London School of Economics and Political Science

About: London School of Economics and Political Science is a education organization based out in London, United Kingdom. It is known for research contribution in the topics: Politics & Population. The organization has 8759 authors who have published 35017 publications receiving 1436302 citations.

The Conduct of Monetary Policy

Abstract: Nowadays the Central Bank of a country is the monopoly supplier of legal tender currency. The commercial banks are committed to making their deposits convertible at par into such currency. So the banks need to keep reserves in the form of currency and deposits at the Central Bank. The Central Bank primarily conducts its policy by buying and selling financial securities, e.g. Treasury bills or foreign exchange, in exchange for its own liabilities, i.e. open market operations. Academic economists generally regard such operations as adjusting the quantitative volume of the banks' reserve base, and hence of the money stock, with rates (prices) in such markets simultaneously determined by the interplay of demand and supply. Central Bank practitioners, almost always, view themselves as unable to deny the banks the reserve base that the banking system requires, and see themselves as setting the level of interest rates, at which such reserve requirements are met, with the quantity of money then simultaneously determined by the portfolio preferences of private sector banks and non-banks. This difference in perceptions is discussed again in Section III. Whether the monetary policy operations of Central Banks should be viewed primarily in terms of quantity, or rate, setting actions, (though, of course, one is the dual of the other), these had allowed inflation, and inflationary expectations, to become entrenched by the end of the I970s. A selection of representative statistics for a number of the leading industrialised countries is given in Table i below. This table indicates a common pattern, among the countries, of interaction between interest rates, inflation and the growth of output. The first period, I969-78, is marked by high inflation, negative real interest rates, and slightly above average growth; the second period, I979-82, by very high nominal, and high real, interest rates, high (but falling) inflation, and very low output growth. The final period, i983-7, is marked by much lower inflation, lower nominal, but still high real, interest rates, and a recovery in output growth, in some cases to above average rates. In contrast, the relationship in these countries between the growth of their chosen key monetary aggregate and nominal incomes appears much weaker; also see Clinton and Chouraqui (I987), especially p. 7. Whether measured in terms of monetary growth, or in terms of' real' interest rates, i.e. after adjustment for prospective future inflation, policy during the

Looking Into the Black Box: A Survey of the Matching Function

Abstract: We survey the microfoundations, empirical evidence and estimation issues underlying the aggregate matching function. Several microeconomic matching mechanisms have been suggested in the literature with some successes but none is generally accepted as superior to all others. Instead, an aggregate matching function with hires as a function of vacancies and unemployment has been successfully estimated for several countries. The Cobb-Douglas restrictions with constant returns to scale perform well. Recent work has utilized disaggregated data to go beyond aggregate estimates, with many refinements and suggestions for future research.

What is the Expected Return on the Market

Abstract: I derive a lower bound on the equity premium in terms of a volatility index, SVIX, that can be calculated from index option prices. The bound implies that the equity premium is extremely volatile and that it rose above 20% at the height of the crisis in 2008. The time-series average of the lower bound is about 5%, suggesting that the bound may be approximately tight. I run predictive regressions and find that this hypothesis is not rejected by the data, so I use the SVIX index as a proxy for the equity premium and argue that the high equity premia available at times of stress largely reflect high expected returns over the very short run. I also provide a measure of the probability of a market crash, and introduce simple variance swaps, tradable contracts based on SVIX that are robust alternatives to variance swaps.

Using Agency Theory to Design Successful Outsourcing Relationships

Abstract: Outsourcing affects thousands of companies and employees every year. Recent studies indicate that 85 per cent of all companies outsource at least one function generating billions of dollars in outsourcing contracts (ElmutiElute, KathwalaKithara & Monippallil, 1995). Transportation is one of outsourcing's biggest players. Many outsourcing attempts have proved unsuccessful and recent articles blame these failures on failed outsourcing relationships. This paper addresses these failed relationships and suggests two possible solutions to the problem. The first solution is to diagnose the relationship from both sides of the contract. The second suggestion is to engage agency theory to help design the types of contracts and relationships necessary to provide and support an environment of trust.