Fractional Integration of Nominal Exchange Rates: Evidence from CEECs in the Light of EMU Enlargement

This paper uses fractional integration models to describe the long‐run dependence of nominal exchange rates in Central and Eastern European countries (CEECs). The analysis is validated using nonparametric, semiparametric and parametric techniques. From comparing the results across the three approaches, it was clear that mean reversion takes places only for the euro exchange rates in Bulgaria, Estonia, and Slovenia. Other exchange rates based on the euro also display mean reversion with the parametric methods. For the US dollar rates, the unit‐root null hypothesis cannot be rejected in any single country, indicating that shocks affecting the exchange rates against the US dollar are of a permanent nature, while those directed against the euro are less persistent, and tend sometimes to disappear in the long run. Policy implications are derived.     

R&D Activities In a Peripheral Region: an Empirical Study with Special Reference to the North East Region of the UK

This study examines the incidence of research and development (R&D) activities, type of R&D undertaken and the incidence of R&D co-operation among manufacturing firms located in a key urban area of the North East England, a peripheral region of the UK. We have found that over 62% of manufacturing firms in this urban growth area to be R&D active, suggesting that R&D active firms tend to be concentrated in urban area s in a peripheral region, as it is the case in the leading regions. However, the incidence of R&D co-operation was found to be relatively low among R&D active firms. It is also found that the key determinants of undertaking R&D to be the existence of a core competence/product and exporting activities. These findings might be of interest to policy makers promoting economic growth via firm’s R&D activities.     

The capital structure implications of pursuing a strategy of innovation

In this paper, we argue that consideration of firm strategy can help illuminate the choices managers make between debt and equity financing. Within an industry, the form of competition that each firm chooses will determine the strategic value to the firm of maintaining financial slack. Our empirical analysis yields strong support for the proposition that financial slack should be a particularly critical strategic imperative for firms pursuing a competitive strategy premised on innovation. We also demonstrate that firms pursuing such a strategy that fail to recognize the value of financial slack are likely to perform poorly. Copyright © 2003 John Wiley & Sons, Ltd.     

Economic progress and skill obsolescence with network effects

Summary. We construct an OLG model with network effects to examine skill obsolescence when individuals can choose technological vintages. In the absence of transfer payments, some regions of the parameter space have unique stationary equilibria, others have unique cyclical equilibria, and others have multiple stationary equilibria. All equilibria are Pareto efficient. However, rat race equilibria can exist in which all agents currently alive prefer a slower rate of progress than occurs in equilibrium. When contemporaneous transfers are allowed, equilibria are unique everywhere, but a cycle still exists, and a rat race can still arise in equilibrium. Allowing intertemporal transfers (debt) ensures that all equilibria are stationary. In the relevant parameter range, the introduction of debt can eliminate cycles and increase the long-run growth rate. No rat race equilibria exist when debt is allowed.Received: 3 January 2002, Revised: 3 June 2004, JEL Classification Numbers: 041, J24, O33. Correspondence to: Ian P. KingEarly versions of this paper were presented at the West Coast Macro Workshop, the Mid-West Macro Meetings, the Canadian Macroeconomics Study Group Meetings, and the Society for Economic Dynamics Meetings. We would like to thank V. V. Chari, Merwan Engineer, Don Ferguson, John Hillas, John Knowles, Dan Peled, Dan Usher, Linda Welling and Julian Wright for helpful comments. We are especially grateful to an anonymous referee for some very useful and substantive comments.     

From real estate to consumption: the role of credit markets in the USA

The aim of this article is to test whether the credit market conditions affect the strength of transmission of real estate wealth effects on household consumption in the US economy. Although many different works have dealt with the analysis of the existence of a real estate wealth effect, most of them as a reaction to the dramatic increase of housing prices in several OECD countries, there are only few papers analysing whether the consumption response depends on the positive or negative sign of the wealth shock and, as far as we know, none of them takes the effects of credit market conditions on that asymmetric response into account. This article tries to fill the existing gap in the literature on this matter. From an econometric perspective, we estimate the asymmetries in the consumption response within the momentum threshold autoregressive model (M-TAR) proposed by Enders and Siklos (2001), but following Stevans (2004), it is applied to a multivariate framework. The main results show that the credit market conditions play a significant role in the transmission of changes in real estate wealth to consumption. In addition, we find that there exists an asymmetric behaviour in the US aggregate consumption spending responses to real estate wealth and credit market shocks, which is only significant when a negative shock takes place.     

PanelWhiz and the Australian Longitudinal Data Infrastructure in Economics

PanelWhiz is a graphical user interface that was written for the statistical software, Stata SE/MP Version 11 (Win/Mac/Linux) or later, which allows users to extract data from complicated multi‐level longitudinal datasets in an easy and efficient manner. Specifically, Australian datasets, such as Household, Income and Labour Dynamics in Australia Survey, Medicine in Australia: Balancing Employment and Life, Growing Up in Australia: The Longitudinal Study of Australian Children, Footprints in Time—The Longitudinal Study of Indigenous Children and Consumer Attitudes, Sentiments & Expectations in Australia, have already been integrated into the common platform of the PanelWhiz system.     

Using clustering ensemble to identify banking business models

The business models of banks are often seen as the result of a variety of simultaneously determined managerial choices, such as those regarding the types of activities, funding sources, level of diversification, and size. Moreover, owing to the fuzziness of data and the possibility that some banks may combine features of different business models, the use of hard clustering methods has often led to poorly identified business models. In this paper we propose a framework to deal with these challenges based on an ensemble of three unsupervised clustering methods to identify banking business models: fuzzy c‐means (which allows us to handle fuzzy clustering), self‐organizing maps (which yield intuitive visual representations of the clusters), and partitioning around medoids (which circumvents the presence of data outliers). We set up our analysis in the context of the European banking sector, which has seen its regulators increasingly focused on examining the business models of supervised entities in the aftermath of the twin financial crises. In our empirical application, we find evidence of four distinct banking business models and further distinguish between banks with a clearly defined business model (core banks) and others (non‐core banks), as well as banks with a stable business model over time (persistent banks) and others (non‐persistent banks). Our proposed framework performs well under several robustness checks related with the sample, clustering methods, and variables used.     

Density estimation in the uniform deconvolution model

We consider the problem of estimating a probability density function based on data that are corrupted by noise from a uniform distribution. The (nonparametric) maximum likelihood estimator for the corresponding distribution function is well defined. For the density function this is not the case. We study two nonparametric estimators for this density. The first is a type of kernel density estimate based on the empirical distribution function of the observable data. The second is a kernel density estimate based on the MLE of the distribution function of the unobservable (uncorrupted) data.     

An examination of the effects of management earnings forecast form and explanations on financial analyst forecast revisions

Using a sample of 978 quarterly management earnings-per-share forecasts made during the period 1993 to 1999, we document that financial analyst revisions to management earnings forecasts are a function of management forecast form. More precise forecasts (measured three different ways) lead to greater revision of financial analyst consensus EPS forecasts for a given level of unexpected earnings as predicted by Kim and Verrecchia (1991) and Bayesian adjustment models. Also, consistent with our arguments, maximum forecasts are interpreted as bad news by analysts. Our results, while consistent with theory, are inconsistent with recent experimental studies which do not reject the null hypothesis of no effect of management earnings forecast form on the association between unexpected earnings and financial analyst forecast revisions. We also re-examine Baginski, Hassell, and Kimbrough's (2004) finding that attributions used to explain management forecasts affect the reaction to the forecast using analyst data. Consistent with their findings using stock prices, the attribution presence (especially external attributions) increases financial analyst revisions pursuant to management forecasts.     

The dynamics of economic systems,or how to transform a failed socialist economy

How to transform a failed socialist economy raises questions about the processes of structural and institutional changes, which standard economics is inadequately equipped to study. An economic theory that can study both these processes is suggested and applied to the actual debate of how the transformation should be conducted. Standard notions of institutional roles (R) and organizational structures (S) are seen in a non-standard way as outcomes of two interrelated but distinct evolutions. Comparing different given Rs for their influence on S-evolution throws new light on which R should be the target of the transformation. Compared to standard analysis, the case against socialism on the supply side is strengthened, whereas the case against a redistributive welfare society on the demand side is weakened. S-evolution is shown to require more time and be more difficult to be helped by government than R-evolution. This clarifies several controversial points about the speed and the sequencing of the transformation policies. The study of R-evolution discloses an important cognitive constraint on these policies, which teaching of economics can help to soften. Standard economics, shown to be a special case of the suggested theory, is rehabilitated as the best subject by which such teaching should start.