Bubble, toil, and trouble
When people call the dot-com boom a bubble, they imply that investors based their decisions on something other than a good estimate of the future value of the assets theywere buying. But some economists say that is not likely because episodes like the dot-com bust show future value is not always easy to predict, especially when the asset is a new technology. This Commentary shows how both explanations can describe a famous historical bubble that occurred after the introduction of a technology that was new at the beginning of the eighteenth century?a novel macroeconomic theory.
AUTHORS: Craig, Ben R.
Speculation in the oil market
The run-up in oil prices after 2004 coincided with a growing flow of investment to commodity markets and an increased price comovement between different commodities. We analyze whether speculation in the oil market played a key role in driving this salient empirical pattern. We identify oil shocks from a large dataset using a factor-augmented autoregressive (FAVAR) model. We analyze the role of speculation in comparison to supply and demand forces as drivers of oil prices. The main results are as follows: (i) While global demand shocks account for the largest share of oil price fluctuations, financial speculative demand shocks are the second most important driver. (ii) The comovement between oil prices and the price of other commodities is explained by global demand and financial speculative demand shocks. (iii) The increase in oil prices in the last decade is mainly explained by the strength of global demand. However, financial speculation played a significant role in the oil price increase between 2004 and 2008, and its subsequent collapse. Our results support the view that the financialization process of commodity markets explains part of the recent increase in oil prices.
AUTHORS: Juvenal, Luciana; Petrella, Ivan
Speculation in the oil market
Disentangling the true drivers of oil prices is a critical first step for allocating resources and designing good policy.
AUTHORS: Petrella, Ivan; Juvenal, Luciana
Speculation in Commodity Futures Markets, Inventories and the Price of Crude Oil
This paper examines the role of inventories in re ners' gasoline production and develops a structural model of the relationship between crude oil prices and inventories. Using data on inventories and prices of oil futures, I show that convenience yields decrease at a diminishing rate as inventories increase, consistent with the theory of storage. In addition to exhibiting seasonal and procyclical behaviors, I show that the historical convenience yield averages about 18 percent of the oil price from March 1989 to November 2014. Although some have argued that a breakdown of the relationship between crude oil inventories and prices following increased nancial investors' participation after 2004 was evidence of an effect of speculation, I fi nd that the proposed price-inventory relationship is stable over time. The empirical evidence indicates that crude oil prices remained tied to oil-market fundamentals such as inventories, suggesting that the contribution of nancial investors' activities was weak.
AUTHORS: Byun, Sung Je
Currency speculation and the optimum control of bank lending in Singapore dollar: a case of partial liberalization
The Monetary Authority of Singapore (MAS) has a long-standing policy of controlling bank lending in Singapore dollars to nonresidents and to residents who use the funds outside Singapore. While the control may prevent the internationalization of the Singapore dollar and contain exchange rate volatility, it can hinder the deepening and widening of the financial markets in Singapore. ; This paper suggests three policy options that would allow traders and investors to borrow Singapore dollars without any restrictions, while making it costly for speculators since their activities can cause exchange rate volatility which arguably imposes external costs to society.
AUTHORS: Chan, Kenneth S.; Ngiam, Kee-Jin
Profit-making speculation in the spot and forward foreign exchange markets: evidence and implications
AUTHORS: Sweeney, Richard James
Second Home Buyers and the Housing Boom and Bust
Record-high second home buying (homeowners acquiring nonprimary residences) was a central feature of the 2000s boom, but the macroeconomic effects remain an open question partly because reliable geographic data is currently unavailable. This paper constructs local data on second home buying by merging credit bureau data with mortgage servicing records. The identification strategy exploits the fact that the vacation share of housing from the 2000 Census is predictive of second home origination shares during the boom years, while also uncorrelated with other boom-bust drivers including proxies for local housing expectations, the use of alternative and PLS mortgages, and supply constraints. Localities with plausibly exogenous higher second home origination shares experienced a more pronounced boom and bust - stronger growth in construction and house prices during the boom, and steeper declines in activity during the recession years. Overall, second home buying could exp lain about 30 and 15 percent of the run-up in construction employment and house prices, respectively, over 2000-2006.
AUTHORS: Garcia, Daniel
Can the pros beat the market?
AUTHORS: Throop, Adrian W.
AUTHORS: Pozdena, Randall
Models of currency speculation: implications and East Asian evidence
AUTHORS: Moreno, Ramon