Journal of International Economics


 Rosemary Norman
 3 years ago
 Views:
Transcription
1 Journal of Internatonal Economcs 79 (009) Contents lsts avalable at ScenceDrect Journal of Internatonal Economcs journal homepage: Composton and growth effects of the current account: A syntheszed portfolo vew Ka Guo 1, Keyu Jn Department of Economcs, Harvard Unversty, Unted States artcle nfo abstract Artcle hstory: Receved 1 September 007 Receved n revsed form 5 February 009 Accepted 5 March 009 Keywords: Current account Portfolo vew Valuaton effects Composton effects Growth effects hs paper analyzes a useful accountng framework that breaks down the current account to two components: a composton effect and a growth effect. We show that past emprcal evdence, whch strongly supports the growth effect as the man drver of current account dynamcs, s msconceved. he remarkable emprcal success of the growth effect s drven by the domnance of the crosssectonal varaton, whch, under condtons met by the data, s generated by an accountng approxmaton. In contrast to prevous fndngs that the portfolo share of net foregn assets to total assets s constant n a country, both our theoretcal and emprcal results support a hghly persstent process or a untroot process, wth some countres dsplayng a trend. Fnally, we reestablsh the composton effect as the quanttatvely domnant drvng force of current account dynamcs n the past data. 009 Elsever B.V. All rghts reserved. JEL classfcaton: F1 F3 F41 1. Introducton he U.S.'s wdenng current account defct over the past decade and the growng current account mbalances have become a subject of vast nterest. Alongsde these recent experences of global mbalances s an exploson of nternatonal fnancal asset trade among an expandng group of economes. 3 Wth the ncreasng leverage n natonal portfolos and the potentally huge wealth transfers assocated wth alteratons of the portfolo allocaton, concepts of external We thank Kenneth Rogoff for hs gudance and encouragement over the entre process of ths research. We are grateful to Robert Barro, Rchard Cooper, Graham Ellott, L Han, Elhanan Helpman, Rustam Ibragmov, Dale Jorgenson, Konstantn Styrn, Aleh syvnsk, Erc van Wncoop, and Harvard Internatonal Economcs Workshop, Macroeconomcs, and Econometrcs Workshop partcpants for helpful comments. We thank Florent Ségonne for certan techncal support. Any remanng errors are the responsblty of the authors. Correspondng author. el.: Emal addresses: (K. Guo), (K. Jn). 1 el.: he share of U.S. current account defcts n GDP reached an unprecedented hgh of 6.4% n the year of 005 and remans at a hgh level. 3 For ndustral countres, the sum of the stock of foregn assets and foregn labltes relatve to GDP has ncreased by a factor of 7, from 45% to 300% over the perod of For developng countres, t has ncreased from around 40% to 150% over the same perod (Lane and MlesFerret, 007). adjustment and external mbalances are no longer adequate wthout reference to the structure of natonal portfolos, accordng to Obstfeld (004), among many others. he recent surge n the lterature on portfolo models of the current account reflects these new trends n global fnance. One of the frst that marked the recent emergence n portfolo models s the partalequlbrum approach of Kraay and Ventura (000, 003). Accordng to ther theory, nternatonal captal flows, or the current account, s caused by portfolo growth through changes n wealth. Countres nvest the margnal unt of wealth as the average unt, or n other words, portfolo shares (net foregn assets to total assets) are constant, and the current account s smply equal to the changes n wealth tmes the portfolo share. Most recently, the works of Devereux and Sutherland (006a,b,c) and lle and Van Wncoop (008) explctly model portfolo choce for both gross and net nternatonal captal flows, takng nto account the general equlbrum effects of portfolo choce on external adjustment. Whle ther emphass s methodologcal 4, they make the mportant pont that nternatonal captal flows n ther framework can be broken down nto a component assocated wth portfolo 4 hey develop a method for solvng dynamc stochastc general equlbrum openeconomy models wth portfolo choce that can be mplemented both n a complete market settng and an ncomplete market settng /$ see front matter 009 Elsever B.V. All rghts reserved. do: /j.jnteco
2 3 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) growth through savngs and a component assocated wth the optmal reallocaton of portfolo as a result of changes n expected rsk and returns of varous assets. her models also ncorporate valuaton effects, whch have been at the heart of emprcal research on external adjustments, notably Lane and MlesFerrett (006), Gournchas and Rey (007), and lle (008). In ths paper, the frst objectve s to show that most of the recent lterature on the current account can be nested nto a nonstructural, accountng framework. he accountng framework decomposes the current account nto two factors that are synonymous to the portfolo growth and portfolo reallocaton breakdown emphaszed n the general equlbrum model of lle and Van Wncoop (008). We call these two effects a composton effect and a growth effect. he composton effect s lke a substtuton effect, and refers to the reallocaton of the portfolo towards or away from foregn assets. It s manfested n changes to the portfolo share (share of net foregn assets n total assets). he growth effect s smlar to an ncome effect, and refers to changes n the budget set, or total wealth, that leads to correspondng proportonal changes n both assets and labltes. he framework can also ncorporate valuaton effects and captal gans and losses and ther mpact on the current account. hs nonstructural, syntheszed framework, despte ts smplcty, can be very useful as a framework n nestng, and emprcally assessng, varous theores of the current account wthout needng to mpose more structure on the model. hs framework, along wth the general equlbrum models, demonstrates the theoretcal mportance of both the composton effect and the growth effect n accountng for external adjustments. Yet, the Kraay and Ventura (000) theory put forth the growth effect as the source of longrun current account movements. Other theores of the current account, albet not based on portfolo choce models, such as Blanchard et al. (005), Caballero et al. (008), essentally post that the composton effect s the man drver of current account movements. hese three dfferent vews of the current account naturally call for an emprcal nvestgaton on whch factor, f not both, s more quanttatvely relevant. Whle there s stll a dearth n the emprcal assessment of these portfolo choce models, the closest related emprcal work s that of Kraay and Ventura (000, 003). Based on ther vew that portfolo shares are fxed n the long run and current account changes are brought about by changes n wealth, they run a fxedportfolo regresson to test the theory, and fnd overwhelmng support for the growtheffect theory. 5 Consequentally, t appears that the growth effect s suffcent for descrbng the realworld dynamcs of external adjustment, leavng the composton effect hghlghted by general equlbrum models only as a theoretcal plausblty. he need for more concrete emprcal assessment of these theores leads to the paper's second objectve, whch s to use hstorcal OECD data to emprcally assess the relatve mportance of the composton effect and the growth effect. wo results emerge: frst, we overturn the Kraay Ventura concluson that changes to the current account are explaned by the growth effect, by theoretcally showng that the surprsng result of ther fxedportfolo crosscountry regresson s the outcome of a concdence, whereby an omtted varable bas s concealed by the case of a short tme seres. Furthermore, because the ntal values of net foregn assets are small relatve to the subsequent flows n the data sample, the crosssectonal varaton s generated only by an accountng approxmaton and therefore contans lmted nformatonal content. Second, we fnd that the portfolo share s consstent wth followng a hghly persstent process, wth some countres dsplayng a determnstc trend, drectly n opposton to the earler clams that the portfolo share s constant. hese fndngs suggest that the exstng emprcal work can be very msleadng n ascrbng the growth effect as the man explanaton for 5 Kraay and Ventura (003) show emprcally that the rule that portfolo shares are constant does not hold well n the short run, but s rather a good descrpton of the data n the long run. nternatonal captal flows. By overturnng the Kraay Ventura result, together wth a varance decomposton of the current account, we are able to establsh the composton effect as the man drver of external adjustment dynamcs, and that the growth effect, whle theoretcally plausble, s quanttatvely nsgnfcant. he paper s organzed as follows. In Secton we derve an accountng framework that exposts dfferent possble channels through whch current account adjustments can occur, and nest the recent current account lterature nto ths framework. Secton 3 gves a theoretcal exposton of the problem of the fxedportfolo crosscountry regresson results, and Secton 4 undertakes the emprcal analyses. Secton 5 concludes the paper.. he framework.1. heoretcal dervaton In ths secton, we derve an accountng framework of the current account that can nest the myrad of dfferent vews on external mbalances recently put forth n the lterature. hs framework, although nonstructural, can emprcally evaluate structural models of the current account such as Kraay and Ventura (000, 003), Blanchard et al. (005), and Caballero et al. (008), and nonstructural models such as Gournchas and Rey (007), at the same tme gvng certan theoretcal predctons related to the current account. In dervng the framework, we frst begn wth an accountng dentty. Defne wealth, W=K+NFA, where W s total wealth, K s the domestc captal stock and NFA s the net foregn asset poston. Defne x as the share of net foregn assets n total wealth. herefore, NFA = x W: akng a total dfferentaton of ths equaton yelds the followng: ΔNFA = Δx W + x ΔW: Here, ΔNFA s the change n net foregn assets, Δx s the change n the portfolo share of net foregn assets, and ΔW s the change n the total wealth, whch we call savngs (explaned below). By defnton, the change n net foregn assets ΔNFA s just the current account CA. hs gves us the followng equaton: CA = Δx W + x S: Eq. (3) leads to an accountng framework that attrbutes the current account balance to the sum of two effects: the effect of a change n the portfolo share, x, what we call the composton effect, and the effect of a change n wealth, whch s n our termnology the growth effect. 6 On one sde of the current account lterature, Blanchard et al. (005), Caballero et al. (008) and part of Cooper (005) argue that current account changes reflect changes n x, the composton effect. 7 Accordng to Eq. (3), ths means that CA=Δx W. On another sde, 6 hese two effects are tantamount to the portfolo growth effect and portfolo reallocaton effect n the general equlbrum model of lle and Van Wncoop (008). 7 Blanchard et al. (005) attrbute the large U.S. current account defct to exogenous shocks to asset preferences, n partcular, a permanent ncrease n demand for U.S. assets. Caballero et al. (008) explan the rse n the share of U.S. assets n the global portfolo and the subsequent large current account defcts by the slow growth condton n Europe relatve to the U.S. and the nablty of Asan fnancal markets to generate suffcent fnancal assets to cope wth ther good growth condtons. Cooper (005) argues that the margnal foregn nvestment n the U.S. exceeds ts average foregn nvestment, and that the U.S. has nvestment opportuntes that produce hgher returns than n Japan and Europe. In essence, all of these papers argue that changes n portfolo composton are the man source of large current account movements, albet for dfferent underlyng reasons. ð1þ ðþ ð3þ
3 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) Kraay and Ventura (000, 003), among others, argue that the U.S. current account defct s due to a growth effect. 8 Countres mantan a constant portfolo composton as the portfolo enlarges, as t s customary that countres nvest the margnal unt of wealth n the same way as the average unt. 9 Based on the Kraay Ventura clam, a smple rule predcts the current account response to changes n wealth: t s equal to ths constant share of net foregn assets multpled by the addtonal wealth. 10 In our framework: countres mantanng constant portfolo shares over tme amounts to Δx=0. Namely, only the growth effect remans: CA=x S. he thrd vew of the lterature s represented by the general equlbrum portfolo models developed most recently, such as lle and Van Wncoop (008), and Devereux and Sutherland (006a,b,c). hey pont to the theoretcal mportance of takng nto account both the composton effect and the growth effect n explanng current account adjustments. he followng sectons take up the task of emprcally assessng these three dfferent portfolo vews of the current account... Emprcal results n the lterature Although many theores of the current account from a portfolo perspectve have emerged from ths recent wave of nterest, there has been very lttle lucd emprcal analyss on these theores. No exstng emprcal work, to our knowledge, has specfcally amed at explorng the relatve mportance of the two effects n explanng the current account. he most relevant emprcal study to ths end s the work done by Kraay and Ventura (000), whch tests the valdty of the growtheffect theory. o test the theory that CA=x S, the regresson 11 CA t = β 0 + β 1 ðx t S t Þ + η t ð4þ s performed. CA t and S t denote the current account and savngs as a share of GNP n country n year t; x t s the share of net foregn assets n total assets; and η t s the error term. 1 Accordng to the growtheffect theory, β 1 should be 1. Kraay and Ventura (000) run both the pooled regresson that ncludes all country/year observatons of 13 OECD countres over the tme frame of and the crosssecton regresson that uses countryaverages of all varables,.e. CA t = β 0 + β 1 x t S t + η (upper bar of a varable denotes ts average over tme). hey fnd that the estmated β 1 s n the pooled regresson and n the crosssecton regresson, and cannot reject the null that β 1 s equal to 1 n ether 8 Bussere et al. (00) emprcally fnd that n a panel of 18 OECD countres, ntal portfolo allocaton affects current account behavor followng temporary shocks, therefore concludng that these results are compatble wth the new rule suggested by Kraay and Ventura (000). Iurrta (004) extends the Kraay Ventura (000) model to a twocountry large openeconomy model, and examnes the current account responses to transtoryncome shocks n a twocountry world. 9 he other dmenson of Cooper (005)'s argument also encompasses the growth effect feature n stressng that the large U.S. current account defct s only a natural feature of the ncreasngly globalzed world, where a porton of the world's excess savng s nvested n the U.S. 10 hs seemngly smple equaton yelds surprsng mplcatons that are absent n the standard vew of the current account. An ncrease n savngs wll lead to a current account defct n debtor countres but a current account surplus n credtor countres. For ths reason, Kraay and Ventura's explanaton of the huge current account defct n the U.S. s not a reflecton of shfts towards U.S. assets and away from foregn assets by foregn countres, but of the large ncrease n ts wealth and of the fact that U.S. had been a debtor. 11 Kraay and Ventura (000) confrms that the results of ths regresson hold even after controllng for a number of relevant varables and usng an nstrumental varable to estmate the β1 coeffcent. Omtted varable bas and measurement error seem not to affect much of the result, and therefore we follow Kraay and Ventura n usng ths reducedform equaton as the bass of our analyss. 1 Note that n runnng ths regresson, Kraay and Ventura's measure of the current account CA does not consstently take nto account valuaton effects and captal gans. Later, we rerun the regresson wth our measure of current account CA, whch nclude these effects. able 1 Duplcaton of Kraay and Ventura (000, 003) results. radtonal CA Mark I data Mark II data (Gross Natonal Savngs/GDP) (Foregn Assets/otal Assets) (0.136) (0.093) (0.070) R Number of observatons 0 Pvalue for null hypothess that coeffcent on savng foregn assets=1 hs table reports the results of estmatng CA t = β 0 + β 1 x t S t + η, where CA t and x t S t denote the average current account to GDP rato and average savngs rate multpled by net foregn asset rato n country over the sample perod; and η s the error term. Standard errors are n parentheses and are corrected for heteroskedastcty. case. We rerun the crosssecton regresson usng three dfferent measures of the current account, ncludng measures that account for valuaton effects, and fnd smlar results, reported n able β 1 =1 cannot be rejected when usng any of the three measures, despte the datasets' dssmlarty. Fg. 1 dsplays the emprcal result of the crosssecton regresson. We make two mportant observatons here. Frst, accordng to our accountng framework, β 1 =1 does not necessarly rule out the mportance of the composton effect, nor by tself provde support for the growth effect. If the composton effect s uncorrelated wth the growth effect, whch s not mplausble, we could well have β 1 =1, whle a sgnfcant porton of current account movements can stll be accounted for by the composton effect. However, the fact that the R n the crosssecton regresson above can be as hgh as 0.85 seems to suggest that the majorty of the crosssectonal varatons of the current account s attrbuted to the growth effect. he composton effect, on the other hand, s at best margnally mportant. he second observaton s that the emprcal support for the growth effect comes from prmarly the crosssectonal varatons and not n the least bt from the tmeseres varatons. able compares the outcome of the wthn regresson (tmeseres varaton wthn each country) and between regresson (crosssectonal varaton). Clearly, there s no evdence supportng the new rule at the tmeseres dmenson whle t performs remarkably well at the crosssectonal dmenson. In Kraay and Ventura (003), they nterpret ths dvergence n performance as the dstncton between a shortrun and a longrun phenomenon. hey argue that the new rule may not hold well n the shortrun possbly as a result of adjustment costs, but that t nevertheless holds very well n the longrun, as s evdent from the crosssecton regresson results. For ths reason, the next sectons focus exclusvely on the crosssectonal regressons (n whch the evdence les), and show that the crosssectonal varatons n the current account are manly drven by an accountng approxmaton, so that the only pece of evdence that remans provdes lttle meanngful emprcal support for the new rule. An mportant and equally surprsng result s: when nstead of runnng the shares regresson above, CA t = β 0 + β 1 x t S t + η, where the current account s the share of GNP, and savngs s taken to be the savngs rate, we run a levels regresson, where CA t s taken to be the levels of the current account and S t s taken to be total savngs, the coeffcent s β 1 now actually close to (able 3). Accordng to the 13 Frst, we expand the orgnal K V dataset, usng conventonal measures of the current account, to 0 OECD countres over Because of data avalablty ssues and especally of the mssng IIP data n the IMF's Balance of Payment Statstcs for some countres n early years, t s an unbalanced panel. We subsequently use the change n net foregn assets and IIP taken from the Lane and MlesFerret (007), Mark II dataset for OECD countres over to run the same regresson, also reportng the results usng the Lane and MlesFerret (001), Mark I dataset coverng a shorter tme perod of for the same set of countres, where estmates of net foregn assets are based on a dfferent methodology from the subsequent one and are therefore somewhat dfferent.
4 34 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) able he K V wthn regresson. Country radtonal CA Obs Mark I data Obs Mark II data Obs AUS 0.59(.349) (.650) 6.547(.964) 31 AU.017(.636) (.883) (1.693) 31 CAN.7(.400) (.966) (.701) 31 CHE 1.406(.641) 1.596(.813) (.5) 31 DEU 1.914(.671) 1.40(.886) 6.530(.884) 31 DNK 0.118(.409) (.748) (1.066) 31 ESP 0.616(.315) 31.97(1.179) (1.170) 31 FIN 0.588(.156) (.898) (.155) 31 FRA 0.4(.517) (1.00) 6.93(1.338) 31 GBR 0.885(.476) (1.38) 6.54(1.067) 31 IRL N.A..045(.580) (.803) 31 ISR 0.31(.658) (.806) 6.66(1.34) 31 IA 0.513(.80) 31.4(1.171) (1.59) 31 JPN 1.51(.3) (.4) 6.407(.640) 31 KOR 0.700(1.53) 18.78(.355) (.61) 31 MEX N.A. 0.76(1.141) 6.00(.775) 31 NLD 0.357(.9) 8.587(.53) (1.353) 31 NOR.515(.509) 0.38(.599) 6.669(.416) 31 NZL 0.4(.93) (.643) 6.18(.307) 31 PR 0.453(.650) (1.067) (1.094) 31 SWE 0.969(.468) (.971) (1.695) 31 USA 1.784(0.308) (.83) (.711) 31 hs table reports the results of estmatng the K V wthn regresson (tme seres) for each country usng dfferent measures of the current account. Standard errors are n parentheses. he followng accountng dentty follows: x = NFA 0 + CA 1 + CA + N + CA : ð5þ W 0 + S 1 + S + N + S If the ntal net foregn asset poston NFA 0 and assets W 0 are quanttatvely small compared to the ncremental net foregn assets and wealth over subsequent perods, these ntal values can be gnored. As such, the followng equaton wll be approxmately true: Fg. 1. Duplcaton of Kraay and Ventura (000, 003) Results. hs fgure duplcates the crosscountry regresson n Kraay and Ventura (000, 003) usng our own datasets. he top panel uses the tradtonal current account, the mddle panel uses the valuatonadjusted current account taken from the Lane et al. Mark I dataset and the bottom panel uses the valuatonadjusted current account taken from the Lane et al. Mark II dataset. x = NFA 0 + CA 1 + CA + N CA W 0 + S 1 + S + N S P t =1 = CA t = P t =1 S t = = CA t S t : P t =1 CA t P t =1 S t ð6þ growtheffect theory, these two dfferent specfcatons should be dentcal n terms of predctng β 1 =1, wth the levels regresson beng an even more drect way of assessng the growtheffect theory than CA=x S. he theoretcal analyss n the next secton wll llustrate exactly why one could obtan the result that β 1 =, and how t sheds lght on the Kraay Ventura result. 3. he problem of the K V crosssecton regresson 3.1. he shares regresson he endofperod portfolo share x s approxmately equal to the sum of all current account balances n each perod dvded by the sum of savngs n each perod. Consequently, x s smply equal to the average current account over the average savngs (upper bar of a varable denotes ts average over tme). Note that ths approxmaton does not requre a very long tme seres,.e. a large.hereasonsthatfnancal globalzaton and economc growth over the past three decades have served to reduce the quanttatve mportance of ntal net foregn asset postons and wealth compared to the subsequent flow varables. From our sample, whch conssts of the perod between 1973 and 003, the ntal assets represent on average 10% of the sum n the denomnator, We theoretcally derve the explct expresson for the β 1 coeffcent of the crosssecton specfcaton for three dfferent data generatng processes of x, for both the shares and the levels regresson. We wll show that we can n fact obtan β 1 =1 for all of the consdered DGP's of x n the shares regresson, but that the possblty of seeng β 1 = n the levels regresson s only consstent wth x followng a hghly persstent or untroot process wth some countres dsplayng a trend. By defnton, the portfolo share x of country at tme s equal to the ntal net foregn asset poston, NFA 0, plus the sum of subsequent ΔNFA n every perod current account n each perod), dvded by the ntal total asset poston, W 0, plus the sum of savngs n every subsequent perod. able 3 Levelsregresson results of the K V specfcaton. radtonal CA Mark I data Mark II data (Gross Natonal Savngs) (Foregn Assets/otal Assets) (0.408) (0.167) (0.386) R Number of observatons 0 Pvalue for null hypothess that coeffcent on savng foregn assets= hs table reports the results of estmatng CA t = β 0 + β 1 x t S t + η, where CA t and x t S t denote the average current account and average savngs multpled by net foregn asset rato n country over the sample perod; and η s the error term. Standard errors are n parentheses and are corrected for heteroskedastcty.
5 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) and the ntal net foregn asset poston represents about 5% of the total sum n the numerator. Rearrangng Eq. (6), weget CA t = x S t whch says that the average current account of country over the sample perod s smply equal to the endofperod share of net foregn assets tmes the average savngs over the same perod. It should be noted that Eq. (7) s very smlar to the crosssecton regresson CA t = β 0 + β 1 x t S t + η n Kraay and Ventura (000, 003), albet not dentcal. In the rest of ths secton, we wll show that the accountng approxmaton Eq. (7), whch holds regardless of the underlyng process of x t and S t, may undermne the valdty of the crosssecton regresson n Kraay and Ventura (000, 003). Inpartcular,we show that gven the short tme horzon of the perod n consderaton, ths accountng approxmaton may domnate the crosssecton varatons of the current account for a wde range of processes of x t, regardless of whether t's consstent or nconsstent wth the new rule. A caveat s, should we care about the process of S t, or alternatvely the process of W t? In prncple, yes. o see ths, the regresson CA t = β 0 + β 1 x t S t + η can be rewrtten as h CA t = β 0 + β 1 x t S t + cov t ðx t ; S t Þ + η ; where cov t (x t, S t ) s the tmeseres correlaton between x t and S t n country, whch shows that the process of S t and n partcular ts tmeseres correlaton wth x t matters. A look at the data, however suggests that ths term s quanttatvely neglgble: the correlatons between x t St and xt S t are as hgh as 0.986, and 0.997, usng the three dfferent measures of the current account. 14 herefore, n ths case, the key evdence supportng the K V new rule s essentally the followng crosssecton regresson CA t = β 0 + β 1 x t S t + η : It s plausble that there s crosssectonal correlaton between x t and S t. For nstance, countres whch have hgher savngs may also have a hgher share of net foregn assets. But ths would automatcally nvaldate Kraay and Ventura (000, 003) as ther theory suggests that x should be ndependent of S, partcularly n the crosssecton. Allowng for such a correlaton, however, would only strengthen our results (below) at the cost of more ntrcate algebra. For expostonal purposes, we wll assume that there s no crosssectonal correlaton between x t and S t. A techncal appendx showng that all results derved below carry through when relaxng ths assumpton s avalable upon request. Why does the pont estmate of β 1 =1 of Eq. (8) smply reflect the accountng approxmaton CA t = x St? o see ths ntutvely, compare Eqs. (8) and (6). he only dfference between the accountng approxmaton and the regresson specfcaton s x and x t. But when the tmeseres s not too long (for example =30, where =30 s more than suffcent for Eq. (6) to hold), the endofperod portfolo share x and the average portfolo share x t are not very dfferent even n the case where x t has a determnstc trend or s nonstatonary, cases whch would be contrary to the new rule. It follows that runnng the crosssecton regresson n Kraay and Ventura (000, 003) can always yeld β 1 =1 as seen n able 1. Whle β 1 =1 s certanly consstent wth the new rule, β 1 =1 s n fact, consstent wth any rule. herefore, t cannot be taken as evdence for, or for that matter aganst, the new rule. 14 hese measures correspond to the Lane et al. Mark I, Mark II, and the tradtonal current account measures. ð7þ ð8þ o be more concrete, consder the followng three possble data generatng processes of x: (a) x s statonary wthout trend,.e. x t =x +ε t, (b) x s nonstatonary wth/wthout trend,.e. x t =α +x t 1 +ε t, t (c) x s a trendstatonary process,.e. x t =x 0 +α t+ j =1 ρ t j ε j, where subscrpts and t represent country and year t, respectvely. Next we attempt to work out the exact value of β 1 for all three cases by pluggng n Eq. (7) nto the regresson. Case (a). he crosssectonal regresson specfcaton CA t = β 0 + β 1 x t S t + η yelds var x S t β 1 g =1: ð9þ var x S t Proof. See Appendx B. he ntuton s the followng: f x =x +ε, t s roughly the case that x =x t +ε. Namely, the endofperod portfolo share x s equal to the average portfolo share plus an error term. he accountng approxmaton CA t = x S t then becomes CA t = x t S t + e S t. Notce that e S t s by assumpton uncorrelated across countres, and denotng t as η, the accountng approxmaton fnally becomes CA t = x t S t + η, precsely the crosscountry regresson n Kraay and Ventura (000, 003). So even f ther conjecture that x s roughly constant over tme s correct, these regresson results carry no emprcal content, and consequently do not serve as a valdaton to the growtheffect theory, or the new rule. In fact, ths case mathematcally confrms the pont made n Van Wncoop (003), where he argues that any model that has a steadystate portfolo share can delver β 1 =1 n the K V regresson snce devatons from the steady state would cancel out when takng averages. Gong one step beyond ths argument, n Cases (b) and (c), we wll show that even f there were no steadystate portfolo share x, the crosssecton varatons may stll be domnated by the accountng approxmaton when s not very long, the case of ths partcular data sample. Case (b). he same regresson specfcaton yelds var x 0 S t β 1 = var x 0 S t + A + +1 ð Þ B + C ð10þ 6 A + ð +1Þ 4 B + C; Þ cov x 0 S t ; α S t ð +1 Þð +1Þ where A=var(ε t )E(S t ), B=var(α S t), and C = ð +1 Proof. See Appendx B. he frst term of both the numerator and denomnator s dentcal and s a crosssecton varaton nvolvng the ntal net foregn asset share and average savngs rate. Ignorng the other terms, β 1 s just equal to 1, and ths reverts back to Case (a). Other terms n the numerator and denomnator reflect devatons from Case (a). he second terms dffer only by a coeffcent and contan the varance of the randomwalk part of x whch we call a whtenose varaton, and ther rato s close to 1.5 when s very large. he last two terms are related to the trend: the thrd terms represent the trend varaton and ther rato converges to when s very large. he fourth terms, whch we group wth the crosssecton varaton term, are dentcal and ther rato s therefore 1. Consequently, β 1 s a weghted average of 1, 1.5 and, the weghts dependng on the crosssecton varaton (terms 1 and 4), the whtenose varaton (term ), the trend varaton (term 3) and tme.if the crosssecton varaton s large and s not too large, namely, we are not far away from Case (a), more weght s put on 1, and we could see β 1 =1. If, however, the trend varaton s large and/or s very bg, we could see β 1 =. A specal case s f α =0 for all, the case where the portfolo share x has no tme trend, and the last two trendrelated terms
6 36 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) Fg.. Evoluton of x over tme. hs fgure depcts the evoluton of x over tme for each country, where x represents the share of net foregn assets n total assets. he data s taken from the Mark II dataset and the tme frame s from 1973 to 003. (terms 3 and 4) vanshes, so that β 1 s a weghted average of 1 and he key s that wth a relatvely short tme seres of 31 years n ths data sample, t s the case that the crosssecton varaton domnates both the trend varaton and the whtenose varaton. o llustrate the order or magntude, the sample crosssecton varaton s of order 10 4, the sample whtenose varaton s of order 10 6,and the sample trend varaton s of order 10 7.Clearly,wth=31, the crosssecton varance (the frst term) domnates the rest of the terms. Snce Case (a) has already shown that the crosssecton varaton s determned by an accountng approxmaton, t s dffcult to see anythng but β 1 equal to 1 because of the relatvely short tme seres. When n the future wll we be able to see β 1 =? he answer s, only after a very long tme, and we would always see β 1 =1 f usng avalable data. Accordng to the above magntudes, wth 50 years of data, the coeffcent wll be only 1.5. Wth 100 years of data, the coeffcent can reach 1.5. And t wll take more than four centures for the coeffcent to reach 1.9! he mportant pont s that even f x follows a nonstatonary process of Case (b), whch s drectly n opposton to the growtheffect's theory of a constant portfolo, β 1 =1 cannot be rejected when the crosssecton varance domnates, precsely the case when the tme seres s relatvely short (b50). Case (c). he same regresson specfcaton as the above yelds var x 0 S t + E 1 ρ ρ ρ + 1 A + +1 ð Þ ð1=ρ β 1 = Þ ð1+ρ Þ B + C var x 0 S t + E ð 1 ρ Þ ρ ρ +ρ + 1 +ρ + ρ + A + ð +1Þ ð1 ρ Þð1 ρ Þ 4 B + C ð11þ where A=var(ε t )E(S t ), B=var(α S t ), and C = +1Þ cov x 0 S t ;α S t. 15 β 1 could be close to 1 f the crosssecton varaton s large and s relatvely small, and close to 1.5 f the whtenose varaton and/or s very large. Proof. See Appendx B. he only change to ths formula from the precedng case (Eq. (10)) s the coeffcents of the second term of both the numerator and denomnator. Both Cases (a) and (b) are encompassed n Case (c) n the lmt. 16 he nterestng case where ρ s between 0 and 1, the rato of the second terms wll be less than 1 and β 1, a weghted average of 1, a value less than 1, and. Agan, f the magntude of the crosssecton varaton s large and the tme seres s short, more weght wll be put on 1 and we can stll obtan β 1 =1. 17 o summarze the theoretcal predctons of β 1 for the crosssectonal regresson specfcaton: Case (a): β 1 =1. Case (b): β 1 s a weghted average of 1, 1.5, and, the weghts dependng on the magntude of the crosssecton varance, the whtenose varance, the trend varance and. If the crosssecton varance s bg and tme s relatvely small, we can see β 1 =1; f the trend varance and/or s very large, we can see β 1 =. Case (c): when ρ s between 0 and 1, β 1 s a weghted average of 1, a value less than 1, and. If the crosssecton varance s large and s relatvely small, β 1 s equal to 1; f the trend varance s large and/or s very bg, β 1 can be equal to. 16 Note that ρ and α both beng equal to 0 for all brngs us back to the statonary Case (a). ρ =1 brngs us back to the unt root case wthout trend (f α =0 for all ), or the unt root case wth trend (f α s not 0 for all ), as n Case (b). he more nterestng case s when ρ s between 0 and However, t s possble to have β 1 beng below 1 f the magntude of the second terms s larger than the magntude of the thrd terms n a small sample. But when becomes very large, β 1 can gradually converge to as n Case (b).
7 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) able 4 Frstorder autocorrelaton of x. Country AUS AU CAN CHE DEU DNK ESP FIN α (0.086) (0.117) (0.05) (0.148) (0.081) (0.086) (0.101) (0.139) α (0.011) (0.005) (0.006) (0.033) (0.003) (0.01) (0.006) (0.030) Country FRA GBR IRL ISR IA JPN KOR MEX α (0.099) (0.098) (0.087) (0.15) (0.105) (0.08) (0.033) (0.10) α (0.00) (0.004) (0.00) (0.019) (0.003) (0.003) (0.006) (0.01) Country NLD NOR NZL PR SWE USA α (0.094) (0.058) (0.075) (0.093) (0.097) (0.053) α (0.006) (0.004) (0.03) (0.010) (0.007) (0.00) hs table reports the results for estmatng x t =α 0 +α 1 x t 1 +ε t for each country n the sample usng the Mark II dataset, where x t denotes the share of foregn assets n total assets n year t; and ε t s the error term. he tme perod s Standard errors are n parentheses. Clearly, the result that β 1 =1 should not be consdered as a verfcaton to the growtheffect theory and the result s consstent wth all three cases of x. However, at ths pont, not much can be sad about the underlyng DGP of x. Wth 31 years of data, we are stuck wth a relatvely short tmeseres that make all of these cases a possblty. 3.. he levels regresson One way to get around ths dffculty and to be able to say somethng about the DGP of x s to do the same exercse for the levels regresson, CA t = β 0 + β 1 x t S t + η, where CA t and S t are now actually levels of the current account and levels of savngs. In the prevous secton, we are confronted wth the puzzlng regresson result that β 1 = n ths levels specfcaton, even though the new rule prescrbes the two specfcatons to be equvalent n predctng β 1 =1. he explct formula of β 1 n ths specfcaton s the same as before except that the levels replace shares for each of the terms. As we know, savng rates dffer lttle across countres relatve to the dfference n the levels of savngs across countres, the szes of economes beng remarkably dfferent. Hence, swtchng to the levels regresson amounts to effectvely puttng more weght on the trend varaton term, thus reducng the short tmeseres problem by effectvely magnfyng the trend varance term and puttng enough weght on so that even wth a relatvely short tme seres, we may stll observe f the true DGP were Case (b) or Case (c). 18 From the data sample, the crosssectonal varaton s on the order of magntude of 10 19, the sample whtenose varaton, , and the sample trend varaton, +1 ð Þ Wth =31, the number of years n our sample, t s clear that the trend varaton term can domnate, pushng β 1 towards. In ths case, the result that β 1 = n the levels regresson s not consstent wth Case (a), but wth Cases (b) and (c). Recall that n the shares regresson specfcaton β 1 =1 s consstent wth all three cases, so that we can conclude that only Case (b) and Case (c) are the possble true DGP of x. he supportng evdence for the growtheffect theory was n fact msnterpreted. 4. Emprcal analyss Wth the theoretcal analyss n the prevous secton suggestng that the process of x (consstent wth β 1 =) s a nonstatonary process or a hghly persstent process wth trend, we proceed to nvestgate ths drectly. A frst glance at the graphs (Fg. ) of the 18 More specfcally, the levels regresson puts more weght on large economes and large economes, such as the U.S. and Japan, happen to have trends n ther portfolo shares. portfolo share over tme for each of the countres seems to suggest that x s unlkely to be constant, but rather changng over tme, wth some countres seemng to dsplay a secular trend. o be more concrete, we run a few econometrc tests to examne the process of x. Consder the smplest possble case of x followng an AR(1) process, where x t =α 0 +α 1 x t 1 +ε t. 19 Results are reported n able 4.It s clear that α 1 s very close to 1 (wthn standard devatons) or even slghtly greater than 1, for most countres n our sample. hs suggests that x may follow a untroot process. In ths case, we proceed to conduct augmented Dckey Fuller tests for each ndvdual country. Wth varous specfcatons that nclude and exclude tme trends and dfferent lengths of tme lags, unt roots can be rejected for at most eght countres out of the twentytwo countres n the sample. 0 here are fourteen countres n our sample for whch none of the Dckey Fuller tests can reject unt root at conventonal sgnfcance levels. hese results notwthstandng, t s a well known fact that these untroot tests have very low power for short tme seres, not easly rejectng the null hypothess of a unt root. Gven that there are only 31 observatons ( ) for each country, the above results cannot be conclusve. Nevertheless, the results of these smple econometrc tests show that x s lkely to be a hghly persstent AR (1) process or a untroot process, wth some countres dsplayng a tme trend, effectvely gvng support to our theoretcal analyss n the prevous secton. 1 We have shown that results taken to be evdence for the growtheffect theory are overturned, both from our theoretcal and emprcal analyses. he followup queston s, to what extent should current account movements be attrbuted to portfolo composton adjustments and to what extent s the growth effect stll quanttatvely mportant, accordng to the syntheszed accountng framework? 19 hs regresson s run for each ndvdual country usng the Mark II data, whch has the longest tme seres. 0 he Dckey Fuller test wthout trend or lags rejects unt root for Mexco. he specfcaton ncludng tme lags rejects unt roots for Swtzerland, Korea and Mexco, and the specfcaton ncludng a tme trend rejects Israel and Japan. Includng both lags and trends rejects unt roots for Austra, Canada, Swtzerland, Japan and New Zealand. 1 An mportant caveat s that x beng a hghly persstent process or unt root process wth trend n the very long run s somewhat nconcevable and dffcult to reconcle wth theores that have a steadystate portfolo share. But avalable data smply cannot reject ths result. hs outcome may reflect the fact that the world s stll on a transtonal path to a new steady state, wth countres ntegratng more deeply nto the global economy wthout havng yet fully reached ts steady state portfolo equlbrum. Our man pont s that so long as the process of x s observatonally equvalent to a unt root process wth trend for ths sample perod, the regresson result β=1 based on ths data sample wll nevtably be the outcome of the domnance of a crosssectonal varaton generated by an account equaton. On the other hand, even f x s statonary n the very long run, whch may be lkely, β 1 =1 n a crosssecton regresson remans to be drven by accountng, and therefore contnues to confer no nformaton.
8 38 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) Fg. 3. A decomposton of the current account. hs fgure depcts a decomposton of the current account for each country. he sold lne represents the composton effect and the dashed lne represents the growth effect, both of whch are n terms of shares of current GDP. he data s taken from the Mark II dataset and the tme frame s
9 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) Fg. 3 (contnued). o see ths, we decompose the change n net foregn asset postons nto the composton effect and the growth effect usng Eq. (3) and normalze them by current GDP. Fg. 3 plots these two tme seres for Here we use the data taken from the Mark II dataset. each country. wo salent features emerge: Frst, the growth effect s smooth and changes slowly. For example, as the U.S. gradually sld nto a bg debtor n the md 1980's, the growth effect also gradually turned from postve nto negatve. he opposte case s Japan, the growth effect becomes more and more postve as Japan accumulates huge foregn assets. he growth effect does seem to capture some longrun
10 40 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) Fg. 3 (contnued). movements n the current account but for reasons that are completely dfferent from the one argued by Kraay and Ventura (000, 003). It smply reflects an accountng fact: a country that contnues to run current account defcts must become a debtor and a debtor country must be runnng current account defcts on average. Second, the composton effect s very volatle and accounts for most varatons of the current account n a country over tme. o be more concrete, we perform a varance decomposton exercse on the accountng equaton, CA=Δx W+x S. he results are reported n able 5. Clearly, the composton effect s much more mportant n explanng the varatons of the current account than the growth effect for most countres n our sample. It s noteworthy that ths emprcal result s also n lne wth results that emerge from a numercal example n lle and Van Wncoop (008), whch decomposes nternatonal captal flows generated by the model nto the growth effect (portfolo growth) and the composton effect (portfolo reallocaton). 3 In ther example t s also true that the growth effect s qute smooth whle the majorty of the varaton n the current account s due to the composton effect Concluson We have analyzed a nonstructural framework of the current account that s based upon an mportant accountng dentty that hghlghts two channels of current account adjustment: a composton effect and a growth effect. he framework s general enough to nest the majorty of the lterature on the portfolo vew of the current account, whle allowng for the nterplay between the composton effect and the growth effect also emphaszed n the recent general equlbrum portfolo models. hs framework can be used as a gudelne for more specfc theores, whch wll have to be compatble wth our emprcal fndngs regardng the quanttatve mportance of the two effects. We have shown that partalequlbrum models, wthout reference to a syntheszed framework may gve rse to msleadng nterpretatons of current account movements. Our basc message s clear: never agan run a K Vtype crosscountry regresson regardless of the underlyng DGP of the portfolo share; there s smply no nformaton embedded n ths regresson. It s therefore clear that partalequlbrum portfolo models cannot supplant general equlbrum models n explanng external adjustments despte ther seemngly remarkable emprcal success n the past. hs paper attempts to further the very lttle exstng emprcal work on portfolo models of the current account. Usng the accountng framework as a gudelne, we theoretcally and emprcally overturn the growth effect theory, and reestablsh the composton effect as the quanttatvely sgnfcant drver of current account dynamcs. Usng both drect and ndrect emprcal evdence, we show that the net 3 hey further decompose the composton effect nto parts that come from changes n expected excess returns and that whch come from tmevaryng second moments. See Chart 8 and 9 n lle and Van Wncoop (008). 4 More specfcally, t s due to tmevaryng second moments. foregn asset share s far from beng constant or even statonary, as s requred by a groweffect theory, but s n fact a hghly persstent process or a untroot process, wth some countres dsplayng a trend. Along wth general equlbrum models, ths syntheszed framework ponts to the components that matter for the current account, ncludng the components that have not mattered so much n the past but may potentally matter qute substantally n the future. In a world wth explodng gross holdngs of external assets and labltes, t s possble that the growth effect may overtake the composton effect n contrbutng to current account dynamcs, and ts systematc ncluson despte ts small relevance n the past data may become essental. Newly developed general equlbrum models embody precsely ths level of comprehensveness and can therefore serve to be a benchmark for future analyses on portfolo vews of external mbalances. In a fnancal world that s ntegratng ever more profoundly, theoretcal and emprcal works n ths area need to keep up wth global trends furtherng our understandng of the facts and the theory wll be mportant for handlng the massve global captal flows that we wll, n all lkelhood, contnue to wtness. Appendx A. Data descrpton Our dataset conssts of OECD countres. he countres nclude Austra, Australa, Canada, Swtzerland, Germany, Denmark, Span, Fnland, France, Great Brtan, Ireland, Israel, Italy, Japan, Korea, Mexco, Netherlands, Norway, New Zealand, Portugal, Sweden, and the U.S. 5 We select post1973 data, the years after Bretton Woods collapsed. For measures of the net foregn asset poston and the current account, we use both the tradtonal measure taken from the IIP data n IFS and Mark I and Mark II estmates from Lane and Mles Ferret (001) and Lane and MlesFerret (007), whch consstently account for valuaton effects and captal gans, although the methodologes have slghtly changed from one dataset to another. hey provde an accountng framework whch hghlghts the lnk between the balance and payment flows and the underlyng stocks, as well as the mpact of unrecorded captal flght, exchange rate fluctuatons, debt reducton, and valuaton changes not captured n the conventonal current account defnton. hrough ths lnk, they show that one method of estmatng net foregn assets s cumulatng the current account and adjustng for the captal account balance. We take ther net foregn asset measure, whch s just the adjustedcumulatve current account. For our current account, we take the frst dfference of ther adjustedcumulatve current account measure wth consstent captal gans and losses and valuaton effects. By dong so, we effectvely capture the valuaton effect and captal gans and losses for both the current account and net foregn assets measure. 5 We omt the followng OECD countres: Belgum, Greece, Hungary, and Luxemburg, Czech Republc, Poland, Slovak Republc, and urkey for the reason that, except for Belgum and Luxembourg, these countres do not have full tme seres of all varables between 1973 and 003. Belgum and Luxembourg are omtted because they are often reported as one n some datasets whle reported separately n others.
11 K. Guo, K. Jn / Journal of Internatonal Economcs 79 (009) able 5 Varance decomposton of the current account. Country R Composton effect Growth effect cov AUS AU CAN CHE DEU DNK ESP FIN FRA GBR IRL ISR IA JPN KOR MEX NLD NOR NZL PR SWE USA hs table reports the varaton decomposton of the current account for each country n the sample accordng to Eq. (3). he R s the proporton of the varaton of current account that can be explaned by ths equaton. he formula for the varance decomposton s var(δx W+x S)=var(Δx W)+var(x S)+cov(Δx W, x S).he three terms on the rght correspond to the composton effect, growth effect and cov n the table, respectvely, the sum of whch should be 1. omeasurethedomestccaptalstock,weusetheperpetualnventory method: 6 we cumulate gross domestc nvestment n current U.S. dollars taken from the World Bank's Global Development Indcators, assumng a deprecaton rate of 4% a year, and n each year revalung the prevous year's stock usng the U.S. GDP deflator. We take 1965 as the startng year. he captal stock n 1965 s estmated usng the average captaloutput rato over the perod n Nehru and Dhareshwar (1993), multpled by GDP n All varables are denoted n current U.S. dollars. Appendx B Case (a). Snce P x t =x +ε t, n partcular, we have x =x +ε and j = 1 x t = x + e j gx, where the second equalty comes from the fact that the average of ndependent shocks s approxmately 0 (a more detaled dervaton wthout takng ths approxmaton s avalable upon request). Eq. (7), CA t = x S t, mples that CA t = ðx + e Þ S t. Pluggng these equatons nto the regresson CA t = β 0 + β 1 x t S t + η, we then have (x t + ε ) S t = β0 + β 1 (x ) S t + η. herefore β 1 = cov ð ðx S t ; ðx + e ÞS t Þ = var ð x S t Þ = 1. For the savngs rate case, varððx S t Þ varðx S t Þ smply replace S t by S t Y t. t Case (b). Snce x t =α +x t 1 +ε t,wehavex t =x 0 +α t+ j =1 ε j.in partcular, x = x 0 + α + Σ j =1 ε j and x t = x 0 + α ð +1Þ + e 1 + ð 1Þe + N e. Agan, Eq. (7) CA t = x S t mples that CA t =(x0 + α + t j =1 ε j ) S t. Pluggng these equatons nto the regresson CA t = β 0 + β 1 x t S t + η, we then have β 1 = cov P x 0 + α + e j = 1 j S t ; x 0 + α ð + 1Þ + e 1 + ð 1Þe + N e var x 0 + α ð + 1Þ + e 1 + ð 1Þe + N e S t Þ Expandng the varances and covarances term by term, we obtan fnally β 1 = var ð x 0S t Þ A + ð + 1Þ B + C ; where A=var varðx 0 S t Þ + ð + 1Þð + 1Þ 6 A + ð + 1Þ 4 B + C (ε t )E(S t ), B=var(α S t), and C = ð +1Þ cov x 0 S t ;α S t. S t. Notce that for the case that α =0 for all (nonstatonary case wthout trend), we have β 1 = var ð x 0S t Þ varðe t ÞEðS t Þ. For the varðx 0 S t Þ + ð + 1Þð + 1Þ varðe 6 t ÞEðS t Þ savngs rate case, smply replace S t by S t t t Case (c). Snce x t =x 0 +α t+ j =1 ρ j ε j, n partcular, we have x = x 0 + α + j =1 ρ j ε j and x t = x 0 + α ð +1Þ ρ P j = 1 1 ρ + 1 j j e j. Agan, Eq. (7), CA t = x S t, mples that CA t = x 0 + α + P j =1 ρ j e j S t. Pluggng these equatons nto the regresson CA t = β 0 + β 1 x t S t + η, we then have β 1 = Y t. 0 0 cov x 0 + α + P B j =1 ρ j B e j S t x 0 + α + 0 B var x 0 + α ð + P ρ ð1 ρ + 1 j Þe j j =1 C A S t Þ P ρ + 1 j 1 ρ ð Þe j j =1 C C A S t A Expandng the varances and covarances term by term, we obtan fnally var x 0 S t + E 1 ρ ρ ρ + 1 A + +1 ð Þ ð1 ρ β 1 = Þ ð1+ρ Þ B + C ; var x 0 S t + E ð 1 ρ Þ ρ ρ +ρ + 1 +ρ + ρ + A + ð +1Þ ð1 ρ Þð1 ρ Þ 4 B + C where A=var(ε t )E(S t ), B=var(α S t), and C = ð +1Þ cov X 0 S t ; α S t. For the savngs rate case, smply replace S t by S t Y. t References Blanchard, O., Gavazz, F., Sa, F., 005. he U.S. current account and the dollar. NBER Workng Papers, vol Bussere, M., Chortareas, G., Drver, R., 00. Current accounts, net foregn assets, and the mplcatons of cyclcal factors. Bank of England Workng Paper. Caballero, R., Farh, E., Gournchas, P.O., 008. An equlbrum model of global mbalances and low nterest rates. Amercan Economc Revew 98, Cooper, R., 005. Lvng wth global mbalances: a contraran vew. Insttute for Internatonal Economcs Polcy Brefs No. PB053. Devereux, M., Sutherland, A., 006a. Solvng for country portfolos n open economy macro models. Workng Paper. Unversty of Brtsh Columba. Devereux, M., Sutherland, A., 006b. Monetary polcy rules and nternatonal portfolo choce. Workng Paper. Unversty of Brtsh Columba. Devereux, M., Sutherland, A., 006c. Country portfolo dynamcs. Workng Paper. Unversty of Brtsh Columba. Gournchas, P.O., Rey, H., 007. Internatonal fnancal adjustment. Journal of Poltcal Economy 115, Iurrta, I., 004. he Current Account and the New Rule n a wocountry World. Mmeo, ESE Facultad de CC.EE. y Empresarales, Department of Economcs. Kraay, A., Ventura, J., 000. Current accounts n debtor and credtor countres. Quarterly Journal of Economcs 115, Kraay, A., Ventura, J., 003. Current accounts n the long and short run. In: Gertler, M., Rogoff, K. (Eds.), 00 NBER Macroeconomcs Annual. MI Press, Cambrdge. Lane, P., MlesFerret, G., 001. he external wealth of natons. Journal of Internatonal Economcs 55, Lane, P., MlesFerret, G., 006. A global perspectve on external postons. In: Clarda, R. (Ed.), G7 Current Account Imbalances: Sustanablty and Adjustment. Chcago Unversty Press, Chcago, pp Lane, P., MlesFerret, G., 007. he external wealth of natons mark : revsed and extended estmates of foregn assets and labltes, Journal of Internatonal Economcs 73, Nehru, V., Dhareshwar, A., A new database on physcal captal stock: sources, methodology, and results. Rvsta de Analss Economco 8, Obstfeld, M., 004. External Adjustment. Reprnted from Revew of World Economcs, December 004. lle, C., 008. Fnancal ntegraton and the wealth effect of exchange rate fluctuatons. Journal of Internatonal Economcs 75 (), (July). lle, C., Van Wncoop, E., 008. Internatonal captal flows. Workng Paper. Unversty of Vrgna. Van Wncoop, E., 003. Comments on current accounts n the long and short run. In: Gertler, M., Rogoff, K. (Eds.), 00 NBER Macroeconomcs Annual. MI Press, Cambrdge. : 6 Kraay and Ventura (000) uses the same methodology n constructng ther dataset of 13 countres over
An Alternative Way to Measure Private Equity Performance
An Alternatve Way to Measure Prvate Equty Performance Peter Todd Parlux Investment Technology LLC Summary Internal Rate of Return (IRR) s probably the most common way to measure the performance of prvate
More informationAnswer: A). There is a flatter IS curve in the high MPC economy. Original LM LM after increase in M. IS curve for low MPC economy
4.02 Quz Solutons Fall 2004 MultpleChoce Questons (30/00 ponts) Please, crcle the correct answer for each of the followng 0 multplechoce questons. For each queston, only one of the answers s correct.
More informationCan Auto Liability Insurance Purchases Signal Risk Attitude?
Internatonal Journal of Busness and Economcs, 2011, Vol. 10, No. 2, 159164 Can Auto Lablty Insurance Purchases Sgnal Rsk Atttude? ChuShu L Department of Internatonal Busness, Asa Unversty, Tawan ShengChang
More informationInequality and The Accounting Period. Quentin Wodon and Shlomo Yitzhaki. World Bank and Hebrew University. September 2001.
Inequalty and The Accountng Perod Quentn Wodon and Shlomo Ytzha World Ban and Hebrew Unversty September Abstract Income nequalty typcally declnes wth the length of tme taen nto account for measurement.
More informationAnalysis of Premium Liabilities for Australian Lines of Business
Summary of Analyss of Premum Labltes for Australan Lnes of Busness Emly Tao Honours Research Paper, The Unversty of Melbourne Emly Tao Acknowledgements I am grateful to the Australan Prudental Regulaton
More informationInstitute of Informatics, Faculty of Business and Management, Brno University of Technology,Czech Republic
Lagrange Multplers as Quanttatve Indcators n Economcs Ivan Mezník Insttute of Informatcs, Faculty of Busness and Management, Brno Unversty of TechnologCzech Republc Abstract The quanttatve role of Lagrange
More informationOn the correct model specification for estimating the structure of a currency basket
On the correct model specfcaton for estmatng the structure of a currency basket JyhDean Hwang Department of Internatonal Busness Natonal Tawan Unversty 85 Roosevelt Road Sect. 4, Tape 106, Tawan jdhwang@ntu.edu.tw
More informationHOUSEHOLDS DEBT BURDEN: AN ANALYSIS BASED ON MICROECONOMIC DATA*
HOUSEHOLDS DEBT BURDEN: AN ANALYSIS BASED ON MICROECONOMIC DATA* Luísa Farnha** 1. INTRODUCTION The rapd growth n Portuguese households ndebtedness n the past few years ncreased the concerns that debt
More informationRecurrence. 1 Definitions and main statements
Recurrence 1 Defntons and man statements Let X n, n = 0, 1, 2,... be a MC wth the state space S = (1, 2,...), transton probabltes p j = P {X n+1 = j X n = }, and the transton matrx P = (p j ),j S def.
More informationbenefit is 2, paid if the policyholder dies within the year, and probability of death within the year is ).
REVIEW OF RISK MANAGEMENT CONCEPTS LOSS DISTRIBUTIONS AND INSURANCE Loss and nsurance: When someone s subject to the rsk of ncurrng a fnancal loss, the loss s generally modeled usng a random varable or
More informationStaff Paper. Farm Savings Accounts: Examining Income Variability, Eligibility, and Benefits. Brent Gloy, Eddy LaDue, and Charles Cuykendall
SP 200502 August 2005 Staff Paper Department of Appled Economcs and Management Cornell Unversty, Ithaca, New York 148537801 USA Farm Savngs Accounts: Examnng Income Varablty, Elgblty, and Benefts Brent
More informationFixed income risk attribution
5 Fxed ncome rsk attrbuton Chthra Krshnamurth RskMetrcs Group chthra.krshnamurth@rskmetrcs.com We compare the rsk of the actve portfolo wth that of the benchmark and segment the dfference between the two
More informationMacro Factors and Volatility of Treasury Bond Returns
Macro Factors and Volatlty of Treasury Bond Returns Jngzh Huang Department of Fnance Smeal Colleage of Busness Pennsylvana State Unversty Unversty Park, PA 16802, U.S.A. Le Lu School of Fnance Shangha
More informationIDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS
IDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS Chrs Deeley* Last revsed: September 22, 200 * Chrs Deeley s a Senor Lecturer n the School of Accountng, Charles Sturt Unversty,
More informationCapital asset pricing model, arbitrage pricing theory and portfolio management
Captal asset prcng model, arbtrage prcng theory and portfolo management Vnod Kothar The captal asset prcng model (CAPM) s great n terms of ts understandng of rsk decomposton of rsk nto securtyspecfc rsk
More information9.1 The Cumulative Sum Control Chart
Learnng Objectves 9.1 The Cumulatve Sum Control Chart 9.1.1 Basc Prncples: Cusum Control Chart for Montorng the Process Mean If s the target for the process mean, then the cumulatve sum control chart s
More informationPSYCHOLOGICAL RESEARCH (PYC 304C) Lecture 12
14 The Chsquared dstrbuton PSYCHOLOGICAL RESEARCH (PYC 304C) Lecture 1 If a normal varable X, havng mean µ and varance σ, s standardsed, the new varable Z has a mean 0 and varance 1. When ths standardsed
More informationDEFINING %COMPLETE IN MICROSOFT PROJECT
CelersSystems DEFINING %COMPLETE IN MICROSOFT PROJECT PREPARED BY James E Aksel, PMP, PMISP, MVP For Addtonal Informaton about Earned Value Management Systems and reportng, please contact: CelersSystems,
More informationTHE DISTRIBUTION OF LOAN PORTFOLIO VALUE * Oldrich Alfons Vasicek
HE DISRIBUION OF LOAN PORFOLIO VALUE * Oldrch Alfons Vascek he amount of captal necessary to support a portfolo of debt securtes depends on the probablty dstrbuton of the portfolo loss. Consder a portfolo
More informationThe impact of hard discount control mechanism on the discount volatility of UK closedend funds
Investment Management and Fnancal Innovatons, Volume 10, Issue 3, 2013 Ahmed F. Salhn (Egypt) The mpact of hard dscount control mechansm on the dscount volatlty of UK closedend funds Abstract The mpact
More informationGender differences in revealed risk taking: evidence from mutual fund investors
Economcs Letters 76 (2002) 151 158 www.elsever.com/ locate/ econbase Gender dfferences n revealed rsk takng: evdence from mutual fund nvestors a b c, * Peggy D. Dwyer, James H. Glkeson, John A. Lst a Unversty
More informationStudy on CET4 Marks in China s Graded English Teaching
Study on CET4 Marks n Chna s Graded Englsh Teachng CHE We College of Foregn Studes, Shandong Insttute of Busness and Technology, P.R.Chna, 264005 Abstract: Ths paper deploys Logt model, and decomposes
More informationOn the Optimal Control of a Cascade of HydroElectric Power Stations
On the Optmal Control of a Cascade of HydroElectrc Power Statons M.C.M. Guedes a, A.F. Rbero a, G.V. Smrnov b and S. Vlela c a Department of Mathematcs, School of Scences, Unversty of Porto, Portugal;
More informationSection 5.4 Annuities, Present Value, and Amortization
Secton 5.4 Annutes, Present Value, and Amortzaton Present Value In Secton 5.2, we saw that the present value of A dollars at nterest rate per perod for n perods s the amount that must be deposted today
More informationMultiplePeriod Attribution: Residuals and Compounding
MultplePerod Attrbuton: Resduals and Compoundng Our revewer gave these authors full marks for dealng wth an ssue that performance measurers and vendors often regard as propretary nformaton. In 1994, Dens
More informationJoe Pimbley, unpublished, 2005. Yield Curve Calculations
Joe Pmbley, unpublshed, 005. Yeld Curve Calculatons Background: Everythng s dscount factors Yeld curve calculatons nclude valuaton of forward rate agreements (FRAs), swaps, nterest rate optons, and forward
More informationTrade Adjustment and Productivity in Large Crises. Online Appendix May 2013. Appendix A: Derivation of Equations for Productivity
Trade Adjustment Productvty n Large Crses Gta Gopnath Department of Economcs Harvard Unversty NBER Brent Neman Booth School of Busness Unversty of Chcago NBER Onlne Appendx May 2013 Appendx A: Dervaton
More informationFinancial Mathemetics
Fnancal Mathemetcs 15 Mathematcs Grade 12 Teacher Gude Fnancal Maths Seres Overvew In ths seres we am to show how Mathematcs can be used to support personal fnancal decsons. In ths seres we jon Tebogo,
More informationPortfolio Risk Decomposition (and Risk Budgeting)
ortfolo Rsk Decomposton (and Rsk Budgetng) Jason MacQueen RSquared Rsk Management Introducton to Rsk Decomposton Actve managers take rsk n the expectaton of achevng outperformance of ther benchmark Mandates
More informationx f(x) 1 0.25 1 0.75 x 1 0 1 1 0.04 0.01 0.20 1 0.12 0.03 0.60
BIVARIATE DISTRIBUTIONS Let be a varable that assumes the values { 1,,..., n }. Then, a functon that epresses the relatve frequenc of these values s called a unvarate frequenc functon. It must be true
More informationDO LOSS FIRMS MANAGE EARNINGS AROUND SEASONED EQUITY OFFERINGS?
DO LOSS FIRMS MANAGE EARNINGS AROUND SEASONED EQUITY OFFERINGS? Fernando Comran, Unversty of San Francsco, School of Management, 2130 Fulton Street, CA 94117, Unted States, fcomran@usfca.edu Tatana Fedyk,
More informationModule 2 LOSSLESS IMAGE COMPRESSION SYSTEMS. Version 2 ECE IIT, Kharagpur
Module LOSSLESS IMAGE COMPRESSION SYSTEMS Lesson 3 Lossless Compresson: Huffman Codng Instructonal Objectves At the end of ths lesson, the students should be able to:. Defne and measure source entropy..
More informationThe Shortterm and Longterm Market
A Presentaton on Market Effcences to Northfeld Informaton Servces Annual Conference he Shortterm and Longterm Market Effcences en Post Offce Square Boston, MA 0209 www.acadanasset.com Charles H. Wang,
More informationThe Application of Fractional Brownian Motion in Option Pricing
Vol. 0, No. (05), pp. 738 http://dx.do.org/0.457/jmue.05.0..6 The Applcaton of Fractonal Brownan Moton n Opton Prcng Qngxn Zhou School of Basc Scence,arbn Unversty of Commerce,arbn zhouqngxn98@6.com
More informationNasdaq Iceland Bond Indices 01 April 2015
Nasdaq Iceland Bond Indces 01 Aprl 2015 Fxed duraton Indces Introducton Nasdaq Iceland (the Exchange) began calculatng ts current bond ndces n the begnnng of 2005. They were a response to recent changes
More informationCommunication Networks II Contents
8 / 1  Communcaton Networs II (Görg)  www.comnets.unbremen.de Communcaton Networs II Contents 1 Fundamentals of probablty theory 2 Traffc n communcaton networs 3 Stochastc & Marovan Processes (SP
More informationThe covariance is the two variable analog to the variance. The formula for the covariance between two variables is
Regresson Lectures So far we have talked only about statstcs that descrbe one varable. What we are gong to be dscussng for much of the remander of the course s relatonshps between two or more varables.
More informationCHAPTER 14 MORE ABOUT REGRESSION
CHAPTER 14 MORE ABOUT REGRESSION We learned n Chapter 5 that often a straght lne descrbes the pattern of a relatonshp between two quanttatve varables. For nstance, n Example 5.1 we explored the relatonshp
More informationThe Current Employment Statistics (CES) survey,
Busness Brths and Deaths Impact of busness brths and deaths n the payroll survey The CES probabltybased sample redesgn accounts for most busness brth employment through the mputaton of busness deaths,
More informationCausal, Explanatory Forecasting. Analysis. Regression Analysis. Simple Linear Regression. Which is Independent? Forecasting
Causal, Explanatory Forecastng Assumes causeandeffect relatonshp between system nputs and ts output Forecastng wth Regresson Analyss Rchard S. Barr Inputs System Cause + Effect Relatonshp The job of
More informationThe DAX and the Dollar: The Economic Exchange Rate Exposure of German Corporations
The DAX and the Dollar: The Economc Exchange Rate Exposure of German Corporatons Martn Glaum *, Marko Brunner **, Holger Hmmel *** Ths paper examnes the economc exposure of German corporatons to changes
More informationGraph Theory and Cayley s Formula
Graph Theory and Cayley s Formula Chad Casarotto August 10, 2006 Contents 1 Introducton 1 2 Bascs and Defntons 1 Cayley s Formula 4 4 Prüfer Encodng A Forest of Trees 7 1 Introducton In ths paper, I wll
More informationMultivariate EWMA Control Chart
Multvarate EWMA Control Chart Summary The Multvarate EWMA Control Chart procedure creates control charts for two or more numerc varables. Examnng the varables n a multvarate sense s extremely mportant
More informationIntroduction to Regression
Introducton to Regresson Regresson a means of predctng a dependent varable based one or more ndependent varables. Ths s done by fttng a lne or surface to the data ponts that mnmzes the total error. 
More informationMAPP. MERIS level 3 cloud and water vapour products. Issue: 1. Revision: 0. Date: 9.12.1998. Function Name Organisation Signature Date
Ttel: Project: Doc. No.: MERIS level 3 cloud and water vapour products MAPP MAPPATBDClWVL3 Issue: 1 Revson: 0 Date: 9.12.1998 Functon Name Organsaton Sgnature Date Author: Bennartz FUB Preusker FUB Schüller
More informationThe Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk
The Cross Secton of Foregn Currency Rsk Prema and Consumpton Growth Rsk By HANNO LUSTIG AND ADRIEN VERDELHAN* Aggregate consumpton growth rsk explans why low nterest rate currences do not apprecate as
More informationSolutions to First Midterm
rofessor Chrstano Economcs 3, Wnter 2004 Solutons to Frst Mdterm. Multple Choce. 2. (a) v. (b). (c) v. (d) v. (e). (f). (g) v. (a) The goods market s n equlbrum when total demand equals total producton,.e.
More informationQuestions that we may have about the variables
Antono Olmos, 01 Multple Regresson Problem: we want to determne the effect of Desre for control, Famly support, Number of frends, and Score on the BDI test on Perceved Support of Latno women. Dependent
More informationSTAMP DUTY ON SHARES AND ITS EFFECT ON SHARE PRICES
STAMP UTY ON SHARES AN ITS EFFECT ON SHARE PRICES Steve Bond Mke Hawkns Alexander Klemm THE INSTITUTE FOR FISCAL STUIES WP04/11 STAMP UTY ON SHARES AN ITS EFFECT ON SHARE PRICES Steve Bond (IFS and Unversty
More information1. Measuring association using correlation and regression
How to measure assocaton I: Correlaton. 1. Measurng assocaton usng correlaton and regresson We often would lke to know how one varable, such as a mother's weght, s related to another varable, such as a
More informationKiel Institute for World Economics Duesternbrooker Weg 120 24105 Kiel (Germany) Kiel Working Paper No. 1120
Kel Insttute for World Economcs Duesternbrooker Weg 45 Kel (Germany) Kel Workng Paper No. Path Dependences n enture Captal Markets by Andrea Schertler July The responsblty for the contents of the workng
More informationHigh Correlation between Net Promoter Score and the Development of Consumers' Willingness to Pay (Empirical Evidence from European Mobile Markets)
Hgh Correlaton between et Promoter Score and the Development of Consumers' Wllngness to Pay (Emprcal Evdence from European Moble Marets Ths paper shows that the correlaton between the et Promoter Score
More informationHeterogeneous Paths Through College: Detailed Patterns and Relationships with Graduation and Earnings
Heterogeneous Paths Through College: Detaled Patterns and Relatonshps wth Graduaton and Earnngs Rodney J. Andrews The Unversty of Texas at Dallas and the Texas Schools Project Jng L The Unversty of Tulsa
More informationUnderstanding the Impact of Marketing Actions in Traditional Channels on the Internet: Evidence from a Large Scale Field Experiment
A research and educaton ntatve at the MT Sloan School of Management Understandng the mpact of Marketng Actons n Tradtonal Channels on the nternet: Evdence from a Large Scale Feld Experment Paper 216 Erc
More informationStatistical Methods to Develop Rating Models
Statstcal Methods to Develop Ratng Models [Evelyn Hayden and Danel Porath, Österrechsche Natonalbank and Unversty of Appled Scences at Manz] Source: The Basel II Rsk Parameters Estmaton, Valdaton, and
More informationChapter 15: Debt and Taxes
Chapter 15: Debt and Taxes1 Chapter 15: Debt and Taxes I. Basc Ideas 1. Corporate Taxes => nterest expense s tax deductble => as debt ncreases, corporate taxes fall => ncentve to fund the frm wth debt
More informationCHAPTER 5 RELATIONSHIPS BETWEEN QUANTITATIVE VARIABLES
CHAPTER 5 RELATIONSHIPS BETWEEN QUANTITATIVE VARIABLES In ths chapter, we wll learn how to descrbe the relatonshp between two quanttatve varables. Remember (from Chapter 2) that the terms quanttatve varable
More information7.5. Present Value of an Annuity. Investigate
7.5 Present Value of an Annuty Owen and Anna are approachng retrement and are puttng ther fnances n order. They have worked hard and nvested ther earnngs so that they now have a large amount of money on
More informationThe Analysis of Outliers in Statistical Data
THALES Project No. xxxx The Analyss of Outlers n Statstcal Data Research Team Chrysses Caron, Assocate Professor (P.I.) Vaslk Karot, Doctoral canddate Polychrons Economou, Chrstna Perrakou, Postgraduate
More informationNumber of Levels Cumulative Annual operating Income per year construction costs costs ($) ($) ($) 1 600,000 35,000 100,000 2 2,200,000 60,000 350,000
Problem Set 5 Solutons 1 MIT s consderng buldng a new car park near Kendall Square. o unversty funds are avalable (overhead rates are under pressure and the new faclty would have to pay for tself from
More informationIntroduction: Analysis of Electronic Circuits
/30/008 ntroducton / ntroducton: Analyss of Electronc Crcuts Readng Assgnment: KVL and KCL text from EECS Just lke EECS, the majorty of problems (hw and exam) n EECS 3 wll be crcut analyss problems. Thus,
More informationTrafficlight a stress test for life insurance provisions
MEMORANDUM Date 006097 Authors Bengt von Bahr, Göran Ronge Traffclght a stress test for lfe nsurance provsons Fnansnspetonen P.O. Box 6750 SE113 85 Stocholm [Sveavägen 167] Tel +46 8 787 80 00 Fax
More informationCHAPTER 7 THE TWOVARIABLE REGRESSION MODEL: HYPOTHESIS TESTING
CHAPTER 7 THE TWOVARIABLE REGRESSION MODEL: HYPOTHESIS TESTING QUESTIONS 7.1. (a) In the regresson contet, the method of least squares estmates the regresson parameters n such a way that the sum of the
More informationBank Credit Conditions and their Influence on Productivity Growth: Companylevel Evidence
Bank Credt Condtons and ther Influence on Productvty Growth: Companylevel Evdence Rebecca Rley*, Chara Rosazza Bondbene* and Garry Young** *Natonal Insttute of Economc and Socal Research & Centre For
More informationThe Investor Recognition Hypothesis:
The Investor Recognton Hypothess: the New Zealand Penny Stocks Danel JP Cha, Department of Accountng and Fnance, onash Unversty, Clayton 3168, elbourne, Australa, and Danel FS Cho, Department of Fnance,
More informationCalculation of Sampling Weights
Perre Foy Statstcs Canada 4 Calculaton of Samplng Weghts 4.1 OVERVIEW The basc sample desgn used n TIMSS Populatons 1 and 2 was a twostage stratfed cluster desgn. 1 The frst stage conssted of a sample
More informationSimple Interest Loans (Section 5.1) :
Chapter 5 Fnance The frst part of ths revew wll explan the dfferent nterest and nvestment equatons you learned n secton 5.1 through 5.4 of your textbook and go through several examples. The second part
More informationSmall pots lump sum payment instruction
For customers Small pots lump sum payment nstructon Please read these notes before completng ths nstructon About ths nstructon Use ths nstructon f you re an ndvdual wth Aegon Retrement Choces Self Invested
More informationPRIVATE SCHOOL CHOICE: THE EFFECTS OF RELIGIOUS AFFILIATION AND PARTICIPATION
PRIVATE SCHOOL CHOICE: THE EFFECTS OF RELIIOUS AFFILIATION AND PARTICIPATION Danny CohenZada Department of Economcs, Benuron Unversty, BeerSheva 84105, Israel Wllam Sander Department of Economcs, DePaul
More informationSolution: Let i = 10% and d = 5%. By definition, the respective forces of interest on funds A and B are. i 1 + it. S A (t) = d (1 dt) 2 1. = d 1 dt.
Chapter 9 Revew problems 9.1 Interest rate measurement Example 9.1. Fund A accumulates at a smple nterest rate of 10%. Fund B accumulates at a smple dscount rate of 5%. Fnd the pont n tme at whch the forces
More informationErrorPropagation.nb 1. Error Propagation
ErrorPropagaton.nb Error Propagaton Suppose that we make observatons of a quantty x that s subject to random fluctuatons or measurement errors. Our best estmate of the true value for ths quantty s then
More informationThe Analysis of Covariance. ERSH 8310 Keppel and Wickens Chapter 15
The Analyss of Covarance ERSH 830 Keppel and Wckens Chapter 5 Today s Class Intal Consderatons Covarance and Lnear Regresson The Lnear Regresson Equaton TheAnalyss of Covarance Assumptons Underlyng the
More informationIntrayear Cash Flow Patterns: A Simple Solution for an Unnecessary Appraisal Error
Intrayear Cash Flow Patterns: A Smple Soluton for an Unnecessary Apprasal Error By C. Donald Wggns (Professor of Accountng and Fnance, the Unversty of North Florda), B. Perry Woodsde (Assocate Professor
More informationQuality Adjustment of Secondhand Motor Vehicle Application of Hedonic Approach in Hong Kong s Consumer Price Index
Qualty Adustment of Secondhand Motor Vehcle Applcaton of Hedonc Approach n Hong Kong s Consumer Prce Index Prepared for the 14 th Meetng of the Ottawa Group on Prce Indces 20 22 May 2015, Tokyo, Japan
More informationSection 5.3 Annuities, Future Value, and Sinking Funds
Secton 5.3 Annutes, Future Value, and Snkng Funds Ordnary Annutes A sequence of equal payments made at equal perods of tme s called an annuty. The tme between payments s the payment perod, and the tme
More informationUnderwriting Risk. Glenn Meyers. Insurance Services Office, Inc.
Underwrtng Rsk By Glenn Meyers Insurance Servces Offce, Inc. Abstract In a compettve nsurance market, nsurers have lmted nfluence on the premum charged for an nsurance contract. hey must decde whether
More informationA Novel Methodology of Working Capital Management for Large. Public Constructions by Using Fuzzy Scurve Regression
Novel Methodology of Workng Captal Management for Large Publc Constructons by Usng Fuzzy Scurve Regresson ChengWu Chen, Morrs H. L. Wang and TngYa Hseh Department of Cvl Engneerng, Natonal Central Unversty,
More informationMarginal Benefit Incidence Analysis Using a Single Crosssection of Data. Mohamed Ihsan Ajwad and Quentin Wodon 1. World Bank.
Margnal Beneft Incdence Analyss Usng a Sngle Crosssecton of Data Mohamed Ihsan Ajwad and uentn Wodon World Bank August 200 Abstract In a recent paper, Lanjouw and Ravallon proposed an attractve and smple
More informationThe Effects of Tax Rate Changes on Tax Bases and the Marginal Cost of Public Funds for Canadian Provincial Governments
The Effects of Tax Rate Changes on Tax Bases and the Margnal Cost of Publc Funds for Canadan Provncal Governments Bev Dahlby a and Ergete Ferede b a Department of Economcs, Unversty of Alberta, Edmonton,
More informationFORCED CONVECTION HEAT TRANSFER IN A DOUBLE PIPE HEAT EXCHANGER
FORCED CONVECION HEA RANSFER IN A DOUBLE PIPE HEA EXCHANGER Dr. J. Mchael Doster Department of Nuclear Engneerng Box 7909 North Carolna State Unversty Ralegh, NC 276957909 Introducton he convectve heat
More informationTransition Matrix Models of Consumer Credit Ratings
Transton Matrx Models of Consumer Credt Ratngs Abstract Although the corporate credt rsk lterature has many studes modellng the change n the credt rsk of corporate bonds over tme, there s far less analyss
More informationThe OC Curve of Attribute Acceptance Plans
The OC Curve of Attrbute Acceptance Plans The Operatng Characterstc (OC) curve descrbes the probablty of acceptng a lot as a functon of the lot s qualty. Fgure 1 shows a typcal OC Curve. 10 8 6 4 1 3 4
More informationANALYZING THE RELATIONSHIPS BETWEEN QUALITY, TIME, AND COST IN PROJECT MANAGEMENT DECISION MAKING
ANALYZING THE RELATIONSHIPS BETWEEN QUALITY, TIME, AND COST IN PROJECT MANAGEMENT DECISION MAKING Matthew J. Lberatore, Department of Management and Operatons, Vllanova Unversty, Vllanova, PA 19085, 6105194390,
More informationTHE DETERMINANTS OF THE TUNISIAN BANKING INDUSTRY PROFITABILITY: PANEL EVIDENCE
THE DETERMINANTS OF THE TUNISIAN BANKING INDUSTRY PROFITABILITY: PANEL EVIDENCE Samy Ben Naceur ERF Research Fellow Department of Fnance Unversté Lbre de Tuns Avenue Khéreddne Pacha, 002 Tuns Emal : sbennaceur@eudoramal.com
More informationA Simplified Framework for Return Accountability
Reprnted wth permsson from Fnancal Analysts Journal, May/June 1991. Copyrght 1991. Assocaton for Investment Management and Research, Charlottesvlle, VA. All rghts reserved. by Gary P. Brnson, Bran D. Snger
More informationEvaluating credit risk models: A critique and a new proposal
Evaluatng credt rsk models: A crtque and a new proposal Hergen Frerchs* Gunter Löffler Unversty of Frankfurt (Man) February 14, 2001 Abstract Evaluatng the qualty of credt portfolo rsk models s an mportant
More informationCHOLESTEROL REFERENCE METHOD LABORATORY NETWORK. Sample Stability Protocol
CHOLESTEROL REFERENCE METHOD LABORATORY NETWORK Sample Stablty Protocol Background The Cholesterol Reference Method Laboratory Network (CRMLN) developed certfcaton protocols for total cholesterol, HDL
More informationTwo Faces of IntraIndustry Information Transfers: Evidence from Management Earnings and Revenue Forecasts
Two Faces of IntraIndustry Informaton Transfers: Evdence from Management Earnngs and Revenue Forecasts Yongtae Km Leavey School of Busness Santa Clara Unversty Santa Clara, CA 950530380 TEL: (408) 5544667,
More informationChapter 4 Financial Markets
Chapter 4 Fnancal Markets ECON2123 (Sprng 2012) 14 & 15.3.2012 (Tutoral 5) The demand for money Assumptons: There are only two assets n the fnancal market: money and bonds Prce s fxed and s gven, that
More informationSIMPLE LINEAR CORRELATION
SIMPLE LINEAR CORRELATION Smple lnear correlaton s a measure of the degree to whch two varables vary together, or a measure of the ntensty of the assocaton between two varables. Correlaton often s abused.
More informationBERNSTEIN POLYNOMIALS
OnLne Geometrc Modelng Notes BERNSTEIN POLYNOMIALS Kenneth I. Joy Vsualzaton and Graphcs Research Group Department of Computer Scence Unversty of Calforna, Davs Overvew Polynomals are ncredbly useful
More informationLecture 3: Annuity. Study annuities whose payments form a geometric progression or a arithmetic progression.
Lecture 3: Annuty Goals: Learn contnuous annuty and perpetuty. Study annutes whose payments form a geometrc progresson or a arthmetc progresson. Dscuss yeld rates. Introduce Amortzaton Suggested Textbook
More informationA Model of Private Equity Fund Compensation
A Model of Prvate Equty Fund Compensaton Wonho Wlson Cho Andrew Metrck Ayako Yasuda KAIST Yale School of Management Unversty of Calforna at Davs June 26, 2011 Abstract: Ths paper analyzes the economcs
More informationWorld currency options market efficiency
Arful Hoque (Australa) World optons market effcency Abstract The World Currency Optons (WCO) maket began tradng n July 2007 on the Phladelpha Stock Exchange (PHLX) wth the new features. These optons are
More information! # %& ( ) +,../ 0 1 2 3 4 0 4 # 5##&.6 7% 8 # 0 4 2 #...
! # %& ( ) +,../ 0 1 2 3 4 0 4 # 5##&.6 7% 8 # 0 4 2 #... 9 Sheffeld Economc Research Paper Seres SERP Number: 2011010 ISSN 17498368 Sarah Brown, Aurora OrtzNúñez and Karl Taylor Educatonal loans and
More informationLecture 3: Force of Interest, Real Interest Rate, Annuity
Lecture 3: Force of Interest, Real Interest Rate, Annuty Goals: Study contnuous compoundng and force of nterest Dscuss real nterest rate Learn annutymmedate, and ts present value Study annutydue, and
More information1. Math 210 Finite Mathematics
1. ath 210 Fnte athematcs Chapter 5.2 and 5.3 Annutes ortgages Amortzaton Professor Rchard Blecksmth Dept. of athematcal Scences Northern Illnos Unversty ath 210 Webste: http://math.nu.edu/courses/math210
More informationDepreciation of Business R&D Capital
Deprecaton of Busness R&D Captal U.S. Bureau of Economc Analyss Abstract R&D deprecaton rates are crtcal to calculatng the rates of return to R&D nvestments and captal servce costs, whch are mportant for
More informationForecasting the Direction and Strength of Stock Market Movement
Forecastng the Drecton and Strength of Stock Market Movement Jngwe Chen Mng Chen Nan Ye cjngwe@stanford.edu mchen5@stanford.edu nanye@stanford.edu Abstract  Stock market s one of the most complcated systems
More informationReporting Forms ARF 113.0A, ARF 113.0B, ARF 113.0C and ARF 113.0D FIRB Corporate (including SME Corporate), Sovereign and Bank Instruction Guide
Reportng Forms ARF 113.0A, ARF 113.0B, ARF 113.0C and ARF 113.0D FIRB Corporate (ncludng SME Corporate), Soveregn and Bank Instructon Gude Ths nstructon gude s desgned to assst n the completon of the FIRB
More information