Features - Undergraduate Papers

Abstract
This thesis attempts to explain the reasons for the underperformance of the East German economy by analyzing the situation in East Germany over the last decade. Afterwards, the policy choices in Poland will be presented so as to provide perspective on those made in Germany. The author comes to the conclusion that three main principles are at fault: 1) the wage policy, 2) the privatization process, and 3) the investment measures chosen. Through analyzing these policies it becomes apparent that policy makers ignored market forces. These resulted in gross distortions that have harmed the economy in East Germany. Poland, in contrast, has for the most part been forced to follow market mechanisms more closely at the expense of immediate hardships for laborers. It has therefore confronted fewer distortions in transitioning from a centrally planned econmy to amarket economy and has a brighter positive outlook for the next decade.

Abstract Physical constraints as well as regulatory restrictions pose many problems for economic analysis of electricity markets. Physical constraints create opportunities for firms to generate market power by isolating segments of the grid thus preventing competition. This can be problematic for regulators trying to identify market manipulation. This paper examines two commonly used indices of market power the Herfindahl-Hirschman Index and the Lerner Index and shows how they can be compared to one another specific to this gaming situation by aggregating the Lerner Index across the market and comparing the net change in the indices. By analyzing the indices together some of the problems of only using the Lerner or the HHI are eliminated. Through this analysis I offer a rule of thumb for regulators looking to spot market manipulation.

Abstract This paper analyzes Turkey’s attempts to reform its public pension system in the past decade and the prospects for additional reform in the future. The successes and failures of the reform process are situated within Turkey’s ongoing relationships with external institutions, notably the IMF and the EU. I posit that the strategies of engagement adopted by these two institutions, particularly when brought to bear on the political economy dynamics in Turkey, severely limit their ability to improve the prospects for reform.

Abstract This paper will explain why Denmark is more macroeconomically prepared than Sweden to join the European Monetary Union (EMU). Since becoming a member of the EMU entails a complete loss of monetary policy and restrictions on fiscal policy, candidates should have business cycles and monetary policies that are highly synchronized with those of the dominant Euro-Area economies. Currently, Denmark's business cycle is more convergent with that of Germany, and its fixed exchange rate with the euro permits it from conducting an autonomous monetary policy; therefore, in joining the EMU, it would not forfeit monetary autonomy to the European Central Bank (ECB). EMU membership is less appealing to Sweden, for its business cycle is less synchronous with that of Germany, and its flexible exchange rate still allots Sweden with a sovereign monetary policy.

Both Sweden and Denmark will likely encounter little trouble in adhering to the provisions of the Stability and Growth Pact. The Pact's recent reform has removed any fiscal dangers the EMU posed to both countries, and Sweden and Denmark have implemented budgetary targets that are more strict than the Pact's new provisions. Therefore, future Swedish and Danish EMU memberships should be contingent only upon whether close economic convergence with the Euro-Area is viable and whether the adoption of the ECB's monetary policy is optimal.

Abstract This paper seeks to determine the impact of emissions allowance banking on incentives for firms to invest in improved abatement technology. It reviews prior literature and theory, as well as current knowledge regarding the U.S. SO 2 allowance-trading program, and then develops a two-period model of allowance banking and investment. This model shows that banking of emissions allowances reduces the optimal level of investment in research and development. This paper then explores the determinants of this reduction and finally suggests areas for further study.

The real and financial integration between China and Taiwan are assessed through an analysis on the empirical validity of real interest parity, uncovered interest parity and relative purchasing power parity. The regression analysis and the decomposition of variances performed over the data show that although China ¡¦s exchange rate reform is merely instant, it significantly explains the deviation from the parity conditions. Exchange rate movements play a more major role in determining the variability of deviations from the parity conditions after the exchange rate reform. The unit-root tests indicate higher degrees of real and financial integration in the long-run. However, the tests for autocorrelation give evidence against instantaneous financial integration.

The Value-at-Risk framework is the most widely used metric to measure financial risk and exposures. This framework generates a single dollar amount of financial exposure for risk managers, but when capital markets are distressed and accurate risk models are needed most, the precision of the Value-at-Risk risk framework can deteriorate substantially. In order to develop a new risk framework which is robust to distressed capital markets, a financial variable which indicates the level of uncertainty associated with a given market is required. The implied volatility series for the S&P 500 index (VIX) tracks the variability implied by derivatives contracts on the S&P 500 index (SPX). My research has identified a strong relationship between the VIX and the SPX which is especially strong when the returns on the SPX are negative. This relationship forms the basis for a new risk management framework which is not subject to many of the shortcomings of the Value-at-Risk framework. Additionally, due to the persistent nature of implied volatility, accurate short term volatility forecasts can be generated. The final risk management model forecasts day-ahead probabilities of major S&P 500 loss events. Out-of-sample results show the new risk model, when used in conjunction with standard Value-at-Risk forecasts or as a stand-alone risk platform, provides robust risk controls by detecting an overwhelming majority of large loss events. Although the probit risk framework has several limitations, the strong out-of-sample performance indicates a high potential for practical applications.

Abstract
Using data are from the Federal Reserve Bank's 1998 and 2001 Survey of Consumer Finances, this study tests for "taste-based" discrimination in homeowner-household loans. The analysis consists of a series of probit regressions used to predict a household's probability of late payment. This late payment information is intrinsically valuable and may also be useful in determining eventual loan default. Results of the analysis show that, controlling for what the author considers relevant socioeconomic characteristics, minority headed households present a lower probability of being two months delinquent in loan payments at a statistically significant level in the 2001 observations; this probability is 29% for whites and 16% for non-whites. Though the results are similar for the 1998 observations (the probability of being two months late is 22% for whites and 19% for non-whites), the race coefficient is not statistically significant. When the 1998 and 2001 observations are restricted to households that have no second or third mortgage and whose first mortgage originated in the last five years, minorities are less likely to be delinquent in their loan payments in both data sets at a statistically significant level. The results of this study may be interpreted as evidence that "taste based" discrimination (that which is not based on profit maximization) exists. This paper provides a summary of other notable studies in the field of the economics of discrimination in mortgage lending and a review of the theoretical literature related to this topic in addition to these empirical results.

John Quinlan - Modeling Remodeling - Outstanding Paper Honorable Mention 2003

Abstract
Home remodel projects are usually framed in terms of how much market value they add to the home. This paper shows that most remodels actually have negative net market returns. Idiosyncratic benefits allow the total benefits of remodeling to be positive even if market returns are negative. These idiosyncratic benefits are closely tied to how long a homeowner expects to reside in their current home. Home sale patterns show that remodeled homes sell less often then their non-remodeled counterparts. Also, the amount of time elapsed between the end of the remodel job and the home sale is negatively related to net market returns.

Abstract
Public education levies are the best way for voters to influence the administration of public schools. Voters have many motivations for doing so. They might have children in the public education system; they might have friends and relatives who have children in school, or some other vested interest in either education quality or property tax rates. It has been noted that supporters of public education levies tend to be younger, wealthier, more educated, and have more children than people who do not support levies. Other factors that influence voting behavior are mobility, plans to relocate, or involvement in specialized programs that require additional funding. Levies have also been shown to have an effect not only on the quality of education within a school district, but also the value of properties within that district and the demographics of the voters within it.

Abstract
As part of the current discussion of free trade, this paper provides an understanding of how Mexico’s trade liberalization developed and examines the reasons that motivated policy makers to undertake such reforms.

Abstract
There has been a resurgence of interest in currency boards as a possible policy option to achieve a stable currency in newly established or hyperinflationary financial systems. A currency board is a “permanent” currency peg—i.e. a fixed exchange regime in which there are legal barriers and constitutional safeguards to ensure that the arrangement will be reasonably long lasting. This paper calls attention to recent developments in the Argentine experience of long-term life under a currency board. It will argue that currency board arrangements are unsustainable in the long-term for all but a few instances. The strength of a currency board lies in its rigidity and continuity, making it unable to adjust to real world uncertainty, external shocks, and market variations. Currency boards can be very useful transitional arrangements. They are advisable for countries where monetary institutions lack initial credibility or expertise, but where full monetary and exchange rate flexibility is seen as an important long-term goal. If used as a transitional arrangement, however, countries must be able to exit the currency board without losing the benefits they gained from adopting the currency board in the first place. Rigid rules may be desirable during a transition phase but may, over time, become unduly constraining. This is especially true in the presence of a large exchange rate misalignment, as is the case in Argentina today. This paper considers the options for Argentina and asks the question of whether or not crisis and collapse can be prevented.

Abstract
The nature of Major League Baseball (MLB) requires competition in order to keep the business alive. In any sports league, the presence of competitors allows for the livelihood of the game through producing an event with an uncertain outcome. The current state of the game lacks the competitive balance necessary for a thriving industry. Much of this competitive imbalance possesses the underlying problem of disparities in local revenue. Local revenue encompasses the revenue from ticket sales, local television, radio, and cable rights, concessions, parking, and team sponsorships. (Basically, those revenues associated with the location of the club comprise local revenue.) My thesis examines the evolution towards the current state of competitive imbalance in Major League Baseball. It also includes discussion of proposals for the future as well as data analysis of local revenue.




	Undergraduate Papers Tamsin Barford - What happened to East Germany's Economy?: A Comparison with Poland - Outstanding Paper 2002 Abstract This thesis attempts to explain the reasons for the underperformance of the East German economy by analyzing the situation in East Germany over the last decade. Afterwards, the policy choices in Poland will be presented so as to provide perspective on those made in Germany. The author comes to the conclusion that three main principles are at fault: 1) the wage policy, 2) the privatization process, and 3) the investment measures chosen. Through analyzing these policies it becomes apparent that policy makers ignored market forces. These resulted in gross distortions that have harmed the economy in East Germany. Poland, in contrast, has for the most part been forced to follow market mechanisms more closely at the expense of immediate hardships for laborers. It has therefore confronted fewer distortions in transitioning from a centrally planned econmy to amarket economy and has a brighter positive outlook for the next decade. Thomas Coatsworth - Spot Markets in Electric Power: their Creation and a Comparison of Methods for Measuring Market Power - Outstanding Paper 2005 Abstract Physical constraints as well as regulatory restrictions pose many problems for economic analysis of electricity markets. Physical constraints create opportunities for firms to generate market power by isolating segments of the grid thus preventing competition. This can be problematic for regulators trying to identify market manipulation. This paper examines two commonly used indices of market power the Herfindahl-Hirschman Index and the Lerner Index and shows how they can be compared to one another specific to this gaming situation by aggregating the Lerner Index across the market and comparing the net change in the indices. By analyzing the indices together some of the problems of only using the Lerner or the HHI are eliminated. Through this analysis I offer a rule of thumb for regulators looking to spot market manipulation. Graham Griffiths - The Political Economy of Pension Reform in Turkey - Outstanding Paper 2008 Abstract This paper analyzes Turkey’s attempts to reform its public pension system in the past decade and the prospects for additional reform in the future. The successes and failures of the reform process are situated within Turkey’s ongoing relationships with external institutions, notably the IMF and the EU. I posit that the strategies of engagement adopted by these two institutions, particularly when brought to bear on the political economy dynamics in Turkey, severely limit their ability to improve the prospects for reform. Alison Johnston - Sweden and Denmark in the European Monetary Union: A Macroeconomic Analysis of Potential Memberships - Outstanding Paper 2005 Abstract This paper will explain why Denmark is more macroeconomically prepared than Sweden to join the European Monetary Union (EMU). Since becoming a member of the EMU entails a complete loss of monetary policy and restrictions on fiscal policy, candidates should have business cycles and monetary policies that are highly synchronized with those of the dominant Euro-Area economies. Currently, Denmark's business cycle is more convergent with that of Germany, and its fixed exchange rate with the euro permits it from conducting an autonomous monetary policy; therefore, in joining the EMU, it would not forfeit monetary autonomy to the European Central Bank (ECB). EMU membership is less appealing to Sweden, for its business cycle is less synchronous with that of Germany, and its flexible exchange rate still allots Sweden with a sovereign monetary policy. Both Sweden and Denmark will likely encounter little trouble in adhering to the provisions of the Stability and Growth Pact. The Pact's recent reform has removed any fiscal dangers the EMU posed to both countries, and Sweden and Denmark have implemented budgetary targets that are more strict than the Pact's new provisions. Therefore, future Swedish and Danish EMU memberships should be contingent only upon whether close economic convergence with the Euro-Area is viable and whether the adoption of the ECB's monetary policy is optimal. Ron Kamara - Emissions Banking and Investment in Abatement Technology - Outstanding Paper 2004 Abstract This paper seeks to determine the impact of emissions allowance banking on incentives for firms to invest in improved abatement technology. It reviews prior literature and theory, as well as current knowledge regarding the U.S. SO 2 allowance-trading program, and then develops a two-period model of allowance banking and investment. This model shows that banking of emissions allowances reduces the optimal level of investment in research and development. This paper then explores the determinants of this reduction and finally suggests areas for further study. Weng Chi Lei - China and Taiwan: Real and Financial Integration Pre- and Post- China's Exchange Rate Reform - Outstanding Paper 2006 The real and financial integration between China and Taiwan are assessed through an analysis on the empirical validity of real interest parity, uncovered interest parity and relative purchasing power parity. The regression analysis and the decomposition of variances performed over the data show that although China ¡¦s exchange rate reform is merely instant, it significantly explains the deviation from the parity conditions. Exchange rate movements play a more major role in determining the variability of deviations from the parity conditions after the exchange rate reform. The unit-root tests indicate higher degrees of real and financial integration in the long-run. However, the tests for autocorrelation give evidence against instantaneous financial integration. Alexander Paulsen - Predictive Risk Management and Applications - Outstanding Paper 2008 The Value-at-Risk framework is the most widely used metric to measure financial risk and exposures. This framework generates a single dollar amount of financial exposure for risk managers, but when capital markets are distressed and accurate risk models are needed most, the precision of the Value-at-Risk risk framework can deteriorate substantially. In order to develop a new risk framework which is robust to distressed capital markets, a financial variable which indicates the level of uncertainty associated with a given market is required. The implied volatility series for the S&P 500 index (VIX) tracks the variability implied by derivatives contracts on the S&P 500 index (SPX). My research has identified a strong relationship between the VIX and the SPX which is especially strong when the returns on the SPX are negative. This relationship forms the basis for a new risk management framework which is not subject to many of the shortcomings of the Value-at-Risk framework. Additionally, due to the persistent nature of implied volatility, accurate short term volatility forecasts can be generated. The final risk management model forecasts day-ahead probabilities of major S&P 500 loss events. Out-of-sample results show the new risk model, when used in conjunction with standard Value-at-Risk forecasts or as a stand-alone risk platform, provides robust risk controls by detecting an overwhelming majority of large loss events. Although the probit risk framework has several limitations, the strong out-of-sample performance indicates a high potential for practical applications. Kenneth Piercy - Testing for Taste-Based Discrimination: Analyzing Survey of Consumer Finances Data - Outstanding Paper 2003 Abstract Using data are from the Federal Reserve Bank's 1998 and 2001 Survey of Consumer Finances, this study tests for "taste-based" discrimination in homeowner-household loans. The analysis consists of a series of probit regressions used to predict a household's probability of late payment. This late payment information is intrinsically valuable and may also be useful in determining eventual loan default. Results of the analysis show that, controlling for what the author considers relevant socioeconomic characteristics, minority headed households present a lower probability of being two months delinquent in loan payments at a statistically significant level in the 2001 observations; this probability is 29% for whites and 16% for non-whites. Though the results are similar for the 1998 observations (the probability of being two months late is 22% for whites and 19% for non-whites), the race coefficient is not statistically significant. When the 1998 and 2001 observations are restricted to households that have no second or third mortgage and whose first mortgage originated in the last five years, minorities are less likely to be delinquent in their loan payments in both data sets at a statistically significant level. The results of this study may be interpreted as evidence that "taste based" discrimination (that which is not based on profit maximization) exists. This paper provides a summary of other notable studies in the field of the economics of discrimination in mortgage lending and a review of the theoretical literature related to this topic in addition to these empirical results. John Quinlan - Modeling Remodeling - Outstanding Paper Honorable Mention 2003 Abstract Home remodel projects are usually framed in terms of how much market value they add to the home. This paper shows that most remodels actually have negative net market returns. Idiosyncratic benefits allow the total benefits of remodeling to be positive even if market returns are negative. These idiosyncratic benefits are closely tied to how long a homeowner expects to reside in their current home. Home sale patterns show that remodeled homes sell less often then their non-remodeled counterparts. Also, the amount of time elapsed between the end of the remodel job and the home sale is negatively related to net market returns. Chris Retallack - The Economics of Public Education Property Tax Levies - Outstanding Paper Honorable Mention 2001 Abstract Public education levies are the best way for voters to influence the administration of public schools. Voters have many motivations for doing so. They might have children in the public education system; they might have friends and relatives who have children in school, or some other vested interest in either education quality or property tax rates. It has been noted that supporters of public education levies tend to be younger, wealthier, more educated, and have more children than people who do not support levies. Other factors that influence voting behavior are mobility, plans to relocate, or involvement in specialized programs that require additional funding. Levies have also been shown to have an effect not only on the quality of education within a school district, but also the value of properties within that district and the demographics of the voters within it. Jorge Sebastian Roberts - The Reasons for Mexico's Trade Liberalization - Outstanding Paper Honorable Mention 2001 Abstract As part of the current discussion of free trade, this paper provides an understanding of how Mexico’s trade liberalization developed and examines the reasons that motivated policy makers to undertake such reforms. Alison Stites - Currency Boards in the Long-term: The Argentine Experience - Outstanding Paper 2001 Abstract There has been a resurgence of interest in currency boards as a possible policy option to achieve a stable currency in newly established or hyperinflationary financial systems. A currency board is a “permanent” currency peg—i.e. a fixed exchange regime in which there are legal barriers and constitutional safeguards to ensure that the arrangement will be reasonably long lasting. This paper calls attention to recent developments in the Argentine experience of long-term life under a currency board. It will argue that currency board arrangements are unsustainable in the long-term for all but a few instances. The strength of a currency board lies in its rigidity and continuity, making it unable to adjust to real world uncertainty, external shocks, and market variations. Currency boards can be very useful transitional arrangements. They are advisable for countries where monetary institutions lack initial credibility or expertise, but where full monetary and exchange rate flexibility is seen as an important long-term goal. If used as a transitional arrangement, however, countries must be able to exit the currency board without losing the benefits they gained from adopting the currency board in the first place. Rigid rules may be desirable during a transition phase but may, over time, become unduly constraining. This is especially true in the presence of a large exchange rate misalignment, as is the case in Argentina today. This paper considers the options for Argentina and asks the question of whether or not crisis and collapse can be prevented. Eileen Wang - Competitive Balance in Major League Baseball - Outstanding Paper Honorable Mention 2001 Abstract The nature of Major League Baseball (MLB) requires competition in order to keep the business alive. In any sports league, the presence of competitors allows for the livelihood of the game through producing an event with an uncertain outcome. The current state of the game lacks the competitive balance necessary for a thriving industry. Much of this competitive imbalance possesses the underlying problem of disparities in local revenue. Local revenue encompasses the revenue from ticket sales, local television, radio, and cable rights, concessions, parking, and team sponsorships. (Basically, those revenues associated with the location of the club comprise local revenue.) My thesis examines the evolution towards the current state of competitive imbalance in Major League Baseball. It also includes discussion of proposals for the future as well as data analysis of local revenue. Last Updated August 27, 2008