Expected Growth Rate Research Articles

Real-Time Learning, Macroeconomic Uncertainty, and the Variance Risk Premium

The variance risk premium represents the compensation paid to index option sellers for the risk of losses following upward movements in realized market return volatility. Common wisdom connects these spikes with elevated uncertainty on economic fundamentals. I incorporate this link within a single-agent general equilibrium model, embedding real-time learning on state variables and parameters. I show that infrequent, large and relatively transitory macroeconomic uncertainty shocks produce a sizable and volatile variance risk premium. These shocks coincide with major events such as the LTCM/Russian crisis, the onset of the second Gulf War, and the great financial crisis of 2008-2009. I compute macroeconomic uncertainty as the dispersion of the agent’s belief about the expected growth rate of consumption. Its time-varying nature reflects in the variance risk premium, generating short-term predictability for market excess returns, consistent with the data. In addition, the model matches the higher order moments of the realized equity premium, with a reasonably low level of relative risk aversion equal to five. I finally provide evidence that parameter uncertainty may represent an extra-source of risk which is priced in equilibrium. In fact, a model with parameter learning and standard CRRA preferences, matches around half of the historical variance risk premium.

The Rise of Life Expectancy and Economic Growth in the 20th Century

This research documents that the growth rate of life expectancy over the 20th century decreased the growth rate of per capita GDP and the growth rate of population. Exploiting exogenous variation in life expectancy from mid-20th century medical advances (e.g., antibiotics), the analysis establishes that countries with higher levels of mortality from infectious diseases prior to the medical innovations experienced higher growth rates in life expectancy and population size and lower growth rates in per capita GDP in the second half of the 20th century. These findings are robust to the inclusion of initial life expectancy and initial economic conditions.

Optimal Portfolio Choice with Predictability in House Prices and Transaction Costs

We develop and solve a model of optimal portfolio choice with transaction costs and predictability in house prices. We model house prices using a process with a time-varying expected growth rate. Housing adjustments are infrequent and characterized by both the wealth-to-housing ratio and the expected growth in house prices. We find that the housing portfolio share immediately after moving to a more valuable house is higher during periods of high expected growth in house prices. We also find that the share of wealth invested in risky assets is lower during periods of high expected growth in house prices. Finally, the decrease in risky portfolio holdings for households moving to a more valuable house is greater in high-growth periods. These findings are robust to tests using household-level data from the Panel Study of Income Dynamics (PSID) and Survey of Income and Program Participation (SIPP) surveys. The coefficients obtained using model-simulated data are consistent with those obtained in the empirical tests.

Fatigue crack growth monitoring using high-frequency guided waves

A common problem in aircraft maintenance is the development of fatigue cracks at fastener holes due to stress concentration. High-frequency guided ultrasonic waves allow for the structural health monitoring of critical areas of a structure and can be measured with high accuracy using a noncontact laser interferometer. The use of a specific type of high-frequency guided ultrasonic wave that has good sensitivity for the detection of small defects, excited using a standard Rayleigh wedge transducer and propagating along the structure, has been investigated. Fatigue crack growth at the side of a fastener hole in a tensile, aluminum specimen was induced by cyclic loading of the structure. The crack length was monitored optically and showed good correlation with fracture mechanics calculations of the expected growth rate. The changes in the guided wave signal due to the fatigue damage were monitored using a noncontact laser interferometer and quantified. The measurements show a good sensitivity for the early detection of fatigue damage and for the monitoring of fatigue crack growth at a fastener hole. The propagation and scattering of the high-frequency guided ultrasonic wave has been simulated numerically using a three-dimensional finite difference code. Good agreement was found between the measured and predicted changes of the ultrasonic signal for the increasing fatigue crack area, allowing in principle for the approximate sizing of the defect.

The macroeconomic effects of fiscal policy in a stochastically growing economy

This paper develops a stochastic model of endogenous growth with productive government expenditure. Herein, we specify the CES production function according to recent empirical evidence. The elasticity of substitution plays a key role in determining macroeconomic performance and the effectiveness of fiscal policy under uncertainty. Results demonstrate that a large elasticity of substitution provides a large expected growth rate and also large volatility of the growth rate. Regarding these effects, the growth-maximizing tax rate and welfare-maximizing tax rate under uncertainty are larger or smaller than those of deterministic economy according to the elasticity of substitution.

Effect of region on the food-related benefits to age-0 walleye pollock (Theragra chalcogramma) in association with midwater habitat characteristics in the Gulf of Alaska

Abstract Wilson, M. T., Mier, K. L., and Jump, C. M. 2013. Effect of region on the food-related benefits to age-0 walleye pollock (Theragra chalcogramma) in association with midwater habitat characteristics in the Gulf of Alaska – ICES Journal of Marine Science, 70: . In the western Gulf of Alaska (GOA), we compared age-0 juvenile walleye pollock body weight, food habits, and expected growth rates between two regions during 3 years. The benefit to rearing off Kodiak Island vs. in the Semidi Islands vicinity increased among years with body length because larger fish consumed more euphausiids, and euphausiids were apparently more available in the Kodiak region. This explains previously observed regional variation in body size, condition, and growth rates within the GOA population and points to potential importance of the Kodiak region as a walleye pollock nursery. During September 2005, 2007, and 2009, Kodiak midwater was cooler and saltier than Semidi midwater, presumably due to a relatively narrow continental shelf and greater oceanic influence. Zooplankton composition differed between regions with the greater euphausiid population density off Kodiak being most relevant to walleye pollock food habits. As found historically, age-0 walleye pollock abundance was lower in the Kodiak region than in the Semidi region. However, the Kodiak fish were larger in both length and length-specific weight, and had fuller stomachs than Semidi fish, although differences were not significant in all years. Regional differences were most pronounced during the relatively warm year 2005 when fish were particularly large. Fish dietary mass was dominated by euphausiids, especially for Kodiak fish ≥55 mm standard length. Bioenergetics model output suggests that the greater euphausiid dietary proportion translates into faster growth of the Kodiak fish. The midwater habitat off Kodiak Island might therefore support above-average production of recruits to the GOA adult population due to better condition and likely survival of walleye pollock juveniles, especially when fish are large and thus able to more fully exploit euphausiids, but confirmation of above-average production of recruits depends on our ability to determine spatial structure in juvenile-adult population connectivity.

Scenario of Viability Gap Funding (VGF) Concept in Indian Infrastructure Projects

Infrastructure is a key area since it provides the main thrust and impetus area in the growth of a developing nation like India. A major area of concern for sustaining the real gross domestic product (GDP) growth in India has been the lack of adequate infrastructure, which can support the growth process. The deplorably low levels of public investment have rendered India’s physical infrastructure incompatible with large increases in the national product. Clearly, without improving the rate of infrastructure investment, the expected growth rate of 9 per cent and above at best would remain modest. The Planning Commission of India has estimated that investment in infrastructure sector defined broadly to include road, rail, air and water transport, electric power, telecommunications, water supply and irrigation will need to be of the order of about ₹45 lakh crores or US$1.4 trillion during the 12th Five-year Plan period. India has one of the largest road networks in the world, aggregating around 33 lakh km; historically, the budgetary resources from the governments have been the major source of financing for infrastructure such as road projects in India. This article focuses on Viability Gap Funding (VGF) that has been used for financing of infrastructure projects and specially for road projects in India. The purpose of this article is to examine and analyse viability of the VGF scheme for Indian road projects by studying projects being covered under the VGF option.

Kelly Criterion for Multivariate Portfolios: A Model-Free Approach

The Kelly criterion is a money management principle that beats any other approach in many respects. In particular, it maximizes the expected growth rate and the median of the terminal wealth. However, until recently application of the Kelly criterion to multivariate portfolios has seen little analysis. We briefly introduce the Kelly criterion and then present its multivariate version based only on the first and the second moments of the asset excess returns. Additionally, we provide a simple numerical algorithm to manage virtually arbitrarily large portfolios according to so-called fractional Kelly strategies.

Determination of growth rates as an input of the stock discount valuation models

When determining the value of the stocks with different stock discount valuation models, one of the important inputs is expected growth rate of dividends, earnings, cash flows and other relevant parameters of the company. Growth rate can be determined by three basic ways, and those are: on the basis of extrapolation of historical data, on the basis of professional assessment of the analytics who follow business of the company and on the basis of fundamental indicators of the company. Aim of this paper is to depict theoretical basis and practical application of stated methods for growth rate determination, and to indicate their advantages, or deficiencies.

Firm Valuation with Bankruptcy Risk

Traditional firm valuation discounts forecasted cash consequences that are understood as expected values under some scenario. It is not clear how, and to what extent, uncertainty is incorporated in the valuation. This paper constructs a new valuation model where uncertainty, in particular, bankruptcy risk, is explicitly included. At the end of each year, there is a jump to one of three possible states of the world at the end of the following year. A state is a combination of sales revenue for the firm being valued and return on the market index. The third state implies bankruptcy for the firm. The new model includes both the non-steady-state explicit forecast period and the steady-state post-horizon period and derives consistent values for the unlevered firm, the debt, the equity, the tax shields, and the levered firm. All discount rates, and the promised debt interest rate, are derived endogenously using CAPM. The model structure, in particular the manner in which sales revenue serves as driving variable, implies that one needs to perform only one discounting operation for each year, like in Fama 1977. A small annual bankruptcy probability is seen to lead to a noticeable value decrease. This paper also contains a discussion of where the bankruptcy risk is concealed in traditional firm valuation. The good news is that bankruptcy risk can actually be included in traditional firm valuation, at least approximately, by forecasting expected growth rates and discount rates that take into account the bankruptcy risk.

Site suitability and land availability for Endospermum medullosum plantation on Espiritu Santo, Vanuatu

SUMMARY Site and soil characteristics associated with existing plantings of whitewood (Endospermum medullosum Euphorbiaceae) were characterised across Espiritu Santo Island in Vanuatu. Two hundred, generally small (most commonly around 0.5 ha), plantations dominated by whitewood have been planted across the eastern side of the island. These plantations range up to 20 years in age and provide a guide to the expected growth rates of whitewood in plantation in those areas. Site and growth data collected from a range of those plots were used to determine the characteristics associated with the most productive plantations. This association of site variables with growth was correlated with pre-existing resource mapping to estimate the area and locations of land suitable (in terms of sustainable productivity) for whitewood plantation on the island. Some of the characteristics used in that estimation included soil depth, drainage, soil erodibility, slope and existing land use. Using this method it was estimated t...

The Sasol/Engen (Uhambo) merger-foreclosure and white fuel demand growth rates

During October 2005, the Competition Tribunal heard evidence on the proposed merger between two large oil companies, Sasol Oil (Pty) Ltd and Engen Ltd. During the hearing it emerged that major aspects that would determine the outcome of the matter were:Potential foreclosure;Demand growth rates of white fuel; andLogistics.The aim of this paper is to examine how the Tribunal dealt with the issue of potential foreclosure, by examining the expected growth rates of white fuels. The Tribunal had to consider the extent to which foreclosure in the oil industry would be profitable. This depended partly on expected growth rates in the demand for petrol and diesel. It will be argued that although there was conflicting evidence on this point, a proper analysis of economic variables such as expected economic growth rates, petrol demand elasticities and income elasticities, provided sound reasons for the Tribunal to prohibit the merger.

Higher than expected growth rate of the Endangered West African giraffeGiraffa camelopardalis peralta: a successful human–wildlife cohabitation

AbstractThe West African giraffe is a genetically unique population represented only by the subspeciesGiraffa camelopardalis peralta, categorized as Endangered on the IUCN Red List. These giraffes live outside protected areas, without natural predators and share their habitat with local people and their livestock. This study provides demographic data on this poorly studied megaherbivore and documents its recovery. We analysed the results of photo-identification censuses from 1996 to 1999 (count data) and from 2005 to 2008 (count and demographic data). From 1996 to 1999 the annual growth rate was c. 19% because of an unbalanced population structure after a period of severe poaching. From 2005 to 2008 an annual growth rate of c. 12–13% was estimated from both count data and demographic parameters. This value fits with the maximum growth rate calculated for a browser species based on the allometric relationship linking growth rate and body mass. During the period 2005–2008 adult and subadult females had a constant survival rate of 0.94 and a constant recapture rate of 0.97. Annual calf survival rate was 1. Observed sex ratio at birth was 0.57 and mean reproductive success was 0.257. Generation time was estimated to be 9.66 years. This spectacular population growth was mostly attributed to the absence of predators and the ongoing monitoring to limit illegal hunting.

Like milk or wine: Does firm performance improve with age?

Little is known about how firm performance changes with age, presumably because of the paucity of data on firm age. We analyze the performance of a panel of Spanish manufacturing firms between 1998 and 2006, relating it to firm age. We find evidence that firms improve with age, because ageing firms are observed to have steadily increasing levels of productivity, higher profits, larger size, lower debt ratios, and higher equity ratios. Furthermore, older firms are better able to convert sales growth into subsequent growth of profits and productivity. On the other hand, we also found evidence that firm performance deteriorates with age. Older firms have lower expected growth rates of sales, profits and productivity, they have lower profitability levels (when other variables such as size are controlled for), and also that they appear to be less capable to convert employment growth into growth of sales, profits and productivity.

Convertible Preferred Stock, Antidilution Clause, and Venture Capital Finance

This article uses a contingent-claims method to investigate how the provision of antidilution clause combined with the issuance of convertible preferred stock affect the entrepreneur’s incentive to exert efforts to improve the prospects of the operation of an investment project. For plausible parameter values, we find that the issuance of preferred stock induces the entrepreneur to declare bankruptcy earlier when either the size of uncertainty is larger, or the bankruptcy cost is smaller; which are opposite to the results that found in the straight bond model of Jou and Lee (2004). Furthermore, under the provision of an antidilution clause and assuming that the costs of exerting efforts are negligible, the entrepreneur will be more willingly to exert his efforts to increase the expected growth rate, or reduce the volatility of cash-inflow of the investment project, rather than reducing the upright investment cost upon investment, although all the three strategies can increase the entrepreneur’s expected value.

Israel's foreign trade policy: The benefits of its reform

We use an empirical estimation procedure to examine the effect of macroeconomic variables of Israel's trading partners on the country's exports. The main goal of our study is to use the estimation results to point to the optimal trade policy for Israel, and compare it with the current policy.Using disaggregated panel data on Israel's exports to its 22 main trading partners we were able to implement a unique estimation procedure, which enables a new and closer look at the effectiveness of the country's foreign trade policy. Our model estimates Israel's total export elasticities as well as specific elasticities of exports to each trading-partner. The model produces positive export elasticities with respect to a partner country's total imports and the real exchange rate. Free trade agreements (FTAs) were also examined, and were found to have a considerable positive effect on exports. A higher level of corruption in the destination country was found to be associated with a lower level of Israeli exports.Using our estimated results, and taking into account the array of Israel's foreign trade policy tools, we formulated recommendations for policy reform, highlighting the potential benefits of this reform on Israel's predicted exports. If no new foreign trade policy is introduced, a total growth of 74% in Israel's exports is expected over the course of 2012–2020; however, if reform recommendations are implemented, the expected growth rate nearly doubles, as Israeli exports are predicted to grow by a total of 135%.^p

Asset Pricing Under Keeping Up with the Joneses and Heterogeneous Beliefs

When agents agree to disagree about the expected growth rate of the aggregate endowment process, we study the asset price dynamics under “Keeping up with the Joneses” (KUJ) meaning that each agent maximizes the expected life-time CRRA utility of his relative consumption to the other agent in the economy. By solving the optimal consumption policies analytically, we obtain the market equilibrium under heterogeneous beliefs. We provide conditions for agents’ long-run survival and show that the market price of risk, risk-free rate, price-dividend ratio in market equilibrium are the consumption share weighted averages of these variables under each agent’s belief. We also show the cyclical behaviour of Sharpe ratio, risk-free rate, price and dividend ratio and stock volatility. Through Monte Carlo simulations, we find that, when the less risk averse agent is relatively optimistic, allowing a small amount of disagreement between agents can explain many market characterizes including excess volatility, a high equity premium and a low risk-free rate identified in financial markets.

货币供应量作为中国货币政策中介目标的两条路径 Two Paths to the Intermediate Target of Monetary Policy Based on the Money Supply in China

货币供应量是否适合被作为中国货币政策中介目标呢？为了回答这个问题，我们建立了两个理论模型作为两条通向目标解决方案的路径。路径1：在假定货币流通速度为变量而非固定的情况下(阎虎勤、刘震宇，2011)[1]，通过应用Friedman(1956)[2]提出的存量收入货币数量方程式，我们建立了一个求解货币供应量增长率预期值的模型。路径2：通过应用阎虎勤、刘震宇(2011)[3]提出的增量收入货币数量方程式，我们建立了另外一个求解货币供应量预期值的模型。通过以中国1994~2010年的数据为样本进行实证分析和敏感性分析证实，虽然通过两条路径我们都可以得到货币供应量增长率的预期值，但是路径2比路径1更显著。 Should the money supply be used as an intermediate target of monetary policy in China? For an- swering this question, we have created two theoretical models as two paths to the target solutions. Path 1: when assuming that the velocity of money is a variable but not a constant (Yan Huqin, Liu Zhenyu, 2011)[1], by using the income quantity equation of money suggested by Friedman (1956)[2], we have created one model to get the expected growth rate of money supply. Path 2: by using the income quantity equation of money changes suggested by Yan Huqin and Liu Zhenyu (2011)[3], we have created the other model to get the ex- pected growth rate of money supply. Based on the Chinese data sample during 1994-2010 the empirical and sensitivity analysis has approved that even though through the two paths we can get the expected growth rate of money supply, the path 2 is more significant than the path 1.

Ice Crystal Linear Growth Rates from −20° to −70°C: Confirmation from Wave Cloud Studies

Abstract As a result of recent comprehensive laboratory and field studies, many details have been clarified concerning atmospheric ice crystal habits below −20°C as a function of temperature, ice supersaturation, air pressure, and growth history. A predominance of complex shapes has been revealed that is not reflected in most models, with symmetric shapes often incorrectly emphasized. From the laboratory study, linear (maximum dimension), projected area, and volume growth rates of complex and simple habits have been measured under simulated atmospheric conditions for temperatures from −20° to −70°C. Presently, only a few in situ cases of measured ice crystal growth rates are available for comparison with laboratory results. Observations from the Interaction of Aerosol and Cold Clouds (INTACC) field study of a well-characterized wave cloud at −24°C are compared with the laboratory results using a simple method of habit averaging to derive a range of expected growth rates. Laboratory results are also compared with recently reported wave cloud results from the Ice in Clouds Experiment–Layer Clouds (ICE-L) study between −20° and −32°C, in addition to a much colder wave cloud at −65°C. Considerable agreement is observed in these cases, confirming the reliability of the laboratory measurements. This is the first of two companion papers that compare laboratory growth rates and characteristics with in situ measurements, confirming that the laboratory results effectively provide a predictive capability for cloud particle and particle ensemble growth.

Optimal portfolio for a highly risk-averse investor: A differential game interpretation

Risk-sensitive portfolio optimization is treated with a linear-Gaussian-factor model. The main interest is how a highly risk-averse investor controls his/her interest rate risk. A simple risk-averse limit with increasing risk-averse parameter γ ↑ ∞ is not appropriate: the associated maximized risk-sensitized expected growth rate goes to −∞ as γ ↑ ∞, and a “breakdown” occurs in the limit. Instead, a small-noise and large-risk-aversion limit is considered, assuming the factor-noise has a small parameter e 1, taking e-dependent risk-averse parameter γ(e) = O(e−2) 1, and letting e ↓ 0. The limit value is characterized as the value of a linear-quadratic differential game. A sequence (π(e))e>0 of e-dependent dynamic investment strategies is constructed from a saddle point of the game, and its asymptotic optimality is shown as e ↓ 0.