CEO Cash and Stock‐Based Compensation Changes,Layoff Decisions,and Shareholder Value

The chief executive officers (CEOs) of firms announcing layoffs receive 22.8% more total pay in the subsequent year than other CEOs. The pay increases result almost entirely from increases in stock‐based compensation and are found to persist. In addition, layoff announcements are accompanied by shareholder value increases averaging $40 million to $95 million. One‐time labor cost savings from layoffs average $65 million. We conclude that CEOs receive pay increases following layoffs as rewards for past decisions and to motivate value‐enhancing decisions in the future.     

FISCAL DEFICITS AND MACROECONOMIC PERFORMANCE IN DEVELOPING COUNTRIES

Although fiscal adjustment was urged on developing countriesduring the 1980s to lead them out of economic malaise, considerableuncertainty remains about the relations between fiscal policyand macroeconomic performance. To illustrate how financial markets,private spending, and the external sector react to fiscal policies,the behavior of holdings of money and public debt, private consumptionand investment, the trade balance, and the real exchange rateis modeled for a sample of ten developing countries. The studiesfind strong evidence that over the medium term, money financingof the deficit leads to higher inflation, while debt financingleads to higher real interest rates or increased repressionof financial markets, with the fiscal gains coming at increasinglyunfavorable terms. Consumers respond differently to conventionaltaxes, unconventional taxes (through inflation or interest andcredit controls), and debt financing, in ways that make fiscaladjustment the most effective means of increasing national saving.Private investment—but not private consumption—issensitive to the real interest rate, which rises under domesticborrowing to finance the deficit. Contrary to the popular presumption,in some countries private investment increases when public investmentdecreases. There is strong evidence that fiscal deficits spillover into external deficits, leading to appreciation of thereal exchange rate. Fiscal deficits and growth are self-reinforcing:good fiscal management preserves access to foreign lending andavoids the crowding out of private investment, while growthstabilizes the budget and improves the fiscal position. Thevirtuous circle of growth and good fiscal management is oneof the strongest arguments for a policy of low and stable fiscaldeficits.      

MACROECONOMIC ADJUSTMENT IN DEVELOPING COUNTRIES

The short-run adjustment problem in developing countries involvesboth the improvement of the current account and the reductionof inflation. In both cases, the usual reason for adjustmentis shown to be the fiscal deficit. The article distinguishesprimary adjustment costs, which are inevitable, from secondarycosts, which result, for example, from failure to devalue orfrom real wage rigidity. The article then analyzes the effectsof expenditure reduction and currency devaluation on varioussectors of the economy. Reducing inflation involves both aninflation tax replacement and a price adjustment problem, and"heterodox" policies designed to deal with the latter are discussed.If the fiscal deficit cannot be reduced, the article argues,improving the current account may be at the cost of increasinginflation and likewise reducing inflation may be at the costof worsening the current account.      

Ex ante CEO severance pay and risk-taking in the financial services sector

We examine 533 CEO severance contracts for financial services firms from 1997 to 2007 and find that ex ante severance pay is positively associated with risk-taking after controlling for the incentive effects provided by equity-based compensation. We report a positive causal relation between the amount of severance pay and risk-taking using popular market-based risk measures as well as the distance-to-default and the Z-score. We also find that severance pay encourages excessive risk-taking using metrics such as tail risk and asset quality. Our results are consistent with the risk-shifting argument and provide support for recent reforms on severance pay in the financial sector.     

Capital market behavior and operational announcements of layoffs,operation closings,and pay cuts

This article examines the relation between stock returns and a set of operating decisions: layoffs, operation closings, and pay cuts. We find evidence that cost-cutting measures occur after significant stock price declines. Announcements of layoffs and temporary operation closings are associated with negative returns, while permanent operation closings do not have significant announcement effects.     

Discount Rates,Debt Maturity,and the Fiscal Theory

This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory depend directly on the conditional nominal term premium, giving rise to an optimal debt-maturity policy that is state-dependent. In a calibrated macrofinance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.     

Inflation Triggers in Transition Economies: Their Evolution and Specific Features

Analysis of thirty inflation episodes in sixteen European transition economies, using the probit panel model with fixed effects, uncovers inflation triggers that overlap with those obtained in either developing or developed countries or both. However, we found some transition-specific features. Thus, the relative contribution of the triggers evolves as transition progresses, such that the early dominance of the output gap, the fiscal deficit, and elections are subsequently subdued by a rise in food and oil prices, the exchange rate regime, and the current account deficit. The last two triggers could be linked to deep financial integration in Europe and the consequent large flow of capital toward European transition economies in the 2000s, a phenomenon not observed in any other part of the world. In addition, the exchange rate regime as an inflation starter in transitional Europe may be due to its convergence with developed Europe and the resulting real appreciation of currency.     

Compensation design and political risk: the case of city managers

Although theory suggests its importance, empirical evidence on the relation between exogenous termination risk and contracted compensation packages is limited. This study takes a different approach by exploring determinants of contracted annual compensation and severance packages for city managers. Results indicate that managers exposed to greater exogenous political risk— i.e., those employed by municipalities where voters are more likely to recall elected officials—are 6 %–11 % more likely to receive severance, and receive, on average, 12 %–24 % more severance pay, but do not receive more annual compensation. Additional analyses suggest that the relation between contracted municipal severance and political risk primarily exists in states without restrictions on voters’ ability to file recalls and in municipalities with strong public sector unions. Findings also suggest that municipalities with greater expected agency problems between managers and citizens offer significantly more contracted annual compensation and severance pay.     

THE ECONOMICS OF THE GOVERNMENT BUDGET CONSTRAINT

This article summarizes the simple analytics of the macroeconomiceffects of government budget deficits. The presentation is organizedaround three key relationships: the national income accountsbudget deficit identity, the deficit financing identity, andthe dynamic equation for the evolution of the ratio of publicdebt to gross national product. The national income accountsidentity highlights the effect of the deficit on domestic savingand investment and the current account. Examining the financingof the deficit brings to light the different kinds of macroeconomicimbalance the deficit can cause—as a first approximation,printing money excessively shows up as inflation, excessiveuse of foreign reserves leads to crises in the balance of payments,high foreign borrowing leads to a debt crisis, and too muchdomestic borrowing leads to high real interest rates and crowdingout of private investment. The debt dynamics equation is usedto show the long-run constraints on fiscal policy.      

Devaluation, Fiscal Deficits, and the Real Exchange Rate

This article examines the use of fiscal policies to sustainthe effects of a nominal devaluation on the real exchange rate.It is shown that the magnitude of the change in the real exchangerate depends not only on the size of the devaluation and thedegree of fiscal adjustment but also on the means by which thefiscal deficit is reduced. The change in the nominal exchangerate necessary to maintain the depreciation of the real exchangerate will depend on whether the fiscal deficit is eliminatedby increasing taxes or by reducing government expenditures ontraded and nontraded goods. The required depreciation of thedomestic currency will be larger if the fiscal deficit is reducedby increasing taxes than it will be if the deficit is cut bylowering government expenditures. Further, the depreciationwould be smaller if the cuts in expenditure fell on traded ratherthan nontraded goods. This result implies that the authoritiesmust ensure consistency between exchange rate action and policiesto reduce fiscal imbalances in order to achieve a desired levelof the real exchange rate necessary to attain balance of paymentsequilibrium.     

A comparison of nominal and indexed debt under fiscal constraints

This paper makes a welfare comparison between the issuance of price-indexed and nominal public debt in the presence of fiscal constraints, viz. a debt constraint, a deficit constraint and a combination of both. Distortionary taxes or public consumption are regulated to avoid the violation of the relevant fiscal constraint(s). Under a debt constraint indexed debt is generally preferred, while under a deficit constraint the results are more mixed. Introducing inflation persistence and raising the maturity of the debt tend to increase the magnitude of the welfare differences between the two types of debt. Welfare differences are further affected by the degree to which public consumption and tax revenues are indexed to actual versus structural nominal GDP.     

Inflation Targeting,Fiscal Policy,and the Exchange Rate Regime

Until recently, Turkey’s economy was characterized by high inflation, undisciplined public finance management, and a fragile banking system and experienced multiple economic crises. After the economy was hit by another crisis in 2001, the central bank became independent, adopted inflation targeting as the monetary policy framework, and implemented reforms to adopt a more stringent fiscal policy. Inflation rates decreased to single-digit levels within 3 years after the independence of the central bank. This article analyzes the end of the high inflation period in the context of monetary and fiscal policy interactions within a Markov-Switching Dynamic Stochastic General Equilibrium model in which monetary and fiscal policies are allowed to switch between different regimes.     

英国经济面临内忧外患 复苏前景堪忧

2011年以来,随着全球多数地区经济形势出现反复,英国经济亦增长乏力,主要表现为失业人数增加,通胀压力加剧,商业投资持续下滑,消费需求不足,贸易逆差持续扩大等。英国货币和财政政策面临既要促进经济增长,又要控制通货膨胀和紧缩财政的两难选择,而外部经济金融的波动,更增加了英国经济的不确定性。     

Optimal Fiscal Policy Rules in a Monetary Union

This paper investigates the importance of fiscal policy in providing macroeconomic stabilization in a monetary union. We use a microfounded New Keynesian model of a monetary union, which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal authorities. We find that fiscal policy can play an important role in reacting to inflation, output, and the terms of trade, but that not much is lost if national fiscal policy is restricted to react, on the one hand, to national differences in inflation and, on the other hand, to either national differences in output or changes in the terms of trade. However, welfare is reduced if national fiscal policy responds only to output, ignoring inflation.     

Trade flow lags, monetary and fiscal policy, and exchange-rate overshooting

In this paper model a is constructed that combines trade slow lags with the model in the appendix to Dornbusch's seminal paper on exchange-rate dynamics. Here output is free to vary and inflation is determined by a simple Phillips curve mechanism. It turns out that, because of the trade slow lags, monetary expansion causes interest rates to decline, but the exchange rate need not oveshoot, as one would expect; whereas fiscal policy always produces overshooting. It follows that monetary policy may be a less important source of exchange-rate variability than is commonly believed, and fiscal policy more important.     

Monetary conservatism and fiscal policy

Does an inflation conservative central bank à la Rogoff (1985) remain desirable in a setting with endogenous fiscal policy? To provide an answer we study monetary and fiscal policy games without commitment in a dynamic, stochastic sticky-price economy with monopolistic distortions. Monetary policy determines nominal interest rates and fiscal policy provides public goods generating private utility. We find that lack of fiscal commitment gives rise to excessive public spending. The optimal inflation rate internalizing this distortion is positive, but lack of monetary commitment generates too much inflation. A conservative monetary authority thus remains desirable. When fiscal policy is determined before monetary policy each period, the monetary authority should focus exclusively on stabilizing inflation. Monetary conservatism then eliminates the steady state biases associated with lack of monetary and fiscal commitment and leads to stabilization policy that is close to optimal.     

Measuring Regional Fiscal Transfers Induced by National Budgets

National budgets typically induce a substantial redistribution of resources across regions. In this paper I propose an economic definition of such implicit fiscal transfers, which, in the absence of gains or losses out of centralizing fiscal policy, is particularly suitable for territorial equity discussions. In my view the fiscal transfer of a region is equivalent to the region's willingness to pay for achieving fiscal independence. Such implicit transfers are also characterized in the context of a model where public debt is exclusively motivated by the tax-smoothing principle. It turns out that the fiscal transfer of a region can be computed by adding the region's primary balance and an allocation of the national primary deficit according to a linear combination of the region's share of receipts and expenditures. Thus, in general the computation of these implicit transfers requires detailed information about parameter values, which may not be available in practice. Some possible solutions are discussed.     

How Do Ex Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?

We analyze a sample of over 3,600 ex ante explicit severance pay agreements in place at 808 firms and show that firms set ex ante explicit severance pay agreements as one component in managing the optimal level of equity incentives. Younger executives are more likely to receive explicit contracts and better terms. Firms with high distress risk, high takeover probability, and high return volatility are significantly more likely to enter into new or revised severance contracts. Finally, ex post payouts to managers are largely determined by the ex ante contract terms.     

对中国通货膨胀的基本判断及货币政策建议

中国宏观经济正处于一个通货膨胀的通道之中,但中国强有力的货币政策措施效果不显著。究其原因,在于本轮通货膨胀具有不同以往的外源性特征,其中包含了美国美元贬值阴谋。正因为中国通货膨胀仅仅是全球性通货膨胀的一部分,同时中国承担着全球性通货膨胀成本,因此解决通货膨胀问题,并非中国的"家务事"。在此背景中,针对国内通货膨胀问题,中国不能急于求成,而只能顺势而为,以财政政策为主,来弱化通胀之负作用。货币政策作为辅助性政策,仅需要保持从紧状态,避免信贷失控即可。