Workshops and Seminars

Roger Craine - UC Berkeley

The Yield Curve Conundrum

Abstract: Between 2004-2006 the US Federal Reserve relentlessly increased the Federal Funds Target rate by ¼% at seventeen consecutive Federal Open Market Committee meetings. The Target
rose from 1% to 5 ¼%. Short maturity yields dutifully followed the target, but long maturity yields (10 years or more) actually fell until by June 2006 they were less than short maturity yields. Alan Greenspan,
Chairman of the Federal Reserve at the time, labeled the unusual behavior of the yield curve a conundrum. We find that unusually strong demand by foreigners for US bonds led to yields 1 ½% lower than they would have been otherwise. Monetary and macroeconomic surprises had almost no effect on long maturity yields. In the future if foreigners switch their holdings to non-dollar denominated assets
US yields will have to rise above what they would have been otherwise.

John Geweke - University of Iowa

Bayesian Modeling of Conditional Distributions.

Abstract: In econometric modeling the problem of inferring the distribution of a variable of interest conditional on a vector of covariates arises repeatedly. Examples include distributions of future asset returns conditional on available information and the assessment of changing inequality in earnings conditional on characteristics like age and education. Typically the conditional distribution cannot reasonably be confined to a known parametric family of models. Since the entire conditional distribution, and not just the conditional mean, is important the voluminous parametric and nonparametric regression literature does not address this problem. This paper introduces a new variant of mixture of experts models developed in the neural computation literature over the past decade, using probit gating functions. As the number of mixture components increases the Kullback-Leibler distance to any conditional distribution in the exponential family becomes arbitrarily small. The paper shows that these models are practical for data sets commonly used in applied econometrics, and they outperform widely used alternatives.

11 August

Ralf Becker - University of Manchester

Thoughts on Evaluating Variance Covariance Forecasts.

Susan E. Mayer - University of Chicago, Harris School of Public Policy Studies (Dean)

The Relationship between Income Inequality and Equality of Opportunity.

15 September

Bob Gregory - Australian National University

Welfare Reform and the Disappointing Employment Aspects of the Current Boom.

Abstract: How is employment evolving in the current economic boom? What is happening to welfare recipients? Does Australian need radical welfare reform similar to the US economy?

6 October

Avner Kalay - Tel Aviv University and University of Utah

Ex Dividend Arbitrage in Option Markets, Estimated Volume of Trade, and Market Efficiency.

Abstract: We examine the behavior of call options during the ex-dividend period of their underlying stocks. The evidence is inconsistent with the predictions of rational exercise policy; a significant fraction of the open interest remains unexercised. The potential profits to the option writers trigger a sophisticated trading scheme that enable short term traders to receive a significant fraction of the gains. The trading scheme inflates reported volume and distorts its traditional relations to liquidity. The dramatic increases in volume of trade on the last cum-dividend day are made possible by limitations on transaction costs passed by the various option exchanges. Yet, option pricing models based on the assumption of rational exercise policy involve only minor mistakes.