Effects of mineral-commodity price shocks on monetary policy in developed countries

This article investigates effects of changes in mineral commodity prices on monetary policy. Using macroeconomic data from three mineral-producing countries (Australia, Canada and New Zealand) and two non-mineral-resource countries (USA and UK), I estimate the impulse response functions of the policy interest rates and the core consumer price index (CPI) inflation rates to mineral-commodity price shocks. I find that the central banks in both groups of the examined countries significantly respond to mineral-commodity price shocks. In responses to an unexpected 10% increase in mineral commodity prices, the central banks are estimated to increase their policy interest rates by approximately 0.8 percentage points. Moreover, the central banks seem to take anticipatory policy reactions to control core CPI variations triggered by these shocks. Thus, mineral commodity prices would act as important determinants of the monetary policies in both groups of the examined countries. These findings would be useful for analysing Taylor rules in their countries. However, effects of the increase in their policy interest rates on core CPI inflation cannot be identified for the examined countries.     

Risk-free bond prices in incomplete markets with recursive multiple-prior utilities

We consider an exchange economy under uncertainty, in which agents' utility functions may be recursive and the expected utility calculation may be based on multiple priors. The utility functions representing risk attitudes and intertemporal substitution are negative exponential functions. These utility functions and the access to asset markets may arbitrarily differ across agents. We prove that the risk-free bond price goes down (and the interest rate goes up) monotonically as the market incompleteness diminishes. We also find the range of equilibrium bond prices that depends on the primitives of the economy but not on the structures of asset markets.     

An experimental approach to the effectiveness of an incentive system against moral hazard in the insurance market

Although traditional Japanese insurance theory has tended to assume the basic altruism of policyholders, this assumption may not be warranted. Many people might be opportunists rather than altruists. So in the actual insurance market, moral hazard may occur not accidentally but naturally. Without effective incentive mechanisms, policyholders may deviate from their original purpose. It is important to design penalties as negative incentives for the control and prevention of moral hazard. We test these propositions here by means of a game theory and questionnaire. The reason why we use a game theory and carry out the questionnaire is that it is not suitable to apply the econometric model to collect reliable data about moral hazard.     

Noisy selection model and the evolution of firm size and within-firm earnings distributions: a unified approach

Striking parallels observed in the evolution of firm size and within-firm earnings distributions over time are documented. At the time of entry, the distribution of the whole sample and that of eventual survivors look similar, but the distribution of survivors subsequently shifts to the right. The left tails thins out while the right tail thickens, and the variance increases. While separate theories in industrial organization and labor literature are offered to account for this evidence, we demonstrate that it can be explained in a unified framework presented by noisy selection. In particular, we show explicitly that noisy selection implies the shift of the conditional distribution to the right because less efficient workers (firms) face higher hazard rates before their true efficiency is revealed with certainty.     

Auctions with options to re-auction

A seller has one unit to sell using an English auction mechanism similar to internet auction markets, such as eBay. Bidders appear according to a random arrival process. The seller chooses a reserve price and duration for each auction. If the reserve is not met, the seller passes in the object and conducts another auction with a new, randomly chosen, set of bidders. We distinguish reserves that embody an institutional commitment not to sell below that price, from those that do not. In each case, we find the optimal reserve price and the optimal auction duration. Without price commitment, the equilibrium reserve is too low for allocative efficiency, whereas the optimal reserve with commitment is shown to be too high when the distribution of bidder valuations exhibits an increasing hazard rate. It might even be socially preferable to allow reserve price commitments. With respect to duration, a version of the Diamond paradox afflicts sellers who cannot commit to price; auctions facilitate valuable duration commitments that increase buyer competition and raise expected revenue. With commitment, price posting (equivalent to a zero-length auction) is the dominant selling mechanism.     

Bootstrapping Smooth Functions of Slope Parameters and Innovation Variances in VAR(∞) Models*

It is common to conduct bootstrap inference in vector autoregressive (VAR) models based on the assumption that the underlying data‐generating process is of finite‐lag order. This assumption is implausible in practice. We establish the asymptotic validity of the residual‐based bootstrap method for smooth functions of VAR slope parameters and innovation variances under the alternative assumption that a sequence of finite‐lag order VAR models is fitted to data generated by a VAR process of possibly infinite order. This class of statistics includes measures of predictability and orthogonalized impulse responses and variance decompositions. Our approach provides an alternative to the use of the asymptotic normal approximation and can be used even in the absence of closed‐form solutions for the variance of the estimator. We illustrate the practical relevance of our findings for applied work, including the evaluation of macroeconomic models.     

A Partial Rehabilitation of Hotelling's MC-Pricing Theorem

Harold Hotelling's celebrated theorem on the optimality of marginal cost pricing was criticized first by Frisch and later by Silberberg on the grounds that he did not use the marginal cost pricing condition in his original proof and hence that it did not constitute a valid proof. This note demonstrates that a key equation in Hotelling's proof is locally satisfied if and only if prices are set equal to marginal cost at the initial equilibrium and reexamines the validity of Hotelling's proof.     

International bimetallism and silver absorption in Singapore, 1840–73

This study reveals the mechanism underlying the silver trade in Singapore during the third quarter of the nineteenth century by analysing banking business and bullion arbitrage. After 1849, the California Gold Rush induced gold depreciation and silver appreciation in Singapore's bullion market, and arbitrage profits for silver imports from Britain emerged. At the same time, the expansion of banking business by eastern exchange banks enhanced the connectivity of Singapore's exchange market with London, and enabled bullion arbitrage between the two distant cities. As a result, there was an influx of silver from Britain. In addition, Dutch silver, which was exported to Java by the Netherlands after 1854, flowed into Singapore due to the unfavourable exchange policy of the Dutch government.     

Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?

Asymmetric auctions are among the most rapidly growing areas in the auction literature. The potential benefits from intensified auction competition could be enormous in the public procurement context. Entrant bidders are considered a key to enhance competition and break potential collusive arrangements among incumbent bidders. Asymmetric auction theory predicts that weak (fringe) bidders would bid more aggressively when they are faced with a strong (incumbent) opponent. Using data from official development projects, this paper shows that entrants actually submitted aggressive bids in the presence of incumbent(s) in the road sector and to a certain extent in the water sector. For electricity projects, the general competition effect is found to be particularly significant, but the entrant effect remains unclear. The results suggest that auctioneers should foster competition in public procurement, including fringe bidders, to contain public infrastructure investment costs.