CEMFI

About: CEMFI is a based out in . It is known for research contribution in the topics: Unemployment & Estimator. The organization has 71 authors who have published 499 publications receiving 46553 citations. The organization is also known as: Center for Monetary and Financial Studies.

Constrained EMM and Indirect Inference Estimation

Abstract: We develop generalised indirect inference procedures that handle equality and inequality constraints on the auxiliary model parameters. We obtain expressions for the optimal weighting matrices, and discuss as examples an MA(1) estimated as AR(1), an AR(1) estimated as MA(1), and a log-normal stochastic volatility process estimated as a GARCH(1,1) with Gaussian or t distributed errors. In the first example, the constraints have no effect, while in the second, they allow us to achieve full efficiency. As for the third, neither procedure systematically outperforms the other, but equality restricted estimators are better when the additional parameter is poorly estimated.

Capital requirements, market power, and risk-taking in banking

Abstract: This paper presents a dynamic model of imperfect competition in banking where the banks can invest in a prudent or a gambling asset. We show that if intermediation margins are small, the banks’ franchise values will be small, and in the absence of regulation only a gambling equilibrium will exist. In this case, either flat-rate capital requirements or binding deposit rate ceilings can ensure the existence of a prudent equilibrium, although both have a negative impact on deposit rates. Such impact does not obtain with either risk-based capital requirements or nonbinding deposit rate ceilings, but only the former are always effective in controlling risk-shifting incentives.

Specification tests for non‐Gaussian maximum likelihood estimators

Abstract: We propose generalized DWH specification tests which simultaneously compare three or more likelihood‐based estimators in multivariate conditionally heteroskedastic dynamic regression models. Our tests are useful for Garch models and in many empirically relevant macro and finance applications involving Var s and multivariate regressions. We determine the rank of the differences between the estimators' asymptotic covariance matrices under correct specification, and take into account that some parameters remain consistently estimated under distributional misspecification. We provide finite sample results through Monte Carlo simulations. Finally, we analyze a structural Var proposed to capture the relationship between macroeconomic and financial uncertainty and the business cycle. Durbin–Wu–Hausman tests partial adaptivity semiparametric estimators singular covariance matrices uncertainty and the business cycle C12 C14 C22 C32 C52

Duality in Mean-Variance Frontiers with Conditioning Information

Abstract: Portfolio and stochastic discount factor (SDF) frontiers are usually regarded as dual objects, and researchers sometimes use one to answer questions about the other. However, the introduction of conditioning information and active portfolio strategies alters this relationship. For instance, the unconditional portfolio frontier in Hansen and Richard (1987) is not dual to the unconditional SDF frontier in Gallant, Hansen and Tauchen (1990). We characterise the dual objects to those frontiers, and relate them to the frontiers generated with managed portfolios, which are commonly used in empirical work. We also study the implications of a safe asset and other special cases.

Credit Markets and Real Economic Activity: A Model of Financial Intermediation

Abstract: This paper considers a model of financial intermediation based on the existence of a moral hazard problem in the choice of investment projects by a heterogeneous population of entrepreneurs. Two alternative ways of funding these projects, called direct (or market) and monitored (or bank) finance, are analyzed. Under monitored finance the entrepreneurial moral hazard problem is ameliorated, in comparison to direct finance, at a certain cost. It is shown that entrepreneurs with large wealth relative to the size of the project will obtain direct finance, entrepreneurs with intermediate wealth will get monitored finance, and entrepreneurs with little wealth will be unable to obtain credit. The analysis sheds light on the validity of certain explanations of the empirical behaviour of short-term credit markets over the business cycle.