The dynamics and revealed preference of status-quo optimality

Summary In a preceding companion paper, a static model of individual decision making was proposed that, due to imprecise perceptions, induces simple and inertial behavior at equilibrium (status-quo optimal) points. This paper addresses two complementary issues. Firstly, it studies the learning dynamics induced by the model and shows that its well-defined limit behavior ranges from status-quo optimal to fully optimal, depending on the underlying features of the problem. Secondly, the paper characterizes the behavioral implications of the model and compares them with those derived from standard decision-theoretic frameworks. Specifically, it is shown that, from a Revealed-Preference perspective, status-quo optimal behavior may be identified with that rationalizable by an acyclic preference relation, possibly intransitive.     

Keynes at the periphery: Currency hierarchy and challenges for economic policy in emerging economies

While the post Keynesian literature offers a rather clear concept for growth-oriented policies, it is necessary to adapt them for peripheral emerging economies. We base our analysis of an appropriate Keynesian policy mix for these countries on the concept of currency hierarchy, where the currencies of peripheral emerging economies have a lower liquidity premium than the currencies of advanced economies. The international asymmetry related to the currency hierarchy, amplified by financial globalization, imposes major constraints to the adoption of Keynesian policies for these economies. Under these conditions, we argue that domestic economic policy coordination should lay a major focus on a low policy rate and, especially, a competitive exchange rate for obtaining, at least, a balanced current account, in order to prevent capital flows boom-bust-cycles with subsequent financial crises. We conclude that it is a rather ambitious and long-term goal to climb up the currency hierarchy, especially under the current condition of financial globalization.     

Will elders provide for their grandchildren? Unconditional cash transfers and educational expenditures in Bolivia

We take advantage of repeated cross‐sectional household surveys and a sharp discontinuity created by the introduction of an unconditional cash transfer to elders in Bolivia, to evaluate its impact on educational expenditures on children within a household. We find positive and significant impacts of the program at the aggregate level. We also find that the program has stronger effects on indigenous populations as well as on female and rural populations. Our results are robust to a series of falsification tests, survey structure, model specification, and estimation methods.     

Pass-through in dollarized countries: should Ecuador abandon the US dollar?

In this article, we examine the convenience of dollarization for Ecuador today. As Ecuador is strongly integrated financially and commercially with the United States, the exchange rate pass-through should be zero. However, we sustain that rising rates of imports from trade partners other than the United States and subsequent real effective exchange rate depreciations are causing the pass-through to move away from zero. Here, in the framework of the Vector Error Correction Model, we analyse the impulse response function and variance decomposition of the inflation variable. We show that the developing economy of Ecuador is importing inflation from its main trading partners, most of them emerging countries with appreciated currencies. We argue that if Ecuador recovered both its monetary and exchange rate instruments, it would be able to fight against inflation. We believe such an analysis could be extended to other countries with pegged exchange rate regimes.     

Improving the perceptions of hotel managers

This research seeks to identify the importance of various capabilities and psychosociological factors of hotel managers, in order to improve their perception of the competitive environment emerging in the post-Internet era. Specifically, the study analyzes the relevance of education, experience, globalization capabilities, networking, creativity and vision of the future, and other factors related to personality and leadership, to advance the accuracy of this perception. The research used questionnaires with Spanish hotel managers, a Delphi study with international experts, and structural equation modeling to test the hypotheses formulated. The results corroborate the model established, and stress the importance of the education and globalization capabilities in this field.     

Regaining Missed Opportunities: The Role of Tourism in Post-war Development in Sri Lanka

Sri Lanka had the opportunity to become one of the best tourism countries (TCs) in Asia immediately after independence in 1948. However, it missed opportunities on a number of occasions due to inappropriate economic policies, continuous political violence and war. Between 1983 and May 2009 the Sri Lankan tourism sector was seriously affected by nearly three decades of separatist war. Immediately after the end of the war, tourism in Sri Lanka bounced back and it has now become one of the main engines of economic growth in post-war Sri Lanka. In this article, a historical analysis has been undertaken to demonstrate how, despite its large tourism potential, Sri Lanka missed opportunities and fell far behind its Asian counterparts on a number of occasions. This article demonstrates that opportunities exist for the Sri Lankan tourism sector to play a vital role in the current post-war inclusive development strategy in terms of generating much needed foreign exchange, poverty alleviation via employment generation, accelerating economic growth and uplifting living standards of all Sri Lankans.     

Higher education and firms: on the interaction between research and regional policies

In the European Union, a series of competencies are shared between a central agency called the European Commission, and the governments of the Member States. This paper focuses on two of those policies: research and regional development. Here, we model and discuss how the level of commitment of a central authority toward poor regions affects the design of the best decision-making process. We explore cases of full centralization and full decentralization, and situations where the two levels of government are allowed to take decisions, either simultaneously or sequentially. In the latter case, we make a distinction between a situation where the central agency decides first as in most federations, and one in which it decides second, then being an agent of national governments. This setting is especially relevant for the European Union. We show, in particular, that when the degree of commitment of the center is high, assignment of redistributive competencies to both levels of power is a proxy for centralization. Additionally, the poorer region may find its best interest in an institutional design where the regions decide first.     

Institutional ownership,analyst following,and share prices

We study the mutual relationships between institutional ownership, analyst following and share prices. We show that the pressure on firms to set lower share prices to attract analysts is attenuated by institutional monitoring. Our theory refutes the assumed causal relation between share price and institutional ownership, attributed to the share price–liquidity relation, and we show empirically that share prices and institutional ownership are positively related after controlling for liquidity. Our study provides a rationale for why better firms generally maintain higher share price levels, and offers new insights into the puzzling empirical linkages observed between nominal share price levels and firm fundamentals.     

Are Investment Banks Special Too? Evidence on Relationship‐Specific Capital in Investment Bank Services

The question of whether optimal provision of these services comes mainly from established relationships between banks and client firms or can result from arms'‐length market transactions has been the topic of considerable recent debate. This discussion has paralleled the debate in the commercial banking literature on the “specialness” of banks and whether lending can and should be relational or purely transactional. Whether the provision of investment bank services is relationship‐based or transactional is especially relevant now thanks to recent trends that have blurred the distinction between commercial and investment banks, and changed the competitive landscape for investment bank services. In their study summarized in this article, the authors examine whether investment bank‐client relationships create valuable relationship‐specific capital using stock market evidence from the period surrounding the collapse of Lehman Brothers. Specifically, they studied the effect of the Lehman collapse on companies that used Lehman for (1) underwriting equity offerings, (2) underwriting debt offerings, (3) advice on mergers and acquisitions, (4) analyst research services, and (5) market‐making services. The study addressed two specific questions. First, which investment bank services, if any, are associated with the creation of relationship‐specific capital; and second, what are the value drivers of this relationship capital? The authors report finding that companies that used Lehman as lead underwriter for public equity offerings experienced significantly negative abnormal stock returns in the days surrounding Lehman's bankruptcy announcement. By contrast, they find no significant reaction to the announcement for Lehman's debt underwriting clients or any of the other client categories they examine. While most of these investment bank services have at least the potential to create relationship‐specific capital, the authors' findings suggest that except for equity underwriting, all the other investment bank services appear to be transactional rather than relationship‐based, at least in the average case. Moreover, the authors report significant differences even among different groups of Lehman's equity underwriting clients. An equity underwriting relationship with Lehman appears to have been especially valuable for smaller, younger, and more financially constrained firms—those firms which presumably had a high degree of dependence on Lehman to access the capital market.     

The α-stable processes and their relationship with the exponent of self-similarity: Exchange rates of USA Dollar,Canadian Dollar,Euro and Yen

This research work analyzes the yields of the exchange rate parities of the American dollar, Canadian dollar, Euro, and Yen; estimates the basic statistics and the α-stables; carries out the Kolmogorov–Smirnov, Anderson–Darling, and Lilliefors goodness of fit tests; estimates the self-similar exponents and carries out the t and F tests, ruling out that the series of parities are multifractal. It also estimates the confidence intervals of the exchange rate parities and concludes that the estimated α-stable distributions are more efficient than the Gaussian distribution to quantify the risks of the market, and that the series are self-similar. Through the ? index, we can infer the risk of the events, indicating that the parities are anti-persistent and thus have short-term memory, mean reversion, and a negative correlation with the high risk in the short and medium term. The estimation and validation of the α-stable distributions and the self-similar exponent are important in the evaluation and creation of innovative investment instruments through financial engineering, risk administration, and the evaluation of derived products.