This paper empirically tests the expectations hypothesis on both daily EONIA swap rates and monthly EURIBOR rates extended backwards with German LIBOR rates. In addition, we quantify the size of the risk premia in the money market at maturities of one, three, six and nine months. Using implied forward and spot rates in a cointegrated VAR model, we find that the data support the expectations hypothesis in the euro area and in Germany prior to 1999. We find that risk premia are relatively limited at the shorter maturities but more significant at maturities of six and nine months. Furthermore, the results on LIBOR/EURIBOR rates tentatively indicate a downward shift in the structure of the risk premia after the introduction of the euro.

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This paper assesses the effect of changes in solar zenith angle (SZA) and sensor changes on reflectances in channel 1, channel 2, and normalized difference vegetation index (NDVI) from the advanced very high resolution radiometer (AVHRR) Pathfinder land data set for the period July 1981 through September 1994. First, the effect of changes in SZA on channel reflectances and NDVI is derived from equations of radiative transfer in vegetation media. Starting from first principles, it is rigorously shown that the NDVI of a vegetated surface is a function of the maximum positive eigenvalue of the radiative transfer equation within the framework of the theory used and its assumptions. A sensitivity analysis of this relation indicates that NDVI is minimally sensitive to SZA changes, and this sensitivity decreases as leaf area increases. Second, statistical methods are used to analyze the relationship between SZA and channel reflectances or NDVI. It is shown that the use of ordinary least squares can generate spurious regressions because of the nonstationary property of time series. To avoid such a confusion, we use the notion of cointegration to analyze the relation between SZA and AVHRR data. Results are consistent with the conclusion of theoretical analysis from equations of radiative transfer. NDVI is not related to SZA in a statistically significant manner except for biomes with relatively low leaf area. From the theoretical and empirical analysis, we conclude that the NDVI data generated from the AVHRR Pathfinder land data set are not contaminated by trends introduced from changes in solar zenith angle due to orbital decay and changes in satellites (NOAA-7, 9, 11). As such, the NDVI data can be used to analyze interannual variability of global vegetation activity.

We examine the extent of capital market integration in a group of Pacific Basin countries following the deregulation of their markets, and explore whether the financial influence of Japan in the region has overtaken that of the US. Looking at long-run comovements of real interest rates through the use of cointegration, and using impulse response analysis to examine the speed of adjustment of real interest rates to long-run equilibrium following a shock in one of the markets, which is another indicator of the degree of capital market integration, we find that these countries are closely linked with world financial markets and

Conventional wisdom and current research suggest that the Internet will lower electronic commerce (EC) product prices by causing intense competition among vendors. However, this does not seem to be happening. This research presents a multi-industry investigation of pricing behavior using a customized data-collecting Internet agent that we call the Time Series Agent Retriever (TSAR). We use theories of information asymmetry and Stackelberg pricing to show how Internet technology increases the ability of firms to tacitly collude to keep prices higher than expected in the presence of intense competition. Our results are developed using an econometric technique called vector autoregression (VAR). They show that Internet technology creates the potential to lower information asymmetry among Internet-based sellers. Thus, it allows rapid reaction between competitors, thereby allowing firms to avoid the intense competition predicted by current theory. We find that fast competitor reaction to the price promotions of a firm minimizes any profit derived from increased market share that the firm hopes to achieve from the lower price. This short reaction time allows Stackelberg pricing, in contrast with Bertrand-Nash pricing, which is often discussed in research on pricing in Internet-based selling.

We apply vector autoregression (VAR) to firm-level panel data from 36 countries to study the dynamic relationship between firms' financial conditions and investment. We argue that by using orthogonalized impulse-response functions we are able to separate the 'fundamental factors' (such as marginal profitability of investment) from the 'financial factors' (such as availability of internal finance) that influence the level of investment. We find that the impact of the financial factors on investment, which we interpret as evidence of financing constraints, is significantly larger in countries with less developed financial systems. Our finding emphasizes the role of financial development in improving capital allocation and growth.

We utilize an empirical model of growth as a platform for examining the effects of capital account liberalization on growth. While we test for the direct effects of liberalization, we are equally interested in another facet of liberalization: sequencing. We ask what prior political, social, or economic conditions were required for capital account liberalization to have led to subsequent growth. Our key independent variable is a measure of capital account openness that comes in the form of five-year time-series, cross-sectional observations for 80 nations, 1950 (or independence) to 1997. Our focus is on change indicators of liberalization, as we argue that level indicators of government policies in political economic research are generally too imprecisely specified to exclude the influence of other collinear political economic variables. We focus not simply on the economic preconditions for beneficial liberalizations, but the political and social preconditions as well. We find that capital account liberalization has a robust and direct effect on subsequent economic growth in most countries. Capital account liberalization does not, however, lead to higher growth in emerging market democracies that have weak welfare states. We conclude that policymakers in emerging market democracies have ample reason to be cautious about full capital account liberalization. Policymakers in emerging market nations are routinely urged to liberalize their international

This paper argues that when the exchange rate and projected sales in the host country are jointly determined by underlying macroeconomic variables, standard regressions of FDI flows on both exchange rate levels and volatility are subject to bias. The results hinge on the interaction of macroeconomic uncertainty, a sunk cost, and heterogeneous productivity across firms. They indicate that a multinational firm’s response to increases in exchange rate volatility will differ depending on whether the volatility arises from shocks in the firm’s native or host country. It is the first study to depart from the representative-firm framework in an analysis of direct investment behavior with money.

Abstract This paper investigates how the thinness of foreign-exchange markets causes destabilizing speculations, especially when exchange-rate flexibility is increased as in the Asian crisis countries. In what follows, we analyze the impact of this foreign-exchange market thinness on the dynamic capital mobility and capital-market risk of four Asian crisis countries: Indonesia, Korea, Malaysia, and Thailand. Using the vector-autoregression model, impulse response functions, and variance decomposition, it is shown that in response to one-standard-deviation shock to interest and exchange rates, the dynamic capital mobility of all four crisis countries has decreased in the short run. These shocks also cause the capital-market risk of these countries to increase. Since the onset of the crisis, the Asian crisis countries responded by increasing their interest rates and devaluing their currencies. These measures are intended to stem capital flight from the borrowing countries and to encourage capital inflows. However, in an environment of protracted financial-sector reform and thin foreign-exchange markets, these standard policies did not stabilize the capital inflows into these crisis countries. Our research supports the view that because the standard policies were not able to change institutional investors ’ (self-fulfilling) expectations and their herding behavior, the Asian crisis countries ’ policies have-- in the short run-- not been successful. This failure is in large part attributable to the very thin foreign-exchange markets of these Asian countries. I.

Due to its high popularity, Weblogs (or blogs in short) present a wealth of information that can be very helpful in assessing the general public’s sentiments and opinions. In this paper, we study the problem of mining sentiment information from blogs and investigate ways to use such information for predicting product sales performance. Based on an analysis of the complex nature of sentiments, we propose Sentiment PLSA (S-PLSA), in which a blog entry is viewed as a document generated by a number of hidden sentiment factors. Training an S-PLSA model on the blog data enables us to obtain a succinct summary of the sentiment information embedded in the blogs. We then present ARSA, an autoregressive sentiment-aware model, to utilize the sentiment information captured by S-PLSA for predicting product sales performance. Extensive experiments were conducted on a movie data set. We compare ARSA with alternative models that do not take into account the sentiment information, as well as a model with a different feature selection method. Experiments confirm the effectiveness and superiority of the proposed approach.