Entry costs and labor market dynamics

We study the cyclical dynamics of the value of a vacant position in labor markets characterized by search and matching frictions. We present a model of aggregate fluctuations in which firms face sunk costs to enter the production process. Our specification of sunk costs gives rise to a countercyclical value of a vacancy. We find that this overlooked object has important quantitative implications for the study of labor markets and business cycles. It affects the cyclical dynamics of the surplus division between workers and firms, and provides a better characterization of the movements in income shares over recessions and expansions. Understanding movements in the value of a vacant position helps to link the dynamics of income shares with recent volatility puzzles found in models of search and matching in labor markets.     

Entry costs and cross-country differences in productivity and output

This paper contributes to the literature on cross-country income differences by studying the effect of entry barriers on productivity and output. Using instrumental variable regressions I show that higher entry costs significantly reduce output per worker and that they do so by lowering total factor productivity. In particular, an increase in entry costs by 80% of income per capita, which is one half of their standard deviation in my sample, is estimated to decrease total factor productivity and output per worker by 22% and 29%, respectively.      

Sunspots, GDP and the stock market

A correlation has been observed between the US GDP and the number of sunspots as well as between the Dow Jones Industrial Average and the number of sunspots. The data cover 80 years of history. The observed correlations permit forecasts for the GDP and for the stock market in America with a future horizon of 10 years. Both being above their long-term trend they are forecasted to go over a peak around Jun-2008.     

Stock market cycles and stock market development in Spain

In this paper we use Spanish stock market data to identify the bull and bear phases of the market and to analyze its characteristics during the period 1941-2002. We compare these characteristics with those of the US and of two other European countries (Germany and the UK). Our sample is divided in two subperiods in order to account for differences induced by the process of development undergone by Spanish capital markets in the late 1980s and early 1990s. We find that the Spanish stock market has become increasingly more similar to those of the more developed countries, although some differences still persist. Additionally, we show that concordance of the Spanish stock market with other developed markets has increased quite significantly.JEL Classification: C22, G15An earlier version of the paper circulated under the title Bulls and bears: lessons from some European countries. Comments from seminar participants at the Universidad de Navarra, at the IX Meeting of the Spanish Finance Association (Pamplona 2001) and at the Royal Econonomic Society Conference (Warwick 2002) are gratefully acknowledged. We are very grateful to J.M. Campa, G. Llorente and two anonymous referees for helpful comments and suggestions. We also thank D. Garcia and the Research Department of the Madrid Stock Exchange for generously providing the data of the Spanish case. Financial assistance from the Spanish Ministry of Science and Technology (SEC2002-01839) is gratefully acknowledged. The usual disclaimer applies.     

Politics and the stock market: Evidence from Germany

We analyze the interaction of stock market movements and politics in Germany. Evidence from popularity functions and VAR-based evidence suggests that stock market returns have affected the popularity of German governments. We only find weak evidence that the political process has had an impact on the stock market. In contrast to empirical evidence for the U.S., we do not find that German stock market returns tend to be higher during left-wing than during right-wing governments. Also in contrast to results for the U.S., we find no evidence for an election cycle in German stock market returns.     

Entry and exit of manufacturing plants over the business cycle

This paper analyzes the plant-level entry and exit over the business cycle. We document basic patterns of entry and exit of U.S. manufacturing plants between 1972 and 1997. We find that the entry rate is more cyclical than the exit rate. We also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants. Our new finding suggests that the selection at the entry margin may be more important than the selection at the exit margin in understanding the plant-level dynamics over the business cycle.     

The stock market and investment in the small and open Norwegian economy

The relationship between the stock market and investment is analyzed by utilizing a multivariate vector autoregressive model, which also includes fundamentals represented by production and the bank interest rate. Two important results appear on the basis of data from the small, open economy of Norway. The financial market has no lead effect on real activity, as neither the stock market nor the credit market can predict future investment or production. On the contrary, current stock returns correlate negatively with lagged growth in investment, and positively with current growth in production. In addition, changes in the bank interest rate have a positive effect on future stock returns, production leads investment positively, and both production and the bank interest rate become exogenous variables in our model. First version received: November 1997/Final version received: October 2000     

Cyclicality of stock market volatility

By utilizing the significance and stochastic dominance tests, this paper formally tests the relationship between stock market volatility and the business cycle. Results show that, for most matured markets, stock market volatility is countercyclical, while for emerging markets, the volatility can be procyclical.     

Evidence of a stock market wealth effect using household level data

Using the household level data of urban households in Korea, this paper presents evidence for a statistically significant stock market wealth effect for the highest income bracket households who typically hold a large share of corporate stock.     

A structural model of the fixed time costs of market work

We link ATUS 2003–04 to March CPS data and examine market work's effects on non-market activity. In a structural model fixed time costs of work generate a utility-equivalent of 8% of income to be overcome before working becomes optimizing.     

Universal banking,asymmetric information and the stock market

This paper aims to explore the role of the universal banking system in contributing to the stock market bust in the wake of the financial crisis 2008–2009 when bankers might have incentive to hide information from shareholders. We set up a stylized model of consumption smoothing involving universal banks that undertake both investment and commercial banking activities. Banks have private information about the outcome of a project that it funds. In the wake of bad news about the project, the banker has an incentive to sell lemon shares in a secondary market with the pretence of a liquidity crunch. Our model shows that such an incentive results in (i) a sharp discounting of stock prices, (ii) greater loan demand (iii) higher fraction of bank ownership of the borrowing firms, and (iv) heightened consumption risk resulting in precautionary savings by households. The magnitude of these effects depends on the market's perception about the preponderance of lemons in the stock market. A credible punishment scheme implemented by the government in the form of fines may moderate the stock market decline and consumption volatility due to information friction. However, it imposes a deadweight loss on private citizens because of a fall in all banks' expected profit. On the other hand, a “ring-fenced” banking arrangement along the way suggested by the Vickers Commission may entail a first order welfare loss due to the lack of diversification opportunities.     

中国股票市场发展与经济增长的实证研究

本文运用Johansen协整检验、格兰杰因果检验等计量经济学方法,通过分析我国近年来宏观数据及股市规模、流动性和波动性的季度数据,对中国股票市场发展与经济增长的关系进行了计量学检验。得出的结论是：总体上,中国股票市场和经济增长之间存在长期的均衡关系,经济增长对股市的发展具有一定促进作用,但股票市场对经济增长的作用十分有限。     

Nonlinear predictability of stock market returns: Evidence from nonparametric and threshold models

Recent empirical evidence suggests that stock market returns are predictable from a variety of financial and macroeconomic variables. However, with two exceptions this predictability is based upon a linear functional form. This paper extends this research by considering whether a nonlinear relationship exists between stock market returns and these conditioning variables, and whether this nonlinearity can be exploited for forecast improvements. General nonlinearities are examined using a nonparametric regression technique, which suggest possible threshold behaviour. This leads to estimation of a smooth-transition threshold type model, with the results indicating an improved in-sample performance and marginally superior out-of-sample forecast results.     

Moments of cross-sectional stock market returns and the German business cycle

Based on monthly data covering the period from 1987 to 2021, we analyse whether cross-sectional moments of stock market returns may provide information about the future position of the German business cycle. We apply in-sample forecasting regressions with and without leading indicators as control variables, pseudo-out-of-sample exercises, autoregressive distributed lag models, and impulse-response functions estimated by local projections. We find in-sample predictive power of the first and third cross-section moments for the future growth of industrial production, even if one controls for well-established leading indicators for the German business cycle. Out-of-sample tests show that these variables reduce the relative mean squared error compared with benchmark models. We do not find a long-run relation between the moment series and industrial production. The dynamic response of industrial production to a shock on the cross-section moments is in line with the other results.     

Inter-linkages between competition and stabilisation policies in the banking sector and stock market development in Europe

The banking sector and the stock market in Europe have been adversely impacted by a series of global financial crises over the last two decades. Major financial reforms were implemented to enhance the stability and competition within the banking sector. Measures were also implemented to create a vibrant stock market in Europe to stimulate economic growth in Europe. This study examines the interactions between stock market development, banking competition, and banking stability in European countries from 1996 to 2016. The purpose of the study is to understand the inter-linkages between these variables to ascertain the spillover impact of policy reforms in the banking sector on the stock market and vice-versa. Using a vector error-correction model, the study finds long-run and short-run inter-linkages between banking competition, banking stability, and stock market development in European countries. The study’s most robust result is that banking competition and banking stability stimulate stock market development in the long run. There is also some evidence that healthy competition in the banking sector and stock market development instils greater stability in the banking sector. The results suggest that policy measures put in place to create a vibrant stock market must include elevating banking competition and banking stability, with policymakers being cognizant that causality may be bidirectional.     

Families and firms: Agency costs and labor market imperfections in Sialkot's surgical industry

The family firm is generally viewed as an organizational solution to agency costs in the labor market for managers and institutional underdevelopment. Consistent with this view, this paper links the preponderance of family firms in the surgical instrument industry of Sialkot to the prevailing agency and institutional problems. However, strong dependence on family management coupled with restrictions on family size constrains the firms from optimally choosing management size. The resulting labor market distortion is manifested by a significant positive correlation between the founder's family size and the firm size such that the founders who have more brothers (a larger pool of potential managers) end up with bigger firms.     

Technological forecasting at the Korean stock market: A dynamic competition analysis using Lotka–Volterra model

The purpose of this paper is to attempt to analyze the dynamic relationship between the Korean Stock Exchange (KSE) and Korean Securities Dealers Automated Quotation (KOSDAQ), two competing markets at the Korean stock market, in the viewpoint of technological forecasting of competition. The Lotka–Volterra system of equations, one well-known competitive diffusion models, is adopted to represent the competitive situations of the Korean stock market and it is estimated using daily empirical index data of KSE and KOSDAQ during 1997–2001. The results show that there existed a predator–prey relationships between two markets in which KSE acted as a prey for the time being after the emergence of KOSDAQ. This interaction was altered to symbiotic relationship and finally to pure competition relationship. We also perform an equilibrium analysis of the estimated Lotka–Volterra equations. As a result, we find that there is an equilibrium point in a dynamic sense. However, the equilibrium point could be unstable in the latest pure competition relationship.     

Entry,market turbulence and industry employment growth

This paper investigates the relationship between industrial dynamics in terms of firm entry, market turbulence and employment growth. Do entry of firms, the composition of industry dynamics (net entry) and market turbulence (entry and exit) influence industrial employment growth? This paper provides an empirical investigation, using unique data for 42 disaggregated Swedish industrial sectors during the period 1997–2001. It is hypothesised that the importance of entering firms, net entry and market turbulence may differ significantly across industries. A quantile regression method is used in order to detect industrial differences in the response to industrial employment growth. The empirical evidence shows that, on the one hand, firm entry and market turbulence have a positive effect on employment for fast growing industries and that the effect is larger for high growth industries. On the other hand, the composition of industry dynamics in terms of net entry rates has a more dispersed effect across all industries, even though the effect of net entry is larger for high growth industries.     

A strategic market game with seigniorage costs of Fiat money

Summary. A model that includes the cost of producing money is presented and the nature of the inefficient equilibria in the model are examined. It is suggested that if one acknowledges that transactions are a form of production, which requires the consumption of resources, then the concept of Pareto optimality is inappropriate for assessing efficiency. Instead it becomes necessary to provide an appropriate comparative analysis of alternative transactions mechanisms in the appropriate context. Received: September 5, 2000; revised version: May 3, 2001