Inflation and Welfare in Latin America

This paper follows Bailey (J Polit Econ 64:93–110, 1956) and Lucas (Econometrica 68:247–274, 2000) and estimates the welfare cost of inflation for 17 Latin American economies. We use annual data, from 1955 to 2000, and recent advances in the field of applied econometrics to estimate the inflation rate elasticity of money demand and report significantly high and differential welfare cost estimates for these economies.     

Time,Arbitrage, and the Law of One Price: The Case for a Paradigm Shift

Consider a Competitive, Efficient, and Frictionless Economy (CEFE) where resources are scarce at any date, and hence money as a valid claim against scarce resources is also scarce. In this economy, there is always price competition, which can at any date generate an unlimited number of arbitrage opportunities. For example, at any date, opportunities can exist to buy and sell each one of the contracts for delivery of the same good or asset at multiple prices currently as well as on an infinite number of future dates. I prove all arbitrage transactions, including “spot” transactions, tie up arbitrageurs’ capital representing money, good or asset such that this capital cannot be used for any other purpose for a non-zero quantity of time. This makes it impossible to exploit all arbitrage opportunities with the scarce capital available at any date and leads to an infinite number of unexploited opportunities and a non-negligible opportunity cost of the capital tied-up in arbitrage transactions, represented by each arbitrageur’s best missed arbitrage opportunity, if no better opportunity exits, hence the breakdown of the law of one price in its standard sense. This helps construct a new paradigm of CEFE which resolves long-standing theoretical, empirical, and experimental puzzles.     

Crash-related factors associated with the severity of road traffic injuries in Iran

Although the impact of traffic crashes is very high in Iran, there are few works on the association of crash-related factors with injury severity. This study was conducted on 145 drivers injured on the Qazvin-Loshan road in order to assess this association. The New Injury Severity Score (NISS), based on the conditions of the injured drivers during their first visit to regional hospitals, was used as the main outcome measure. Multiple linear regression analysis was performed by considering logarithmic scale for NISS as response variable and adjusting for the confounding effects, including the transfer to hospital variables. The results showed that high-vehicle damage (i.e. damage with repair cost more than 25% of the pre-crash value of the driver's vehicle) and being trapped inside the motor vehicle raised the NISS by 5.25 (95% confidence interval (CI) 2.51-10.71) and 2.34 (95% CI 1.20-4.67), respectively.     

Developing a multivariate approach to monitor fuzzy quality profiles

Referring to several applications in which the response quality characteristic is fuzzy, this paper studies how the profile functional relationship between a fuzzy response variable and a predictor variable can be monitored by using a fuzzy regression model which is referred to as profile. The purpose of this paper is to develop a multivariate approach for monitoring process/product fuzzy quality profiles in phase I for applications where the quality characteristic is linguistic, imprecise, vague or deficient. The multivariate approach includes three fuzzy multivariate control charts which are developed by using fuzzy set theory to monitor fuzzy profiles in order to achieve an in-control process. The performance of developed approach is investigated on the basis of signal probability in various out-of-control scenarios through a simulation study. Compared with univariate approach, the results indicate a good performance of our multivariate approach in detecting all sized shifts in process profiles. A real case in tourism industry is utilized to show the applicability of the proposed approach.     

Systemic Characteristics of Financial Instability

I describe how in the new paradigm of a Competitive, Efficient, and Frictionless Economy (CEFE), introduced in Falahati (2019), macroeconomic imbalances with fluctuating levels of liquidity emerge endogenously. This provides a solid foundation for studying Minsky’s views on financial instability in an economy with a banking and risk-underwriting system. I identify an inverse relationship between liquidity premia and risk premia, which leads to endogenous risk-premium rating cycles, including credit-risk-premium rating cycles, and macroeconomic swings. Ceteris paribus, lower liquidity increases the prices of contracts covering risks (e.g., credit default swaps), whist it decreases prices of all other assets. The opposite occurs with higher liquidity. I analyze operations of banks, risk-underwriters, and the State/Central Bank, and present a new theory of banking which improves current understandings. This theory explains how a banking system uses the floating capital of the economy more efficiently, while it also generates greater systemic risks, compared to an economy without banks. I show how the banking system can induce macroeconomic booms and busts and generate endogenous asset price bubbles and bursts. I highlight other systemic problems of the economy and derive their implications for improving the financial management of the economy and its institutions.