On graduation from fiscal procyclicality

In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. We then focus on the role played by the quality of institutions, which appears to be a key determinant of a country’s ability to graduate. We show that, even after controlling for the endogeneity of institutions and other determinants of fiscal procyclicality, there is a causal link running from stronger institutions to less procyclical or more countercyclical fiscal policy.     

Information Gathering Externalities for a Multi‐Attribute Good

Most goods and services vary in numerous dimensions. Customers choose to acquire information to assess some characteristics and not others. Their choices affect firms' incentives to invest in quality and so lead to indirect externalities in consumers' choices. We characterize a model in which a monopolist invests in the quality of a product with two characteristics, and consumers are heterogeneous ex‐ante. Consumers do not internalize their influence on the firm's investment incentives when choosing which information to acquire. Cheaper information affects consumers' information gathering and thereby firm investment. This can paradoxically reduce consumer surplus, profits, and welfare.     

Forecasting exchange rate volatility: The superior performance of conditional combinations of time series and option implied forecasts

This paper provides empirical evidence that combinations of option implied and time series volatility forecasts that are conditional on current information are statistically superior to individual models, unconditional combinations, and hybrid forecasts. Superior forecasting performance is achieved by both, taking into account the conditional expected performance of each model given current information, and combining individual forecasts. The method used in this paper to produce conditional combinations extends the application of conditional predictive ability tests to select forecast combinations. The application is for volatility forecasts of the Mexican peso–US dollar exchange rate, where realized volatility calculated using intraday data is used as a proxy for the (latent) daily volatility.     

Estimated burden of cardiovascular disease and value-based price range for evolocumab in a high-risk,secondary-prevention population in the US payer context

Aim: To estimate real-world cardiovascular disease (CVD) burden and value-based price range of evolocumab for a US-context, high-risk, secondary-prevention population.

Materials and methods: Burden of CVD was assessed using the UK-based Clinical Practice Research Datalink (CPRD) in order to capture complete CV burden including CV mortality. Patients on standard of care (SOC; high-intensity statins) in CPRD were selected based on eligibility criteria of FOURIER, a phase 3 CV outcomes trial of evolocumab, and categorized into four cohorts: high-risk prevalent atherosclerotic CVD (ASCVD) cohort (n?=?1448), acute coronary syndrome (ACS) (n?=?602), ischemic stroke (IS) (n?=?151), and heart failure (HF) (n?=?291) incident cohorts. The value-based price range for evolocumab was assessed using a previously published economic model. The model incorporated CPRD CV event rates and considered CV event reduction rate ratios per 1?mmol/L reduction in low-density lipoprotein-cholesterol (LDL-C) from a meta-analysis of statin trials by the Cholesterol Treatment Trialists Collaboration (CTTC), i.e. CTTC relationship.

Results: Multiple-event rates of composite CV events (ACS, IS, or coronary revascularization) per 100 patient-years were 12.3 for the high-risk prevalent ASCVD cohort, and 25.7, 13.3, and 23.3, respectively, for incident ACS, IS, and HF cohorts. Approximately one-half (42%) of the high-risk ASCVD patients with a new CV event during follow-up had a subsequent CV event. Combining these real-world event rates and the CTTC relationship in the economic model, the value-based price range (credible interval) under a willingness-to-pay threshold of $150,000/quality-adjusted life-year gained for evolocumab was $11,990 ($9,341–$14,833) to $16,856 ($12,903–$20,678) in ASCVD patients with baseline LDL-C levels ≥70?mg/dL and ≥100?mg/dL, respectively.

Conclusion: Real-world CVD burden is substantial. Using the observed CVD burden in CPRD and the CTTC relationship, the cost-effectiveness analysis showed that, accounting for uncertainties, the expected value-based price for evolocumab is higher than its current annual cost, as long as the payer discount off list price is greater than 20%.     

A Recursive Protocol for Negotiating Contracts Under Non-monotonic Preference Structures

Negotiating contracts with multiple interdependent issues may yield non-monotonic preference spaces for the participating agents. These negotiations are specially challenging because of the complexity and dimension of the search space. Automated negotiation mechanisms designed and proven useful for monotonic utility spaces may fail in these negotiation scenarios. This paper presents a novel solution to the problem of automated multi-issue negotiations in the context of complex utility spaces. We seek to address the challenge of intractably large contract spaces and utility functions with multiple local optima in automated negotiation scenarios. A protocol for automated bilateral multi-attribute negotiation processes is proposed, in which the individual agents??preferences can be non-monotonic and discontinuous. The protocol is based on a recursive non-mediated bargaining mechanism, which involves two agents who simultaneously exchange proposals defined as regions within the negotiation space. An agreement on a region implies a new bargaining which is restricted to that region. This recursive process is governed by a set of rules which modulate the joint exploration of the negotiation space until an agreement is found or a deadline expires. The protocol is experimentally evaluated under monotonic and non-monotonic preference scenarios, confirming that the protocol is able to produce outcomes close to the Pareto frontier in acceptable negotiation time, outperforming previous approaches.     

The ex-post behavior of firms offering optimal employment contracts

The influential papers of Azariadas (1975) and Baily (1974) have clearly demonstrated that with imperfect labor mobility expected profit maximizing firms will offer employment contracts that will not result in profit maximizing behavior once the ‘state of nature’ is disclosed. This Letter shows that such firms will behave as if their objective were to maximize the expected utility of each individual worker subject to a profit target. The rule that emerges when there is unemployment will be shown to be formally equivalent to Meade's Rule for optimal population [Meade (1955, ch. 6)].     

Staggered prices in a utility-maximizing framework

We develop a model of staggered prices along the lines of Phelps (1978) and Taylor (1979, 1980), but utilizing an analytically more tractable price-setting technology. ‘Demands’ are derived from utility maximization assuming Sidrauski-Brock infinitely-lived families. We show that the nature of the equilibrium path can be found out on the basis of essentially graphical techniques. Furthermore, we demonstrate the usefulness of the model by analyzing the welfare implications of monetary and fiscal policy, and by showing that despite the price level being a predetermined variable, a policy of pegging the nominal interest rate will lead to the existence of a continuum of equilibria.     

Adapting and testing the Fama and French model,with some variations of company characteristics

We examine whether the Fama and French (1992) (F&F) model can be adapted to become a more versatile and flexible tool, capable of incorporating variations of company characteristics in a more dynamic form. For this, the risk factors are reconstructed at the end of each reading of monthly data. We argue that, over time, the evaluation of a company may change as a result of variations in its market price, size or book price, and we are aware that the F&F model does not accurately reflect these dynamics. Our results show that the adapted model is able to capture the behaviour of a greater number of stocks than the original F&F model and risk factors are more significant when building them through our procedure. In addition, we carry out these adaptations during a period of instability in financial markets.