Emission Allowance as a Derivative on Commodity-Spread

We provide a valuation formula for emission allowance. Assuming that the value of emission allowance on the last day of a trading phase is equal to a spread of commodity prices (e.g. electricity and natural gas) when the spread is positive and less than the penalty, we show that the emission allowance price is equal to the value of a portfolio of European call options on the spread of the commodities. Using the formula, we obtain a hedging strategy for emission allowance trading. We also empirically analyze option value embedded in emission allowance, and find by numerical analysis that the option value is relatively large.     

BUSINESS CYCLES IN THE EQUILIBRIUM MODEL OF LABOR MARKET SEARCH AND SELF‐INSURANCE*

I introduce risk‐aversion, labor‐leisure choice, capital, individual productivity shocks, and market incompleteness to the standard model of labor search and matching and investigate the model’s cyclical properties. I find that the model can generate the observed large volatility of unemployment and vacancies with a reasonable replacement rate of unemployment insurance benefits of 64%. Labor‐leisure choice plays a crucial role through additional utility from leisure when unemployed and further amplification from adjustments of hours worked. On the other hand, the borrowing constraint or individual productivity shocks do not significantly affect the cyclical properties of unemployment and vacancies.     

Unfunded pension liabilities and stock returns

This paper investigates whether the market rationally anticipates the value implications of unrecognized pension obligations, using a large sample of Japanese firms where pension obligations are substantially underfunded. If a firm's unrecognized pension obligation is not incorporated into its share price, its stock returns will be lower than those of other firms, because its deficit will affect the firm's income statement in the coming years. We find that firms with large unrecognized obligations earn lower risk-adjusted returns. This evidence suggests that the market does not efficiently incorporate information in the pension items.     

Money and Prices Under Uncertainty

We study whether monetary economies display nominal indeterminacy: equivalently, whether monetary policy determines the path of prices under uncertainty. In a simple, stochastic, cash-in-advance economy, we find that indeterminacy arises and is characterized by the initial price level and a probability measure associated with state-contingent nominal bonds: equivalently, monetary policy determines an average, but not the distribution of inflation across realizations of uncertainty. The result does not derive from the stability of the deterministic steady state and is not affected essentially by price stickiness. Nominal indeterminacy may affect real allocations in cases we identify. Our characterization applies to stochastic monetary models in general, and it permits a unified treatment of the determinants of paths of inflation.     

Monetary policy with sticky prices and segmented markets

Summary. We consider a sticky-price model with segmented asset markets, and examine its implications for monetary policy. Our finding is, first, that the response of the money supply growth rate to a money demand shock required to stabilize inflation is not affected by the existence of a liquidity effect, but the response of the nominal interest rate is. Second, when the monetary authority adopts a Taylor rule, whether or not it should be active to obtain local determinacy of equilibria depends on the existence of a liquidity effect. Our results suggest that the monetary authority should be careful about the existence and the degree of a liquidity effect particularly when the nominal interest rate is used as the policy instrument.Received: 11 February 2004, Revised: 1 November 2004 JEL Classification Numbers: E3, E4, E5.     

Multiple influences on corporate governance practice in Nigeria: Agents,strategies and implications

The literature on the convergence of corporate governance systems across different institutional contexts has often taken the role of ‘agents of convergence’ for granted. Against this background, we examine the influences of three major agents – international organisations, rating agencies, and local institutions – on the development of corporate governance practices in Nigeria. Findings indicate that the understanding and practice of corporate governance in Nigeria are in a flux and being pulled in multiple directions by the agents studied. This paper provides one of the very few studies utilising sub-Saharan African (Nigerian) data in international business governance research.     

The residential demand for electricity in Japan: An examination using empirical panel analysis techniques

This paper examines the residential demand for electricity in Japan, excluding Okinawa-prefecture, from 1975 to 2005 as a function of the disposable income per household and the overall unit price of electricity for general consumers, by using the empirical panel analysis techniques of a panel unit root test, a panel cointegration test, and group-mean dynamic ordinary least squares (DOLS) estimators to determine whether or not each variable is stationary. This study's contribution is twofold. First, for a more accurate empirical economic analysis, it divides Japan into a number of regions so that the estimation of coefficients becomes more powerful due to the increased degree of freedom from the utilization of the panel data. Second, the study chose Japan for this analysis on the basis of discussions regarding the deregulation of the residential electric power supply that is scheduled for the near future. All variables—sales per household, price, and income per household—can be assumed to have a unit root and cointegration relationship. The results determine that the price effect is negative and elastic and that the income effect is inelastic. These results correspond to other such studies on developed countries that are significant economic powers.     

Total Labour Requirements and Value Added Productivity of Labour in the Process of Economic Development

When the inverse of the value added productivity of labour is regressed on total labour requirements (which is equivalent to labour values), a significant relationship is obtained. This indicates that the value added productivity of labour can be explained by total labour requirements (labour values). The mean value of the regression coefficients is about 1.7. The regression coefficients have a tendency to increase during the process of rapid economic development and to decrease afterwards. Such movements are explained by value added linkages. This study is based on input–output analysis, where total labour requirements per monetary unit of output and the value added productivity of labour are calculated for each of 24 industries in Japan, Korea and USA, every 5 years between 1960 to 1985.     

Commodity Spread Option with Cointegration

We derive the valuation formula of a European call option on the spread of two cointegrated commodity futures prices, based on the Gibson–Schwartz with cointegration (GSC) model. We also analyze the American commodity spread option including the early exercise premium representation and an analytical approximation valuation formulae with cointegration. In the numerical analysis, we compare the spread option values calculated by the GSC model and the Gibson–Schwartz (GS) model that ignores cointegration. Consistent with the intuition that the cointegration prevents the prices from diverging, the GSC model prices the commodity spread option lower than the GS model which have longer maturity of more than 6 years. In other words, the GS model may overprice the commodity spread options for those with longer maturity without taking account of cointegration. Thus, incorporating cointegration is important for valuation and hedging of long-term commodity spread options such as large scale oil refining plant developments.