New evidence on the excess smoothness of consumption

The purpose of this paper is to revisit the evidence on the excess smoothness of consumption within the permanent income model, by using recently available monthly data. Two formulations of the univariate process of personal disposable income are adopted: in the levels and in the log-levels. More than one sample is studied. Three different impacts are defined and measured. In theory, the three of them should be equal. The conclusion that is strongly supported is that these three impacts are significantly different from each other, implying that excess smoothness is still a feature of the data. However a weak version of the permanent income hypothesis is endorsed which is that consumption changes by the annuity value of revised expectations of future income. In other terms, permanent income innovations have a significant, although relatively small, effect on consumption

Simulating the market coefficient of relative risk aversion

In this paper, expected utility, defined by a Taylor series expansion around expected wealth, is maximized. The coefficient of relative risk aversion (CRRA) that is commensurate with a 100% investment in the risky asset is simulated. The following parameters are varied: the riskless return, the market standard deviation, the market stock premium, and the skewness and the kurtosis of the risky return. Both the high extremes and the low extremes are considered. With these figures, the upper bound of the market CRRA is 3.021 and the lower bound is 0.466. Log utility, which corresponds to a CRRA of 1, is not excluded

New Jurassic amber outcrops from Lebanon

International audienceAmber predating the Lower Cretaceous is extremely rare. During the past two decades, records of discoveries of amber sites have increased considerably worldwide. We report herein the discovery of ten new outcrops of amber from the Late Jurassic in Lebanon, in addition to other nine outcrops described by Azar et al. (2010). Some of these outcrops gave large centimetric sized amber pieces. Each of these new amber outcrops is described, and its infrared spectrum is given. Though the Jurassic amber yielded to date no more than some fungal inclusions, this discovery is significant and promising especially in the reconstruction of the paleoenvironment

US Growth And Inflation

This paper tests the relation between inflation and growth in the US. This relation is negative and statistically significant even with a monthly frequency. Moreover, the impact is higher with quarterly data, relative to annual data, and higher with monthly data relative to quarterly data. The relation remains robust (1) with IV (2SLS) estimation, (2) when inflation is divided into positive and negative components, (3) when it is divided into expected and unexpected components, and (4) when the applied model is an expectations-augmented Phillips curve. Although the paper argues that the theory that should explain this negative relation is the demand for real balances, the evidence is also consistent with a simple bivariate association

Gold and US money demand

This letter is about the long run cointegration relation of the US money demand function that incorporates a gold price variable. A three-equation model is jointly constructed and estimated. The first equation has real gold prices, as a dependent variable, and real money, the real dollar index, a scale variable, and the lagged cointegration residual as independent variables. All the variables are in first-differences of the logs except the cointegration residual. The second equation is the cointegration regression with the same variables in log levels. And the third equation is a GARCH model of the conditional variance of residuals. Two different scale variables are chosen: the industrial production index and the real personal disposable income. Both variables produce close estimates. All coefficients are of the correct expected sign and are statistically different from zero. The evidence presented is highly supportive of the model. In particular we find long run money neutrality, and long run constant economies of scale for both scale variables. Moreover, both the short run and long run elasticities of the real dollar index are also unitary. Surprisingly real money and each one of the two scale variables, have no short run effects on the log of real gold prices, but have only long run effects. One can no more exclude gold from the US money demand without incurring a mis-specification. In this regard gold may be the missing variable that produces the structural breaks found in the literature

Random Walks in Daily Foreign Exchange Rates? The Case of Lebanon (2010-2015)

In most of the academic literature on asset prices, like equities or foreign exchange, the words weak-form efficiency and random walk are used interchangeably. This paper makes a distinction between these two concepts. Weak-form efficiency holds when price increments are independent and random. A random walk is more stringent: it requires that the probability distribution of price increments be identical and normal, in addition of being independent. As expected the null hypothesis of a random walk is rejected with force while the null of weak-form efficiency is not. This implies that linear filter rules, chartism, and technical analysis cannot produce abnormal profits. But this implies also that non-linear filter rules, chartism, and technical analysis can be profitable. This explains the reality of finding departments of technical analysis in most Lebanese banks. If the market experience of Lebanon is generalized to other countries this would explain why international banks also have such departments

Impact of Internal and External Factors on the Short Run and the Long Run Profitability of Commercial Banks in Lebanon

The study of the determinants of bank profitability has a long history. A vast literature on these determinants has developed since the early 1980s. It is common in the literature to divide these determinants into internal and external factors. Internal factors are those factors under the control of the bank, while banks do not have control over external factors. This paper adds to the literature the effect of these same factors on the book value of bank equity, and not only on the Net Interest Margin. This is seldom tested elsewhere. Showing how the short run and the long run profitability of commercial banks is affected by these factors is important in order to identify which factors are relevant, the extent to which they are relevant, and to help banks react optimally to changes in these factors. Although theoretically the signs of the impacts of the factors are uncertain the results show that most of the factors selected have a statistically significant impact on the two measures of profitability, the Net Interest Margin, and the Net Worth. Moreover the results show that there is a statistically significant differential impact of some of these factors on large banks relative to small banks. The paper thus unveils quantitatively how banks respond to changes in economic indicators. This can help banks predict, react, and compare their performance to the market, to the industry, and to its own past evolution. Keywords: Profitability, commercial banks, Lebanon, internal and external factors, robust least square

The Equity Premium and Inflation: Evidence from the US

There is recent and strong evidence that nominal stock returns are independent of inflation. In what amounts to the same thing, when real stock returns are regressed on inflation the resulting estimated coefficient on inflation is negative and unitary. These two propositions are mathematically equivalent. The purpose of this paper is to show that the market stock return is also independent of expected inflation, as measured by the T-bill rate. Firstly, regressions of the equity premium on inflation produce invariably slope coefficients that are statistically insignificantly different from -1. The inflation variable on the right hand side of the regression picks up the sign and the magnitude of the T-bill rate in the equity premium on the left hand side of the regression. This is as expected because the T-bill rate is an unbiased predictor of the future inflation rate, or, in other terms, the T-bill rate is a proxy for expected inflation. Hence regressions of real stock returns on inflation are in substance the same as regressions of the equity premium on inflation, and in both cases nominal stock returns are independent of inflation, and of its expected proxy, the T-bill rate. Secondly, additional evidence is provided from regressions of stock market returns on the inflation rate and the T-bill rate taken together. The hypothesis that the sum of the two coefficients on these two variables is statistically insignificantly different from zero is strongly supported. Moreover, the joint null hypothesis that the first coefficient is equal to -1 and that the second coefficient is equal to +1 is also strongly supported. As a conclusion stock prices already reflect macroeconomic shocks and there is neither money illusion nor over and under adjustment on the part of investors