Bye,bye financial repression,hello financial deepening: The anatomy of a financial boom

Since the conquest of hyperinflation, with the Real Plan, in 1994, the Brazilian financial system has grown from early infancy to late adolescence. We describe the process of maturing with emphasis on the defining features of the Brazilian financial system over the last 20 years: (1) stabilization and the subsequent financial crisis; (2) universality of banks; (3) market segmentation through public lending; (4) institutional improvement. Further paraphrasing Diaz-Alejandro (1985), we raise some hypotheses on why, this time, the financial boom has not (at least yet) turned into a financial crash.     

Estimating Engel curves under unit and item nonresponse

This paper estimates food Engel curves using data from the first wave of the Survey on Health, Aging and Retirement in Europe (SHARE). Our statistical model simultaneously takes into account selectivity due to unit and item nonresponse, endogeneity problems, and issues related to flexible specification of the relationship of interest. We estimate both parametric and semiparametric specifications of the model. The parametric specification assumes that the unobservables in the model follow a multivariate Gaussian distribution, while the semiparametric specification avoids distributional assumptions about the unobservables. Copyright © 2011 John Wiley & Sons, Ltd.     

Optimal fiscal policy in a model with inherited aspirations and habit formation

In this paper, we analyze optimal fiscal policies in an overlapping generations framework, where preferences exhibit aspirations in consumption and environmental quality as well as habit formation. We focus on the second best policies when the government needs to finance a given stream of public expenditures by using distortionary taxes. We derive necessary and sufficient conditions under which the competitive equilibrium is characterized by levels of capital and environmental quality that are too small and a level of labor supply that is too large. Our numerical simulations show that an optimal fiscal policy can be used as an effective stabilization device and that when consumption taxes are fixed, the planner implements maintenance investment and capital income subsidies while financing public spending through labor and fixed consumption taxes.     

Animal spirits and monetary policy

I develop a behavioral macroeconomic model in which agents have cognitive limitations. As a result, they use simple but biased rules (heuristics) to forecast future output and inflation. Although the rules are biased, agents learn from their mistakes in an adaptive way. This model produces endogenous waves of optimism and pessimism (??animal spirits??) that are generated by the correlation of biased beliefs. I identify the conditions under which animal spirits arise. I contrast the dynamics of this model with a stylized DSGE-version of the model and I study the implications for monetary policies. I find that strict inflation targeting is suboptimal because it gives more scope for waves of optimism and pessimism to emerge thereby destabilizing output and inflation.     

Housing, credit, and real activity cycles: Characteristics and comovement

This paper describes the characteristics and comovement of cycles in house prices, residential investment, credit, interest rates, and real activity in advanced economies during the past 25 years. Stylized facts and regularities are uncovered using a dynamic generalized factor model and spectral techniques. House price cycles are found to lead credit and real activity over the long term, while in the short to medium term the relationship varies across countries. Interest rates tend to lag other cycles at all time horizons. Although global factors are important, the US business cycle, housing cycle and interest rate cycle generally lead the respective cycles in other countries over all time horizons, while the US credit cycle leads mainly over the long term.     

Retrospective and prospective views about the future of the multinational enterprise

This paper reflects upon Buckley and Casson's seminal volume The Future of the Multinational Enterprise (1976). Retrospectively, it examines the reasons for the impact of The Future on research in international business, on the one hand, while it reviews the merit of the different chapters in today's economic environment. The paper subsequently also introduces some prospective views on the use of internalization theory, which are elaborated upon in the other papers in this issue.     

The Impact of Financing Surpluses and Large Financing Deficits on Tests of the Pecking Order Theory

This paper extends the basic pecking order model of Shyam-Sunder and Myers by separating the effects of financing surpluses, normal deficits, and large deficits. Using a panel of US firms over the period 1971-2005, we find that the estimated pecking order coefficient is highest for surpluses (0.90), lower for normal deficits (0.74), and lowest when firms have large financing deficits (0.09). These findings shed light on two empirical puzzles: 1) small firms, although having the highest potential for asymmetric information, do not behave according to the pecking order theory, and 2) the pecking order theory has lost explanatory power over time. We provide a solution to these puzzles by demonstrating that the frequency of large deficits is higher in smaller firms and increasing over time. We argue that our results are consistent with the debt capacity in the pecking order model.     

Agri-environmental schemes: Adverse selection, information structure and delegation

This work analyzes alternative designs of agri-environmental schemes and how different incentive mechanisms impact on their overall efficiency. It focuses on spatial targeting and delegation in an asymmetric information context. First, the optimal contract under adverse selection is modeled. This model underlines the trade-off between information rents and allocative efficiency. The impact of spatial targeting is then addressed. Disaggregated information structures increase the optimal efforts asked of the farmers. It may also involve higher information rents and may reduce the net contributions of some farmers. Finally, the consequences of delegating authority within the principal-agent relationship are investigated. The results illustrate that spatial targeting and delegation, when combined, have asymmetric impacts on farmers' payoffs.     

Public Funding for Science and the Value of Corporate R&D Projects; Evidence from Project Initiation and Termination Decisions in Cell Therapy

How do firms decide which R&D projects to pursue and which ones to cast aside? We use a real options approach to advance our understanding of how firms manage uncertainties in R&D project management, in particular uncertainties linked to the external scientific environment. Our findings highlight how these uncertainties have an impact on the initiation and discontinuation of R&D projects. We examine these effects in the context of shifts in US science policy in the cell therapy field, using a dataset on 570 R&D projects in the global cell therapy sector, initiated over the period 1986–2011. We find decreased R&D project initiation rates and higher discontinuation rates for projects initiated by US firms in the aftermath of policy shifts that increased uncertainties about public funding support for US cell therapy research. We also highlight how this effect was reversed as the US public funding outlook for such research recovered.