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on Business Economics |
| By: | Alain Monfort. |
| Abstract: | We consider the VaR associated with the global loss generated by a set risk sources. We propose a sequence of simple models incorporating progressively the notions of contagion due to instantaneous correlations, of serial correlation, of evolution of the instantaneous correlations, of volatility clustering, of conditional heteroskedasticity and of persistency of shocks. The tools used are the standard and extended Kalman filters. |
| Keywords: | VaR, factor models, correlation, volatility clustering, Kalman filter. |
| JEL: | C10 G11 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:250&r=bec |
| By: | Berthold Herrendorf; Richard Rogerson; Ãkos Valentinyi |
| Abstract: | We ask what specification of preferences can account for the changes in the expenditure shares of broad sectors that are associated with the process of structural transformation in the U.S. since 1947. Following the tradition of the expenditure systems literature, we first calibrate utility function parameters using NIPA data on final consumption expenditure. We find that a Stone-Geary specification fits the data well. While useful, this exercise does not tell the researcher what utility function to use in a model that posits sectoral production functions in value added form. We therefore develop a method to calculate the value added components of consumption categories that are consistent with value added production functions, and use these data to calibrate a utility function over sectoral consumption value added. We find that a Leontief specification fits the data well. Interestingly, the two specifications display very different properties: for final consumption expenditure income effects are the dominant force behind changes in expenditure shares whereas for consumption value added relative price effects are dominant. |
| JEL: | E20 O14 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15416&r=bec |
| By: | Enrique G. Mendoza; Vincenzo Quadrini |
| Abstract: | Two observations suggest that financial globalization played an important role in the recent financial crisis. First, more than half of the rise in net borrowing of the U.S. nonfinancial sectors since the mid 1980s has been financed by foreign lending. Second, the collapse of the U.S. housing and mortgage-backed-securities markets had worldwide effects on financial institutions and asset markets. Using an open-economy model where financial intermediaries play a central role, we show that financial integration leads to a sharp rise in net credit in the most financially developed country and leads to large asset price spillovers of country-specific shocks to bank capital. The impact of these shocks on asset prices are amplified by bank capital requirements based on mark-to-market. |
| JEL: | E44 F36 F41 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15432&r=bec |
| By: | Christian Calmès (Département des sciences administratives, Université du Québec (Outaouais), et Chaire d'information financière et organisationnelle, ESG-UQAM); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle, ESG-UQAM) |
| Abstract: | The noninterest income banks generate from their off-balance-sheet activities contributes greatly to the volatility of their operating revenues. Using Canadian data, we apply a modified Hausman procedure based on higher moments instruments and revisit this phenomenon to establish that the share of noninterest income (snonin) is actually endogenous to banks returns. In 1997, after the adoption of the Value at Risk (VaR) as a measure of banks risk, the snonin sign turns positive in the returns equations, indicating the emergence of diversification gains from banks non-traditional activities. ARCH-M estimations corroborate the idea that banks have gradually adapted to their new business lines, with an adjustment process begun even before 1997. However, the banks risk premium associated to OBS activities has continuously increased since that date. |
| Keywords: | Bank Risk Measures; Diversification; Noninterest income; Hausman test; Endogeneity; ARCH-M. |
| JEL: | G20 G21 C32 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:042009&r=bec |
| By: | Jacob A. Bikker; Sherrill Shaffer; Laura Spierdijk |
| Abstract: | The Panzar-Rosse test has been widely applied to assess competitive conduct, often in specifcations controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample covering more than 110,000 bank-year observations on almost 18,000 banks in 67 countries during 1986-2004. |
| Keywords: | Panzar-Rosse test, competition, firm size |
| JEL: | D40 L11 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0927&r=bec |
| By: | Gian Luca Clementi; Thomas F. Cooley |
| Abstract: | In this paper we describe the important features of executive compensation in the US from 1993 to 2006. Some confirm what has been found for earlier periods and some are novel. Important facts about compensation are that: the compensation distribution is highly skewed; each year, a sizeable fraction of chief executives lose money; the use of equity grants has increased; the income accruing to CEOs from the sale of stock has increased; regardless of the measure we adopt, compensation responds strongly to innovations in shareholder wealth; measured as dollar changes in compensation, incentives have strengthened over time, measured as percentage changes in wealth, they have not changed in any appreciable way. |
| JEL: | G30 J33 M52 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15426&r=bec |
| By: | Peter Howitt; Ömer Özak |
| Abstract: | This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places few informational or computational demands on the consumer. We show that under a variety of settings, our procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function. |
| JEL: | E21 C63 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15427&r=bec |
| By: | Keqiang Hou; Alok Johri |
| Abstract: | Aggregate corporate profits are highly volatile and procyclical. Most dynamic general equilibrium models of the business cycle cannot deliver these basic features of the data. We develop a model of the U.S. economy in which firms expend resources to create intangible capital (IC), which is an additional input in their production technology. In keeping with the data, the model delivers profits that are many times more volatile than output. An estimated version of the model implies that IC investments are large and pro-cyclical. IC acts as a propaga- tion mechanism, generating inertial responses to shocks. Overall, the model fits the aggregate data much better than a model without IC. |
| Keywords: | Business Cycles; Profits; Bayesian Estimation; Intangible Capital |
| JEL: | E3 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2009-17&r=bec |
| By: | Morris M. Kleiner (University of Minnesota and NBER); Alan B. Krueger (Princeton University) |
| Abstract: | This study examines the extent and influence of occupational licensing in the U.S. using a specially designed national labor force survey. Specifically, we provide new ways of measuring occupational licensing and consider what types of regulatory requirements and what level of government oversight contribute to wage gains and variability. Estimates from the survey indicated that 35 percent of employees were either licensed or certified by the government, and that 29 percent were fully licensed. Another 3 percent stated that all who worked in their job would eventually be required to be certified or licensed, bringing the total that are or eventually must be licensed or certified by government to 38 percent. We find that licensing is associated with about 18 percent higher wages, but the effect of governmental certification on pay is much smaller. Licensing by larger political jurisdictions is associated with the higher wage gains relative to only local licensing. We find little association between licensing and the variance of wages, in contrast to unions. Overall, our results show that occupational licensing is an important labor market phenomenon that can be measured in labor force surveys. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:1178&r=bec |
| By: | Wesselbaum, Dennis |
| Abstract: | The efficiency wage theory developed by Akerlof (1982) assumes observability of effort and the ability of firm and worker to commit on their effort/wage decisions. We show that, from a game theoretical point of view, we have to understand the firm/worker relationship as a repeated Prisoner's dilemma. Therefore, cooperation is per se not a (subgame perfect) Nash equilibrium and hence the Akerlof (1982) theory is based upon an implicit assumption of cooperation, which can not be implemented w.l.o.g.. In addition, we find that this approach is a special case of the Shapiro and Stiglitz (1984) approach and hence unify the two approaches. |
| Keywords: | Efficiency Wage; Prisoner's Dilemma; Repeated Game; Subgame Perfect Nash Equilibrium. |
| JEL: | J41 C73 C72 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18026&r=bec |
| By: | Ann Harrison; Margaret McMillan |
| Abstract: | Critics of globalization claim that US manufacturing firms are being driven to shift employment abroad by the prospects of cheaper labor. Others argue that the availability of low-wage labor has allowed US-based firms to survive and even prosper. Yet evidence for either hypothesis, beyond anecdotes, is slim. Using firm-level data collected by the US Bureau of Economics Analysis (BEA), we estimate the impact on US manufacturing employment of changes in foreign affiliate wages, controlling for changing demand conditions and technological change. We show that the motive for offshoring and consequently the location of offshore activity significantly affects the impact of offshoring on parent employment. However, for firms which do significantly different tasks at home and abroad, foreign and domestic employment are complements. These offsetting effects may be combined to show that offshoring is associated with a quantitatively small decline in manufacturing employment. These results are robust to a variety of estimation techniques and robustness tests. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0741&r=bec |
| By: | Avraham Ebenstein; Ann Harrison; Margaret McMillan; Shannon Phillips |
| Abstract: | In this paper, we link industry-level data on offshoring activities of U.S. multinational firms, import penetration, and export shares with individual level worker data from the Current Population Surveys. We examine whether increasing globalization through offshoring or trade has led to reallocation of labor, both within and out of manufacturing, and measure its impact on the wages of domestic workers. We also control for the "routineness" of individual occupations. Our results suggest that (1) offshoring to high wage countries is positively correlated with U.S. manufacturing employment (2) offshoring to low wage countries is associated with U.S. employment declines (3) wages for workers who remain in manufacturing are generally positively affected by offshoring; in particular, we find that wages are positively associated with an increase in U.S. multinational employment in high income locations (4) much of the negative effects of globalization operate through downward pressure on wages of workers who leave manufacturing to take jobs in agriculture or services and (5) the downward pressure on aggregate U.S. wages operating through import competition has been quite important for some occupations. This effect has been overlooked because it operates across, not within, industries. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0742&r=bec |
| By: | Christian Merkl; Dennis Wesselbaum |
| Abstract: | This papers analyzes the role of the extensive vis-à-vis the intensive margin of labor adjustment in Germany and the United States. The contribution is twofold. First, we provide an update of older U.S. studies and confirm the view that the extensive margin (i.e., the adjustment in the number of workers) explains the largest part in the overall variability in aggregate hours (namely, about three quarters). Second, although the German labor market is very different from its U.S. counterpart, the quantitative importance of the extensive margin is of similar magnitude |
| Keywords: | Business Cycle, Extensive and Intensive Margin, Variance Decomposition |
| JEL: | C10 E32 J21 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1563&r=bec |
| By: | Takatoshi Tabuchi (Faculty of Economics, University of Tokyo) |
| Abstract: | Oligopoly models are usually analyzed in the context of two firms anticipating that market outcomes would be qualitatively similar in the case of three or more firms. This is not an exception in the literature on Hotelling's location-then-price competition. In this paper, we show that the main findings in Hotelling's duopoly, brand bunching and the max-min principle of product differentiation no longer hold once three or more firms are allowed to enter the market. That is, oligopolists with three or more firms proliferate brands and neither maximize nor minimize product differentiation. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2009cf674&r=bec |