University of Macau / Faculty of Science and Technology. / Department of Mathematics

The focus of the following three essays rests on the Kydland-Prescott (1977) and Barro-Gordon (1983) model of time inconsistent discretionary monetary policy. The first essay derives a model in which the costs and benefits to inflation are tied to the underlying features of the economy. The benefit to inflation arises due to monopolistic competition among firms and the cost is due to a staggered timing structure for nominal money. The benefit of this approach is that it can be shown that factors that increase the monetary authority's incentive to inflate may also increase the costs to inflation, and therefore do not necessarily result in a worsened inflation bias. In particular, the model shows that discretionary inflation in the economy is nonmonotonically related to the distortion. The model also indicates that changes in the real interest rate affect the monetary authority's incentives and hence the discretionary rate of inflation. An increase in the labor share raises the discretionary rate. Lastly, lack of commitment, costs to inflation, and the presence of a distortion are crucial for discretionary inflation to be biased above the Friedman (1969) rule. The second essay builds on the first, extending the model to an open economy environment. The extended model indicates several channels through which openness affects the monetary authority's incentives. Most significantly, the model cannot replicate the Romer (1993) and Lane (1995) result that openness reduces the discretionary rate of inflation. Again, the model relates the underlying features of the economy on the discretionary rate, and an economy's foreign asset position. Strategic incentives are also important for determining whether an open economy's rate of inflation is less than that of a comparable closed economy. The last essay analyzes empirically the relationship between the overall degree of competition among firms, as measured by the markup, and the average rate of inflation for the OECD group of countries. In line with the time-consistency argument, results indicate a positive relationship between markups and inflation. This finding is robust to the inclusion of several explanatory variables, such as terms of trade effects, and central bank independence. The evidence is weak, however, in the presence of per capita GDP.

The focus of the following three essays rests on the Kydland-Prescott (1977) and Barro-Gordon (1983) model of time inconsistent discretionary monetary policy. The first essay derives a model in which the costs and benefits to inflation are tied to the underlying features of the economy. The benefit to inflation arises due to monopolistic competition among firms and the cost is due to a staggered timing structure for nominal money. The benefit of this approach is that it can be shown that factors that increase the monetary authority's incentive to inflate may also increase the costs to inflation, and therefore do not necessarily result in a worsened inflation bias. In particular, the model shows that discretionary inflation in the economy is nonmonotonically related to the distortion. The model also indicates that changes in the real interest rate affect the monetary authority's incentives and hence the discretionary rate of inflation. An increase in the labor share raises the discretionary rate. Lastly, lack of commitment, costs to inflation, and the presence of a distortion are crucial for discretionary inflation to be biased above the Friedman (1969) rule. The second essay builds on the first, extending the model to an open economy environment. The extended model indicates several channels through which openness affects the monetary authority's incentives. Most significantly, the model cannot replicate the Romer (1993) and Lane (1995) result that openness reduces the discretionary rate of inflation. Again, the model relates the underlying features of the economy on the discretionary rate, and an economy's foreign asset position. Strategic incentives are also important for determining whether an open economy's rate of inflation is less than that of a comparable closed economy. The last essay analyzes empirically the relationship between the overall degree of competition among firms, as measured by the markup, and the average rate of inflation for the OECD group of countries. In line with the time-consistency argument, results indicate a positive relationship between markups and inflation. This finding is robust to the inclusion of several explanatory variables, such as terms of trade effects, and central bank independence. The evidence is weak, however, in the presence of per capita GDP. / Arts, Faculty of / Vancouver School of Economics / Graduate

He, Huifen. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2008. / Includes bibliographical references (leaves 44-48). / Abstracts in English and Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 1.1 --- Motivation --- p.1 / Chapter 1.2 --- Literature Review --- p.4 / Chapter 1.2.1 --- Supply Contracts under Price Uncertainty --- p.5 / Chapter 1.2.2 --- Dual Sourcing --- p.6 / Chapter 1.2.3 --- Risk Aversion in Inventory Management --- p.6 / Chapter 1.2.4 --- Hedging Operational Risk Using Financial Instruments --- p.7 / Chapter 1.2.5 --- Financial Literature --- p.9 / Chapter 1.3 --- Organization of the Thesis --- p.10 / Chapter 2 --- A Risk-Neutral Model --- p.12 / Chapter 2.1 --- Framework and Assumptions --- p.12 / Chapter 2.2 --- "Price, Forward and Convenience Yield" --- p.14 / Chapter 2.2.1 --- Stochastic Model of Price --- p.14 / Chapter 2.2.2 --- Marginal Convenience Yield --- p.16 / Chapter 2.3 --- Optimality Equations --- p.17 / Chapter 2.4 --- The Structure of the Optimal Policy --- p.21 / Chapter 2.4.1 --- One-period. Optimal Hedge Decision Rule --- p.21 / Chapter 2.4.2 --- One-period Optimal Orderings Decision Rule --- p.23 / Chapter 2.4.3 --- Optimal Policy --- p.24 / Chapter 3 --- A Risk-Averse Model --- p.28 / Chapter 3.1 --- Risk Aversion Modeling and Utility Function --- p.28 / Chapter 3.2 --- Multi-Period Inventory Modelling --- p.31 / Chapter 3.3 --- Exponential Utility Model --- p.33 / Chapter 3.4 --- Optimal Ordering and Hedging Policy for Multi-Period Problem --- p.37 / Chapter 4 --- Conclusion and Future Research --- p.40 / Bibliography --- p.44 / Chapter A --- Appendix --- p.49 / Chapter A.l --- Notation --- p.49 / Chapter A.2 --- K-Concavity --- p.50

A dissertation submitted to the Faculty of Commerce, Law and Management University of the Witwatersrand Business School In fulfillment of the requirements for the degree of Master of Management in Finance and Investment Johannesburg, 2016 / This study uses a dynamic panel data method to examine the sensitivity of non-performing loans (NPLs) and bank capital buffer (BCB) to macroeconomic variables. This approach is motivated by the hypothesis that says macroeconomic variables have an effect on the bank’s balance sheet, and this effect varies across developed and emerging economies. The results show that NPLs are sensitive to GDP growth, interest rate, public debt, sovereign debt and unemployment in developed economies. However, NPLs are sensitive to GDP growth, exchange rate, interest rate, sovereign debt, unemployment and volume of imports in emerging economies. Public debt is not statistically significant in explaining the sensitivity of NPLs in emerging economies. Similarly, exchange rate and volume of imports have no significant influence on NPLs in developed economies. In relation to the BCB we find GDP growth, exchange rate, interest rate, sovereign debt, unemployment and volume of imports as significant macroeconomic variables driving the sensitivity of capital buffer in emerging economies. Conversely, interest rate, sovereign debt and unemployment are macroeconomic variables responsible for the sensitivity of the buffer in developed economies. GDP growth, exchange rate and volume of imports have no significant influence. Considering the liquidity risk imposed to the banks’ balance sheet by this set of macroeconomic variables. It seems plausible that their dynamics should be given attention when conceiving any policy mix to cope with credit expansion. Without such exercise, the goal of financial stability in the global banking system will be difficult to achieve. / MT2016

Brennan and Kraus (1982,1986) developed a costless signalling model which can explain why managers issue hybrid securities—convertibles(CB's) or bond-warrant packages(BW's). The model predicts that when the true standard deviation (σ) of the distribution of future firm value is unknown to the market, the firm's managers will issue a hybrid with specific characteristics such that the security's full information value is at a minimum at the firm's true σ. In this fully revealing equilibrium market price is equal to this minimum value. In this study, first the mathematical properties of the hypothesized bond-valuation model were examined to see if specific functions could have a minimum not at σ = 0 or σ = ∞ as required for signalling. The Black-Scholes-Merton model was the valuation model chosen because of ease of use, supporting empirical evidence, and compatibility with the Brennan-Kraus model. Three different variations, developed from Ingersoll(1977a); Geske( 1977,1979) and Geske and Johnson(1984); and Brennan and Schwartz(1977,1978), were examined. For all hybrids except senior CB's, pricing functions with a minimum can be found for plausible input parameters. However, functions with an interior maximum are also plausible. A function with a maximum cannot be used for signalling. Second, bond pricing functions for 105 hybrids were studied. The two main hypotheses were: (1) most hybrids have functions with an interior minimum; (2) market price equals minimum theoretical value. The results do not support the signalling model, although the evidence is ambiguous. For the σ range 0.05-0.70, for CB's (BW's) 15(8) Brennan-Schwartz functions were everywhere positively sloping, 11(2) had an interior minimum, 22(0) were everywhere negatively sloping, and 35(12) had an interior maximum. Market prices did lie closer to minima than maxima from the Brennan-Schwartz solutions, but the results suggest that the solution as implemented overpriced the CB's. BW's were unambiguously overpriced. With consistent overpricing, market prices would naturally lie closer to minima. Average variation in theoretical values was, however, only about 5 percent for CB's and about 10 percent for BW's. This, coupled with the shape data, suggests that firms were choosing securities with theoretical values relatively insensitive to a rather than choosing securities to signal σ unambiguously. / Business, Sauder School of / Graduate

published_or_final_version / Statistics and Actuarial Science / Doctoral / Doctor of Philosophy

published_or_final_version / Statistics and Actuarial Science / Master / Master of Philosophy

Thesis. 1977. Ph.D.--Massachusetts Institute of Technology. Alfred P. Sloan School of Management. / M̲i̲c̲ṟo̲f̲i̲c̲ẖe̲ c̲o̲p̲y̲ a̲v̲a̲i̲ḻa̲ḇḻe̲ i̲ṉ A̲ṟc̲ẖi̲v̲e̲s̲ a̲ṉḏ Ḏe̲w̲e̲y̲. / Bibliography : leaves 521-531. / Ph.D.

Yang, Nian. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2013. / Includes bibliographical references (leaves 95-100). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstract also in Chinese.