Browsing by master's degree program "Magisterprogrammet i ekonomi"
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Catastrophe bond spread pricing in the primary market based on multifactorial models : new evidence (2022)The prevailing volatility of the price/spread related to catastrophe risk around this newly innovative type of instrument, called CAT bond, gave light to this literature. Contrarily to normal type of insurance coverage risks (such as cars, houses, etc...) risk associated to natural and human catastrophes is more unpredictable and costly for (re)insurance companies. Insurance and reinsurance companies found a way to finance this expensive risk by shifting it to investors through Insurance-Linked Securities (ILS), more precisely and successfully, CAT bonds. By cross-checking data and information from multitude of sources, I investigated which are the main determinants capable to influence the price, spread or coupon of a catastrophe bond on the primary market for those instruments. This paper gathers data of 284 catastrophe bonds issued in the market between January 2013 and October 2021 provided by Artemis deal directory. My research contains an introduction part on those innovative type of bonds, an overview on previous research regarding the question and their results, and some empirical data on the main goal of this work, which is defining what variables influence the price of the CAT bond in the primary market. OLS regressions techniques with heteroskedasticity and autocorrelation consistent standard errors are mainly used based on multifactor based models in order to identify the main determinants of the price. The work of Alexander Braun will be the main inspiration for this work, I will apply a couple of same techniques on my work, according to the data available and Stata limitations. The outcome of the larger model including the whole set of variables and crossed variables shows that the expected loss is the major influencers of the catastrophe risk prices for both the in-sample and out-of-sample estimation and across diversified subsamples and models. As per the conclusion from previous researchers, the expected loss variable has shown to impact positively the price of the coupon bond much more than any other variable.
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(2022)The phrase 'central limit theorem' has commonly come to stand for a result where partial sums of random variables converge to a gaussian random variable in the sense of distribution. Theorems of this nature readily yield applications to statistics and econometrics since they form the theoretical basis of approximating the sampling distribution of a given test statistic when the exact distribution may be intractable or otherwise infeasible to be retrieved. Faced with such a situation, a researcher can instead ask whether the test statistic, or a certain transformation of it, converges in distribution as the sample size grows without bound. If the answer is in the affirmative, then one may in a principled manner approximate the distribution of the finite-sample statistics with that of the limit distribution such that the approximation can be made in some sense arbitrarily good by sufficient increases in the sample size. Naturally, similar procedures apply in the case of estimators. These asymptotic normality results for econometric estimators, as they are called, require differing conditions to be satisfied depending on the nature of the data-generating process where the observations are thought to originate from. This thesis examines a selection of foundational central limit theorems in the cases of I.I.D., independent, D.I.D., and dependent data-generating processes and presents examples of their econometric applications, primarily to deduce asymptotic normality for a selection of key econometric estimators.
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(2020)The determinants of FDI have been a topic of interest in economics since the 1980s and this paper aims to contribute to this field. This study aims to measure how associated FDI is with the political risk as well as to see the extent of this relationship in Turkey in the years 1996–2017. The political risk is measured as a change in indexes that are provided by the World Bank, Freedom House, and Transparency International. These political indicators are Political Rights, Civil Liberties, the Corruption Perceptions Index, Regulatory Quality, Voice and Accountability, Rule of Law, Government Effectiveness, Control of Corruption, and Political Stability. The earlier literature on FDI and political risks is mostly empirical and there has not been much theoretical research. Chakrabarti analyzed the past studies on FDI and its determinants in 2001 and found out that in the earlier research, almost every explanatory variable of FDI except the market size was sensitive to small changes in the conditioning information set, casting doubt on the robustness of the results. There have also been conducted studies that address political risk or equivalent concepts. The 2005 research of Busse and Hefeker had the same topic as this paper but their data consisted of many countries and they employed two different panel models. One was a fixed-effects panel analysis while the other utilized a generalized method of moments estimator. I selected three model specifications for the time-series regression analysis. All three specifications have market size as a control variable and the other two also have the economy’s growth rate and trade openness. The third has the inflation rate as the final control variable. The data have a small number of observations which limits the options available for the empirical part of the study. Out of the nine political indicators, Regulatory Quality is the only political indicator that is not associated with FDI, while the results on the Corruption Perceptions Index and Control of Corruption are inconclusive. The rest six are associated with FDI. The Rule of Law index has the highest estimated coefficient value of the World Bank indicators and the Political Rights index has the highest estimated coefficient value of the Freedom House’s indicators.
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(2019)The design of college admissions has been a heatedly discussed topic in Finland, as recent government initiatives have led to a more centralized system. Some argue for letting colleges decide on their admissions procedures, while others believe that a centralized matchmaking procedure with priorities determined by the matriculation examination would be more cost-effective. This thesis aims to characterize various factors that the policy maker must take into account when designing a college admissions procedure, in light of existing theoretical research on both centralized and decentralized matching markets and empirical studies on social determinants of college choice and the capacity of entrance examinations to elicit information on student ability and motivation. The two-sided matching literature is discussed extensively because of its usefulness for designing centralized clearinghouses for matching markets. The student-proposing deferred acceptance algorithm emerges as the best choice for a policy maker who regards strategy-proofness and respecting of priorities as especially important, at least if manipulation by colleges is implausible. However, strategy-proofness is fragile in practical applications, applicants may try to manipulate also strategy-proof mechanisms and reporting the whole preference relation is still only weakly dominant. Consequently, satisfaction of reported preferences should not be taken as evidence of welfare properties of a matching without qualifications. The use of a common entrance examination may be more cost effective than a system based on college-specific entrance examinations, as colleges do not then need to spend resources on organizing the examinations. However, students have then stronger incentives to perform in the common entrance examination, and there is already evidence that more students retake the matriculation examination in Finland. The overall effect on the costs of organizing entrance examinations is an uncertain empirical matter. The importance of preparation courses is likely to decrease, which saves resources and contributes to socioeconomic equity. On the other hand, making students choose on their study paths earlier in life may erode socioeconomic equity. A larger role for the matriculation examination provides stronger incentives for showing effort in high school, which the policy maker may see as beneficial. While a system with a common entrance examination makes it possible for a student to get admitted to a second preference when she is rejected by her first preference, it remains an empirical question to what extent this reduces the propensity to apply again to competitive colleges. The excess demand for certain colleges is a result of student preferences and is not solvable by any mechanism that gives a strong priority to satisfying student preferences.
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(2023)Failures in bargaining, such as strikes or stalled climate change negotiations, are costly for all parties. So why does bargaining fail when mutually beneficial agreements exist? In the thesis, the classical problem of bilateral bargaining is studied by the means of a new laboratory experiment and a literature review of related theoretical and experimental work. The main focus is on the role of commitment tactics as a source of conflict. In the literature, complete information bargaining is often deemed to be efficient whereas incomplete information is considered to be the main driver of delay. However, by simply allowing the negotiators to attempt strategic commitments that are costly to make and uncertain to succeed, unique predictions of inefficient equilibria are obtained even when bargaining under complete information. The main theoretical framework of the thesis is a dynamic bilateral bargaining model of tough negotiations and delayed agreement. In the unique stationary Markov perfect equilibrium of the model, the bargaining takes the form of a war of attrition. Negotiators initially commit themselves to incompatible demands but an agreement is reached once a commitment decays. The rates at which the commitments decay determine the expected duration of the conflict. Moreover, if the negotiators do not differ in patience the one with the stronger commitment receives in expectation a larger share of the contested surplus. The predictions of the model are tested in a new laboratory bargaining experiment. The analysis of the pilot round shows mixed results. We find some conflict and inefficiency in bargaining due to initial incompatible commitments. Furthermore, in line with the theory, more than half of the agreed offers have a different outcome than the prevalent equal sharing of much of the experimental bargaining literature. However, it cannot be concluded that the data would be completely in line with the hypotheses. The different rates at which the commitments decay do not always determine the bargaining outcome and length of the delay. Slight modifications to the experimental design, which may solve the issues detected, are discussed. The different delay patterns observed in various real-life bargaining contexts suggest that there is not a single approach which could explain all the inefficiencies. The approach emphasizing the role of strategic commitments provides an alternative to the incomplete information explanation. However, despite the rich theoretical literature, only a few experimental studies testing the commitment models exist. The pilot round of our experiment is an important contribution to this branch of bargaining literature. Certainly, further empirical research is required in order to better understand the exact role that strategic commitments have in different conflicts.
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(2021)Abstract Faculty: Faculty of Social Sciences Program: Economics Study track: General Track Author: Julius Vili Henrik Rissanen Title: Comparing cost-effectiveness of short-term and long-term psychodynamic psychotherapies focusing on patients with depressive disorder and their work ability during a 5-year follow-up. Level: Master’s Thesis Month and Year: November 2021 Number of Pages: Keywords: Psychotherapy; cost-effectiveness; Work Ability; psychodynamic; randomized trial; Instructors: Roope Uusitalo, Lauri Sääksvuori, Costanza Biavaschi, Olavi Lindfors Deposited at: Helsingin Yliopiston kirjasto Other information: Abstract: Background: Mental health disorders pose significant burden to the society, for example, because of decreased work ability. Psychotherapy as one of the most important treatment methods also causes significant costs for the healthcare system. Putting effort into cost-effectiveness between the different therapy types can help promote better targeting of treatments and economic efficiency in society. Aims: Explore cost-effectiveness in improving work ability between short-term and long-term psychodynamic psychotherapy in patients with depression. Methods: The 192 depressive patients randomized to two psychotherapies of different lengths in the Helsinki Psychotherapy Study were measured in baseline and annually for five years. Work Ability Index (WAI) and Global Assessment of Functioning (GAF) as an effectiveness outcome measures were compared to the total direct costs with incremental cost-effectiveness ratios (ICER) between the treatments. Results: The total direct cost of short-term psychodynamic psychotherapy (SPP; €7,087) was significantly lower than for long-term psychodynamic psychotherapy (LPP; €19,959). The biggest explanatory factor between the cost of the treatments was protocol study therapy costs (SPP €1304; LPP €16,715). In addition, those randomized to the SPP had significant costs during the follow-up from the non-protocol auxiliary psychotherapy treatments (€5142) which were more than fives times compared to the LPP. All of these cost differences between the treatment groups were statistically significant. Psychotropic medication and outpatient care each averaged below €2000, and the differences weren’t statistically significant. Psychiatric hospitalization during the follow-up was rare but yielded significant costs to the associated patients. Differences of effectiveness between the treatment groups on the work ability were not statistically significant. The incremental cost-effectiveness ratio was highly unstable due to small differences in efficiency, but large differences in cost. Conclusions: The study found a clear difference in cost in favour of SPP without losing in the effectiveness of the treatment. However, patients in the SPP used a significant amount of non-protocol auxiliary psychotherapy treatments which may be an indication of insufficient therapy treatment. The absence of difference in the effectiveness can be thus attributed to the widespread utilization of additional treatments in the SPP. Going forward, expanding the study to account for the impact of patient’s suitability to the treatment, particularly in understanding SPP cost-effectiveness, would be worthwhile.
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(2020)This thesis evaluates the effects of entry on incumbent firms' prices and procedures volume in dental care markets using difference-in-differences regression and administrative data on private dental care visits reimbursed by the Social Insurance Institution of Finland. The entry is considered as a competition increasing shock. The entrant's prices were remarkably low at the time of the entry and the firm was able to acquire a large share of volume in common procedures performed at the market. Thus, the entrant offered a real low-cost alternative to the residents of the Capital Region. I focus on examinations and fillings, which are two of the most common procedures. Patients face switching costs when changing their dental care provider. This means that incumbent firms with locked-in customers might be able to accommodate the entry easier, than without the switching costs. The results show that incumbent firms do not lower their prices in response to the entry by economically significant amount. However, the results suggest that incumbent firms perform less fillings after the entry. The effect is driven by summer months. The pattern where the incumbent firms do not change their prices and lose a share of their turnover to the entrant is consistent with the theoretical switching costs literature.
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(2017)The aim of this thesis is to demonstrate the importance of selecting feasible and, preferably data-based prior assumptions for the Bayesian time-varying coefficient vector autoregressive model (TVC VAR model for further reference) of Primiceri (2005) and Del Negro and Primiceri (2015). The TVC VAR model would be suitable for quantifying, for example, the impacts of different monetary policy or fiscal policy regimes. The biggest advantage of the TVC VAR model is that it takes into account both changes in economic policy and in the private sector behaviour. The latter feature makes the model very compelling to use, because the private sector plays an important role in facilitating mote stable change in monetary and fiscal policy regimes. In complex mathematical models, such as the TVC VAR model, the objectiveness of the model may be compromised by deliberate selection of parameters. The TVC VAR model uses the Bayesian approach, which means that the researcher’s choice for the prior assumptions for the model plays an important role in the estimation. Unfortunately, Primiceri’s (2005) approach for selecting hyperparameters for the model is poorly explained and difficult to follow. Given that the model depends only for a small number of hyperparameters, it might be possible that the model can be tuned in a predefined way. To investigate whether the TVC VAR model can be tuned according to a researcher’s preferences, I design a proof of concept approach for optimising the hyperparameters of the model according to a set of predefined results. In other words, my research question is: could one tune the TVC VAR model to produce results according to the researcher’s bias? In my proof of concept approach I tune the TVC VAR model for six different targets for the Finnish government consumption multiplier. Given that Finland is a small open economy, Primiceri’s (2005) original hyperparameter values for the United States are not feasible and other values have to be used. The results from my proof of concept analysis show that the TVC VAR model can be tuned for predefined results, which shows that the practical reliability of the model can be easily compromised. My findings highlight the need for a comprehensible, data-based approach for selecting the hyperparameters for the model.
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(2019)In this thesis, a conditional BVARX forecasting model for short and medium term economic forecasting is developed. The model is especially designed for small-open economies and its performance on forecasting several Finnish economic variables is assessed. Particular attention is directed to the hyperparameter choice of the model. A novel algorithm for hyperparameter choice is proposed and it is shown to outperform the marginal likelihood based approach often encountered in the literature. Other prominent features of the model include conditioning on predictive densities and exogeneity of the global economic variables. The model is shown to outperform univariate benchmark models in terms of forecasting accuracy for forecasting horizons up to eight quarters ahead.
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(2021)Despite continuous improvements in treatments, childhood cancers are among the most common causes of death for children in Finland. The cancer treatments are often arduous and have long-lasting effects even beyond the person diagnosed. Estimating these effects is important, since they can affect the cost-effectiveness of many policies. This thesis focuses on estimating the effects of childhood cancer on parental labour market outcomes, especially on the earnings gap between genders. Estimating the causal connection between health and socioeconomic variables is difficult for many reasons. In this thesis, a quasi-experimental method called "staggered differences-in-differences" is employed to solve this problem. In this method, families where cancer is diagnosed are compared to those that are diagnosed at a different time, and this way the true causal effect can be estimated. The thesis used administrative data from all childhood cancer diagnoses in Finland during years 1999-2017. The results show that childhood cancer reduces parents' income significantly. In short run, the effect is around 30% of the income before the diagnosis for mothers and around 7% for fathers. For mothers, the decline in employment is also significant. The welfare state provides support to these families to the extent that the decline in the income after transfers is not as large. The gender earnings difference increases around 20% in the short run, and increases also in families where mother is the main provider in the years before the diagnosis. My results are robust to different checks, including alternative estimators to correct for possible cohort-heterogeneous effects. The previous research is scarce and has provided differing estimates, but the results of this thesis are in line with the most relevant literature. The decline in earnings can be caused by the need to take care of the child, mental health effects or declined accumulation of human capital. While it is hard to suggest policy changes based on these results alone, the current benefits around ill children are short in duration and focused on one person and the results indicate that perhaps a longer benefit scheme distributed more evenly between genders might provide different outcomes.
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(2020)I study whether modest copayment increases affect the general practitioner (GP) use in Finland, a country with relatively low copayments, low inequality, and an extensive welfare state. I also examine whether the estimates are driven by certain low–income groups considered to be economically vulnerable. The Finnish Government allowed municipalities to increase copayments in 2015 and 2016 by 9.5% and 27.5% respectively. At maximum, this meant that the copayment for a GP visit was 20.90 euros at the beginning of 2016, approximately 40% higher than at the end of 2014. Almost all municipalities made the 9.5% increase at the start of 2015, but some of them decided not to make the 27.5% increase at all or made smaller increases. I exploit this variation by estimating two–way fixed effects regression models, and I use population–wide administrative data containing all primary healthcare visits in 2013–2018 and socioeconomic information on patients. In the models, copayment increases are negatively associated with both GP use and median waiting times. Based on the means of estimates from several specifications, the 27.5% increase alone is associated with a 2% decrease in visits per resident in the first four quarters after the change and a 6% decrease thereafter. The estimates are not statistically significant. The median waiting times decrease by two days in the first year after the change and five days thereafter, and these results are significant. When I estimate the effects of both increases, the means of estimates are now a 5% decrease in visits per resident in the first four quarters after the last increase and an 8% decrease thereafter. Some of the estimates are statistically significant. I find no evidence to support the hypothesis that the low–income groups were more sensitive to the increases. However, the confidence intervals are wide across the study, suggesting that the design may be underpowered to detect small effects from zero. Moreover, the point estimates are surprisingly far from zero, which is especially surprising when upper income quintiles are concerned. Therefore, more evidence is needed to be able to make firm conclusions about the causal effects of policy changes.
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(2021)Tämän maisterintutkielman tavoitteena on tarkastella sitä, miten markkinakriisi vaikuttaa sijoittajien käyttäytymiseen ja dispositioefektin ilmenevyyteen ja sen muutoksiin. Aineisto on kerätty COVID-19-pandemian aikana ja koostuu suomalaisista sijoittajista. Tutkimuksessa pyritään lisäksi löytämään demografisia muuttujia, joilla dispositioefektin ilmenevyyttä voitaisiin selittää. Tutkimuksessa tuloksille luodaan viitekehys aiemmista empiirisistä tutkimuksista ja teorioista, joilla dispositioefektiä on havainnollistettu ja selitetty. Kirjallisuuskatsauksen jälkeen tutkimuksessa siirrytään empiiriseen osioon, jossa dispositioefektiä ja sen muutosta mitataan suomalaisista yksityissijoittajista koostuvan aineiston pohjalta. Aineisto koostuu kahdesta osasta, joista ensimmäinen pitää sisällään suomalaisten sijoittajien transaktioita ja toinen Helsingin pörssissä listattujen osakkeiden hintatietoja vuosilta 2017-2021. Dispositioefektin voimakkuuden laskemiseksi käytetään mallia, jossa verrataan sijoittajan realisoimattomien ja realisoitujen osakkeiden markkinahintojen suhdetta. Dispositioefektin muutosta COVID-19-kriisin aikana tutkitaan aikasarja-analyysilla, ja demografisten muuttujien yhteyttä dispositioefektin suuntaan ja voimakkuuteen puolestaan regressioanalyysilla. Tutkimuksen keskeiset tulokset osoittavat, että sijoittajat kärsivät dispositioefektistä. Tämä tutkimustulos tukee aiempia tutkimuksia. Aikasarja-analyysin tulokset indikoivat, että sijoittajien reaktio COVID-19-kriisiin vähentää dispositioefektin määrää ja että sijoittajat ovat halukkaampia realisoimaan myös tappioitaan COVID-19-kriisin alkamisen jälkeen. Tulokset tukevat aiempia tutkimuksia, joiden mukaan markkinan tilalla on vaikutusta sijoittajien dispositioefektin voimakkuuteen, ja teorioita, joiden mukaan sijoittajat ovat halukkaita realisoimaan tappioita, kun he olettavat markkinahintojen jatkavan laskuaan. Regressioanalyysin tulokset osoittavat naisten kärsivän miehiä voimakkaammasta dispositioefektistä, mikä on myös linjassa aiempien tutkimustulosten kanssa. Toisin kuin aiemmissa tutkimuksissa, tässä tutkimuksessa iällä ei havaittu olevan vaikutusta dispositioefektin ilmenevyyteen tai voimakkuuteen. Dispositioefekti on hyvin tunnettu ja empiirisesti koeteltu sijoittajilla havaittu käyttäytymisharha. Tämän tutkielman tulokset tukevat aiempaa tutkimusta ja antavat uutta tietoa siitä, kuinka sijoittajat reagoivat globaaliin markkinakriisiin ja siitä, miten dispositioefektin ilmenevyys ja voimakkuus muuttuvat sijoittajien kohdatessa markkinakriisin, jonka ominaispiirteitä ovat pelko ja epävarmuus.
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(2023)Carbon pricing is a cost-effective instrument of climate change mitigation policy. Its implementation is, however, limited by various political constraints. The goal of this thesis is to examine what factors empirically explain cross-country variation in carbon pricing policy. Understanding the political constraints limiting carbon pricing may have implications for policy design. Previous literature on the empirical determinants of carbon pricing policy has focused mostly on determinants based on political economy theory, such as variation in domestic interests, and been conducted with data only on explicit carbon pricing. Implicit carbon prices created by fuel excise taxes are, however, a significant part of the total price on emissions. This thesis contributes to existing literature by introducing two new determinants in public finance considerations and country-level social cost of carbon as well as utilizing broader carbon pricing data. Empirical methods used include regression based on maximum-likelihood estimation of censored data and multiple linear regression. The size of the public sector is found to have a statistically significant positive association with carbon pricing regardless of the model used. This supports the hypothesis that cross-country variation in carbon pricing is empirically explained by a need to finance public spending and by the double-dividend hypothesis. Other factors that are found to have a clear positive association with carbon pricing are level of democracy, administrative capacity, and GDP per capita. The results are somewhat mixed concerning the effect of other political institutions related factors as well as factors related to carbon intensity. The hypothesis that country-level social cost of carbon positively affects carbon pricing is clearly rebuked which suggests that a competitive game does not describe national-level policymakers’ decision-making. The results of the thesis should not, however, be interpreted as causal because of omitted variable bias, reverse causality, and a lack of time-series data.
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(2020)High growth enterprises are important contributors to the aggregate economy but not much is known of their dynamics. Based on previous literature it is quite clear that their growth is usually not very persistent. The purpose of this study is to find the enterprise characteristics that positively affect the length of the growth period. In this study, extensive micro data from Statistics Finland is used. The data comprises of information from business register, financial statements, foreign trade, ownership and employee registers. Survival analysis methods are used to get information on the effects of different enterprise characteristic. The models account for the time-varying nature of the covariates and the coefficients. Based on the results, it is found that many of the characteristics have time-varying effects and the effects are not the same for all size classes of enterprises. It is quite clear though that access to foreign markets and innovativeness are important positive factors to the length of the growth period whereas size and age have negative effects. Survival analysis methods seem to fit quite well to this framework and they seem to produce robust results.
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(2019)Wage discrimination occurs when employees of equal productivity receive different wages due to characteristics such as ethnicity, sex, or nationality, which do not affect their productivity directly. One of the common challenges in empirical research on wages has always been the challenge of determining individual employees` productivity. Professional sports leagues such as NBA (National Basketball Association) provide an ideal setting for the study of salary discrimination, as the salaries, players` backgrounds, and different statistical measures of players` performance throughout their whole careers are available publicly. Therefore, economists have used professional sports leagues when studying salary discrimination by ethnicity or nationality. The objective of this research is to find out whether salary discrimination by nationality occurs in the NBA during the period between 2016 and 2018. The research consists of a literature review that introduces previous findings on salary discrimination by nationality in the NBA, and an empirical part which aim is to find out whether this discrimination still occurs in the 2016 – 2018. The dataset of this thesis consists of statistics that measure NBA players' on-court performance and salary during the 2016 – 2017 and 2017 – 2018 seasons, as well as their nationality, and physical attributes. The empirical analysis is carried out using linear regression-analysis, which has been a standard in previous researches on salary discrimination by nationality in the NBA. Moreover, this study applies Blinder-Oaxaca decomposition, which is one of the standard tools used in salary discrimination studies in general. The statistical analysis of this study does not find discrimination by nationality against either foreign or domestic born NBA-players during our sample period. Nevertheless, foreign players earn, on average, around USD 500,000.00 higher annual salaries than their American contemporaries. However, according to our analysis, this difference is explained by foreign players' on-court performance rather than their nationality. Some previous researches find that foreign players from large economic markets receive sizeable salary premiums due to marketing possibilities in their home countries. However, this study does not find the market size of a player's home country to have a statistically significant effect on their salaries. The earliest literature on salary discrimination by nationality in the NBA dates back to the 1990s. Over the years, the results of previous researches have varied between foreign or domestic players being discriminated against by nationality. However, as different tools for statistical analysis on player performance have improved drastically and basketball has indeed become a global sport over the years, it seems that discrimination by nationality does not occur in the NBA anymore in 2019.
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(2020)This thesis aims to answer the question of whether monetary policy influences stock prices in the United Kingdom and Finland. These countries have been chosen due to their economic differences. The United Kingdom is an open relatively large economy with an independent monetary policy set by the Bank of England. Finland, on the other hand is a small open economy, and it is part of a monetary union called Eurozone. Hence, the monetary decisions are made by the European Central Bank for all the members of the union. The research is conducted for the time period of 15 years (2003-2018) with monthly time-series data. The method used in the thesis is the structural vector autoregression model which allows for solving the endogeneity issue through imposing restrictions on the structure of the model. Hence, short-run restrictions and long-run monetary neutrality are applied to the model. The model is analysed using the estimation as well as impulse response functions. In order to consider the macroeconomic environment, variables such as inflation, commodity prices, and industrial production are used in the model. Moreover, a dummy variable is used to account for the financial crisis of 2008. The results of the structural vector autoregression estimation show there to be a statistically significant negative effect of monetary policy on stock prices for both countries. The impulse responses show that as contractionary monetary policy is implemented, stock prices tend to decrease. Contrarily, expansionary monetary policy results in an increase of stock prices. The effect of a monetary policy shock is larger on the stock prices and dissipates quicker in the United Kingdom. For Finland, the effect is minor, and it takes longer to dissipate. However, the effect is statistically significant for both countries
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(2022)Conflict-related violence and fragility are among the core development challenges of our time. Over the past decades, most armed conflicts have comprised one or more non-state actors, and conflicts commonly arise among domestic actors. These non-state actors cannot resort to conscript armies and thus need to motivate citizens to join their ranks. Due to this, addressing individual participation motivations is an integral part of the study of conflict. Armed conflict participation is puzzling because it comes with significant risks. In contrast, the possible benefits of conflict outcomes are often public and non-excludable goods, making conflict participation subject to a free rider problem. This thesis provides a narrative literature review of individual participation motivations in the presence of the free rider problem. The focus is on situations where individuals are not conscripts, and the armed groups cannot mobilise an existing reserve of combatants. The existing economic literature has addressed individual-level conflict participation motivations relatively little. This thesis assesses different motivational factors’ ability to solve the free rider problem and seeks to inspire future research. Both theoretical and empirical literature is covered. This thesis addresses three motivational factors: (1) material incentives and the opportunity cost of participation; (2) grievances and socio-emotional incentives; and (3) negative incentives, particularly forced participation and the cost of non-action. This thesis does not seek to determine which motivation provides the best explanation. Instead, the logic behind each motivational factor is illustrated, and their ability to solve the free rider problem is critically evaluated. This thesis concludes that each motivational factor can help solve the free rider problem, but relying on a single motivation is often insufficient. This thesis recommends that economists look beyond material incentives and account for various motivations. Complementing material incentives with socio-emotional and negative incentives, in particular, gives a fuller picture of why individuals are willing to participate and risk their lives in conflict activities. However, further empirical research is needed to identify and test the abovementioned motivations.
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(2020)We consider a so-called principal-agent problem, where our aim is to construct an optimal contract that maximises utilities for the contractor, the principal, and for the effort-exerting party, the agent. In our setting, the time-horizon of the contract is infinite, and the agent receives a continuously paid compensation for exerting effort. Our main goal is to establish a problem introduced in Sannikov (2008) and characterise an optimal contract by restricting the menu of feasible contracts, an approach inspired by Cvitanic et. al. (2018) We begin with an extensive literature review, where we review the continuous-time principal-agent problems and further motivate the scope of this thesis. We start from the notable article Holmström et. al. (1987), and we progress towards the works Williams (2008), Sannikov (2008) and Cvitanic et. al. (2018) Following the review, we construct the problem and lay the mathematical foundations for it. We focus on a new benchmark setting, adapted from Sannikov (2008) and Cvitanic et. al. (2018). We first define the so-called controlled state equation, and construct the canonical probability space. Then, we introduce then impose few assumptions regarding the core concepts, and identify the problems of the agent and the principal and characterise their objective functions. After characterising the problem, we characterise the optimal contract and show that the optimal contract maximises the principal's profit. We characterise the difference function of Sannikov (2008) to the agent's optimisation problem, and then follow Cvitanic et. al. (2018) on the reduction of the problem. The reduction is done by restricting the possible menu of contracts and thus reduce the non-standard problem to a dynamic programming problem. We introduce the corresponding Hamiltonian functionals, together with the value functions to the both principal and the agent. Furthermore, we introduce a family restricted processes, which we show to characterise the optimal contract. We finish with showing that the optimal contract exists even with the notion of retirement. Having completed the main technical contribution, that is, having solved for the optimal contract, we briefly discuss the results and their implications against previous literature. Additionally, we discuss the possible extensions to our research.
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(2021)Earnings insurance is a measure of how much earnings of a worker change relative to idiosyncratic shock to firm performance. In case of full earnings insurance, shocks are not passed onto earnings at all and otherwise earnings insurance is partial. Linked employer-employee data is widely used in this recent empirical research interest due to its rich nature. This paper explores earnings insurance in Finland by focusing on three aspects: how much firms in Finland provide earnings insurance, are there differences in levels of earnings insurance between industries and whether partial earnings insurance is driven by hours worked or hourly wage. The main findings are that firms in Finland provide partial but substantial earnings insurance in all industries and that hours worked play a smaller role than hourly wage in determining partial earnings insurance. Because data on hours worked is not available in many countries, this paper is able to bring new insight on the role of hours worked and hourly wage in the composition of partial earnings insurance. However, hours worked and hourly wage explain only around half of partial earnings insurance, so the result should be considered with caution.
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(2024)The goal of this thesis is to analyse what are the effects of the monetary policy conducted by the European Central Bank (ECB) on Finnish macroeconomy and how persistent those effects are. The thesis assumes that because Finland contributes only a very small fraction of the economic output of the euro area, the overall economic situation of Finland does not matter from the point of view of ECB when setting the monetary policy stand for the monetary union. Based on the notation that the ECB’s monetary policy can be considered exogenous, the effects of monetary policy are estimated in the thesis by Ordinary Least Squares (OLS), while using macroeconomic variables in euro area as covariates. By including the variables that express the overall economic status of the euro area, the analysis attempts to remove the systematic part of the monetary policy when estimating the effects of monetary policy. The data used for the modelling consists of main macroeconomic variables in euro area and Finland between 1999 and 2023. These are unemployment, industrial output, inflation and the short interest rate. The interest rate variable consists of two elements. Because for a timespan of several years interest rates were stuck at zero a shadow rate is used to represent the monetary policy stand of the central bank. During the time when the zero lower bound was not binding, 1-month Euribor is used as the interest rate variable. The modelling results are quite well in line with common understanding about the nature of the monetary policy and its effects on real economy. Increase in interest rates results in increase in unemployment, fall in industrial output and decrease in inflation. There were however some uncertainties with the results when considering higher confidence levels. Overall, the results of the thesis seem to be coherent with commonly hold views about the effects of the monetary policy. The chosen empirical approach seems to yield similar results as more commonly used SVAR and DGSE models. The conclusion of thesis is that the monetary policy does impact the real economic activity as is expected.
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