An empirical note about estimation and forecasting Latin American Forex returns volatility: the role of long memory and random level shifts components

Portuguese Economic Journal - A set of RLS-type models with ARMA and ARFIMA dynamics is estimated and compared in a forecasting exercise with ARFIMA, GARCH and FIGARCH models. It is an extension of...     

Honesty in Environmental Regulation

This paper analyzes the determination of the optimal environmental regulatory policy under imperfect competition when the firms differ in their polluting technologies and degree of honesty. We show that more honesty does not necessarily imply lower social losses. The effect of honesty in social welfare depends not only on the degree of honesty measured by the proportion of honest firms and their particular cost features but also on the industry structure.     

Optimal Lending Contracts and Firm Dynamics

We develop a general model of lending in the presence of endogenous borrowing constraints. Borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced. In the model, the dynamics of debt are closely linked with the dynamics of borrowing constraints. In fact, borrowing constraints must satisfy a dynamic consistency requirement: the value of outstanding debt restricts current access to short-term capital, but is itself determined by future access to credit. This dynamic consistency is not guaranteed in models of exogenous borrowing constraints, where the ability to raise short-term capital is limited by some prespecified function of debt. We characterize the optimal default-free contract—which minimizes borrowing constraints at all histories—and derive implications for firm growth, survival, leverage and debt maturity. The model is qualitatively consistent with stylized facts on the growth and survival of firms. Comparative statics with respect to technology and default constraints are derived.     

Dutch housing allowances: social housing at risk

This article deals with the vulnerability of the Dutch housing allowance scheme. This scheme can be compared with the British housing benefit. The vulnerability of the scheme has been augmented by the current less favourable economic conditions (stagnating household incomes, increasing unemployment) and the Dutch government's announcement that it plans to reduce housing allowance expenditure. Two scenarios are outlined, which may serve to resolve the danger of exploding housing allowances expenditure in the coming years. If a market‐led scenario is chosen, whereby housing associations strive to achieve market rents, the housing allowance will be transformed into a form of housing voucher, the value of which is not directly related to the actual rental price of the property. In this American‐style model, the value of the vouchers would be linked to a ‘virtual’ rent, say 40% of the average rental price in the region. The housing associations would then lose their special semi‐public status. Under the social housing model, the housing associations would retain their special status provided they aimed to achieve rents somewhat lower than the market level. The housing allowance would remain directly linked to the actual rental price. However, some marked changes would be required to render this system sustainable. The Netherlands cannot avoid having to make this choice. Cet article porte sur la vulnérabilité du régime hollandais d'aide au logement. Celui‐ci est comparable aux prestations britanniques. La fragilité du régime a été accrue par les conditions économiques actuelles moins favorables (stagnation du revenu des ménages, augmentation du chômage) et par l'annonce du gouvernement néderlandais relative à la réduction prévue des dépenses d'allocation‐logement. Sont présentés deux scénarios susceptibles de limiter le risque d'explosion des dépenses d'allocations dans les années à venir. Si l'option choisie est un scénario de marché où les associations pour le logement luttent pour atteindre les loyers du marché, l'allocation‐logement se transformera en ‘bon’ dont la valeur ne sera pas directement liée au montant réel du loyer. Selon ce modèle de type américain, la valeur des ‘bons’ sera fonction d'un loyer ‘virtuel’, soit environ 40% du prix moyen dans la région; les associations perdraient alors leur statut particulier semi‐public. Selon le modèle de logement social, elles conserveraient leur statut, à condition qu'elles cherchent à atteindre des loyers légèrement inférieurs au niveau du marché; l'allocation‐logement serait alors directement liée au montant réel du loyer. Toutefois, pour que le régime subsiste, il faudrait procéder à d'importants changements. Les Pays‐Bas ne peuvent s'épargner ce choix.     

Golden Parachutes: Incentive Aligners,Management Entrenchers,or Takeover Bid Signals?

In this paper we investigate the effect of golden parachute (GP) adoptions on shareholder wealth. We control for the potential effect a GP adoption has on the probability that a firm will receive a takeover bid by investigating the wealth effects for firms that are in play when the GP is adopted. We find that announcements are wealth neutral when firms are in play and wealth increasing when firms are not in play when a GP is adopted. The results suggest that GPs have no influence on the success of a tender offer, refuting the hypotheses that they either align manager and shareholder interests or that they entrench inefficient managers. The difference in the results for in-play and not-in-play firms is consistent with the hypothesis that GPs signal an increased likelihood that a firm will receive a takeover bid.     

THE ECONOMETRICS OF THE HOLY GRAIL — A REVIEW OF ECONOMETRICS: ALCHEMY OR SCIENCE? ESSAYS IN ECONOMETRIC METHODOLOGY

Books reviewed in this article: David F. Hendry (1993) Econometrics: Alchemy or Science? Essays in Econometric Methodology     

Altruism and the Economic Values of Environmental and Social Policies

Altruism is a type of non-use value which can have different definitions depending on the type of goods entering the utility function of the altruists and their expectations about the contributions of others. The purpose of this paper is to measure the trade-offs between different types of altruist values originating from social and environmental policies. Environmental policies are concerned with reducing health effects from a power plant while social policies involve both the attainment of public facilities for education and leisure and an increase in the income of the affected population. The empirical application utilizes a choice experiment technique which allows for valuation of multiple goods. Health effects are decomposed into the values of the risk of becoming ill, the duration of the episodes and the limitations imposed by illness. Altruist values are elicited from a population that is not affected by pollution. Results show that altruism is significant for policies directed to reducing health effects and improving the income level of the affected population, whereas there is egoism for a policy aimed at improving public facilities in the polluted suburb. The value of altruism is significantly influenced by the expectations of net benefits to be received by the affected population.     

Environmental Product Differentiation and Environmental Awareness

In this paper, we have considered a duopolistic model of environmental product differentiation with two types of consumers (green and brown) to analyze how environmental awareness affects the environment. “Green” consumers value the physical and environmental attributes of the good they purchase while “brown” consumers only value the physical attributes. We find that more environmental awareness may not be good news for the environment as the firm that produces the good without environmental attributes may increase its sales. The result depends on the degree of product differentiation and the cost to achieve it. Social welfare can also be inversely related to environmental awareness if the negative environmental effect dominates the positive market effect.