The relevance of currency risk in the EMU

We investigate how the elimination of intra-European exchange risk may affect international financial markets using a conditional version of the International CAPM. We estimate the EMU and non-EMU components of aggregate currency risk and document significant exposures to both. The premium for EMU risk is positive and associated with exposure to the French, Italian and Spanish currencies. The premium for non-EMU risk is consistently negative and accounts for most of the aggregate currency premiums. In the 1990s, exposures to EMU risk declined significantly while exposures to non-EMU risk increased. Hence the adoption of the Euro is unlikely to have a large impact on aggregate currency risk premiums.     

Investment behaviour and “bull & bear” dynamics: modelling real and stock market interactions

In this article, we develop a simple behavioural macrodynamic model in continuous-time with the purpose of investigating the interaction of the real economy and the financial markets. Building on Westerhoff (Discret Dyn Nat Soc, 2012), we improve the specification of aggregate demand by distinguishing between consumption and investment expenditure and assuming that the latter is determined by the flexible accelerator principle. We remove the ad hoc nonlinearity in the fundamentalist behavioural rule and allow the composition of the population between chartists and fundamentalists to be endogenously determined. The resulting nonlinear dynamic systems are shown to generate various dynamic regimes, among which the coexistence of periodic attractors with interesting economic implications. Endogenous investment and stock market dynamics emerge, procyclical to each other, reflecting the interaction of induced investment with alternating waves in speculators’ sentiments. We show that a strong investment accelerator might be a crucial force generating fluctuations that, on the one hand, are transmitted and amplified by chartists and, on the other hand, are contained by fundamentalists.

     

Non‐Standard Time Wage Premiums and Employment Effects: Evidence from an Australian Natural Experiment

We examine the effect of increasing Sunday wage premiums on retail industry employment in Australia, exploiting a quasi‐experimental policy change across two neighbouring states. Using both aggregate and individual‐level data, we adopt a difference‐in‐difference regression framework to estimate the causal impact of the policy change on employment outcomes. We find no evidence of changes in the total number of employees, and no effect on hours per employee in the years following the policy implementation. However, there appeared to be a decline in hours per employee in the announcement year of the policy change. Overall, it appears that in an industry dominated by part‐time and casual employment, any adjustment to the new Sunday wage rates occurred principally through flexibility in hours, rather than in the number of employees.     

Macroeconomic Volatility,Institutional Instability and the Incentive to Innovate

This study investigates the channels through which macroeconomic and institutional instability hinders innovative investment undertakings financed by the domestic private sector. The analysis is based on a sample of 44 countries and considers various instability dimensions. The results suggest a negative impact of real, monetary and political instability on the aggregate level of R&D financed by the business sector. Thus, highlighting the importance of stable macro‐institutional environments in preventing avoidance or abandonment of private innovation undertakings.     

A Hedonic Analysis of Nutrition and Health Claims on Fruit Beverage Products

This paper investigates the effects on prices of nutrition and health claims for foodstuffs, in addition to other attributes, using fruit beverages as a case study. The model estimation is based on revealed purchasing behaviour for fruit beverages in the north‐east of Italy. Applying an hedonic price model, the price of a product is explained as a function of product attributes. The model estimate identifies the implicit retail‐market‐level price of specific attributes such as nutrition and health claims, ceteris paribus. Nutrition and health claims significantly affect retail prices. Our findings suggest that retail price response to nutrition and health claims differs in relation to other product attributes, showing a strong reduction of price variation among flavours when such benefits are claimed on the label.     

Methods for Default and Robust Bayesian Model Comparison: the Fractional Bayes Factor Approach

In the Bayesian approach to model selection and hypothesis testing, the Bayes factor plays a central role. However, the Bayes factor is very sensitive to prior distributions of parameters. This is a problem especially in the presence of weak prior information on the parameters of the models. The most radical consequence of this fact is that the Bayes factor is undetermined when improper priors are used. Nonetheless, extending the non-informative approach of Bayesian analysis to model selection/testing procedures is important both from a theoretical and an applied viewpoint. The need to develop automatic and robust methods for model comparison has led to the introduction of several alternative Bayes factors. In this paper we review one of these methods: the fractional Bayes factor (O'Hagan, 1995). We discuss general properties of the method, such as consistency and coherence. Furthermore, in addition to the original, essentially asymptotic justifications of the fractional Bayes factor, we provide further finite-sample motivations for its use. Connections and comparisons to other automatic methods are discussed and several issues of robustness with respect to priors and data are considered. Finally, we focus on some open problems in the fractional Bayes factor approach, and outline some possible answers and directions for future research.     

Spillovers among sovereign debt markets: Identification through absolute magnitude restrictions∗

This paper studies spillovers among US and European sovereign yields. We employ absolute magnitude restrictions on the impact matrix to identify the countries that were the main sources of spillovers. Despite the large size of shocks from euro area stressed countries, connectedness among sovereign yields declined between 2008 and 2012 due to financial fragmentation, particularly between countries with more divergent business and fiscal cycles. We show that none of the sovereign yields were insulated from foreign shocks and that shocks to the Greek bond market in 2010 explained 20–30% of the variance of sovereign yields in stressed countries, while in 2011–2012 Italy (not Spain) was the source of systemic risk.     

Measuring innovation in services: the role of surveys

The main aim of this paper was to analyse the role of European innovation surveys in measuring innovation in services. The various community innovation surveys (CISs) are analysed in the light of the three main theoretical approaches to innovation in services, namely assimilation, service-oriented and integrative. The analysis performed shows a gradual change in the way in which European surveys have been structured over time, highlighting a partial shift from the assimilation approach towards the integrative one. Furthermore, the paper provides a systematic assessment of the CIS experience and of the lessons to be drawn from it.     

Principal components estimation and identification of static factors

It is known that the principal component estimates of the factors and the loadings are rotations of the underlying latent factors and loadings. We study conditions under which the latent factors can be estimated asymptotically without rotation. We derive the limiting distributions for the estimated factors and factor loadings when N$N$ and T$T$ are large and make precise how identification of the factors affects inference based on factor augmented regressions. We also consider factor models with additive individual and time effects. The asymptotic analysis can be modified to analyze identification schemes not considered in this analysis.