Modeling multivariate extreme events using self-exciting point processes

We propose a model that can capture the typical features of multivariate extreme events observed in financial time series, namely, clustering behaviors in magnitudes and arrival times of multivariate extreme events, and time-varying dependence. The model is developed within the framework of the peaks-over-threshold approach in extreme value theory and relies on a Poisson process with self-exciting intensity. We discuss the properties of the model, treat its estimation, and address testing its goodness-of-fit. The model is applied to the return data of two stock markets.     

ADOPTING JAPANESE-STYLE MANUFACTURING METHODS: A TALE OF TWO (UK) FACTORIES*

Japanese manufacturing methods such as just-in-time production and total quality control are serving as a model of manufacturing organization which many UK manufacturers are currently emulating. This article describes the implementation of just-in-time production and its supporting practices in two factories owned by the same company. Empirical evidence demonstrates a profoundly political dimension to these innovations, requiring a significant rewriting of organizations’ political and cultural maps.     

IS THE REVENUE ALLOCATION SCHEME OF FORMULA ONE MOTOR RACING A CASE FOR EUROPEAN COMPETITION POLICY?

Recent allegations from participants of the FIA Formula One World Championship (F1) suggest that its authorities violate European competition law in two ways. First, they allegedly abuse market power by forcing unfavorable contracts on media revenue allocation upon teams as a whole and on smaller teams in particular (vertical allocation of media revenue). Second, they allegedly form a cartel with selected teams to the detriment of smaller teams by providing unjustified extra payments to these teams (horizontal allocation of media revenues). In doing so, the cartel members allegedly secure supracompetitive rents from the authorities and cement an unfair competitive advantage over the outsider teams. Employing concentration measures from empirical economics, we present an assessment of whether the current antitrust allegations against F1 may be considered valid or not. We show that the allocation scheme employed in F1 considerably differs from those in other professional sports championships. We find the empirical picture to be consistent with an anticompetitive interpretation of F1 media revenue structures and policies. We conclude that there is merit in initiating an in‐depth antitrust investigation of Formula One motor racing. (JEL K21, L12, L40, L83, Z20)     

On Invariant Coordinate System (ICS) Functionals

Equivariance and invariance issues often arise in multivariate statistical analysis. Statistical procedures have to be modified sometimes to obtain an affine equivariant or invariant version. This is often done by preprocessing the data, e.g., by standardizing the multivariate data or by transforming the data to an invariant coordinate system (ICS). In this paper, standardization of multivariate distributions and characteristics of ICS functionals and statistics are examined. Also, invariances up to some groups of transformations are discussed. Constructions of ICS functionals are addressed. In particular, the construction based on the use of two scatter matrix functionals presented by Tyler et al. (2009) and direct definitions based on the approach presented by Chaudhuri & Sengupta (1993) are examined. Diverse applications of ICS functionals are discussed.     

Bank behavior, incomplete interest rate pass-through, and the cost channel of monetary policy transmission

This paper employs a New Keynesian DSGE model to explore the role of banks within the cost channel of monetary policy transmission for shaping the interest rate pass-through from money market rates to loan rates. Banks extend loans to firms in an environment of monopolistic competition by setting their loan rates in a staggered way, which means that the adjustment of the aggregate loan rate to a monetary policy shock is sticky. We estimate the model for the euro area by adopting a minimum distance approach. Our findings exhibit that (i) financial costs are an important factor for price changes, (ii) frictions in the loan market have an effect on the propagation of monetary policy shocks as the pass-through from a change in money market rates to loan rates is incomplete, and (iii) the strength of the cost channel is mitigated as banks shelter firms from monetary policy shocks by smoothing loan rates.     

Cross-country evidence on the relation between stock prices and the current account

This article explores the relation between stock prices and the current account for 17 Organization for Economic Co-operation and Development (OECD) countries in 1980–2007. A panel Vector Autoregressive (VAR) model is used to compare the effects of stock price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have little effects, shocks to stock prices and exchange rates have sizeable effects. A 10% contraction in stock prices improves the current account by 0.3% after 2 years. Hence a channel – in addition to the traditional exchange rate channel – is found through which external balance for an OECD country with a current account imbalance can be restored.