Essays in applied econometrics: Frictions, information, and prices
The three essays in this dissertation address current econometric issues in international economics, market microstructure, and forecasting. In the first essay we use nonlinearities in a novel measure of the real exchange rate to estimate the cost of relocating productive capabilities. These nonlinearities stem from distance and border costs, which inhibit the flow of consumption goods and productive capabilities. During the sample period, 1974 to 2007, a relocation of a productive capability from one country to another reduces its quantity by about 21%. A relocation of consumption goods entails a far smaller loss of only about 12% for the median country pair. In the second essay we use market microstructure theory to derive the cross-correlation function between efficient returns and market microstructure noise. This enables us to assess the validity of the commonly used independence assumption, to offer explanations of observed cross-correlation patterns, and to predict the existence of as-yet undiscovered patterns. The cross-correlation at zero displacement is typically negative, and cross-correlations at nonzero displacements are positive and decay geometrically. When market makers are very risk averse, the cross-correlation pattern is inverted. The results can be used for choosing among different market microstructure models and estimation of noise-robust measures of realized volatility. The final essay generalizes the Diebold-Mariano test of equal accuracy of two forecasts (that is, test of a zero-mean loss differential) to accommodate multiple loss differentials. Monte-Carlo simulations reveal that the new test also improves upon the properties of the univariate Diebold-Mariano test, in particular if forecasts feature persistent autoregressive or GARCH behavior. Our approach is very simple and makes only minimal assumptions on models and loss functions; it is therefore widely applicable.
Year of publication: |
2008-01-01
|
---|---|
Authors: | Strasser, Georg |
Publisher: |
ScholarlyCommons |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Exchange Rate Pass-Through and Credit Constraints: Firms Price to Market as Long as They Can
Strasser, Georg, (2011)
-
On the Correlation Structure of Microstructure Noise: A Financial Economic Approach
Diebold, Francis, (2010)
-
The Efficiency of the Global Markets for Final Goods and Productive Capabilities
Strasser, Georg, (2010)
- More ...