Contributions in Merlin

In this paper, we introduce a new algorithm to estimate the term structure of interest rates. It is obtained from a constrained optimization, where the objective is to minimize the integral of squared first derivatives of the instantaneous forward interest rate subject to the condition that the estimated bond prices lie within the range of observed bid and ask prices. We use a finite series of ordinary Laguerre polynomials to approximate the unknown function of the instantaneous forward interest rate. The objective function can be written explicitly as a quadratic form of the Laguerre constants and the nonlinear constraints can be obtained from a recurrence relationship. The estimation error is less than one basis point, given a sufficient number of bonds.

Since the late 1990s, the European higher education system has had to face deep structural changes. With the public authorities seeking to create an environment of quasi-markets in the higher education sector, the increased competition induced by recent reforms has pushed all publicly financed higher education institutions to use their resources more efficiently. Higher education institutions increasingly now aim at differentiating themselves from their competitors in terms of the range of outputs they produce. Assuming that different market positioning strategies will have different effects on the performance of higher education institutions, this paper explores the existence of economies of scale and scope in the German higher education sector. Using an input-oriented distance function approach, we estimate the economies of scale and scope and the technical efficiency for 154 German higher education institutions from 2001 through 2007. Our results suggest that comprehensive universities should indeed orientate their activities to the concept of a full-university that combines teaching and research activities across a broad range of subjects. In contrast, praxis-oriented small and medium-sized universities of applied sciences should specialise in the teaching and research activities they conduct.

This paper studies the Cass-Koopmans-Ramsey model of optimal economic growth in the presence of loss aversion and habit formation. The representative agent's preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution (CIES) case and Kahneman and Tversky's prospect utility. We nd that the transitional dynamics of optimal consumption paths differ distinctly from the standard model, in particular consumption smoothing is more pronounced. We also show that prospect utility can cause the economy to remain in a steady state with low consumption and low capital.

Theoretically, collateral constraints have the potential to strongly amplify and propagate aggregate shocks. However, the quantitative literature tends to find rather weak and non-robust effects. This paper tries to improve on this by modeling the interaction between idiosyncratic risk and collateral constraints. To this aim, agents' productivities as workers and entrepreneurs are assumed to evolve stochastically. This leads to a perpetual mismatch between wealth and skills, which is the reason for collateralized borrowing. The advantage of this modeling strategy is threefold: First, the evolution of skills can be measured empirically. In contrast, the heterogeneity in patience that the previous literature assumes to excite collateralized borrowing is not even intended as a serious micro-foundation. Second, idiosyncratic risk creates a non-degenerate distribution of wealth. As a consequence, the percentage of constrained agents changes as shocks hit the economy. Among other things, this generates recessions that are much sharper than booms. Last but not least, the impact of collateral constraints turns out to be larger and more robust in the setup with idiosyncratic risk compared to models with heterogeneity in patience.

The pricing kernel puzzle is the observation that the pricing kernel might be increasing in some range of the market returns. This paper analyzes the pricing kernel in a financial market equilibrium. If markets are complete and investors are risk-averse and have common and true beliefs, the pricing kernel is a decreasing function of aggregate resources. If at least one of these assumptions is violated, the pricing kernel is not necessarily decreasing. Thus, incomplete markets, risk-seeking behaviour and incorrect beliefs can induce increasing parts in the pricing kernel and can be seen as potential solutions for the pricing kernel puzzle. We construct examples to illustrate the three explanations. We verify the robustness of the explanations under aggregation and compare the phenomena with the findings in the empirical literature. The results are used to reveal strengths and weaknesses of the three solutions. Risk-seeking behaviour is a fragile explanation that can only work in a model with atomic state space. Biased beliefs are robust under aggregation and consistent with the empirical findings. In incomplete markets, it is easy to find a pricing kernel with increasing parts. In order to get situations where all pricing kernels have increasing parts, we need extreme assumptions on the wealth distribution.

Higher-dimensional symmetric games become of more and more importance for applied micro- and macroeconomic research. Standard approaches to uniqueness of equilibria have the drawback that they are restrictive or not easy to evaluate analytically. In this paper I provide some general but comparably simple tools to verify whether a symmetric game has a unique symmetric equilibrium or not. I distinguish between the possibility of multiple symmetric equilibria and asymmetric equilibria which may be economically interesting and is useful to gain further insights into the causes of asymmetric equilibria in symmetric games with higher-dimensional strategy spaces. Moreover, symmetric games may be used to derive some properties of the equilibrium set of certain asymmetric versions of the symmetric game. I further use my approach to discuss the relationship between stability and (in)existence of multiple symmetric equilibria. While there is an equivalence between stability, inexistence of multiple symmetric equilibria and the unimportance of strategic effects for the comparative statics, this relationship breaks down in higher dimensions. Stability under symmetric adjustments is a minimum requirement of a symmetric equilibrium for reasonable comparative statics of symmetric changes. Finally, I present an alternative condition for a symmetric equilibrium to be a local contraction which is more general than the conventional approach of diagonal dominance and yet simpler to evaluate than the eigenvalue condition of continuous adjustment processes.

We argue that there is a connection between the interbank market for liquidity and the broader financial markets, which has its basis in demand for liquidity by banks. Tightness in the interbank market for liquidity leads banks to engage in what we term “liquidity pull-back,” which involves selling financial assets either by banks directly or by levered investors. Empirical tests support this hypothesis. While our data covers part of the recent crisis period, our results are not driven by the crisis. Our general point is that money matters in financial markets. Different financial assets have different degrees of moneyness (liquidity) and, as a result, there are systematic cross-sectional variations in trading activity as the price of liquidity, or the level of tightness, in the interbank market fluctuates.

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Using comparative case studies, this paper shows how institutional contexts influence the process of diffusion of a complex technology by determining the pattern of material resources and authority available to actors in their struggles to control the technology, and by constituting the discursive resources that may be mobilized in their struggles to shape its meaning in preferred ways. The paper also reveals how governance structures may be contested and realigned when they conflict with interests legitimized by dominant institutional logics. This form of contestation and adjustment constitutes one mechanism by which institutional frameworks are tested, stretched and reproduced or redefined.

An agent can choose to forego bene ts from side opportunities and to instead provide bene ts to the principal. In return, the principal o¤ers rewards. If this exchange is not contractible, typically repeated interaction will be required to sustain it. This model allows the agents productivity in contractible and possibly also non-contractible actions inside the relationship to be correlated with productivity in side activities. This arguably realistic assumption yields several novel implications for the feasibility of relational contracts and for agent selection by principals. The analysis reveals, for example, that optimal agent productivity is often non-monotonic in the importance, to the principal, of ensuring agent reliability.