Price Determinants and Depreciation of Used Cars Post-COVID-19
by Ayaan Sundeep Patel
Abstract
Throughout the COVID-19 pandemic, the price of used cars has fluctuated greatly due to numerous factors. Inflation and supply chain issues have been at the forefront of the news and have affected not only cars but most consumer goods. While the majority of society has seemingly progressed past COVID-19, its effects still linger in the used car market, as prices rose 4.6% from January 2023 to February 2023. Therefore, in an effort to study this phenomenon, I scraped data from autotrader.co.uk on February 23, 2023. This study aims to understand the effect of various factors, including mileage, age, and engine size, on various classes of used cars. The five classes being studied are compact cars, luxury sports sedans, luxury mid-size sedans, luxury full-size sedans, and luxury SUVs. A log-linear model is used to model the price determinants of the used cars. A linear model is incorporated to model the depreciation rate of the cars in the dataset. Lastly, this model is used to predict the three-year depreciation rate for each car model, which is then compared to the pre-COVID-19 three-year depreciation rate to see the inflated prices in the UK used car market.
Professor Michelle Connolly, Faculty Advisor
Professor Andrea Lanteri, Faculty Advisor
JEL Codes: D12, J11, L62
Proposing an Alternative to the European Central Bank’s Fiscal Convergence Criteria
By Junaid Arefeen
The recent onset of the sovereign debt crisis in the Eurozone has brought the viabil-ity of the Eurozone as a currency area into question. The unsustainable debt and deficit balances accumulated by several Eurozone nations since the adoption of the common currency in 1999, and the consequent incidence of high levels of sovereign default risk in the euro-area, indicate that the fiscal convergence criteria employed by the European Central Bank to monitor the fiscal discipline and sustainability of its members have been largely ine↵ectual. This paper draws upon the theory of optimum currency areas, and proposes a set of business cycle convergence criteria that can be employed as an alternate means to minimize the risk of fiscal imbalances and sovereign default. Economic theory suggests that a currency union with convergent business cycles will be insulated from asymmetric shocks, removing the need for countries to rely wholly on their fiscal policies when dealing with negative shocks (as would be the case in a currency union with non-synchronous countries su↵ering from negative asymmetric shocks). Therefore, as the risk of fiscal imbalances is minimized, a currency union with synchronous business cycles is expected to have low incidences of sovereign default risk. This paper tests this economic intuition empirically, and employs a multivariable panel regression model to determine the relationship between business cycle convergence and sovereign default risk (proxied using sovereign yield spreads). The regressions reveal that the degree of business cycle convergence is one of the main determinants of yield di↵erentials, and the relationship between the two is negative (as expected). The consistency of the results to numerous robustness checks provide a strong case for substituting the current fiscal convergence criteria with measures that assess the degree of business cycle convergence.
Advisors: Andrea Lanteri, Cosmin Ilut, Kent Kimbrough | JEL Codes: E32, E43, F34, F44, F45 | Tagged: Cycle Convergence, Optimum Currency Area, Sovereign Default Risk
