Reforms,Exchange Rates and Monetary Commitment: A Panel Analysis for OECD Countries

The paper investigates the link between monetary policy and structural reforms in open economies. We test three hypotheses: (a) the Calmfors hypothesis that the degree of reforms is higher in the case of autonomous policy and lower in the case of commitment, (b) the TINA hypothesis which implies a positive impact of a monetary policy rule on the extent of reforms, and (c) a third factors hypothesis. In our empirical analysis on panel data of 23 OECD countries from 1980–2000 we find little evidence for the Calmfors hypothesis, but evidence in favor of the TINA argument for labor market and regulatory reform.

When do Heuristics Matter in Global Capital Markets? The Case of the BRIC Acronym

ABSTRACT

Several recent publications have argued that the use of heuristics by financial investors can distort global capital flows, but scholars have paid little attention to the scope conditions that determine when heuristics become influential (and when they don’t). Building on work in economic sociology and behavioural finance we suggest that the degree to which investment heuristics can bias aggregate capital flows depends on the levels of uncertainty and self-referentiality that structure the environments under which investment decisions are being made. Applying these insights to the two principal global markets for corporate investment, we argue that the institutional structure of markets for short-term portfolio equity investments (PEI) is far more conducive to trigger the mimetic adoption of a specific heuristic than in markets for long-term foreign direct investments (FDI). To test this hypothesis, we leverage the high level of arbitrariness of the selection of Brazil, Russia, India and China into the BRIC acronym and empirically examine the impact of its remarkable rise to prominence among communities of financial investors in the mid-2000s on global capital flows to emerging economies. In line with the theoretical argument, we find robust evidence of a strong BRIC-bias in markets for PEI but not FDI.     

Simultaneous Estimation of Cost and Distance Function Share Equations

The study considers the simultaneous estimation of share equations using cost and distance functions. Simultaneous rather than single system estimation utilizes full as opposed to limited information. Econometric results exploit the nonstationary nature of the data and that variables are cointegrated. Under cointegration all variables are endogenous and so it is not necessary to undertake the somewhat ad hoc exercise of choosing instruments to achieve parameter consistency. Johansen's maximum likelihood estimator is applied to data from Central Canada and Western Canada (1935–2006). Symmetry and homogeneity restrictions are not rejected for either region. Monotonicity held for all data points and concavity held at 92% of the data points. Long‐run constant returns and Hicks neutral technological change are rejected for both regions. Morishima elasticity estimates coming from the cost function in Western Canada indicate highly elastic long‐run substitution between the land/fertilizer input pair and mildly elastic long‐run substitution between land and both machinery and labor. In contrast, substitution for land and other inputs is inelastic for the land/machinery pair and the land/labor pair, with only the land/fertilizer pair being mildly elastic. The results indicate the limiting nature of land as a fundamental constraint on long‐term agricultural production is a real possibility in Central Canada because other inputs are inelastic, or at best only mildly elastic, substitutes for land. In Western Canada, fertilizer is the only factor that is highly substitutable for land and, therefore, could mitigate the limiting nature of land in that region. However, given that fertilizer applications are often considered to be environmentally unfriendly, the long‐run substitution of fertilizer for land as a fundamental mitigating factor to land scarcity in Western Canada is at a cost to the environment.     

The Liability Regime of Insurance Pools and Its Impact on Pricing

This work formally derives fairly priced premiums for the policyholder of an insurance pool and the risk-adequate equity contributions of the pool insurers’ equity holders in a contingent claims approach. The approach distinguishes between two liability regimes: joint liability and several liability. These regimes regulate the pool’s indemnification when one or more of the pool insurers cannot meet their full obligations because of insolvency. Joint liability is deduced to be the preferable regime for the policyholder in cost-savings terms if corporate income taxation is introduced as a market friction. This regime advantage vanishes if the pool insurers’ asset correlation is substantial or if their risk sharing becomes unbalanced. Additionally, we address risk-shifting problems and their regime-dependent effects on both stakeholder groups.     

Are momentum traders different? Implications for the momentum puzzle

This article examines the puzzlingly high unexploited momentum returns from a new perspective. We analyse characteristics of momentum traders in a sample of 692 fund managers. We find that momentum traders are ‘defined’ by their short-term horizon, by a behavioural view on the market and by a somewhat lower degree of risk aversion, whereas they are like other fund managers with respect to sophistication. This is consistent with the interpretation that momentum returns may compensate for the risk of momentum trading on short-term horizons and that the short-term oriented momentum traders are not in a position to perform long-term arbitrage.     

A note on testing instrument validity for the identification of LATE

In this paper, we show that the testable implications derived in Huber and Mellace (Rev Econ Stat 97:398, 2015) are the best possible to detect invalid instruments in the presence of heterogeneous treatment effects and endogeneity. We also provide formal proof of the fact that those testable implications are only necessary, but not sufficient, conditions for instrument validity.     

Eine Konzeption zum Regulierungsmanagement im Kontext der Anreizregulierung

Strategic decisions of network operators are directly and indirectly affected by the current regulatory environment. Representing an important political and legal influence factor, the regulatory environment must be taken into account in the strategic decision-making process. Dealing with this factor is essential for an unbundled network operator, who’s main source of income is its grid access fee. Therefore, a comprehensive evaluation of the regulatory environment is indispensable for the success of network operators. This task should be handled by a department for regulatory management. However, as regulatory management is not clearly defined in business research, the present article intends to close this gap and develop a design for implementing a department for regulatory management. Our findings contribute to a better understanding of managerial behaviour under regulatory constraints. As part of our design, environmental analysis serves as an example to point out the specific challenges in regulated markets.     

The impact of technological differences on east-west trade

Zusammenfassung Die Auswirkungen von Unterschieden in der Technologie auf den Ost-West-Handel. —Aus der empirischen Analyse des internationalen Austauschs von Technologie und technologieintensiven Produkten im Ost-West-Handel ergeben sich zwei klare Ergebnisse. Erstens wird die Ansicht best?tigt, da\ Technologiestr?me im Ost-West-Handel dominieren und da\ die Str?me von technologieintensiven Produkten von den entwickelten L?ndern mit einer Marktwirtschaft zu den L?ndern mit einer Planwirtschaft flie\en. Zweitens ergibt sich jedoch ein anderes Muster der technologischen Abh?ngigkeit, wenn nur die “hohe” Technologie betrachtet wird, hier definiert als stark oder durchschnittlich F-und-E-intensive Güter: Die Rolle dieser “hohen” Technologie im Ost-West-Handel ist relativ gering. Ein wichtiger Grund dafür, da\ stark F-und-E-intensive Güter nicht in gro\em Umfang von den Ostblockl?ndern importiert werden, liegt darin, da\ diese Gruppe Konsumgüter enth?lt (Fernsehen, Hi-Fi-Ausrüstungen, elektronische Güter usw.). Harte Devisen werden aber weiterhin vorwiegend zum Kauf von Investitionsgütern zugeteilt, d. h. für den Kauf von Technologie an sich. Au\erdem verhindern mengenm?\ige Beschr?nkungen im Ost-West-Handel, da\ technologieintensive Produkte in dem Umfang gehandelt werden, wie es gem?\ der Theorie zu erwarten w?re.

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Résumé L’effet des différences technologiques sur le commerce est-ouest. ⟶euxaspects sont démontrés par l’analyse empirique des flux de la technologie et des produits basés sur la technologie en commerce est-ouest. Le premier résultat confirme l’opinion que le commerce est-ouest est dominé par les flux de technologie et que le flux de technologie incorporée s’écoule des économies de marché développées vers les économies planifiées. Le deuxième résultat, cependant, suggère une structure assez différente de la dépendance technologique si l’on considère seulement la technologie ?haute? définie ici par des produits hautement et modérément R&D-intensifs : Le r?le de la technologie ?haute? est relativement faible. Une raison importante pourquoi les produits hautement R&D-intensifs ne sont pas importés en grande échelle est qu’ils incluent des biens à consommation (télévision, hi-fi équipement, électroniques). Mais les monnaies fortes continuent à être réservées avant tout pour l’achat des biens d’investissement, c’est-à-dire pour l’achat de la technologie ellemême. De plus, les restrictions quantitatives en commerce est-ouest empêchent que les produits intensifs à technologie sont commercés en mesure comme prédite par la théorie.

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Resumen El impacto de diferencias tecnol?gicas sobre el intercambio comercial entre el Este y el Oeste. -El análisis enxpirico de las corrientes de tecnología y de bienes de base tecnológica intercambiados entre el Este y el Oeste demuestra claramente dos cosas. Primero se confirma la opinión de que en el intercambio comercial entre el Este y el Oeste predominan las corrientes de tecnología y que la dirección de la corriente de tecnologia incorporada es de los países desarrollados de economía de mercado hacia los pafses de economia centralmente planificada. El segundo resultado, empero, sugiere una estructura de dependencia tecnológica diferente, si se considera solamente la ?alta? tecnología, definida como bienes moderadamente y altamente intensivos en investigatión y desarrollo (I&D). La ?alta? tecnología cumple un papel relativamente menor en el intercambio comercial entre el Este y el Oeste. Una de las razones por las cuales bienes muy intensivos en I&D no se importan en gran escala es que incluyen bienes de consumo (aparatos de televisión, equipos de audio, artefactos electrónicos, etc.). El Este continúa con su política de asignar divisas preferentemente para compras de bienes de capital, o sea, para la compra de la tecnología misma. Además, restricciones cuantitativas sobre el comercio Este-Oeste impiden el intercambio de bienes intensivos en tecnología en la medida indicada por la teoría del comercio internacional.

     

Controllers’ use of informational tactics

Controllers typically have a ‘dual accountability’ towards the finance function and operational management, respectively. This dual accountability at times confronts them with conflicting expectations. In this paper, we suggest that ‘informational tactics’ constitute an important resource which controllers rely on so as to handle these expectations and to successfully present themselves vis-à-vis their different internal stakeholders. Drawing upon interview data, we demonstrate that informational tactics relate to different dimensions of information control (i.e. ‘when’, ‘how’ and ‘what’ information is to be exchanged) and that they depend on the respective room for manoeuvre a controller has in a given situation. Overall, our analysis adds a more nuanced picture to the literature on controllers’ handling of information and demonstrates the fundamental role of informational tactics for their everyday work.     

Accountability in an agency model: Project selection,effort incentives,and contract design*

We analyze an agency model of project choice and implementation where the agent is held accountable for his performance. We show that implementation of the ex ante efficient project may be impossible, irrespective of how the principal sets fixed wage and bonus rate. If it is possible, the principal may be forced to increase the bonus rate above the optimal project‐specific rate. The higher profit share compensates the agent for pressure he faces when he has to justify/explain his performance.