Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model

This paper sets up a monopolistic competition model featuring the returns to production specialization. Some novel results are derived from the analysis. First, the effect of a fiscal stimulus on consumption may be positive or negative, depending crucially upon whether the production function is characterized by increasing or decreasing returns to production specialization. Second, following a fiscal expansion, increasing returns to specialization lead to a positive linkage between real wages and aggregate output, while decreasing returns to specialization result in a negative relationship between real wages and aggregate output. Third, a fiscal expansion may raise social welfare, provided that the degree of increasing returns to production specialization is sufficiently large.     

ON THE IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH: DOES COUNTRY RISK MATTER?

This study examines the nonlinear impacts of four country risk indices on the debt‐growth nexus for 61 countries in a panel data framework. Our results show evidence of the different debt‐growth nexus under the different degrees of country risk. Under a high‐risk environment, a country's economic growth is harmed by raising its public debt. The negative effects public debt has on economic growth become weak under low political and financial‐risk environments, while an increase in public debt could help to stimulate economic growth under low composite and economic risk environments. In addition, the differences of countries' income and debt levels also lead country risks to have different effects on the debt‐growth nexus, suggesting that a country should borrow appropriately based on its current risk environments while improving economic performance. (JEL C33, E02, H63, O43)     

Does foreign aid really raise per capita income? A time series perspective

Abstract. We analyze the relationship between per capita income and foreign aid. We employ annual data and five‐year averages and carefully examine the time‐series properties of the data. Panel estimations with dynamic feasible generalized least‐squares (DFGLS) show that aid generally has an insignificant or minute negative significant impact on per capita income (particularly in highly aid‐dependent countries). This holds true for countries with different levels of human development and income, as well as for different regions. We also find that aid has a small positive impact on investment, but a significant negative impact on domestic savings (crowding out) and the real exchange rate (appreciation). JEL classification: F35, O11, C23, C51     

Can Banks Self‐Regulate? Voluntary Agreements,Intrinsic Motivation and Games

This article argues that lessons on how to achieve a sustainable financial system can be learnt from the work done on sustainable commons (on common‐pool resources – CPRs – where there is no ‘tragedy of the commons’). Existing approaches to financial regulation may not give proper attention to available solutions. The article proposes that innovative solutions could be tested using experimental methods commonly used in CPRs: repeat run, feedback driven games.     

Forecasting US consumer price index: does nonlinearity matter?

The objective of this article is to predict, both in sample and out of sample, the consumer price index (CPI) of the US economy based on monthly data covering the period of 1980:1–2013:12, using a variety of linear (random walk (RW), autoregressive (AR) and seasonal autoregressive integrated moving average (SARIMA)) and nonlinear (artificial neural network (ANN) and genetic programming (GP)) univariate models. Our results show that, while the SARIMA model is superior relative to other linear and nonlinear models, as it tends to produce smaller forecast errors; statistically, these forecasting gains are not significant relative to higher-order AR and nonlinear models, though simple benchmarks like the RW and AR(1) models are statistically outperformed. Overall, we show that in terms of forecasting the US CPI, accounting for nonlinearity does not necessarily provide us with any statistical gains.     

Existence of a Condorcet Winner When Voters Have Other‐Regarding Preferences

In standard political economy models, voters are “self‐interested” that is, care only about “own” utility. However, the emerging evidence indicates that voters often have “other‐regarding preferences” (ORP), that is, in deciding among alternative policies voters care about their payoffs relative to others. We extend a widely used general equilibrium framework in political economy to allow for voters with ORP, as in Fehr and Schmidt (1999) . In line with the evidence, these preferences allow voters to exhibit “envy” and “altruism,” in addition to the standard concern for “own utility.” We give sufficient conditions for the existence of a Condorcet winner when voters have ORP. This could open the way for an incorporation of ORP in a variety of political economy models. Furthermore, as a corollary, we give more general conditions for the existence of a Condorcet winner when voters have purely selfish preferences.     

Cross‐border mergers and acquisitions: The role of private equity firms

Research summary: We show that private equity ownership (“PE backing”) of the acquirer is a signal of deal quality in cross‐border takeovers. As such, PE‐backed acquirers experience higher announcement returns in cross‐border takeovers, but only if targets are in poor information environments. We show that PE backing is a positive market signal because of PE firms' experience and networks that result from prior deals in target countries. We document that the market correctly anticipates that operating performance of PE‐backed acquirers increases as a result of cross‐border mergers and acquisitions (M&A). Managerial summary: We study cross‐border acquisitions by acquirers that are partially owned by private equity firms (“PE backing”). Cross‐border acquisitions are challenging as acquirers often have little information about targets. We document that investors react positively to cross‐border deals of PE‐backed acquirers—their stock prices increase upon deal announcements. However, this is only the case if targets are in countries with poor information environments. This is because PE backing allows acquirers to access PE firms' deal experience and networks. This makes it easier to identify and evaluate good targets, making it more (less) likely that a deal eventually creates (destroys) value. Consistent with this, we find that earnings of PE‐backed acquirers increase after buying targets in poor information environments. Copyright © 2016 John Wiley & Sons, Ltd.     

Productivity dynamics and the cleansing effect of two recessions: Evidence from the manufacturing sector in Korea

In general, recessions provoke the exit of a greater number of firms from the market. Less productive firms are more likely to exit and release their former resources to the remaining, more productive firms. The present study investigates two recessions in Korea: the Asian financial crisis and the global financial crisis. The main objective of the present study is to analyse the process of creative destruction in a recession, specifically the cleansing effect. We measured total factor productivity using micro‐level manufacturing plant data from 1993 to 2013. We decomposed the source of the changes in total factor productivity to measure the cleansing effect in two large recessions. During the first recession in the 1990s, there was no evidence to support a cleansing effect hypothesis. In contrast, during the second recession in the 2000s, there was evidence of a cleansing effect. In addition, we found differences in market selection criteria in the two recessions; by the second crisis, the market selection criteria had changed to enable a more conducive environment for the creative destruction process.     

The Effects of Executive,Firm, and Board Characteristics on Executive Exit

We estimate a hazard model of the probability of top corporate executives exiting their firms over the period 1996–2010. Our main findings are that: (1) female executives have greater likelihoods of exit than males, (2) the likelihood of exit increases with the independence of the board and decreases with the fraction of the board that is female and the average age of board members, and (3) a higher percentage of independent directors on the board lowers the probability of exit more for females than for males. Further, controlling for exit risk reduces the well‐documented compensation differential between men and women.     

Factors affecting the acquisition and transfer of novel attribute relationships to new product categories

This article investigates two factors posited to affect consumers' ability to learn a novel attribute relationship (e.g., “no pesticides → USDA organic symbol”) and apply this recently acquired knowledge when making judgments in a new product category. The first factor concerns the nature of the attribute encoding process and, in particular, whether it allows for comparison of examples. The second factor focuses on the relationship between the learning and transfer domains, and examines the influence of perceptual similarity (manipulated two ways: similarity in the elements comprising the attribute relationships, and similarity between the base and target domains) on the transfer process. Study 1 revealed a significant improvement in inter‐domain transfer when a relationship was learned in a multiple‐domain/multiple‐attribute learning environment over a single‐domain/single‐attribute environment. When attribute and domain diversity were examined separately (Study 2), it was found that attribute, but not domain, diversity produced the greatest improvements in transfer. Study 3 showed that the benefits of adding a perceptual similarity cue were most apparent when the transfer conditions were neither too easy (within domain and within attribute) nor too difficult (inter‐domain and inter‐attribute). © 2009 Wiley Periodicals, Inc.