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The paper examines the value‐generating strategies used in some of New Zealand's primary activities in a rapidly changing trading context in which the countries of East Asia increasingly figure. These strategies range from scaling up volume, with a consequent conspicuous impact on rural landscapes, to innovative value‐enhancing relationships linking producers, processors and consumers in processes which value landscapes for the contribution they make to provenance stories. Our argument is that higher‐value strategies are necessarily more intensely collaborative and involve a pursuit of engaged relationships, especially between onshore producers and manufacturers and consumers at a distance. We term this collaborative form of strategising as ‘the relationships economy’. We illustrate our argument using two case studies, dairying and merino. While there are great differences in scale between them, and dairying focuses significantly on volume‐generating capacity, there are players in dairying who are adopting higher‐value relationships‐based approaches similar to those developed in the merino industry. The common thread connecting the case studies is that of intentional enactment, which echoes earlier periods in New Zealand's trading history when considerable work was undertaken by industry participants to create new markets for primary products.

We propose imposing data‐driven identification constraints to alleviate the multimodality problem arising in the estimation of poorly identified dynamic stochastic general equilibrium models under non‐informative prior distributions. We also devise an iterative procedure based on the posterior density of the parameters for finding these constraints. An empirical application to the Smets and Wouters () model demonstrates the properties of the estimation method, and shows how the problem of multimodal posterior distributions caused by parameter redundancy is eliminated by identification constraints. Out‐of‐sample forecast comparisons as well as Bayes factors lend support to the constrained model.

With cointegration tests often being oversized under time‐varying error variance, it is possible, if not likely, to confuse error variance non‐stationarity with cointegration. This paper takes an instrumental variable (IV) approach to establish individual‐unit test statistics for no cointegration that are robust to variance non‐stationarity. The sign of a fitted departure from long‐run equilibrium is used as an instrument when estimating an error‐correction model. The resulting IV‐based test is shown to follow a chi‐square limiting null distribution irrespective of the variance pattern of the data‐generating process. In spite of this, the test proposed here has, unlike previous work relying on instrumental variables, competitive local power against sequences of local alternatives in 1/T‐neighbourhoods of the null. The standard limiting null distribution motivates, using the single‐unit tests in a multiple testing approach for cointegration in multi‐country data sets by combining P‐values from individual units. Simulations suggest good performance of the single‐unit and multiple testing procedures under various plausible designs of cross‐sectional correlation and cross‐unit cointegration in the data. An application to the equilibrium relationship between short‐ and long‐term interest rates illustrates the dramatic differences between results of robust and non‐robust tests.

In April 2005, Lucio Gutiérrez was removed from office in the context of a fast‐growing economy. With no economic hardship to fuel social outrage, the failure of Gutiérrez illustrates how political and institutional factors can be the most important forces determining presidential survival. In this article, we qualitatively analyse the path toward confrontation between Gutiérrez and the congressional opposition which led to his political demise. We find that Ecuador's weak democratic tradition working through more proximate causes – radicalism, normative preference for democratic institutions and a negative institutional equilibrium – coupled with other institutional and political variables accelerated Lucio Gutiérrez's fall from power.

This paper proposes a class of models that jointly model returns and ex post variance measures under a Markov switching framework. Both univariate and multivariate return versions of the model are introduced. Estimation can be conducted under a fixed dimension state space or an infinite one. The proposed models can be seen as nonlinear common factor models subject to Markov switching and are able to exploit the information content in both returns and ex post volatility measures. Applications to equity returns compare the proposed models to existing alternatives. The empirical results show that the joint models improve density forecasts for returns and point predictions of return variance. Using the information in ex post volatility measures can increase the precision of parameter estimates, sharpen the inference on the latent state variable, and improve portfolio decisions.

We use multivariate unobserved components models to estimate trend and cyclical components in gross domestic product (GDP), credit volumes, and house prices for the USA and the five largest European economies. With the exception of Germany, we find large and long cycles in credit and house prices, which are highly correlated with a medium‐term component in GDP cycles. Differences across countries in the length and size of cycles appear to be related to the properties of national housing markets. The precision of pseudo real‐time estimates of credit and house price cycles is roughly comparable to that of GDP cycles.

This paper provides a feasible approach to estimation and forecasting of multiple structural breaks for vector autoregressions and other multivariate models. Owing to conjugate prior assumptions we obtain a very efficient sampler for the regime allocation variable. A new hierarchical prior is introduced to allow for learning over different structural breaks. The model is extended to independent breaks in regression coefficients and the volatility parameters. Two empirical applications show the improvements the model has over benchmarks. In a macro application with seven variables we empirically demonstrate the benefits from moving from a multivariate structural break model to a set of univariate structural break models to account for heterogeneous break patterns across data series.

There is no abstract available for this paper.

We present a flexible and scalable method for computing global solutions of high‐dimensional stochastic dynamic models. Within a time iteration or value function iteration setup, we interpolate functions using an adaptive sparse grid algorithm. With increasing dimensions, sparse grids grow much more slowly than standard tensor product grids. Moreover, adaptivity adds a second layer of sparsity, as grid points are added only where they are most needed, for instance, in regions with steep gradients or at nondifferentiabilities. To further speed up the solution process, our implementation is fully hybrid parallel, combining distributed and shared memory parallelization paradigms, and thus permits an efficient use of high‐performance computing architectures. To demonstrate the broad applicability of our method, we solve two very different types of dynamic models: first, high‐dimensional international real business cycle models with capital adjustment costs and irreversible investment; second, multiproduct menu‐cost models with temporary sales and economies of scope in price setting.

We develop a theory that rationalizes the use of a dominant unit of account in an economy. Agents enter into non‐contingent contracts with a variety of business partners. Trade unfolds sequentially in credit chains and is subject to random matching. By using a dominant unit of account, agents can lower their exposure to relative price risk, avoid costly default, and create more total surplus. We discuss conditions under which it is optimal to adopt circulating government paper as the dominant unit of account, and the optimal choice of “currency areas” when there is variation in the intensity of trade within and across regions.

Stochastic discount factor (SDF) processes in dynamic economies admit a permanent‐transitory decomposition in which the permanent component characterizes pricing over long investment horizons. This paper introduces an empirical framework to analyze the permanent‐transitory decomposition of SDF processes. Specifically, we show how to estimate nonparametrically the solution to the Perron–Frobenius eigenfunction problem of Hansen and Scheinkman, 2009. Our empirical framework allows researchers to (i) construct time series of the estimated permanent and transitory components and (ii) estimate the yield and the change of measure which characterize pricing over long investment horizons. We also introduce nonparametric estimators of the continuation value function in a class of models with recursive preferences by reinterpreting the value function recursion as a nonlinear Perron–Frobenius problem. We establish consistency and convergence rates of the eigenfunction estimators and asymptotic normality of the eigenvalue estimator and estimators of related functionals. As an application, we study an economy where the representative agent is endowed with recursive preferences, allowing for general (nonlinear) consumption and earnings growth dynamics.

In this paper, we prove the existence of recursive equilibria in a dynamic stochastic model with infinitely lived heterogeneous agents, several commodities, and general inter‐ and intratemporal production. We illustrate the usefulness of our result by providing sufficient conditions for the existence of recursive equilibria in heterogeneous agent versions of both the Lucas asset pricing model and the neoclassical stochastic growth model.

We explore the set of preferences defined over temporal lotteries in an infinite horizon setting. We provide utility representations for all preferences that are both recursive and monotone. Our results indicate that the class of monotone recursive preferences includes Uzawa–Epstein preferences and risk‐sensitive preferences, but leaves aside several of the recursive models suggested by Epstein and Zin (1989) and Weil (1990). Our representation result is derived in great generality using Lundberg's (1982, 1985) work on functional equations.

A growing number of school districts use centralized assignment mechanisms to allocate school seats in a manner that reflects student preferences and school priorities. Many of these assignment schemes use lotteries to ration seats when schools are oversubscribed. The resulting random assignment opens the door to credible quasi‐experimental research designs for the evaluation of school effectiveness. Yet the question of how best to separate the lottery‐generated randomization integral to such designs from non‐random preferences and priorities remains open. This paper develops easily‐implemented empirical strategies that fully exploit the random assignment embedded in a wide class of mechanisms, while also revealing why seats are randomized at one school but not another. We use these methods to evaluate charter schools in Denver, one of a growing number of districts that combine charter and traditional public schools in a unified assignment system. The resulting estimates show large achievement gains from charter school attendance. Our approach generates efficiency gains over ad hoc methods, such as those that focus on schools ranked first, while also identifying a more representative average causal effect. We also show how to use centralized assignment mechanisms to identify causal effects in models with multiple school sectors.

We develop a theory of parent‐child relations that rationalizes the choice between alternative parenting styles (as set out in Baumrind, 1967). Parents maximize an objective function that combines Beckerian altruism and paternalism towards children. They can affect their children's choices via two channels: either by influencing children's preferences or by imposing direct restrictions on their choice sets. Different parenting styles (authoritarian, authoritative, and permissive) emerge as equilibrium outcomes and are affected both by parental preferences and by the socioeconomic environment. Parenting style, in turn, feeds back into the children's welfare and economic success. The theory is consistent with the decline of authoritarian parenting observed in industrialized countries and with the greater prevalence of more permissive parenting in countries characterized by low inequality.

The upsurge of press titles in eighteenth‐century Britain provided unprecedented public arenas to discuss socio‐political issues within a global context. Imperial sovereignty became an item of debate infusing as much the commentaries on current affairs as the fictional pieces that contributed to the popularity of newspapers and magazines. This article explores a selective stock of press narratives where Britain's imperial aspirations are set against the backdrop of the fall of the Inca Empire, a theme that became increasingly popular in the wider literary spectrum. This corpus is examined in light of the transnational circulation bearing on the Andean utopia discourses.

In April 1969, Latin America implemented the first nuclear weapon free zone (NWFZ) in an inhabited region of the world. This article explores the creation of Latin America's NWFZ as a utopian impulse. It argues that various Latin American states used the utopian ideals of security, sovereignty, and socio‐economic prosperity to propel the region's denuclearisation forward. Those implementing these utopian ideals had to define the meaning of Latin America, nuclear weapons under a non‐proliferation agreement, and the denuclearisation of an inhabited region. The result was compromise forged from a collision of utopian ideals and dystopian geopolitics.

This article explores three utopian visions which have shaped past and present experiences within Buenos Aires shantytowns: those of upgraded shantytowns, of universal housing, and of a city where shantytowns have been eliminated. The article argues that these visions are collective conceptions that entail a socio‐political critique which is translated into space and which points to an ideal future. The visions proposed emerge from the examination of historical evidence and are a key conceptual tool for understanding previous and current discussions of shantytowns in Latin America.

This article explores how utopian visions are articulated by chavista activists in Venezuela through the practice of “revolutionary self‐making”. Drawing on ethnographic fieldwork conducted in the city of Valencia between 2008 and 2012, it aims to demonstrate how close attention to the formation of new moral and spiritual selves is an integral part of the way that chavistas enact and experience political protagonism. In doing so, the article seeks to provide a ground level view of utopian visions as they are manifested discursively and practically in everyday life.

There is no abstract available for this paper.

This article takes an ethnographic perspective to analyse the ways in which social movements in Buenos Aires, Argentina, politicise experiences of precarity through the creation of popular economy initiatives. I argue that we cannot understand these organising processes exclusively in relation to the pursuit of ‘formalisation’ or the improvement of working conditions. In the context of new forms of State intervention, the notions of ‘rights’—to labour and to the city—that these movements put forward, express ways of envisioning full inclusion in society that encompass notions of worthiness and ‘dignified life’, forged over the course of grassroots political action.

This paper takes a close look at the urban governance and political culture of Macao, the world largest casino city. Macao has experienced spectacular economic growth since gaming liberalisation in 2002 and China's Free Individual Travel scheme launched in 2003. However, the booming gaming sector has crowded out other sectors of Macao. It has not only made the city's economy mono‐structured and consequently extremely vulnerable to external shocks and fluctuations but also induced serious social divisions and political controversies within the local community. By tracing the root cause of the ongoing dilemma and crisis in the mode of governance, the dynamic relationships between formal and informal institutions, consensus politics and the social group culture are intensively discussed in a historical context. In fact, the sustainable development of the former Portuguese colony has largely been hindered by its residents' passive attitudes toward political communication, non‐transparent urban governance, the absence of a middle class and the dominance of pro‐establishment social groups.

Using an innovative survey of protest participants and nonparticipants from five major street demonstrations in Mexico City in 2011 and 2012, this study tests the assumption that influences on protest participation vary across different types of events; namely, ritual demonstrations and reactive protests. The comparison is based on two assumptions: that these are two of the dominant forms of protest in contemporary Latin America, and that specifying the context for different types of social movement participation provides a better understanding of the individual mobilization process for groups seeking to defend their rights or gain new benefits. The comparative analyses reveal some crucial differences. Political interest and previous political experience are more influential in the decision to take part in reactive demonstrations. For ritual demonstrations, the decision to participate tends to be driven more by personal and organizational connections.

This article uses the concept of entrepreneurial powers to discuss how and under what circumstances Brazil successfully accomplishes its goals in international crises. The concept of entrepreneurial power focuses on systematic evidence of middle‐power behavior and its relation to foreign policy tools. Brazil resorts to three agency‐based foreign policy tools that are the substance of its entrepreneurial power. These instruments are always mediated by a structural condition, the dominant power pivotal position in the crisis. This study applies qualitative comparative analysis methodology to 32 international crises since the early 1990s in which Brazil played a role. It finds that for regional crises, the use of only one agency‐based tool is sufficient for success, regardless of the dominant power position; and for global crises, the use of only one agency‐based tool is a necessary and sufficient condition for Brazil to accomplish its goals, despite the dominant power position on the issue.

This article examines the circumstances under which civilians, using protests as a mechanism, alter the strategic use of violence by armed actors (rebels and state forces). By examining the civil war in Colombia between 1988 and 2005, this study finds that combatants decrease their attacks against the population when civilians protest against the enemy. Combatants interpret such demonstrations as costly signals of loyalty. Furthermore, when insurgents are the target of the protests, insurgents increase repression against civilians as rebels get stronger. In contrast, state forces (and paramilitaries) compensate for their weakness in the area by multiplying civilian victims. Both state forces and rebels, however, are likely to decrease violence against civilians when civilians protest against both parties in contested zones. In such contexts, armed actors are likely to refrain from retaliation because any violence might drive noncombatants toward the enemy.

This paper investigates the impact of competition on an expert firm's incentive to defraud its customers in a credence goods market. Controlling for the competence of car repair shops, their financial situation, and reputational concerns, we use and complement the data set from a nationwide field study conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition lowers a firm's incentive to defraud its customers.

There has been an increasing focus on migration management by academics and policy makers, especially in relation to temporary and transitional forms of mobility. This paper considers the acceleration of Filipino migration to New Zealand in recent years, partly driven by changing policies allowing migrants to transition from student and work visas to permanent residence. It outlines the history of Filipino migration to New Zealand, the roles of the Philippines and New Zealand governments and intermediaries in migration management and the nature of student, temporary work and permanent residence migration. The transitional pathways used by Filipino migrants are analysed in relation to the influence of skills and educational characteristics in creating opportunities for some and vulnerability for others.

This research note discusses the benefits and risks for Melanesian households arising from attempts to increasingly commercialise Canarium indicum, an edible tree nut indigenous to Papua New Guinea, the Solomon Islands and Vanuatu. Qualitative data were generated during workshops and interviews with Canarium industry stakeholders about the impacts associated with a series of interventions designed to encourage further commercialisation of Canarium. The findings are organised according to three dimensions that elucidate the social implications of industry development for local communities: (i) income and growth; (ii) equity; and (iii) voice and choice. Broader distribution of benefits within and between countries, as well as among supply chain actors, requires a stronger policy response at regional (Melanesia) and national scales, equitable gender representation to avoid reinforcing existing inequalities, and delegation of decision‐making power to the appropriate level to facilitate effective community participation and their links with other stakeholders. Thus, it remains to be seen whether Canarium‐related benefits arising from its commercialisation can be sufficiently reliable compared with either other sources of income (e.g. existing employment opportunities for those located near urban areas) or utilising the resource for subsistence purposes.

We propose an approach to the valuation of payoffs in general semimartingale models of financial markets where prices are nonnegative. Each asset price can hit 0; we only exclude that this ever happens simultaneously for all assets. We start from two simple, economically motivated axioms, namely, absence of arbitrage (in the sense of NUPBR) and absence of relative arbitrage among all buy‐and‐hold strategies (called static efficiency). A valuation process for a payoff is then called semi‐efficient consistent if the financial market enlarged by that process still satisfies this combination of properties. It turns out that this approach lies in the middle between the extremes of valuing by risk‐neutral expectation and valuing by absence of arbitrage alone. We show that this always yields put‐call parity, although put and call values themselves can be nonunique, even for complete markets. We provide general formulas for put and call values in complete markets and show that these are symmetric and that both contain three terms in general. We also show that our approach recovers all the put‐call parity respecting valuation formulas in the classic theory as special cases, and we explain when and how the different terms in the put and call valuation formulas disappear or simplify. Along the way, we also define and characterize completeness for general semimartingale financial markets and connect this to the classic theory.

This paper advances a new country‐level measure of ethno‐linguistic diversity, making use of Greenberg's definition of diversity by synthesizing information on the share of different ethno‐linguistic groups in a country's population and, more importantly, information on intergroup linguistic distances derived from a recently developed lexicostatistical approach. I show that this measure captures ethno‐linguistic diversity at lower levels of linguistic aggregation. However, unlike the commonly used phylogenetic language tree approach, I found that these distance‐weighted diversity measures continue to have a strong negative statistical association with economic growth that is not sensitive to the underlying resemblance function between ethno‐linguistic groups.

This paper presents an estimation approach that addresses the problems of sample selection and endogeneity of fertility decisions when estimating the effect of young children on women's self‐employment. Using data from the National Longitudinal Survey of Youth 1979, 1982–2006, we find that ignoring self‐selection and endogeneity leads to underestimating the effect of young children. Once both sources of biases are accounted for, the estimated effect of young children roughly triples when compared to uncorrected results. This finding is robust to several changes in the specification and to the use of a different dataset.

Chotikapanich and Griffiths (Journal of Business and Economic Statistics, 2002, 20(2), 290–295) introduced the Dirichlet distribution to the estimation of Lorenz curves. This distribution naturally accommodates the proportional nature of income share data and the dependence structure between the shares. Chotikapanich and Griffiths fit a family of five Lorenz curves to one year of Swedish and Brazilian income share data using unconstrained maximum likelihood and unconstrained nonlinear least squares. We attempt to replicate the authors' results and extend their analyses using both constrained estimation techniques and five additional years of data. We successfully replicate a majority of the authors' results and find that some of their main qualitative conclusions also hold using our constrained estimators and additional data.

Using VAR models for the USA, we find that a contractionary monetary policy shock has a persistent negative impact on the level of commercial bank assets, but increases the assets of shadow banks and securitization activity. To explain this “waterbed” effect, we propose a standard New Keynesian model featuring both commercial and shadow banks, and we show that the model comes close to explaining the empirical results. Our findings cast doubt on the idea that monetary policy can usefully “get in all the cracks” of the financial sector in a uniform way.

This article studies the optimal portfolio selection of expected utility‐maximizing investors who must also manage their market‐risk exposures. The risk is measured by a so‐called weighted value‐at‐risk (WVaR) risk measure, which is a generalization of both value‐at‐risk (VaR) and expected shortfall (ES). The feasibility, well‐posedness, and existence of the optimal solution are examined. We obtain the optimal solution (when it exists) and show how risk measures change asset allocation patterns. In particular, we characterize three classes of risk measures: the first class will lead to models that do not admit an optimal solution, the second class can give rise to endogenous portfolio insurance, and the third class, which includes VaR and ES, two popular regulatory risk measures, will allow economic agents to engage in “regulatory capital arbitrage,” incurring larger losses when losses occur.

Coastal Bangladesh is highly vulnerable to climate change and salinisation; hence, farm‐level adaptation is critically important. Farmers' perceptions of and responses to environmental change were investigated in two villages in Khulna District. Perceived environmental trends included increases in temperature, extreme weather events, soil toxicity, erratic rainfall and scarcity of water for irrigation. Perceptions of climate trends were consistent with measured trends in Khulna. On‐farm adaptation strategies included adjusting planting dates, excavating trenches in rice‐fields, adopting new crops, salinity‐reducing technologies, livestock‐rearing and home‐yard cropping. Non‐farm adaptation strategies included wage employment, short‐term migration and self‐employment. Adaptation was facilitated by income‐earning opportunities, training, and credit, and impeded by lack of access to water, markets, capital, and extension services. Farmers suggested policy support for dissemination of stress‐tolerant cultivars, access to irrigation, and price stabilisation or crop insurance to assist adaptation. While the study shows an impressive degree of awareness and adaptation, external support is needed to increase adaptive capacity.

We consider call option prices close to expiry in diffusion models, in an asymptotic regime (“moderately out of the money”) that interpolates between the well‐studied cases of at‐the‐money and out‐of‐the‐money regimes. First and higher order small‐time moderate deviation estimates of call prices and implied volatilities are obtained. The expansions involve only simple expressions of the model parameters, and we show how to calculate them for generic local and stochastic volatility models. Some numerical computations for the Heston model illustrate the accuracy of our results.

Mijatović and Pistorius proposed an efficient Markov chain approximation method for pricing European and barrier options in general one‐dimensional Markovian models. However, sharp convergence rates of this method for realistic financial payoffs, which are nonsmooth, are rarely available. In this paper, we solve this problem for general one‐dimensional diffusion models, which play a fundamental role in financial applications. For such models, the Markov chain approximation method is equivalent to the method of lines using the central difference. Our analysis is based on the spectral representation of the exact solution and the approximate solution. By establishing the convergence rate for the eigenvalues and the eigenfunctions, we obtain sharp convergence rates for the transition density and the price of options with nonsmooth payoffs. In particular, we show that for call‐/put‐type payoffs, convergence is second order, while for digital‐type payoffs, convergence is generally only first order. Furthermore, we provide theoretical justification for two well‐known smoothing techniques that can restore second‐order convergence for digital‐type payoffs and explain oscillations observed in the convergence for options with nonsmooth payoffs. As an extension, we also establish sharp convergence rates for European options for a rich class of Markovian jump models constructed from diffusions via subordination. The theoretical estimates are confirmed using numerical examples.

We consider the problem of valuation of American options written on dividend‐paying assets whose price dynamics follow a multidimensional exponential Lévy model. We carefully examine the relation between the option prices, related partial integro‐differential variational inequalities, and reflected backward stochastic differential equations. In particular, we prove regularity results for the value function and obtain the early exercise premium formula for a broad class of payoff functions.

Hong Kong continues to struggle over which environmental governance approach is in its best interest while fulfilling its environmental obligations. With regard to climate change, Hong Kong's approach is characterised by a passive form of governance that is highly dependent on China's national policy directions. This is reflected, for example, in Hong Kong having not set its own mitigation targets. Market mechanisms have received little attention in developing a city‐wide climate change strategy. A transformative impulse, China's national emissions trading scheme, may provide momentum to a market‐based approach. However, the necessary conditions for such a market mechanism to be successfully implemented in China remain relatively undeveloped. This raises question about early participation by Hong Kong. Direct benefits are likely to be limited, due to Hong Kong's economic structure and weak demand for emissions reduction. Besides, there are regulatory barriers to enforcing emissions targets and/or recognising emissions allowances and credits from China. We therefore argue that nationwide emissions trading may, at this time, present more challenges than opportunities for Hong Kong to leverage its efforts on climate change mitigation. An alternative is to promote voluntary emissions trading that will require active involvement and leadership by businesses.

This paper studies the expansion of an option price (with bounded Lipschitz payoff) in a stochastic volatility model including a local volatility component. The stochastic volatility is a square root process, which is widely used for modeling the behavior of the variance process (Heston model). The local volatility part is of general form, requiring only appropriate growth and boundedness assumptions. We rigorously establish tight error estimates of our expansions, using Malliavin calculus. The error analysis, which requires a careful treatment because of the lack of weak differentiability of the model, is interesting on its own. Moreover, in the particular case of call–put options, we also provide expansions of the Black–Scholes implied volatility that allow to obtain very simple formulas that are fast to compute compared to the Monte Carlo approach and maintain a very competitive accuracy.

In this paper, we present a discrete‐time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling framework to analyze the effects of trading frequency on market liquidity in a very general setting. In particular, we demonstrate the dual effect of high trading frequency. On the one hand, the higher frequency increases market efficiency, if the agents choose to provide liquidity in equilibrium. On the other hand, it also makes markets more fragile, in the sense that the agents choose to provide liquidity in equilibrium only if they are market neutral (i.e., their beliefs satisfy certain martingale property). Even a very small deviation from market neutrality may cause the agents to stop providing liquidity, if the trading frequency is sufficiently high, which represents an endogenous liquidity crisis (also known as flash crash) in the market. This framework enables us to provide more insight into how such a liquidity crisis unfolds, connecting it to the so‐called adverse selection effect.

The analytical tractability of affine (short rate) models, such as the Vasiček and the Cox–Ingersoll–Ross (CIR) models, has made them a popular choice for modeling the dynamics of interest rates. However, in order to properly account for the dynamics of real data, these models must exhibit time‐dependent or even stochastic parameters. This breaks their tractability, and modeling and simulating become an arduous task. We introduce a new class of Heath–Jarrow–Morton (HJM) models that both fit the dynamics of real market data and remain tractable. We call these models consistent recalibration (CRC) models. CRC models appear as limits of concatenations of forward rate increments, each belonging to a Hull–White extended affine factor model with possibly different parameters. That is, we construct HJM models from “tangent” affine models. We develop a theory for continuous path versions of such models and discuss their numerical implementations within the Vasiček and CIR frameworks.

Least‐squares methods enable us to price Bermudan‐style options by Monte Carlo simulation. They are based on estimating the option continuation value by least‐squares. We show that the Bermudan price is maximized when this continuation value is estimated near the exercise boundary, which is equivalent to implicitly estimating the optimal exercise boundary by using the value‐matching condition. Localization is the key difference with respect to global regression methods, but is fundamental for optimal exercise decisions and requires estimation of the continuation value by iterating local least‐squares (because we estimate and localize the exercise boundary at the same time). In the numerical example, in agreement with this optimality, the new prices or lower bounds (i) improve upon the prices reported by other methods and (ii) are very close to the associated dual upper bounds. We also study the method's convergence.

a semiparametric estimator for binary‐outcome sample‐selection models is proposed that imposes only single index assumptions on the selection and outcome equations without specifying the error term distribution. I adopt the idea in Lewbel (2000) using a ‘special regressor’ to transform the binary response Y so that the transformed Y becomes linear in the latent index, which then makes it possible to remove the selection correction term by differencing the transformed Y equation. There are various versions of the estimator, which perform differently trading off bias and variance. A simulation study is conducted, and then I apply the estimators to US presidential election data in 2008 and 2012 to assess the impact of racial prejudice on the elections, as a black candidate was involved for the first time ever in the US history.

Cyclone Pam (March 2015) was an unprecedented event in Vanuatu forcing the simultaneous involvement of national and long‐term international actors, well integrated into the national disaster governance system, as well as numerous short‐term international actors, unfamiliar with the geopolitical and cultural disaster context of the country. Cooperation between these three groups of actors evolved through the three scales of bonding, bridging and linking social networking. This paper questions the different drivers and challenges within and across these scales of social networks affecting cooperation among the three different groups of actors during an emergency. Using a mixed methodology based on social network analysis, this paper utilises the case study of Cyclone Pam in Vanuatu to study the strengths and weaknesses of the disaster governance system in place based on bonding and bridging social capital to conduct disaster risk management and to prepare the integration of linking social capital when external support is needed. This paper contributes to the identification of key considerations in the development of resilience‐building strategies: the interactions of diverse actors to address disaster management needs and the reciprocal impacts of these interactions within and across the three different scales of social networks.

This paper studies the market viability with proportional transaction costs. Instead of requiring the existence of strictly consistent price systems as in the literature, we show that strictly consistent local martingale systems (SCLMS) can successfully serve as the dual elements such that the market viability can be verified. We introduce two weaker notions of no arbitrage conditions on market models named no unbounded profit with bounded risk (NUPBR) and no local arbitrage with bounded portfolios (NLABPs). In particular, we show that the NUPBR and NLABP conditions in the robust sense are equivalent to the existence of SCLMS for general market models. We also discuss the implications for the utility maximization problem.

We consider estimating binary response models on an unbalanced panel, where the outcome of the dependent variable may be missing due to nonrandom selection, or there is self‐selection into a treatment. In the present paper, we first consider estimation of sample selection models and treatment effects using a fully parametric approach, where the error distribution is assumed to be normal in both primary and selection equations. Arbitrary time dependence in errors is permitted. Estimation of both coefficients and partial effects, as well as tests for selection bias, are discussed. Furthermore, we consider a semiparametric estimator of binary response panel data models with sample selection that is robust to a variety of error distributions. The estimator employs a control function approach to account for endogenous selection and permits consistent estimation of scaled coefficients and relative effects.

Vector autoregressions with Markov‐switching parameters (MS‐VARs) offer substantial gains in data fit over VARs with constant parameters. However, Bayesian inference for MS‐VARs has remained challenging, impeding their uptake for empirical applications. We show that sequential Monte Carlo (SMC) estimators can accurately estimate MS‐VAR posteriors. Relative to multi‐step, model‐specific MCMC routines, SMC has the advantages of generality, parallelizability, and freedom from reliance on particular analytical relationships between prior and likelihood. We use SMC's flexibility to demonstrate that model selection among MS‐VARs can be highly sensitive to the choice of prior.

We provide a methodology for testing a polynomial model hypothesis by generalizing the approach and results of Baek, Cho, and Phillips (Journal of Econometrics, 2015, 187, 376–384; BCP), which test for neglected nonlinearity using power transforms of regressors against arbitrary nonlinearity. We use the BCP quasi‐likelihood ratio test and deal with the new multifold identification problem that arises under the null of the polynomial model. The approach leads to convenient asymptotic theory for inference, has omnibus power against general nonlinear alternatives, and allows estimation of an unknown polynomial degree in a model by way of sequential testing, a technique that is useful in the application of sieve approximations. Simulations show good performance in the sequential test procedure in both identifying and estimating unknown polynomial order. The approach, which can be used empirically to test for misspecification, is applied to a Mincer (Journal of Political Economy, 1958, 66, 281–302; Schooling, Experience and Earnings, Columbia University Press, 1974) equation using data from Card (in Christofides, Grant, and Swidinsky (Eds.), Aspects of Labour Market Behaviour: Essays in Honour of John Vanderkamp, University of Toronto Press, 1995, 201‐222) and Bierens and Ginther (Empirical Economics, 2001, 26, 307–324). The results confirm that the standard Mincer log earnings equation is readily shown to be misspecified. The applications consider different datasets and examine the impact of nonlinear effects of experience and schooling on earnings, allowing for flexibility in the respective polynomial representations.

Identifying contagion effects during periods of financial crisis is known to be complicated by the changing volatility of asset returns during periods of stress. To untangle this we propose a GARCH (generalized autoregressive conditional heteroskedasticity) common features approach, where systemic risk emerges from a common factor source (or indeed multiple factor sources) with contagion evident through possible changes in the factor loadings relating to the common factor(s). Within a portfolio mimicking factor framework this can be identified using moment conditions. We use this framework to identify contagion in three illustrations involving both single and multiple factor specifications: to the Asian currency markets in 1997–1998, to US sectoral equity indices in 2007–2009 and to the CDS (credit default swap) market during the European sovereign debt crisis of 2010–2013. The results reveal the extent to which contagion effects may be masked by not accounting for the sources of changed volatility apparent in simple measures such as correlation.