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This paper presents an empirical measure of disinflation credibility and discusses its evolution in Turkey since the 2001 crisis. The results indicate that credibility has improved markedly over this period, boding well for the future of disinflation in Turkey.

Bayesian statistical decision theory. --- Deflation (Finance) --- Disinflation --- Finance --- Bayes' solution --- Bayesian analysis --- Statistical decision --- Econometric models. --- Inflation --- Macroeconomics --- Money and Monetary Policy --- Bayesian Analysis: General --- Central Banks and Their Policies --- International Finance Forecasting and Simulation --- Price Level --- Deflation --- Monetary Policy --- Monetary economics --- Inflation targeting --- Consumer price indexes --- Asset prices --- Prices --- Monetary policy --- Price indexes --- Turkey

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This paper tests uncovered interest parity (UIP) using interest rates on longer maturity bonds for the Group of Seven countries. These long-horizon regressions yield much more support for UIP—all of the coefficients on interest differentials are of the correct sign, and almost all are closer to the UIP value of unity than to zero. The paper also analyzes the decision by a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact.

Banks and Banking --- Foreign Exchange --- Inflation --- Labor --- Macroeconomics --- Price Level --- Deflation --- Labor-Management Relations, Trade Unions, and Collective Bargaining: General --- Interest Rates: Determination, Term Structure, and Effects --- Trade Policy --- International Trade Organizations --- Currency --- Foreign exchange --- Trade unions --- Finance --- International economics --- Labour --- income economics --- Labor unions --- Real exchange rates --- Exchange rates --- Asset prices --- Prices --- Interest rates --- Manufacturing industries --- United States --- Income economics

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Option prices provide valuable information on market expectations. This paper attempts to extract market expectations, as conveyed by an implied risk-neutral probability distribution, from option prices for the dollar-euro exchange rate. Returns' volatilities are inferred from observed and interpolated option prices. To address robustness, two distributions, one from actual data and the other from interpolated data, were computed. The main conclusion of the paper is that traders have wide-ranging expectations, and large movements in either direction would not occur as a surprise. The main implication for monetary policy is that should markets become too volatile, then intervention may be required.

Foreign exchange rates --- Stock options. --- Euro. --- Money --- Options, Stock --- Options (Finance) --- Foreign Exchange --- Investments: General --- Investments: Options --- Macroeconomics --- Money and Monetary Policy --- Price Level --- Inflation --- Deflation --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Monetary Policy --- Investment --- Capital --- Intangible Capital --- Capacity --- Finance --- Currency --- Foreign exchange --- Monetary economics --- Asset prices --- Options --- Exchange rates --- Reserve requirements --- Depreciation --- Prices --- Derivative securities --- Monetary policy --- Saving and investment

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One plausible mechanism through which financial market shocks may propagate across countries is through the effect of past gains and losses on investors' risk aversion. We first present a simple model on how heterogeneous changes in investors' risk aversion affect portfolio decisions and stock prices. Second, we empirically show that, when funds' returns are below average, they adjust their holdings toward the average (or benchmark) portfolio. In other words, they tend to sell the assets of countries in which they were "overweight," increasing their exposure to countries in which they were "underweight." Based on this insight, we construct a matrix of financial interdependence reflecting the extent to which countries share overexposed funds. This index can improve predictions about which countries are likely to be affected by contagion from crisis centers.

International finance --- Portfolio management --- Investment management --- Investment analysis --- Investments --- Securities --- International monetary system --- International money --- Finance --- International economic relations --- Econometric models. --- Finance: General --- Macroeconomics --- Industries: Financial Services --- General Financial Markets: General (includes Measurement and Data) --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Price Level --- Inflation --- Deflation --- Mutual funds --- Emerging and frontier financial markets --- Competition --- Stock markets --- Asset prices --- Financial services industry --- Stock exchanges --- Prices --- Brazil

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This paper develops a simple methodology to test for asset integration, and applies it within and between American stock markets. Our technique relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they must be equal across (risk-adjusted) assets in well integrated markets. Assets are allowed to have standard risk characteristics, and are constrained by a factor model of covariances over short time periods. We find that implied expected risk-free rates vary dramatically over time, unlike short interest rates. Further, internal integration in the S&P 500 market is never rejected and is generally not rejected in the NASDAQ. Integration between the NASDAQ and the S&P, however, is always rejected dramatically.

Stocks -- Prices -- Econometric models. --- Stocks -- Rate of return -- Econometric models. --- Econometrics --- Finance: General --- Investments: Stocks --- Macroeconomics --- Information and Market Efficiency --- Event Studies --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- General Financial Markets: General (includes Measurement and Data) --- Classification Methods --- Cluster Analysis --- Principal Components --- Factor Models --- Price Level --- Inflation --- Deflation --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Econometrics & economic statistics --- Investment & securities --- Finance --- Stocks --- Stock markets --- Factor models --- Asset prices --- Time series analysis --- Financial institutions --- Financial markets --- Econometric analysis --- Prices --- Stock exchanges --- Econometric models --- United States --- Rate of return --- Econometric models.