Indirect inference with time series observed with error

We propose the indirect inference estimator as a consistent method to estimate the parameters of a structural model when the observed series are contaminated by measurement error by considering the noise as a structural feature. We show that the indirect inference estimates are asymptotically biased if the error is neglected. When the condition for identification is satisfied, the structural and measurement error parameters can be consistently estimated. The issues of identification and misspecification of measurement error are discussed in detail. We illustrate the reliability of this procedure in the estimation of stochastic volatility models based on realized volatility measures contaminated by microstructure noise.     

No more discount under enhanced fair value hierarchy

We use an integrated approach to analyse the reasons behind the discount on the balance-sheet fair value of illiquid financial instruments held by European banks and classified into the Level 3 Fair Value hierarchy under IFRS 7. We believe that the potential sources of misalignment are (1) the lack of disclosure, (2) earnings management, and (3) the lack of liquidity. We show that the discount implicit in market values is linked to the lack of mandatory additional disclosure required by IFRS 7 and that this result supports the strong enforcement activity made by national authorities.     

Do environmental variables affect the performance and technical efficiency of the European banking systems? A parametric analysis using the stochastic frontier approach

The paper compares the efficiency of the European banking systems in view of the constitution of the European Monetary Union. Since competition among banks will increase, it is important to identify the most efficient banking system able to play a role in that market. A parametric approach is adopted, based on the estimation of a stochastic cost frontier. This methodology enables one to measure X-inefficiency and to model it as a function of environmental variables which may influence firms' efficiency. By means of this analysis it is possible to identify the most efficient banking systems and to focus on the determinants of deviations from cost minimizing. The analysis highlights significant efficiency gaps among the performances of banks in different countries and of different institutional types. In particular, it is found that the Mittel-European model is the one that operates closest to the efficient frontier. This may indicate that, compared with separated banks, the universal banking system allows for production plans which come closer to the optimal frontier. The analysis suggests that, at the beginning of European Monetary Union, national barriers and regulatory frameworks are still responsible for deviation from the efficient frontiers.     

Intellectual property governance and knowledge creation in UK universities

The public discourse advocating increased patenting of academic discoveries, which has led to the approval of legislative measures (such as the Bayh–Dole Act, which is now adopted world-wide in various forms) is based on a set of theoretical arguments, mainly related to knowledge transfer and financial reward. Using an original survey of 46 universities (about 27%) in the UK, we investigate whether some of these arguments are supported by evidence. We focus on the extent to which patents, as opposed to other forms of intellectual property (IP) protection mechanisms, enhance knowledge circulation, and especially contribute to universities’ own knowledge creation processes. We also investigate whether universities consider the markets for ideas and creative expressions to function efficiently. We find that universities use all forms of IP intensively in order to transfer their knowledge to the industry or the government. However, they mainly rely on non-proprietary IP (open-source and no-patent strategies) when aiming to enhance their own knowledge-creation processes. Also, universities do not find that markets for patents or copyrights function more smoothly than non-proprietary IP marketplaces. The results challenge the orthodox theories on the rationales for patents and other proprietary IP rights. Thus, we question the assumptions and arguments underpinning the implementation of patents on academic research outcomes via political reforms since the 1980s.     

Credit constraints in Italian industrial districts

Italy is characterized by strong differences both in the productive and in the financial structure. Small and medium firms tend to concentrate in the so called ‘Marshallian industrial district’, whose productive system has been thoroughly studied but whose financial features are partially overlooked. This paper aims at investigating how the location of a firm in an industrial district affects its ability to resort to external finance, mostly bank loans. The econometric analysis on a panel of 1700 firms over the 1989–1995 period shows that firms located inside industrial districts have an advantage in terms of financial relations with the banking system: both the cost of credit and the probability to face financial constraints are lower. Nevertheless, the cyclical pattern of this advantage is not in favour of district firms: following the tightening of monetary policy, increases in interest rates on bank loans are proportionally higher for firms inside the district; furthermore, also the advantage consisting in an easier access to credit market disappears after the 1992–1993 recession.     

Intermittency and obsolescence: A Croston method with linear decay

Only two forecasting methods have been designed specifically for intermittent demand with possible demand obsolescence: Teunter–Syntetos–Babai (TSB) and Hyperbolic-Exponential Smoothing (HES). When an item becomes obsolete the TSB forecasts decay exponentially while those of HES decay hyperbolically. Both types of decay continue to predict nonzero demand indefinitely, and it would be preferable for forecasts to become zero after a finite time. We describe a third method, called Exponential Smoothing with Linear Decay, that decays linearly to zero in a finite time, is asymptotically the best method for handling obsolescence, and performs well in experiments on real and synthetic data.     

Economic valuation of product features

We develop a market-based paradigm to value the enhancement or addition of features to a product. We define the market value of a product or feature enhancement as the change in the equilibrium profits that would prevail with and without the enhancement. In order to compute changes in equilibrium profits, a valid demand system must be constructed to value the feature. The demand system must be supplemented by information on competitive offerings and cost. In many situations, demand data is either not available or not informative with respect to demand for a product feature. Conjoint methods can be used to construct the demand system via a set of designed survey-based experiments. We illustrate our methods using data on the demand for digital cameras and demonstrate how the profits-based metric provides very different answers than the standard welfare or Willingness-To-Pay calculations.     

(Un)expected retirement and the consumption puzzle

In this work we revisit the retirement consumption puzzle using Italian panel data. As emphasised in the literature, the observed consumption drop might be due to unexpected wealth shocks at retirement which modify optimal consumption plans. Using an Euler equation approach, we test the impact of unexpected retirement on the consumption patterns of individuals around the age of retirement by using the panel component of the Survey of Household Income and Wealth (SHIW). This dataset contains information on the expected age of retirement which can be used to distinguish between expected and unexpected retirement. Furthermore, we investigate the heterogeneous behaviour of individuals with different levels of education and wealth. We find evidence of a consumption drop at retirement especially for low educated people and individuals with little wealth. The consumption drop at retirement, on average, does not seem to be a response to unexpected retirement. Disaggregating our sample, we find that the consumption drop persists among low educated people with little wealth available, irrespective of whether retirement was expected or not. Highly educated people, conversely, do smooth their consumption, unless they have low wealth and are hit by an unexpected shock at retirement in which case they are forced to drop consumption.     

A state space augmentation algorithm for the replenishment cycle inventory policy

In this work we propose an efficient dynamic programming approach for computing replenishment cycle policy parameters under non-stationary stochastic demand and service level constraints. The replenishment cycle policy is a popular inventory control policy typically employed for dampening planning instability. The approach proposed in this work achieves a significant computational efficiency and it can solve any relevant size instance in trivial time. Our method exploits the well known concept of state space relaxation. A filtering procedure and an augmenting procedure for the state space graph are proposed. Starting from a relaxed state space graph our method tries to remove provably suboptimal arcs and states (filtering) and then it tries to efficiently build up (augmenting) a reduced state space graph representing the original problem. Our experimental results show that the filtering procedure and the augmenting procedure often generate a small filtered state space graph, which can be easily processed using dynamic programming in order to produce a solution for the original problem.