Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders

Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signalling, the presence of the large investor does make all other traders more aggressive in their selling. Relative to the case in which there is no large investor, small investors attack the currency when fundamentals are stronger. Yet, the difference can be small, or non-existent, depending on the relative precision of private information of the small and large investors. Adding signalling makes the influence of the large trader on small traders' behaviour much stronger.     

The Short‐term Determinants of Capital Flows for a Small Open Economy: The Case of Greece

This paper presents the factors driving capital flows inwards and outwards of a small open economy such as Greece during the period 1983–2009. Apart from the determinants of capital flows the possibility of speculative attacks is also considered. Applying the ordinary least squares (OLS) method it is found that variables linked to external factors such as the differential of domestic and foreign interest rates and financial crises, such as the Asian and Russian financial turmoil of 1997 and 1998 respectively, are the main factors influencing capital inflows and outflows in Greece during the period 1983–2009. Additionally the results of probit analysis support that the same factors are significant in determining the probability of speculative attacks to the Greek economy.     

Firm-Level TFP Growth in the Chinese Automobile Industry

China has been the world’s largest automobile producer since 2009,but it still lags behind other countries in terms of productivity. Based on theNational Bureau of Statistics of China (NBSC) firm-level data and the improvedapproach proposed by Ackerberg et al. (2015), this paper investigates thecontribution of total factor productivity (TFP) growth to the Chinese automobileindustry and evaluates the impact of firm entry and exit on TFP growth. Theempirical results show that the TFP of the Chinese automobile industry grows at10.7% per year. Joint venture and foreign-owned firms have a significantly higherTFP growth rate than others. Large-scale firms have a higher TFP growth rate thando small-scale firms, but the latter have caught up after 2004. Moreover, the entryof new firms and exit of old firms significantly improve the aggregate TFP growthrate.     

Bankruptcy costs,economic policy uncertainty,and FDI entry and exit

In this paper, we examine how the effect of economic policy uncertainty on foreign direct investment (FDI) entry and exit varies with the cost of bankruptcy resolution. Using a sample of bilateral FDI entry and exit for 23 countries and areas from 2004 to 2012, we find that an increase in bankruptcy costs in a country exacerbates the dampening effect of economic policy uncertainty on both FDI entry and exit. Subsample analysis reveals that the bankruptcy resolution channel only exists in high political risk countries. We also find that the bankruptcy resolution channel does not exist for foreign portfolio investment, which is consistent with real option theory. Broadly put, our contribution is at the nexus of institutional theory and FDI, as we identify the bankruptcy resolution channel through which economic policy uncertainty affects FDI entry and exit.     

我国防范国际游资发动投机性冲击的对策

在当前特殊的国际背景下,我国必须密切关注国际游资的流动,防范国际游资发起投机性冲击。本文在界定国际游资定义的基础上,分析了国际游资对一国经济和世界经济的影响,探讨了国际游资发动投机性冲击的典型策略,总结了投机性冲击的特点,提出了我国防范国际游资发动投机性冲击的具体对策。     

Exit strategies,capital flight and speculative attacks: Europe's version of the trilemma

In the winter 2011/12, a wave of internal capital flight prompted the ECB to abandon its exit strategy and announce an unprecedented monetary expansion. We analyze this episode in several dimensions: (i) we provide an event-study analysis, covering key variables from national central banks' balance sheets, (ii) we rationalize the empirical patterns in a formal discussion of the constraints in a monetary union and (iii) we analyze different indicators of redenomination risk in the euro area. Finally, we argue that the euro area entails an inherent policy trilemma that makes it prone to speculative attacks.     

Multinationals and plant exit: Evidence from Chile

This paper investigates three main questions: are affiliates of foreign multinationals more likely to exit than domestic firms? Does the exit probability of multinationals depend on its export orientation?, and Does the presence of multinationals affect the survival of other firms in the economy? Our results show that foreign plants are more likely to exit the economy, controlling for other firm and industry characteristics, only during the late 1990s, a period when the Chilean economy experience a massive slowdown. Our data also suggest that only domestic market oriented multinationals responded to this negative shock by being more “footloose”. We also find that the presence of multinationals has a positive effect on plant survival in the early 1990s. This positive effect, however, is fully captured by productivity, once controlling for TFP in our exit regressions we do not find any further impact of multinational presence on a plant's probability of exit.     

PREDICTING CURRENCY CRISES WITH A NESTED LOGIT MODEL

Abstract.  This paper is the first to apply a nested logit model to measure the probabilities of speculative attacks and the probabilities of successful defences by the central banks. This model allows us to predict the probability not only of speculative attacks but also of successful defences, given attacks. It also provides a framework for analysing the degree to which different factors affect the likelihood of attacks and defences. We find strong evidence that external illiquidity and financial fragility are reliable predictors of currency crises. The results shed light on the validity of the three generations of currency crisis models.     

A regime-switching approach to the study of speculative attacks: A focus on EMS crises

This paper implements a regime-switching framework to study speculative attacks against EMS currencies during 1979–1993. To identify speculative episodes, we model exchange rates, reserves, and interest rates as time series subject to discrete regime shifts between two possible states: “tranquil” and “speculative”. We allow the probabilities of switching between states to be a function of fundamentals and expectations. The regime-switching framework improves the ability to identify speculative attacks vis-à-vis the indices of speculative pressure used in the literature. The results also indicate that fundamentals (particularly budget deficits) and expectations drive the probability of switching to a speculative state. First Version Received: October 2000/Final Version Received: June 2001     

Sectoral patterns of firm exit in Italian provinces

There is considerable variation in the firm exit rate across the 103 provinces in Italy. This paper investigates a range of determinants of the exit rate for twelve different sectors in the Italian provinces for a period of eleven years. The analysis shows that the exit rate is positively affected by entry in the previous year (displacement) in the same sector. Previous exit has a different effect for the manufacturing industry as compared to the business services. More specifically, exit persists in manufacturing while in the business services it is rather exit in related sectors in the same province that leads to increased exit, probably due to the loss of clients or suppliers. The presence of industrial districts diminishes exit, especially in two manufacturing sectors (Food and Clothing), Commerce and Transport. Provinces with strong trademark activity appear to have lower exit rates.     

The Penn Effect revisited: New evidence from Latin America

In this paper, we examine the role of relative productivity growth in real misalignment of exchange rates in Latin American countries. Specifically, we verify the validity of the Penn Effect for selected countries in this region. Our sample consists of 15 countries for the period 1951 to 2010. We employ both short‐ and long‐panel data techniques, which allow us to experiment with estimators suitable for short and long time dimensions of panel data. The Penn Effect is found to be supported for the entire sample, and for subsamples. Relative productivity growth is dominant in the real exchange rate movement during periods of mild or weak speculative attacks, as compared with periods of severe speculative attacks. To correct for real misalignment of currencies in Latin America under speculative attacks, relative productivity growth must be sizeable.     

Irrationality and monopolistic competition: An evolutionary approach

This paper shows that a monopolistically competitive equilibrium can evolve without purposive profit maximization. Specifically, this paper formulates a precise evolutionary dynamic model of an industry where there is continuous entry of firms that randomly select their output levels on entry and fix their output levels thereafter. Firms exit the industry if they fail to pass the survival test of making nonnegative wealth. This paper shows that the industry converges in probability to the monopolistically competitive equilibrium as the size of each firm becomes infinitesimally small relative to the market, as the entry cost becomes sufficiently small, and as time gets sufficiently large. Consequently, in the limit, the only surviving firms are those producing at the tangency of the demand curve to the average cost curve and no potential entrant can make a positive profit by entry.     

IPOs’ signalling effects for speculative stock detection: evidence from the Stock Exchange of Thailand

Using a unique data set from the Thai stock market about the so-called, ‘Turnover List (TOL)’ of speculative stocks spanning the period 2004–2012, we investigate and provide new evidence on the relationship between IPOs’ pricing effects and subsequent classification as speculative investments. To be more specific, we examine the signalling effects for the detection of speculative stocks in relation to the degree of their prior IPOs underpricing. We also employ the market-feedback hypothesis to investigate this signalling process. Our results reveal a significant positive relationship between the magnitudes of the IPO underpricing and the probability of an IPO firm being classified officially as speculative on the TOL. Furthermore, we find that a 6-month abnormal return after going public increases the probability of speculative dealing in the IPOs. Next, we consider all listed firms in the Thai stock market and highlight the role of both abnormal return and trading volume in the transmission of probability for appearing on the TOL. In addition, we find that IPOs and non-dividend paying companies further increase the risk of being on the TOL.     

Entrepreneurial exit and entrepreneurial engagement

This paper investigates whether and how a recent entrepreneurial exit relates to subsequent engagement. We discriminate between six levels of engagement including none, potential, intentional, nascent, young and established entrepreneurship. We use individual-level data for 24 countries that participated in the Global Entrepreneurship Monitor during 2004, 2005 and 2006 (some 350,000 observations). Our findings indeed show that a recent exit decreases the probability of undertaking no entrepreneurial activity, whereas it substantially increases the probabilities of being involved in all other engagement levels. Investigating the conditions under which an exit increases engagement in entrepreneurial activities, we find that the probability of entrepreneurial engagement after exit is higher for males, for persons who know an entrepreneur and for persons with a low fear of failure. Educational attainment does not seem to be relevant. Moreover, there exists large cross-country variation in the probability of entrepreneurial engagement after exit.     

Entry regulation and entrepreneurship: a natural experiment in German craftsmanship

This paper uses the 2004 amendment to the German Trade and Crafts Code as a natural experiment for assessing the causal effects of this reform on the probabilities of being self-employed and of transition into and out of self-employment. This is achieved by using repeated cross-sections (2002–2009) of German microcensus data. I apply the difference-in-differences technique for three groups of craftsmen which were subject to different intensities of treatment. The results show that the complete exemption from the educational entry requirement has fostered self-employment significantly by substantially increasing the entry probabilities, while exit rates have remained unaffected. I find similar, though weaker relative effects for the treatment groups that were subject to a reduction of entry costs or a partial exemption from the entry requirements. Moreover, I consider effect heterogeneity within each of the treatment groups with respect to gender and vocational training, and show that the deregulation of entry requirements has been most effective for untrained workers.     

The determinants of variations in exit rates

A conceptual model of the determinants of exit across spatial areas is presented and empirically tested. The relative merits of two different methods of calculating exit rates are discussed, and results compared. In the empirical estimation, entry is found to be the dominant determinant of exit. However, other factors also have a systematic effect: among these are local income, the rate of change of unemployment, relevant managerial skills, and population density. Making allowance for variations in industrial structure across areas has some effect on the results, but does not eliminate the effect of variables other than entry.     

Business cycle in an oligopolistic economy with entry and exit

In this paper we introduce a microfounded macromodel with endogenous market structure, where macroeconomic fluctuations may be determined by firms’ strategic interactions, entry and exit. All the agents have the same preferences but may differ in their budget constraints and change their social status according to idiosyncratic stochastic shocks that trigger entry, while exit is caused by firms’ bankruptcies. Our numerical simulations show that birth and death of firms (associated with entry and exit) can generate macroeconomic fluctuations without technology shocks.     

Speculative attacks with unpredictable or unknown foreign exchange reserves

During a currency crisis, speculators usually do not know the value of a central bank's foreign exchange reserves. In this paper I show that modelling speculators as having imperfect knowledge of reserves enriches the predictions of the classical model of speculative attacks. With realistic lags in reserve reporting and costs to unsuccessful speculation, successful speculative attacks will involve a jump depreciation, unsuccessful attacks may occur, attacks may occur when fundamentals are improving, attacks may not be preceded by large increases in interest rates, and fixed exchange rates may be abandoned with no attack and no decline in the money supply. JEL Classification: F31     

Entry and Exit in International Markets: Evidence from Chilean Data*

Several studies examine the patterns and determinants of entry and exit in manufacturing industries. Not much work exists on entry and exit in international markets. This paper uses Chilean data to analyze the industry‐level determinants of entry and exit in export markets. First, we show as stylized facts that entry and exit rates differ across industries, vary over time, and are positively correlated. Then, we study the main determinants of these patterns. Our econometric analysis shows that within‐industry heterogeneity, measured by differences in productivity or other firm characteristics, has a significant effect on plant turnover in international markets. Our findings reveal that trade costs, factor intensities, and fluctuations in the real exchange rate play a minor role explaining entry and exit. This last result is consistent with hysteresis in international markets.     

Speculator-triggered crisis and interventions

This paper adds a speculator and an authority to a benchmark global game model to investigate how the speculator endangers a business or an economy, and what the authority can do about it. It is found that the existence of a speculator increases the financial system’s vulnerability by serving as a coordinating device for the investors and thus triggering the crisis. We then compare three different intervention policies imposed by the authority aiming to counteract this effect: deterring the speculator, rewarding holding investors, and eliminating the preemption motives among investors. We argue that the first method may not work because of the multiplicity problem; the second one is useless when a crisis is about to happen; the last tool works given enough effort. We also include a discussion of different intervention polices employed by governments during the 1997 Asian financial crisis to illustrate the theoretical results.