The external and domestic side of macroeconomic adjustment in China

This paper sheds new light on the external and domestic dimension of China’s exchange rate policy. It presents an open-economy model to analyse the macroeconomic adjustment process in China under both flexible and fixed exchange rate regimes. The model-based results indicate that persistent current account surpluses in China cannot be rationalized, under general circumstances, by the occurrence of permanent technology or labour supply shocks. As a result, to understand the macroeconomic adjustment process in China it is necessary to mimic the effects of potential inefficiencies, which induce the subdued response of domestic absorption to permanent income shocks, thereby causing the observed positive unconditional correlation of the trade balance and output. The paper argues that these inefficiencies can be potentially seen as a by-product of the fixed exchange rate regime, and can be approximated by a stochastic tax on domestic consumption or a time-varying transaction cost technology related to money holdings. Our results indicate that a fixed exchange rate regime with financial market distortions, as defined above, might induce negative effects on GDP growth in the medium term compared with a more flexible exchange rate regime.     

The Role of Bank and Corporate Balance Sheets on Early Warning Systems of Currency Crises—An Empirical Study

This study analyzes the role of bank and corporate balance sheets on early warning systems (EWS) of currency crises. Using firm-level data on debt structure, leverage, liquidity, and profitability, this study presents estimations of EWS for a panel of emerging markets. Using calibration experiments, we assess the performance of alternative EWS specifications in a comprehensive range of crisis-probability cut-offs?. These models supplement EWS based on traditional macroeconomic indicators, improving forecasting performance substantially. The results support the third-generation models of currency crises and can assist policymakers on the design of surveillance strategies tailored for heterogeneous levels of risk tolerance and country specificities.     

Eastern Germany and the conflict between wage adjustment,investment, and employment: A numerical analysis

Eastern Germany and the Conflict between Wage Adjustment, Investment, and Employment: A Numerical Analysis. — In this paper, some light is shed on the dynamics of the adjustment process in eastern Germany by studying the linkages between the dynamics of wage adjustment, investment, and employment. An extended dynamic investment model, which includes adjustment costs for capital and revision costs for investment, is presented. This model is specified according to the east German economy and analyzed numerically by an optimization method based on direct collocation. Results are obtained for the time horizon of adjustment and for the implications of different wage strategies on the path of investment and employment.     

The interplay between home and host institutions on CBA ownership decision

Cross-border acquisitions (CBAs) are one of the key strategies for internationalization. However, most of what is known about CBA strategies relies on the effects of the host country's environment or the home country's conditions. In this article, we analyze the interplay between these two important factors. We show that companies from less institutionally developed countries are more influenced by poor institutional conditions found in host countries. We analyzed a dataset of 1,390 cross-border acquisitions performed by Latin American firms. The literature on the subject points out that less developed host environments lead to fewer shares of ownership acquired in CBAs. However, we confirmed that the quality of the home country's institutional environment positively moderates the effects of the host environment over ownership choice in the acquisition. This effect is due to companies from less developed environments being able to use their embedded capabilities to better navigate faulty institutional environments abroad.     

Short-haul city travel is truly environmentally sustainable

With rising interest in and concern about climate change and environmental sustainability, and the significance of the tourism industry worldwide, the impact of tourism-related activities and behaviors on the environment has become a key area of research. In particular, transport related to tourism has come under scrutiny for its contribution to the ecological footprint of tourism of a destination, mostly accounted for by the dominance of air travel. This study contributes to research in this area by identifying the types of travel situations in which tourists make environmentally friendly choices about travel modes and, consequently, which types of tourism destinations should seek to develop and promote in order to minimize the environmental impact of the tourist sector on both an individual destination and global scale.