Exchange rate pass-through and relative prices: An industry-level empirical investigation

In this paper we explore the extent of exchange rate pass-through for the USA, UK and Japan using a post-Bretton Woods industry-level dataset. We investigate how different channels of exchange rate pass-through affect domestic and import prices. Our analysis is suggestive of two channels of transmission and we find considerable variation in the extent of pass-through across industries and countries.     

Tender Offers, Proxy Contests, and Large-Shareholder Activism

The paper analyzes tender offers and proxy contests as alternative means of resolving corporate governance conflicts between dissidents and incumbent management. We show that when a dissident shareholder is sufficiently confident about the potential benefits from changing corporate policy, he will seek majority control by making a tender offer rather than initiating a proxy contest. When the dissident is relatively uninformed, however, he may opt for a proxy contest, thereby utilizing the information of other shareholders to implement the better policy. Consistent with empirical evidence, the model predicts that announcements of tender offers will tend to be associated with larger positive stockprice reactions than announcements of proxy contests. The model is easily extended to allow for promanagement bias in proxy voting by institutional investors. Empirical observations that have been viewed as evidence of such promanagement bias are shown to be quite consistent with the absence of such bias. Policy issues are discussed as well. An interesting result is that even policies targeted at reducing the costs of conducting proxy contests may have ambiguous social consequences, given the possibility of substitution between tender offers and proxy contests.     

Technological versus Pecuniary External Economies: The Former Should Rule the Roost

The paper endeavors to illustrate that though the existing literature emphasizes the dynamic role of Scitovskian pecuniary external economies to account for the growth of innovations, highlighting particular types of market interdependence, such interdependencies can just highlight quasi-rent-led static adjustments that do not ensure an endogenous growth of innovations; the possibility of the growth of innovations remains exogenous. In this context, the present paper highlights the importance of division of labor-led dynamic technological external economies that ensures the endogenous growth of innovations, underlining the need of reinterpretation of Allyn Young in a broader Kaldorian-Keynesian perspective. In this perspective, finance-led investment in more productive opportunities not only supports increases in market size but also begets further investment in (still) more productive opportunities. This understanding provides a more dynamic conceptualization of Keynesian pecuniary external economies that are driven by Youngian technological external economies.     

Commitment, banks and markets

We examine how banks and financial markets interact with one another to provide liquidity to investors. The critical assumption is that financial markets are characterized by limited enforcement of contracts, and in the event of default only a fraction of borrowers’ assets can be seized. Limited enforcement reduces the fraction of assets that can be used as collateral and thus individuals subject to liquidity shocks face borrowing constraints. We show how banks endogenously overcome these borrowing constraints by pooling resources across several depositors, and increase the liquidity provided by financial markets.     

Do Laws Influence the Cost of Real Estate Brokerage Services? A State Fixed Effects Approach

A FTC‐DOJ study argues that state laws and regulations may inhibit the unbundling of real estate brokerage services in response to new technology. Our data show that 18 states have changed laws in ways that promote unbundling since 2000. We model brokerage costs as measured by number of agents in a state‐level annual panel vector autoregressive framework, a novel way of analyzing wasteful competition. Our findings support a positive relationship between brokerage costs and lagged house price and transactions. We find that change in full‐service brokers responds negatively (by well over two percentage points per year) to legal changes facilitating unbundling.     

The dynamic impact of bilateral trade linkages on stock market correlations of Australia and China

This article aims to examine the long-run equilibrium relationship between bilateral trade linkages and stock market correlations of Australia and China using quarterly data from 1993 to 2015. Further, this study explores the impact of trade intensity on stock market correlations using OLS, Dynamic OLS (DOLS) and Fully Modified OLS (FMOLS) models. The empirical results confirm that there is a significant long-run relationship among the variables. In addition, our results, based on OLS, DOLS and FMOLS, show that increasing trade intensity between Australia and China has a significant and positive impact on their stock market correlations. The Global Financial Crisis also contributed for their stock market interdependence. Our results therefore suggest that the bilateral trade relations between Australia and China have brought their stock markets together over time. The findings of this study offer significant policy and practical implications. The policymakers need to be aware of the economic changes in those countries as they will immediately reflect on their stock market performance and relationship. Similarly, the global investors need to be aware of the fact that the diversification opportunities between Australia and China have considerably declined over time as their markets became more interdependent in the recent past.     

Land-use changes, forest/soil conditions and carbon sequestration dynamics: A bio-economic model at watershed level in Nepal

A dynamic bio-economic model has been used at watershed level in Nepal to analyze the land-use changes, forest and soil conditions and their resultant impacts on carbon (C) sequestration. Planning horizon of the model extends over a period of 25 years. The objective function is maximization of the sum of discounted net income flows from agriculture, livestock and forestry productions; imputed value of leisure and labour hiring out activities subject to annual constraints on land, labour and capital availability along with the fulfilment of minimum cash and consumption requirements. The seven scenarios analyzed by the model are: business as usual (BAU), reduction in population growth rate from 2 to 1.5% p.a., increased prices of major crops by 10 and 20%, reduction in emigration of active labour force from the watershed from the current rate of 20–15 and 10%, and increase in discount rate from 5 to 10%. The results indicate that reduced labour emigration rates and increase in the prices of major crops lead to expansion of cultivated area and shift from one land use to the others. Land clearing becomes more severe with decline in labour emigration rate. Up to 10% increase in the prices of agricultural crops does not have noticeable effect on total land clearing. Increase in discount rate leads to less land clearing, more biomass harvesting and higher net C sequestration as compared to the BAU scenario. Assuming a C price of 10 USD per MgC and 5% discount rate, the net present value of C sequestration for the first 25 years is estimated at 1.83 mill USD in the BAU scenario, varying from 0.16 mill USD to 2.26 mill USD, as respectively the lowest and highest values for the seven scenarios analysed. A reduction in population growth and maintenance of current rate of off-farm employment are suggested for slowing down the expansion of cultivated land area, and thereby reducing the forest/soil degradation and C emissions. This in turn would enhance the income potential from C sequestration.