Event

Past Events

CARF Workshops (2005.06)

The Effects of the Bank of Japan's Zero Interest Rate Commitment and Quantitative Monetary Easing on the Yield Curve: A Macro-Finance Approach (with Nobuyuki Oda)

Dates 2005/6/30(Thu)16:50-18:30
Venue Lecture Hall No.3, 3rd floor of the main Economics Building
Speaker Kazuo Ueda (University of Tokyo)
Co-Sponsor Macroworkshop
Abstract This paper provides an empirical investigation of monetary policy in Japan in the zero interest rate environment that has held sway since 1999. In particular, we focus on the effects of the zero interest rate commitment and of quantitative monetary easing on medium to long-term interest rates in Japan. In the study we apply a version of the macro-finance approach, involving a combination of estimation of a structural macro-model and calibration of time-variant parameters to the yield curve observed in the market. This enables us to decompose interest rates into expectations and risk premium components and simultaneously to extract the market’s perception of the Bank of Japan’s (BOJ’s) willingness to carry on its zero interest rate policy. In the analysis we make clear the counterfactual policy that would have been practiced in the absence of the actual policies followed by the BOJ since 1999. From this analysis, we tentatively conclude that the BOJ’s monetary policy since 1999 has functioned mainly through the zero interest rate commitment, which has led to declines in medium to long-term interest rates. We also find some evidence that, up until the end of 2003, raising the reserve target may have been perceived as a signal indicating the BOJ’s accommodative policy stance although the size of the effect is not large. The portfolio rebalancing effect — either by the BOJ’s supplying ample liquidity or by its purchases of long-term government bonds — has not been found to be significant.
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Formation, Competition, and Ownership of Internet Intermediaries

Dates 2005/6/28(Tue)16:50-18:30
Venue Lecture Hall No.3, 3rd floor of the main Economics Building
Speaker Hideo Owan (John M. Olin School of Business, Washington University)
Co-Sponsor Microworkshop
Abstract We analyze the formation and competition of market intermediaries when there are positive participation externalities between the two sides of the market and negative participation externalities within the same side. Registration with two intermediaries (i.e. multihoming) is allowed. There are two types of market intermediaries: one where multihoming always provides an additional benefit (additive type); and the other where connections with two intermediaries are substitutes (substitutable type). In the analyses of competition, we also consider three different ownership structures: third-party-owned (i.e. independent public exchange), buyer-owned (i.e. buy-side consortium exchange), and seller-owned. To deal with multiple equilibria, we assume that decisions made by potential participants are coordinated by a “pessimistic belief” about formation and entry of a new intermediary, and consider Stackleberg competition (i.e. there always are incumbent and entrant intermediaries) in the competition case.

Our primary results are as follows: first, we show that cross-subsidization is necessary to form a new intermediary even without competition because the pessimistic belief requires the intermediary owner to implement the desirable full participation outcome as the unique Nash equilibrium. Second, the incumbent can foreclose the entry of a third-party-owned intermediary if it is a substitutable type but cannot do so if it is an additive type. Third, the incumbent can deter the entry of a substitutable-type, seller-owned intermediary but make almost no profit by doing so, while the incumbent can never deter the entry of a substitutable-type, buyer-owned intermediary however small is the number of buyers participating in the consortium. Our work explains why independent public exchanges have been replaced by buy-side consortium exchanges in many industries in recent years.

The Adjusted Solow Residual and Asset Returns

Dates 2005/6/23(Thu)16:50-18:30
Venue Lecture Hall No.3, 3rd floor of the main Economics Building
Speaker Jeong-Joon Lee (Towson University)
Co-Sponsor Macroworkshop
Abstract The purpose of this study is to examine effects of a measured
aggregate productivity shock on asset returns. To achieve this, a simple equilibrium business cycle model is presented to show that an aggregate productivity shock can be identified as a factor affecting asset returns. Then, Solow’s productivity residual is chosen as a proxy for the measured aggregate productivity shock. One valuable contribution of the study is its incorporation of recent macroeconomic developments on variable factor utilizations. In particular, this paper deviates from the conventional growth accounting framework to adjust for cyclical variations of the Solow residual. This study first shows that asset returns tie with capital returns based on the standard business cycle model without adjustment costs, and then empirically evaluates the relationship between the measured aggregate productivity shock and asset returns. Investigations based on post-World War II U.S. data uncover significant differences between the conventional Solow residual and the adjusted Solow residual in their dynamic effects on asset returns. The results from the VARs show that once variable capital utilization is controlled for, the measured aggregate productivity shock generates dynamics similar to what Basu, Fernald, and Kimball (2004) documented. More importantly, technology improvements have delayed effects on asset returns, which is somewhat difficult to be rationalized based on the frictionless model studied in this paper.
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Stochastic Private Values in Auctions: Identification and Estimation

Dates 2005/6/14(Tue)16:50-18:30
Venue Lecture Hall No.3, 3rd floor of the main Economics Building
Speaker Lu Jingfeng (National University of Singapore)
Co-Sponsor Microworkshop
Abstract This paper addresses the identification and estimation of the stochastic private value model for first-price sealed-bid auctions. Under a constant absolute risk aversion specification for the bidders’ utility function, the model is semiparametrically identified from the winner’s ex post private value and the winning bid. A semiparametric method is proposed for estimating the risk aversion parameter, the risk premium, and the distributions of the ex ante private signal and the ex post shock. The semiparametric estimator for the risk aversion parameter and the risk premium converges at the parametric rate. A Monte Carlo study confirms its small sample good behavior.
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Arbitrage, Noise-trader Risk, and the Cross Section of Closed-end Fund Returns

Dates 2005/6/7(Tue)16:00-17:40
Venue Lecture Hall No.5, 4th floor of the main Economics Building
Speaker Sean Masaki Flynn (Assistant Professor of Economics, Vassar College (New York))
Co-Sponsor Microworkshop
Abstract I find that despite active arbitrage activity, the discounts of individual closed-end funds are not driven to be consistent with their respective fundamentals. In addition, arbitrage portfolios created by sorting funds by discount level show excess returns not only for the three Fama and French (1992) risk factors but when a measure of average discount movements across all funds is included as well. Because the inclusion of this later variable soaks up volatility common to all funds, the observed inverse relationship between the magnitude of excess returns in the cross section and the ability of these variables to explain overall volatility leads me to suspect that fund-specific risk factors exist which, were they measurable, would justify what otherwise appear to be excess returns. I propose that fund-specific noise-trader risk of the type described by Black (1986) may be the missing risk factor.
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