Pricing Commodity Spread Options with Stochastic Term Structure of Convenience Yields and Interest Rates

The purpose of this research is to provide a valuation formula for commodity spread options. Commodity spread options are options written on the difference of the prices (spread) of two commodities. From the aspect of commodity contingent claims, it is considered that commodity spread options are difficult to evaluate with accuracy because of the existence of the convenience yield. Hence, the model of the convenience yield is the key factor to price commodity spread options. We use the concept of future convenience yields to develop the model that enriches the stochastic behavior of convenience yield. We also introduce Heath-Jarrow-Morton interest rate model to the valuation framework. This general model not only captures the mean reverting feature of the convenience yield, but also allows us to handle a very wide range of shape that the term structure of convenience yield can take. Therefore our model provides various types of models. The numerical analysis presented in this paper provides some unique features of commodity spread options in contrast to normal options. These characteristics have never been addressed in previous studies. Moreover, it suggests that the existing model overprice commodity spread options through neglecting the effect of interest rates.     

HARROD'S KNIFE-EDGE AND CONSUMPTION FUNCTIONS

This paper reconsiders Harrod's knife-edge instability of the capitalist economy. An investment function of the type used by Harrod is combined with a consumption function of the relative income hypothesis type. It will be shown that, even under such an investment function, knife-edge instability can be ruled out if a part of consumption behaves steadily and capitalists do not change their expectations very rapidly.     

Measuring economic localization: Evidence from Japanese firm-level data

This paper examines location patterns of Japan’s manufacturing industries using a unique firm-level dataset on the geographic location of firms. Following the point-pattern approach proposed by Duranton and Overman (2005), we find the following. First, about half of Japan’s manufacturing industries can be classified as localized and the number of localized industries is largest for a distance level of 40 km or less. Second, several industries in the textile mill products sector are among the most localized, which is similar to findings for the UK, suggesting that there exist common factors across countries determining the concentration of industrial activities. Third, the distribution of distances between entrant (exiting) firms and remaining firms is, in most industries, not significantly different from a random distribution. These results suggest that most industries in Japan neither become more localized nor more dispersed over time and are in line with similar findings by Duranton and Overman (2008) for the UK. Fourth, a comparison with the service sector indicates that the share of localized industries is higher in manufacturing than in services, although the extent of localization among the most localized manufacturing industries is smaller than that among the most localized service industries, including financial service industries.     

Teaching in the right context: Textbook supply program,language, and learning

An ethnic gap in education is prevalent around the world. This remains the case in Vietnam, a country that has achieved phenomenal economic growth and raised the educational attainment of the public. This paper examines the impact of language policy reorientation represented by the textbook supply program in Vietnam on the ethnic gap in children's learning measured by a vocabulary test. Applying difference-in-differences estimation to the Young Lives data between 2006 and 2015, we show that the program became more effective in narrowing the ethnic gap as the education policy became reoriented toward ethnic minority children. A causal mediation analysis reveals that increased study time is possibly a moderate mediator through which the language policy reorientation helped narrow the ethnic gap for the young cohort over and above the direct impact, but this was not the case for the old cohort. This paper, therefore, alludes to the importance of delivering learning materials carefully designed for the target group to bring about meaningful behavioral changes. It also underscores the importance of teaching in the right context, corroborating the findings from recent studies on teaching at the right level.     

Homesickness and repeated migration

This paper presents a dynamic structural model of migration that is designed to help explain the migration behaviour of undocumented Mexican immigrants in the US. Its key feature – which I call ‘homesickness’ – is a duration-dependent disutility from living abroad that keeps increasing while a migrant stays abroad and can be reset to zero only by returning to their home country. I estimate the model using data primarily from the Mexican Migration Project Survey and find that the model is capable of explaining, among other things, the fact that: (i) a non-negligible number of Mexican immigrants in the US return home after earning very little; (ii) these ‘unsuccessful’ immigrants are more likely to re-enter the US at a later date; and (iii) such ‘unsuccessful’ returns are more prevalent among immigrants who left their wives behind in Mexico. These facts are not easily reconciled with existing models of migration that do not feature homesickness.     

Global liquidity trap

How should monetary policy respond to a “global liquidity trap,” where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs well in this respect.     

Statistical Inference Using Stochastic Switching Models for the Discrimination of Unobserved Display Promotion from POS Data

The execution of price and/or display promotion has a significant effect on the sales of a brand sold in a supermarket. Information on price and/or sales is available from POS data. However, unless an investigator collects information on the execution of display promotions from every retail store, such information is unavailable. This paper presents a method of identifying whether display promotion has been executed without having to visit individual stores. We treat the execution/non-execution of a display promotion as a state variable. An unknown stationary probability matrix is assumed to describe the probability of a transition between states. Each state is characterized by a different stationary time series model with unknown parameters. The objective of the analysis is to identify the model and to assign a probability model for each state at each time instant. Finally, we provide a high precision estimator of a past execution/non-execution of a display promotion based on the proposed model.     

TFP growth slowdown and the Japanese labor market in the 1990s

Unemployment in Japan nearly tripled during the 1990s. Underlying this upsurge lie an increase in the probability of workers to lose their jobs and a decrease in the probability that the unemployed find jobs. This paper analyzes the sources responsible for these labor market changes in Japan in the decade of the 1990s. We build, calibrate, and simulate a neo-classical growth model with search frictions in the labor market. Using actual TFP data, the model is able to reproduce the path of unemployment and the job flows, as well as that of output. We find it to be the decrease in productivity, coupled with the reduction in hours worked, which curtails the profits of firms, inducing a drop in employment and an increase in unemployment.     

The expanding Empire and spatial distribution of economic activity: the case of Japan's colonization of Korea during the prewar period

In 1910, Japan annexed Korea and integrated it into the Empire of Japan. According to its policy of assimilating colonies, the Japanese government intended to remove the tariffs between Japan and Korea, an aim which had almost been realized by 1923. The removal of the tariff barrier was supposed to improve market access between Japan and Korea. This article explores the implications of this event, focusing on the spatial distribution of economic activity in Japan. The regression results suggest that the integration of the Korean market increased population growth rates more in the regions close to the former border between Japan and Korea than in the other regions. Furthermore, after integration, the regions close to Korea that specialized in the fabric industry, whose products were the primary goods exported from Japan to Korea, experienced more population growth than other regions close to Korea did. These results suggest that market accessibility was indeed a determinant of the spatial distribution of economic activity. Our findings also indicate that the economic effect of colonization on the mainland was spatially heterogeneous and that a spatial viewpoint of the history of imperialism is important.