Now showing 1 - 10 of 90
  • Publication
    How Does Inside Information Affect Sports Betting Odds?
    (University College Dublin. School of Economics, 2023-07)
    We describe how the presence of insiders with superior information about potential outcomes of sporting events affects odds set by bookmakers, using a generalized version of the model in Shin (1991). The model has been widely cited as an explanation for the pattern of favorite-longshot bias observed in fixed-odds betting markets. We show that disagreement among those bettors without inside information causes favorite-longshot bias. The presence of insiders reduces odds but does not necessarily exacerbate favorite-longshot bias. For realistically calibrated beliefs, the fraction of insiders has a minimal effect on the ratio of favorite to longshot odds and the betting market collapses if this fraction rises above low levels.
      28
  • Publication
    A Model of QE, Reserve Demand and the Money Multiplier
    (University College Dublin. School of Economics, 2021-02) ;
    Quantitative easing programmes have driven unprecedented expansions in the supply of central bank reserves around the world over the past two decades, fundamentally changing the implementation of monetary policy. The collapse in money multipliers following QE episodes has often been interpreted as implying banks are happy to passively hold most of the reserves created by QE. This paper develops a simple micro-simulation model of the banking sector that adapts the traditional money multiplier model and allows for bank reserve demand to be inferred from monetary aggregates. The model allows the use of unwanted reserves by banks to play out over time alongside QE purchases and incorporates both significantly higher reserve demand after 2008 and capital constraints. With these additions, the model explains the persistently lower money multipliers seen in the US following QE, as well as the growth in commercial bank deposits. The model suggests the demand from banks for reserves has increased substantially since the introduction of QE but not to the point where banks are passively absorbing all newly created reserves.
      204
  • Publication
    Has Euro-area inflation persistence changed over time?
    (European Central Bank, 2004-04) ;
    This paper analyzes the stability over time of the econometric process for Euro-area inflation since 1970, focusing in particular on the behaviour of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the Euro-area inflation process. Full-sample estimates of the persistence parameter are generally close to one, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New-Keynesian Phillips curve.
      611
  • Publication
    Conditional convergence revisited : taking Solow very seriously
    (Central Bank of Ireland, 2006-07) ;
    Output per worker can be expressed as a function of technological efficiency and of the capital-output ratio. Because technology is exogenous in the Solow model, all of the endogenous convergence dynamics take place through the adjustment of the capital-output ratio. This paper uses the empirical behaviour of the capital-output ratio to estimate the speed of conditional convergence of economies towards their steady-state paths. We find that the conditional convergence speed is about seven percent per year. This is somewhat faster than predicted by the Solow model and is significantly higher than reported in most previous studies based on output per worker regressions. We show that, once there are stochastic shocks to technology, standard panel econometric techniques produce downward-biased estimates of convergence speeds, while our approach does not.
      866
  • Publication
    Disagreement and Market Structure in Betting Markets: Theory and Evidence from European Soccer
    (University College Dublin. School of Economics, 2023-05) ;
    Online sports betting is growing rapidly around the world. We describe how the competitive structure of the bookmaking market affects odds when bettors disagree about the probabilities of the outcomes of sporting events but are on average correct. We show that the demand for bets on longshots is less sensitive to the odds than bets on favorites. This means monopolistic bookmakers will set odds exhibiting favorite-longshot bias while competitive bookmaking markets will not have this feature. We develop a version of the model for soccer matches and use these results to explain empirical findings on odds for over 80,000 European soccer games from two different bookmaking markets.
      26
  • Publication
      345
  • Publication
    Does the labour share of income drive inflation?
    (Central Bank of Ireland, 2002-06) ;
    Woodford (2001) has presented evidence that the new-Keynesian Phillips curve fits the empirical behavior of inflation well when the labor income share is used as a driving variable, but fits poorly when deterministically detrended output is used. He concludes that the output gap - the deviation between actual and potential output - is better captured by the labor income share, in turn implying that central banks should raise interest rates in response to increases in the labor share. We show that the empirical evidence generally suggests that the labor share version of the new-Keynesian Phillips curve is a very poor model of price inflation. We conclude that there is little reason to view the labor income share as a good measure of the output gap, or as an appropriate variable for incorporation in a monetary policy rule.
      407
  • Publication
      454
  • Publication
    Has Euro-area inflation persistence changed over time?
    (MIT Press, 2005-11) ;
    This paper analyzes the stability over time of the econometric process for euro-area inflation since 1970, focusing in particular on the behavior of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the euro-area inflation process. Full-sample estimates of the persistence parameter are generally close to 1, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New Keynesian Phillips curve.
    Scopus© Citations 90  895
  • Publication
    Quantitative Easing and the Hot Potato Effect: Evidence from Euro Area Banks
    (Elsevier, 2021-07) ;
    We use bank-level data to examine the behaviour of reserves in the euro area banking system over the course of the ECB QE programme. Previous research on QE has often assumed banks passively absorb the additional reserves generated by asset purchases. However, with a negative deposit rate in place throughout our sample, euro area banks have had a disincentive to hold excess reserves and thus could wish to treat them as a “hot potato” that is preferably passed on to other banks. We find evidence for this hot potato effect, reporting substantial month-to-month churn in bank reserves as well as evidence that banks are pushing reserves off their balance sheets through debt security purchases. As such, this hot potato effect seems likely to have had an effect on European bond yields that is distinct from the portfolio rebalancing effect that has been the primary emphasis of the existing QE literature.
    Scopus© Citations 4  18