Predicting the Monthly and Annual Current Account Balance from Provisional Data*

This paper uses provisional monthly data to predict the one-month-ahead and one-year-ahead current account balance. Single-equation methods are compared to an eight-equation VAR model that utilizes the Box-Tiao (1977) modifications. It is found that the single-equation model of the current account out-performs the system method for the short- term but the positions are reversed for the annual forecast     

CURRENCY SUBSTITUTION, U.S. MONEY DEMAND, AND INTERNATIONAL INTERDEPENDENCE

A number of writers have argued in recent years that massive international currency substitution has been a major cause of exchange rate volatility and monetary instability in the United States and other major countries. Such analysis is frequently coupled with recommendations for a return to pegged exchange rates. This paper critically examines the evidence presented for this currency substitution view. It argues that the weight of latest research suggests that direct international currency substitution has not been of major quantitative importance for the U.S. However, empirical evidence supports traditional views that international capital mobility can generate substantial short-run monetary interdependence even under flexible exchange rates. Thus, even though international currency substitution is of little importance to U.S. monetary conditions, a broader range of international considerations may be of considerable importance for the U.S. economy.     

THE PRESENT STATE OF NATIONAL ACCOUNTS IN LATIN AMERICA

This document attempts to give an overall review of the present situation of national accounts in Latin America, and deals essentially with the statistical basis and procedures used in their preparation. The purpose of these comments is to place the main problems common to all countries in order of priority and, in view of the need to advance and in the face of the task of establishing the present SNA, to discuss briefly the main lines which future work might follow. The stage of development so far reached by national accounts in Latin America is unsatisfactory if compared with the former system recommended by the United Nations two decades ago, and their recent evolution indicates that the rate of progress has fallen behind the advances made in the theoretical field in this connexion, and in relation to the increasing requirements of macroeconomic information for economic planning and policy. This whole picture becomes more meaningful if the objectives, structure and content of the present SNA, that has already been in force for five years, are compared with the present state of national accounts estimates in the region, which reveals the long road that lies ahead and the magnitude of the effort required if the present situation is to show a change for the better. Clearly, little progress can be made unless the basic statistics are expanded in scope and improved. This is the crux of the problem, towards which the greatest efforts and resources should primarily be channeled. It is necessary to adopt a critical approach and concerted action with respect to four aspects which characterize the national statistical systems in Latin America:

• (a) organizational problems and the shortage of human and financial resources;
• (b) the lack of co-ordinated programmes of basic statistics;
• (c) the limited use of efficient methods of collecting data; and
• (d) the insufficient recourse to administrative records.

     

Are Firms Underleveraged? An Examination of the Effect of Leverage on Default Probabilities

A commonly held view in corporate finance is that firms are less leveraged than they should be, given the potentially large tax benefits of debt. In this paper, I study the effect of firms' leverage on default probabilities as represented by the firms' ratings. Using an instrumental variable approach, I find that the leverage's effect on ratings is three times stronger than it is if the endogeneity of leverage is ignored. This stronger effect results in a higher impact of leverage on the ex ante costs of financial distress, which can offset the current estimates of the tax benefits of debt.     

The Evolution of Security Designs

We consider a competitive and perfect financial market in which agents have heterogeneous cash flow valuations. Instead of assuming that agents are endowed with rational expectations, we model their behavior as the product of adaptive learning. Our results demonstrate that adaptive learning affects security design profoundly, with securities mispriced even in the long run and optimal designs trading off underpricing against intrinsic value maximization. The evolutionary dominant security design calls for issuing securities that engender large losses with a small but positive probability, but that otherwise produce stable payoffs, almost the exact opposite of the pure state claims that are optimal in the rational expectations framework.     

STADIUM CONSTRUCTION AND MINOR LEAGUE BASEBALL ATTENDANCE

The established literature shows that new stadium construction for major league baseball (MLB) teams can increase attendance, but there are limited studies at the minor league level. We use a data set encompassing all A, AA, and AAA minor league baseball teams from 1992 to 2006 to estimate the impact of stadium construction on minor league attendance. This data set includes almost 200 teams, over half of which constructed a new stadium during the 15‐year observation period. Over a 10‐year period our results show that new stadiums increase attendance by 1.2 million fans at the AAA level, 0.4 million at the AA and high A level, and 0.2 million at short season low A. A cost benefit analysis suggests that increased ticket sales do not offset the stadium costs, in line with previous works on MLB. (JEL H0, L83)     

Bank Credit Cards: Consumer Irrationality versus Market Forces

Why are bank card interest rates sticky? One explanation is bank card consumer irrationality, a potentially significant market failure requiring government intervention. Alternate explanations focus on efficient market forces. The 1989 Federal Reserve Survey of Consumer Finances data are not consistent with the consumer irrationality hypothesis. The data are consistent with a market-based model of demand for balances and suggest that consumers may rationally eschew search because small outstanding balances imply low returns to search.     

ADVERTISING SUNK COSTS AND CREDIBLE SPATIAL PREEMPTION

Large sunk investments in advertising allow managers to credibly preempt potential entrants by introducing new products prior to anticipated increases in market growth. Previous investment in advertising can lower a firm's cost to introduce new products allowing it to credibly preempt potential entrants. Entrants may not have enough residual share to find it profitable to enter later, and incumbents find it profitable to keep new products in the market even if entrants choose to enter. I present empirical evidence from the RTE cereal industry.