Should inflation-targeting central banks respond to exchange rate movements?

This paper examines whether it is optimal for inflation-targeting central banks to respond to exchange-rate movements. The paper finds that exchange-rate movements can provide a signal on the developments in the economy that the central bank cannot perfectly observe. The results suggest that when the degrees of exchange-rate pass-through and international financial integration are high, it is optimal for the central bank to pay more attentions to exchange-rate movements. These results however depend on two conditions: 1) the ability of the central bank to observe the true exchange-rate process and 2) the number of real frictions in the model economy.     

Relation between time-series and cross-sectional effects of idiosyncratic variance on stock returns

Consistent with the post-1962 US evidence by Ang et al. [Ang, A., Hodrick, R., Xing Y., Zhang, X., 2006. The cross-section of volatility and expected returns. Journal of Finance 51, 259–299], we find that stocks with high idiosyncratic variance (IV) have low CAPM-adjusted expected returns in both pre-1962 US and modern G7 data. We also test in three ways the conjecture that IV is a proxy of systematic risk. First, the return difference between low and high IV stocks – that we dub as IVF – is a priced factor in the cross-section of stock returns. Second, loadings on lagged market variance and lagged average IV account for a significant portion of variation in average returns on portfolios sorted by IV. Third, the variance of IVF correlates closely with average IV, and the two variables have similar explanatory power for the time-series and cross-sectional stock returns.     

AMBITIONS AND OPPORTUNITIES FOR ASSESSING MILITARY PERFORMANCE IN CRISIS RESPONSE OPERATIONS

This paper addresses the issue of measuring armed forces’ performance in crisis response operations. By means of interviews (17 respondents) and a large scale survey (1,253 respondents) field and general officers of the Netherlands Armed Forces (NAF) have been questioned on perceived organisational success in crisis response operations. The Dutch officers assess the NAF's performance positively. A number of senior officers are hesitant about the usefulness of measuring the performance of crisis response operations. According to them the context in which the operations are being executed is too complex. Most interviewees, however, are convinced that measuring performance is useful and should be improved. These military leaders express a strong need for criteria to assess their performance on the job.     

The Demand for Life Insurance Policy Loans

Previous research has examined the demand for life insurance policy loans using aggregate policy loan data. In contrast, we use a detailed household survey data set containing life insurance and policy loan information to alternatively, and in some cases more directly, examine the four hypotheses traditionally associated with policy loan demand. Our research provides the first U.S. evidence (in the post–World War II period) in support of the policy loan emergency fund hypothesis. In particular, we find that the more detailed emergency fund proxies used here reveal a significantly positive relation between loan demand and recent expense or income shocks.     

Two scenarios for Europe: “Europe confronted with high energy prices” or “Europe after oil peaking”

A significant change in trends regarding energy prices (in particular oil) has taken place in 2003 at the beginning of the Iraq War. It has revealed a very strong tension between oil prices on the one hand and the relationship between global oil supply and demand on the other. The strong growth rates of emerging economies up to 2008 have generated a very sharp increase in oil prices. The temporary economic recession of 2008-2009 has resulted in turn into a significant decrease of oil prices, down to a level which remained, however, twice as high as that of early 2003. With the economy recovering from the recession, it is highly probable that energy prices will continue to increase and that Europe will be confronted with high energy prices in the coming decades. Against this general background, two scenarios have been elaborated which differ mainly by the time of occurrence of oil peaking.¹ The differences between the scenario hypotheses are therefore differences of context in relation to exogenous factors. Policies are also considered in the scenarios, but they are not at the forefront and their impact is considered as limited in relation to that of exogenous factors.The first scenario “Europe in a context of high energy price” assumes that the process of oil peaking will not take place before 2030, but that oil price increase will nevertheless be sustained and substantial until then. Numerous adjustments will have to be made in the economy and their territorial impacts will be significant (less polycentricity, more compact cities, decline of the importance of road and air transport). The second scenario “Europe after oil production peaking” assumes that oil production will peak around the mid-2010s (followed by gas production peaking around 2025), despite significant investments to increase production. In a context of steadily growing oil and gas demand, Europe will be confronted with serious economic difficulties. The territorial impacts will be different from those suggested by the first scenario, with stronger pressure put on rural areas and a loss of attractiveness of large cities related to increasing unemployment and social tensions. In both scenarios, the countries of central and eastern Europe will be more severely hit by the new energy context.The scenarios were elaborated in 2005 and slightly reviewed in 2009 in order to take account of the impacts of the economic recession in Europe and of the growing concerns about climate change.     

Postnormal network futures: A rejoinder to Ziauddin Sardar

Sardar's “Welcome to Postnormal Times” describes the chaotic, contradictory and uncertain climate today, and analyses the failure of progress, modernisation or efficiency to provide ethical, political or even trustworthy economic solutions to the instability of the present. Missing in his analysis is the role of knowledge, especially as it is migrating from individuals to technical networks. This paper argues that recent developments in the networking of knowledge point towards a new constellation in which networks are emerging as major powers alongside the nation and the market, the two pillars of global political economy in the 20th and early 21st century. It responds to Sardar's challenge to imagine the future by imagining the political consequences of recognising non-human agencies as political actors.     

Inter-market competition for NYSE-listed securities under decimals

Blume and Goldstein (J Finance 52:221–244, 1997) suggest that quote competition between trading venues may diminish following tick size reductions. We test this suggestion by studying the competitive landscape in the NYSE-listed stocks before and after decimalization. We find that NBBO (National Best Bid and Offer) participation by non-NYSE venues declines following decimalization consistent with the prediction. At the same time, the importance of quote competitiveness in attracting order flow increases. In addition, although not as active in determining and maintaining the best quotes under decimals, non-NYSE venues become more active in price discovery. Finally, decimalization leads to lower trading costs and to smaller differences in trading costs across trading venues.     

Generalized quadratic revenue functions

In this paper we focus on the specification of revenue functions in their dual price space. We consider two distance functions–the Shephard output distance function and the directional output distance function–and define both in price space. The former is multiplicative in nature and satisfies homogeneity, whereas the latter is additive and satisfies the translation property. Functional equation methods yield the translog specification in the case of the Shephard distance function and a quadratic specification in the case of the directional distance function. Monte Carlo evidence suggests that the quadratic specification outperforms the translog in large samples and in true models with plenty of curvature.