Fiscal and monetary policies and the cost of sudden stops

This article investigates the effects of monetary and fiscal policies on output growth during sudden-stop balance of payments crisis in emerging markets and developing countries. Sudden stops in capital flows, and subsequent deep recessions, are a frequent occurrence in these countries but there is no professional consensus, and little systematic empirical evidence, shedding light on the macroeconomic policy mix most likely to limit output losses during these episodes. To address this issue, we investigate 83 sudden-stop crisis in 66 countries using a baseline empirical model to control for the various determinants of output losses during sudden stops. We measure the marginal effects of policy on output losses, and find strong evidence that monetary tightening (rise in the discount rate or unsterilized rise in international reserves) and discretionary fiscal contraction are significantly correlated with larger output losses following a sudden stop. Fiscal expansion is associated with smaller output losses following a sudden stop, but monetary expansion has no discernable effect. The macroeconomic policy mix associated with the least output loss during a sudden-stop financial crisis is a discretionary fiscal expansion combined with a neutral monetary policy.     

Dynamic signaling and market breakdown

We consider the effects a public revelation of information (e.g. rating, grade) has on trading in a dynamic signaling model. Competing buyers offer prices to a privately informed seller who can reject them and delay trade. Delay is costly and the seller has no commitment to its duration. The external public information allows for signaling in equilibrium. More interestingly, we characterize the dynamics of trade and prices. If signals are noisy, no trade takes place just before the revelation of external information. If signals are fully revealing, then trade occurs even close to revelation, however, transaction prices are discontinuous.     

Wage structure effects of international trade in a small open economy: the case of Belgium

This paper investigates the impact of international trade on wage dispersion in a small open economy, Belgium. It is one of the few to: (i) use detailed, matched employer-employee data to compute industry wage premia and disaggregated industry-level panel data to examine the impact of changes in international trade on changes in wage differentials, (ii) simultaneously analyse both imports and exports, and (iii) examine the impact of imports according to the country of origin. Looking at the export side, we find (on the basis of the system generalized method of moments estimator) a positive effect of exports on industry wage premia. The results also show that import penetration has a significant and negative impact on industry wage differentials. However, the detrimental effect of imports on wages is found to be significantly greater when imports originate from low- and middle-income countries than from high-income countries.     

Diversification as a Public Good: Community Effects in Portfolio Choice

Within a rational general equilibrium model in which agents care only about personal consumption, we consider a setting in which, due to borrowing constraints, individuals endowed with local resources underparticipate in financial markets. As a result, investors compete for local resources through their portfolio choices. Even with complete financial markets and no aggregate risk, agents may herd into risky portfolios. This yields a Pareto‐dominated outcome as agents introduce “community” risk unrelated to fundamentals. Moreover, if some agents are behaviorally biased, or cannot completely diversify their holdings, rational agents may choose more extreme portfolios and amplify the effect.     

Inflation targeting in Brazil: constructing credibility under exchange rate volatility

This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The inflation-targeting framework has played a critical role in macroeconomic stabilization. We stress two important challenges: construction of credibility and exchange rate volatility. The estimations indicate the following results: (i) the inflation targets have worked as an important coordinator of expectations; (ii) the Central Bank has reacted strongly to inflation expectations; (iii) there has been a reduction in the degree of inflation persistence; and (iv) the exchange rate pass-through for “administered or monitored” prices is two times higher than for “market” prices.     

International franchising in China with Kodak

According to Kodak, China poses unparalleled opportunities for low‐cost production and marketing of products to the world's largest nation. According to the company's estimate, China will become the largest market in the world for photographic products and services within the next ten years. This article reviews Kodak's operations in China and presents an interview with a local franchising manager in Shanghai—the largest city in China. It provides a unique glimpse into the inner working of the organization's franchising activities in China. © 2001 John Wiley & Sons, Inc.     

The Use of Franchising by U.S.-Based Retailers

The question of whether to franchise or to own has received much research interest in recent years. Two popular approaches used to explain the proportion of franchising (PF) in the franchisor's system are resource-scarcity and agency theories. This study combines both theories to explain the proportion of franchised outlets in the U.S. retailing sector between 1990 and 1997. The findings show mixed results with regard to both previous studies and hypothesized relationships. The study shows that the proportion of franchising used by retailers is positively related to size (number of outlets) and geographical scope, and negatively related to the rate of growth and the level of investment. Age and royalty rates are not found to be significant to the proportion of franchising.     

Exploring the differences between franchisee entrepreneurs and nascent entrepreneurs

This paper is singular in its use of the PSED dataset for deriving a better understanding of the nature of nascent entrepreneurs as compared to franchisee entrepreneurs. We used previous studies on the differences between the two groups and developed variables divided into three dimensions: (1) prior experience, (2) growth objectives, and (3) motivation and risk. Jonckheere–Terpstra (J–T) tests, Chi-Square tests, F-tests and logistic regression models detected differences in all three dimensions. The conclusion is that franchisee entrepreneurs in the United States of America are distinctive in their characteristics. As compared to nascent entrepreneurs, franchisee entrepreneurs have less experience, less confidence in their skills, less capital, more aspirations for larger organizations, less confidence in their abilities to make the business a success, and more belief that their first-year incomes will be stable.