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on Business Economics |
| By: | Luis Aguiar-Conraria; Yi Wen |
| Abstract: | This paper provides new empirical evidence on and theoretical support for the close link between oil prices and aggregate macroeconomic performance in the 1970s. Although this link has been well documented in the empirical literature and is further confirmed in this paper, standard economic models are not able to replicate this link when actual oil prices are used to simulate the models. In particular, standard models cannot explain the depth of the recession in 1974-75 and the strong revival in 1976-78 based on the oil price movements in that period. This paper argues that a missing multiplier-accelerator mechanism from standard models may hold the key. This multiplier-accelerator mechanism not only exacerbated the impact of the oil shocks in 1973-74 but also helped create the temporary recovery in 1976-78. This paper derives the missing multiplier-accelerator mechanism from externalities in general equilibrium. Our calibrated model can explain both the recession in 1974-75 and the revival in 1976-78. |
| Keywords: | Petroleum industry and trade ; Prices |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2005-042&r=bec |
| By: | Gourinchas, Pierre-Olivier; Rey, Hélène |
| Abstract: | Does the centre country of the International Monetary System enjoy an 'exorbitant privilege' that significantly weakens its external constraint as has been asserted in some European quarters? Using a newly constructed dataset, we perform a detailed analysis of the historical evolution of US external assets and liabilities at market value since 1952. We find strong evidence of a sizeable excess return of gross assets over gross liabilities. Interestingly, this excess return increased after the collapse of the Bretton Woods fixed exchange rate system. It is mainly due to a return discount: within each class of assets, the total return (yields and capital gains) that the US has to pay to foreigners is smaller than the total return the US gets on its foreign assets. We also find evidence of a composition effect: the US tends to borrow short and lend long. As financial globalization accelerated its pace, the US transformed itself from a World Banker into a World Venture Capitalist, investing greater amounts in high yield assets such as equity and FDI. We use these findings to cast some light on the sustainability of the current global imbalances. |
| Keywords: | dollar exchange rate; financial adjustment channel; gross positions; net foreign assets; sustainability; trade adjustment channel |
| JEL: | F3 N1 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5220&r=bec |
| By: | Kaplan, Steven; Sensoy, Berk A.; Strömberg, Per Johan |
| Abstract: | We study how firm characteristics evolve from early business plan, to initial public offering, to public company for 49 venture capital financed companies. The average time elapsed is almost six years. We describe the financial performance, business idea, point(s) of differentiation, non-human capital assets, growth strategy, customers, competitors, alliances, top management, ownership structure, and the board of directors. Our analysis focuses on the nature and stability of those firm attributes. Firm business lines remain remarkably stable from business plan through public company. Within those business lines, non-human capital aspects of the businesses appear more stable than human capital aspects. In the cross-section, firms with more alienable assets have substantially more human capital turnover. |
| Keywords: | entrepreneurship; theory of the firm; venture capital |
| JEL: | D21 D23 G24 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5224&r=bec |
| By: | Yi Wen |
| Abstract: | This paper provides a simple dynamic optimization model of durable goods inventories. Closed-form solutions are derived in a general equilibrium environment with imperfect information and serially correlated shocks. The model is then applied to scrutinize some popular conjectures regarding the causes of the volatility reduction of GDP since 1984. |
| Keywords: | Investments ; Production (Economic theory) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2005-047&r=bec |
| By: | Albuquerque, Rui; Bauer, Gregory; Schneider, Martin |
| Abstract: | This paper reconsiders the role of foreign investors in developed country equity markets. It presents a quantitative model of trading that is built around two new assumptions about investor sophistication: (i) both the foreign and domestic populations contain investors with superior information sets; and (ii) these knowledgeable investors have access to both public equity markets and private investment opportunities. The model delivers a unified explanation for three stylized facts about US investors’ international equity trades: (i) trading by US investors occurs in waves of simultaneous buying and selling; (ii) US investors build and unwind foreign equity positions gradually; and (iii) US investors increase their market share in a country when stock prices there have recently been rising. The results suggest that heterogeneity within the foreign investor population is much more important than heterogeneity of investors across countries. |
| Keywords: | asset pricing; asymmetric information; heterogenous investors; international equity flows; international equity returns |
| JEL: | F30 G12 G14 G15 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5159&r=bec |
| By: | Beaudry, Paul; Portier, Franck |
| Abstract: | This paper uses aggregate Japanese data and sectoral US data to explore the properties of the joint behaviour of stock prices and total factor productivity (TFP) with the aim of highlighting data patterns that are useful for evaluating business cycle theories. The approach used follows that presented in Beaudry and Portier (2004b). The main findings are that (i) in both Japan and the US, innovations in stock prices that are contemporaneously orthogonal to TFP precede most of the long run movements in total factor productivity, and (ii) such stock prices innovations do not affect US sectoral TFPs contemporaneously, but do precede TFP increases in those sectors that are driving US TFP growth, namely durable goods, and among them equipment sectors. |
| Keywords: | business cycle; productivity shocks; stock prices |
| JEL: | E3 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5176&r=bec |
| By: | Danthine, Jean-Pierre; Kurmann, Andre |
| Abstract: | We develop and analyse a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent sharing -- a feature that is very much present in the data but absent from previous formulations of the efficiency wage hypothesis. This firm-internal perspective on efficiency wages has important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and asymmetric responses to technology and demand shocks. |
| Keywords: | efficiency wages; reciprocity; rent-sharing; wage rigidity |
| JEL: | E24 E32 J50 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5174&r=bec |
| By: | Charles Himmelberg; Christopher Mayer; Todd Sinai |
| Abstract: | We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, our measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued. |
| JEL: | R21 R31 G10 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11643&r=bec |
| By: | Ricardo J. Caballero; Arvind Krishnamurthy |
| Abstract: | Emerging market economies are fertile ground for the development of real estate and other financial bubbles. Despite these economies' significant growth potential, their corporate and government sectors do not generate the financial instruments to provide residents with adequate stores of value. Capital often flows out of these economies seeking these stores of value in the developed world. Bubbles are beneficial because they provide domestic stores of value and thereby reduce capital outflows while increasing investment. But they come at a cost, as they expose the country to bubble-crashes and capital flow reversals. We show that domestic financial underdevelopment not only facilitates the emergence of bubbles, but also leads agents to undervalue the aggregate risk embodied in financial bubbles. In this context, even rational bubbles can be welfare reducing. We study a set of aggregate risk management policies to alleviate the bubble-risk. We show that liquidity requirements, sterilization of capital inflows and structural policies aimed at developing public debt markets "collateralized" by future revenues, all have a high payoff in this environment. |
| JEL: | E32 E44 F32 F34 F41 G10 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11618&r=bec |
| By: | Hui Guo; Robert Savickas |
| Abstract: | We find that the value-weighted idiosyncratic stock volatility and aggregate stock market volatility jointly exhibit strong predictive power for excess stock market returns. The stock market risk-return relation is found to be positive, as stipulated by the CAPM; however, idiosyncratic volatility is negatively related to future stock market returns. Also, idiosyncratic volatility appears to be a pervasive macrovariable, and its forecasting abilities are very similar to those of the consumption-wealth ratio proposed by Lettau and Ludvigson (2001). |
| Keywords: | Stock market ; Assets (Accounting) - Prices |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2003-028&r=bec |
| By: | Basak, Suleyman; Shapiro, Alex; Teplá, Lucie |
| Abstract: | Portfolio theory must address the fact that, in reality, portfolio managers are evaluated relative to a benchmark, and therefore adopt risk management practices to account for the benchmark performance. We capture this risk management consideration by allowing a prespecified shortfall from a target benchmark-linked return, consistent with growing interest in such practice. In a dynamic setting, we demonstrate how a risk averse portfolio manager optimally under- or overperforms a target benchmark under different economic conditions, depending on his attitude towards risk and choice of the benchmark. The analysis therefore illustrates how investors can achieve their desired performance profile for funds under management through an appropriate combined choice of the benchmark and money manager. We consider a variety of extensions, and also highlight the ability of our setting to shed some light on documented return patterns across segments of the money management industry. |
| Keywords: | benchmarking; investments; shortfall risk; tracking error; value-at-risk |
| JEL: | D81 G11 G23 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5187&r=bec |
| By: | Cassiman, Bruno (IESE Business School); Guardo, Chiara di (University of Cagliari); Valentini, Giovanni (IESE Business School) |
| Abstract: | Faster technological development, shorter product life-cycles, and more intense global competition have transformed the current competitive environment for most firms. This new competitive landscape forces organizations to actively acquire knowledge, as a firm's competitive advantage is now more dependent on continuous knowledge development and enhancement. Therefore, knowledge has become a central theme in strategic management. Against this background, we argue that the knowledge characteristics of R&D projects are fundamental variables to explain governance decisions. Drawing upon the case of STMicroelectronics, we provide evidence that partnering or contracting with universities for innovation is common practice for developing new -original- knowledge, as opposed to applying existing knowledge, for solving a problem. However, the firm is more reluctant to partner, especially with another firm, when this knowledge directly enhances its competitiveness. Moreover, we find that R&D project performance is a bi-dimensional construct. One dimension picks up project efficacy and immediate benefits, while the other includes learning and long-term benefits. Though spanning firm boundaries for innovation does not seem to have appreciable effects on perceived project efficiency, it nonetheless brings about intertemporal benefits related to learning and capabilities development. In a dynamic environment, building knowledge may be more important than protecting it. Thus, an open innovation process may be an exceptionally effective way to build and develop the firm's technological future. |
| Keywords: | Innovation strategy; R&D projects' organization; R&D projects' performance; open innovation; |
| Date: | 2005–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0605&r=bec |
| By: | Peccei, R. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | The analysis of the impact of human resource (HR) practices on employee well-being at work is an important yet relatively neglected area of inquiry within the field of human resource management (HRM). In this inaugural address, the main findings from ongoing research based on data from the 1998 British Workplace Employee Relations Survey (WERS98) are presented. These suggest that the HR practices that are adopted by organisations have a significant impact on the well-being of their workforces and that this impact tends, on the whole, to be more positive than negative. The effects, however, are more complex than is normally assumed in the literature. In particular, preliminary results indicate that the constellation of HR practices that help to maximise employee well-being (i.e. that make for happy workplaces), are not necessarily the same as those that make up the type of ‘High Performance Work Systems’ commonly identified in the literature. This has important theoretical, policy and ethical implications for the field of HRM. These are discussed along with important directions for future research. |
| Keywords: | Human Resource Management;HRM;Human Resource Practices;employee well-being;job satisfaction;job stress;happy workplaces;HR; |
| Date: | 2004–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30001238&r=bec |
| By: | Davila, Toni (IESE Business School); Foster, George (Stanford University); Li, Mu (Applied Micro Devices) |
| Abstract: | Management control systems can hinder innovation. However, recent theoretical and empirical work indicates that these systems can also enhance it. Using two sequential empirical studies, this paper investigates this question. The first uses a field research design to examine the adoption of management control systems in the product development function of entrepreneurial firms. The data comes from questionnaires and interviews with the CEOs, financial officers, and business development managers of 69 firms. Analysis of the qualitative data indicates that managers adopt these systems not so much to fulfill a particular role as to solve particular needs that they face. These needs range from external contracting and legitimizing the process with external parties to internal drivers such as managers' background, learning by doing, need to focus, or reaction to problems. Furthermore, these reasons are associated with faster adoption of these systems and with product development performance. The objective of the second study is to extend and generalize the finding regarding the influence of external parties on management control system adoption to a population of mature firms. Using a survey design, the study finds an association between the importance of partners to product development and the level of formalization of management control systems. |
| Keywords: | management control systems; product development; innovation; |
| Date: | 2005–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0598&r=bec |
| By: | D. VANTOMME; M. GEUENS; S. DEWITTE |
| Abstract: | The purpose of the current study was to gain more insight in the evaluation of advertisements containing different gender role portrayals (stereotypical/astereotypical) by examining explicit and implicit processes of ad evaluation. The results of two experiments showed an explicit preference for ads containing astereotypical images. Implicitly, we found a preference for ‘warm’ ads irrespective of the degree of gender stereotypicality of the ad. These findings suggest that complex stimuli such as ads may inhibit implicit gender stereotype activation. At an implicit level, warmth seems a better predictor of ad evaluation. |
| Keywords: | implicit attitudes, ad evaluation, gender role portrayal, implicit stereotyping, Implicit Association Test |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:05/319&r=bec |
| By: | W. BUCKINX; G. VERSTRAETEN; D. VAN DEN POEL |
| Abstract: | Loyalty and targeting are central topics in Customer Relationship Management. Yet, the information that resides in customer databases only records transactions at a single company, whereby customer loyalty is generally unavailable. In this study, we enrich the customer database with a prediction of a customer's behavioral loyalty such that it can be deployed for targeted marketing actions without the necessity to measure the loyalty of every single customer. To this end, we compare multiple linear regression with two state-of-the-art machine learning techniques (random forests and automatic relevance determination neural networks), and we show that (i) a customer’s behavioral loyalty can be predicted to a reasonable degree using the transactional database, (ii) given that overfitting is controlled for by the variable-selection procedure we propose in this study, a multiple linear regression model significantly outperforms the other models, (iii) the proposed variable-selection procedure has a beneficial impact on the reduction of multicollinearity, and (iv) the most important indicator of behavioral loyalty consists of the variety of products previously purchased. |
| Keywords: | Predictive modeling; customer relationship management; behavioral loyalty; overfitting; multicollinearity; data enrichment |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:05/324&r=bec |
| By: | Thomas Gall (Economic Theory II, University of Bonn) |
| Abstract: | This paper analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In equilibrium wealth inequality induces a heterogenous distribution of firm sizes allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts such as the missing middle of size distributions in developing countries. The model identifies a number of properties of the firm size distribution with respect to the wealth distribution and can encompass a non-monotonic relationship between aggregate wealth and inequality. |
| Keywords: | Intrafirm bargaining, matching, firm size distribution |
| JEL: | O12 C78 D31 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:jep:wpaper:05004&r=bec |
| By: | Heid, Frank; Nestmann, Thorsten; Von Westernhagen, Natalja; Weder, Beatrice |
| Abstract: | This paper studies German bank lending during the Asian and Russian crises, using a bank level data set from the Deutsche Bundesbank. Our aim is to gain more insight into the pattern of German bank lending during financial crises in emerging markets. We find that German banks reacted to the Asian crisis mainly by reallocating their portfolios among emerging markets. By contrast, the banks' behaviour during the Russian crisis is characterised by a general withdrawal from emerging markets. We find that the lending of large commercial banks was less stable than the lending of public sector banks during the Asian crisis. Differences were not as pronounced during the Russian crisis. |
| Keywords: | bank lending; banking; contagion; currency crises; emerging markets crises; financial stability |
| JEL: | F30 F32 F34 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5164&r=bec |
| By: | Brian Wu; Anne Marie Knott |
| Abstract: | This paper attempts to reconcile the risk-bearing characterization of entrepreneurs with the stylized fact that entrepreneurs exhibit conventional risk aversion profiles. We propose that the disparity arises from confounding two distinct dimensions of uncertainty: demand uncertainty and ability uncertainty. We further propose that entrepreneurs will be risk averse with respect to demand uncertainty, yet “risk-seeking” (or overconfident) with respect to ability uncertainty. To examine this view we model the entrepreneur’s entry decision then test the model empirically. We find that entrepreneurs in aggregate behave as we predict. Accordingly, risk-averse entrepreneurs are willing to bear market risk when the degree of ability uncertainty is comparable to the degree of demand uncertainty. A potential market failure exists however in instances where there is a high degree of demand uncertainty, but low ability uncertainty. In those settings there may be insufficient entry, competition and innovation. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:sba:wpaper:05bwmk&r=bec |