Credit rating industry: A helicopter tour of stylized facts and recent theories

The recent subprime crisis and the ongoing Euro zone crisis have generated an enormous interest in the credit rating industry not only among economists but also among average citizens. As a consequence, we have seen an explosion of the economic literature on the industry. The objective of this survey is to introduce readers to the key stylized facts of the credit rating industry and to the recent theoretical economic literature on this industry.     

Random Recursive Partitioning: a matching method for the estimation of the average treatment effect

In this paper we introduce the Random Recursive Partitioning (RRP) matching method. RRP generates a proximity matrix which might be useful in econometric applications like average treatment effect estimation. RRP is a Monte Carlo method that randomly generates non‐empty recursive partitions of the data and evaluates the proximity between two observations as the empirical frequency they fall in a same cell of these random partitions over all Monte Carlo replications. From the proximity matrix it is possible to derive both graphical and analytical tools to evaluate the extent of the common support between data sets. The RRP method is “honest” in that it does not match observations “at any cost”: if data sets are separated, the method clearly states it. The match obtained with RRP is invariant under monotonic transformation of the data. Average treatment effect estimators derived from the proximity matrix seem to be competitive compared to more commonly used estimators. RRP method does not require a particular structure of the data and for this reason it can be applied when distances like Mahalanobis or Euclidean are not suitable, in the presence of missing data or when the estimated propensity score is too sensitive to model specifications. Copyright © 2008 John Wiley & Sons, Ltd.     

Evolution paths on the equilibrium manifold

In a pure exchange smooth economy with fixed total resources, we define the length between two regular equilibria belonging to the equilibrium manifold as the number of intersection points of the evolution path connecting them with the set of critical equilibria. We show that there exists a minimal path according to this definition of length.     

Relocation of second degree: Moving towards a new place or returning home?

We study the “Relocations of Second Degree” (RSDs), i.e., the location decisions that modify the country of destination of a previous offshoring investment. Specifically, we distinguish between two types of RSDs, i.e., “Relocation to the Home Country (RHC)”, also known as back-reshoring, and “Relocation to a Third Country (RTC)”, i.e., the choice to move to a second host country.Specifically, we explore how the location advantages underlying the previous offshoring decision affect the probability to undertake an RHC, rather than an RTC. Location advantages reflect the favourable conditions that a foreign country offers with respect to the home one, in terms of market-seeking, asset-seeking and efficiency-seeking (i.e., cost-saving and productivity-enhancing) opportunities. Using data from the European Restructuring Monitor, we focus on the RSDs regarding manufacturing activities, implemented across European countries between 2002 and 2015. We find that, on the one hand, when a previous offshoring investment is driven by market-seeking location advantage, firms undertaking the RSD are more likely to opt for an RHC, except during the economic crisis where market-seeking European firms seem to prefer RTCs. On the other hand, RTC is a preferred choice when the location advantage is of efficiency-seeking type. In addition to offering a broader characterization of RSDs, our study provides empirical evidence of the relationship between the offshoring and relocation decisions. Managers should be aware of this connection when designing their manufacturing internationalization strategies.     

Selecting structural innovations in DSGE models

Dynamic stochastic general equilibrium (DSGE) models are typically estimated assuming the existence of certain structural shocks that drive macroeconomic fluctuations. We analyze the consequences of estimating shocks that are “nonexistent” and propose a method to select the economic shocks driving macroeconomic uncertainty. Forcing these nonexisting shocks in estimation produces a downward bias in the estimated internal persistence of the model. We show how these distortions can be reduced by using priors for standard deviations whose support includes zero. The method allows us to accurately select shocks and estimate model parameters with high precision. We revisit the empirical evidence on an industry standard medium‐scale DSGE model and find that government and price markup shocks are innovations that do not generate statistically significant dynamics.     

Crecimiento económico,flexibilización laboral y calidad del empleo en Colombia de 2002 a 2011

Tras analizar el mercado de trabajo colombiano entre 2002 y 2011, los autores constatan una mejora sustancial de las oportunidades de empleo, junto con el aumento del empleo atípico. Exploran cómo ello afectó a la calidad del empleo mediante un indicador compuesto basado en el método de componentes principales categóricos, y concluyen que hubo una leve mejora generalizada, debida al aumento de los ingresos y de la seguridad social y al menor subempleo por horas, que benefició sobre todo a las trabajadoras independientes. Ello deja todavía un déficit cualitativo importante, que requiere políticas de estímulo de la institucionalidad y la productividad laborales y de la inversión.     

Myopia and monetary equilibria

In an infinitely lived, representative individual economy, important properties of competitive equilibria, such as determinacy and the non-existence of monetary equilibria, are not robust to the introduction of myopia. An individual is myopic if, at each date, he plans consumption only for that date and few periods that immediately follow; that is, his planning horizon, n, is finite. Equilibria with myopia can display real indeterminacy and allow for monetary as well as non-monetary steady states; thus, they share some of the features of equilibria in economies of overlapping generation. The equilibrium price dynamics (but not the consumption dynamics) of an exchange economy with extreme myopia, n = 1, are identical to the dynamics of an overlapping generation economy with two-period lives.     

The early stages of reform in Polish manufacturingStructural adjustment, ownership and size

This paper argues that a significant adjustment process has taken place in Polish industry in the early stages of the market-oriented reforms. We analyse comprehensive data on two-digit and three-digit manufacturing industries, disaggregated by firm ownership and size. By focusing on a decomposition of labour productivity growth, we obtain results which suggest that structural determinants of the recovery have outweighed cyclical ones. With regard to firm ownership and economic performance, we find that the productive response of state enterprises has been markedly different from that of private firms, with the latter outperforming the former. Finally, our results indicate that size matters, at least among private firms, and our results provide mild evidence of increasing returns.
JEL classification: D21, E63, P21.     

Threshold uncertainty in the private-information subscription game

We introduce threshold uncertainty, à la Nitzan and Romano (1990), into a private-values model of voluntary provision of a discrete public good. Players are allowed to make any level of contribution toward funding the good, which is provided if the cost threshold is reached. Otherwise, contributions are refunded. Conditions ensuring existence and uniqueness of a Bayesian equilibrium are established. Further restricting the threshold uncertainty to a uniform distribution, we show the equilibrium strategies are very simple, even allowing for any number of players with asymmetric distributions of values. Comparative statics with respect to changes in players' distributions are derived, allowing changes in both the intensity and the dispersion of values. For example, increased uncertainty, in the sense of mean-preserving spreads of players' distributions of values, increases equilibrium contributions. Finally, we show the equilibrium is interim incentive inefficient. The sharpness of our results greatly contrasts with the more qualified insights of earlier private-values models with known cost threshold, which relied on there being two symmetric players and generally exhibited multiple equilibria.