The Impact of COVID-19 on Share Prices in the UK*

The spread of COVID-19, and international measures to contain it, are having a major impact on economic activity in the UK. In this paper, we describe how this impact has varied across industries, using data on share prices of firms listed on the London Stock Exchange, and how well targeted government support for workers and companies is in light of this.     

Capitalization of local government grants on land values: Evidence from Tokyo metropolitan area,Japan

This study investigates the capitalization effect of intergovernmental fiscal transfers from central to local governments on land prices. Using a drop in the size number of fiscal transfers following fiscal reform in the early 2000 s, this study examines the extent to which unconditional fiscal transfers to municipalities in the Tokyo metropolitan area are attributed to land prices. The result shows that the decline in the transfer has decreased the land prices in the municipalities. Furthermore, reducing one unit in the per capita grant reduced the value of housing area per capita by one or more units, even if the real discount rate was assumed to be as low as 2%. Therefore, the fiscal transfer reform more negatively affects the benefits of residing in a municipality in the area than the reduction amount in the transfer.     

Oil prices,growth, and remittance outflows from the Gulf Cooperation Council

How does a decline in oil prices and its impacts on growth affect remittance outflows from the Gulf Cooperation Council (GCC) countries? This paper carries out an empirical analysis of the relationship between oil prices, oil‐ and non‐oil GDP, and remittances outflows from the GCC. The findings of our paper are three folds. First, we find that non‐oil GDP is a key determinant of remittance outflows and that oil GDP is a significant driver of non‐oil GDP in the GCC only in the long term. Second, we document that historically oil prices and remittances tend to broadly move in the same direction but that remittances have been much less volatile than oil prices. An analysis of the past large oil price declines shows that remittance flows to major remittance recipients in Mashreq, Pakistan, and Yemen fell only modestly following large declines in oil prices and recovered quickly in line with oil prices. Finally, we estimate the elasticity of remittance outflows with respect to non‐oil GDP in the GCC using various techniques. Estimates of short‐term elasticity vary between 0.5 and 0.8, while estimates of long‐term elasticity vary between 0.6 and 1.1. We find that construction and government services are two non‐oil GDP components that are strongly associated with remittance outflows.     

The empirical study on price discovery of cornstarch futures market in China

This article aims at exploring the performance of the price discovery function of cornstarch futures market in China. In order to test the stationarity of the cash and futures prices of cornstarch, the augmented Dickey–Fuller test is applied. Both prices are integrated of order one. Then, the Johansen cointegration test is conducted to test the cointegrating relationship between those two prices. Finally, the Granger causality test is performed to observe the direction of causality. The evidence shows that there is a long-run relationship between cash and futures prices and the futures price Granger causes cash price. As a whole, price discovery of cornstarch market in China is present although it is a newly emerged market.     

Stock market reactions to environmental disclosures: new evidence from China

We study how the stock market in China responds to announcements by an environmental risk index and find that China’s stock market penalizes firms associated with unfavourable environmental news if the information is provided directly to investors in a manner that is easily understood. We also find that the negative impact on stock prices fades after multiple disclosures of the same information.     

Mixed random forest,cointegration, and forecasting gasoline prices

One of the most successful forecasting machine learning (ML) procedures is random forest (RF). In this paper, we propose a new mixed RF approach for modeling departures from linearity that helps identify (i) explanatory variables with nonlinear impacts, (ii) threshold values, and (iii) the closest parametric approximation. The methodology is applied to weekly forecasts of gasoline prices, cointegrated with international oil prices and exchange rates. Recent specifications for nonlinear error correction (NEC) models include threshold autoregressive models (TAR) and double-threshold smooth transition autoregressive (STAR) models. We propose a new mixed RF model specification strategy and apply it to the determinants of weekly prices of the Spanish gasoline market from 2010 to 2019. In particular, the mixed RF is able to identify nonlinearities in both the error correction term and the rate of change of oil prices. It provides the best weekly gasoline price forecasting performance and supports the logistic error correction model (ECM) approximation.     

A model of dynamic tail dependence between crude oil prices and exchange rates

We explore the tail dependence between crude oil prices and exchange rates via a dynamic quantile association regression model based on the flexible Fourier form. This method allows us to describe the quantile dependence between conditional distributions of assets. We first perform simulation exercises to gauge the estimation precision of our model. We then undertake empirical analyses to examine the dynamic relation between crude oil and nine exchange rates. We reveal a mildly symmetric tail dependence between these two assets but it increases sharply during the Great Recession of 2008. Further robustness check substantiates the baseline results.     

Does value chain integration dampen producer price developments? Evidence from the European Union

We draw on trade theory to empirically explore the effects of value chain integration on producer price dynamics. Using the EU as an example of an integrated area, we construct measures of backward and forward linkages with intra‐ and extra‐EU trading partners at the country‐sector level. We find that especially upstream integration and EU accession dampen inflation. The results for downstream integration indicate a price‐increasing relationship. We propose novel EU integration indicators and offer insights to both theory and applied research. We also add to the policy debate on the price effects of (dis‐)integration of EU countries.     

The impact of the corporate average fuel economy standards on technological changes in automobile fuel efficiency

This paper empirically examines the effect of the U.S. Corporate Average Fuel Economy (CAFE) standards on the technological progress in automobile fuel efficiency. Using detailed vehicle attributes data from 1978 through 2018, we find that more stringent fuel economy standards increase the rate of technological improvements in new passenger cars, and this effect is primarily driven by the response of U.S. automakers. We do not find evidence that CAFE standards have a similar effect on the technical change in light-duty trucks. Our results also indicate that higher gasoline prices have a significant and positive effect on the improvement of fuel-saving technology in both passenger cars and light trucks. Using our empirical estimates, we project that the recent rollback of Obama-era CAFE standards would forego an approximately 2-percent increase in cars’ fuel economy over the 2021–2025 period as a result of technological progress.     

Promise,trust, and betrayal: Costs of breaching an implicit contract

We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca‐Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca‐Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one‐time increase in the fixed cost. Second, we explore the consequences of the company's 1985 introduction of “New Coke” to replace the original beverage. Using the Hirschman's (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke's introduction was a response to the implicit contract breach.