|
on Business Economics |
| By: | Lieven Baele; Geert Bekaert; Koen Inghelbrecht |
| Abstract: | We study the economic sources of stock-bond return comovements and its time variation using a dynamic factor model. We identify the economic factors employing a semi-structural regime-switching model for state variables such as interest rates, inflation, the output gap, and cash flow growth. We also view risk aversion, uncertainty about inflation and output, and liquidity proxies as additional potential factors. We find that macro-economic fundamentals contribute little to explaining stock and bond return correlations, but that other factors, especially liquidity proxies, play a more important role. The macro factors are still important in fitting bond return volatility; whereas the "variance premium" is critical in explaining stock return volatility. However, the factor model primarily fails in fitting covariances. |
| JEL: | E43 E44 G11 G12 G14 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15260&r=bec |
| By: | Craig Burnside; Alexandra Tabova |
| Abstract: | We reconsider the empirical links between volatility and growth between 1970 and 2007. There is a strong and significant correlation between individual country growth rates and global factors that are arguably exogenous with respect to their economies. The amount of volatility driven by these external factors is highly correlated, cross-sectionally, with the overall amount of volatility in GDP growth. There is also a strong correlation between a country's average growth rate and the magnitude and sign of its exposure to global factors. We interpret our findings as a partial answer to the question "Why doesn't capital flow from rich to poor countries?" We argue that low-income countries that grow slowly are riskier from the perspective of the marginal international investor. |
| JEL: | E32 E44 F21 F43 O40 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15225&r=bec |
| By: | David Backus; Mikhail Chernov; Ian Martin |
| Abstract: | We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order cumulants are quantitatively important in both representative-agent models with disasters and in a statistical pricing model estimated from equity index options. Option prices thus provide independent confirmation of the impact of extreme events on asset returns, but they imply a more modest distribution of them. |
| JEL: | E44 G12 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15240&r=bec |
| By: | Chris Edmond; Pierre-Olivier Weill |
| Abstract: | This paper develops a consumption-based asset pricing model to explain and quantify the aggregate implications of a frictional financial system, comprised of many financial markets partially integrated with one-another. Each of our micro financial markets is inhabited by traders who are specialized in that market's type of asset. We specify exogenously the level of segmentation that ultimately determines how much idiosyncratic risk traders bear in their micro market and derive aggregate asset pricing implications. We pick segmentation parameters to match facts about systematic and idiosyncratic return volatility. We find that if the same level of segmentation prevails in every market, traders bear 20% of their idiosyncratic risk. With otherwise standard parameters, this benchmark model delivers an unconditional equity premium of 3.3% annual. We further disaggregate the model by allowing the level of segmentation to differ across markets. This version of the model delivers the same aggregate asset pricing implications but with only half the amount of segmentation: on average traders bear 10% of their idiosyncratic risk. |
| JEL: | G12 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15254&r=bec |
| By: | Sebastian Ebert; Eva Lütkebohmert |
| Abstract: | Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversi?ed away. The impact of undiversi?ed idiosyncratic risk on portfolio Value-at-Risk can be quanti?ed via a granularity adjustment (GA). We provide an analytic formula for the GA in an extended single- factor CreditRisk+ setting incorporating double default e?ects. It accounts for guarantees and their e?ect of reducing credit risk in the portfolio. Our general GA very well suits for application under Pillar 2 of Basel II as the data inputs are drawn from quantities already required for the calculation of IRB capital charges. |
| Keywords: | analytic approximation, Basel II, counterparty risk, double default, granularity adjustment, IRB approach, securitization |
| JEL: | G31 G28 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse10_2009&r=bec |
| By: | Michael Artis; Toshihiro Okubo |
| Abstract: | The paper uses annual data on real GDP for the UK regions and 12 manufacturing sectors toderive regional and regional/sectoral business cycles using an H-P filter. The cohesion of thecycles is examined via cross-correlations and comparisons made with the regional cycles forJapan, the United States and the EuroArea. The UK emerges as especially cohesive andefforts to explain the overall cross-correlations of regional GDP are not very successfulowing to the low variance of the explicand; when attention is turned to the sectoral/regionalcycles, with their greater variance it is possible to demonstrate that economic variables suchas distance, dissimilarity in structure and level of output play a significant role in explainingthe variance in the cross-correlations. A significant feature of the cross-correlations inrelation to those of EU countries is that whilst they continue to provide support for the "UKidiosyncrasy" they no longer do so as strongly as they did in earlier data samples |
| Keywords: | intranational business cycle, regional business cycles, income convergence,Hodrick-Prescott filter, Euro-sympathy |
| JEL: | E32 E41 R11 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sercdp:0019&r=bec |
| By: | Tim Willems (University of Amsterdam); Sweder van Wijnbergen (University of Amsterdam) |
| Abstract: | This paper first documents the increase in the time lag with which labor input reacts to output fluctuations ("the labor adjustment lag") that is visible in US data since the mid-1980s. We show that a lagged labor adjustment response is optimal in a setting where there is uncertainty about the persistence of shocks and where labor input is costly to adjust. We then present evidence that both the nature of shocks as well as labor adjustment costs may have changed during the 1980s in a direction that could explain the observed increase in the lag. Finally, we argue that the increased labor adjustment lag has the potential to explain some macroeconomic puzzles that characterize post-1984 US data, such as the reduced procyclicality of labor productivity and the reduction in output volatility (known as the Great Moderation). |
| Keywords: | imperfect information; labor adjustment; jobless growth; option value of waiting; Great Moderation |
| JEL: | E24 E32 J23 J24 |
| Date: | 2009–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20090063&r=bec |
| By: | Baldwin, John R.; Gu, Wulong |
| Abstract: | Baldwin and Gu (2008) provide an overview of the productivity program at Statistics Canada and a brief description of Canada's productivity performance. This paper provides an update of Canada's productivity performance in more recent years and analyses the sources of weak productivity performance in Canada since 2000. |
| Keywords: | Economic accounts, Productivity accounts |
| Date: | 2009–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp6e:2009025e&r=bec |
| By: | Baldwin, John R.; Macdonald, Ryan |
| Abstract: | This paper examines the challenges that the manufacturing sector has faced over the last half century focusing on both long- and short-term performance. It first examines whether there is evidence that this sector is in long-term decline. The paper also investigates how the industry has responded to specific shocks during this period from exchange-rate movements, trade liberalization and business cycles. It finds little evidence of long-term decline. Rather it describes how manufacturing has adapted to varying challenges, whether from demand shifts due to business cycles, relative price shifts associated with exchange rate shocks or changes in tariff regimes. |
| Keywords: | International trade, Manufacturing, Business performance and ownership, Business cycles |
| Date: | 2009–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2009057e&r=bec |
| By: | Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante |
| Abstract: | This paper studies consumption and labor supply in a model where agents have partial insurance and face risk and initial heterogeneity in wages and preferences. Equilibrium allocations and variances and covariances of wages, hours and consumption are solved for analytically. We prove that all parameters of the structural model are identified given panel data on wages and hours, and cross-sectional data on consumption. The model is estimated on US data. Second moments involving hours and consumption show that the rise in wage dispersion in the 1970s was effectively insured by households, while the rise in the 1980s was not. |
| JEL: | E21 J22 J31 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15257&r=bec |
| By: | Fatih Guvenen |
| Abstract: | In this paper, I study asset prices in a two-agent macroeconomic model with two key features: limited participation in the stock market and heterogeneity in the elasticity of intertemporal substitution in consumption (EIS). The model is consistent with some prominent features of asset prices that have been documented in the literature, such as a high equity premium; relatively smooth interest rates; procyclical variation in stock prices; and countercyclical variation in the equity premium, in its volatility, and in the Sharpe ratio. While the model also reproduces the long-horizon predictability of the equity premium, the extent of predictability is smaller than in the data. In this model, the risk-free asset market plays a central role by allowing the non-stockholders (who have low EIS) to smooth the fluctuations in their labor income. This process concentrates nonstockholders’ aggregate labor income risk among a small group of stockholders, who then demand a high premium for bearing the aggregate equity risk. Furthermore, this mechanism is consistent with the very small share of aggregate wealth held by non-stockholders in the US data, which has proved problematic for previous models with limited participation. I show that this large wealth inequality is also important for the model’s ability to generate a countercyclical equity premium. Finally, when it comes to business cycle performance the model’s progress has been more limited: consumption is still too volatile compared to the US data, whereas investment is still too smooth. These are important areas for potential improvement in this framework. |
| JEL: | E21 E32 E44 G12 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15243&r=bec |
| By: | P.D. Koellinger (Erasmus School of Economics, Erasmus University Rotterdam); A.R. Thurik (Erasmus School of Economics, Erasmus Universiteit Rotterdam) |
| Abstract: | We study the cyclical pattern of entrepreneurial activity. Results across 22 OECD countries for the period 1972-2007 show that entrepreneurial activity is a leading indicator of the business cycle in a Granger-causality sense. This contradicts existing theoretical hypotheses which predict that entrepreneurship is pro-cyclical or not cyclical. We discuss possible causes and implications of this finding. |
| Keywords: | Entrepreneurship; business cycle |
| JEL: | L26 E32 |
| Date: | 2009–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20090032&r=bec |
| By: | Robin Douhan (Research Institute of Industrial Economics (IFN) and Uppsala University); Mirjam van Praag (University of Amsterdam, Amsterdam Center for Entrepreneurship, Max Planck Institute of Economics, IZA) |
| Abstract: | We combine two empirical observations in a general equilibrium occupational choice model. The first is that entrepreneurs have more control than employees over the employment of and accruals from assets, such as human capital. The second observation is that entrepreneurs enjoy higher returns to human capital than employees. We present an intuitive model showing that more control (observation 1) may be an explanation for higher returns (observation 2); its main outcome is that returns to ability are higher in higher control environments. This provides a theoretical underpinning for the control-based explanation for higher returns to human capital for entrepreneurs. |
| Keywords: | Entrepreneurship; Ability; Occupational Choice; Human Capital; Wage Structure |
| JEL: | L26 I20 J24 J31 |
| Date: | 2009–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20090055&r=bec |
| By: | Sloev, Igor |
| Abstract: | The paper explores incentives for strategic vertical separation of firms in a framework of a simple duopoly model. Each firm chooses either to be a retailer of its own good (vertical integration) or to sell its good through an independent exclusive retailer (vertical separation). In the latter case a two-part tariff is applied. Retailers compete in quantities, goods are perfect substitutes and firms' cost functions are quadratic. I show that the equilibrium outcome crucially depends on the degree of (dis)economies of scale and asymmetry of costs. Two asymmetric equilibria arise, in which one firm separates while another integrates, under conditions that both firms' cost functions exhibit a sufficiently high diseconomies of scale, or extreme asymmetry of costs. Under a moderate asymmetry of costs a unique equilibrium exists in which the firm with the lower degree of diseconomies of scale separates, while its rival integrates. With the degree of diseconomies of scale low for both firms in the unique equilibrium both firms separate. |
| Keywords: | Vertical oligopoly; Vertical Separation; Vertical Integration; Delegation |
| JEL: | L42 L22 |
| Date: | 2009–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16729&r=bec |
| By: | Ogura, Yoshiaki; Yamori, Nobuyoshi |
| Abstract: | The question of whether more competition among banks increases relationship banking, which is predicted to improve credit availability for informationally opaque firms in theory, is a controversial issue in the banking literature. By using firm-level survey data in Japan, this paper provides evidence for the negative correlation between lending competition and the provision of relationship banking . This paper raises the question whether fierce interbank competition is always beneficial for small firms. |
| Keywords: | relationship banking; lending competition |
| JEL: | L11 D82 G21 |
| Date: | 2009–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16707&r=bec |
| By: | Katariina Nilsson Hakkala; Fredrik Heyman; Fredrik Sjöholm |
| Abstract: | We analyze the impact of multinational and foreign ownership on the demand for job tasks and educational skills. By using Swedish matched employer-employee data, we find that both foreign and domestic multinational firms have high shares of non-routine tasks and tasks requiring personal interaction. Moreover, acquisitions of local firms by multinationals increase the relative demand for non-routine and interactive job tasks in the targeted firms. The differences in the demand for job tasks are only partly explained by firm characteristics. Dividing employees by education instead of job tasks does not result in the same effects on relative labor demand, which shows that task measures do indeed capture a new labor market aspect. |
| Keywords: | FDI, Cross-Border Acquisitions, Multinational Enterprises, Foreign Ownership, Job Tasks, Labor Demand, Skill Groups |
| JEL: | F16 F23 J23 F21 |
| Date: | 2009–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:8&r=bec |
| By: | Michael Faulkender; Mitchell Petersen |
| Abstract: | The American Jobs Creation Act (AJCA) significantly lowered the tax cost at which US firms could access their unrepatriated foreign earnings. We use this temporary shock to the cost of financing investment and its variation across firms, to examine the role of financial constraints in the firm’s investment decisions. Controlling for the ability to repatriate foreign earnings in a more tax efficient way under the AJCA, we find that for a majority of firms there was little change in domestic investment – the policy objective of the law. We do find, however, that for a subset of firms which are financially constrained, that a majority of the repatriated funds were invested in approved domestic investment. We find little change in financial policy (e.g. leverage and equity payouts) once we control for the ability to repatriate funds under the AJCA. These findings point out the importance of understanding finance theory when designing optimally targeted tax incentives. |
| JEL: | G31 G32 G38 K34 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15248&r=bec |
| By: | Luciana Dalla Valle (University of Milan); Giovanna Nicolini (University of Milan) |
| Abstract: | When the choice of one firm's internationalisation regards the establishment of a subsidiary in a foreign country, then internationalization is a very complex process involving many variables. Some of these variables concern the internal organization of the firm - as for example its economic status, growth politics and managerial abilities. Other variables instead are external and lie basically in the characteristicss of the country the firm chooses to open its subsidiary. The internationalization processes, which have mainly drawn researchers' interest, are about large firms; while the internationalization of SMEs (with less than 500 employees), has been less investigated so far. Moreover, the internationalization of SMEs is more hazardous, because these companies are less supported by the governmental authority, so the choice of the country where to open a new subsidiary represents a key element for the success of the firm. The aim of this paper is twofold. On the one hand, we will examine the features of the foreign countries in which Italian SMEs formerly established subsidiaries; on the other hand, we will investigated the consequences of SMEs internationalisation through their economic performance. Through the joint analysis of two variable sets (about countries and about firms) and through the statistical method we are going to implement in the following (hierarchical mixed logit model), we will be able to describe both the most signicant characteristics of the firms that already opened subsidiaries abroad and the characteristics of the country where the opening took place. Our first step will be selecting the variables for the two datasets, while the second step will be choosing the most suitable model for our purposes. The analysis concerns about 400 firms that started an internationalisation process before 2004. |
| Keywords: | Internationalisation, Cluster analysis, Bayesian mixed logit model, |
| Date: | 2008–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:bep:unimip:1081&r=bec |
| By: | Steven T. Berry (Cowles Foundation, Yale University); Philip A. Haile (Cowles Foundation, Yale University) |
| Abstract: | We consider identification of nonparametric random utility models of multinomial choice using "micro data," i.e., observation of the characteristics and choices of individual consumers. Our model of preferences nests random coefficients discrete choice models widely used in practice with parametric functional form and distributional assumptions. However, the model is nonparametric and distribution free. It allows choice-specific unobservables, endogenous choice characteristics, unknown heteroskedasticity, and high-dimensional correlated taste shocks. Under standard "large support" and instrumental variables assumptions, we show identifiability of the random utility model. We demonstrate robustness of these results to relaxation of the large support condition and show that when it is replaced with a weaker "common choice probability" condition, the demand structure is still identified. We show that key maintained hypotheses are testable. |
| Keywords: | Nonparametric identification, Discrete choice demand, Differentiated products |
| JEL: | C35 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1718&r=bec |
| By: | Alexander Popov (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Peter Roosenboom (Department of Finance, Rotterdam School of Management (RSM), Erasmus University Rotterdam, Burgemeester Oudlaan 50, NL 3062PA Rotterdam, The Netherlands.) |
| Abstract: | Using a comprehensive database of European firms, we study how private equity affects the rate of firm entry. We find that private equity investment benefits new business incorporation, especially in industries with naturally higher entry rates and R&D intensity. A two standard deviation increase in private equity investment explains as much as 5.5% of the variation in entry between high-entry and low-entry industries. We address endogeneity by exploiting data on laws that regulate private equity investments by pension funds. Our results hold when we correct for barriers to entry, general access to credit, protection of intellectual property, and labor regulations. JEL Classification: G24, L26, M13. |
| Keywords: | private equity, venture capital, firm entry. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091078&r=bec |