Effects of US interest rates and news on the daily interest rates of a highly indebted emerging economy: evidence from Turkey

It has been widely demonstrated that asset prices react sensitively to macroeconomic news releases both in the industrialized countries and emerging markets. However, there are contradicting results on the effects of changes in interest rates of industrialized countries on asset prices of emerging markets. In heavily indebted economies, in addition to these factors, political news and announcements from international institutions that may increase or decrease concerns about debt sustainability can affect asset prices as well. This potential notwithstanding, there has been relatively limited empirical work on the effects of such variables. The objective of this study is to quantify the impact of all of these factors on interest rates of a highly indebted emerging economy. Using daily post-crisis data of the Turkish economy we show that both good and bad political news, International Monetary Fund announcements, and European Union related news significantly affected secondary market government securities yields, whereas volatility of yields was affected mainly by bad news releases. Changes in US Treasury bond rates and ‘appetite’ for risk of foreign investors did not affect government securities yields in the period analysed.     

A rationale for planning: Implications from the economic theory of the firm

This paper undertakes the development of a foundation for a theory of why firms plan. The theory of the firm literature provides a useful starting-point and provides insight into the factors which have an effect on the planning function of the firm. Those factors include transactions costs, uncertainty and asset-specificity. The fact that some firms should not plan even in the face of uncertainty and transactions costs emphasizes the importance of the relative magnitudes of various costs and demonstrates the relevance of standard economic analysis for the study and practice of business planning. Examples illustrate the role of planning for human, financial and physical resources.     

A generalized panel data switching regression model

This paper considers a generalized panel data model of polychotomous and/or sequential switching which can also accommodate the dependence between unobserved effects and covariates in the model. We showcase our model using an empirical illustration in which we estimate scope economies for the publicly owned electric utilities in the US during the period from 2001 to 2003.     

THE ROLE OF CAPITAL ADEQUACY REGULATION IN THE HEDGING DECISIONS OF FINANCIAL INTERMEDIARIES

This paper identifies the effect of capital adequacy requirements, which have been ignored to date in the hedging literature, on the forward hedging decisions of financial intermediaries. Using a more general framework than has been used in the literature on intermediary behavior in forward markets, cases are developed where capital and forward contracting are substitutes as well as where increasing the capital requirement increases the volume of desired forward contracting. The model shows that the most important factors in determining the equilibrium rate and the equilibrium position of intermediaries are the statistical association between the level of the forward rate and the spread between interest rates, the level of the capital-to-assets ratio, and the degree of risk aversion of intermediaries and other participants in the forward market. To characterize whether the intermediary's optimal forward position is long or short, one must have knowledge of at least the sign of the association between the level and spread for the particular intermediary, the intermediary's capital position, and whether the forward market equilibrium corresponds to a positive or negative premium. The model also demonstrates that a full hedge of assets is always sub-optimal, and a universally applicable expression for the optimal hedge ratio when hedging is costless is derived.     

The value of information in cross-listing

Until 2004, the London Stock Exchange allowed firms to be traded in the specialized SEAQ-I platform without the firm's involvement. Trading only required an application by one LSE trading member firm. Such an institutional arrangement, which made cross-listings possible without a firms' approval, allows for a direct test of different theories of foreign listing. In particular, we can differentiate between market segmentation and liquidity hypotheses, which rely on a firm trading in a foreign exchange and informational hypotheses, which assume that a firm makes the decision to trade in a foreign exchange. We identify a sample of international firms that are admitted to trading on London's SEAQ-I platform without their involvement. We estimate the valuation effects of this multi-market trading event and compare them to those enjoyed by firms that pursue a standard London Stock Exchange cross-listing. A cross-sectional abnormal returns analysis documents significant evidence in support of information-related hypotheses of cross-listing. An analysis of the firms' home market price volatility corroborates the results.     

The Bank of England and Parliament were monetarily adroit during the Napoleonic Wars

Abstract

With the connivance of Parliament, was the Bank of England's over issue of banknotes inflationary? The inflation stemmed from military subsidy and Peninsula campaign payments, as well as food imports, far in excess of Britain's export earnings to cover these capital transfers (particularly when crimped by the Continental Blockade), and not merely from domestic credit over issue. Neither domestic money creation nor the fiscal theory of the price level best explains the imbalance in Britain's international accounts during the Napoleonic Wars. This deficit stemmed from domestic production shortfalls in essentials (above all food production) and contractual obligations such as military spending/subsidies relative to the pound's international purchasing power which emanated from the ability of Britain to sell exports and replace imports with domestic output (raise food production internally). These types of highly inelastic transactions tended to operate independently of domestic money creation, fiscal policy (taxes) or price developments (inflation). This article tracks England's bullion debate, which concerned whether gold prices rose (and hence sterling's exchange rate fell) because military capital transfers overwhelmed the balance of payments, or because the Bank of England over issued paper money after the gold cover was removed in 1797. The issues herein are not antiquated because the primary issues in monetary debates for two centuries have concerned the cause of inflation and deflation, and whether the domestic money supply or the balance of payments is responsible. Determining actual causation is critical for the proper solution: monetary deflation, or domestic and international restructuring of trade and investment.