Further Evidence on PPP Adjustment Speeds: the Case of Effective Real Exchange Rates and the EMS*

Two different approaches intend to resolve the ‘puzzling’ slow convergence to purchasing power parity (PPP) reported in the literature [see Rogoff (1996) , Journal of Economic Literature, Vol. 34.] On the one hand, there are models that consider a non‐linear adjustment of real exchange rate to PPP induced by transaction costs. Such costs imply the presence of a certain transaction band where adjustment is too costly to be undertaken. On the other hand, there are models that relax the ‘classical’ PPP assumption of constant equilibrium real exchange rates. A prominent theory put together by Balassa (1964, Journal of Political Economy, Vol. 72) and Samuelson (1964 Review of Economics and Statistics, Vol. 46) , the BS effect, suggests that a non‐constant real exchange rate equilibrium is induced by different productivity growth rates between countries. This paper reconciles those two approaches by considering an exponential smooth transition‐in‐deviation non‐linear adjustment mechanism towards non‐constant equilibrium real exchange rates within the EMS (European Monetary System) and effective rates. The equilibrium is proxied, in a theoretically appealing manner, using deterministic trends and the relative price of non‐tradables to proxy for BS effects. The empirical results provide further support for the hypothesis that real exchange rates are well described by symmetric, nonlinear processes. Furthermore, the half‐life of shocks in such models is found to be dramatically shorter than that obtained in linear models.     

Ex-Day Price Behaviour, Market Microstructure and Settlement Costs

It is well documented that share prices on ex-dividend days drop by less than the value of the dividends paid. However, the explanations offered to date remain inconclusive. This study examines the behaviour of share prices on ex-dividend days using data from the UK after the introduction of the 1988 Income and Corporation Taxes Act. Following [10] we sub-divide the data conditional on the size of the dividend paid. We find that for the large dividend sub-sample, when the impact of market micro-structure is taken into account, the ex-dividend price drop is not significantly different to the value of the dividend paid.     

A Non-parametric Estimation of Productivity with Idiosyncratic and Aggregate Shocks: The Role of Research and Development (R&D) and Corporate Tax

We develop a non-parametric technique framework for estimating firm-level Total Factor Productivity (TFP). Our paper has two major novelties: first, we propose a modelling of productivity with both firm-idiosyncratic factors and aggregate shocks. Second, we apply the Bayesian Markov Chain Monte Carlo (MCMC) technique that offers a numerical integration of productivity outside the posterior overcoming the restrictive assumptions about the relationship between productivity and variable production inputs. We implement our methodology in a group of 4,286 manufacturing firms from France, Germany, Italy, and the UK (2001–14). The results show that: (i) aggregate shocks matter for firm TFP evolution. The global financial crisis of 2008 caused severe, albeit short, adverse effects on TFP; (ii) there is substantial heterogeneity across countries in the way firms react to changes in R&D and taxation. German and UK firms are more sensitive to fiscal changes than R&D, while the opposite is true for Italian firms. R&D and taxation effects are symmetrical for French firms; (iii) the UK productivity handicap continues for years after the financial crisis; and (iv) there are substantial knowledge spillovers among German and Italian firms.     

International law as a negotiation tool in Banking Union; the case of the Single Resolution Fund

EU’s response to the recent Euro-crisis has involved a mixture of EU and international law, with the latter being linked to all the arrangements that may have fiscal implications for national Member States. The SRF embodies all the controversial characteristics of Banking Union. This article illustrates the legal implications that this political choice creates, and how the interrelation between the SRM, the SRF and the ESM, allows leading economies, including Germany, to control the resolution framework both before and after crisis. This raises questions as to the direction that European Integration is taking and its highly nationalised character.     

Sustaining brand loyalty: The moderating role of green consumption values

Environmental issues are massively emerging in the current agendas of governments, businesses and consumers all over the globe. Consumers increasingly adopt a more energetic role in the environmental discussion and employ product consumption to manifest their contribution to the debate. Equally, a growing number of businesses try to affect positive social change, whereas others strategically approach green opportunities; at the same time, they persistently intensify their branding offerings to sustain loyalty. This article brings into discussion green consumption values as the authors aim to shed light into the way the latter moderate the effect of brand related factors, namely, brand experiences and brand personality, on brand loyalty. Based on data received from 413 participants and using the wearable technologies industry as the focal context, the study underscores the significance of green consumption values. Findings are discussed, and implications for managers are provided.     

Assessing the Effects of Climate Change Regulations on the Business Community: A System Dynamic Approach

Based on the business environmental literature and system dynamics, this paper develops a simulation model for managing the business risks derived from climate change. In particular, the purpose of this paper is to transform the valuable findings from the literature regarding climate change and corporate implications into an effective business management model with a broad applicability, regardless of the size of the business or the sector in which it operates. A methodology consistent with the basic principles of the system dynamic modeling process is developed, and a case study is designed to determine the level of completeness of the simulation model and its ability to address different aspects of business performance. To do so, three different scenarios have been simulated to analyze the reactive, proactive and inactive stance of managers against climate change risks. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Non-addictive habits: optimal consumption-portfolio policies

We formulate a model of preferences with non-addictive habits, where consumption is required to be non-negative at all times, but can fall below a “standard of living” index that aggregates past consumption. We study the consumption-portfolio problem taking account of the non-negativity constraint on consumption, and provide a constructive proof for the existence of an optimal policy on a finite time-horizon [0,T]. We show that the consumption constraint binds up to an endogenous stopping time τ∗∈[0,T], after which it remains slack until T. A decomposition of constrained consumption involving an Asian average-strike capped call-option is demonstrated.     

The determinants of investment in Greek manufacturing

An attempt is made to provide some insight into the determinants of manufaturing investment in Greece. For this purpose an accelerator-relative costs-profits model is used and both the putty-putty and putty-clay versions are examined. Estimates reveal that demand and profits factors play an important role in investment decision while the impact of relative inputs cost is significant mainly in the short run. Window regression experiments show that there is a dramatic fall in profits elasticity of investment and a corresponding increase in the significance of demend factor in the later periods.     

Speculative bubbles in the ff/DM parity during the 1980s

It is often argued that exchanged rates volatility during the 1980s was too excessive to be attributed only to market fundamentals. This paper investigates for speculative bubles in the franc–mark exchange rate applying direct tests for determinate bubbles and indirect ones(according to the issues of integration and cointegration)for stochastic bubbles, in the context of a sticky price monetary model. No clear-cut conclusions can be drawn from these tests although all of them indicate that the no-bubble hypothesis cannot be easily accepted. However, any evidence for bubbles should be interpreted with caution, since a possible misspecification of the model may produce misleading inferences.     

Smooth transition trends and labor force participation rates in the United States

This paper employs smooth transition trend models to investigate the long-run time series behavior of quarterly US labor force participation rates. In particular, we examine whether long-run growth in labor force participation rates can be modeled by smooth transitions between states rather than as abrupt mean level changes or as a stochastic trend. Smooth transitions permit for non-instantaneous adjustment of individual workers to changes associated with economic events or general labor market conditions. We employ unit root testing procedures with alternatives characterized by stationary fluctuations around one or two smooth transitions in linear trend. We examine labor force participation rates by gender- and age-specific groups. The results indicate that all female and most male participation series are better characterized as stationary processes that undergo transitional deterministics.