Fiscal Policy and the Terms of Trade in an Analytical Two-Country Dynamic Model

This paper presents a two-country dynamic perfect foresight Ricardian model with wealth effects to study the relationship between government spending financed by alternative taxation, the terms of trade and welfare. An increase in domestic government spending financed by a distortionary capital income tax leads the real exchange rate initially to appreciate (a pure demand effect). But along the transitional path an intertemporal terms of trade effect (a supply side effect) operates and the real exchange rate depreciates to a steady state value ultimately higher relative to the initial equilibrium. The welfare of the domestic resident increases due to a reversed immiserizing growth effect.     

贸易开放度与中国政府支出

将我国政府支出分为总支出、狭义政府消费、社会保障及福利支出等7类,利用协整及基于ECM的短期和长期因果关系联合约束检验分析技术,考察了贸易开放度与各类政府支出之间的长期均衡及短长期因果关系,并对我国政府部门在应对外部冲击过程中所承担的职能作了进一步的分析。结果表明,贸易开放度与政府支出之间的关系随着政府支出功能性质的不同而改变,目前我国政府支出仍主要集中于经济发展初期阶段那些有利于扩大消费的建设项目以及政府作为公共服务的提供者所支付的工资和其地投入上,而对教育、社会保障、社会福利等方面的支出相对不足,这将不利于我国经济的长期可持续增长。     

Effects of budgetary policies in open economies: The role of intertemporal consumption substitution

An economy's optimal response to temporary and anticipated future changes in government spending is examined in the context of a two-country model which highlights the role of intertemporal consumption substitution (ICS). Special attention is devoted to the case in which the two countries coordinate their fiscal measures. The qualitative effects of such measures on an economy's current account, terms of trade (in a two-commodity world), and real exchange and interest rates (in a world with non-traded goods) are shown to depend on the relationship between the domestic and the foreign elasticities of ICS.     

Government contracts and trade credit

This study examines the association between government contracts and firms' use of trade credit. Firms with government contracts may demand less trade credit because of their lower operational risk, higher firm performance, stronger capacity to generate internal funds, and better access to other sources of financing. On the other hand, government contractors could receive more trade credit extensions from suppliers. We examine a sample of U.S. listed firms from 2000 to 2016 and find that firms with government contracts have a lower level of trade credit. We also find that government contractors make quicker payments for trade credit contracts than other firms. Moreover, we provide empirical evidence of government contractors' lower levels of operational risk and higher firm performance, which may enable government contractors to generate adequate internal funds for their operations or to obtain other forms of financing at a lower cost and thus lower their demand for trade credit. Incremental to prior research, our study suggests that having government contracts is one of the factors determining trade credit and firms' financing decisions.     

The influence of economic policy uncertainty on corporate trade credit and firm value

This research investigates the relationship between government economic policy uncertainty (EPU) and trade credit and its value implication for U.S. public firms. We find that firms curtail their receivables periods and face shorter payables periods from suppliers during high EPU. The impact of trade credit policy changes on firm value is nonlinear. Tightening trade credit during periods of high EPU increases shareholder value only to a certain point, beyond which it is value-destroying since overly reducing trade credit can lead to losing customers to competitors.     

Deficits and money growth in the United States 1872–1983

This paper reports empirical evidence on the relation between government budget deficits and the growth of high-powered money in the United States. High-powered money growth appears to be positively related to war spending during periods when such spending is a substantial fraction of GNP. There is little evidence that the growth of high-powered money is related to the non-war government deficit, measured either in cash or in real terms, after controlling for the level of overall economic activity.     

“J”曲线效应与中美贸易收支

本文从实际汇率的角度研究了人民币实际汇率变动对中美贸易收支的短期和长期影响.实证分析的结果表明:人民币实际汇率和贸易收支之间存在长期协整关系;马歇尔-勒纳条件不能成立,即当前还不能通过人民币实际汇率来有效地调节中美贸易收支,也说明当前人民币兑美元的升值并不能有效地改善中美贸易顺差过大的局面;并证明了人民币实际汇率变动对中美贸易收支的影响存在"J"曲线效应.     

The role of cross-sectional heterogeneity for magnitude and timing of the euro's trade effect

This paper examines the role of cross-sectional heterogeneity for estimating the euro's effect on euro-area trade. In the empirical analysis, the impact of trade costs on trade and the transition dynamics to the new monetary regime can vary cross-sectionally in trade sectors and country pairs. Unobserved state variables that account for time-varying and omitted trade costs and multilateral resistance terms can also vary cross-sectionally. The results show that cross-sectional heterogeneity is strongly supported by the data and that the average euro effect coincides with consensus estimates. Decomposing the average effect uncovers large cross-sectional heterogeneity in its magnitude. Also, the average trade effect unfolds only gradually over time, since it is composed of many trade sectors that adjust at different dates.     

On the International Dimension of Fiscal Policy

This paper analyzes the international dimension of fiscal policy in a small open economy framework. We consider the case in which the government finances its spending by levying distortionary taxes and issuing state‐contingent debt. While in a closed economy taxes are essentially invariant, in an open economy taxes can be as volatile as output. This is because the presence of a terms of trade externality introduces efficient fluctuations in the consumption–leisure wedge driven by movements in the real exchange rate. As a result, the optimal fiscal rule suggests that taxes should be varied to replicate these fluctuations.     

Withering Government Spending Multipliers

The empirical literature has documented a weakening of the consumption and output responses to an increase in government spending during the last 30 years. We show that a New Keynesian model in which real government spending is observed with measurement errors can account for the reduction in the size of government spending multipliers. The model implies—consistent with empirical evidence presented by Ilzetzki, Mendoza, and Vegh (2010)—that the evolution of monetary policy and greater globalization (increasing international trade and decreasing capital controls) are key factors in this development.     

Impact of macro-economic surprises on carry trade activity

Can official news and policy announcements affect foreign exchange speculation? A widespread speculative strategy in foreign exchange markets is carry trade. This paper explores the links between macro-economic news and foreign exchange options to identify macro-economic fundamentals most relevant to the pricing of downside risk – measured by risk reversals options contracts – to carry trade activity. Focusing primarily on the Japanese yen carry trade, we identify a significant impact of macro-economic surprises on dollar/yen risk reversals. The effect is sizeable, with news related to bilateral trade balance of particular concern. Moreover, there is a close link between risk reversals and speculative futures positions in Japanese yen. This allows us to quantify a substantial effect of macro-economic news on carry trade activity, with the cost of hedging as the transmission mechanism.     

Examining export trade and corporate innovation: A multiphase difference-in-differences method

Using a multiphase difference-in-differences model, this study investigates the relationship between export trade and the corporate technological innovation of listed companies. It reveals that engaging in export trade increases corporate innovation input and output. In terms of patent output, export trade greatly promotes the output of invention patents and utility model patents with a high technological content. These conclusions remain valid after a series of robustness and endogeneity tests. Regarding the mechanisms of the observed relationships, export trade stimulates corporate technological innovation mainly by realizing economies of scale and increasing risk-taking. The positive correlation between export trade and corporate technological innovation is strongest among state-owned enterprises, non-high-tech enterprises, enterprises based in central and eastern China, enterprises engaged in general trade, and enterprises exporting to developed economies. Given the growing trade frictions ongoing at the time of writing, the conclusions of this study provide vital practical guidance and empirical evidence for a national strategy of innovation-driven development.     

People's choice: Public spending,taxation and local rates

Elections may reflect ideological swings, but they do not enable voters to take account either of trade‐offs between spending programmes or of the price of extra spending in terms of higher taxes. No satisfactory way has yet been found of consulting voters on this point. Here is one suggestion.     

Consumption,government spending,and the real exchange rate

Using panel structural VAR analysis and quarterly data from four industrialized countries, we document that an increase in government purchases raises output and private consumption, deteriorates the trade balance, and depreciates the real exchange rate. This pattern of comovement poses a puzzle for both neoclassical and Keynesian models. An explanation based on the deep-habit mechanism is proposed. An estimated two-country model with deep-habits is shown to replicate well the observed responses of output, consumption, and the trade balance, and the initial response of the real exchange rate to an estimated government spending shock.     

Do insiders trade on government subsidies?

We examine whether and how insiders trade on government subsidies, a major instrument through which the governments intervene in the economy. Using a novel dataset of government subsidies of Chinese listed firms, we find that net insider purchase increases significantly during the month of subsidy receipt. The effect of subsidies on insider trading is weaker in firms with a more transparent information environment and when subsidies are granted in a more predictable manner. In contrast, the effect is more pronounced for politically connected firms. Further analysis shows that the subsidy-trading relation may reflect both insiders’ informational advantage concerning subsidies and their superior ability to detect mispricing-related opportunities. Our findings provide new insights into the capital market consequences of government subsidies through the lens of insider trading.     

Real Exchange Rates and Fundamentals: A Cross‐Country Perspective

This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It finds evidence of a strong positive relation between the consumer price index‐based real exchange rate and commodity terms of trade. The estimated impact of productivity growth differentials between traded and nontraded goods, while statistically significant, is small. Increases in net foreign assets, government consumption, and trade restrictions tend to be associated with appreciating real exchange rates.     

Counter-cyclical substitution between trade credit and bank credit

This paper explores the substitution relationship between trade credit and bank credit, and its counter-cyclic dynamic pattern through economic cycles. We propose a new theoretical model, using a mechanism design method, which predicts the substitution between the two credits and its counter-cyclic behavior, subject to the condition of technological efficiency not less than one. This model also helps explain the somewhat contradictory evidence in the literature, on the relationship between the two credits. We present empirical evidence on the substitution effect and its counter-cyclic behavior, by using a balanced panel data set of 284 listed Chinese companies for the period 1998-2006. We further find that the substitution behaves counter-cyclically with respect to the coincident macroeconomic indicator, namely, GDP. Our empirical analysis also has some new features such as treating endogeneity carefully and incorporating the lag-effect of trade credit coherently.     

The bank loan distribution effect of government spending expansion: Evidence from China

Rather than focusing on the spread of enterprises' bank loans, we focus on the impact of government spending expansion on the amount of bank loans obtained by enterprises. We first build a theoretical model to show that there are the demand effect and loan cost effect of government spending expansion on the bank loans and then use the fixed effects approach to analyze the bank loan distribution effect of government spending expansion by using the data of enterprises listed on the China Stock Exchange between 2003 and 2019. Empirical results show that the demand effect plays a leading role for the central government state-owned enterprises (SOEs), helping them obtain more bank loans from banks. In contrast, for private enterprises, the loan cost effect plays a leading role, hurting them in obtaining bank loans from banks. Further research shows that government spending expansion's crowding-in or crowding-out effect differs from Neoclassicism and (new) Keynesianism. This paper provides a new explanation for why the financing problem of private enterprises is getting worse in China. The policy implication is that when the government implements expansionary fiscal policies, it should also provide convenience for private enterprise financing through window guidance to prevent the expansionary fiscal policies from crowding out private enterprise bank loans.     

Debt, Death and Taxes

Does the level of government debt affect living standards and if so, to what extent? We quantify the impact of the U.S. federal debt using an open economy overlapping generations model in which consumers have long but finite lifetimes. A demographic structure allows fiscal policy changes to have different effects on different agents, and reveals the linkages between public debt, output and international trade. We find that reducing the debt has relatively modest impacts on aggregates, while reducing government spending substantially raises U.S. incomes and welfare. Therefore, this paper contributes to the current debate regarding whether U.S. federal government budget surpluses should be used to retire government debt.     

Price,trade size,and information in securities markets

This paper investigates the effect of trade size on security prices. We show that trade size introduces an adverse selection problem into security trading because, given that they wish to trade, informed traders perfer to trade larger amounts at any given price. As a result, market makers' pricing strategies must also depend on trade size, with large trades being made at less favorable prices. Our model provides one explanation for the price effect of block trades and demonstrates that both the size and the sequence of trades matter in determining the price-trade size relationship.