Generic market models

Currently, there are two market models for valuation and risk management of interest rate derivatives: the LIBOR and swap market models. We introduce arbitrage-free constant maturity swap (CMS) market models and generic market models featuring forward rates that span periods other than the classical LIBOR and swap periods. We develop generic expressions for the drift terms occurring in the stochastic differential equation driving the forward rates under a single pricing measure. The generic market model is particularly apt for pricing of, e.g., Bermudan CMS swaptions and fixed-maturity Bermudan swaptions.     

Clinical outcomes and economic impact of transcatheter mitral leaflet repair in heart failure patients

Background: Mitral regurgitation (MR) is a common valvular heart disorder requiring intervention once it becomes severe. Transcatheter mitral repair with the MitraClip device is a safe and effective therapy for selected patients denied surgery. The authors sought to evaluate the clinical outcomes and economic impact of this therapy compared to medical management in heart-failure patients with symptomatic mitral regurgitation.

Methods and results: The study was comprised of two phases; an observational study of patients with heart failure and mitral regurgitation treated with either medical therapy or the MitraClip, and an economic model. Results of the observational study were used to estimate parameters for the decision model, which estimated costs, and benefits in a hypothetical cohort of patients with heart failure and moderate-to-severe mitral regurgitation treated with either standard medical therapy or MitraClip. The cohort of patients treated with the MitraClip was propensity matched to a population of heart failure patients, and their outcomes compared. At a mean follow-up of 22 months, all-cause mortality was 21% in the MitraClip cohort and 42% in the medical management cohort (p?=?.007). The decision model demonstrated that MitraClip increased life expectancy from 1.87–3.60 years and quality-adjusted life years (QALY) from 1.13–2.76 years. The incremental cost was $52,500 Canadian dollars, corresponding to an incremental cost-effectiveness ratio (ICER) of $32,300.00 per QALY gained. Results were sensitive to the survival benefit.

Conclusion: In heart failure patients with symptomatic moderate–severe mitral regurgitation, therapy with the MitraClip is associated with superior survival and is cost-effective compared to medical therapy.     

The essentiality of money in environments with centralized trade

Lagos and Wright (2005) introduced an influential model of monetary exchange in which trade alternates between centralized and decentralized markets and money is essential. A limitation of their model and of the literature that follows is that they do not provide a microfoundation for the process of exchange in the centralized market. In this paper, we show that how one models exchange in the centralized market matters for the essentiality of money by describing the centralized market as a strategic market game and studying conditions under which money is essential.     

Markets and relationships in a learning economy

It is generally agreed that within long-term relationships agents learn the characteristics of their market partners better than through spot transactions. In contrast, little is known on how relationship-based and transaction-based markets compare when agents learn about the aggregate economy from market exchanges. In this paper, we study the market structure that arises in an economy where agents learn the aggregate productivity from market exchanges. The model allows to relate the market structure to macroeconomic fundamentals such as the persistence and volatility of the aggregate productivity and the cross-sectional volatility of productivity.     

Customer preferences for customized household furniture

In the context of market globalization, furniture manufacturers attempt to differentiate their products to attain competitive advantages. Mass customization is one strategy enabling such differentiation. This study measured, through a choice-based conjoint analysis, the value that US American consumers assign to the availability of customization when buying furniture. Roughly 50% of consumers’ product choice is driven by price, 20% by product customization, 20% by delivery time, and 10% by the time needed to customize the product. Thus, while there is a customer segment driven by price, there also is a segment, consisting mainly of females, that values product customization.     

Informed finance and technological change: Evidence from credit relationships

This paper empirically investigates the effect of “informed finance” on technological change. The theoretical literature offers conflicting predictions on whether the information of financiers fosters or inhibits firms’ innovation. Using data from a sample of Italian manufacturing firms, we find that the information of firms’ main banks, proxied by the duration of credit relationships, promotes innovation. This positive effect is economically and statistically more significant for product than for process innovations. Nonetheless, the role of relationship banks in innovation is quite unsophisticated: they do not foster internal research but rather fund the relevant investments that the introduction and acquisition of new technologies entails.     

When territory matters: Employer associations and changing collective goods strategies

Recent research shows employer associations strategically responding to external challenges, from collective bargaining decentralisation, by altering their offerings of “selective” goods (to directly address threats to membership levels) and of “elective” goods (to revenues). Implicit is that traditional “collective goods” are irrelevant for achieving sustainability. That literature also suggests that territorial associations are more vulnerable than sectoral ones. In this qualitative, longitudinal comparative case study, we explore why and how two territorial associations, the largest each in Italy and Australia, have pursued sustainability by also innovatively enlarging their collective goods activities. This has involved shifting from bargaining leadership to promoting economic dynamism within their territories. Using metaorganisation theory and the resource‐based view, we explain how these associations realised their strategic advantages. Our evidence suggests that innovatively developing new collective goods may be another important way associations can improve their competitive positions.     

Monetary policy and EMU enlargement: Issues regarding ERM II and adoption of the euro in Estonia

The aim of the paper is to give an overview of the issues related to Estonia's entry into ERM II. For that purpose the article describes the official position of the Estonian authorities regarding entry into ERM II and the adoption of the euro, explains the rationale for early entry into ERM II, and presents the reasons for maintaining the currency board arrangement until full membership in EMU. Also, the challenges of the adoption of the euro are discussed. The article concludes that early entry into ERM II is appropriate as the perceived costs—short-term costs of fiscal consolidation and the cost of giving up independent monetary policy and flexible exchange rates as stabilization tools—are practically non-existent in Estonia. The paper argues that the high level of exchange rate stability and nominal convergence, relatively high flexibility of the economy, and integration with the euro area support the rationale for maintaining the currency board arrangement and adopting the euro early.     

International business cycles with domestic and foreign lenders

We examine the international transmission of business cycles in a two-country model where credit contracts are imperfectly enforceable. In our economy, foreign lenders differ from domestic lenders in their ability to recover value from borrowers’ assets and, therefore, to protect themselves against contractual non-enforceability. The relative importance of domestic and foreign credit frictions changes over the cycle. This induces entrepreneurs to adjust their debt exposure and allocation of collateral between domestic and foreign lenders in response to exogenous productivity shocks. We show that such a model can explain the comovement of output across countries.