Predicting Interest Rate Volatility Using Information on the Yield Curve

This study examines whether information on the yield curve is useful for predicting volatility of the yield curve. The information is used within dynamic models by specifying the covariance matrix of changes in yield factors as nonlinear functions of the factors. Using such models, it is found that the information (i) is useful for predicting volatility of the slope factor, achieving the accuracy comparable with the GARCH model; (ii) has incremental value for predicting volatility of the curvature factor when combined with a volatility‐specific factor; and (iii) does not much improve prediction of volatility of the level factor once the volatility‐specific factor is introduced.     

Endogenous I-S and External L-M Diagram in Equilibrium towards Policy-Making

This paper reforms the conventional I-S and L-M diagram endogenously, clarifying how to finalize the relationship between the real and financial assets, replacing the I-S by the rate of return function of the ratio of investment to output/income and the L-M by the ratio of M2 to endogenous capital K, after verifying the neutrality of the markets to the real assets, and using endogenous parameters and variables in the 58 country data-sets, 1990–2007 (KEWT 3.09), with three average areas, where equilibrium holds by year, country, and sector, over years. This diagram and its interpretation are able to present urgent policies for perceiving a bud of bubbles and suggesting urgent steps not to reoccur bubbles.     

A superlative index number formula for the Hicks-Moorsteen productivity index

The Malmquist and Hicks-Moorsteen productivity indexes are the two most widely used theoretical indexes for measuring productivity growth. Since these productivity indexes are defined by unknown distance functions, it is necessary to estimate the distance functions to compute them in principle. On the other hand, the Törnqvist productivity index is an empirical index number formula that is directly computable from the prices and quantities of the inputs and outputs alone. Caves et al. (1982) imply that the Malmquist index coincides with the Törnqvist index under profit maximizing behaviour and constant returns to scale technology. The purpose of the present paper is to point out that the Hicks-Moorsteen productivity index coincides with the Törnqvist productivity index under the same condition. We emphasize that the condition of constant returns to scale is indispensable for deriving the equivalence between the two indexes. Moreover, even when this condition is relaxed to the α returns to scale, the equivalence between the Hicks-Moorsteen and Törnqvist productivity indexes is shown to hold true.     

Productivity indexes under Hicks neutral technical change

The Malmquist and Hicks–Moorsteen productivity indexes are the two most widely used theoretical indexes for measuring productivity growth of firms, industries and countries. We indicate that these two indexes coincide under constant returns to scale technology and Hicks neutral technical change. While the conditions on production technology under which two indexes coincide have been examined before, this is the first study on the types of technical change under which they coincide. We shed new insight on the relationship between these popular indexes.     

Measuring Credit Risk of Individual Corporate Bonds in US Energy Sector

In this paper, using the measures of the credit risk price spread (CRiPS) and the standardized credit risk price spread (S-CRiPS) proposed in Kariya’s (A CB (corporate bond) pricing model for deriving default probabilities and recovery rates. Eaton, IMS Collection Series: Festschrift for Professor Morris L., 2013) corporate bond model, we make a comprehensive empirical credit risk analysis on individual corporate bonds (CBs) in the US energy sector, where cross-sectional CB and government bond price data is used with bond attributes. Applying the principal component analysis method to the S-CRiPSs, we also categorize individual CBs into three different groups and study on their characteristics of S-CRiPS fluctuations of each group in association with bond attributes. Secondly, using the market credit rating scheme proposed by Kariya et al. (2014), we make credit-homogeneous groups of CBs and show that our rating scheme is empirically very timely and useful. Thirdly, we derive term structures of default probabilities for each homogeneous group, which reflect the investors’ views and perspectives on the future default probabilities or likelihoods implicitly implied by the CB prices for each credit-homogeneous group. Throughout this paper it is observed that our credit risk models and the associated measures for individual CBs work effectively and can timely provide the market credit information evaluated by investors.     

Returns to scale effect in labour productivity growth

Economists acknowledge that technical progress and growth in capital inputs increase labour productivity (LP). However, less focus is given to the realization that changes in labour input alone could also affect LP. Because this effect disappears when the short-run technology exhibits constant returns to scale, we call it the returns to scale effect. We decompose growth in LP into three contributing factors: (1) technical progress, (2) capital input growth and the (3) returns to scale effect. We propose theoretical measures for these three components and show that they coincide with the index number formulae consisting of prices and quantities of inputs and outputs. Subsequently, we apply the results of our decomposition to US industry data for 1987–2009. LP in the services sector is shown to grow much slower than that in the goods sector during the 1987–1995 productivity slowdown period. We conclude that the returns to scale effect can considerably explain the gap in LP growth between the two industry groups.     

Globalization of Information Services and the Industrial Structure of the Japanese Economy

Since the late 1990s, ICT has rebuilt organizational networks by connecting value chains and providing communication networks. This made certain types of services tradable, including information services. This change raised the public concern in terms of the effect on employment and innovation capacity in developed economies. The fragmentation of the production network of information services has been led by US firms, but is spreading to East Asia, typically in outsourcing from Japan to China, India and the ASEAN countries. This study empirically assesses the effect of offshore outsourcing on employment in Japan, specifying trading partners. The results show that information services outsourcing affects employment in the manufacturing sector in Japan, but the effect is different depending on trading partners. This study discusses the implications from the viewpoint of industry policy, relating the results to outsourced business processes.     

A Simple Measure for Examining the Proxy Problem of the Short-Rate

The behavior of a finite-maturity yield used as a proxy for the short-rate can deviate substantially from that of the short-rate, which causes estimation biases of model parameters and pricing errors of interest-rate claims. This study proposes a simple measure that visualizes this deviation based on an analytical approximation of the term structure of interest rates. The computation of the measure is almost as easy as that of an affine model, so the adequacy of proxy can be readily checked even for short-rate models that do not admit closed-forms of bond prices.     

A Statistical Analysis Between Consumer Behavior and a Social Network Service: A Case Study of Used-Car Demand Following the Great East Japan Earthquake and Tsunami of 2011

When a large-scale disaster hits a community, especially a water-related disaster, there is a scarcity of automobiles and a sudden increase in the demand for used cars in the damaged areas. This paper conducts a case study of a recent massive natural disaster, the Great East Japan Earthquake and Tsunami of 2011 to understand those car scarcities and demand in the aftermath of the catastrophe. We analyze the reasons for the increase in demand for used cars and how social media can predict people’s demand for used automobiles. In other words, this paper explores whether social media data can be used as a sensor of socio-economic recovery status in damaged areas during large-scale water-related disaster-recovery phases. For this purpose, we use social media communication as a proxy for estimating indicators of people’s activities in the real world. This study conducts both qualitative analysis and quantitative analysis. For the qualitative research, we carry out semi-structured interviews with used-car dealers in the tsunami-stricken area and unveil why people in the area demanded used cars. For the quantitative analysis, we collected Facebook page communication data and used-car market data before and after the Great East Japan Earthquake and Tsunami of 2011. By combining and analyzing these two types of data, we find that social media communication correlates with people’s activities in the real world. Furthermore, this study suggests that different types of communication on social media have different types of correlations with people’s activities. More precisely, we find that social media communication related to people’s activities for rebuilding and for emotional support is positively correlated with the demand for used cars after the Great East Japan Earthquake and Tsunami. On the other hand, communication about anxiety and information seeking correlates negatively with the demand for used cars.