Non-explicit FOREX intervention: The role of the Central Reserve Bank in a dollarized economy and its effects on expectations from the “peso problem” perspective: The case of Peru

We use the Markov-switching model based on Hamilton (1990) among others. The non-explicit intervention of the Central Reserve Bank changes the expectations of economic agents. This change in expectations clearly shows that the public is aware of non-explicit interventions in a dollarized economy and said interventions have been altering the expectations of economic agents in terms of the foreign exchange market. We conclude that market participants assume that the Central Reserve Bank is more efficient in reducing volatility in periods in which the domestic currency appreciates rather than depreciates. The results show that the Markov-switching model behaves more than satisfactorily in the sample period but less so in periods of extreme volatility such as the recent sub-prime crisis. Central Bank's forex interventions are policy instruments that can be followed and interpreted by the public.     

MULTIPLIER EFFECTS IN A NEOCLASSICAL MODEL WITH A PRODUCTION LAG(*)

The paper examines the effects of introducing a one-period production lag into what is otherwise a fairly standard macroeconomic model. Depending upon the relative elasticities of aggregate demand and supply it is possible that such a neoclassical model can produce extreme Keynesian results. The response of output to changes in government consumption can be greater even than the simple multiplier; this effect can be greater under rational expectations than under adaptative expectations. Introducing an efficiency wage story into the model leads naturally to the existence of a Phillips curve.     

The Political Roots of Corporate Social Responsibility

This article argues that whether and how a firm chooses to adopt Corporate Social Responsibility (CSR) initiatives is conditional in part upon the domestic political institutional structures present in its home market. It demonstrates that economic globalization has increased the pressure applied to companies to develop CSR policies that might help overcome specific governance gaps associated with the globalization phenomenon. Drawing upon an examination of domestic institutions and overall political structure, it argues that the political conditions and expectations present in a company’s home market will condition whether a firm might pursue CSR activity. For home markets, it is posited that perceived electoral salience will be filtered through government type and ideology, and state/societal structures will influence if and how firms will use CSR. Specific arguments are developed from these categorizations. The article concludes with a discussion of how researchers might further explore links between CSR, domestic political structures, and corporate political activity.     

Exchange rate overshooting,the trade balance,and rational expectations

This paper presents a model of exchange-rate determination characterized by imperfect asset substitutability between domestic and foreign bonds, sticky goods-market prices, and rational expectations. The model is used to analyze the response of the exchange rate to a step change in relative money supplies. The assumption of imperfect asset substitutability permits introduction into the analysis of trade flows which respond to relative price changes. These flows create non-monotonic exchange-rate adjustments to long-run equilibrium. These non-monotonic adjustments are consistent with rationality, and may lead to short-run undershooting or overshooting.     

Plant Size,Nationality, and Ownership Change

This paper asks whether the motivations behind mergers manifest themselves in different ways across small versus large plants, and between foreign- and domestic-owned plants. The sample consists of all the manufacturing plants in Canada between 1973 and 1999 and is divided into size quartiles by industry and grouped into foreign- and domestic-owned producers. We find that characteristics that are postulated to be associated with the type of synergy upon which ownership changes rely are found to be important factors leading to plant ownership changes across most size classes. However, the importance of synergies increases across size classes in domestic plants. Foreign-owned plants are more likely to experience control changes than domestic plants across all size classes. These differences are closely related to the characteristics possessed by foreign plants that offer takeover synergies. There is also evidence of a managerial failure motive for mergers in the foreign sector that is not found in the domestic sector.     

The Impact of Perceived Expectations and Uncertainty on Firm Investment

This paper analyses the (differential) impact of perceived expectations and uncertainty on investment spending in small and large firms. We analyse two types of investment, viz. aggregate investment and investment in energy-saving technologies, using Dutch firm level data. The results show that expectations and uncertainty about input- and output prices and domestic demand have substantial but different effects on investment spending in firms of different sizes. Furthermore, we find evidence, at least for small firms, that there are important differences between the effects of uncertainty about input and output variables.     

Determinants of satisfaction for entrepreneurs

This study considers the extent to which entrepreneurs are satisfied with their businesses in their third year of business ownership. Entrepreneurial satisfaction might be viewed as a basic measure of performance. It may bear upon decisions by individual entrepreneurs about whether to invest more time and money, whether to cut back, or whether to close down. It may also influence whether entrepreneurs work effectively with their customers and employees. For researchers, the investigation of why, in particular settings, some entrepreneurs may be more satisfied than others may aid in the interpretation of past research, which has used this as a performance measure.This research draws upon a theoretical framework used in investigations of employee satisfaction. Called discrepancy theory, it suggests that individual satisfaction is determined, in part, by whether there is a “gap” between actual rewards or performance and the individual's goals or expectations.In this research, it was hypothesized that entrepreneurs emphasizing primarily noneconomic goals (such as doing the work they wanted to do) would have higher satisfaction when the business was experiencing lower levels of performance. For higher levels of performance, there would be no difference. In essence, the satisfaction of those emphasizing economic goals would vary more with economic performance. A related hypothesis was that, for this sample of start-up firms (many of which would be experiencing low levels of performance), those emphasizing noneconomic goals would have higher average levels of satisfaction. This was based upon the expectation that many start-up firms would be experiencing marginal performance, so that the “gap” between goals and performance would be greater for economically oriented entrepreneurs. The research also focused upon expectations, because one aspect of discrepancy theory suggests that satisfaction decreases if there is a gap between expectations and performance. Accordingly, it was hypothesized that, controlling for performance, entrepreneurs with higher initial expectations would subsequently have lower levels of satisfaction. Previous research suggests that membership in particular demographic groups may influence expectations. This led to hypotheses that older entrepreneurs, female entrepreneurs, and minority entrepreneurs would have lower levels of initial expectations. This, in turn, may influence later satisfaction. Thus, it was hypothesized that, controlling for performance, entrepreneurs in each of these groups would have higher satisfaction because their initial expectations would be lower. The study utilized a sample of 287 entrepreneurs who were followed over a 3-year period. The data on predictors of satisfaction were gathered in year 1, when the average owner had been in business for 11 months. The satisfaction measures were gathered 2 years later. By that time there should have been some stabilization in the routines of the business, and the entrepreneur could reflect upon historic performance and experiences in judging the extent to which business ownership had been satisfying. The data were analyzed primarily using path analysis, in which it was hypothesized that certain variables would have both direct and indirect effects upon satisfaction.It was found that the satisfaction of entrepreneurs emphasizing economic goals was not more sensitive to economic performance, at least within the range of performance considered in this sample. For this group of firms, many of which appeared to be experiencing marginal performance, those emphasizing noneconomic goals did express higher levels of satisfaction. It had been expected that those with higher initial expectations would later be less satisfied because they would have a greater expectation-performance gap. However, the opposite was found; those who were more optimistic initially were more satisfied later, even when controlling for performance. Demographic influences on initial expectations were examined. Contrary to expectations, none of the demographic traits was significantly related to initial assessment of likelihood of success. Older entrepreneurs, women entrepreneurs, and minority entrepreneurs were just as optimistic as those in other groups. The relationship between membership in these demographic groups and later satisfaction was also examined. No significant relationships were found for older entrepreneurs and minority entrepreneurs. However, there was some evidence (p = .07) that women entrepreneurs were more satisfied with business ownership.Two of the most interesting findings were those related to initial expectations and to women entrepreneurs. Contrary to discrepancy theory, those who had higher initial expectations were later more satisfied, not less. This may suggest, as Staw and Ross (1985) found in a longitudinal study of employee satisfaction, that attitudes are, in part, a function of stable individual traits. Those who had a positive view of their initial prospects later viewed the experience of business ownership more favorably, regardless of subsequent performance. For women entrepreneurs, the higher levels of satisfaction may reflect a view that they have fewer attractive alternatives; it may also be that they discover greater relative satisfaction from the day-to-day aspects of business ownership.For entrepreneurs and their advisors, the findings suggest that particular goals, attitudes, and backgrounds are likely to be associated with greater satisfaction. This may influence whether entrepreneurs stay with marginal businesses. For researchers, the study provides insight into discrepancy theory by considering its application to entrepreneurs rather than the hired employees normally studied. In addition, subjective measures of performance, such as satisfaction, have often been used in previous research on entrepreneurial performance. This study casts light on why, in particular settings, some entrepreneurs may be more satisfied than others.     

Customer satisfaction and customer behavior: The differential role of brand and category expectations

Previous research has suggested that consumers use multiple strands to evaluate their satisfaction with a product and to establish postpurchase behavioral intention. However, prior empirical research has focused on which individual standard best predicts satisfaction. In contrast, this article develops and tests a model of consumer satisfaction and postpurchase behavioral intention in which consumers simultaneously use multiple standards—perceptions of performance, brand expectations, and category expectations. The results of an experiment for a simulated service encounter provide support for the proposition that consumers use multiple standards and that these standards have differential effects on such postpurchase outcomes as satisfaction, repurchase intention, and willingness to recommend. Brand expectations are shown to be better predictors of affective outcomes (such as satisfaction), while category expectations are shown to be better predictors of behavioral outcomes (repurchase and recommendation). Consistent with prior research, perceived performance is shown to have a strong effect on both satisfaction and behavioral intention.     

The role of the temporary component in spot prices in the revision of expected future spot prices: Evidence from index futures quotes

It is frequently argued that foreign investors have extrapolative expectations due to their informational disadvantages. That is, in the absence of other sources of information, foreigners revise their expectations on the future price of a domestic stock more in line with its current price change than do domestic investors. In this study, we analytically show that foreigners might respond more to a price change because they pay relatively less attention to a temporary component in price—i.e. because they are more well‐informed. We confirm this hypothesis with a simple yet powerful test that is designed by the identification schemes arising directly from the nature of a temporary component and by the access to a direct measure of the investor's expectation, namely, the quote for futures contracts. After controlling for the temporary component effect and using the lead–lag relationship between the spot and futures markets, we show that foreign investors are indeed most well‐informed, whereas domestic individuals are at the other end with the most extrapolative expectations. Finally, domestic institutions are largely indistinguishable from foreigners but are noticeably different from domestic individuals.     

Sovereign defaults: Information, investment and credit

Why would a sovereign government, immune from bankruptcy procedures and with few assets that could be seized in the event of a default, ever repay foreign creditors? And, correspondingly, why do foreign creditors lend to sovereigns? This paper finds general conditions under which, even in the absence of sanctions, lending to sovereigns can emerge in a single shot game. Furthermore, it shows that positive borrowing can be sustained both in pooling and separating equilibria. In this way, it makes clear that neither sanctions nor reputation considerations, the two classical explanations, are necessary to enforce repayment. Information revelation is the crucial mechanism for these results. The repayment/default decision is interpreted as a signal used by the government to communicate information to domestic and foreign agents about the fundamentals of the economy. Governments repay to affect agents' expectations about them. A default, through its effect on expectations about fundamentals, can generate a decline in foreign and domestic investment and a credit crunch in domestic credit markets. Governments repay to avoid these costs, but may default (in equilibrium) when hit by a negative shock.     

The Response of Small Business Owners to Changes in Monetary Policy

The small business sector of the economy accounts for half of private gross domestic product and well over half of private sector employment. Little is known about how these firms and the banks that serve them are affected by changes in monetary policy. Using data from the monthly surveys of the members of the National Federation of Independent Business, the impact of unexpected (between meeting) Federal Reserve announcements on owner expectations and hiring and spending plans are examined. Using interviews filled out during the month, “before” and “after” groups are analyzed to assess the impact of Federal Reserve announcements on firm behavior. Narrowing the analysis period to just days before and after Federal Reserve announcements permits the assessment of owner responses uncontaminated by other events. Changes in owner expectations and spending and hiring plans are shown to be translated into subsequent changes in actual spending and hiring that are often the opposite of what is suggested by conventional economic theory. Firms that do not use debt respond in the same way as those regularly active in credit markets. The results provide additional insight and richness to our understanding of the transmission channels through which monetary policy impacts the real economy.     

Industrial buyers' expectations of supplier-attributes across developing countries: Implications for marketing strategies

This paper presents a cross-country comparative study of industrial buyers' expectations of supplier attributes which manifest in the process of supplier selection. The results indicate a variance in these expectations across the countries, implying a multinational rather than a global approach in marketing industrial goods beyond domestic borders. The possible role of cultural factors in the formation of these divergent expectations is suggested. The implications of the findings for developing appropriate marketing strategies, and for future research, are discussed.     

The role of ethnicity in domestic intercultural service encounters

The current study investigates how ethnicity influences consumer (dis)satisfaction regarding service encounters in multicultural domestic service markets. The study interviews 306 ethnic Malay and Chinese respondents in Malaysia using the critical incident technique. The respondents provide 612 critical incidents for content analysis. Based on content analysis and inter-judge reliability, seven sub-categories (grouped within three major categories) emerge as integral determinants of service encounters in multicultural domestic service markets. The findings suggest intra- versus inter-ethnic affiliation between consumer and service provider influences the evaluation of domestic intercultural service encounters. Specifically, consumers are found to be more satisfied (dissatisfied) when service encounters are with service providers with the same (different) ethnic affiliation as themselves. The present study extends current literature by examining the role of ethnicity in service encounters in multi-cultural service markets. The identified determinants and associated findings from the present study further provide practical insights for managers regarding how different ethnic consumers are likely to respond to service encounters in such markets. The study indicates that different service expectations exist between consumers from different ethnic affiliations.     

Institutional development and firm profitability in transition economies

Although transition economies experience significant institutional transformations that vary in their pace and magnitude, our understanding of how such changes influence firm performance is rather limited. We examine how variations in institutional reforms and international openness in 16 transition economies in Central and Eastern Europe (CEE) influence firm profitability. We enhance the understanding of this subject by showing that such institutional changes have different effects on the competitive advantages and in turn profitability of domestic firms and foreign subsidiaries. Our analysis of over 230,000 observations reveals that institutional reforms benefit domestic firms. Conversely, a completely different pattern emerges for foreign subsidiaries, indicating that institutional reforms have negative consequences for their profitability. Hence, in contrast to the established assumption that developed institutional environments are advantageous for foreign subsidiaries, the nature of institutional changes makes domestic firms the main beneficiaries.     

How long has it been since the last deal? Consumer promotion timing expectations and promotional response

When modeling consumers’ forward-looking behavior using choice data on frequently purchased products, the common approach assumes that consumers have rational expectations about future promotions. Previous studies modeled such expectations using a first-order Markov (FOM) process. However, empirical evidence from several categories suggest that inter-promotion intervals can last several weeks implying that a FOM process that conditions future expectations of prices only on current-period prices can be limiting. We utilize a Proportional Hazard model (PHM) to characterize consumers’ rational expectation of future price promotion. We first show that estimating a dynamic structural model that uses a FOM specification for rational expectations can bias estimates of promotion effects with both simulation analysis and scanner panel data from four consumer packaged goods product categories. Secondly, we empirically show that a structural model employing a PHM specification for promotion expectations fits the data better than ones that assume only a FOM price or promotion expectation. Lastly, we show using an analysis of promotion policy changes that a structural model with a FOM expectation can lead to suboptimal managerial decisions.     

One size doesn’t fit all: How institutional complexity within the state shapes firms’ environmental innovation

This study investigated how firms respond to conflicting demands within the state. Using Chinese listed firms data, we found that firms linked with central government relate positively to environmental innovation, while firms located in provinces with gross domestic product (GDP) priority exhibited a negative influence on environmental innovation. Beyond the independent roles of central and local government expectations, we found that central and local government demands work interdependently to negatively affect firms’ environmental innovation, such that firms located in GDP priority regions lower the positive impact of the central government on environmental innovation. The present study added to the existing literature by unpacking government roles into two competing sets of expectations, independently and interdependently.     

Domestic versus foreign listing: Does a CEO's educational experience matter?

Where to list an initial public offering (IPO) is a critical decision for an entrepreneurial firm. Our study investigates IPO location choice between home country and foreign country by examining a sample consisting of the entire population of 1479 Chinese private issuers during the period from 2005 to 2014. We enrich upper echelons theory by bringing in the insights of imprinting theory. Our results indicate that the sources of imprint − prestigious domestic education and foreign education − influence CEOs' preference for an IPO location. More specifically, CEOs with prestigious domestic degrees tend to list their firms in China whereas CEOs with foreign degrees tend to list outside China. Given that the imprinting effects of education have a lasting influence on CEOs, despite subsequent environmental changes, long tenures allow such effects to be imparted to other top management team members. Another finding is that when the CEOs are also the founders, there are two separate imprinting effects.     

Reaganomics and the world economy

The upswing in the US economy, which has long since surpassed all expectations, has undoubtedly been a great success for the economic policy embarked upon by President Reagan. But has the treatment which has done the USA so much good also been good for the rest of the world? American observers always draw attention to the import boom, whilst overseas commentators are more concerned with the worldwide effects of the USA's very high interest rates.     

Industrial Policy, FDI and Employment: Still ‘Missing a Strategy’

This paper contrasts the effects of trade, inward FDI and technological development upon the demand for skilled and unskilled workers in the UK. By focussing on industry level data panel data on smaller firms, the paper also contrasts these effects with those generated by large scale domestic investment. The analysis is placed within the broader context of shifts in British industrial policy, which has seen significant shifts from sectoral to horizontal measures and towards stressing the importance of SMEs, clusters and new technology, all delivered at the regional scale. This, however, is contrasted with continued elements of British and EU regional policy which have emphasised the attraction of inward investment in order to alleviate regional unemployment. The results suggest that such policies are not naturally compatible; that while both trade and FDI benefit skilled workers, they have adverse effects on the demand for unskilled labour in the UK. At the very least this suggests the need for a range of policies to tackle various targets (including in this case unemployment and social inclusion) and the need to integrate these into a coherent industrial strategy at various levels of governance, whether regional and/or national. This has important implications for the form of any ‘new’ industrial policy.     

The Mis-Match of Expectations and Tools in Transition Economies

The fall of the former Soviet Union and the opening of the countries of Eastern Europe has prompted examination of why central planning failed, why capitalism with all its faults is succeeding, and what actions and institutions are necessary to move command economies toward successful, sustainable market economic systems. As they privatize State Owned Enterprises (SOE's) expectations are that the companies will function with the success experienced by western companies. Governments hope to derive tax revenue from company profits and expect companies to provide jobs. Effecting the change is, however, far greater than changing the name plate on the door. Transition success will hinge upon institutional and infrastructure changes that need to be wide-spread.The ethical quagmire is that without changes in the infrastructure of the command economy system private enterprise is doomed to fail. Governments will then be deprived of the anticipated revenue streams emanating from businesses. Governments may then not be able to fulfill the economic and social expectations of their citizens. This would be not only counter-productive for businesses and government but also confusing and bewildering to the general populous. This paper explores structural impediments in transition economies and discusses how each blocks and distorts the formation of a true market economy.