1,721,026 research outputs found
Energy, money, and pollution
No full textThis paper explores general equilibrium consumption choices and interest rate determination in a deterministic two-period
model in which the production side explicitly describes the thermodynamic process unavoidably connected with production, as
argued by Georgescu Roegen. A simple energy based production process is modeled, which is not in a stationary state. The
resulting production function is time dependent. In neoclassical general equilibrium the thermodynamic implication of the
production process, i.e., the production of waste, will not be taken into account by decision making agents. For welfare
optimality, the resulting externality needs to be corrected by a social planner, or through the use of environmental related
taxation. However, it is shown that imposing energy as a medium of exchange (money) in the same economy makes agents
energy conscious and decreases the externality associated with entropic waste through a market mechanism, without the need
for intervention. In the limit case in which production occurs in thermodynamic equilibrium, no entropic waste is produced,
and the model collapses to the nested neoclassical model. A contribution of the proposed approach is the determination of
energy (money) prices in general equilibrium. Despite the fact that energy does not enter the agents’ utility function, and
therefore has no direct value, money prices and interest rate can be fully characterized in the model due precisely to the
production technology adopted. In this competitive equilibrium the market interest rate will be greater than the real interest rate.
The change in the numeraire and medium of exchange used affects the economy due to the non stationarity of the production
process, but has no effect in the limit case in which the productive process reaches a steady state
Financial and Thermodynamic Equilibrium
No full textThis paper explores general equilibrium asset pricing implications in
a two-period model in which the production side explicitly describes
the thermodynamic process unavoidably connected with production.
We show that steady state of the production process, i.e. thermodynamic equilibrium, has a one-to-one correspondence with the absence
of arbitrage possibilities. This provides an alternative defnition of the
absence of arbitrage
Stochastic Volatility Option Pricing
No full textThis paper examines alternative methods for pricing options when the underlying security
volatility is stochastic. We show that when there is no correlation between innovations in
security price and volatility, the characteristic function of the average variance of the price
process plays a pivotal role. It may be used to simplify Fourier option pricing techniques and
to implement simple power series methods. We compare these methods for the alternative
mean-reverting stochastic volatility models introduced by Stein and Stein (1991) and Heston
(1993). We also examine the biases in the Black-Scholes model that are eliminated by
allowing for stochastic volatility, and we correct some errors in the Stein and Stein (1991)
analysis of this issue
The Determinants of Italian Stock Market Returns: Some Preliminary Evidence
No full textThe paper investigates the possible determinants of returns on the Italian Stock Market. In drawing from the empirical literature devoted to the US stock market, the authors pay special attention to the peculiar timing of data releases in Italy and to the availability of anticipations for the industrial production index. The results indicate that innovations in selected macroeconomic variables are significantly related to the returns on a broad market index of the Milan Stock Exchange as well as to industry specific indexes, and that the use of industrial production variables helps improve the fit of the model. When a test of the Arbitrage Pricing Theory is carried out on the returns of individual stocks, the innovations in the macroeconomic variables appear to be factors priced by the market in addition to a market index
The Cyclical Behavior of Interest rates
No full textThis article investigates the behavior of the term structure of interest rates over the business cycle. In contrast to prior studies that measure the business cycle by the simple growth in aggregate economic activity, we consider the deviation of aggregate economic activity from its potentially stochastic trend. We show that incorporating both an independent trend and cyclical component in consumption improves the efficiency in estimating consumption-based asset pricing models. We also find that the term spread is more informative about future changes in stochastically detrended real gross domestic product (GDP) than future growth rates in real GDP
Detecting mean reversion within reflecting barriers: application to the European exchange rate mechanism
No full textThis paper derives a statistical test, based on the first-order autocorrelation, to ascertain whether a stochastic process evolving within reflecting barriers is mean reverting. Under these conditions the standard unit root analysis does not apply. Since the presence of reflecting barriers per se will induce mean reverting behaviour, the detection of mean reversion inside the two boundaries requires that the effect of reflection be properly accounted for. This statistical procedure may be useful in a number of economic applications which involve an assesment on the dynamics of bounded variables: e.g. the estimation of the mean reversion of ratios in capital structure theory, market share analysis, or the empirical testing of target zones models for exchange rates. We exemplify the inappropriateness of standard unit root analysis in these situations using European Monetary System exchange rate data. Our methodology is helpful in deciding whether the mean reverting behaviour of these exchange rates is due solely to local behaviour at the barriers, or whether a more complex interpretation is warranted. We apply our test to the target zone model introduced by Krugman where the intervention bands are credible. We study bilateral exchange rates of currencies party to the European Monetary System during a period of sustained stability consistent with the credible band assumption. Our results are consistent with those obtained employing significantly more complex maximum likelihood procedures
A Comparison of Alternative Non-parametricEstimators of the Short Rate DiffusionCoefficient
No full textIn this paper we discuss the estimation of the diffusion coefficient in
one-factor models for the short rate via non-parametric methods. We
test the estimators proposed by Ait-Sahalia (1996), Stanton (1997) and
Bandi and Phillips (2003) on Monte Carlo simulations of the Vasicek and
CIR model. We show that the Ait-Sahalia estimator is not applicable for
values of the mean reversion coefficient typically displayed by interest
rate data, while the Stanton and Bandi–Phillips estimators perform
better. Each of the three estimators depends crucially on the choice of
the bandwidth parameter. Our analysis shows that the estimators give
different results for both the data set analysed by Ait-Sahalia (1996)
and by Stanton (1997). Finally we show that the data sets used by Ait-
Sahalia and Stanton are inherently different and, in particular, that very short-term data exhibit characteristics which are inconsistent with a
diffusion
Going Beyond Counting First Authors in Author Co-citation Analysis
Full text linkThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
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