Precautionary demand for foreign assets in Sudden Stop economies: An assessment of the New Mercantilism

Financial globalization had a rocky start in emerging economies hit by Sudden Stops. Foreign reserves have grown very rapidly since then, as if those countries were practicing a New Mercantilism that views foreign reserves as a war chest for defense against Sudden Stops. This paper conducts a quantitative assessment of this argument using a stochastic intertemporal equilibrium framework in which precautionary foreign asset demand is driven by output variability, financial globalization, and Sudden Stop risk. In this framework, credit constraints produce endogenous Sudden Stops. We find that financial globalization and Sudden Stop risk can explain the surge in reserves but output variability cannot. These results hold using the intertemporal preferences of the Bewley–Aiyagari–Hugget precautionary savings model or the Uzawa–Epstein setup with endogenous impatience.     

Are asset price guarantees useful for preventing Sudden Stops?: A quantitative investigation of the globalization hazard-moral hazard tradeoff

An implication of the globalization hazard hypothesis is that ‘Sudden Stops’ caused by global financial frictions could be prevented by offering foreign investors price guarantees on emerging markets assets. These guarantees create a tradeoff, however, because they weaken globalization hazard while creating international moral hazard. We study this tradeoff using a quantitative, equilibrium asset-pricing model. Without guarantees, margin calls and trading costs cause Sudden Stops driven by a Fisherian deflation. Price guarantees prevent this deflation by propping up foreign demand for assets. The effectiveness of price guarantees, their distortions on asset markets, and their welfare implications depend critically on whether the guarantees are contingent on debt levels and on the price elasticity of foreign demand for domestic assets.     

Emerging market business cycles: Learning about the trend

Emerging market business cycles feature a higher variability of consumption relative to output and a strongly countercyclical trade balance. An equilibrium business cycle model in which agents learn to distinguish between the permanent and transitory components of total factor productivity shocks using the Kalman filter accounts for these features. Calibrated to Mexico, the model accounts for the behavior of consumption and the trade balance for a wide range of variability and persistence of permanent shocks relative to transitory shocks. Estimation for Mexico and Canada suggests more severe informational frictions in emerging markets than in developed economies.     

Measuring business school faculty perceptions of student cheating

Dealing with academic dishonesty remains an ongoing issue for business school faculty. In this study, using an online survey, the authors examined responses of 233 business school faculty from a Tier 1 Association to Advance Collegiate Schools of Business–accredited university and measured their perceptions of undergraduate cheating and reporting of such behavior. Study results showed promise for measuring 3 types of cheating behavior scales: paper based, internet based, and direct exam. Faculty who formally reported a cheating incident perceived a higher general cheating problem, and higher levels of paper-based, internet-based, and direct exam cheating than the faculty who had never reported a student.     

News and sovereign default risk in small open economies

This paper builds a unified model of sovereign debt, default risk, and news shocks. News shocks improve the quantitative performance of the sovereign default model in a number of empirically-relevant dimensions. First, with news shocks, not all defaults occur during downturns. Second, the news shocks help account for key differences between developing and more developed economies: as the precision of news improves, the model predicts lower variability of consumption, less countercyclical trade balance and interest rate spreads, as well as a higher level of debt in line with more developed economies. Third, the model captures the hump-shaped relationship between default rates and the precision of news obtained from the data. Finally, the news shocks have a nonmonotonic effect on welfare.     

Workplace Characteristics and Their Effects on Wages: Australian Evidence

Using data, from the 1995 Australian Workplace Industrial Relations Survey, which match individual employees to the firms and workplaces at which they are employed, this paper examines the relative importance of both individual and workplace characteristics for wages. Results from the estimation of 'effects' models indicate that workplace-specific effects are important, explaining 39 per cent of the variation in individual log hourly wages. Estimation of a model including both individual-level and workplace-level variables (and using a random effects approach) identified workplace size, foreign ownership, the significance of export markets, the gender composition of the workforce, workplace union organisation, the incidence of shift work, and location as the most important workplace-level influences on wages.     

The Role of State‐Owned Enterprises in an Artificial Monopoly Market: The Case of Turkey

State‐owned enterprises (SOEs) benefit from many privileges based on their unique structure, their substantial capital, and their position in the economic system. Like all business corporations, they have no fixed duration, which makes them effectively immortal. In addition, they are adjuncts of the state, which enables them to survive in noncompetitive markets with little effort. Therefore, under today's ruthless global market conditions, SOEs engage in unfair competition with privately financed businesses. By relying on their identity as state operations, they do not follow the rules of the market—they define those rules. In addition to SOEs, which are direct arms of the state, some privately financed businesses dominate markets in which the state allows them to develop an artificial monopoly and thus increase their power day by day. These artificial monopolies distort market processes and create conditions that frequently give rise to corruption. This study examines the problems associated with monopolies, with a special emphasis on establishing more efficient market structures for SOEs in Turkey. The original mission of SOEs was to balance markets through regulation and to be transparent and accountable to the public. Simply striving to meet those criteria would go a long way toward preventing the abuse of power and unfair competition. In addition, SOEs and artificial monopoly markets distort public institutions by promoting rent‐seeking behavior that corrupts politics and blocks innovation from potential competitors. Privatization has been employed by international financial institutions in recent decades, but it has mostly transferred monopolies from the public sector to private owners, which has made the problem worse and done little to enhance competition. Establishing genuinely competitive economies will require a new political culture around the world.