School of Economics and Finance Seminar Series and Research Workshops
| Date | Presenter | Institution | Seminar |
|---|---|---|---|
| 12 July | Dr Daniel Smith | Simon Fraser University |
Risk and Return in Stochastic Volatility Models: Volatility Feedback Matters! |
| Abstract: We develop a model of stock return volatility that includes a positive risk-return relation, a significant volatility feedback effect and explains a rich set of empirical phenomena. It explains the negative correlation between returns and volatility we observe in stock data. We find that including volatility feedback dramatically strengthens the risk-return relation. Contrary to some previous research we find that volatility feedback is economically significant, explaining around 13 percent of daily, and 28 percent of monthly, stock return volatility. We demonstrate that previous studies have found an economically insignificant feedback effect because of their choice of either empirical methodology or model specification. | |||
| 19 July | Dr Thomas Krichel |
Long Island University | What is the central matter of Economics? An investigation using JEL code centrality. |
Abstract: The journal of economic literature classification scheme is a standard scheme to classify economics papers. This paper examines the usage of the scheme in a large set of economics papers. I document what subjects are central to the work of economics. |
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| 26 July | Dr Nicholas Gruen | Lateral Economics (CEO) |
How to choose, your job, your oncologist, your fund manager and your real estate agent: improving information flows in markets. |
Abstract: We have long known – and for commonsensical reasons – that good information is critical to economic efficiency. Friedrich Hayek argued this within the ‘Austrian tradition’ of economics in prosecuting his case in the ‘socialist calculation debates’ of the 1930s. ‘Asymmetric information’ arrived as a substantial issue within the neoclassical tradition around thirty five years later with the work of theorists such as Kenneth Arrow, George Stigler, George Akerlof and Joseph Stiglitz.
This paper argues for a new approach aimed at improving the rigour with which reputations are made. Right now most large firms regularly do survey work to gauge the satisfaction of their customers and their employees and identify opportunities to improve their performance. Such surveys could be standardised and the results published in a form which allowed ready comparison between firms. Where outcomes of service provision can be objectively measured – for instance the price achieved for houses, or the success rate of medical procedures – a method is proposed by which service providers could tender for business by making predictions of the outcomes they could achieve, corrected for any systematic optimism or pessimism of past predictions. In addition to generating unbiased prognoses, the method could alleviate various perverse incentives generated by other attempts to measure the performance of service providers. |
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| 2 August | Professor Bruce Preston | Columbia University |
Central Bank Communication and Expectations Stabilization |
Abstract: This paper analyses the value of communication in the implementation of monetary policy. The central bank is uncertain about the current state of the economy. Households and firms are uncertain about the statistical properties of aggregate variables, including nominal interest rates, and must learn about their dynamics using historical data. Given these uncertainties, when the central bank implements optimal policy, the Taylor principle is not sufficient for macroeconomic stability: for reasonable parameterisation's self-fulfilling expectations are possible. To mitigate this instability, three communication strategies are contemplated: i) communicating the precise details of the monetary policy - that is, the variables and coefficients; ii) communicating only the variables on which monetary policy decisions are conditioned; and iii) communicating the inflation target. The first two strategies restore the Taylor principle as a sufficient condition for stabilising expectations. In contrast, in economies with persistent shocks, communicating the inflation target fails to protect against expectations driven fluctuations. These results underscore the importance of communicating the systematic component of monetary policy strategy: announcing an inflation target is not enough to stabilise expectations - one must also announce how this target will be achieved. |
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| 16 August | Professor Bruno Frey | University of Zurich |
Giving and Receiving Awards |
| Abstract: Awards in the form of orders, medals, decorations,prizes, and titles are ubiquitous in monarchies and republics, private organisations, and not-for-profit and profit-oriented firms. Nevertheless, this kind of nonmaterial extrinsic incentive has been given little attention in the social sciences, including psychology. The demand for awards relies on an individual’s desire for distinction, and the supply of awards is governed by the desire to motivate. The technique of analytic narratives is used to show that a number of empirically testable propositions about awards are consistent with observable data. | |||
| 23 August | Professor Deborah Cobb-Clark | ANU |
A Comparative Analysis of the Nativity Wealth Gap |
| Abstract: This paper investigates the source of the gap in the relative wealth position of immigrant households residing in Australia, Germany and the United States. Our results indicate that in Germany and the United States wealth differentials are largely the result of disparity in the educational attainment and demographic composition of the native and immigrant populations, while income differentials are relatively unimportant in understanding the nativity wealth gap. In contrast, the relatively small wealth gap between Australian - and foreign-born households exists because immigrants to Australia do not translate their relative educational and demographic advantage into a wealth advantage. On balance, our results point to substantial cross-national disparity in the economic well-being of immigrant and native families, which is largely consistent with domestic labor markets and the selection policies used to shape the nature of the immigration flow. |
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| 6 September | Dr Russel Smith | Monash University |
Firm Compliance with Social Insurance Obligations where there is a Weak Surveillance and Enforcement Mechanism: Empirical Evidence from Shanghai |
| This paper draws on a unique data set collected in audits in 2001 and 2002 by the Bureau of Labour and Social Security in Shanghai to examine why firms in Shanghai comply or over-comply with social insurance obligations in a regulatory environment where the expected punishment for non-compliance is low. Drawing on Harrington (1988), we test two hypotheses. The first hypothesis is that based on the first audit, the BOLSS will segment firms into low (non-aggressive) and high (aggressive) categories and those in the high category will be more likely to be re-audited. The second hypothesis is that if the identified non-complier is re-audited, it will be more likely to comply with its social insurance obligations in order to be returned from the high (aggressive) category into the low (non aggressive) category. Our first main finding is that firms found to be in non-compliance in the first audit in 2001 were moved into a separate violation category and the probability of being reaudited in 2002 was significantly higher if the firm was in that category. Our second main result is that across the board, firms which were re-audited continued to underpay in 2002 but the extent of underpayment was significantly reduced. | |||
| 13 September | Professor Peter Hall | University of Melbourne |
Robustness of multiple hypothesis testing procedures against dependence |
| Problems involving classification of high-dimensional data, and `highly multiple' hypothesis testing, arise frequently in the analysis of genetic data and complex signals. In this talk we show that, in the context of multiple hypothesis testing, the assumption of independence is much less of an issue in high-dimensional settings than in conventional, low-dimensional ones. This is particularly true when the null distributions of test statistics are relatively light-tailed, for instance when they can plausibly be based on normal approximations. These issues are related to the 'upper tail independence' property, which is familiar in problems involving risk analysis. Similar methods and ideas also lead to new insights for heavy-tailed data. | |||
| 20 September | Professor Bruce Grundy | University of Melbourne |
Leadership Giving in Charitable Fund-Raising: Matching Grants or Seed Money? |
| A benefactor’s leadership gift can be packaged as seed money or a matching grant. Small donors, charities and benefactors may disagree about this choice. Small donors’ preferences will depend on their utility functions, the donor base and the size of the leadership gift. For any given leadership gift, a matching scheme will raise more money and hence is preferred by both charities and benefactors. If small donors decrease their giving at higher match ratios, benefactors may prefer smaller matching gifts to the larger gifts they would make if restricted to seed money. When this means that matching raises less in total, the charity and benefactor will disagree. | |||
| 27 September | Dr David Goldbaum | UTS |
Follow the Leader |
| An agent based model is developed in which leaders arise endogenously form a social network. Leaders are defined as early adopters of a subsequently popular product or trend. They become leaders by attracting a network of imitators. Agents seek to become leaders themselves, or to develop a direct link to a leader in order to increase the chance of becoming an early adopter in a social hierarchy. The environment is related to a majority game, but introduces the importance of the timing of adoption. A late adopter to a popular choice receives a low payoff. The proposed environment is relevant to a number of settings in which leadership and timing of decisions are important. A number of settings place importance on a reputation for being a trend setter. This includes retail outlets that market the image of carrying trend leading products or an individual promoter of trends or fashion who receives payments based on the ability to market items. It also applies to settings in which a cult-of-personality can dictate popular tastes, such as in art, food, and wine markets. A social hierarchy can also apply to the introduction of new products or ideas, such as academic research and financial market analysts. | |||
| 11 October | Professor Robert Kohn | UNSW |
cancelled |
| 18 October | Philip Ji | Monash |
Are real interest rates really mean-averting? |
| A majority of recent empirical findings suggest that real interest rates are mean-averting. This invalidates the assumption of constant risk free rate in prominent finance and economic models such as the consumption based asset pricing model, the Black-Scholes option pricing model and the neoclassical growth model. This paper investigates whether real interest rates are mean-averting or reverting through persistence for 13 developed countries. To measure the persistence half-life estimation is conducted in a univariate setting, adopting bias-corrected wild bootstrap and Highest Density Region approach as statistical inference. It is found that real interest rates are mean-reverting after accounting for finite sample properties and inadequacy of the conventional statistical approach. We also conduct a panel unit root test in which the null hypothesis of unit root is rejected . | |||
| Date | Presenter | Institution | Seminar |
|---|---|---|---|
| 22 February | Dr Harald Scheule | University of Melbourne |
A Multi-Factor Approach for Systematic Default and Recovery Risk |
| Abstract: The present paper develops a simultaneous multi-factor model for defaults and recoveries. Applying this model, risk parameters can be forecast using systematic and idiosyncratic risk factors and their implied correlations. The theoretical framework is accompanied by an empirical analysis in which a negative correlation between defaults and recoveries over the business cycle is observed. In the study, default and recovery rates are modeled by business cycle indicators and the properties of the economic and regulatory capital given these risk drivers are shown. | |||
| 1 March | Dr Nicolas Gruen cancelled - moved to July 26 |
Lateral Economics (CEO) | How to choose, your job, your oncologist, your fund manager and your real estate agent: improving information flows in markets |
Abstract: We have long known – and for commonsensical reasons – that good information is critical to economic efficiency. Friedrich Hayek argued this within the ‘Austrian tradition’ of economics in prosecuting his case in the ‘socialist calculation debates’ of the 1930s. ‘Asymmetric information’ arrived as a substantial issue within the neoclassical tradition around thirty five years later with the work of theorists such as Kenneth Arrow, George Stigler, George Akerlof and Joseph Stiglitz. |
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| 8 March | Dr Chikako Yamauchi | ANU |
Governance and Delivery of Anti-Poverty Program |
| Abstract: In providing aid to the poor, the first step to successful program implementation is to deliver resources to those who deserve them while minimizing leakage to the non-poor. Recently, many countries have delegated the authority of distributing anti-poverty program resources to local governments of selected poor communities based on the assumption that local governments have core information on individual income and are held accountable by constituents. This study explores which village characteristics affect the local government's ability to target the poor using poverty alleviation grants from the Indonesian government. Results indicate that better targeting is achieved in villages that initially had more developed administrative institutions. Villages headed by persons who are relatively educated, conditional on their age, are also more likely to cover the poor and limit the leakage to the non-poor. These results suggest that pre-existing community institutions matter in the pro-poor distribution of public resources in the villages. In providing aid to the poor, the first step to successful program implementation is to deliver resources to those who deserve them while minimizing leakage to the non-poor. | |||
| 15 March | Professor Stephen Gray | UQ |
The Relationship Between Franking Credits and the Market Risk Premium |
| Abstract: In a dividend imputation tax system, equity investors have three potential sources of return: dividends, capital gains, and franking (tax) credits. However, the standard procedures for estimating the market risk premium (MRP) for use in the CAPM, ignore the value of franking credits. Officer (1994) notes that if franking credits do affect the corporate cost of capital, their value must be added to the standard estimates of MRP. In this paper, we explicitly derive the relationship between the value of franking credits (gamma) and the MRP. We show that the standard parameter estimates that have been adopted in practice (especially by Australian regulators) violate this deterministic mathematical relationship. We also show how information on dividend yields and effective tax rates bounds the values that can be reasonably used for gamma and the MRP. We make recommendations for how estimates of the MRP should be adjusted to reflect the value of franking credits in an internally consistent manner. | |||
| 22 March | Dr Gillian Bristow | University of Cardiff |
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| 29 March | Dr George Wong | Monash University |
Multiplicative Risk Prudence |
| Abstract: We examine the optimal saving decision of individuals who face a multiplicative risk. An individual is defined to be multiplicative risk prudent if multiplying a pure risk to her future wealth raises her optimal savings. We show that convex marginal utility is not sufficient to induce multiplicative risk prudent. Instead, an individual is multiplicative risk prudent if and only if her relative prudence of future consumption uniformly exceeds two. We then study jointly the impact of correlated additive and multiplicative risks on optimal savings decision and demonstrate that the concept of multiplicative risk prudence is stronger than additive multiplicative risk prudence. Our results suggest one should take the condition of multiplicative risk prudence as a natural restriction on preference. In addition, our findings provide an explanation to the risk-free rate puzzle. | |||
| 5 April | Professor Robert Engle | New York University, Stern School of Business |
New Approaches to Estimating Correlations |
| Robert Engle, the Michael Armellino Professor of Finance at New York University Stern School of Business, was awarded the 2003 Nobel Prize in Economics for his research on the concept of autoregressive conditional heteroskedasticity (ARCH). He developed this method for statistical modeling of time-varying volatility and demonstrated that these techniques accurately capture the properties of many time series. Professor Engle shared the prize with Clive W. J. Granger of the University of California at San Diego.
Professor Engle is an expert in time series analysis with a long-standing interest in the analysis of financial markets. His ARCH model and its generalizations have become indispensable tools not only for researchers, but also for analysts of financial markets, who use them in asset pricing and in evaluating portfolio risk. His research has also produced such innovative statistical methods as cointegration, common features, autoregressive conditional duration (ACD), CAViaR and now dynamic conditional correlation (DCC) models. |
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| 12 April | Professor Dominique Guegan | Ecole Normale Superieure de Cachan |
Global and Local stationary modeling in finance: Theory and empirical evidence |
| Abstract: To model real data sets using second order stochastic processes imposes that the data sets verify the second order stationarity condition. This stationarity condition concerns the unconditional moments of the process. It is in that context that most of models developed from the sixties’ have been studied; We refer to the ARMA processes (Brockwell and Davis, 1988), the ARCH, GARCH and EGARCH models (Engle, 1982, Bollerslev, 1986, Nelson, 1990), the SETAR process (Lim and Tong, 1980 and Tong, 1990), the bilinear model (Granger and Andersen, 1978, Guégan, 1994), the EXPAR model (Haggan and Ozaki, 1980), the long memory process (Granger and Joyeux, 1980, Hosking, 1981, Gray, Zang and Woodward, 1989, Beran, 1994, Giraitis and Leipus, 1995, Guégan, 2000), the switching process (Hamilton, 1988). For all these models, we get an invertible causal solution under specific conditions on the parameters, then the forecast points and the forecast intervals are available. | |||
| 19 April | Dr Abdou Kâ Diongue | Universite Gaston Berger de Saint Louis |
The Stationary Seasonal Hyperbolic Asymmetric Power ARCH model |
| Abstract: More financial time series exhibit seasonality, persistence (hyperbolic decay of the autocorrelation function), asymmetric behavior and leptokurtosis. In this paper, we introduce the stationary Seasonal Hyperbolic APARCH model, which can take into account the previous features. We then investigate the probabilistic properties of the process e.g. the strict and weak stationarity of the process and the long memory property. | |||
| 26 April | Professor Xin Meng | ANU |
The Long Run Health and Economic Consequences of Famine on Survivors: Evidence from China’s Great Famine |
| Abstract: In the past century, more people have perished from famine than from the two World Wars combined. Many more were exposed to famine and survived. Yet we know almost nothing about the long run impact of famine on these survivors. This paper addresses this question by estimating the effect of childhood exposure to China’s Great Famine on adult health and labor market outcomes of survivors. It resolves two major empirical difficulties: 1) data limitation in measures of famine intensity; and 2) the potential joint determination of famine occurrences and survivors’ outcomes. As a measure of famine intensity, we use regional cohort size of the surviving population in a place and time when there is little migration. We then exploit a novel source of plausibly exogenous variation in famine intensity to estimate the causal effect of childhood exposure to famine on adult health, educational attainment and labor supply. The results show that exposure to famine had significant adverse effects on adult health and work capacity. The magnitude of the effect is negatively correlated with age at the onset of the famine. For example, for those who were one year old at the onset of the famine, exposure on average reduced height by 2.08% (3.34cm), weight by 6.03% (3.38kg), weight-for-height by 4% (0.01 kg/cm), upper arm circumference by 3.95% (0.99cm) and labor supply by 6.93% (3.28 hrs/week). The results also suggest that famine exposure decreased educational attainment by 3% (0.19 years); and that selection for survival decreased within-region inequality in famine stricken regions. | |||
| 10 May | Professor Ian Walker | University of Warwick |
Do Dads matter? Or is it just their money that matters? |
| Abstract: The widely held view that separation has adverse effects on children has been the basis of important policy interventions. While a small number of analyses have been concerned with selection into divorce, no studies have attempted to separate out the effects of one parent (mostly the father) leaving, from the effects of that parent's money leaving, on the outcomes for the child. This paper is concerned with early school leaving and educational attainment and their relationship to parental separation, and parental incomes. While we find that parental separation has strong effects on these outcomes this result seems not to be robust to adding additional control variables. In particular, we find that when we include income our results then indicate that father’s departure appears to be unimportant for early school leaving and academic achievement, while income is significant. This suggests that income may have been an important unobservable, that is correlated with separation and the outcome variables, in earlier research. Indeed, this finding also seems to be true in our instrumental variables analysis – although the effect of income is slightly weakened. | |||
| 17 May | Professor Benno Torgler | QUT |
Shadow economy, tax morale, governance and institutional quality: a panel analysis |
| Abstract: This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy. | |||
| 24 May | Professor Adrian Pagan | QUT |
Handling Permanent Components in Some Macroeconometric Models |
| Abstract: Data does seem as if it has permanent components and DSGE models have increasingly responded to that by constructing models in which some adjustment is made for such effects. One solution has been to “detrend” data using filters such as HP after which analysis proceeds with this data. Another has been to deflate the data with an unobserved component, generally technology, and to then perform system estimation to jointly estimate both the permanent component and the parameters of the model. In SVAR models the presence of a permanent component has often been used to estimate their parameters under the rubric that “demand shocks have no long-run effect on output”. The papers deal with these questions. It is shown that filters can distort Euler equation estimation, that one can “deflate” data with estimated permanent components of series so opening the way to apply limited information rather than full information methods, and that the knowledge that structural shocks are permanent in an SVAR implies that there is no error correction terms in that structural equation. The latter feature provides extra instruments for estimating the SVAR. This result is applied to shown that Gali’s IS-LM SVAR fails to exploit all of the restrictions that come from the long-run assumptions he makes, and these can replace some of his short-term restrictions. | |||
| 7 May | Dr John Nowland | QUT |
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| Date | Presenter | Institution | Seminar |
|---|---|---|---|
| 20 July | Dr Stefan Trueck | QUT | Meeting CDO Market Quotes - Alternatives to the Implied Correlation Concept |
| Abstract: A recent development in the credit derivative market is the availability of market quotes of standard tranches like the iTraxx and the CDX. Often market participants are quoting rather the so-called implied correlation instead of the spread or the price of a CDO tranche. Thus, quotes of standardised tranches also provide a market view of default correlation between the individual credits in the portfolio at different points in the capital structure. We critically examine the implied correlation concept and suggest alternative approaches to meet CDO tranche spreads. For example, we investigate different calibrations of the CreditRisk+ model and its ability to reproduce market quotes. While sensitivities to correlation are too low, by increasing PD volatility for each name CreditRisk+ produces tails which are fat enough to meet market tranche losses. | |||
| 27 July | Prof Gunnar Bardsen | NTNU | A Gaussian IV estimator of cointegrating relations |
| Abstract: In static single equation cointegration regression models the OLS estimator will have a non-standard distribution unless regressors are strictly exogenous. In the literature a number of estimators have been suggested to deal with this problem, especially by the use of semi-nonparametric estimators. Theoretically ideal instruments can be defined to ensure a limiting Gaussian distribution of IV estimators, but unfortunately such instruments are unlikely to be found in real data. In the present paper we suggest an IV estimator where the Hodrick-Prescott filtered trends are used as instruments for the regressors in cointegrating regressions. These instruments are almost ideal and simulations show that the IV estimator using such instruments alleviate the endogeneity problem extremely well in both finite and large samples. | |||
| 3 August | Prof Richard Heaney | RMIT | The Size and Composition of Corporate Boards in Hong Kong, Malaysia and Singapore, 1999 to 2002 |
| Abstract: It is generally held that the choice of size and composition of the board of directors is endogenous to firm and recent theoretical models support this contention. This paper focuses on the factors that might explain the size and composition of the board using a unique sample of the larger listed firms in Hong Kong, Malaysia and Singapore. The Asian focus of the study is important as little is known about how sophisticated Asian firms deal with the board size and composition question. | |||
| 10 August | Prof Robert Owen | University of Nantes | Irreversibility, Sunk Costs, News and Evolutionary Economic Methodology |
Abstract: An enlarged conceptual framework for redefining sunk costs as state dependent evaluations is proposed by highlighting how unforeseen contingencies impact systemic adjustment processes through the interplay between existing and prospective irreversibilities. Associated microeconomic mechanisms define market entry and exit, and thereby capture key channels by which history conditions the evolution of economic systems and the interrelation between market and non-market decisions. A crucial distinction is made between ex ante sunk costs, which are contingent on agents’ initial information spaces, and ex post or endogenous sunk cost evaluations, following agents’ internalisation of news and strategic interactions. Paradoxically, such redefined sunk costs can have quite divergent implications for the decisions of individual agents and for the evolution of economic systems, as a whole, through their critical role as building-blocks, which define strategic interactions and adjustment processes. An examination of the relation between the hold-up and lock-in problems highlights the role of information revelation in defining the endogeneity of sunk cost evaluations. A subsequent extension of Owen and Ulph (2002) focuses on the systemic impact of an unanticipated integration shock, hence “pure news”, on endogenous market entry and exit in a framework of international oligopoly. A central identification issue in economic modeling is suggested, which applies to scenarios with market imperfections and strategic interdependence between agents, as shown by a unique correspondence between alternative trade regimes and configurations of different sunk and fixed costs. Asymmetries between the choice sets and optimisation problems of agents are defined by existing and newly incurred endogenous sunk costs. A range of generic implications is suggested. These include a defining role for endogenous sunk costs in explaining theories of commitment, micro-foundations of learning processes and expectations formation, new branches in game-theoretic decision trees and the economics of time. |
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| 7 September | Prof Mark Weder | University of Adelaide | A Rationally Exuberant Theory of the Roaring Twenties |
| Abstract: We apply a dynamic general equilibrium model to the period of the U.S. Roaring Twenties. In particular, we examine a modification of the real business cycle (RBC) model in which the possibility of indeterminacy of equilibria arises. In other words, in addition to technology shocks, agents’ self-fulfilling expectations can serve as a primary impulse behind fluctuations. We estimate both shocks using U.S. data. The sunspot, or belief shock, is calculated using asset returns. We then examine the behaviors of output and consumption when fluctuations are driven by either or both shocks. We find that the model economy in which only sunspot shocks matter best describes the 1920s. | |||
| 14 September | Prof Robert Gregory | ANU | Death is Expensive, Why not live longer? |
| Abstract: This presentation will discuss the changing patterns of health expenditure as populations age. | |||
| 21 September | Dr Jennifer Foster | UNISA | Do Students Want to Succeed? Peer group choice, social influence, and undergraduate performance |
| Abstract: Students routinely choose others to partner with in studying or discussing course material. The influence of study groups on their members may differ depending upon the student-level preferences expressed in this choice. This study searches for evidence of such heterogeneity by exploiting a unique classroom experiment in study group assignment within a University of South Australia introductory economics course. Drawing a conceptual framework from the treatment effects literature, I decompose the peer effect and measure the strength and nature of selection versus other determinants of peer group composition and peer group influence. | |||
| 5 October | Prof Robert Breunig | ANU |
Australia's Productivity Growth in the 1990s – A Micro Perspective |
| Abstract: Australia's productivity performance at the micro level is characterised by important inter-firm differences and continual business entries and exits. This calls into question the appropriateness of measuring productivity with an aggregate production function that is based on a representative firm. This study applies a semiparametric production function estimation technique that endogenises firms' input choices and exit decisions, for the first time to Australian microdata, namely, the Business Longitudinal Survey dataset from 1994-95 to 1997-98. Firm-level multifactor (MFP) estimates are aggregated to allow a review of MFP changes by 2-digit ANZSIC industry, using an aggregation method that corrects for a problem in conventional measures of aggregate productivity change. Our results support the big picture that services industries have outperformed manufacturing industries in propelling Australia's productivity surge in the mid 1990s. | |||
| 12 October | Professor Jan Van Ours | Tilburg University | Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment |
| Abstract: This paper investigates how the potential duration of unemployment benefits affects the quality of post-unemployment jobs. It takes advantage of a natural experiment introduced by a change in Slovenia’s unemployment insurance law that substantially reduced the potential benefit duration. Although this reduction strongly increased job finding rates, the quality of the postunemployment jobs remained unaffected: the paper finds that the law change had no effect on either the type of the contract (temporary vs. permanent), the duration of the post-unemployment jobs, or the wage earned in this job. | |||
| 19 October | Vasilis Sarafidis | University of Sydney |
Test of Cross Section Dependence for a Linear Dynamic Panel Model with Regressors |
| Abstract: This paper proposes a new testing procedure for error cross section dependence after estimating a linear dynamic panel data model with regressors by the generalised method of moments (GMM), which is valid with small T and large N panel data. Importantly, the test examines whether error cross section dependence is left after defactoring the data by means of time-demeaning. The finite sample evidence suggests that the test performs well, particularly the version of the system GMM estimator. Also, it is shown that the system GMM estimator, based only on partial instruments consisting of exogenous regressors, can be a reliable alternative to the standard GMM estimators under heterogeneous error cross section dependence. | |||
| 26 October | Professor Roger Craine | University of California, Berkeley | International Monetary Policy Surprise Spillovers |
| Abstract: On April 18, 2001 US Federal Reserve Open Market Committee (FOMC) surprised financial markets by lowering the Federal Funds Target rate ½% between regularly scheduled FOMC meeting dates. The US equity market responded that day with an almost 3% increase and the Australian equity prices rose by 1½%. The yield on US and Australian five year bonds fell by about 13 basis points. This paper is the first to examine international monetary policy surprise spillovers and to estimate the response of security prices to unobservable monetary and nonmonetary surprises. Our estimates of the impact of monetary policy surprises are similar to other studies. The following results are new. US monetary policy surprises spill over and affect Australian yields and equity returns. Nonmonetary surprises are more important in explaining the movements in longer maturity yields and returns than monetary policy surprises. | |||
Semester 1, 2006:
| Date | Presenter | Institution | Seminar |
|---|---|---|---|
| 2 March 2006 | Dr Uwe Dulleck | Johannes Kepler University Linz and University of Vienna | Satisfaction Guaranteed - Malpractice Awards and Other Remedies Against Misdiagnosis in Markets for Credence Goods |
| Abstract: We analyze a market for credence goods where (i) experts incur a cost diagnosing consumer s problem, (ii) experts cannot diagnose a problem perfectly, and (iii) experts diagnosis effort is non verifiable. We focus on the question whether the market provides experts with the right incentive to perform diagnosis and to provide the appropriate treatment and to what extent payments in case of treatment failure affect the market outcome. | |||
| 9 March 2006 | Prof Peter Sinclair | University of Birmingham | A Simple Guide to the Basic Macroeconomics of Oil |
| Abstract: We would like to understand the effects and the causes of oil price changes. What follows provides a very simple framework for trying to consider both simultaneously. But the emphasis here will be mainly on the latter. One of the main ideas proposed here is that the price of oil is endogenous, and determined along with other variables in a system of relationships. Strictly speaking, an “oil price shock” is a misnomer. Oil prices can jump or collapse for any of a variety of possible reasons. The other developments that accompany the event depend on the nature of the shock. | |||
| 15 March 2006 | John C. V. Pezzey | ANU | Neither the rock nor the hard place: using payment thresholds to balance the politics and the economics of emissions control |
| Abstract: To maximise the economic benefits of tradable emission permits or emission taxes, while keeping these emission pricing mechanisms politically acceptable, requires the use of payment thresholds. There is no other way to avoid the "rock versus hard place" dilemma posed by the standard, polar forms of these pricing mechanisms that are generally discussed by economists, namely auctioned permits, free permits, or a pure tax. This means that in total, the government should auction permits only beyond some payment threshold, and should levy a tax on emissions only beyond a similar threshold. For full symmetry, the latter would mean treating emission taxes like tradable emission permits, with the tax threshold thus a de facto property right, though thresholds less like property rights can still be useful. The importance of a payment threshold is shown empirically for the case of global greenhouse gas abatement, where we use emission pricing to maximise welfare subject to a political constraint threshold allows abatement to be much higher, and welfare to be higher, than with the standard forms of emission pricing.on the total control and revenue costs directly paid by emitters. This shows how using a payment. | |||
| 23 March 2006 | Prof Paul Frijters | QUT | From Golden Age to Golden Age: Australia's "Great Leap Forward"? |
| Abstract: The twenty-five years after WW 2 witnessed strong labour market institutions and beneficial labour market outcomes - high wage growth and integration of low-skilled immigrants. Then came the macro shocks of the mid 1970s. Labour market outcomes deteriorated as full-time employment population ratios fell, particularly among males; unemployment and welfare use increased; and real wages grew slowly. The golden age passed. In response, successive governments have increasingly begun to dismantle the institutional framework. We address this transition within a simple long run graphical framework to help us marshal facts and arguments and to discuss the likely impact of institutional reform. | |||
| 30 March 2006 | Andrew Leigh | ANU | Estimating teacher quality from panel data. |
| Abstract: Using a dataset covering over 10,000 Australian primary school teachers and over 150,000 pupils, I estimate teacher quality using changes in students' test scores from one exam to the next. Since the exams are conducted only every two years, I take account of the fact that any given change in test scores must be attributed to multiple teachers. The resulting teacher fixed effects are widely dispersed across teachers, and a teacher's gains in literacy and numeracy are positively correlated. Teacher fixed effects also show a significant association with some, though not all, observable teacher characteristics. The strongest effects are from experience (particularly the first year effect). Controlling for experience, I find no significant relationship between teacher age and teacher quality. Likewise, teachers with a Masters degree do not see larger test score gains, and the gender of the teacher does not seem to matter much. | |||
| 6 April 2006 | Suk-Joong Kim | UNSW | Yen Intervention by the Bank of Japan: Do overseas developments matter more than domestic developments? |
| Abstract: This paper investigates the Bank of Japan’s foreign exchange intervention activities for the period 1st April 1991 to 30th March 2004. The previous literature has been hampered by the coarse daily data and has generally been unable to identify intervention determinants beyond some embodiment of the first moment of exchange rate returns. We take a novel approach of dividing a full 24 hour day into two distinct horizons representing intradaily and overnight periods and investigating the role of market developments within each horizon for their potential differing influence on the Bank of Japan’s intervention decisions. Using a friction model to estimate the Bank of Japan’s reaction function, we find that prior to June 1995, there was a significant response to intradaily exchange rate returns and intradaily volatility. In the post 1995 sample period, we find a broadening in their monitoring activities to include first moment developments in overnight exchange rate returns and argue that the larger interventions in this period cause a ‘flow reversal’ of the exchange rate during the intradaily horizon. These results clarify some of the inconsistencies that have been evident in the past literature. | |||
| 20 April 2006 | Susan Thorp | UTS | Information processing and measures of integration: New York, London and Tokyo |
| Abstract: Equity markets do not pass all overnight information into prices instantaneously at the opening of trade. The New York market takes up to 30 minutes after the opening time to absorb overnight foreign news, Tokyo takes about 90 minutes, and London about 120 minutes on average. These delays in information absorption have implications for measures of financial integration. We adjust intra-daily return series for non-instantaneous news absorption and then use adjusted series to estimate linkages between returns and variances. We can accurately measure the size and separate the sources of transmissions because the adjusted daytime returns series are uncorrelated. Overnight news, as represented by foreign daytime returns, explains 12% of overnight (close-open) returns in New York, 14% in Tokyo and 30% in London. For New York and Tokyo the largest spillovers come from markets that trade immediately prior (London and New York respectively) while London is more dependent on New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetry effects. | |||
| 27 April 2006 | Mark Bowden, PhD fellow | UQ | The Effect Of Social Interaction And Herd Behaviour On The Formation Of Agent Expectations |
| Abstract: Survey data on agent expectations appear to experience inertia, remaining relatively stable for protracted periods punctuated with the occasional structural shift initiated by exogenous changes. The data is also characterised with an underlying level of volatility which varies over time. This paper examines if social interaction and herd behaviour, based on the social learning literature, can explain the characteristics of this dynamic process. The social learning takes place in a network with small world characteristics. Moving from an ordered to a small world network dramatically increases the level of volatility and it quickly reaches a higher level (at which point increasing the randomness of the network has little effect). Assuming that all social networks have small world characteristics then there is an inherent level of volatility in expectations formation. Increasing the influence of experts, by increasing the number of connections from these agents, also increases volatility. This may explain the variability in volatility over time. Finally, it is found that under certain network structures, where the number of connections between agents is increased, herd behaviour leads to information cascades potentially leading to the formation of speculative bubbles. | |||
| 4 May 2006 | Professor Wolfgang Haerdle | Humboldt-Universität zu Berlin | Arbitrage Free State Price Density Dynamics |
| Abstract: State price densities (SPD) are an important element in applied quantitative finance. In a Black- Scholes model they are lognormal distributions with constant volatility parameter. In practice volatility changes and the distribution deviates from log-normality. We estimate SPDs using EUREX option data on the DAX index via a nonparametric estimator of the second derivative of the (European) call price function. The estimator is constrained so as to satisfy no-arbitrage constraints and it corrects for intraday covariance structure. Given a low dimensional representation of this SPD we study its dynamic for the years 1995–2003. We calculate a prediction corridor for the DAX for a 45 day forecast. The proposed algorithm is simple, it allows calculation of future volatility and can be applied to hedging exotic options. | |||
| 18 May 2006 | Michael T. Chng | Monash University | The price formation of substitute markets: Theory and application to twin-board China firms |
| Abstract: Modeling price formation to measure the price discovery of substitute markets (cross listing, contract proliferation, spot-futures-option) is relevant not only to investors and regulators, but also to the financial exchanges that host such markets. Various price formation models have been established according to the trading parameters that each model aims to depict the trading process. They include trade size in Hasbrouck (1991), cross-market prices in Hasbrouck (1995), order size in Al-Suhaibani and Kryzanowski (2000), time between trade in Dufour and Engle (2000) and trade and order sizes in Chng (2005). In this paper, we propose a theoretical model that considers the joint trade directions of a pair of substitute markets. Our model extends upon Madhavan, Richardson and Roomans (1997). We apply the model to analyse the price formation of A-B and A-H Chinese twin shares. Results from the A-B group does not indicate evident price leadership by either boards. However, results from the A-H group support our proposition that the H-board provides price leadership for the A-board. | |||
| 25 May 2006 | Professor Adrian Pagan | QUT | Issues in Adopting DSGE Models for Use in the Policy Process |
| Abstract: That the literature on DSGE models and the resources devoted to experimenting with them by central banks has been rapidly growing can scarcely be disputed. Not only do we see many papers being produced with DSGEs by central bank researchers but we also see advertisements for employment that specify this as an area of expertise. However, since ultimately most research in central banks is designed to assist in making policy choices, it is natural to ask what issues arise if DSGE models are to be given a greater role in this process, today and in the future. | |||
| 1 June 2006 | Professor Farshid Vahid | ANU | VARMA versus VAR for Macroeconomic Forecasting |
| Abstract: In this paper, we argue that there is no compelling reason for restricting the class of multivariate models considered for macroeconomic forecasting to VARs given the recent advances in VARMA modelling methodology and improvements in computing power. To support this claim, we use real macroeconomic data and show that VARMA models forecast macroeconomic variables more accurately than VAR models. | |||
Further Information
Further information regarding the 2008 Economics and Finance Seminar Series can be obtained by contacting the Seminar Series Coordinator, Dr John Chen.