| 1. |
- Blomvall, Jörgen, 1974-, et al.
(author)
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Back-testing the performance of an actively managed option portfolio at the Swedish Stock Market, 1990–1999
- 2003
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In: Journal of Economic Dynamics and Control. - Amsterdam, Netherlands : Elsevier. - 0165-1889 .- 1879-1743. ; 27:6, s. 1099-1112
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Journal article (peer-reviewed)abstract
- We build an investment model based on Stochastic Programming. In the model we buy at the ask price and sell at the bid price. We apply the model to a case where we can invest in a Swedish stock index, call options on the index and the risk-free asset. By reoptimizing the portfolio on a daily basis over a ten-year period, it is shown that options can be used to create a portfolio that outperforms the index. With ex post analysis, it is furthermore shown that we can create a portfolio that dominates the index in terms of mean and variance, i.e. at given level of risk we could have achieved a higher return using options.
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| 2. |
- Adolfson, Malin, et al.
(author)
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Monetary policy trade-offs in an estimated open-economy DSGE model
- 2014
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 42, s. 33-49
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Journal article (peer-reviewed)abstract
- This paper studies the trade-offs between stabilizing CPI inflation and alternative measures of the output gap in Ramses, the Riksbank's estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy. Our main finding is that the trade-off between stabilizing CPI inflation and the output gap strongly depends on which concept of potential output in the output gap between output and potential output is used in the loss function. If potential output is defined as a smooth trend this trade-off is much more pronounced compared to the case when potential output is defined as the output level that would prevail if prices and wages were flexible.
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| 3. |
- Bask, Mikael, et al.
(author)
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Optimal monetary policy under learning and structural uncertainty in a New Keynesian model with a cost channel and inflation inertia
- 2016
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 69, s. 112-126
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Journal article (peer-reviewed)abstract
- We investigate whether expectations-based optimal monetary policy rules under discretion and under commitment can enforce a determinate and least squares learnable rational expectations equilibrium (REE) in a New Keynesian model with inflation inertia and a cost channel of monetary policy transmission. Our numerical results show that commitment rules can enforce a determinate and learnable REE for all parameter constellations considered, whereas discretionary rules are not always able to enforce the same desirable outcome in the economy. We also examine different types of misapprehensions in policy-making and find that an incorrect assessment of the economy's true structure by the central bank greatly affects its capability to enforce a determinate and learnable, although suboptimal, REE. Thus, our numerical results highlight the relevance of this type of analysis for the design and conduct of monetary policy.
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| 4. |
- Basso, Henrique
(author)
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Delegation, time inconsistency and sustainable equilibrium
- 2009
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 33:8, s. 1617-1629
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Journal article (peer-reviewed)abstract
- This paper analyzes the effectiveness of delegation in solving the time inconsistency problem of monetary policy using a microfounded general equilibrium model where delegation and reappointment are explicitly included into the government's strategy. The method of Chari and Kehoe [1990. Sustainable plans. Journal of Political Economy 98 (4), 783–802] is applied to characterize the entire set of sustainable outcomes. Countering McCallum's [1995. Two fallacies concerning central-bank independence. American Economic Review 85 (2), 207–211] second fallacy, delegation is able to eliminate the time inconsistency problem, with the commitment policy being sustained under discretion for any intertemporal discount rate.
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| 5. |
- Bekiros, Stelios, et al.
(author)
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Bank capital shocks and countercyclical requirements: Implications for banking stability and welfare
- 2018
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In: Journal of Economic Dynamics and Control. - : ELSEVIER SCIENCE BV. - 0165-1889 .- 1879-1743. ; 93, s. 315-331
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Journal article (peer-reviewed)abstract
- This paper incorporates anticipated and unanticipated shocks to bank capital into a DSGE model with a banking sector. We apply this model to study Basel III countercyclical capital requirements and their implications for banking stability and household welfare. We introduce three different countercyclical capital rules. The first countercyclical capital rule responds to credit to output ratio. The second countercyclical rule reacts to deviations of credit to its steady state, and the third rule reacts to credit growth. The second rule proves to be the most effective tool in dampening credit supply, housing demand and household debt as well as in enhancing the banking stability by ensuring that banks have higher bank capital and capital to asset ratio. After conducting a welfare analysis we find that the second rule outranks the other ones followed by the first rule, the baseline and the third rule respectively in terms of welfare accumulation. (C) 2018 Elsevier B.V. All rights reserved.
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| 6. |
- Boppart, Timo, et al.
(author)
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Exploiting MIT Shocks in Heterogeneous-Agent Economies : The Impulse Response as a Numerical Derivative
- 2018
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 89, s. 68-92
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Journal article (peer-reviewed)abstract
- We propose a new method for computing equilibria in heterogeneous-agent models with aggregate uncertainty. The idea relies on an assumption that linearization offers a good approximation; we share this assumption with existing linearization methods. However, unlike those methods, the approach here does not rely on direct derivation of first-order Taylor terms. It also does not use recursive methods, whereby aggregates and prices would be expressed as linear functions of the state, usually a very high-dimensional object (such as the wealth distribution). Rather, we rely merely on solving nonlinearly for a deterministic transition path: we study the equilibrium response to a single, small “MIT shock” carefully. We then regard this impulse response path as a numerical derivative in sequence space and hence provide our linearized solution directly using this path. The method can easily be extended to the case of many shocks and computation time rises linearly in the number of shocks. We also propose a set of checks on whether linearization is a good approximation. We assert that our method is the simplest and most transparent linearization technique among currently known methods. The key numerical tool required to implement it is value-function iteration, using a very limited set of state variables.
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| 7. |
- Brinca, Pedro
(author)
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Distortions in the neoclassical growth model : A cross-country analysis
- 2014
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 47, s. 1-19
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Journal article (peer-reviewed)abstract
- This paper investigates the properties of distortions that manifest themselves as wedges in the equilibrium conditions of the neoclassical growth model across a sample of 22 OECD countries for the 1970-2011 period. The quantitative relevance of each wedge and its robustness in generating fluctuations in macroeconomic aggregates is assessed. The efficiency wedge proves to be determinant in enabling models to replicate movements in output and investment, while the labor wedge is important to predict fluctuations in hours worked. Modeling distortions to the savings decision holds little quantitative or qualitative relevance. Also, investment seems to be the hardest aggregate to replicate, as prediction errors concerning output and hours worked are typically one order of magnitude smaller. These conclusions are statistically significant across the countries in the sample and are not limited to output drops. Finally, the geographical distance between countries and their degree of openness to trade are shown to contain information with regard to the wedges, stressing the importance of international mechanisms of transmission between distortions to the equilibrium conditions of the neoclassical growth model.
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| 8. |
- Buhai, I. Sebastian, et al.
(author)
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A Social Network Analysis of Occupational Segregation
- 2023
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 147
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Journal article (peer-reviewed)abstract
- We propose an equilibrium interaction model of occupational segregation and labor market inequality between two social groups, generated exclusively through the documented tendency to refer informal job seekers of identical “social color”. The expected social color homophily in job referrals strategically induces distinct career choices for individuals from different social groups, which further translates into stable partial occupational segregation equilibria with sustained wage and employment inequality – in line with observed patterns of racial or gender labor market disparities. Supporting the qualitative analysis with a calibration and simulation exercise, we furthermore show that both first and second best utilitarian social optima entail segregation, any integration policy requiring explicit distributional concerns. Our framework highlights that the mere social interaction through homophilous contact networks can be a pivotal channel for the propagation and persistence of gender and racial labor market gaps, complementary to long studied mechanisms such as taste or statistical discrimination.
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| 9. |
- Christiano, Lawrence J., et al.
(author)
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Introducing financial frictions and unemployment into a small open economy model
- 2011
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In: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889 .- 1879-1743. ; 35:12, s. 1999-2041
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Journal article (peer-reviewed)abstract
- Which are the main frictions and the driving forces of business cycle dynamics in an open economy? To answer this question we extend the standard new Keynesian model in three dimensions: we incorporate financing frictions for capital, employment frictions for labor and extend the model into a small open economy setting. We estimate the model on Swedish data. Our main results are that (i) a financial shock is pivotal for explaining fluctuations in investment and GDP. (ii) The marginal efficiency of investment shock has negligible importance. (iii) The labor supply shock is unimportant in explaining GDP and no high frequency wage markup shock is needed.
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| 10. |
- Ewald, Christian Oliver, et al.
(author)
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On the adaptation of the Lagrange formalism to continuous time stochastic optimal control : a Lagrange-Chow redux
- 2024
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In: Journal of Economic Dynamics and Control. - : Elsevier. - 0165-1889 .- 1879-1743. ; 162
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Journal article (peer-reviewed)abstract
- We show how the classical Lagrangian approach to solving constrained optimization problems from standard calculus can be extended to solve continuous time stochastic optimal control problems. Connections to mainstream approaches such as the Hamilton-Jacobi-Bellman equation and the stochastic maximum principle are drawn. Our approach is linked to the stochastic maximum principle, but more direct and tied to the classical Lagrangian principle, avoiding the use of backward stochastic differential equations in its formulation. Using infinite dimensional functional analysis, we formalize and extend the approach first outlined in Chow (1992) within a rigorous mathematical setting using infinite dimensional functional analysis. We provide examples that demonstrate the usefulness and effectiveness of our approach in practice. Further, we demonstrate the potential for numerical applications facilitating some of our key equations in combination with Monte Carlo backward simulation and linear regression, therefore illustrating a completely different and new avenue for the numerical application of Chow's methods.
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