Budget Forecast Deviations in Municipal Governments: Determinants and Implications

This paper analyses the determinants of municipalities’ budget forecast quality, showing opportunistic behaviour influenced by the electoral cycle. Incumbents overestimate revenue to spend more and underestimate expenditure in the quest for popularity and electoral support. Our results suggest that the budget forecast procedure should be made transparent and externally audited or monitored.     

Labour Demand,Flexible Contracts and Financial Factors: Firm‐Level Evidence from Spain*

We estimate models of labour demand for a panel of 3,400 Spanish manufacturing firms over the period 1985–2001. We examine the roles of fixed‐term contracts, financial factors and a policy reform in 1997 affecting permanent contracts by lowering payroll taxes and dismissal costs. Compared with permanent employment, the demand for flexible labour displays: (i) greater sensitivity to financial factors; (ii) greater cyclical sensitivity; (iii) a larger average wage elasticity; and (iv) less inertia. Our analysis of the 1997 policy reform suggests that a 5 percentage point reduction in the payroll tax is associated with an 8% increase in permanent labour demand.     

Modeling the Euro overnight rate

This paper describes the evolution of the daily Euro overnight interest rate (EONIA) by using several models containing the jump component, such as a single-regime ARCH-Poisson–Gaussian process, with either a piecewise function or an autoregressive conditional specification (ARJI) for the jump intensity, and a two-regime-switching process with jumps and time-varying transition probabilities. To model the jump intensity, we include the following effects which are significant for the occurrence of jumps: (1) the end of maintenance period effect because of reserve requirements, (2) the end of month effect, also known as the calendar day effect, caused mainly by accounting adjustments and finally, (3) the meeting effect caused by the meetings of the Governing Council of the European Central Bank (ECB). These effects lead to better performance and several of them are also included for the behavior of the transition probabilities. Since the target of the ECB is to maintain the EONIA rate close to the policy rate, we model the conditional mean of the overnight rate series as a reversion process to this policy rate, distinguishing two alternative speeds of reversion, specifically, a different speed if EONIA is higher or lower than the policy rate. We also study the jumps of the EONIA rate around the ECB's meetings by using the ex-post probabilities of the ARJI model. Finally, we develop a volatility forecasting analysis to measure the performance of the different candidate models.     

Fiscal Consolidations and Economic Growth

The aim of this paper is to deepen the understanding of the macroeconomic consequences of fiscal consolidations. In particular, there is evidence in the literature of fiscal consolidation episodes producing (non‐Keynesian) expansionary effects in the short run. We replicate this result for a panel of OECD countries under exogeneity of the fiscal consolidation. However, we provide some evidence that output growth might affect the fiscal tightening process so that fiscal consolidations are not exogenous to economic growth. Once we allow for feedback effects from economic growth to fiscal adjustments, we find that expansionary effects disappear and recover the typical Keynesian effect of fiscal adjustments. This finding points to the need to take these short‐term negative implications into account in the design of fiscal consolidations.     

Deal-to-deal marginal efficiency dynamics of serial US banking acquirers

Review of Quantitative Finance and Accounting - This study investigates the changes in the marginal cost, revenue, and profit efficiencies after a series of deals by US acquiring banks for the...     

Financial Liberalization and Foreign Bank Entry on the Domestic Banking Performance in MENA Countries

Abstract: This study examines the impact of financial liberalization and foreign bank entry on the domestic banking sector from 1996 to 2007, and builds upon and expands the work of Lee (2002). We find that foreign bank entry, financial liberalization, ownership structure and degree of openness of foreign bank entry positively impact domestic banking system operating efficiency, capitalization, risk management, long‐term soundness, financial performance as well as economic and financial development. However, foreign bank entry is associated with reduced profit margins and increased operating costs of domestic banks in countries with less developed capital markets. Empirical evidence seems to support the argument that foreign bank presence leads to better allocation of capital and eliminates connected lending practices.     

Judgmental adjustment of forecasts: A comparison of methods

Attention has recently been given to combinations of subjective and objective forecasts to improve forecast accuracy. This research offers an extension on this theme by comparing two methods that can be used to adjust an objective forecast. Wolfe and Flores (1990) show that forecasts can be judgmentally adjusted by analysts using a structured approach based on Saaty's analytic hierarchy process (AHP). In this study, the centroid method is introduced as a vehicle for forecast adjustment and is compared to the AHP. While the AHP allows for finer tuning in reflecting decision maker judgement, the centroid method produces very similar results and is much simpler to use in the forecast adjustment process.     

Is infrastructure capital productive? A dynamic heterogeneous approach

This paper offers an evaluation of the output contribution of infrastructure. Using a panel time series approach and a large cross‐country dataset, the paper estimates a long‐run aggregate production function relating gross domestic product to human capital, physical capital, and a synthetic measure of infrastructure comprising transport, power and telecommunications. Tests of the cointegration rank allowing it to vary across countries reveal a common rank with a single cointegrating vector, which we interpret as the long‐run production function. Estimation of its parameters is performed using the pooled mean group (PMG) estimator, which allows for unrestricted short‐run parameter heterogeneity across countries while imposing the (testable) restriction of long‐run parameter homogeneity. The long‐run elasticity of output with respect to the synthetic infrastructure index ranges between 0.07 and 0.10. The estimates are highly significant, both statistically and economically, and robust to alternative dynamic specifications and infrastructure measures. Tests of parameter homogeneity fail to yield evidence that the long‐run parameters differ across countries. Copyright © 2014 John Wiley & Sons, Ltd.     

Approximation and decomposition of Gini, Pietra–Ricci and Theil inequality measures

Two related problems are dealt with in this article, concerning some popular inequality indices proposed by Gini, Pietra?CRicci and Theil: (1) the calculation of the index when only a frequency distribution is available, thus needing some kind of approximation; and (2) a reasonable decomposition of the index calculated for a mixture, with components related to ??within?? and ??between?? inequalities, and possibly to the separate contributions of each group to the overall inequality. Beside the proposals arising from the specific structure of each inequality index, a general approach for identifying the within component is utilized, which is based on the fixation of a given number of fictitious individuals (called aggregate units), common to every group. Regarding the Gini index, a general expression is obtained for the approximation problem, while the within inequality is more easily managed by the recourse to aggregate units. The decomposition of the Pietra?CRicci index displays three components, clearly ascribable to within inequality, to a mixture effect and to a mean effect. Regarding the Theil index, some simple and very accurate approximation formulae are obtained. An application of all the indices and their decompositions has been made for the 2004 income distribution for Italy (Bank of Italy Survey).