Capital Flows to Latin America (2003–17): A Critical Survey from Prebisch’s Business Cycle Theory

ABSTRACT

The economic literature on capital flows to developing countries has shared two important commonalities since the 1990s. Published works (whether they focus on the external situation or stress the domestic determinants of capital flows) tend to assume a beneficial effect of capital inflows, which leads to an improvement of peripheral institutions, whose deficiencies are ostensibly the main cause of economic turmoil and/or failure in attracting capital flows, in continuity with New Institutional Economics. In doing so, mainstream economists deliberately overlook the asymmetric characteristics of the international monetary system and the persisting hegemony of dollar. Raul Prebisch’s pioneering work on business cycles in Latin America provide an alternative view, one capable of amending the existing mainstream literature. On the one hand, Prebisch stressed the destabilizing role of capital inflows on Latin American economies, particularly short-term speculative capital. On the other hand, Prebisch designed a set of counter cyclical monetary policies in order to contrast capital volatility, particularly during downturns. An analysis of stylized facts shows that, when correctly updated, Prebisch’s theory has remarkable explanatory potential when applied to Latin America’s current economic and financial situation.     

Capital gains lock-in and governance choices

Differences in accrued gains and investors’ tax-sensitivity induce variation in a capital gains lock-in effect across mutual funds even for the same stock at the same time. Exploiting this variation, we show this effect influences funds’ governance decisions: higher capital gains decrease the likelihood a fund exits prior to contentious votes and increase the likelihood a fund votes against management. Consistent with tax motivation, these findings are concentrated among funds with tax-sensitive investors. Further, high aggregate capital gains across funds holding a stock predict a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed.     

Investor behaviour and reaching for yield: Evidence from the sterling corporate bond market

We provide evidence on how corporate bond investors react to a change in yields, and how this behaviour differs in times of market‐wide stress. We also investigate ‘reaching for yield’ across investor types, as well as providing insights into the structure of the corporate bond market. Using proprietary sterling corporate bond transaction data, we show that insurance companies, hedge funds and asset managers are typically net buyers when corporate bond yields rise. Dealer banks clear the market by being net sellers. However, we find evidence for this behaviour reversing in times of stress for some investors. During the 2013 ‘taper tantrum’, asset managers were net sellers of corporate bonds in response to a sharp rise in yields, potentially amplifying price changes. At the same time, dealer banks were net buyers. Finally, we provide evidence that insurers, hedge funds and asset managers tilt their portfolios towards higher risk bonds, consistent with ‘reaching for yield’ behaviour.     

Monetary policy and food inflation in South Africa: A quantile regression analysis

Although optimal monetary policy stabilizes food inflation theoretically, empirical studies remain limited not only in the context of volumes and the estimation approaches, but are focused on selected advanced and emerging countries to the neglect of Africa where poverty and dominance of food in the consumption basket are more pronounced. We provide empirical evidence in the context of South Africa using quantile regressions. Rising food prices are destabilized even further by restrictive monetary policy; a finding that has ramifications for inflation targeting, especially given that a quarter of the country’s population is food poor.     

Blockchain in Additive Manufacturing and its Impact on Supply Chains

Additive manufacturing (AM) appears to be a particularly attractive use case for blockchain. This research combines inductive in‐depth interviews with the Delphi method to explore what potentials blockchain technology in AM creates, which adoption barriers firms need to overcome, and how supply chains will be affected by the integration of these two potentially disruptive technologies. The results suggest opportunities that are related to intellectual property (IP) rights management, the monitoring of printed parts throughout their lifecycle, process improvements, and data security. The most important barriers for blockchain adoption in AM are an absence of blockchain‐skilled specialists on the labor market, missing governance mechanisms, and a lack of firm‐internal technical expertise. By addressing important limitations of AM, blockchain is expected to improve the competitiveness of AM in parts’ production, catalyzing the trend toward more decentralized manufacturing resulting in more agile, resilient, and flexible supply chains and reduced logistics costs. Beyond that, blockchain‐based AM platforms are expected to enhance supply chain visibility, drive supply chain digitalization, support supply chain finance, and contribute to the emergence of shared factory systems.     

The structure of information release and the factor structure of returns

We model how firms releasing information on different dates causes the CAPM to fail, requiring an additional factor based on the information structure to price assets. We exemplify this mechanism’s empirical relevance using quarterly earnings announcements, which cluster across months along size and book-to-market. Seventy percent of the alpha reduction from including SMB and HML occurs in the four main earnings announcement months. The information structure factor accounts for all of SMB and HML’s seasonal alpha reduction and one third of their overall alpha reduction. Controlling for size and book-to-market, exposures to SMB and HML vary with firms’ earnings announcement month.     

Network structure,portfolio diversification and systemic risk

We investigate the effect of portfolio diversification on banking systemic risk, where the network effect is incorporated. We analyze three kinds of interbank networks, namely, random networks, small-world networks and scale-free networks. We show that the effect of portfolio diversification on banking systemic risk depends on interbank network structures and shock types. First, systemic risk increases first and then reduces with the increase of the level of portfolio diversification in the case of the individual shock. Second, in the case of the systemic shock, systemic risk reduces with the increases of the level of portfolio diversification. Third, banking systems with scale-free network structures are the most stable, and those with small-world network structures are the most vulnerable.     

Did taxes,decrees or credibility drive money? Early nineteenth century Finland from a chartalist perspective

Chartalist theories assume the government determines the currency used by the public. Finland’s experience following the Russo-Swedish war in 1808–1809 would seem to contradict the chartalist view. Having become a Grand Duchy under Russia, the Finnish Government sought to replace Swedish riksdalers in circulation with roubles. However, due to a resilient trade surplus with Sweden and the resulting flood of Swedish money into Finland, bans on the riksdaler were largely ineffective. Taxation proved a particularly clumsy tool for leveraging the switch to roubles. Taxpayers almost forced the government to accept payments in a foreign currency. Even the government had to use Swedish money. Issuing roubles was of limited use. As a result, the rouble failed to establish itself as Finland’s main currency until the introduction of a silver standard in 1840–1842.     

Are USDA reports still news to changing crop markets?

This study investigates whether major USDA reports still provide important news to changing crop markets. The news component of each report, or market “surprise,” is measured as a difference between the USDA estimate and its private expectation in corn, soybeans, and wheat markets. Changes in the relevance of USDA information are assessed by examining changes in the magnitude of market surprises and shifts in the futures price reaction to these surprises, which isolates the impact of each report. The stable size of market surprises over time suggests that competition from alternative data sources has not reduced the news component of USDA crop reports. Increasing price reaction to most reports, including those facing competition from alternative information sources, suggests that value of public information may be enhanced in uncertain markets affected by structural changes.     

We Eat First with Our (Digital) Eyes: Enhancing Mental Simulation of Eating Experiences via Visual-Enabling Technologies

This research examines how consumers’ intentions to purchase food change depending on the visualisation mode (3D vs. AR) and product format (served vs. packaged). In three studies, we demonstrate that mental simulation of eating experiences (process and outcome) mediate these effects. Study 1 shows that AR visualisation of a served food improves simulation of the eating process over 3D visualisation, with a positive effect on purchase intention. Study 2 reveals that 3D visualisation improves purchase intention for packaged products (high instrumental properties) over served products (low instrumental properties) while the opposite is true for AR visualisation. In addition, interactivity and immersion mediate the effects of 3D (vs. AR) on mental simulation of the eating process for packaged products. Study 3 extends these results by showing that 3D increases purchase intention by eliciting mental simulation of the eating outcome, when the food is visible due to transparent (vs. opaque) packaging (displaying both sensory and instrumental properties), but that no such differences emerge for AR. This research highlights the importance of using different visualisation modes to promote food depending on the product format. The findings have important implications for both offline and online retailers.