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on Business Economics |
| By: | Garima Vasishtha; Philipp Maier |
| Abstract: | Building on the growing evidence on the importance of large data sets for empirical macroeconomic modeling, we use a factor-augmented VAR (FAVAR) model with more than 260 series for 20 OECD countries to analyze how global developments affect the Canadian economy. We focus on several sources of shocks, including commodity prices, foreign economic activity, and foreign interest rates. We evaluate the impact of each shock on key Canadian macroeconomic variables to provide a comprehensive picture of the effect of international shocks on the Canadian economy. Our findings indicate that Canada is primarily exposed to shocks to foreign activity and to commodity prices. In contrast, the impact of shocks to global interest rates or global inflation is substantially lower. Our findings also expose the different channels through which higher commodity prices impact the Canadian economy: Canada benefits from higher commodity prices through a positive terms of trade shock, but at the same time, higher commodity prices tend to lower global economic activity, hurting demand for Canadian exports. |
| Keywords: | International topics; Econometric and statistical methods; Business fluctuations and cycles |
| JEL: | C32 F41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-2&r=bec |
| By: | Philippe Bacchetta, Cédric Tille, Eric van Wincoop (IHEID, The Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | There has been a long debate about whether speculators are stabilizing or not. We consider a model where speculators have a stabilizing role in normal times, but may also provoke large risk panics. The very feature that makes arbitrageurs liquidity providers in normal times, namely their tolerance of risk, enables a large increase in asset price risk during a financial panic. We show that a policy that discourages balance sheet risk reduces the magnitude of financial panics, as well as asset price risk in both normal and panic states. |
| Keywords: | Asset Pricing, Risk Management, Leverage. |
| JEL: | E44 G11 G18 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp02-2011&r=bec |
| By: | Jason Allen; Robert Clark; Jean-François Houde |
| Abstract: | This paper studies discounting in mortgage markets. Using transaction-level data on Canadian mortgages, we document that over time there’s been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. Our setting is unique since contracts are guaranteed by government-backed insurance, meaning risk cannot be the main driver of dispersion. We find that mortgage rates depend on individual, contractual, and shopping market characteristics. There is also an important amount of unobserved heterogeneity in rates, which could be attributed to search costs. |
| Keywords: | Financial institutions; Financial services |
| JEL: | D4 G21 L0 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-3&r=bec |
| By: | Arpad Abraham (Department of Economics, University of Rochester); Eva Carceles-Poveda (Department of Economics, Stony Brook University) |
| Abstract: | This paper studies a production economy with aggregate uncertainty where consumers have limited commitment on their financial liabilities. Markets are endogenously incomplete due to the fact that the borrowing constraints are determined endogenously. We first show that, if competitive financial intermediaries are allowed to set the borrowing limits, then the ones that prevent default will be an equilibrium outcome. The equilibrium allocations in this economy are not constrained efficient due to the fact that intermediaries do not internalize the adverse effects of capital on default incentives. We also isolate and quantifiy this new source of inefficiency by comparing the competitive equilibrium allocations to the constrained efficient ones both qualitatively and quantitatively. We tend to observe higher capital accumulation in the competitive equilibrium, implying that agents may enjoy higher (average) welfare in the long run than in the constrained efficient allocation. |
| Keywords: | Enforcement Constraints, Intermediation, Risk Sharing, Capital Accumulation. |
| JEL: | D52 E23 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:nys:sunysb:10-04&r=bec |
| By: | Xin Huang; Hao Zhou; Haibin Zhu |
| Abstract: | We adopt a systemic risk indicator measured by the price of insurance against systemic financial distress and assess individual banks' marginal contributions to the systemic risk. The methodology is applied using publicly available data to the 19 bank holding companies covered by the U.S. Supervisory Capital Assessment Program (SCAP), with the systemic risk indicator peaking around $1.1 trillion in March 2009. Our systemic risk contribution measure shows interesting similarity to and divergence from the SCAP expected loss measure. In general, we find that a bank's contribution to the systemic risk is roughly linear in its default probability but highly nonlinear with respect to institution size and asset correlation. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2011-08&r=bec |
| By: | Ana Fostel (George Washington University); John Geanakoplos (Cowles Foundation, Yale University) |
| Abstract: | A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second moments of asset returns. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become more volatile in bad times. Agents choose these technologies because they can be leveraged more during normal times. Together with the existing literature this explains procyclical leverage. The result also gives a rationale to the pattern of volatility smiles observed in the stock options since 1987. Finally, the paper presents for the first time a dynamic model in which an asset is endogenously traded simultaneously at different margin requirements in equilibrium. |
| Keywords: | Collateral, Endogenous leverage, VaR, Volatility, Volatility smile |
| JEL: | D52 D53 E44 G11 G12 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1762r&r=bec |
| By: | Siedschlag, Iulia |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:rb2010/3/2&r=bec |
| By: | Florian Mayneris (CORE) |
| Abstract: | This paper investigates theoretically and empirically the endogenous investment decision of firms conditioning on export decision. It shows that theoretically, whatever the form of preferences, firms that start exporting invest more and grow more than the others. However, it is shown that when preferences are CES, within each category of firms (domestic and switchers), initial productivity and investment are strategic complements, inducing intra-industrial divergence. On the contrary, when preferences are quadratic, initial productivity and investment are strategic substitutes: less productive firms invest more and grow more than the others, inducing intra-industrial convergence. Empirical results on French data support the predictions of the quadratic preferences model. |
| Keywords: | Export Decision, Investment, Firm Heterogeneity |
| JEL: | D21 D24 F12 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.153&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 30% of their idiosyncratic risk. With otherwise standard parameters, this benchmark model delivers an unconditional equity premium of 2.4% 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 one-third the amount of segmentation: on average traders bear 10% of their idiosyncratic risk. |
| Keywords: | Asset pricing; market segmentation; idiosyncratic risk |
| JEL: | G12 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1117&r=bec |
| By: | ICHIMURA Hidehiko; KONISHI Yoko; NISHIYAMA Yoshihiko |
| Abstract: | In estimating the production function of firms, problems of endogeneity and self selection exist as a result of firm-specific productivity shocks and entry/exit decisions. Several methods have been proposed to handle these problems, such as those by Olley and Pakes (1996) and Levinsohn and Petrin (1999, 2003). However, the endogeneity of labor input does not seem to be completely solved by these methods. We therefore propose an alternative semiparametric IV estimator. We suppose that firm-specific productivity influences labor input as well as capital input. We adopt the lagged variables of inputs as their instruments instead of investment inputs, unlike Olley and Pakes. Moreover, our econometric model should automatically adapt to the effect of the exit decision of each firm. We applied the model to Japanese plant-level panel data from 1982 to 2004 on the Census of Manufactures provided by the Ministry of Economy, Trade and Industry. We found that our estimator works well in an empirical study in terms of sign and magnitude of the technological parameters. Using the estimation residuals, we decomposed the TFP into firm-specific productivity and other exogenous shocks. We also aggregated the productivity shocks to industry-level productivities to determine the transition. We examined whether negative technological shocks were the main cause of poor economic performance in Japan during the glost decadeh, and found that productivity did not decline in most Japanese industries since the 1980s. This implies that the recession might have been caused by demand-side factors rather than supply-side issues. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11002&r=bec |
| By: | GABSZEWICZ, Jean (Professor Emeritus, Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); TAROLA, Ornella (University of Rome "La Sapienza", Italy) |
| Abstract: | The paper explores the incentives for an incumbent firm to acquire an entrant willing to sell a product innovation, rather than openly compete with this entrant and, in case of acquisition, the incentives to sell simultaneously both the existing products and the new one, rather than specializing on a single variant. We prove that, in some circumstances, an incumbent firm can find it profitable to make an acquisition proposal to the entrant in order to deter entry. Nevertheless, in this acquisition scenario, a product proliferation strategy is never observed at equilibrium. Rather, the incumbent restricts itself to offer either its own variant or the product innovation produced by the entrant, depending on the quality differential existing between them. It follows that, while being available for sale, sometimes the innovation simply remains unexploited |
| Date: | 2010–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2010078&r=bec |
| By: | Yolande Hiriart (Toulouse School of Economics (IDEI-LERNA)); David Martimort (Toulouse School of Economics (EHESS, IDEI-GREMAQ)); Jerome Pouyet (Paris School of Economics) |
| Abstract: | When a firm undertakes risky activities, the conflict between social and private incentives to implement safety care requires public intervention which can take the form of both monetary incentives but also ex ante or ex post monitoring, i.e., before or after an accident occurs. We delineate the optimal scope of monitoring depending on whether public monitors are benevolent or corruptible. We show that separating the ex ante and the ex post monitors increases the likelihood of ex post investigation, helps prevent capture and improves welfare. |
| Keywords: | Risk Regulation, Monitoring, Capture, Integration, Separation |
| JEL: | L51 D82 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.144&r=bec |
| By: | Raphael Auer (Swiss National Bank and Prince); Kathrin Degen (University of Lausanne); Andreas Fischer (Swiss National Bank and CEPR) |
| Abstract: | What is the impact of import competition from low-wage countries (LWCs) on inflationary pressure in Europe? This paper examines whether labor- intensive exports from emerging Europe, Asia, and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, instrumental variable estimations predict that LWC im- port competition is associated with strong price effects. More specifically, when LWC exporters capture 1% of European market share, producer prices decrease by about 3%. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. Decomposing the mechanisms that underlie the LWC price effect on European industry, we show that import competition has a pronounced effect on average productivity with only a muted effect on wages or margins. Owing to the exit of firms and the increase in productivity, LWC import competition is shown to have substantially reduced employment in the European manufacturing sector. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:szg:worpap:1102&r=bec |
| By: | MAULEON, Ana (Facultés universitaires Saint-Louis, CEREC, B-1000 Brussels, Belgium and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); VANNETELBOSCH, Vincent (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); VERGARI, Cecilia (Department of Economic Sciences, University of Bologna, I-40125 Bologna, Italy) |
| Abstract: | We consider a model of wage determination with private information in a duopoly. We investigate the effects of unions having relative concerns on the negotiated wage and the strike activity. We show that an increase of unions' relative concerns has an ambiguous effect on the strike activity. |
| Keywords: | relative position, wage bargaining, private information, strike activity |
| JEL: | C70 J50 D60 |
| Date: | 2010–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2010076&r=bec |
| By: | Nelen Annemarie; Grip Andries de; Fouarge Didier (METEOR) |
| Abstract: | This paper analyzes whether part-time employment is beneficial for firm productivity in the service sector. Using a unique dataset on the Dutch pharmacy sector that includes the work hours of all employees and a “hard” physical measure of firm productivity, we estimate a production function including heterogeneous employment shares based on work hours. We find that a larger part-time employment share leads to greater firm productivity. Additional data on the timing of labor demand show that part-time employment enables firms to allocate labor more efficiently. First, firms with part-time workers can bridge the gap between opening hours and a full-time work week. Second, we find that during opening hours part-time workers are scheduled differently than full-timers. For example, we find that part-time workers enable their full-time colleagues to take lunch breaks so that the firm can remain open during these times. |
| Keywords: | labour economics ; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2011007&r=bec |
| By: | Holger Breinlich; Stefan Niemann; Edna Solomon |
| Abstract: | We present a novel set of stylised facts on forms of firm expansion and contraction, using unique business register data for the United Kingdom between 1997 and 2005. We distinguish between adjustments of employment and turnover at existing establishments, expansions and contractions taking place via greenfield investments and disinvestments, and via acquisitions and sell-offs. We document the relative importance of these three channels and how firms choose between them. We interpret our findings in the light of existing theories of firm dynamics, and propose directions for future theoretical developments. |
| Date: | 2010–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:693&r=bec |
| By: | Juan Carlos Barcena-Ruiz (Universidad del País Vasco); Maximo Sedano (Universidad del País Vasco) |
| Abstract: | In this paper we analyse the endogenous order of moves in a mixed duopoly for differentiated goods. Firms choose whether to set prices sequentially or simultaneously. The private firm maximises profits while the public firm maximises the weighted sum of the consumer and producer surpluses (wighted welfare). It is shown that the result obtained in equilibrium depends crucially on the weigth given to the consumer surplus in weighted welfare and on the degree to which goods are substitutes or complements. We also anlyse whether the equilibria obtained maximise the sum of the consumer and producer suspluses or not. Finally we study whether the nationality of the private firm influences the results. |
| Keywords: | Mixed duopoly; Price competition; Endogenous timing; Weighted welfare |
| JEL: | L00 L30 |
| Date: | 2011–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:201146&r=bec |
| By: | Minina, Vera N.; Krupskaya, Anastasia U. |
| Abstract: | Paper for 11th International Conference on Human Resource Development Research and Practice across Europe. Pecs, Hungary, June 2-4, 2010. |
| Keywords: | knowledge-intensive firm, human capital, human capital, Human Resource Development, Human Capital Management, Core Employee Profile, abilities, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:sps:cpaper:164&r=bec |
| By: | F. Delbono; D. Lanzi |
| Abstract: | In this paper, we provide a very simple model to shed light on the issue of managed competition in mixed quasi-markets (i.e. regulated markets in which social and for-profit firms coexist). In doing this, we consider the literature on mixed oligopolies as a reasonable reference point and try to enrich it with the idea of quasi-market. Firstly, our results show that social firms serve the relatively richer portion of the population. Only relatively poor consumers buy units of service from the profit-oriented firm. Secondly, the socially-preferable form of managed competition is to introduce coproduction practices and, hence, to raise profit-oriented firm's production costs. The diffusion of coproduction paradigms ensures maximal service quality and eliminates mark-up from the market. |
| JEL: | I18 L13 L84 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp727&r=bec |
| By: | Charles M. Tolbert; Troy C. Blanchard |
| Abstract: | We analyze the earnings determination process of more than 400,000 rural manufacturing workers in 12 selected U.S. states. Our theoretical motivation stems from an ongoing interest in the benefits of locally oriented business establishments. In this case, we distinguish manufacturing concerns that are single establishments in one rural place from branch plants that are part of larger multi-establishment enterprises. Our data permit us to introduce attributes of both workers and their employing firms into earnings determination models. For manufacturing workers in “micropolitan” rural counties, we find that working for a local (single) establishment has a positive impact on annual earnings. However, tenure with a firm returns more earnings for workers in non-local manufacturing facilities. Conversely, for manufacturing workers in “noncore” or rural areas without urban cores, we find that working for a local establishment has a negative effect on earnings. But, job tenure pays off more when working for a local establishment. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-01&r=bec |