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Book part
Publication date: 1 November 2007

Irina Farquhar and Alan Sorkin

This study proposes targeted modernization of the Department of Defense (DoD's) Joint Forces Ammunition Logistics information system by implementing the optimized innovative…

Abstract

This study proposes targeted modernization of the Department of Defense (DoD's) Joint Forces Ammunition Logistics information system by implementing the optimized innovative information technology open architecture design and integrating Radio Frequency Identification Device data technologies and real-time optimization and control mechanisms as the critical technology components of the solution. The innovative information technology, which pursues the focused logistics, will be deployed in 36 months at the estimated cost of $568 million in constant dollars. We estimate that the Systems, Applications, Products (SAP)-based enterprise integration solution that the Army currently pursues will cost another $1.5 billion through the year 2014; however, it is unlikely to deliver the intended technical capabilities.

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The Value of Innovation: Impact on Health, Life Quality, Safety, and Regulatory Research
Type: Book
ISBN: 978-1-84950-551-2

Book part
Publication date: 16 September 2022

Vasileios Ouranos and Alexandra Livada

Probability of Default (PD) is a crucial credit risk parameter. International accords have motivated banks and credit institutions to adopt objective systems of evaluating and…

Abstract

Probability of Default (PD) is a crucial credit risk parameter. International accords have motivated banks and credit institutions to adopt objective systems of evaluating and monitoring the PD. This study examines retail unsecured loans of a major Greek bank during the period of the financial crisis. It focusses on the stochastic behaviour of the financial states of the loans. It is tested whether a first-order Markov chain (MC) model describes sufficiently the transitions from one state to another. Moreover, Poisson regression models are estimated in order to calculate the limiting transition matrix, the limiting state probabilities and the PD. It is proved that the MC of the financial states of loans is non-homogeneous suggesting that the transition probabilities from one financial state to another are not constant across time. From the Poisson regression models, the transition probability matrix is estimated from one state to another in alternative time periods. From the limiting transition matrix, it is shown that if a loan is delayed then it is very likely to move towards the next worst case. The findings of this research could be useful for bank management.

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The New Digital Era: Other Emerging Risks and Opportunities
Type: Book
ISBN: 978-1-80382-983-8

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Book part
Publication date: 23 December 2005

David Ng and Mehdi Sadeghi

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss aversion…

Abstract

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss aversion asset pricing finds conclusive evidence that estimations match market equity premium and volatility using simulation data. We find that within its empirical application, the estimated errors are comparable to errors estimated from the capital asset pricing model. This study of the correlations between rational and irrational asset pricing model from the empirical results finds validity for both estimated values. Finally, we see the importance of cultures, economic development and financial development on asset pricing through an empirical examination of five pacific-basin countries in the estimation of asset pricing models.

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Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

Book part
Publication date: 23 October 2023

Nathaniel T. Wilcox

The author presents new estimates of the probability weighting functions found in rank-dependent theories of choice under risk. These estimates are unusual in two senses. First…

Abstract

The author presents new estimates of the probability weighting functions found in rank-dependent theories of choice under risk. These estimates are unusual in two senses. First, they are free of functional form assumptions about both utility and weighting functions, and they are entirely based on binary discrete choices and not on matching or valuation tasks, though they depend on assumptions concerning the nature of probabilistic choice under risk. Second, estimated weighting functions contradict widely held priors of an inverse-s shape with fixed point well in the interior of the (0,1) interval: Instead the author usually finds populations dominated by “optimists” who uniformly overweight best outcomes in risky options. The choice pairs used here mostly do not provoke similarity-based simplifications. In a third experiment, the author shows that the presence of choice pairs that provoke similarity-based computational shortcuts does indeed flatten estimated probability weighting functions.

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Models of Risk Preferences: Descriptive and Normative Challenges
Type: Book
ISBN: 978-1-83797-269-2

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Book part
Publication date: 6 January 2016

Jens H. E. Christensen and Glenn D. Rudebusch

Recent U.S. Treasury yields have been constrained to some extent by the zero lower bound (ZLB) on nominal interest rates. Therefore, we compare the performance of a standard…

Abstract

Recent U.S. Treasury yields have been constrained to some extent by the zero lower bound (ZLB) on nominal interest rates. Therefore, we compare the performance of a standard affine Gaussian dynamic term structure model (DTSM), which ignores the ZLB, to a shadow-rate DTSM, which respects the ZLB. Near the ZLB, we find notable declines in the forecast accuracy of the standard model, while the shadow-rate model forecasts well. However, 10-year yield term premiums are broadly similar across the two models. Finally, in applying the shadow-rate model, we find no gain from estimating a slightly positive lower bound on U.S. yields.

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Dynamic Factor Models
Type: Book
ISBN: 978-1-78560-353-2

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Book part
Publication date: 23 October 2023

Brian Albert Monroe

Risk preferences play a critical role in almost every facet of economic activity. Experimental economists have sought to infer the risk preferences of subjects from choice…

Abstract

Risk preferences play a critical role in almost every facet of economic activity. Experimental economists have sought to infer the risk preferences of subjects from choice behavior over lotteries. To help mitigate the influence of observable, and unobservable, heterogeneity in their samples, risk preferences have been estimated at the level of the individual subject. Recent work has detailed the lack of statistical power in descriptively classifying individual subjects as conforming to Expected Utility Theory (EUT) or Rank Dependent Utility (RDU). I discuss the normative consequences of this lack of power and provide some suggestions to improve the accuracy of normative inferences about individual-level choice behavior.

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Models of Risk Preferences: Descriptive and Normative Challenges
Type: Book
ISBN: 978-1-83797-269-2

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Book part
Publication date: 1 August 2004

Harry P. Bowen and Margarethe F. Wiersema

Research on strategic choices available to the firm are often modeled as a limited number of possible decision outcomes and leads to a discrete limited dependent variable. A…

Abstract

Research on strategic choices available to the firm are often modeled as a limited number of possible decision outcomes and leads to a discrete limited dependent variable. A limited dependent variable can also arise when values of a continuous dependent variable are partially or wholly unobserved. This chapter discusses the methodological issues associated with such phenomena and the appropriate statistical methods developed to allow for consistent and efficient estimation of models that involve a limited dependent variable. The chapter also provides a road map for selecting the appropriate statistical technique and it offers guidelines for consistent interpretation and reporting of the statistical results.

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Research Methodology in Strategy and Management
Type: Book
ISBN: 978-1-84950-235-1

Book part
Publication date: 22 November 2012

Eric R. Sims

A state space representation of a linearized DSGE model implies a VAR in terms of observable variables. The model is said be non-invertible if there exists no linear rotation of…

Abstract

A state space representation of a linearized DSGE model implies a VAR in terms of observable variables. The model is said be non-invertible if there exists no linear rotation of the VAR innovations which can recover the economic shocks. Non-invertibility arises when the observed variables fail to perfectly reveal the state variables of the model. The imperfect observation of the state drives a wedge between the VAR innovations and the deep shocks, potentially invalidating conclusions drawn from structural impulse response analysis in the VAR. The principal contribution of this chapter is to show that non-invertibility should not be thought of as an “either/or” proposition – even when a model has a non-invertibility, the wedge between VAR innovations and economic shocks may be small, and structural VARs may nonetheless perform reliably. As an increasingly popular example, so-called “news shocks” generate foresight about changes in future fundamentals – such as productivity, taxes, or government spending – and lead to an unassailable missing state variable problem and hence non-invertible VAR representations. Simulation evidence from a medium scale DSGE model augmented with news shocks about future productivity reveals that structural VAR methods often perform well in practice, in spite of a known non-invertibility. Impulse responses obtained from VARs closely correspond to the theoretical responses from the model, and the estimated VAR responses are successful in discriminating between alternative, nested specifications of the underlying DSGE model. Since the non-invertibility problem is, at its core, one of missing information, conditioning on more information, for example through factor augmented VARs, is shown to either ameliorate or eliminate invertibility problems altogether.

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DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments
Type: Book
ISBN: 978-1-78190-305-6

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Book part
Publication date: 1 July 2015

Nikolay Markov

This chapter estimates a regime switching Taylor Rule for the European Central Bank (ECB) in order to investigate some potential nonlinearities in the forward-looking policy…

Abstract

This chapter estimates a regime switching Taylor Rule for the European Central Bank (ECB) in order to investigate some potential nonlinearities in the forward-looking policy reaction function within a real-time framework. In order to compare observed and predicted policy behavior, the chapter estimates Actual and Perceived regime switching Taylor Rules for the ECB. The former is based on the refi rate set by the Governing Council while the latter relies on the professional point forecasts of the refi rate performed by a large investment bank before the upcoming policy rate decision. The empirical evidence shows that the Central Bank’s main policy rate has switched between two regimes: in the first one the Taylor Principle is satisfied and the ECB stabilizes the economic outlook, while in the second regime the Central Bank cuts rates more aggressively and puts a higher emphasis on stabilizing real output growth expectations. Second, the results point out that the professional forecasters have broadly well predicted the actual policy regimes. The estimation results are also robust to using consensus forecasts of inflation and real output growth. The empirical evidence from the augmented Taylor Rules shows that the Central Bank has most likely not responded to the growth rates of M3 and the nominal effective exchange rate and the estimated regimes are robust to including these additional variables in the regressions. Finally, after the bankruptcy of Lehman Brothers the policy rate has switched to a crisis regime as the ECB has focused on preventing a further decline in economic activity and on securing the stability of the financial system.

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Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons
Type: Book
ISBN: 978-1-78441-779-6

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Abstract

This article surveys recent developments in the evaluation of point and density forecasts in the context of forecasts made by vector autoregressions. Specific emphasis is placed on highlighting those parts of the existing literature that are applicable to direct multistep forecasts and those parts that are applicable to iterated multistep forecasts. This literature includes advancements in the evaluation of forecasts in population (based on true, unknown model coefficients) and the evaluation of forecasts in the finite sample (based on estimated model coefficients). The article then examines in Monte Carlo experiments the finite-sample properties of some tests of equal forecast accuracy, focusing on the comparison of VAR forecasts to AR forecasts. These experiments show the tests to behave as should be expected given the theory. For example, using critical values obtained by bootstrap methods, tests of equal accuracy in population have empirical size about equal to nominal size.

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VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims
Type: Book
ISBN: 978-1-78190-752-8

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