Is the Dutch consumer a true ricardian?

Summary In this paper the intertemporal optimization approach is adopted in order to estimate an empirical version of Blanchard's (1985) overlapping generations model. The observed sluggishness in consumption is incorporated into the model by recognizing both durability and habit formation as relevant determinants of total consumption. The model is estimated using quarterly data for The Netherlands from 1969:I to 1990:IV. The empirical estimates suggest that the status of the Dutch consumer as a true Ricardian is unambiguously rejected. The results furthermore suggest that this rejection is due to the existence of both liquidity constraints and finite planning horizons.Comments by Peter Broer, Jeroen Kremers, Debora Molenaar, Rick van der Ploeg, Frans Spinnewyn, Casper de Vries, Ed Westerhout and two anonymous referees are very much appreciated. Elbert Dijkgraaf has provided invaluable research assistance. We also thank participants of the OCFEB workshop and the CES seminar at the K.U. Leuven for their comments.     

融资约束抑或过度投资——中国上市企业投资—现金流敏感度的经验证据

本文以中国上市企业为分析样本,通过检验现金持有量对投资—现金流敏感度的影响,考察企业中的融资约束和代理冲突。结果显示,融资约束与过度投资导致企业投资支出与内部现金流密切相关。民营企业、大规模地方国有企业中存在过度投资,所持有的现金具有明显的壕沟效应、进一步提高投资—现金流敏感度。而中、小规模国有企业面临的融资约束比较突出,为了抵御外部融资约束,持有现金充当对冲工具、降低投资—现金流敏感度。     

Give Macroeconomic Stability and Growth in Russia a Chance

This paper identifies and investigates conceptual and empirical links among Russia's disappointing growth performance of the mid-1990s, its costly and eventually unsuccessful stabilization, the macroeconomic meltdown of 1998 and the spectacular rise of non-payments. Non-payments developed into a system that flourished in an atmosphere of fundamental inconsistency between a macroeconomic policy geared at sharp disinflation and a microeconomic policy of bailing-out enterprises through soft budget constraints. It embodies a large volume of untargeted, implicit subsidies in the order of 7–10 per cent of GDP, which has stifled growth, contributed to the 1998 meltdown through its impact on public debt and made at best a questionable contribution to equity. The overwhelming priority at this point is to dismantle this system, thereby promoting enterprise restructuring and growth (by hardening budget constraints) and medium-term macroeconomic stability (by reducing the size of the subsidies).     

Bank Concentration and Firm Investment: Empirical Evidence from India

This paper investigates the impact of bank concentration on firm-level investment across firm groups classified according to size, investment destination, and debt maturity structure. Using data of 302 manufacturing firms for the period 2000-2009, we show that elevated financial constraints are associated with small and medium-size enterprises and firms that are dependent on short-term debt and exhibit high levels of sensitivity of investment to cash flow. Our empirical finding confirms that bank concentration exerts a positive impact on firms' financial constraints on investment. This effect is more pronounced for small firms and firms dependent on short-term debt. However, our results are indifferent to domestic versus foreign investing firm groups.     

Liquidity Constraints and Investment in Transition Economies

We use Bulgarian firm-level data to investigate the impact of liquidity constraints on investment performance. Internal funds are an important determinant of investment in most industrialized countries. We test whether internal funds are important for firm investment during the current transition process in Bulgaria. We use a simple accelerator model of investment to test whether liquidity constraints are relevant in the case of Bulgaria. Our estimations are based on data for the period 1993–95, prior to the Bulgarian financial crisis in 1996–97. It turns out that Bulgarian firms are liquidity constrained, and that firms' size and financial structure help to distinguish between firms that are more and less liquidity constrained. In our view, liquidity constraints can be given a different interpretation in the case of transition economies as compared to Western economies. A more in depth analysis of the data reveals that liquidity constraints, and consequently the access to external funds for Bulgarian firm investment, are to be seen against the background of soft-budget constraints and the failure of the financial system to enforce an efficient allocation of funds. In our view, the lack of liquidity constraints may actually be seen as a sign of financial weakness in the case of Bulgaria.     

Financing constraints and US cross‐listing

This study investigates whether relaxation of firms' financial constraints is an important outcome of the US cross‐listing mechanism. We use the association between investment spending and cash flow to test for the presence and importance of firms' financing constraints. Consistent with the bonding hypothesis, the results suggest that US exchange and private placement cross‐listings significantly alleviate firms' financing constraints. In addition, the financial benefits associated with exchange listings are larger than those associated with private listings, while on the other hand, over‐the‐counter programs do not improve capital allocation. The study also shows that US exchange cross‐listing benefits have not been eroded by the enactment of the Sarbanes‐Oxley (SOX) Act in 2002. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.     

Capital accumulation during the transition from plan to market1

This paper focuses on the process of capital accumulation and the forces that drive it in the countries undergoing the transition from plan to market. The methodological framework for analyzing the determinants of aggregate business investment draws on the neoclassical accelerator model, extending it to reflect some of the specificities of the transition environment. The model is estimated on data for the economies in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS). The results highlight the role of some key drivers of capital accumulation in an economy in transition, in particular, the relatively significant accelerator response to output, the importance of adjustment effects and financing constraints and the relatively minor role of the cost of capital.     

Capacity Constraints and Hedge Fund Strategy Returns

Hedge funds have generated significant absolute returns (alpha) in the decade between 1995 and 2004. However, the level of alpha has declined substantially over this period. We investigate whether capacity constraints at the level of hedge fund strategies have been responsible for this decline. For four out of eight hedge fund strategies, capital inflows have statistically preceded negative movements in alpha, consistent with this hypothesis. We also find evidence that hedge fund fees have increased over the same period. Our results provide support for the Berk and Green (2004) rational model of active portfolio management.     

How do house prices affect consumption? Evidence from micro data

Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households’ consumption decisions. Rising house prices may stimulate consumption by increasing households’ perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.     

Consumption and Portfolio Selection with Labor Income: A Continuous Time Approach

This paper studies the consumption and portfolio selection problem of an agent who is liquidity constrained and has uninsurable income risk. The paper investigates how the optimal consumption and asset allocation policies deviate from the case where the financial market is perfect, i.e., the case where there are no liquidity constraints and uninsurable income risk. In particular, the paper shows that, for a given level of financial wealth and labor income, optimal consumption is smaller and the optimal level of risk taking is lower in the case where the agent is liquidity constrained and has uninsurable income risk than in the case where the financial market is perfect. The paper also discusses how the agent assesses the value of lifetime labor income and relates this evaluation to optimal consumption and asset allocation policies.