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.

Regime switches in the volatility and correlation of financial institutions

Abstract: We propose a parsimonious regime switching model to characterize the dynamics in the volatilities and correlations of US deposit banks' stock returns over 1994-2011. A first innovative feature of the model is that the within-regime dynamics in the volatilities and correlation depend on the shape of the Student t innovations. Secondly, the across-regime dynamics in the transition probabilities of both volatilities and correlations are driven by macro-financial indicators such as the Saint Louis Financial Stability index, VIX or TED spread. We find strong evidence of time-variation in the regime switching probabilities and the within-regime volatility of most banks. The within-regime dynamics of the equicorrelation seem to be constant over the period.

Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price

Abstract: We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns.

Turbulence and Unemployment in a Job Matching Model

Abstract: According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills These workers refuse new jobs due to high unemployment benefits In this Paper, we reassess the turbulence unemployment relationship using a matching model with endogenous job destruction In our model, higher turbulence reduces the incentives of employed workers to leave their jobs If turbulence has only a tiny effect on the skills of workers experiencing endogenous separation, then the results of Ljungqvist and Sargent (1998, 2004) are reversed, and higher turbulence leads to a reduction in unemployment Thus, changes in turbulence cannot provide an explanation for European unemployment that reconciles the incentives of both unemployed and employed workers

The Impact of Immigration on International Trade: A Meta-Analysis

Abstract: Since the early 1990s many empirical studies have been conducted on the impact of international migration on international trade, predominantly from the host country perspective. Because most studies have adopted broadly the same specification, namely a log-linear gravity model of export and import flows augmented with the logarithm of the stock of immigrants from specific source countries as an additional explanatory variable, the resulting elasticities are broadly comparable and yield a set of estimates that is well suited to meta-analysis. We therefore compile and analyze in this paper the distribution of immigration elasticities of imports and exports across 48 studies that yielded 300 observations. The results show that immigration complements rather than substitutes for trade flows between host and origin countries. Correcting for heterogeneity and publication bias, an increase in the number of immigrants by 10 percent may be expected to increase the volume of trade on average by about 1.5 percent. However, the impact is lower for trade in homogeneous goods. Over time, the growing stock of immigrants decreases the elasticities. The estimates are affected by the choice of some covariates, the nature of the data (cross-section or panel) and the estimation technique. Elasticities vary between countries in ways that cannot be fully explained by study characteristics; trade restrictions and immigration policies matter for the impact of immigration on trade. The migrant elasticity of imports is larger than that of exports in about half the countries considered, but the publication bias and heterogeneity-corrected elasticity is slightly larger for exports than for imports.

Time Varying Transition Probabilities for Markov Regime Switching Models

Abstract: We propose a new Markov switching model with time varying probabilities for the transitions. The novelty of our model is that the transition probabilities evolve over time by means of an observation driven model. The innovation of the time varying probability is generated by the score of the predictive likelihood function. We show how the model dynamics can be readily interpreted. We investigate the performance of the model in a Monte Carlo study and show that the model is successful in estimating a range of different dynamic patterns for unobserved regime switching probabilities. We also illustrate the new methodology in an empirical setting by studying the dynamic mean and variance behavior of U.S. Industrial Production growth. We find empirical evidence of changes in the regime switching probabilities, with more persistence for high volatility regimes in the earlier part of the sample, and more persistence for low volatility regimes in the later part of the sample.