Choosing the Best Volatility Models: The Model Confidence Set Approach*

This paper applies the model confidence set (MCS) procedure of Hansen, Lunde and Nason (2003) to a set of volatility models. An MCS is analogous to the confidence interval of a parameter in the sense that it contains the best forecasting model with a certain probability. The key to the MCS is that it acknowledges the limitations of the information in the data. The empirical exercise is based on 55 volatility models and the MCS includes about a third of these when evaluated by mean square error, whereas the MCS contains only a VGARCH model when mean absolute deviation criterion is used. We conduct a simulation study which shows that the MCS captures the superior models across a range of significance levels. When we benchmark the MCS relative to a Bonferroni bound, the latter delivers inferior performance.     

A New EU Member Country on the Road to the Euro Area: Monetary and Fiscal Policies for Slovenia

Slovenia was the first of the ten new EU member states to enter the Euro Area on January 1, 2007. It was an explicit objective of Slovenian policy-makers to introduce the euro as early as possible. Slovenia was participating in the exchange rate mechanism ERM-II since June 2004. This paper analyses whether the choice of participating in the ERM-II soon after EU accession was the best strategy in terms of the macroeconomic performance. It is shown that a better overall economic performance could have been achieved under a crawling peg regime allowing a depreciation of the Slovenian tolar (SIT) before introducing the euro in 2007. The worst policy results are obtained when the exchange rate is totally fixed at an early stage of EMU integration. The labor market performance can be significantly improved by cutting income taxes and social security contribution rates.      

Potenziale zur Erhöhung des regionalen Markenkerns im Stromvertrieb am Beispiel der regionalen Grünstromkennzeichnung gemäß EEG 2017: Teil 2 (Multikriterien-Analyse)

In this paper – complementing an earlier article on this topic (Part 1: Basics and Analysis of Potentials) – we perform a Multicriteria Decision Analysis (MCDA), also engaging decision-makers in the analytical process. From the MCDA we derive recommendations to act with regard to the alternatives for regional green power marketing (cf. Part 1). For the MCDA we have developed a hybrid multicriteria approach, which enables to pool the advantages of two methods. Specifically, for the valuation of alternatives and criteria weighting we use the so-called Multi-Attribute Global Inference of Quality (MAGIQ) method, whereas the computation of the analytical results was performed with the help of an optimized Weighted Aggregated Sum Product Assessment (WASPAS) method. The results of the MCDA show that the regional green power labeling according to EEG 2017 can be used for upgrading the options already existing before the introduction of the EEG 2017 for the marketing of regionally generated electricity. From the MCDA conducted we find that those green power marketing models which combine the regional green power labeling according to the EEG 2017 with previously existing options rank first to third.     

Macroeconomic Policies for Slovenia in the “Great Recession”

The paper analyzes the effects of different reactions of fiscal (and to some extent monetary) policies to the Great Recession in Slovenia. We use the model SLOPOL8.1, an econometric model of the Slovenian economy, to simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the recession. Moreover, we investigate whether (and if so, how) fiscal policy can reduce or even annihilate the macroeconomic effects of the recession. It turns out that in order to achieve reasonable rates of growth and of unemployment, a highly expansionary design of fiscal policies is required, which is neither realistic nor sustainable. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency. Acceptable fiscal policies are mildly countercyclical and are not able to shelter the Slovenian economy from the negative effects of a slump like that occurring during the Great Recession.     

A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data

We consider the problem of deriving an empirical measure ofdaily integrated variance (IV) in the situation where high-frequencyprice data are unavailable for part of the day. We study threeestimators in this context and characterize the assumptionsthat justify their use. We show that the optimal combinationof the realized variance and squared overnight return can bedetermined, despite the latent nature of IV, and we discussthis result in relation to the problem of combining forecasts.Finally, we apply our theoretical results and construct fouryears of daily volatility estimates for the 30 stocks of theDow Jones Industrial Average.     

The Netherlands: An employment policy role model?

Conclusion While in recent years the level of social security benefits in the Netherlands has been reduced somewhat —whereby to some extent this involved the employers shouldering additional costs (e.g. for disability pensions) —the benefits for unemployment and other social bene-fits remain high in international comparative terms. Despite a slight decline in social benefits as a share of GDP, public sector spending as a whole is, at around 50%, slightly higher than in Germany, although the Netherlands has not had to cope with extraordinary burdens such as have resulted from German unification. The successes achieved by the Netherlands on the labour market have been exaggerated. Firstly, the real level of unemployment is likely to be actually rather high in international terms, at least once one dispenses with a narrow definition and takes account, in particular, of the large number of occupationally disabled. Secondly, the fall in the unemployment rate is far from spectacular. Although the increase in the number of wage and salary earners has been substantially higher in the Netherlands than in west Germany, this in no way represents a comparable increase in the volume of employment—measured in working hours—as the incidence of part-time employment has increased far faster there than in west Germany. The Netherlands has achieved-slightly-higher growth than west Germany. This success is largely due to a very moderate growth of wages and salaries, amounting to a real depreciation of the guilder against the D-Mark, an economic policy strategy that can be successful in a small country, but one which, if applied by a large country such as Germany, would merely initiate a beggar-thy-neighbour race to lower real exchange rates.     

Blowing the Whistle

Leniency clauses, offering cartelists legal immunity if they blow the whistle on each other, is a recent anti-trust innovation. The authorities wish to thwart cartels and promote competition. This effect is not evident, however; whistle-blowing may enforce trust and collusion by providing a tool for cartelists to punish each other. We examine the impact of leniency law, and other rules, experimentally.