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Optimal N-state endogenous Markov-switching model for currency liquidity timing 货币流动性时机的最优n状态内生马尔可夫切换模型
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-27 DOI: 10.1016/j.jedc.2025.105137
Luqi Wang, Giovanni Urga
{"title":"Optimal N-state endogenous Markov-switching model for currency liquidity timing","authors":"Luqi Wang,&nbsp;Giovanni Urga","doi":"10.1016/j.jedc.2025.105137","DOIUrl":"10.1016/j.jedc.2025.105137","url":null,"abstract":"<div><div>In this paper, we examine whether globally-diversified funds' actively adjust their currency exposure in response to systematic currency liquidity movements, a behavior we term <em>currency liquidity timing</em>. A novel currency-liquidity-timing model embedded with an <em>N</em>-state endogenous Markov-switching mechanism is proposed to capture the dynamics in funds' timing behavior, as well as the external and internal drivers influencing such dynamics. Using a sample of 382 international fixed income mutual funds from July 2001 to December 2020, we find evidence of currency liquidity timing at the aggregate level for the sample funds. Interestingly, funds' currency-liquidity-timing behavior exhibits a state-switching pattern across different market periods: funds on average engage in perverse currency liquidity timing during tranquil market periods, but in positive currency liquidity timing with a stronger degree of aggressivity during more turbulent market periods. Our results suggest that the state transitions in funds' currency-liquidity-timing behavior are driven by deteriorating external currency market liquidity conditions and negative shocks to internal fund returns.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105137"},"PeriodicalIF":1.9,"publicationDate":"2025-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144518869","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Fear (no more) of floating: Asset purchases and exchange rate dynamics 担心（不再）浮动：资产购买和汇率动态
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-27 DOI: 10.1016/j.jedc.2025.105136
Yasin Mimir , Enes Sunel
{"title":"Fear (no more) of floating: Asset purchases and exchange rate dynamics","authors":"Yasin Mimir ,&nbsp;Enes Sunel","doi":"10.1016/j.jedc.2025.105136","DOIUrl":"10.1016/j.jedc.2025.105136","url":null,"abstract":"<div><div>We provide a theory on currency dynamics, capital flows and conditions for emerging-market economy central bank asset purchases to leave room for maneuver for conventional monetary policy. Local-currency asset purchases ease financial conditions and boost banks' foreign borrowing capacity. Therefore, they curb the financial amplification of government bond sell-off shocks by mitigating private sector capital outflows and the accompanying exchange rate depreciation. The resulting limited rise in inflation reduces the pro-cyclicality of conventional monetary policy. Our framework sheds light on stable exchange rate dynamics observed after the unprecedented asset purchase announcements in emerging-market economies during the COVID-19 crisis.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105136"},"PeriodicalIF":1.9,"publicationDate":"2025-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144518868","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
What are the macroeconomic effects of state-dependent forward guidance? 依赖政府的前瞻指引对宏观经济的影响是什么？
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-25 DOI: 10.1016/j.jedc.2025.105138
Martin Weale , Tomasz Wieladek
{"title":"What are the macroeconomic effects of state-dependent forward guidance?","authors":"Martin Weale ,&nbsp;Tomasz Wieladek","doi":"10.1016/j.jedc.2025.105138","DOIUrl":"10.1016/j.jedc.2025.105138","url":null,"abstract":"<div><div>We examine the macroeconomic effects of the Bank of England (BoE)’s state-dependent forward guidance (SDFG). The policy’s timing permits separate identification of SDFG from QE, which is difficult in the EA and US because these policies were announced jointly. A New Keynesian model shows that SDFG reduces uncertainty about the future policy rate. We use this prediction and the timing of the BoE’s SDFG, to identify SDFG shocks with a narrative sign restriction BVAR approach. Output and prices rise in response to SDFG, despite no econometric restrictions on these variables. The effects are small and consistent with the NK model. We find that changes in expectations play a greater role in transmitting SDFG to the economy than lower retail interest rates.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105138"},"PeriodicalIF":1.9,"publicationDate":"2025-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144656099","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Decentralised finance and automated market making: Execution and speculation 去中心化金融和自动化做市：执行和投机
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-23 DOI: 10.1016/j.jedc.2025.105134
Álvaro Cartea , Fayçal Drissi , Marcello Monga
{"title":"Decentralised finance and automated market making: Execution and speculation","authors":"Álvaro Cartea ,&nbsp;Fayçal Drissi ,&nbsp;Marcello Monga","doi":"10.1016/j.jedc.2025.105134","DOIUrl":"10.1016/j.jedc.2025.105134","url":null,"abstract":"<div><div>Automated market makers (AMMs) are a new prototype of decentralised exchanges which are revolutionising market interactions. The majority of AMMs are constant product markets (CPMs) where exchange rates are set by a trading function. This work studies optimal trading and statistical arbitrage in CPMs where balancing exchange rate risk and execution costs is key. Empirical evidence shows that execution costs are accurately estimated by the convexity of the trading function. These convexity costs are linear in the trade size and are nonlinear in the depth of liquidity and in the exchange rate. We develop models for when exchange rates form in a competing centralised exchange, in a CPM, or in both venues. Finally, we derive computationally efficient strategies that account for stochastic convexity costs and we showcase their out-of-sample performance.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105134"},"PeriodicalIF":1.9,"publicationDate":"2025-06-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144491428","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Expectation formation in financial markets: Heterogeneity and sentiment 金融市场的预期形成：异质性与情绪
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-23 DOI: 10.1016/j.jedc.2025.105133
Bart Frijns , Thanh Huynh , Remco C.J. Zwinkels
{"title":"Expectation formation in financial markets: Heterogeneity and sentiment","authors":"Bart Frijns ,&nbsp;Thanh Huynh ,&nbsp;Remco C.J. Zwinkels","doi":"10.1016/j.jedc.2025.105133","DOIUrl":"10.1016/j.jedc.2025.105133","url":null,"abstract":"<div><div>We set up an endowment based asset pricing model in which agents have heterogeneous expectations about future price levels. Expectations are a function of fundamentals or trends, both interacted with sentiment. Agents are able to switch between expectation formation functions based on past performance combined with sentiment. Estimation results on the S&amp;P500 index as well as its constituents reveal that there is heterogeneity between agents, with substantial switching between groups. We find that sentiment has both a direct and an indirect effect on expectations. Specifically, heterogeneity between groups is increasing in sentiment, and higher sentiment reduces the frequency of switching between functions. Our results imply that the true expectation formation process is a dynamic process based on multiple information sources.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105133"},"PeriodicalIF":1.9,"publicationDate":"2025-06-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144491427","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Oil price shocks and US business cycles 油价冲击与美国商业周期
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-19 DOI: 10.1016/j.jedc.2025.105132
Irfan A. Qureshi , Ghufran Ahmad
{"title":"Oil price shocks and US business cycles","authors":"Irfan A. Qureshi ,&nbsp;Ghufran Ahmad","doi":"10.1016/j.jedc.2025.105132","DOIUrl":"10.1016/j.jedc.2025.105132","url":null,"abstract":"<div><div>This paper investigates the macroeconomic effects of oil price shocks on the US economy, focusing on how changes in oil supply expectations impact key indicators. We introduce an instrument to identify these shocks by isolating exogenous fluctuations in daily crude oil futures linked to catastrophic events in major oil-producing countries. These events arise independently of short-term market dynamics, minimizing reverse causality concerns. The shock disrupts oil operations, reduces economic activity, and increases unemployment and inflation, highlighting the role of oil prices in driving business cycles. Comprehensive robustness checks and analysis of other major economies reinforce the validity of our findings.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105132"},"PeriodicalIF":1.9,"publicationDate":"2025-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144330664","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
On automation, labor reallocation and welfare 在自动化、劳动力再分配和福利方面
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-13 DOI: 10.1016/j.jedc.2025.105129
Stéphane Auray , Aurélien Eyquem
{"title":"On automation, labor reallocation and welfare","authors":"Stéphane Auray ,&nbsp;Aurélien Eyquem","doi":"10.1016/j.jedc.2025.105129","DOIUrl":"10.1016/j.jedc.2025.105129","url":null,"abstract":"<div><div>We develop an open-economy model of endogenous automation with heterogeneous firms and labor-market reallocation to quantify the contribution of various trends to the adoption of robots in the U.S. economy. The decline in the relative price of robots is the major trend leading to automation, but interacts with other trends that either hinder (rising entry costs, rising markups) or slightly foster (rising labor productivity, declining trade costs) the adoption of robots. Taken alone, the decline in the relative price of robots produces moderate welfare gains in the long run, but less than labor productivity growth. We then exploit our model to show that a decline in the relative price of robots (<em>i</em>) generates small positive cross-country automation spillovers and (<em>ii</em>) produces inefficient labor-market reallocation since a small subsidy on robots combined with a training subsidy can generate small welfare gains. Our main conclusion is that automation can not be simply modeled as an exogenous decline in the price of robots, and must be analyzed in a broader framework taking into account trends affecting firms, such as the decline in business dynamism and the rise in markups.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105129"},"PeriodicalIF":1.9,"publicationDate":"2025-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144312720","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Comparing external and internal instruments for vector autoregressions 比较矢量自回归的外部和内部仪器
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-10 DOI: 10.1016/j.jedc.2025.105131
Martin Bruns , Helmut Lütkepohl
{"title":"Comparing external and internal instruments for vector autoregressions","authors":"Martin Bruns ,&nbsp;Helmut Lütkepohl","doi":"10.1016/j.jedc.2025.105131","DOIUrl":"10.1016/j.jedc.2025.105131","url":null,"abstract":"<div><div>In conventional proxy VAR analysis, the shocks of interest are identified by external instruments. This is typically accomplished by considering the covariance of the instruments and the reduced-form residuals. Alternatively, the instruments may be internalized by augmenting the VAR process by the instruments or proxies. These alternative identification methods are compared and it is shown that the resulting shocks obtained with the alternative approaches differ in general. Conditions are provided under which their impulse responses are nevertheless identical. If the conditions are satisfied, identification of the shocks is ensured. An empirical example illustrates the theoretical results.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105131"},"PeriodicalIF":1.9,"publicationDate":"2025-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144263235","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Real investment decision under CRRA utility: The flow payoff case CRRA效用下的实际投资决策：流收益案例
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-06 DOI: 10.1016/j.jedc.2025.105130
Xiaoqing Yin , Haijun Wang
{"title":"Real investment decision under CRRA utility: The flow payoff case","authors":"Xiaoqing Yin ,&nbsp;Haijun Wang","doi":"10.1016/j.jedc.2025.105130","DOIUrl":"10.1016/j.jedc.2025.105130","url":null,"abstract":"<div><div>This paper explores how payoff volatility (idiosyncratic volatility), time preference and investment-wealth ratio affect an entrepreneur's real investment decision in a constant relative risk aversion (CRRA) framework, when the investment project generates a flow payoff. We find that time preference has an important effect on the optimal investment threshold, which comes from wealth effects on the implied project value and the implied option value. Particularly, we discover that the optimal investment threshold is convex in time discount rate. At most cases, a larger payoff volatility increases the optimal investment threshold and makes the entrepreneur invest later. However, if the entrepreneur has lower risk aversion and more sufficient patience, a larger payoff volatility may decrease the optimal investment threshold and makes the entrepreneur invest earlier. Moreover, a higher investment-wealth ratio makes the entrepreneur invest later.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105130"},"PeriodicalIF":1.9,"publicationDate":"2025-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144241321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Extreme conditional tail risk inference in ARMA–GARCH models ARMA-GARCH模型的极端条件尾部风险推理
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-06-05 DOI: 10.1016/j.jedc.2025.105128
Yaolan Ma, Bo Wei
{"title":"Extreme conditional tail risk inference in ARMA–GARCH models","authors":"Yaolan Ma,&nbsp;Bo Wei","doi":"10.1016/j.jedc.2025.105128","DOIUrl":"10.1016/j.jedc.2025.105128","url":null,"abstract":"<div><div>In this study, we investigate the estimation of extreme conditional Value-at-Risk (CVaR) and conditional Expected Shortfall (CES) within the framework of ARMA-GARCH models, where innovations are assumed to follow a Pareto-type tail distribution and have no finite fourth moments. Building on the two-stage self-weighted estimation procedure proposed by <span><span>He et al. (2022)</span></span>, we develop a robust methodology for forecasting extreme CVaR and CES. Using extreme value theory, we derive a unified asymptotic theory for the extreme CVaR and CES estimators. Through comprehensive simulation studies, we evaluate the performance of our approach and compare it with several recently proposed estimators in the literature. Additionally, we apply our methodology to forecast extreme CVaR and CES for daily negative log-returns (i.e., losses) of four financial assets, demonstrating its practical applicability in financial risk management.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"177 ","pages":"Article 105128"},"PeriodicalIF":1.9,"publicationDate":"2025-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144241320","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
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