Contributions in Merlin

Applied researchers often test for the difference of the Sharpe ratios of two investmentnstrategies. A very popular tool to this end is the test of Jobson and Korkie (1981), whichnhas been corrected by Memmel (2003). Unfortunately, this test is not valid when returnsnhave tails heavier than the normal distribution or are of time series nature. Instead, wenpropose the use of robust inference methods. In particular, we suggest to construct a studentized time series bootstrap confidence interval for the difference of the Sharpe ratios and to declare the two ratios different if zero is not contained in the obtained interval. This approach has the advantage that one can simply resample from the observed data as opposed to some null-restricted data. A simulation study demonstrates the improved finite sample performance compared to existing methods. In addition, two applications to real data are provided.

Workers can have good or bad work habits. These traits are transmitted from one generation to the next through a learning and imitation process, which depends on parents' investment in the trait and the social environment where children live. We show that if a sufficiently high proportion of employers have taste-based prejudices against minority workers, their prejudices are always self-fulfilled in steady state and minority workers end up having, on average, worse work habits than majority workers. This leads to a ghetto culture. Affirmative Action can improve the welfare of minorities whereas integration can be beneficial to minority workers but detrimental to workers from the majority group.

In the heart of the Great Crisis, amidst great uncertainty and concerns surrounding the future of capitalism, John Maynard Keynes launched his optimistic prophecy that growth and technological change would allow mankind to solve its economic problem within ancentury. He envisioned a world where people would work much less and be less oppressednby the satisfaction of material needs. To what extent have his predictions turned out to benaccurate? This essays attempts to provide some answers.

Understanding the mechanism through which financial globalization affects economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP)nand investments. I provide empirical evidence from a sample of 70 countries observednbetween 1975 and 1999. The results for both de jure and de facto indicators suggest that financial integration has a positive direct effect on productivity, while it does not directly affect capital accumulation. I control for indirect effects of financialnglobalization through financial development and banking and currency crises. While the evidence on financial depth as an indirect channel is weak, the results are more robust for financial crises: they depress both investments and TFP, and are favored by financial integration, though only to a minor extent. The overall effect of financialnliberalization is positive for productivity and negligible for investments.

We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post mechanisms, which use both players’ reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports.

Central bankers' conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should bendecreased to attain this goal. Real interest rates, however, are virtually unchanged. These results also hold in recent vintages of New Keynesian models with sticky wages, price and wage indexation and habit formation in consumption.

This paper asks whether tax cycles can represent the optimal policy in a modelnwithout any extrinsic uncertainty. I show, in an economy without capital and where labor is the only choicenvariable (a Lucas-Stokey economy), that a large class of preferences exists, where cycles are optimal, as well as a large class where they are not. The larger government expenditures are, the larger the class of preferences fornwhich cycles are optimal becomes. nTax cycles are also more likely to be optimal if frictions (deviations of the model from Walrasian markets) are added. While this cannot be shown inngeneral and will not be true for arbitrary frictions, I demonstrate this in two specific worlds. I consider an economy with search frictions in the labor market, and one with frictions in the goods and credit market. A reasonablenparametrization of both economies shows that results change considerably. Even with constant relative risk aversion, cycles can be optimal, whereas this class of preferences rules out cycles in the Lucas-Stokey economy.nFinally, I characterize the optimal policy. No more than two tax rates are needed to implement the Ramsey policy both in the Lucas-Stokey economynand in the model with frictions.

Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We use data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters of the model - the value of non-market activity and the bargaining weights. Our calibration implies that the model is, in fact, consistent with the data.

This paper investigates the determinants of vertical integration. We first derive annumber of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both these effects are stronger when the supplying industry accounts for a large fraction of the producer’s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number ofnfirm and industry-level characteristics.

In November 2005, 55.7 percent of 2 million Swiss voters approved a 5-year moratorium (ban) on the commercial cultivation of genetically modified (GM) plants within Switzerland. The present study examines how individual voting decisions were determined by (i) socioeconomic characteristics, (ii) political preference/ideology and (iii) agreement with a series of arguments in favour and against the use of GM plants in Swiss agriculture. The analysis is based on the data of the regular voter survey undertaken after national-level voting decisions in Switzerland. Among the socioeconomic characteristics, only the age group was clearly significant with individuals above 65 years less opposed to crop biotechnology. Several political preference/ideology variables were significant determinants of the vote, most notably the preferences about the role of the state in the economy. Perceived consequences of the use of GM plants for health, natural diversity of plants and animals were also strongly and significantly associated with approving and disapproving voter groups. The disapproving votes were not motivated by perceived benefits of GM-food production but mainly by perceived interests of Swiss science and industry. Our findings suggest that current concerns about the use of genetically engineered plants in agriculture may not automatically decrease with higher levels of education/knowledge and generational change. Furthermore, the analysis of the voter motives suggests that the public support for GM-free agricultural production would be even larger in other countries, where industrial interests in crop biotechnology are less pronounced.