Downstream Competition, Foreclosure, and Vertical Integration

This paper analyzes the effect of competition among downstream firms on an upstream firm's payoff and on its incentive to integrate vertically when firms in both segments negotiate optimal contracts. We argue that as downstream competition becomes more intense, the upstream firm obtains a larger share of a smaller downstream industry profit. The upstream firm may encourage downstream competition (even excessively) in response to high downstream bargaining power. The option of vertical integration may be a barrier to entry downstream and may trigger strategic horizontal spinoffs or mergers. We extend the analysis to upstream competition.     

Economic Integration, Factor Mobility, and Wage Convergence

This paper studies the effect of economic integrationof two regions on the mobility of skilled and unskilled workersacross regions and on the resulting location of industrial activity.In particular, we study what happens when wages in both regionsare set by the unions of the West—the region with agreater initial relative stock of human capital. We show thatunder some circumstances, it is the interest of the West's unionsto set up a speed of wage convergence greater than equilibrium,thus generating unemployment in the East. This slows the migrationof human capital toward the East, but quickens the migrationof raw labor toward the West. A greater share of economic activityis eventually located in the Western region. Unions in the Westwill benefit from this provided human capital has low migrationcosts relative to raw labor.     

Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub‐Saharan Africa

The paper examines the monetary policy actions through which central banks in sub‐Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002–12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.     

Research cycles

This paper studies the dynamics of fundamental research. We develop a simple model where researchers allocate their effort between improving existing fields and inventing new ones. A key assumption is that scientists derive utility from recognition from other scientists. We show that the economy can be either in a regime where new fields are constantly invented, and then converges to a steady state, or in a cyclical regime where periods of innovation alternate with periods of exploitation. Our analysis provides a rigorous foundation to the Kuhnian theory of scientific evolution. We show that scientists' care for reputation has a strong impact on research dynamics and tends to favor innovation. Especially, innovation fads may emerge. We also study welfare and find that the academic reputational reward system can help align scientists' short-term incentives with society's long-term interests.     

A good deal online: The Impacts of acquisition and transaction value on E-satisfaction and E-loyalty

Relying on Thaler's exchange theory, this research examines the unique effects of perceived transaction and acquisition values on consumer e-satisfaction and e-loyalty in an e-commerce setting, along with the moderating role of product/ service category. Overall, consumers' perceptions of transaction value lead to their e-dissatisfaction. Hence, obtaining a good deal does not have the same meaning and influence depending on the type of buying trip (exploratory or goal-directed). These results confirm Thaler's exchange theory's usefulness to analyzing the impact of perceived value on e-satisfaction and e-loyalty. Additionally, in a managerial perspective, this research underlines the importance of adapting promotional strategies to online contexts, since online purchase experience improves when there is an alignment between the customer's goals and the e-tailer’s online offering.     

Technological dualism,incomplete financial markets and economic development

A model is built in which, the more incomplete financial markets are, the more technological dualism is prevalent in the economy. The model is extended to show that, through dualism and technological choice, incomplete financial markets can have a negative impact on long-run growth.     

Around and Around: The Expectations Hypothesis

We show how to construct models of the term structure of interest rates in which the expectations hypothesis holds. McCulloch (1993) presents such a model, thereby contradicting an assertion by Cox, Ingersoll, and Ross (1981), but his example is Gaussian and falls outside the class of finite-dimensional Markovian models. We generalize McCulloch's model in three ways: (i) We provide an arbitrage-free characterization of the unbiased expectations hypothesis in terms of forward rates; (ii) we extend this characterization to a whole class of expectations hypotheses; and (iii) we show how to construct finite-dimensional Markovian and non-Gaussian examples.     

What Drives the Responsiveness of the Budget Balance to the Business Cycle in EU Countries?

Intereconomics - The European Commission methodology for computing the cyclically adjusted government budget balance provides a robust measurement of the fiscal position of the Member States. The...     

Volatility forecasts and at-the-money implied volatility: a multi-component ARCH approach and its relation to market models

This article explores the relationships between several forecasts for the volatility built from multi-scale linear ARCH processes, and linear market models for the forward variance. This shows that the structures of the forecast equations are identical, but with different dependencies on the forecast horizon. The process equations for the forward variance are induced by the process equations for an ARCH model, but postulated in a market model. In the ARCH case, they are different from the usual diffusive type. The conceptual differences between both approaches and their implication for volatility forecasts are analysed. The volatility forecast is compared with the realized volatility (the volatility that will occur between date t and t + ΔT), and the implied volatility (corresponding to an at-the-money option with expiry at t + ΔT). For the ARCH forecasts, the parameters are set a priori. An empirical analysis across multiple time horizons ΔT shows that a forecast provided by an I-GARCH(1) process (one time scale) does not capture correctly the dynamics of the realized volatility. An I-GARCH(2) process (two time scales, similar to GARCH(1,1)) is better, while a long-memory LM-ARCH process (multiple time scales) replicates correctly the dynamics of the implied and realized volatilities and delivers consistently good forecasts for the realized volatility.