|
on Business Economics |
| By: | Olivier J. Blanchard; Jean-Paul L'Huillier; Guido Lorenzoni |
| Abstract: | We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations. |
| JEL: | C32 D83 E32 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15015&r=bec |
| By: | Diego Comin (Harvard Business School, Business, Government and the International Economy Unit); Mark Gertler (New York University, Department of Economics); Ana Maria Santacreu (New York University, Department of Economics) |
| Abstract: | We develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle. The framework shares the emphasis of the recent "new shock" literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing these beliefs to fundamentals of the evolution of the technology frontier. An important feature of the model is that the process of moving to the frontier involves costly technology adoption. In this way, news of improved growth potential has a positive effect on current hours. As we show, the model also has reasonable implications for stock prices. We estimate our model for data post-1984 and show that the innovations shock accounts for nearly a third of the variation in output at business cycle frequencies. The estimated model also accounts reasonably well for the large gyration in stock prices over this period. Finally, the endogenous adoption mechanism plays a significant role in amplifying other shocks. |
| Keywords: | Business Cycles, Endogenous Technology Adoption, News Shocks, Stock Market. |
| JEL: | E3 O3 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:09-134&r=bec |
| By: | James D. Hamilton |
| Abstract: | This paper explores similarities and differences between the run-up of oil prices in 2007-08 and earlier oil price shocks, looking at what caused the price increase and what effects it had on the economy. Whereas historical oil price shocks were primarily caused by physical disruptions of supply, the price run-up of 2007-08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been very similar to those observed in earlier episodes, with significant effects on overall consumption spending and purchases of domestic automobiles in particular. In the absence of those declines, it is unlikely that we would have characterized the period 2007:Q4 to 2008:Q3 as one of economic recession for the U.S. The experience of 2007-08 should thus be added to the list of recessions to which oil prices appear to have made a material contribution. |
| JEL: | E32 Q43 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15002&r=bec |
| By: | Filipe Silva (Faculty of Economics, University of Coimbra); Carlos Carreira (Faculty of Economics/GEMF, University of Coimbra) |
| Abstract: | This paper is a brief survey of recent empirical work on financial constraints faced by firms. It is organized as a series of stylized results which mirror what is generally understood about severity of financial constraints and effects that they have upon firms. This survey shows that (a) the financial constraint is a widespread key concern for firms, hindering their ability to carry out their optimal investment and growth trajectories and (b) the severity of such constraints depends on institutional and firm specific characteristics, as well as on the nature of investment projects. |
| Keywords: | Firms’ financial constraints; Firm-level studies. |
| JEL: | G3 L00 L2 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2009-06&r=bec |
| By: | John T. Addison (Department of Economics, University of South Carolina, Queen’s University Belfast, and GEMF, University of Coimbra); Paulino Teixeira (Faculty of Economics/GEMF, University of Coimbra); Thomas Zwick (Munich School of Management, Ludwig-Maximilians University Munich, and Centre for European Economic Research/ZEW, Mannheim) |
| Abstract: | Low-skilled workers enjoy a large wage advantage in German works council establishments. Since job tenure is also longer for these workers, one explanation might be rent-seeking. If the premium is a compensating wage differential (or a return to unmeasured ability), it should not lead to higher tenure; whereas if it is (partly) rent, lower quits should lead to longer tenure at plants with works councils. Our analysis uses the Card and de la Rica (2006) tenure model, and although the association between skill level and the works council tenure gap is positive it fails to achieve statistical significance in a single equation framework. However, running the tenure equation for separate skill quintiles, we find that those with the highest wage premium have the greatest tenure. As a result, although we cannot be certain that the works council wage mark-up of low-skilled workers is necessarily a non-competitive rent, the observed pattern of job tenure across different skill subsamples is not after all inconsistent with rent-seeking behavior. |
| Keywords: | works councils, rent seeking, matched employer-employee data, wages, job tenure. |
| JEL: | J31 J50 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2009-04&r=bec |
| By: | Bayo, Alberto (Universidad Publica de Navarra); Galdon-Sanchez, Jose E. (UC-Santa Cruz); Gil, Ricard (UC-Santa Cruz) |
| Abstract: | In this paper we empirically examine the determinants of changes in the organization of production using detailed information on a data set from a new plant-level survey of 1003 plants covering the full range of manufacturing industries in Spain. In particular, and among many other things, survey respondents were asked how service outsourcing practices had changed in the last three years. The answer to this question is indicative of the changes in the importance of backward integration for each of the plants studied. Using other information provided in the survey, we relate the reported changes in outsourcing to changes in other relevant dimensions as possible determinants of the boundaries of the firm. These dimensions are: plant size, downstream market power, cost of inputs, price and quality of the final good and technological progress. Our findings show that outsourcing increases are strongly positively correlated with increases in market share and in market competition. We also find that outsourcing increases when plants face simultaneous increases in product quality and product prices and that it decreases when plants face simultaneous increases in market share and market competition. Finally, we find that multi-plant and one-plant firms adjust their outsourcing practices differently to outside changes. Since neither TCE nor PRT theories of vertical integration fully explain the patterns found in our data, we close this paper by following Adam Smith's claim that the extent of the market seems to be the only factor consistently limiting the degree of specialization in our setting. |
| Keywords: | outsourcing; vertical integration; competition; manufacturing plants; |
| JEL: | L22 L23 L60 |
| Date: | 2009–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0783&r=bec |
| By: | Anne Marie Gleeson (Waterford IT); Frances Ruane (ESRI) |
| Abstract: | This paper combines a literature identifying the sources of productivity growth with a literature exploring differences between the characteristics of exporters and non-exporters to examine the contributions of exporters and non-exporters to aggregate labour productivity growth in the Irish manufacturing sector between 1998 and 2004. Using the Breunig and Wong (2007) decomposition technique, we uncover the contributions to aggregate labour productivity of continuing, entering and exiting firms based on exporting and ownership status. We find that within-firm productivity growth of exporters drives overall productivity growth, with significant differences apparent between productivity growth rates of foreign and domestic owned establishments. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp297&r=bec |
| By: | Gonzalez, Aldo; Benitez, Daniel |
| Abstract: | The authors compare the two merger control systems currently employed worldwide: a mandatory system based on merger size threshold and a voluntary system with ex-post monitoring and fines. The voluntary system possesses two informational advantages: (i) the enforcement agency employs more information -verifiable and non verifiable parameters- to decide the set of mergers to investigate, and (ii) the first move of merging firms reveals useful information to the agency about the competitive risk of a merger. If fines for undue omission to notify are upward limited, then a mixed mechanism is optimal, where small transactions are under a voluntary regime while the big mergers are obliged to report. Remedies for fixing anticompetitive mergers act as an instrument that induces firms to notify the operation, improving further the advantage of the voluntary mechanism. |
| Keywords: | Microfinance,Bankruptcy and Resolution of Financial Distress,Corporate Law,Economic Theory&Research,Small Scale Enterprise |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4936&r=bec |
| By: | Groh, Alexander P. (IESE Business School); Henseleit, Christoph (Bain & Co. Munich) |
| Abstract: | We derive discount rates for depreciation and amortization tax shields resulting from asset step-ups in corporate mergers and acquisitions. By assigning all relevant sources of uncertainty for such kind of tax shields and by accounting for corporate debt it is shown that for APV valuations r*, a rate between the firm's cost of debt and the risk-free rate, is adequate to discount step-up induced depreciation benefits. When the benefits are valued on a standalone basis, the adequate discount rate is the after-tax weighted average of r*. Discount rates for these shields have been determined arbitrarily in empirical research on corporate acquisitions so far. However, they are found to be in line with the rates deduced in this paper. |
| Keywords: | Tax Shield; Step-up Depreciation; Valuation; |
| JEL: | G12 G34 |
| Date: | 2009–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0785&r=bec |
| By: | Susanne Neckermann; Reto Cueni; Bruno S. Frey |
| Abstract: | Behavioral economics documents the importance of status and self-image concerns in the workplace, but is largely silent about how to instrumentalize them to induce effort. Awards - widespread in the corporate sector and elsewhere - are motivators that derive their value from such social concerns. Panel data from the call center of a large international bank allow us to estimate the impact of receiving an award on effort. The performance of winners proves to be significantly higher than that of comparable nonrecipients after the award has been presented. This increase in work effort is sizeable, robust, and not driven by reverse causation. |
| Keywords: | Awards, motivation, non-monetary compensation, event-study, incentives |
| JEL: | C23 J33 M52 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:411&r=bec |
| By: | Fan, Qinbin; Jahan-Parvar, Mohammad R. |
| Abstract: | This paper takes a closer look at the puzzle uncovered by Driesprong et al. (2008) and nds empirical support for the "oil eect" in equity returns. Using forty nine US industry-level returns series and changes in oil spot and futures prices, we address whether industry-level returns are predictable. We nd that using changes in oil spot prices, the answer is yes; but for just under a fth of industries in our sample. We nd weak support for the predictability of industry-level returns based on changes in oil futures prices. Our ndings are consistent with the delayed reaction to new information, a variant of Hong and Stein (1996)'s "underreaction" hypothesis. |
| Keywords: | Industry-level returns; Oil prices; Return predictability; Underreaction |
| JEL: | G14 G11 G12 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15437&r=bec |
| By: | Ricardo M. Sousa (Economic Policies Research Unit (NIPE) and Department of Economics, University of Minho, Campus of Gualtar, 4710-057 Braga, Portugal.) |
| Abstract: | This paper estimates the wealth effects on consumption in the euro area as a whole. I show that: (i) financial wealth effects are relatively large and statistically significant; (ii) housing wealth effects are virtually nil and not significant; (iii) consumption growth exhibits strong persistence and responds sluggishly to shocks; and (iv) the immediate response of consumption to wealth is substantially different from the long- run wealth effects. By disaggregating financial wealth into its major components, the estimates suggest that wealth effects are particularly large for currency and deposits, and shares and mutual funds. In addition, consumption seems to be very responsive to financial liabilities and mortgage loans. JEL Classification: E21, E44, D12. |
| Keywords: | consumption, housing wealth, financial wealth. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901050&r=bec |
| By: | Raouf Boucekkine; Giorgio Fabbri; Fausto Gozzi |
| Abstract: | A benchmark AK optimal growth model with maintenance expenditures and endogenous utilization of capital is considered within an explicit vin- tage capital framework. Scrapping is endogenous, and the model allows for a clean distinction between age and usage dependent capital deprecia- tion and obsolescence. It is also shown that in this set-up past investment profile completely determines the size of current maintenance expendi- tures. Among other findings, a closed-form solution to optimal dynam- ics is provided taking advantage of very recent development in optimal control of infinite dimensional systems. More importantly, and in con- trast to the pre-existing literature, we study investment and maintenance co-movements without any postulated ad-hoc depreciation function. In particular, we find that optimal investment and maintenance do move to- gether in the short-run in response to neutral technological shocks, which seems to be more consistent with the data. |
| Keywords: | Maintenance, investment, optimal control, dynamic program- ming, infinite dimensional problem |
| JEL: | E22 E32 O40 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2009_21&r=bec |