RANDOM WALK TESTS FOR LATIN AMERICAN EQUITY INDEXES AND INDIVIDUAL FIRMS

In this study we re-examine the presence of random walk in stock prices in Brazil and Mexico. We employ variance ratio tests on weekly stock returns for indexes as well as individual firms. The results reveal mean aversion in Mexico at both the index level and the firm level. In contrast, the Brazil indexes show a greater tendency toward random walk; however, the results for the individual firms suggest mean reversion. The results cannot be attributed to a firm size effect. Evidence is presented in favor of a greater degree of nonsynchronous trading for Brazilian securities than for Mexican securities.     

Wealth and Income Inequality in Europe

While it has long been apparent that global levels of wealth and income inequality have been steadily increasing since the 1970s, the issue received scant attention in Europe until the recent fi nancial crisis and the resulting Great Recession illuminated for the general public just how great the chasm between the very rich and everybody else had grown. This realisation was coupled with an increased focus on inequality among economists and other academics, leading to a fresh drive for policy ideas to remedy the alarming trend. This Forum comprises a diverse range of viewpoints on the recent history and dynamics of inequality within Europe, each striving to defi ne the root causes in the various countries being examined. The defi nition of these causes, of course, can inform the direction of policies aimed at alleviating the growing inequality in many European countries and thereby curtail one of the major political and social issues of our time.     

Employment expectations and uncertainties ahead of the new German minimum wage

This article analyzes announcement effects of the new statutory minimum wage on employment expectations and uncertainties in Germany. Using a difference‐in‐differences approach applied to the IAB Establishment Panel, employers affected by the minimum wage show an increased employment uncertainty and a 0.9% points drop in their expected employment growth. Using the same identification strategy with data from 2015, the treatment effect on actual employment growth of affected employers matches the employers' expectation. Hence, an analysis of employer expectations seems to be promising to detect employment effects of policy changes before they come into force.     

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Does German Development Aid Promote German Exports?

Abstract. This paper uses a static and dynamic gravity model of trade to investigate the link between German development aid and exports from Germany to the recipient countries. The findings indicate that, in the long run, German aid is associated with an increase in exports of goods that is larger than the aid flow, with a point estimate of 140% of the aid given. In addition, the evolution of the estimated coefficients over time shows an effect that is consistently positive but that oscillates over time. Interestingly, after a decrease in the 1990s, the estimated coefficients of the effect of aid on trade show a steady increase in the period between 2001 and 2005. The paper distinguishes among recipient countries and finds that the return on aid measured by German exports is higher for aid to countries considered 'strategic aid recipients' by the German government. We also find some evidence that aid given by other EU members reduces German exports.     

Quantifying knowledge exchange in R&D networks: a data-driven model

We propose a model that reflects two important processes in R&D activities of firms, the formation of R&D alliances and the exchange of knowledge as a result of these collaborations. In a data-driven approach, we analyze two large-scale data sets, extracting unique information about 7500 R&D alliances and 5200 patent portfolios of firms. These data are used to calibrate the model parameters for network formation and knowledge exchange. We obtain probabilities for incumbent and newcomer firms to link to other incumbents or newcomers able to reproduce the topology of the empirical R&D network. The position of firms in a knowledge space is obtained from their patents using two different classification schemes, IPC in eight dimensions and ISI-OST-INPI in 35 dimensions. Our dynamics of knowledge exchange assumes that collaborating firms approach each other in knowledge space at a rate μ for an alliance duration τ. Both parameters are obtained in two different ways, by comparing knowledge distances from simulations and empirics and by analyzing the collaboration efficiency \(\mathcal {\hat {C}}_{n}\). This is a new measure that takes in account the effort of firms to maintain concurrent alliances, and is evaluated via extensive computer simulations. We find that R&D alliances have a duration of around two years and that the subsequent knowledge exchange occurs at a very low rate. Hence, a firm’s position in the knowledge space is rather a determinant than a consequence of its R&D alliances. From our data-driven approach we also find model configurations that can be both realistic and optimized with respect to the collaboration efficiency \(\mathcal {\hat {C}}_{n}\). Effective policies, as suggested by our model, would incentivize shorter R&D alliances and higher knowledge exchange rates.     

Accounting for persistence and volatility of good-level real exchange rates: The role of sticky information

Volatile and persistent real exchange rates are observed not only in aggregate series but also in micro-price data at the retail level. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time series properties of the Law of One Price (LOP) deviations. We extend their sticky price model by combining good-specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Our framework allows for multiple cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for 165 individual goods. Under a reasonable assumption on the money growth process, we show that the model matches the persistence of the LOP deviation for the median good and accounts for the majority of its volatility when information updates occur every 12 months.     

Cognitive abilities and portfolio choice

We study the relation between cognitive abilities and stockholding using the recent Survey of Health, Ageing and Retirement in Europe (SHARE), which has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and retirement accounts. Since the decision to invest in less information-intensive assets (such as bonds) is less strongly related to cognitive abilities, we conclude that the association between cognitive abilities and stockholding is driven by information constraints, rather than by features of preferences or psychological traits.     

Country Size and Economic Fluctuations

This paper investigates the character of business cycles across large and small economies. Empirically, G-7 countries have less volatile investment, consumption, and trade balance ratios, higher correlations between domestic sacing and investment rates, and about the same correlation of the trade-balance ratio and investment ratio as 68 smaller countries. These observations are consistent with a standard one-sector two-country general equilibrium model in which the only source of heterogeneity is country size. Since many developing countries are small, these findings suggest that even absent differences in markets and instutitions, economic fluctuations would be more severe in developing countries.