Improving retirement adequacy through asset class prioritization

Highly risk-averse retirees are generally advised to adopt a fixed spending strategy such as the 4% withdrawal rule. To prevent the premature depletion of a retirement portfolio, the rule attempts to proxy as the ‘safe withdrawal rate’. But a constant withdrawal rate means that retirees accumulate unspent surpluses when markets outperform and face spending shortfalls when markets underperform. While a safe withdrawal rate can prevent spending shortfalls, the opportunity cost of unspent surpluses associated with this strategy can be extreme. We apply a range of basic investment decision rules to a retirement portfolio applying various withdrawal rates and examine the probability of shortfalls over a retirement horizon. Using a block bootstrap simulation technique, we examine decision rules relating to stock and bond investments. Our results show that retirement portfolios with a bias towards stocks coupled with a decision rule that sources withdrawals from bonds and cash before stocks significantly outperforms alternative withdrawal strategies, despite the inherent increase in volatility. This finding is in direct contrast to the safe withdrawal rate conventions used in contemporary financial advice models.     

Are hyperinflation paths learnable?

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the high-inflation steady state. These paths are shown to be stable under least-squares learning if agents can utilize contemporaneous data. In an economy with a mixture of agents, some of whom only have access to lagged data, stable hyperinflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high.     

Practitioners' Corner: Introduction to the Special Issue

The first 150 words of the full text of this article appear below. The material in this volume is the result of a call for papersto the participants of the "Conference on Analysis of High-FrequencyFinancial Data and Market Microstructure" held in December 2003in Taipei, Taiwan. Jeffrey Russell and Ruey Tsay have actedas guest editors for this special issue, together with the editorsRené Garcia and Eric Renault. The availability of high-frequency data has spawned considerableliterature on volatility measurement and forecasting. The materialis mathematically delicate and perhaps "Practitioners’Corner" would be well advised to let the dust settle a bit tosee what emerges at the end of the day. On the other hand, thepractically minded may well be served by a good road map ofthe issues. So with only mild apology do we take up the cartographyof some difficult terrain. To fix ideas, let S(t) denote the price process of a . . . [Full Text of this Article]     

Industrial Policy and Technology Diffusion: Evidence from Paper Making Machinery in Indonesia

In this paper, we analyze the diffusion and adoption of paper making machinery in the Indonesian pulp and paper industry, from 1923 till 2000. We develop a machine level index of technological sophistication (mach), which measures the technological distance of each paper machine to the world technological frontier. The data reveal a pattern of rapid technological catch up. But catch up was not an industrywide phenomenon. Some modern firms installed state-of-the-art machinery, while others installed older vintages. The paper argues that industrial policy has played an important role in the speed and nature of diffusion of paper making machinery.     

Productivity Spillovers from FDI in Malaysian Manufacturing: Evidence from Micro‐panel Data*

Using an establishment‐level panel dataset for the Malaysian manufacturing industries for 2000–2004, we argue that differences in the proxies and degrees of foreign shareholdings in measuring foreign presence lead to opposite signs and/or significance of spillover effects. The results show significant evidence of positive productivity spillovers to local establishments in the same industry, based on a broad measure of foreign presence. However, there is no evidence of positive spillover when employment share is used as a proxy for foreign presence. Furthermore, significant negative spillover effects are related to higher employment shares of wholly foreign‐owned establishments. Although there is no significant difference in labor productivity between wholly foreign‐owned and locally‐owned establishments, both majority and minority foreign‐owned establishments have significantly lower levels of labor productivity than locally‐owned establishments in Malaysia.