Endogenous censoring in the mixed proportional hazard model with an application to optimal unemployment insurance

We examine the sensitivity of estimates of the MPH model with respect to assumptions on the censoring mechanism in the context of an economic model of optimal unemployment insurance. We assume a parametric model for the duration of interest and leave the distribution of censoring unrestricted, allowing it to be correlated with observed and unobserved characteristics. We provide a practical characterization of the identified set with moment inequalities and suggest methods for estimating this set. We apply this approach to estimate the elasticity of unemployment exit rate with respect to unemployment benefit. Finally, we investigate welfare consequences of our estimates.     

Board governance and corporate performance

We examine the link between the monitoring capacity of the board and corporate performance of UK listed firms. We also investigate how firms use the flexibility offered by the voluntary governance regime to make governance choices. We find a strong positive association between the board governance index we construct and firm operating performance. Our results imply that adherence to the board‐related recommendations of the UK Corporate Governance Code strengthens the board's monitoring capacity, potentially helping mitigate agency problems, but that investors do not value it correspondingly. Moreover, in contrast to prior UK findings suggesting efficient adoption of Code recommendations, we find that firms at times use the Code flexibility opportunistically, aiming to decrease the monitoring capacity of the board, which is followed by subsequent underperformance. This finding questions the effectiveness of the voluntary approach to governance regulation followed in the UK and in many countries around the world.     

Board Attributes,Corporate Social Responsibility Strategy,and Corporate Environmental and Social Performance

In this paper, we draw on insights from theories in the management and corporate governance literature to develop a theoretical model that makes explicit the links between a firm’s corporate social responsibility (CSR) related board attributes, its board CSR strategy, and its environmental and social performance. We then test the model using structural equation modeling approach. We find that the greater the CSR orientation of the board (as measured by the board’s independence, gender diversity, and financial expertise on audit committee), the more proactive and comprehensive the firm’s CSR strategy, and the higher its environmental and social performance. Moreover, we find this link to be endogenous and self-reinforcing, with superior CSR performers tending to further strengthen their board CSR orientation. This result while positive is also suggestive of the widening of the gap between the leads and laggards in CSR. Therefore, the question arises as to how ‘leaders’ are using their superior CSR competencies seen by many scholars as a source of corporate (at times unfair) competitive advantage. Stakeholders of corporations therefore need to be cognizant of this aspect of CSR when evaluating a firm’s CSR activities. Policy makers also need to be cognizant of these concerns when designing regulation in this field.     

Innovativeness of railway transport in the context of the development of tourism in Poland

Quality & Quantity - The article discusses the issue of innovation activities of companies in railway transport in Poland in the context of the development of tourism. Transport infrastructure...     

MONETARY POLICY IN A NON‐REPRESENTATIVE AGENT ECONOMY: A SURVEY

It is well known that central bank policies affect not only macroeconomic aggregates, but also their distribution across economic agents. Similarly, a number of papers demonstrated that heterogeneity of agents may matter for the transmission of monetary policy to macro variables. Despite this, the mainstream monetary economics literature has so far been dominated by dynamic stochastic general equilibrium models with representative agents. This paper aims to tilt this imbalance towards heterogeneous agents setups by surveying the main positive and normative findings of this line of the literature, and suggesting areas in which these models could be implemented. In particular, we review studies that analyse the heterogeneity of (i) households’ income, (ii) households’ preferences, (iii) consumers’ age, (iv) expectations and (v) firms’ productivity and financial position. We highlight the results on issues that, by construction, cannot be investigated in a representative agent framework and discuss important papers modifying the findings from the representative agent literature.     

Can interest rate spreads stabilize the euro area?

Since the onset of the financial crisis significant interest rate spreads have arisen between euro area countries, both for public and private debt. We check whether these spreads could be made to work towards the goal of providing more stability to the euro area. In particular, we focus on reducing the imbalances that arose between the core and peripheral members of the euro area in the first decade of its existence. The idea is that stable positive spreads in peripheral countries could have decreased domestic demand, preventing the boom–bust cycles that plagued these economies. They could also prevent such developments in the future. We construct a panel model for euro area countries and estimate the relationship between real interest rates and the current account balance. Next, we use the estimated parameters to perform simulations. We find that spreads on real interest rates of 0.6–5.5 percentage points would have been necessary to stabilize external positions of the four peripheral euro area member countries.     

Estimation of the equilibrium exchange rate: The CHEER approach

The paper presents the results of an investigation where the concept of a steady-state level of the exchange rate is equated with the capital market equilibrium based on the CHEER approach. The empirical analysis concentrates on Poland, because in this case the assessment of the equilibrium exchange rate is of vital importance. The prospect of the Polish currency joining the ERM2 provokes controversies and requires research into the economic consequences of accession to the EMU. The international transmission mechanisms affecting the Polish economy are identified within the VEqCM framework. The calculations indicate that in the last years of the analyzed sample (i.e. up to December 2006) the zloty/euro exchange rate was slightly overvalued, and the steady-state level was found to have been adjusting to the value of 4.1 zlotys.     

Taming animal spirits: risk management with behavioural factors

In several countries a major factor contributing to the current economic crisis was massive borrowing to fund investment projects on the basis of, in retrospect, grossly optimistic valuations. The purpose of this paper is to initiate an approach to project valuation and risk management in which ‘behavioural’ factors—Keynes’ ‘animal spirits’ or Greenspan’s ‘irrational exuberance’—can be explicitly included. An appropriate framework is risk-neutral valuation based on the use of the numéraire portfolio—the ‘benchmark’ approach advocated by Platen and Heath (A benchmark approach to quantitative finance. Springer, Berlin, 2006). In the paper, we start by discussing the ingredients of the problem: ‘animal spirits’, financial instability, market-consistent valuation, the numéraire portfolio and structural models of credit risk. We then study a project finance problem in which a bank lends money to an entrepreneur, collateralized by the value of the latter’s investment project. This contains all the components of our approach in a simple setting and illustrates what steps are required. In a final section, we briefly discuss the econometric problems that need to be solved next.