Tinbergen Institute

About: Tinbergen Institute is a education organization based out in Rotterdam, Netherlands. It is known for research contribution in the topics: Volatility (finance) & Competition (economics). The organization has 565 authors who have published 3157 publications receiving 82800 citations.

Monetary Policy Under Behavioral Expectations: Theory and Experiment

Abstract: Expectations play a crucial role in modern macroeconomic models. We replace the common assumption of rational expectations in a New Keynesian framework by the assumption that expectations are formed according to a heuristics switching model that has performed well in earlier work. We show how the economy behaves under these assumptions with a special focus on inflation volatility. Contrary to comparable models based on full rationality, the behavioral model predicts that inflation volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical predictions with a learning to forecast experiment. The experimental results support the behavioral model and the claim that reacting to the output gap in addition to inflation can indeed lower inflation volatility.

Forward Versus Spot Interest-Rate Models of the Term Structure: An Empirical Comparison

Abstract: Using daily caps and floors market prices throughout the years 1993 and 1994, we address the open question whether spot or forward interest-rate models of the term structure provide a better fit to market prices of options. In particular, we compare the Hull and White (1994), Pelsser (1996) and Black and Karasinski (1991) models with Gaussian, square root and proportional models as developed by Ritchken and Sankarasubramanian (1995). Interestingly, we find that all spot interest-rate models outperform their similar counterparts in the forward rate setting. Furthermore, we test a number of humped volatility models obtained as extensions of the above-mentioned models under both approaches, and due to Mercurio and Moraleda (1996a and 1996b) and Moraleda and Vorst (1996). The fit to market option prices is largely improved (around 30 percent) by all humped volatility models under the spot interest-rate setting. Things are different for forward interest-rate models since we find strictly decreasing volatility structures for all maturities. An exception are forward rate models with deterministic volatility functions, for which humped shapes in the volatility are typically found. The results in this paper are consistent with previous studies, although they partly disagree with results of Bliss and Ritchken (1996).

Advanced Economy Inflation: The Role of Global Factors

Abstract: A number of studies document the prominent role of global factors in domestic inflation developments (e.g. Borio and Filardo, 2007; Ciccarelli and Mojon, 2010). In this paper we investigate global dimensions of advanced economy inflation. We estimate open-economy Phillips curves for 19 advanced economies. We include backward and forward-looking survey measures of inflation expectations and augment Phillips curves with global factors including global economic slack, global inflation and commodity prices. Our results provide little support for the existence of direct effects of global economic slack on domestic inflation. Moreover, the results suggest that the importance of global inflation in forecasting domestic inflation has its roots solely in its ability to capture slow-moving trends in inflation rates. In the Phillips curve context much the same role is performed by domestic forward-looking inflation expectations. With the exception of commodity prices therefore our results reveal little reason to include global factors into traditional reduced form Phillips curves.

Does Reporting Heterogeneity Bias the Measurement of Health Disparities

Abstract: Heterogeneity in reporting of health by socio-economic and demographic characteristics potentially biases the measurement of health disparities. We use anchoring vignettes to identify reporting heterogeneity in self reports on health for Indonesia, India and China. Correcting for reporting heterogeneity tends to reduce estimated disparities in health by age, sex (not Indonesia), urban/rural and education (not China) and to increase income disparities in health. Overall, while homogeneous reporting by socio-demographic group is significantly rejected, the results suggest that the size of the reporting bias in measures of health disparities is not large.

Climate change and economic consequences for inland waterway transport in Europe

Abstract: Future climate conditions are likely to affect inland waterway transport in Europe. According to some climate scenarios, in summer, in the river Rhine, periods with low water levels are likely to occur more often and become more serious. Then inland waterway transport carriers will experience more severe restrictions on the load factor of their inland ships, which implies a stronger reduction in transport capacity in the market. Transport prices will rise under such conditions. Some studies reviewed in this paper find that at extremely low water levels, the price per tonne for inland waterway transport in the river Rhine area will almost double. These increased transport prices result in welfare losses. For the dry summer in 2003, the losses for North West Europe are estimated to sum up to around €480 million. Increased transport prices trigger adaptation. Inland waterway carriers may use smaller vessels, and shippers have the opportunity to shift from inland waterway transport to alternative transport modes in periods with low water levels. This effect is probably rather modest, however, with a modal shift to road and rail smaller than 10 %. Also, changes in transport costs may lead to relocation of certain economic activities in the long run.