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Browsing by discipline "Taloustiede"

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  • Louhivuori, Valtter (2013)
    Innovations can be seen as an engine of long-term economic growth. Firms conduct research and development (R&D) activities to create new production technology, methods or products in order to rival their competitors. In addition to benefiting the inventor, new innovations have considerable positive externalities through knowledge spillovers. However, the socially optimal level of innovations may not be achieved, because firms can underinvest in R&D if they are not compensated for the positive externalities produced by their R&D activities. Public R&D programs aim to encourage innovation by compensating firms for the positive externalities that they produce. Finland’s recent public efforts on fostering innovation have been globally high by many indicators. Nevertheless, the effectiveness of these efforts has been relatively little scrutinised. This thesis studies the effectiveness of Finnish R&D program in fostering innovation outputs at the firm level. Firm-level patent statistics are used as a proxy for the innovativeness of a firm. A major contribution of this thesis is the comprehensive database that has been constructed and employed for the analysis. The database includes firm-level innovative characteristics for all the Finnish firms during a ten-year sample period, altogether covering more than two million observations for over 400 000 firms. Most of the studies on the effectiveness of the Finnish R&D program rely on the assumption that the researcher has full information on the relevant innovative characteristics that affect a firm’s program eligibility. This thesis addresses the program selectivity concern by employing an instrumental variable approach that exploits regional variation in public R&D funding stemming from the European Regional Development Fund (ERDF) aid regulations. The estimates suggest that when the program selection bias is neglected, program participation is associated with around 10 percentage point increase in patenting probability among active patentees, whereas for all firms, the increase in patenting probability is only around 0.1 percentage points. However, the instrumental variable estimates do not confirm any significant causal effect of R&D program on patenting. This thesis highlights the importance of accounting for the selection bias induced by the R&D program selection criteria. The public R&D agency is found to select firms strongly based on the same characteristics that are highly associated with innovation within firms. Therefore, it is important to ask if some of the supported firms might have had conducted their R&D projects even in the absence of the public support. Analysing the R&D program’s selection criteria plays a major role in scrutinising the effectiveness of public R&D subsidies and in the further development of public innovation policies.
  • Vanhala, Vili (2019)
    Thesis aims to investigate the motivations of the 2018’s planned policy in Finland, that would have allowed small companies to lay off workers easier. Policy was motivated by small companies’ having more uncertainty about employment decisions. It was assumed that when companies that were small enough could dismiss workers more easily, they would hire more employees, which would increase overall employment. At first, thesis discusses about effort and employees in a more general level using the one difference of dismissal conditions that exists in the Finnish labor market. It is found that there are differences in the employment decisions: employers do not want to hire any worker, they know that some perform better than other and there are incentives to choose a suitable worker. From these results, discussion becomes about potential moral hazard that could cause small companies to be less willing to hire additional workers. It is theoretically motivated, that easing dismissal conditions could improve employment through increased effort that can follow from the easing of dismissal conditions. However, there is not found a moral hazard problem that could only exist in small companies. Small companies may have harder to find a suitable worker for the potentially open position. Moral hazard might not be the only thing that explains this. It can also be attributed to the different characteristics of small and large firms. In addition, even if the employment could increase when dismissal conditions are eased, effects would be relatively small in the theoretical framework.
  • Björklund, Jenna (2018)
    There has been a lot of discussion on the downsides of cash during the 2010’s, while the new payment innovations during this same decade have provoked speculation that cash use will decrease considerably, potentially even disappear, in the upcoming years. However, cash is still used quite extensively, and to my knowledge, no systematic review on drivers of cash use has been made to date. The purpose of this thesis is to fill this gap by providing literature reviews both on the theory explaining cash use and the empirical evidence on the drivers of cash use. Additionally, Finland will be used as an illustration to study the relevance of the existing theories and empirical evidence in an environment where practically no barriers on switching completely from cash use to card use exist. The theoretical models explaining the choice between cash and cards at points of sale are built on assumptions that the pecuniary and/or non-pecuniary costs of cash and cards use differ. Particularly, cards are assumed to be more expensive than cash in some regard, which explains the cash choice. Behaviour wise, cash use is associated with lower transaction value, lower income, higher amounts of cash in the wallet and using cash to monitor liquidity. In empirical literature, factors that affect the payment instrument choice at point of sale are traditionally divided into four categories: payment instrument attributes, transaction specific characteristics, demographic factors and habit. Three out of the four theoretical models presented in this thesis seem relevant in explaining cash use in the view of the empirical evidence, although alternative explanations for the observed behaviour can also be found. Also, several other drivers of cash use are identified. Additionally, as making payments is a very frequent action, it is suggested that habit might have a bigger role in the payment instrument choice than is traditionally assumed, with several of the drivers being potentially a manifestation of habitual behaviour. A considerable limitation of the existing literature is that it focuses solely on explaining and analysing cash use for transaction purposes at points of sale. However, cash is also used for person-to-person transactions and as a store of value, and the reasons for cash use probably differ a lot in these other two use cases. Due to well-developed infrastructure, and cheap and fast card payments, many of the drivers of cash use identified by theoretical models and empirical evidence cannot explain cash use in Finland. In 2016 Finnish people used cash to pay small transactions, to control spending, because they perceived it to be easy to use, when they obtained it from another person or out of habit. Due to the quickly growing popularity of contactless card payments and the mobile phone applications for making easy person-to-person transactions, it is likely, that in future cash will decrease remarkably and it is mainly driven by the need to control spending, difficulty in using electronic payment instruments and habit.
  • Mielikäinen, Lasse (2016)
    Dynamic scoring is an approach, which strives to take into account the effects that public policy changes and changes in the law have on the macroeconomic variables. Scoring is an estimate of the effects the policy change is expected to bring. Compared to the traditional approach, dynamic scoring offers more information of the effects, but does this with increased uncertainty. In their paper “Dynamic scoring: A back-of-the-envelope guide” (2006) N. Gregory Mankiw and Matthew Weinzierl use neoclassical growth model, or Ramsey growth model, to examine how large a part of capital and labor income tax cuts pay for themselves by inducing higher economic growth, i.e. the size of the dynamic feedback effect. Their focus is on the changes of tax revenue. They use first a basic model with Cobb-Douglas production and inelastic labor supply, then relax those assumptions for a more general Ramsey model and then in turn include parameters allowing for finite horizon households, imperfect competition, and externalities to capital investment. Depending on the model used, the dynamic feedback effect varies from model to model, for a capital tax cut from 50 to 74 percent and for a labor income tax cut from zero (with inelastic labor supply) to 21 percent. This thesis extends the Mankiw–Weinzierl model by including a tax on consumption to examine how this affects the dynamic feedback effect. In all the models, there is an increase in the dynamic feedback effect: depending on the model used, it varies for a capital tax cut from 60 to 87 percent and for a labor income tax cut from zero (with inelastic labor supply) to 25 percent. The values of some of the key parameters, namely the constant-consumption elasticity of labor supply and the elasticity of substitution between capital and labor, and the tax rates are revised as well. This further increases the dynamic feedback effect all along the line, in some cases even suggesting a capital tax cut to more than compensate the static revenue loss. Including a tax on consumption into the models increases the dynamic feedback effect, working into the same direction as rising the initial rates of capital and labor income taxes. Using alternative tax rates and values of the key parameters also has a significant impact on the size of the dynamic feedback effect.
  • Taimela, Elli (2019)
    Disability imposes personal suffering but also economic consequences for individuals, employers, and the society. Finding an optimal method for disability prevention can be considered beneficial and increasingly important for a country with a prominent public sector and a weakening labor force participation rate like Finland. Previous studies show evidence of the effectiveness of worksite health promotion programs that target care for employees who face a high risk for disability. Evidence shows positive cost-effectiveness of targeted occupational health interventions in preventing short-term disability but a wider benefit-cost analysis of targeted occupational health interventions with a view on both short-term and long-term disability prevention has not previously been conducted. This study untangles the treatment effect of targeted occupational health interventions on societal net benefits resulted from disability prevention. Short-term disability as a concept is viewed through sickness absence, and long-term disability is represented by the disability benefits granted by the Finnish disability benefit system. The costs of disability preventing actions are limited to health care utilization. The research setting of this study has been observational, and the empirical analysis is conducted as a retrospective review of prospectively collected register data. The data registers cover health and disability related information of over 20,000 employees in Finland. In the main analysis, 1,679 treated employees identified with a high risk for disability are compared to 2,107 untreated high-risk employees. The benefit-cost analysis is constructed with the Average Treatment Effect framework combined with Net Benefits framework. The treatment of the framework of this study is an attendance to a targeted, pre-planned health check after an occupational health survey. The outcome of the framework is the net benefits that result from prevention of sickness absence workdays and granted disability benefits, and the investment costs resulted from health care utilization. The results are formed with Analysis of Covariance. Other methods to conduct the empirical analysis include polynomial regression, Multiple Imputation of Chained Equations, Propensity Scores, and Inverse Probability Weighting. The results of this study show that targeted occupational health interventions are likely to impose positive net benefits to the society. The Average Treatment Effect on the net benefits of high-risk employees, 1,875 euros with a 95% confidence interval from -759 to 4,509 euros (p-value: .155) (ANCOVA), can be considered worthwhile to the society. In the research setting, the net benefits were in practice gained from the prevention of long-term disability. The treatment was not effective on the costs of short-term disability or the total health care utilization costs per employee. Sensitivity analyses indicate that targeted occupational health interventions are not on average effective when predicted to employees without a disability risk.
  • Pohja, Elina (2015)
    In the labor markets, there exist simultaneously both, unemployed workers and vacant jobs. Due to the market frictions matching these two is not that simple. Matching models have been developed to depict the complexity of forming suitable matches in the labor markets. The government can affect the outcome in the labor markets through different policies. This paper focuses especially on unemployment compensation related policies, i.e. unemployment benefits. It is important to note that the unemployment benefits are used in the economy to promote better matches between workers and vacancies and smooth out consumption. However, they also create possibility for moral hazard; an unemployed worker might just enjoy the unemployment benefits without engaging in intense job search which results in higher unemployment rate. Thus the challenge faced by the government is to balance between the benefits of unemployment compensations and the disincentives they create. In the basic matching model, the effect of unemployment benefits is very straight forward: They increase wages and decrease the labor market tightness thus increasing the unemployment rate. The basic model can still be developed further. This paper presents a model by Cahuc and Zylberberg (2004) that introduces eligibility criteria to the matching model. The idea is, that there are two types of unemployed: ones who are eligible to higher unemployment insurance payment and ones who are ineligible receiving lower compensation depending on the present governmental policy. In this model, raising unemployment benefits received by the eligible can even lower the universal unemployment rate. This paper develops the idea of eligibility model by Cahuc and Zylberberg (2004) even further. Based on the idea of Pissarides (2000), the final model of the paper introduces four different policy parameters - marginal tax rate, tax subsidy and two replacement rates - through which the government can affect the equilibrium outcome, like the unemployment rate. The model suggests that the unemployment rate can be lowered by increasing marginal tax rate, making taxation less progressive or changing the relacement rates. However, making changes in these parameters can be rather controversial. This paper offers some policy recommendations for lowering the unemployment rate, but the results of the model should, however, be interpreted very carefully since economical models can always provide only a partial view on the big picture.
  • Järvinen, Jaakko (2019)
    The main thesis of economies of agglomeration is that by increasing the density of employment, economic benefits will follow. In this research, this hypothesis is tested in the context of the Nordic countries by studying if the increases in the employment density affect the regional productivity. This effect between the employment density and regional productivity is called the agglomeration effect. The theoretical background of this effect lies in three fundamental concepts: economies of scale, labor pooling and knowledge spillovers. Cities have their origins in the economies of scale and ag- glomerations of people they comprise of form a fertile base for effective matching between employers and employees. The denser these production centers are populated, the easier it is for the spillovers of innovation and ideas to happen. This study uses a linear ordinary least squares (OLS) model to estimate this effect. The data consists of 70 regional observations and the model comprises of employment density as the explanatory variable, varying number of education level control variables and dummy variables for different countries. Endogeneity of the explanatory variable is also assessed but as the proposed instrument, the total land area of the included regions, proves to be invalid for this particular geographic region, the OLS estimates will serve as the final results. In the previous studies conducted in Europe and in the USA, the magnitude of the agglomeration effect has been found to be between 4.4 and 6 %. This study’s estimates tell the effect to be between 2.1 and 2.9 % in the Nordic countries that is lower than the corresponding values for the aforementioned regions. This result is discussed to stem from the unique geographical and political characteristics of the Nordic regions.
  • Hänninen, Nea (2017)
    The global financial crisis that started in the beginning of the 21st century has forced many central banks to expand their range of monetary policy instruments. Before the crisis, the main monetary policy instrument was the policy interest rate. When the policy rates hit the zero lower bound, the central banks needed to implement new monetary policy measures. One of these so called unconventional monetary policy measures is extensive purchase programmes. European Central Bank (ECB) expanded its existing purchase programmes in 2016 when it announced that it will start purchasing corporate bonds. ECB's motivation to start the corporate sector purchase programme (CSPP) was to support the already existing unconventional monetary policy measures to attain the inflation rate of near but under 2 %. The object of thesis is to study did the announcement of CSPP affect the economy and what was the mechanism behind the possible effects. Thesis concentrates to examine the changes on corporate bond yields and changes on the interest rate expectations. Yield reactions of two bond indexes and the price reactions of interest rate swap contracts are studied on the CSPP related announcement dates using event study methodology. The Survey of Professional Forecasters (SPF) conducted by ECB is studied to determine the possible changes in interest rate expectations of the forecasters before and after the CSPP announcement. Results show that the CSPP related announcements decreased bond yields of both bond indexes. Evidence supporting the portfolio balancing channel, duration risk channel, local supply channel and signalling channel are found. Results are in line with the other studies regarding ECB's previous purchase programmes. The form of future monetary policy, after the economy has recovered, is still unknown. Currently, central banks have massive holdings of assets purchased under various programmes and the dissolution of the purchase programmes need to be done carefully and will probably take several years. Forward guidance will be on important role when ECB starts to shut down the purchase programme.
  • Pilli-Sihvola, Matti (2016)
    The aim of this study is to better understand how globalization affects growth and inequality. In order to do so, a growth model based on innovation driven economic growth featuring heterogeneous workers and firms is built to analyse growth and inequality first in autarky equilibrium and then in trading equilibrium. This model includes two sectors: manufacturing and research and development (R&D). Sorting and matching of heterogeneous workers and firms takes place in this model. High ability workers sort into the R&D sector, inventing new intermediate goods, and low ability workers sort into the manufacturing sector, assembling consumption goods. Matching of workers with firms within the sector takes place so that the most able worker in the R&D sector matches with a firm having the highest level of technology and earns the highest income. The least able worker in the R&D sector matches with a firm having the lowest level of technology in the R&D sector, earning the lowest income in the R&D sector. The same kind of matching takes place in the manufacturing sector. Endogenous cutoff ability level determines which workers sort into the manufacturing sector and which workers sort into the R&D sector. Income inequality rises from this heterogeneity of workers and firms. The built model is used to analyse how policy choices and technology parameters such as productivity in manufacturing, capacity to innovate, R&D support, manufacturing technologies, trade barriers, and knowledge spillovers affect growth and inequality in autarky and in trading equilibrium. This model shows that globalization speeds up growth, but it comes hand in hand with greater inequality. Also, policy choices and technology parameters have different effects on growth and inequality in autarky equilibrium than in trading equilibrium. For example, Hicks-neutral differences in manufacturing productivity between two countries result in equal growth rates in autarky as well as in trading equilibriums. Differences in government support for R&D activity increases growth more in a country were support is more ample also resulting in greater inequality in autarky equilibrium. In trading equilibrium, differences in government support for R&D activity induces more unequal wage distribution in a country supporting R&D activity more ample, but long-run growth rate is equal. This model does not comply with Kuznets U-shaped curve between growth and inequality.
  • Martinmäki, Vuokko (2014)
    There are large differences in hours of market work between OECD countries. It has bees argued that taxes do account much of these differences and substantial part of differences in labor supply between United States and Continental Europe can in fact be explained by differences in tax rates. However, there are differences between labor supply between Scandinavia and Continental Europe that do not support this assumption since labor supply in Scandinavia is higher than in Continental Europe despite higher tax rates on labor income. The gap in labor supply between Scandinavia and Continental Europe stems from the differences in government spending programs, in other words, use of the tax revenues. Aim of my thesis is to explore the part of the differences in hours of market work that can be explained by differences in taxation and by use of the tax revenues. First part of the paper is conducted by exploring articles and models already made about the subject. For motivation I start by presenting differences in hours worked across OECD countries and how this has changed over time. In this thesis I am going to survey how government spending policies on productive purposes affect the hours of work supplied in market sector. Two applications of government spending considered are subsidies on the price of market services and subsidies on child care. The main research question is why people in Scandinavia are working more than could be concluded purely based on labor income tax rates and can this be explained by subsidies on work. In order to explain the effects of income taxes and government spending programs on hours of market work, I present standard real business cycle model with home production. In this model households do not only allocate their time between leisure and work, but also home work. This model allows us to explore the substitution into and out of market activity which is caused by fiscal variables like taxation and transfers that are affected by state of economy. First I am going to present simple model with lump-sum transfers and then add some fiscal policy applications to the model. These applications are subsidies on the price of market services and subsidies on child care, which are forms of government spending on productive purposes and subsidies on market work. In the last part of my thesis I will simulate the models constructed. These simulations are done by using Finland as an object of interest. Result from my simulations yield that based on my models constructed, the subsidies on work can explain why people in Scandinavia work more than could be suspected based on tax rates. Based on result from my simulations I can argue that differences in labor income taxes are not a sufficient explanation for the differences in hours of market work between economies. It can be concluded that the government spending on subsidizing work through supporting family and market services do at least partly offset the effect of income taxes.
  • Hohenthal, Michael (2015)
    In most countries there is today more than ever an ongoing discussion about public debt. The purpose of this paper is to highlight the effects of public debt on exercising fiscal policy and the consequences of public debt for the society. As a base this paper first deals with a situation where individuals of one generation live for two periods. A framework for that is developed. This framework is then extended to four multi-period versions. I first extend the framework to one with overlapping generations and inter-generational transfers of wealth. This extension is then modified to take into account transaction costs of the collection of taxes. Next I take into account the distortion effects of the taxation. Then I deal with the pricing of public debt and the final extension describes what is required for a fiscal policy to be considered sustainable. The basic framework shows that with public expenses being kept constant, periodic changes in taxes do not affect the wealth and the consumption of individuals. However, their savings will change in order to balance the variation in taxes. The extension with overlapping-generations implies that if the wealth transfer is positive, changes in public debt will have no effect on the consumption and the net wealth of the individual. If the transfer is zero, there will be an effect, just as in the case with transaction costs connected to the tax collection. It turns out that with distortionary taxation the optimal taxation policy is to keep the periodic tax burden constant. I then show that future budget surpluses are needed to finance public debt and that knowledge of the past affects the present budget surplus and the evaluation of the present public debt. Finally I prove that limiting the public debt to the present value of future increases of the real GNP is a sustainable fiscal path. With perfect capital and labour markets, public debt does not have an impact on the wealth of the society and its individuals. However, in reality the capital and the labour markets are not perfect and there are different transaction costs and negative effects of taxation. Under these circumstances, increased public debt clearly negatively impacts the net wealth. Public debt also creates fiscal requirements on the economic development of the society. The amount of public debt can equal the present value of all future budget surpluses, but cannot exceed the discounted future increases of the real GNP.
  • Koistinen, Marko (2019)
    Emerging market economies have an increasingly closer relation to the global economy. Even small changes in the global economy may trigger significant fluctuations in emerging economies. Such changes may be large enough to become the seed of financial crisis. Changes in the global economy affect via capital flows and foreign exchange rate. To manage such market forces, the policymakers in such countries have used different forms of capital controls or foreign exchange intervention as the macroprudential instruments. This work investigates examples of such interventions and why such methods may work and what are the relevant constraints. Global factors are driving factors behind the international investors who make the capital flows partly sensitive to global factors. Secondly, due to a lack of hedge opportunities or a lack of willingness to use such opportunities leads to the existence of currency risk. Combining the currency risk on collateral and collateral dependent borrowing constraint opens the possibility of a combination of tightening collateral constraint due to falling collateral value if the exchange rate goes the wrong direction. If that risk accrues, it quickly leads to a severe financial crisis. This work reviews of the models from articles of Benigno et al. (2016) and Steiner (2017), to understand some potential instruments for intervention, also how such instruments may be useful tools. According to the argumentation of this work, something can do with capital controls or foreign exchange interventions in certain circumstances. It is also possible that the existence of potentially efficient instruments creates the safety net which promotes stability by mere existence. However, it is also possible that the existence of the safety net operates another way than intended.
  • Mikkola, Petrus (2018)
    This thesis examines the effect of investment-specific technological change on the capital replacement decision and depreciation by extending Mukoyama’s (2008) study on endogenous depreciation. When allowing investment-specific technological progress to be described either as a fall in the price of capital or as a growth in the relative productivity of new capital, and capital stock to be determined by the producer’s optimization, there arise a method to describe obsolescence as a part of depreciation and capital evolution. The following three key results are shown when assuming that scrapped capital stock has no value. First, the optimal replacement policy is stationary. Second, the acceleration of investment-specific technological progress accelerates capital replacement, hence also obsolescence. Third, whether investment-specific technological progress is modelled as a fall in the price of capital or as a growth in the relative productivity of new capital, does not impact on the optimal replacement policy. A quantitative exercise shows that the first two results seems to hold even if the scrapped capital stock has some positive value. However, if scrapped capital has some value, then the two approaches to model investment-specific technological progress are no longer equivalent. The adoption of the capital replacement problem for describing depreciation is a promising approach. Even though there does not exist a closed-from solution for the optimal replacement interval, it can be solved (in the stationary case) as a root of a relative simple transcendental function. The rate of depreciation can be explicitly solved, also in the case of non-stationary replacement policy, but that is computationally more difficult. Physical depreciation (wear and tear) can be disentangled from obsolescence insofar as either one is known. Thus, the results still rely on the estimate of physical depreciation.
  • Mollgren, Satu (2013)
    Innovations are seen as the main contributor to economic growth. Despite the fact that innovation is central to the modern theories of growth and development, the knowledge of innovation and the microprocesses affecting macroeconomic growth is still lacking. This thesis examines the entrepreneurial innovation process and innovation commercialization. The literature review of this thesis indicates that without a successful development and commercialization process, the innovations would never access the product market or at least they would only stay there for a short period of time failing to give a positive return on invest for the innovative firms. The commercialization process adds value to the firms, end-users and economics as a whole. The purpose of this thesis is to open the role of venture capitalists in the innovation process. In addition to financing, the role of the venture capitalists is to support the commercialization process of the venture-backed companies. The role of the venture capitalist in the innovation process is explained with the help of a model shown by Norbäck and Persson in their paper The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists (2009). In this entrepreneurial innovation process, the basic innovation is acquired by an incumbent firm or a venture-backed company is formed. The commercialization is performed after the investment. According to the model, venture capital industry increases the amount of innovation in the economy. Venture capitalists enhance the incentives to innovate by raising the price paid for an invention. The venture-backed company also has interests to develop the products further than incumbent firms if the developed innovation is sold to an incumbent company in an auction. This is because the incumbent firm wants to prevent the rivals from getting the developed innovation and the auction setting increases the price paid for the innovation. In conclusion, spillovers generate economic growth. As innovation and innovation development produce spillovers, the venture capitalists have a positive impact on economic growth through these factors.
  • Mäkelä, Minna (2019)
    The aim of this paper is to show that increasing trade and having strict environmental policy are not mutually exclusive. I examine how the increase of trade under general oligopolistic equilibrium model affects environmental taxation. In particular, I show that with common assumptions, growth in trade increases environmental taxes. In Neary’s (2015) general oligopolistic equilibrium model, there is a continuum of sectors in which the firms compete in Cournot manner. The firms in each sector are identical, having market power in their own sector, but not at the level of the whole economy. The sectors are otherwise identical, but open sectors trade with a foreign country, while the rest of the sectors are closed. There are two identical countries which I call Home and Foreign. An environmental policy maker has perfect knowledge of the markets and the firms’ behavior. Because there is no abatement technology in the model, the policy maker sets a tax at the first and firms react to it at the second stage. The main result is that with general assumptions, increasing trade leads to increasing environmental tax. When the transaction costs of trade decrease, environmental taxes increase in the closed sectors, but decrease in the open sectors, the less, the larger the proportion of trading sectors in the economy is. When new sectors are opened to trade, then, provided that the share of domestic pollutant and the marginal environmental damage are sufficiently high, environmental taxes increase both in open and closed sectors. The main sources of the study are Neary (2015), which presents the general oligopolistic equilibrium model used in the analysis, and Richter (2015), which constructs strategic environmental policy in that setup.
  • Väkeväinen, Lauri (2016)
    CKLS-kehikko on Chanin, Karolyin, Longstaffin ja Sandersin vuonna 1992 esittämä tapa vertailla jatkuva-aikaisia korkomalleja hierarkkisesti. CKLS-kehikkoon sisältyy CKLS-mallin lisäksi useita sisäkkäisiä malleja, kuten esimerkiksi Vasicek- ja CIR-mallit. CKLS-malli antaa mahdollisuuden tutkia prosessin ajautumaa, paluuta keskiarvoon, volatiliteettia ja sitä, millainen vaikutus koron tasolla on prosessin volatiliteettiin. Vertailemalla CKLS-mallia ja sen sisältämiä rajoitettuja malleja saadaan tietoa edellä mainittujen ominaisuuksien merkityksestä korkoprosessissa. Tässä tutkielmassa on mallinnettu CKLS-kehikon avulla Eoniaa, euroalueen yön yli -korkoa. Eonia on noteerattu vuodesta 1999, ja ensimmäinen tutkielman tarkastelu kattaa koko aikasarjan vuoteen 2014 asti. Jälkimmäinen tarkastelu kattaa aikasarjan Subprime-finanssikriisin jälkeisen osan, jonka aikana Eonia on pysytellyt matalammalla tasolla. Ennen mallien sovittamista aineistoon tutkielmassa tarkastellaan sitä, miten parametrimuutos voi vaikuttaa mallin soveltamiseen. Esimerkkinä tarkastellaan, kuinka ero koron ja volatiliteetin suhteen määrittävässä vipuparametrissa muuttaa olennaisesti CIR-mallin tarkastelun monimutkaisuutta Vasicek-malliin verrattuna. Mallit sovitetaan Eonia-aineistoon käyttäen yleistettyä momenttimenetelmää ja diskreettiä vastinetta jatkuva-aikaiselle CKLS-mallille. Mallin parametrit on estimoitu molemmille aikajaksoille erikseen, ja estimaattien perusteella saadaan tietoa korkoprosessin käyttäytymisestä kullakin aikajaksolla. Sisäkkäisten mallien vertailun avulla saadaan lisäksi tietoa parametreihin liittyvien rajoitteiden merkityksestä. Molempien tarkasteltujen aikajaksojen kohdalla saadaan viitteitä siitä, että korkoprosessi olisi keskiarvoon palaava. Finanssikriisin jälkeiselle osalle estimoidulla mallilla keskiarvoon paluu on nopeaa, mutta kyseinen ominaisuus ei vaikuta välttämättömälle mallin sopivuuden kannalta. Koko aikasarjan kohdalla keskiarvoon paluu vaikuttaa mallin sopivuuden kannalta keskeiseltä. Volatiliteetin ja koron tason suhdetta kuvaavan vipuparametrin osalta tulokset eroavat eri tarkasteluväleillä. Koko aikasarjan tapauksessa vipuparametrin estimaatti on suuruusluokaltaan 0,1. Volatiliteetti ei tällöin korostu koron kasvaessa ja korkoprosessi muistuttaa Vasicek- tai CEV-prosessia. Edellä mainittujen ja vapaan CKLS-mallin välillä on kuitenkin tilastollisesti merkitsevä ero. Finanssikriisin jälkeisellä osalla vipuparametrin estimaatti on suurusluokaltaan 0,75. Koron tasolla on tällöin suurempi vaikutus prosessin volatiliteettiin. Tämän perusteella CIR- ja Brennan-Schwartz-mallit ovat sopivimmat, eikä tilastollisesti merkitsevää eroa edellä mainittujen ja vapaan CKLS-mallin välillä voida tehdä.
  • Sarnela, Mikael (2017)
    Investors tend to allocate large shares of their portfolios to their domestic equity. Domestic equity seems to attract investors all around the world more than foreign equity does. This phenomenon, usually called equity home bias, seems to persist even if many international capital market restrictions have been lifted. In this thesis I examine this topic from three different points of view. The first part examines what are the benefits of international diversification of equity portfolios. I study this issue by using historical stock market index data and related literature. I conclude that the lack of international diversification of equity portfolios is suboptimal for risk averse investors in a theoretical framework, as we assume that there are efficient markets, similar taxes and costs. The second part examines the observable level of equity home bias across nations. I answer this question by presenting calculated EHB-values from a research article and compare these values with gross domestic product per capita values and a variable indicating capital market restrictions. I find both of these values to be significant explainers for EHB-value. In the third part, I analyse the cause of equity home bias with the aid of academic studies in the fields of behavioral finance and cognitive psychology. I present possible behavioral and institutional explanations and evaluate the plausibility of those. I conclude that the institutional explanations are likely to explain a significant proportion of equity home bias in developing countries, while the behavioral ones provide a more plausible explanation in developed countries, as the institutional explanations cannot explain as much of the equity home bias in developed countries.
  • Pursiainen, Tero (2013)
    The long-run average return on equities shows a sizable premium with respect to their relatively riskless alternatives, the short-run government bonds. The dominant explanation is that the excess return is compensation for rare but severe consumption disasters which result in heavy losses on equities. This thesis studies the plausibility of this explanation in a common theoretical framework. The consumption disasters hypothesis is studied in the conventional Lucas-tree model with two assets and with constant relative risk aversion preferences, captured by the power utility function. The thesis argues that this oft-used model is unable to account for the high premium, and a simulation experiment is conducted to find evidence for the argument. The consumption process is modelled by the threshold autoregressive process, which offers a simple and powerful way to describe the equity premium as a result of a peso problem. Two statistics, the arithmetic average and the standard deviation, are used to estimate the long-run average and the volatility of the returns. The simulated data is analyzed and compared to the real world financial market data. The results confirm that the potential for consumption disasters produces a lower equity premium than the case without disasters in the Lucas-tree model with power utility. The disaster potential lowers the average return on equity instead of increasing it. This result comes from the reciprocal connection between the coefficient of relative risk aversion and the elasticity of intertemporal substitution, and from the special nature of the equity asset, which is a claim on the consumption process itself. The risk-free asset remains unaffected by the disaster potential. The equity premium remains a puzzle in this framework. The advantage of the threshold autoregressive consumption process is to show this result with clarity. Breaking the link between aversion to risk and intertemporal substitution is indeed one possible direction to take. Changing the assumptions about expected consumption or about the equity asset might offer another way forward. Another form of utility or another model is needed if the equity premium is to be explained in financial markets that are free of frictions.
  • Savelainen, Antti (2015)
    Equity volatility and corporate bond yields reflect the embedded risks in an underlying corporation and general market conditions. In this research the bond yield is replaced by the price of credit default swap as a more company specific risk measure. The goal of this thesis is to develop a prediction model for credit default swap prices utilizing equity volatility. The empirical research data consists of companies in the European Stoxx 600 Index covering years between 2000 and 2014. The former literature has shown simultaneous movement between the volatility and credit default swap prices utilizing a linear regression model. These results are repeated in this thesis, but the prediction power of the volatility is questionable due to a low coefficient of determination. According to the results of vector autoregressive modelling in this and the former research, there exists Granger causality between the time series of equity volatility and credit default swap prices. Consequently, the vector autoregressive model is applied to an investment strategy developed in this thesis. The investment strategy is shown to be profitable with certain assumptions at least in this research data. The assumptions concern liquidity and limited data set. The investment strategy is verified with different volatility calculation periods and sampling frequencies.
  • Helander, Maria (2014)
    The aim of this thesis is to study the effects of household wealth on consumption. The focus of the study is on the effects of physical wealth, namely housing and forest wealth, on consumption in Finland. The empirical estimation is conducted using cross-sectional household level data obtained from the 1998 Household Wealth Survey compiled by Statistics Finland. The estimation is performed using OLS regression and taking into account survey design considerations. The results from the study provide evidence confirming the existence of a wealth effect on consumption regarding housing wealth, forest wealth as well as financial wealth. The study finds the housing wealth effect on consumption to be positive and much larger than the financial wealth effect for those households that are homeowners. However, the magnitude and the sign of the wealth effect seems to somewhat differ by the amount of accumulated net housing wealth. Evidence of the existence of a life-cycle pattern in consumption is also confirmed for the subsample of homeowners by comparing differences in wealth effects between household age groups. It should however be emphasised, that actual life-cycle behaviour can only be traced with the use of panel data. The study finds evidence that the effect of forest wealth on consumption may be negative for the subsample of forest owners. Further study then reveals that the negative estimate for the effect of net forest wealth on consumption observed for the whole subsample seems to arise from the much stronger and significant negative estimate obtained for the subgroup of forest owning farmer households. This finding could in part be explained by the skewed age distribution of forest owning households, the fact that forest owning farmer households are likely to be engaging more in home production, which lowers observed consumption outside of the home, and that farmer owned forestland estates, and the logging income they generate, are often used for funding farm associated investments. In order to study the concavity of the consumption function in Finland, wealth and income effects are estimated separately for the net wealth quintiles of households using the whole sample of observations. The results indicate that the effect of a change in financial wealth or income on consumption is indeed larger for households with small total net wealth. This finding suggests that in the case of a wealth or income shock that disproportionately affects households with less net wealth, the economy level effects on aggregate consumption may be larger than those estimated by traditional models.