a worked example.     

Regime-switching and interest rates in the European monetary system

This paper examines the impact that a currency target zone has on short-term interest rates. For a number of countries in the European Monetary System, we characterize the short rate using a regime-switching model that allows for a differently parameterized mean-reverting square-root process in each regime. We find that the volatility, the level, and the speed-of-adjustment are all higher in the regime that is operative during speculative attacks and currency crises. Moreover, we allow the conditional probability of being in each regime to be state-dependent so the model can be used to examine questions relating to the likelihood of realignments and the stability of the target zone system.     

Do the Rich Stay Unemployed Longer? An Empirical Study for the UK

This paper investigates the impact of individual asset holdings on the probability of leaving unemployment. According to the theory, higher levels of financial wealth will result in higher reservation wages and longer unemployment durations. I estimate the impact of financial assets on the hazard rate, using data for Great Britain. The empirical findings indicate that individual asset holdings affect significantly the escape rate out of unemployment. In particular, negative (positive) levels of wealth increase (reduce) the hazard of leaving unemployment. The size of the impact is, however, rather small. Increasing by 100% the level of wealth of a representative individual, with net wealth and other individual characteristics equal to the sample mean, increases the duration of the unemployment spell by half a week.