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In a standard New Keynesian model, the central bank moves the real rate when it changes the nominal interest rate since the price level responds sluggishly to change in nominal rates due to nominal rigidity. Monetary policy is non-neutral, for it moves the real rate, thus alters agents’ intertemporal consumption decisions. The standard model is a simplified world without information frictions or regional heterogeneity. In a world with information frictions, monetary policy actions communicate to the public about the central bank’s private information. Monetary policy can generate additional effects by shaping agents’ beliefs about the true state of the economy or the future monetary policy path. In a world with regional heterogeneity, monetary policy can have interesting interactions with local characteristics. This dissertation investigates regime-dependent, state-dependent, and heterogeneous regional effects of monetary policy.Chapter 1 introduces a new regime dependence of monetary policy due to information frictions: the effects of monetary policy shocks depend on the type of the fundamental macro shock in the economy. Specifically, output responses to monetary policy shocks are amplified relative to their counterparts in perfect information models when the fundamental macro shock is a productivity level shock or a demand shock. In contrast, output responses are dampened when the fundamental macro shock is a productivity growth rate shock. Households observe the overall fundamental in the economy but cannot distinguish its persistent part from its temporary part. The central bank sets the interest rate tracking a function of the persistent fundamental plus a monetary policy shock, so the interest rate is a noisy signal about the persistent fundamental with the monetary policy shock as the noise. Exogenous monetary policy shocks lead households to update their perceptions about the persistent fundamental differently facing varying types of fundamental macro shocks, thus generating heterogeneous effects on output.Chapter 2 introduces the position effect: the effects of a monetary policy shock depend on its relative position in the monetary policy sequence. I use both event study and local projections methods to investigate how the effects of monetary policy depend on the relative position of monetary policy shocks in monetary policy sequences. The effects of monetary policy are less potent in the first half of monetary policy sequences, which I phrase as the position effect. Possible explanations include different implicit forward guidance, different information effects, and Fed's different interest rate smoothing behavior at different positions in the monetary policy sequence. I provide supporting evidence for the interest rate smoothing behavior: less interest rate smoothing in the first half of a monetary policy sequence shortens the shock duration, thus weakening the effect.Chapter 3, joint work with Ninghui Li, investigates the regional heterogeneity of monetary policy on local house prices. House prices in growing urban areas are more sensitive to monetary policy. We first define urban growth and urban decline using CBSA level population data and then test local house prices to monetary policy shocks using local projections. The housing supply elasticity does not drive our results, although it plays a role in house price dynamics. We find evidence supporting that the effect of monetary policy interacts with the long-run expectations driven by local population growth.

In models of financial frictions, stock market booms tend to follow adverse liquidity shocks. This finding is clearly at odds with the data. We demonstrate that this counterfactual result is specific to real business cycle models with exogenous growth. Once we allow for both endogenous productivity and growth, this puzzling price dynamic easily disappears. Intuitively, the gloomy economic-growth outlook following an adverse liquidity shock generates a predictable and negative long-run component in dividend growth, leading to the collapse of equity prices., Financial support from the Ministry of Education, Culture, Sports, Science and Technology of the Japanese government through JSPS KAKENHI Grants (24330094, 16K17080, 16H03626, 17H00985, 18KK0361, 20H01490, and 20H00073)

My dissertation examines how asset prices move based on information in Federal Open Market Committee (FOMC) meeting minutes. I create a quantitative measure of the information in these documents using the Dictionary Method of Automated Content Analysis. In evaluating the document information, my dissertation accounts for the content of previously released policy statements as well as the persistence of the wording in FOMC meeting documents in order to extract the unexpected information in the minutes. My dissertation then identifies the intraday asset price reactions to these unanticipated information. I mainly focus on the time period beginning on the FOMC's date-based forward guidance, the period during which the FOMC commits to maintaining the same policy up to a specified date. I find that during this time, surprisingly more optimistic economic discussions caused statistically significant increases in U.S. equity and housing indices. My dissertation also examines the forecasts that are important to FOMC policy decisions. My work evaluates whether these decisions depend mainly on Federal Reserve Board of Governors Staff forecasts, stored in the document called the Greenbook, or if they are affected by additional information that resembles Survey of Professional Forecasters (SPF) data, a proxy for publicly available forecasts. I also use the Dictionary Method to decipher the implied monetary policy tilt of the FOMC meeting statements. Utilizing the Leaps-and-Bounds algorithm, I find that when making policy decisions, the FOMC accounts for information similar to the Greenbook nowcast of unemployment and the four-quarter average SPF-forecast for inflation. In contrast, I find that the economic information highlighted in meeting statements are consistent with Greenbook forecasts. My dissertation also includes research work co-authored with Mario Gonzalez from the Central Bank of Chile. We evaluate the impact of another set of central bank releases, specifically those of the Central Bank of Chile, and examine how this set of text affects Chilean financial markets. Our work demonstrates that central bank policy documents of emerging markets, particularly of Chile, not only signal future monetary policies, but can have significant impact on the country's financial markets.

RESUMEN Este artículo cuantifica y analiza los efectos de los choques originados en los mercados estadounidenses sobre los principales mercados financieros colombianos durante el periodo de 2003 a 2015. La metodología utilizada es un modelo de vectores autorregresivos (VAR) estructural que emplea la heterocedasticidad que existe en los datos para la identificación y la estimación de los coeficientes de transmisión financiera. Se encuentra que los mercados estadounidenses generan efectos overall spillovers significativos sobre el mercado accionario colombiano. A su vez, los resultados reflejan la posición dominante del mercado de bonos estadounidenses como el motor de los efectos de desbordamiento. JEL: F36; F32; G15; C15. ABSTRACT This paper aims to analyse and quantify the effects of shocks originated in the US financial markets on the major Colombian financial markets during the period 2003-2015. The employed methodology is a structural VAR model that uses the heteroskedasticity existing in the data to achieve the identification and estimation of the financial transmission coefficients. It was discovered that US markets generate significant overall spill over effects on the Colombian stock market. In turn, the results reflect the dominant position of the US bond market as the engine of spill over effects. JEL: F36; F32; G15; C15. RESUMO Este artigo quantifica e analisa os efeitos dos choques originados nos mercados estadunidenses sobre os principais mercados financeiros colombianos durante o período de 2003 a 2015. A metodologia utilizada é um modelo de vetores auto regressivos (VAR) estrutural empregado pela heterocedasticidade que existe nos dados para a identificação e estimação dos coeficientes de transmissão financeira. Observa-se que os mercados estadunidenses geram efeitos overall spillovers significativos sobre o mercado acionário colombiano. Por sua vez, os resultados refletem a posição dominante do mercado de títulos estadunidenses como o motor dos efeitos de transbordamento. JEL: F36; F32; G15; C15.

This paper is devoted to the study of existing models and methods of analysis and prediction of financial markets. Basic information about fundamental and technical analysis of financial markets and their main assumptions is provided. The main tasks and problems that arise in the process of analysis and forecasting of financial markets are highlighted. The relevance of the topic is ensured by the fact of significant increase in the number of financial instruments in stock and other financial markets, as well as the rapid computerization of the trading process in these markets. Analysis of existing models and methods used to solve problems such as: analysis of the current market situation, search for patterns and anomalies in the financial time series and forecast the future price of the asset is provided. Authors mainly focus on statistical models and forecasting methods, pattern recognition methods, machine learning models and methods, sentimental analysis models and hybrid models. Study on the results of such models and methods as long short-term memory, gated recurrent units, support vector machine, perceptually important points is provided. In particular, given results of research of models that are used both independently and as components of a hybrid model for technical analysis of various financial markets. Namely, an overview of the achievements in the application of these models for short- and long-term forecasting in the United States stock market and Korean stock market. It has been found that hybrid artificial neural networks, which are able to take into account the public mood of market players, are the most promising for short-term forecasting of the company's stock price in the stock market. Based on the study, feasibility of using statistical models in combination with methods of pattern recognition or machine learning., В статті проведено огляд існуючих моделей та методів аналізу і прогнозування фінансових ринків. Актуальність теми зумовлена значним зростанням кількості фінансових інструментів на фондових та інших фінансових ринках, а також стрімкою комп’ютеризацією процесу торгів на цих ринках. Представлено основні відомості щодо фундаментального та технічного підходу до аналізу фінансових ринків, наведено основні припущення, на яких базуються ці підходи. Висвітлено основні задачі та проблеми, що виникають у процесі аналізу і передбачення фінансових ринків. Основну увагу зосереджено на огляді існуючих підходів до розв’язання поставлених задач прогнозування майбутньої ціни активу, пошуку аномалій в даних та аналізу поточного стану ринку. Надано огляд досягнень в аналізі та прогнозуванні ринків, технічні, фундаментальні, коротко- та довгострокові підходи, що використовуються для аналізу ринків. У роботі розглядаються статистичні методи прогнозування, методи розпізнавання шаблонів, моделі та методи машинного навчання з учителем та без учителя, моделі сентиментального аналізу, а також гібридні моделі. Проведено огляд результатів дослідження таких моделей та методів, як Long short-term memory, Gated recurrent units, Support vector machine, Perceptually Important Points, які використовуються як самостійно, так і в якості компоненти гібридної моделі для різних фінансових ринків. Зокрема, в оглянутих публікаціях досліджуються моделі на фондовому ринку США та корейському фондовому ринку. Проведене дослідження показало, що для короткострокового прогнозування ціни акцій компанії на фондовому ринку найбільш перспективними є гібридні штучні нейронні мережі, які здатні врахувати суспільні настрої гравців ринку. На основі проведеного дослідження визначено доцільність використання стистичних моделей в комбінації з методами розпізнавання шаблонів чи машинного навчання.

Monetary transmission mechanism assumed to be significantly influenced by the effect of policy decisions on financial markets. However, various previous studies have come up with different outcomes. The purpose of this study is to examine the impact of monetary policy on different asset classes (shares and bonds) in Pakistan. This study using stock price and bond yield as dependent variable and discount rate, money supply, inflation, and exchange rate are independent variables. Data of all variables have collected from 2010 to 2016, and Vector Autoregressive (VAR) technique has applied. The empirical results indicate that there is an impact of monetary policy components on both stock and bond market as an increase in policy rate causes decline in stocks prices and bonds yields. The findings of this study will help the potential investors in making long-term (in general) and short-term (in particular) investment strategies concerning monetary policy.DOI: 10.15408/sjie.v7i2.7099

Il presente lavoro si propone di studiare la relazione che intercorre tra la politica monetaria, il prezzo delle azioni e le aspettative eterogenee. Come Bernanke e Gertler (1999) prima di noi, l’obiettivo è quello di dare una risposta alla seguente domanda: nelle loro decisioni di politica monetaria le banche centrali devono rispondere anche alle fluttuazioni dei prezzi sul mercato azionario? Nel primo capitolo il modello utilizzato è un perpetual youth à la Blanchard (1985) e Yaari (1965) che viene ripreso da Nisticò (2012), al quale facciamo riferimento nel presente lavoro. Questo tipo di modello fa in modo che le fluttuazioni nei prezzi delle azioni abbiano un effetto significativo sull’andamento del consumo aggregato e di conseguenza sull’equilibrio: si crea, così, un nuovo canale di trasmissione denominato canale della ricchezza finanziaria. La formazione delle aspettative riprende Brock and Hommes (1997) e De Grauwe (2011). Gli agenti hanno una razionalità limitata, per fare previsioni utilizzano semplici euristiche e si basano su uno specifico meccanismo di adeguatezza per valutare le prestazioni passate. Attraverso questo meccanismo, l’andamento delle variabili economiche `e strettamente correlato con le aspettative degli individui. Inoltre, la presenza di aspettative eterogenee fa s`ı che il trade-off tra inflazione e output gap, tipico dei modelli con aspettative razionali, svanisca. Infine, il modello dimostra come, contrariamente a quanto suggerito da Bernanke e Gertler (1999), le banche centrali dovrebbero rispondere alle fluttuazioni del mercato azionario. Tuttavia, affinché questo tipo di politica monetaria sia efficace, tale reazione deve essere moderata. Nel secondo capitolo, utilizziamo un diverso tipo di aspettative: mentre il modello di base segue sempre la struttura del perpetual youth di Nisticò (2012), le aspettative si basano sulla teoria dei Rational Beliefs di Kurz (1994, 1997). La configurazione del modello fa sì che le fluttuazioni dei prezzi dei titoli abbiano un impatto sull’economia reale attraverso due canali distinti: il canale della ricchezza finanziaria e quello delle aspettative. I risultati sono stati ottenuti applicando sia la teoria dei Rational Beliefs, sia la teoria di Rational Expectations. Diversamente da quanto raccomandato da Bernanke and Gertler (1999), i risultati mostrano che le politiche di stabilizzazione dell’output gap e dell’inflazione, condotte dalle banche centrali, possono trarre beneficio dall’inclusione di una risposta alle fluttuazioni sul mercato azionario. Inoltre, quando assumiamo aspettative eterogenee, tutti i risultati presentano volatilità più alte rispetto al caso di Rational Expectations e le risposte agli shock mostrano magnitudini maggiori dovute all’effetto amplificatore dell’andamento delle aspettative. Ad esempio, un grande ottimismo tra gli individui ha un effetto positivo sull’inflazione e sull’output gap e può produrre bolle sul mercato azionario. Tale entusiasmo può essere però ridotto attraverso una politica monetaria maggiormente “aggressiva”. This dissertation investigates the relationship among heterogeneous expectations, stock prices and monetary policy. In particular, we attempt to answer the question on whether or not central banks should respond to stock prices other than to inflation and output gap. The first chapter presents a perpetual youth model à la Blanchard (1985) and Yaari (1965) following Nisticò (2012). This type of model generates a financial wealth channel through which stock prices fluctuations affect the dynamics of the aggregate consumption, and thus the equilibrium solution. We model expectations as in Brock and Hommes (1997) and De Grauwe (2011). Agents are boundedly rational, they adopt simple rules to make forecasts and evaluate their past performances using a fitness measure. The model generates endogenous waves of optimism and pessimism due to the correlation among beliefs. Moreover, the presence of this heterogeneity removes the classic trade-off between output gap and inflation typical of Rational Expectations models. We also show that, contrary to the Bernanke and Gertler’s (1999) prescription, central banks should respond to stock prices fluctuations. However, to be beneficial, this “leaning against the wind” strategy in the stock market has to be moderate. In the second chapter, we adopt the same baseline model of the first part. We build on Nisticò (2012) and allow for the inclusion of diverse beliefs following the Rational Beliefs theory by Kurz (1997). With respect to the previous work, beliefs are modeled at a micro-level and enter in the equilibrium solution. Although agents do not observe the true dynamics of the economy, they are still rational in the sense that their beliefs are compatible with the observable empirical distribution of past data. In this framework, stock prices fluctuations affect real economy through two different channels: the financial wealth channel and the expectational channel. We simulate the model under both Rational Expectations and Rational Beliefs. Contrary to Bernanke and Gertler’s (1999) prescription, we find that a mild “leaning against the wind” strategy in the stock market is beneficial for both output gap and inflation stabilization. Moreover, all results under Rational Beliefs exhibit a higher volatility and the magnitude of responses to shock is amplified by beliefs dynamics. Widespread optimism boosts inflation as well as output gap and can generate a bubble in stock prices. However, the effect on the real economy of such exuberance might be reduced by a more “aggressive” policy.

We investigate the links between firm-level total factor productivity (TFP) growth and technical efficiency change, and their implications on firm-level stock returns. We estimate TFP growth of US firms between 1966 and 2015 and decompose TFP growth into returns to scale, technical progress, and technical efficiency change components. We show that most of the variation in TFP growth is explained by variation in technical efficiency change. Moreover, we examine the effects of important macro- and micro-level factors on inefficiency as well as its asset pricing implications. We find that low-efficiency firms are more vulnerable to a wide class of aggregate economic shocks, and the well-known five stock return anomalies (Fama and French in J Financ Econ 116(1):1–22, 2015) are more pronounced among those firms. Our results also emphasize the role of macroeconomic determinants of efficiency, and the stability effects of many useful policy targets on firm-level TFP.

We analyse stock price reactions to the announcements of monetary and fiscal policy actions in 12 stock exchanges worldwide between 1 June 2007 and 30 June 2012. While past papers have analysed the effect of policy interventions focusing on monetary policy actions (e.g. Ricci 2015), our paper focuses on stock indices either capturing the whole stock market or various industries. By estimating abnormal stock reactions around the announcement date, we show that (1) stock industry indices react to policy interventions in a different manner than the broad stock index does; (2) stock returns react negatively to restriction measures for general and non-banking sector indices; and (3) stock reaction to expansionary measures was stronger at the beginning of the financial crisis.

If it studies the relationship between crude oil price and U.S. dollar, classical literature finds a positive sign for the correlation of these two variables, i.e. the oil price and the dollar grow up together or they fall together. Instead, researches which use the data of more recent years show a negative link, so that if one variable is rising, the second one is decreasing and vice versa. Besides, there are two possible directions of causality: the economic theory explains the influence of oil price towards U.S. dollar; while the financial perspective is coherent with the opposite way. This second thesis is confirmed by the empirical evidence. In this framework, the futures and other financial derivatives have changed the picture, modifying how crude oil is priced and valued by the market. In this paper, we review the literature about the above relationship, inspecting whether or not the empirical results validate the theory, under the financial point-of view, i.e. the second interpretation.

This paper studies how asset price model misspecification affects the conduct of monetary policy under commitment in a New Keynesian model using robust control techniques. We find that monetary policy reacts aggressively to both asset price and inflation shocks to guard herself against worst-case outcome.

We study financial shocks to households’ ability to borrow in an economy that quantitatively replicates U.S.earnings, financial, and housing wealth distributions and the main macro aggregates. Such shocks generate large recessions via the negative wealth effect associated with the large drop in house prices triggered by the reduced access to credit of a large number of households. The model incorporates additional margins that are crucial for a large recession to occur: that it is difficult to reallocate production from consumption to investment or net exports, and that the reductions in consumption contribute to reductions in measured TFP. The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

The China Banking Regulatory Commission (CBRC) has maintained its momentum in regulation and supervision in the face of exceptional growth in scale and increasing complexity of the banking system. Equally, the CBRC has risen to the demands of the international regulatory reform agenda, delivering timely revisions to its body of regulations and maturing its supervisory practices through investing in essential new skills, enhancing methodologies, and broadening its interactions with the industry. In this context, the clarity of supervisory requirements and expectations communicated to the industry is a strength of the CBRC. Recent organizational reforms, in 2015, building on other internal reforms, will serve the CBRC well in delivering its supervisory mandate. While pursuit of financial stability is recognized as fundamentally important, concerns must be acknowledged as to whether the CBRC would, in practice, always be able to act on its primary, stability, objective, especially if government policies, whether focused growth and expansion, or social protection, conflicted with prudential considerations. The China Banking Regulatory Commission (CBRC) has achieved a high degree of compliance with the Basel Core Principles for Effective Banking Supervision (BCPs). Notwithstanding the revision to the BCP methodology, which raised the standards expected of supervisory authorities, the CBRC has demonstrated progress in almost all areas. Nevertheless, further maturing is needed, and taken together the recommendations of this report seek to support the CBRC in developing deeper and more comprehensive diagnostic capabilities, which ought to facilitate early, effective and preventative actions as necessary. It is essential that the CBRC’s achievements in recent years are consolidated as new challenges and complexities in the system will continue to emerge. In particular, it is essential that the CBRC obtain the resources to expand its range and depth of skills before developments in the industry leave it unable to maintain meaningful oversight and authority, not least of the four Global Systemically Important Banks (GSIBs). Building on the supervisory vision expressed in prestige CBRC publications such as the Annual Report, a detailed forward strategy for supervision, covering three to five years, would serve as a vehicle for the CBRC to articulate its case for resources.

The paper investigates the relevance of the exchange rate on the reaction function of the central banks of 24 emerging market economies for the period 2000Q1 to 2015Q2. This is done by first employing fixed-effects ordinary least squares and then system generalized method of the moments techniques. Under fixed effects, the exchange rate is found to be an important determinant in the reaction function of emerging market economies. Allowing for the endogeneity of inflation, output gap, and exchange rate, the exchange rate remains a positive and significant determinant, but less quantitatively relevant across inflation-targeting countries. When the sample is partitioned into targeting and nontargeting countries, the exchange rate remains relevant in the reaction function of the latter group. The results remain robust to splitting the sample at the time of the financial crisis of 2007–09 and suggest that, after the crisis, the central banks of emerging market economies responded only to inflation movements in the interest rate reaction function.

Benign financing conditions since the global financial crisis and, more recently, rising financing needs have fueled a rapid increase in credit to the nonfinancial private sector, especially to the corporate sector, in emerging markets and developing economies. Credit growth has been most pronounced, and nearing the pace associated with past credit booms, in commodity exporting countries. In contrast, in commodity importers, credit-to-gross domestic product ratios are elevated but have been stable or shrinking over the past few years. That said, in a few, mostly energy exporting, emerging and developing countries, credit to the private sector is now near levels that have been associated with past episodes of financial stress.

The 2007-2008 financial crisis highlighted that a turmoil in the financial sector including bursting asset price bubbles can cause pronounced and persistent fluctuations in real economic activity. This justifies the consideration of evolving and bursting asset price bubbles as another source of fluctuations in business cycle models. In this paper rational asset price bubbles are incorporated into a life-cycle RBC model as first developed by Ríos-Rull (1996). The calibration of the model to the post-war US economy and the numerical solution show that the model is able to depict plausible bubble-driven business cycles. In particular, the model generates i) a higher and empirically more plausible volatility of consumption at the cost of ii) a lower and empirically less plausible contemporaneous correlation of consumption with output than the life-cycle RBC model without bubbles.

This paper aims to introduce jump tests to the actuarial community. In actuarial science, semimartingales are extensively used in the models for interest rates, options, variable annuities and equity-linked annuities. Those models usually assume without justification that the underlying asset process follows a continuous stochastic process such as a geometric Brownian motion, for the market data sometimes tell a different story. Choosing between a continuous model and a model with jumps is not only important for pricing of insurance products but also crucial for implementing other post-sales risk management measures such as dynamic liability hedging. A test for jumps allows actuaries to rigorously test whether the underlying asset process has jumps, which is the first critical step in model selection. The ability to conduct the test should thus belong to the repertoire of every expert and practitioner working in this field. In this paper, we review several major tests for jumps, describe their advantages and disadvantages, and offer suggestions for their implementation. We also implement several tests using real data, enabling practitioners to apply these tests in their work.Keywords: Asset price; Black–Scholes; equity-linked annuity; variable annuity

Vietnam’s economy has weathered the recent turbulence in the external environment fairly well, reflecting resilient domestic demand and robust performance of export-oriented manufacturing. Growth further accelerated to 6.5 percent (year-on-year) in the first three quarters of 2015 (after coming in at 6 percent last year). Low inflation and strengthening consumer confidence supported an uptick in private consumption while investment was lifted by robust foreign direct investment, rising government capital expenditures, and a recovery of credit growth. Exports of the foreign-invested manufacturing sector also accelerated, but this was offset by a slowdown of commodity exports and a surge in imports of capital and intermediate goods, reflecting stronger investment and the high import content of manufacturing exports.

We assess the role played by fiscal policy in explaining the dynamics of asset markets. Using a panel of ten industrialized countries, we show that a positive fiscal shock has a negative impact in both stock and housing prices. However, while stock prices immediately adjust to the shock and the effect of fiscal policy is temporary, housing prices gradually and persistently fall. As a result, the attempts of fiscal policy to mitigate stock price developments may severely de-stabilize housing markets. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) significant fiscal multiplier effects in the context of severe housing busts; and (iv) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances., Fundação para a Ciência e a Tecnologia (FCT) - Programa Operacional Ciência e Inovação 2010 (POCI 2010), Fundo Europeu de Desenvolvimento Regional (FEDER)

This paper considers a stock market with ambiguity-averse informed investors under the CARA-normal setting, and studies the relationship between limited market participation and the equity premium which is decomposed into the risk premium and the ambiguity premium. In a rational expectations equilibrium, limited market participation arises if the largest deviation of investors’ ambiguity increases sufficiently or if the variance of the stock return decreases sufficiently. In each case, a change in the risk premium and a change in the ambiguity premium may have opposite signs. This paper identifies conditions under which a change with the plus sign dominates and thus the equity premium increases when fewer investors participate in the stock market. JEL classication numbers : D81, D82, G12.

By considering a financial market of fundamentalists and trend followers in which the price trend of trend followers is formed as a weighted average of historical prices, we establish a continuous-time financial market model with time delay and examine the impact of time delay on market price dynamics. Conditions for the stability of the fundamental price in terms of agents' behavior parameters and time delay are obtained. In particular, it is found that an increase in time delay can not only destabilize the market price but also stabilize an otherwise unstable market price, leading to stability switching as delay increases. These interesting phenomena shed new light in understanding of mechanism on the market stability. When the fundamental price becomes unstable through Hopf bifurcations, sufficient conditions on the stability and global existence of the periodic solution are obtained.

This report highlights recent economic updates in Bangladesh as of April 2015. Economic growth in Bangladesh was gaining momentum in the first half of FY15. Capacity utilization improved and investments were showing some signs of recovery. This growth was also job-friendly. The 12-monthly-moving average inflation decelerated from 7.6 percent in February 2014 to 6.8 percent in February 2015. The resilience of the Bangladesh economy continues to be tested by faltering political stability, weak global markets, and structural constraints. These are inhibiting the economy s income growth as well as progress on shared prosperity. Despite the emergence of a $1.3 billion deficit in the current account in the first seven months of FY15, the surplus in the overall balance of payments has been sustained, leading to continued accumulation of official foreign exchange reserves to prevent nominal exchange rate appreciation. Reserves are at a comfortable level at over 6 months of imports of goods and services. Fiscal policy has remained consistent with macroeconomic stability. Tax revenue growth has been weaker than targeted while expenditure have also been short due as usual to an implementation shortfall. The projected recovery in global growth, particularly in the United States and the Euro Zone, and continued softness in international commodity prices, bode well for Bangladesh. The country will need to restore political stability and implement faster structural reforms to capitalize on these opportunities. The potential GDP growth rate is on a declining path due to declining labor force growth and stagnant productivity growth, as well as the rate of capital accumulation. Raising the low Female Labor Force Participation (FLFP) rate offers on opportunity to boost the economy s potential growth rate. Moving forward, the biggest challenge remains ensuring durable political stability. This is a precondition for accelerated, inclusive, and sustainable growth.

This paper estimates the effects of peer benchmarking by institutional investors on asset prices. To identify trades purely due to peer benchmarking as separate from those based on fundamentals or private information, the paper exploits a natural experiment involving a change in a government imposed underperformance penalty applicable to Colombian pension funds. This change in regulation is orthogonal to stock fundamentals and only affects incentives to track peer portfolios allowing the authors to identify the component of demand due to peer benchmarking. The authors find that peer effects among pension fund managers generate excess in stock return volatility, with stocks exhibiting short-term abnormal returns followed by returns reversal in the subsequent quarter. Additionally, peer benchmarking produces an excess in comovement across stock returns beyond the correlation implied by fundamentals.

"Available online 1 August 2014", We test for nonlinear effects of asset prices on the fiscal policy of threemajor European economies (the UK, Italy and Spain).We model primary government spending and government revenue as time-varying transition probability Markovian processes (TVPMS). We find that while in Italy fiscal policy is substantially neutral vis-à-vis asset price movements, fiscal authorities in the UK and Spain seem to track the dynamics of wealth. In particular, revenue-based fiscal policy interventions in the UK are particularly effective in counteracting shocks in the asset markets induced by sharp wealth fluctuations. Similarly, in Spain, the spending-side of the fiscal policy plays a dominant role in stabilizing stock and housing markets., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

This paper examines the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. These indicators are examined jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once the finance-growth regressions are subjected to model uncertainty,the results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from the global sample indicate that one newly developed indicator -- the efficiency of financial intermediaries -- is robustly related to long-term growth.

Dependent background risks which have functional forms are introduced into Lucas economies. This paper determines the conditions on preferences to guarantee the monotonicity of asset prices, when dependent background risks satisfy the monotonicity and the single crossing conditions.