Credit spreads: An empirical analysis on the informational content of stocks,bonds, and CDS

This paper explores the dynamic relationship between stock market implied credit spreads, CDS spreads, and bond spreads. A general VECM representation is proposed for changes in the three credit spread measures which accounts for zero, one, or two independent cointegration equations, depending on the evidence provided by any particular company. Empirical analysis on price discovery, based on a proprietary sample of North American and European firms, and tailored to the specific VECM at hand, indicates that stocks lead CDS and bonds more frequently than the other way round. It likewise confirms the leading role of CDS with respect to bonds.     

Schedule evaluation in unstable manufacturing environments

This paper provides a new approach to validate the feasibility of schedules of multiple-step mixed-model unstable manufacturing environments with different changeover times. Traditionally, continuous lines in a manufacturing process run the same sequence in order to minimize WIP inventory and lead time. Nevertheless, multiple reasons such as different product mixes or setup times can lead managers to run different sequences in continuous lines. Unfortunately, lack of reliability of supply and demand in these environments makes it difficult to manage product inventories and often leads to starvation due to the discoordination between the schedules of both lines. This approach is based on a new type of visual representation of schedules and an estimate the probability of starvation. It assumes stochastic supply and demand and a predefined schedule sequence based on batches of different sizes.     

Collateral in Monetary Policy Operations

We present a portfolio decision model for banks that permits us to estimate the costs associated with the need to collateralise loans from the central bank. This allows us to calibrate the difference between a restrictive collateral eligibility framework for open market operations, such as that applied by the FED, with a more flexible approach such as that of Eurosystem. We also document that there could potentially appear relevant cost differences between the various collateral mobilisation procedures (pooling and earmarking) that currently coexist in the eurozone.     

Reopening the convergence debate: A new look at cross-country growth empirics

There are two sources of inconsistency in existing cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate a variety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10 percent per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2 percent. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior reults, we reject both the standard and the augmented version of the model.     

Regime switching models for the Mexican peso

The Mexican peso has shown long periods of tranquility that suddenly give rise to short volatile periods. We characterize this exchange rate process by estimating a series of regime switching regressions and comparing the different specifications as pioneered by Meese and Rogoff [J. Int. Econ. 14 (1983) 3]. We find evidence for two clearly identified regimes: one with an appreciating trend and low volatility, and another with large depreciations and high volatility. We use the estimated model to explain the bias implied in the peso forward market. Finally, we show that duration dependence or fundamentally driven transition probabilities do not improve the model's forecasting power.     

Exclusive territories and performance dimensions in industrial distribution channels

There are two main approaches to studying vertical restraints in distribution channels: the anti-competitive and the efficiency approach. This article sets out to analyze the effects of exclusive territories agreements on performance levels in the distribution channel by proposing a number of hypotheses based upon these two approaches and by testing them with paired data from a sample of 116 manufacturer-dealer relationships from the Spanish industrial market. Results show that manufacturers and dealers perceive higher role performance levels in their partners in relationships characterized by exclusive territories. In a similar way, both manufacturers and dealers obtain higher levels of business performance in exclusive territories relationships, but we found no support for a direct effect of this vertical restraint on business performance. Instead, this effect is completely mediated by the higher levels of role performance associated with the exclusive territories agreement. Thus, empirical findings suggest that the economic outcomes achieved in ET relationships are due not to the presence of monopoly rents, but rather to the better role performance of the participants.     

TESTING THE INDUCED INNOVATION HYPOTHESIS USING COINTEGRATION ANALYSIS

This paper deals with some of the problems involved in testing the hypothesis that factor price movements tend to influence the type of technological innovations which are developed and adopted, known as the Induced Innovation Hypothesis. Previous methods to perform this test are briefly reviewed and their limitations are discussed. A testing procedure which is based on the use of cointegration analysis is proposed and its advantages outlined. Finally, one application of the method is made, providing little support for the Induced Innovation Hypothesis in the case of US Agriculture (1948–83).     

Common value auctions with independent types

In this paper I consider a common value model, with independent types, where the ex-post value of the good is influenced by the bidders' information at the auction stage. The seller cannot fully extract the surplus. In a symmetric model the optimal mechanism can be implemented through first price, second price, or English auctions; but not through a Dutch auction. Other properties of the optimal auctions are that the seller's reservation price is endogenous, and that in sealed bid auctions the price may exceed the value of the object (winner's curse).     

The half-truth of first-mover advantage

Many executives take for granted that the first company in a new product category gets an unbeatable head start and reaps long-lasting benefits. But that doesn't always happen. The authors of this article discovered that much depends on the pace at which the category's technology is changing and the speed at which the market is evolving. By analyzing these two factors, companies can improve their odds of succeeding as first movers with the resources they possess. Gradual evolution in both the technology and the market provides a first mover with the best conditions for creating a dominant position that is long lasting (Hoover in the vacuum cleaner industry is a good example). In such calm waters, a company can defend its advantages even without exceptional skills or extensive financial resources. When the market is changing rapidly and the product isn't, a first entrant with extensive resources can obtain a long-lasting advantage (as Sony did with its Walkman personal stereo); a company with only limited resources probably must settle for a short-term benefit. When the market is static but the product is changing constantly, first-mover advantages of either kind--durable or short-lived--are unlikely. Only companies with very deep pockets can survive (think of Sony and the digital cameras it pioneered). Rapid churn in both the technology and the market creates the worst conditions. But if companies have an acute sense of when to exit-as Netscape demonstrated when it agreed to be acquired by AOL-a worthwhile short-term gain is possible. Before venturing into a newly forming market, you need to analyze the environment, assess your resources, then determine which type offirst-mover advantage is most achievable. Once you've gone into the water, you have no choice but to swim.