Estimating financial distress with a dynamic model: Evidence from family owned enterprises in a small open economy

Employing earnings shortfall as a financial distress indicator, we formulate a dynamic nonlinear model, implementing Wooldridge's conditional maximum likelihood estimator and accounting for potentially endogenous covariates. Likewise, we not only achieve a significant improvement in consistency and classification accuracy over static approaches, but we also manage to understand better the evolution of the financial distress process. In our sample of Greek listed firms the higher the positive performance and the lower the leverage at the initial period the greater the chance that a company enters financial distress further down the road, possibly due to manager–owner overconfidence and debt-imposed discipline by company's creditors.     

Tax Competition, Capital Mobility, and Public Good Provision Within a Trading Block

The authors examine a two–country general–equilibrium model of a two–country trading block where governments through tax policies attract mobile capital and provide an imported public consumption good. Within this framework the authors examine, among other things, how preferences over the public good and the size (population) of a country affect the Nash or cooperative equilibrium values of income tax rates in the two countries. The analysis identifies sufficient conditions under which (i) the Nash/cooperative equilibrium income tax rates are strategic substitutes or complements, and (ii) the Nash equilibrium income tax rates may be greater than the cooperative rates.     

Modeling the Australian Dollar–US Dollar Exchange Rate Using Cointegration Techniques

This paper examines the link between the Australian dollar's exchange rate and Australia's terms of trade. The US$/A$ rate is found to be cointegrated with the terms of trade, and the relationship between the two variables appears to be robust. An estimated error-correction model for changes in the nominal US$/A$ is shown to have reasonable out-of-sample predictive powers. Weak exogeneity tests within the Johansen framework indicate highly significant causality running from the terms of trade to the exchange rate but less significant causality running from the exchange rate to the terms of trade.     

Multilateral tariff cooperation under fairness and reciprocity

Abstract This paper explores the impact of fairness and reciprocity on multilateral tariff cooperation. Reciprocal countries reward kind behaviour (positive reciprocity), but retaliate against countries behaving unkindly (negative reciprocity). We demonstrate that reciprocal countries that are moderately demanding from their trading partners regarding their commercial policy can support a greater degree of cooperation than self‐interested ones. However, when only very liberal import policies are considered fair, then reciprocity could have a detrimental effect on multilateral tariff cooperation.Thus, our model provides a novel perspective on the role of expectations in trade negotiations.     

Employment,output and political business cycle effects in the Greek non-tradable sector

Starting from a theoretical model with traded and non-traded goods, a long-run labour demand equation is identifed, with employment being proportional to relative output and prices. Using Greek data, the model supports weak exogeneity of relative prices and fiscal expansion with respect to the long-run parameters in the cointegrating space. It also highlights structural rigidities in the functioning of the Greek labour market. Political business cycle and partisan effects are shown to affect the short-run employment decisions.     

Vertical Specialization and International Business Cycle Synchronization*

We explore the impact of vertical specialization—trade in goods across multiple stages of production—on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings.     

"Meteor showers" and "heat waves" in Greek financial markets

This paper examines the presence of "meteor showers" and "heat waves" effects in Greek financial markets. In particular, the relationship between the stock market price index volatility and the volatility of three exchange rates (U.S. dollar, deutsche mark, and ECU) recorded on a daily basis is investigated. The results provide evidence in favor of the "heat wave" hypothesis, while the "meteor shower" hypothesis was observed only with respect to the U.S. dollar.We would like to thank, without implicating, participants in the Country Studies session of the 43rd International Atlantic Economic Conference held in London, England and especially Dorota Witkowska for helpful comments and suggestions.