|
on Microeconomics |
| By: | Christian Keuschnigg; Peter Egger |
| Abstract: | The paper proposes a model where heterogeneous firms choose whether to undertake R&D or not. Depending on R&D choice, innovative firms are more productive, have larger investment opportunities and lower own funds than non-innovating firms. As a result, innovative firms are financially constrained while standard firms are not. The efficiency of the financial sector and a country's institutional quality relating to corporate governance determine the share of R&D intensive firms and the comparative advantage in innovative goods. We show how protection, R&D subsidies and financial development improve access to external finance in distinct ways, support the expansion of innovative industries and boost national welfare. International welfare spillovers depend on the interaction between terms of trade effects and financial frictions and may be positive or negative, depending on foreign countries' trade position. |
| Keywords: | Innovation, financial development, R&D subsidies, protection |
| JEL: | F11 G32 L26 O38 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2010:2010-08&r=mic |
| By: | Gabriel Jiménez (Banco de España); Jose A. Lopez (Federal Reserve Bank Of San Francisco); Jesús Saurina (Banco de España) |
| Abstract: | A common assumption in the academic literature is that franchise value plays a key role in limiting bank risk-taking. As market power is the primary source of franchise value, reduced competition in banking markets has been seen as promoting banking stability. We test this hypothesis using data for the Spanish banking system. We find that standard measures of market concentration do not affect bank risk-taking. However, we find a negative relationship between market power measured using Lerner indexes based on bank-specific interest rates and bank risk. Our results support the franchise value paradigm. |
| Keywords: | bank competition, franchise value, Lerner index, credit risk, financial stability. |
| JEL: | G21 L11 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1005&r=mic |
| By: | Hassan Benchekroun; Cees Withagen |
| Abstract: | We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel-fringe game a la Salant 1976) coincide and (ii) when the number of fringe firms becomes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies. |
| JEL: | D43 Q30 L13 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:mcl:mclwop:2010-02&r=mic |
| By: | Loupias, C.; Sevestre, P. |
| Abstract: | We estimate an ordered probit model in order to explain the occurrence and magnitude of producer price changes in the French manufacturing sector. We use data consisting essentially of the Banque de France monthly business surveys, pooled over the years 1998-2005. Our results show that changes in the price of intermediate inputs are the main driver of producer price changes. Firms also appear to react significantly to changes in the producer price index of their industry. Variations in labor costs as well as in the production level also appear to increase the likelihood of a price change but their influence seems to be of a lesser importance. We also show that estimating an unconstrained dynamic model allows improving the estimation results as compared to those associated with a standard state-dependent model. Finally, our results point to an asymmetry in price adjustments. When they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward. |
| Keywords: | Price stickiness, frequency of price changes, price setting-behavior, survey data, ordered probit model. |
| JEL: | E31 C23 C25 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:273&r=mic |
| By: | Felipe Tamega Fernandes (Harvard Business School, Entrepreneurial Management Unit) |
| Abstract: | The literature on the rubber boom applied a Dependendist view of rubber production in the Brazilian Amazon. Even though a sizable surplus was generated in the rubber chain, it was mostly appropriated by foreigners. This view is in tune with the Global Commodity Chain approach that argues that manufacturing/core economies absorb the bulk of surplus generated in the commodity chain. This paper challenges both frameworks and asks for a more careful examination of the business history of commodity chains: it is a first step in this direction through an analysis of the relationship between two nodes of the rubber chain. |
| Keywords: | Rubber, Commodities, Commodity Chains, Business History, Amazon Region, Brazil. |
| JEL: | L1 L2 L73 N56 N86 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:10-089&r=mic |
| By: | Blonz, Joshua (Resources for the Future); Burtraw, Dallas (Resources for the Future); Walls, Margaret A. (Resources for the Future) |
| Abstract: | Uncertainty is a fundamental characteristic of climate change. This paper focuses on uncertainty that is introduced in the implementation of policy, especially as it affects the level and distribution of the burden on households that results from the allocation of emissions allowances. We examine the Waxman–Markey bill (H.R. 2454), with bookend scenarios labeled optimistic and pessimistic. The scenarios vary outcomes associated with allocations to local distribution companies, investments in electricity energy efficiency and technology development. We introduce a third scenario that allocates a substantial portion of allowance value directly to households. We find the average consumer surplus loss per household in 2016 in the optimistic scenario to be $136 and the allowance price is as low as $13.20 per ton. In the pessimistic scenario, the consumer surplus loss rises to $413, with an allowance price of $23.43 per ton. Allocation of allowance value directly back to households provides an intermediate, but more certain, result. |
| Keywords: | cap-and-trade, allocation, distributional effects, cost burden, equity, regulation,local distribution companies |
| JEL: | H22 H23 Q52 Q54 |
| Date: | 2010–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-10-12&r=mic |
| By: | David German |
| Abstract: | We review the utility-based valuation method for pricing derivative securities in incomplete markets. In particular, we review the practical approach to the utility-based pricing by the means of computing the first order expansion of marginal utility-based prices with respect to a small number of random endowments. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1003.5712&r=mic |
| By: | Christophe Chorro (Centre d'Economie de la Sorbonne); Dominique Guegan (Centre d'Economie de la Sorbonne - Paris School of Economics); Florian Ielpo (Centre d'Economie de la Sorbonne) |
| Abstract: | In this paper, we provide a new dynamic asset pricing model for plain vanilla options and we discuss its ability to produce minimum mispricing errors on equity option books. Given the historical measure, the dynamics of assets are modeled by Garch-type models with generalized hyperbolic innovations and the pricing kernel is an exponential affine function of the state variables, we show that the risk neutral distribution is unique and implies again a generalized hyperbolic dynamics with changed parameters. We provide an empirical test for our pricing methodology on two data sets of options respectively written on the French CAC 40 and the American SP 500. Then, using our theoretical result associated with Monte Carlo simulations, we compare this approach to natural competitors in order to test its efficiency. More generally, our empirical investigations analyze the ability of specific parametric innovations to reproduce market prices in the context of an exponential affine specification of the stochastic discount factor. |
| Keywords: | Generalized hyperbolic distribution, option pricing, incomplete markets, CAC 40, SP 500, GARCH-type models. |
| JEL: | G13 C22 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10023&r=mic |
| By: | Janett Neugebauer; Dennis Wesselbaum |
| Abstract: | This paper investigates the role of staggered wages and sticky prices in explaining stylized labor market facts. We build on a partial equilibrium search and matching model and expand the model to a general equilibrium model with sticky prices and/or staggered wages. We show that the core model creates too much volatility in response to a technology shock. The sticky price model outperforms the staggered wage model in terms of matching volatilities, while the combination of both rigidities matches the data reasonably well |
| Keywords: | Search and Matching, Staggered Wages, Sticky Prices |
| JEL: | E24 E32 J64 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1608&r=mic |
| By: | Klaus Adam (Mannheim University and CEPR (E-mail: adam@mail. uni-mannheim.de)); Albert Marcet (London School of Economics and CEPR (E-mail: a.marcet@lse.ac.uk)) |
| Abstract: | We show how low-frequency boom and bust cycles in asset prices can emerge from Bayesian learning by investors. Investors rationally maximize infinite horizon utility but hold subjective priors about the asset return process that we allow to differ infinitesimally from the rational expectations prior. Bayesian updating of return beliefs then gives rise to self-reinforcing return optimism that results in an asset price boom. The boom endogenously comes to an end because return optimism causes investors to make optimistic plans about future consumption. The latter reduces the demand for assets that allow to intertemporally transfer resources. Once returns fall short of expectations, investors revise return expectations downward and set in motion a self-reinforcing price bust. In line with available survey data, the learning model predicts return optimism to comove positively with market valuation. In addition, the learning model replicates the low frequency behavior of the U.S. price dividend ratio over the period 1926-2006. |
| JEL: | G12 D84 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:10-e-02&r=mic |
| By: | Giandomenico, Rossano |
| Abstract: | The article presents a survey of the principal quantitative tools adopted by the major financial institutions in the credit market, pointing out their limits and new directions. |
| Keywords: | Implied Default Probability; Implied Correlation; Implied Time to Default |
| JEL: | G13 |
| Date: | 2010–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21793&r=mic |
| By: | Willem Van Zandweghe; Alexander L. Wolman |
| Abstract: | We study discretionary equilibrium in the Calvo pricing model for a monetary authority that chooses the money supply. The steady-state inflation rate is above eight percent for a baseline calibration, and it varies non-monotonically with the degree of price stickiness. If the initial condition involves inflation higher than steady state, discretionary policy generates an immediate drop in inflation followed by a gradual increase to the steady state. Unlike the two-period Taylor model, discretionary policy in the Calvo model does not accommodate predetermined prices in a way that inevitably leads to multiple private-sector equilibria. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-06&r=mic |
| By: | Marcus Miller; Joseph E. Stiglitz |
| Abstract: | An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to ‘overshoot’ equilibrium when an asset bubble bursts—threatening widespread insolvency and what Richard Koo calls a ‘balance sheet recession’. Besides interest rates cuts, asset purchases and capital restructuring are key to crisis resolution. The usual bankruptcy procedures for doing this fail to internalise the price effects of asset ‘fire-sales’ to pay down debts, however. We discuss how official intervention in the form of ‘super’ Chapter 11 actions can help prevent asset price correction causing widespread economic disruption. |
| JEL: | E32 G21 G32 G33 G34 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15817&r=mic |
| By: | Carlos Scartascini; Mariano Tommasi; Ernesto Stein |
| Abstract: | The capacity to sustain policies over time and the capacity to adjust policies in the face of changing circumstances are two desirable properties of policymaking systems. The veto player approach has suggested that polities with more veto players will have the capacity to sustain policies at the expense of the ability to change policy when necessary. This paper disputes that assertion from an intertemporal perspective, drawing from transaction cost economics and repeated game theory and showing that some countries might have both more credibility and more adaptability than others. More generally, the paper argues that, when studying the effects of political institutions on policy outcomes, a perspective of intertemporal politics might lead to predictions different from those emanating from more a-temporal approaches. |
| Keywords: | Political institutions, Public policies, Veto players, Policy adaptability, Policy stability, Intertemporal, Credibility, Repeated games |
| JEL: | D72 D78 H10 H50 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4660&r=mic |
| By: | J.E. Boscá; R. Doménech; J. Ferri |
| Abstract: | This paper analyses the effects of introducing typical Keynesian features, namely rule-of-thumb consumers and consumption habits, into a standard labour market search model. It is a well-known fact that labour market matching with Nash-wage bargaining improves the ability of the standard real business cycle model to replicate some of the cyclical properties featuring the labour market. However, when habits and rule-of-thumb consumers are taken into account, the labour market search model gains extra power to reproduce some of the stylised facts characterising the US labour market, as well as other business cycle facts concerning aggregate consumption and investment behaviour. |
| Keywords: | general equilibrium, labour market search, habits, rule-of-thumb consumers |
| JEL: | E24 E32 E62 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:0912&r=mic |
| By: | Stone, Joe; Bania, Neil; Gray, Jo Anna |
| Abstract: | We find region-specific complementarity between investments in public infrastructure and education, both k-12 and postsecondary. The complementarity helps to explain how regions capture returns to investments in education even when residents are mobile, and is strong enough for the effect of tax-financed expenditures on either public infrastructure or education to be significantly positive when spending on the other is high, even though the independent effect of either one is negative. Effects are identified using a recursive structure, very long lags, GMM-instrumental variables, and multiple controls for heterogeneity. Estimates are robust across identification strategies, estimators, and instruments. |
| Keywords: | infrastructure; education complementarity economic growth |
| JEL: | J00 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21697&r=mic |