does exchange rate variability depress trade flows evidence from error correction models this paper examines the impact of exchange rate volatility on the trade flows of the g 7 countries in the context of a multivariate error correction model the error correction models do not show any sign of parameter instability the results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the g 7 countries assuming market participants are risk averse these results imply that exchange rate uncertainty causes them to reduce their activities change prices or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility this in turn can change the distribution of output across many sectors in these countries it is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series copyright 1993 by mit press

comments on hodrick and srivastava in their paper the covariation of risk premiums and expected future spot exchange rates robert hodrick and sanjay srivastava provided a useful analysis of one of the key questions that have occupied the center stage of research in exchange rate economics in recent years various attempts have been made to account for the determinants and the statistical properties of the discrepancies between forward exchange rates and expected future spot rates a discrepancy which is frequently referred to as the risk premium in an earlier work e fama 1984 found that the covariance between the risk premium and the expected rate of change of the exchange rate was negative in their own contribution hodrick and srivastava clarify the theoretical circumstances under which the finding of the negative covariance can be rationalized and they demonstrate by means of alternative econometric techniques that fama s findings are robust in my subsequent comments i discuss some of the theoretical issues underlying the analysis as well as additional aspects concerning the empirical work

are investment expectations rational adaptive or regressive i introduction tests of the rational expectations hypothesis reh outside the experimental laboratory typically utilize two types of data quantitative measures of expectations about publicly observed variables such as inflation usually elicited from small samples of professional forecasters and qualitative measures of expectations about privately observed variables such as personal income elicited from large samples of households analyses of both types of data have produced varying levels of support for the reh for example keane and runkle 1990 1998 find evidence in favor of the reh using the first type of data while bonham and cohen 2001 in part overturn their results after accounting for the nature of cross correlations inherent in a group of individuals forecasting the same publicly observed integrated time series next using household survey data das and van soest 1997 1999 and das et al 1999 find evidence against the reh in contrast benitez silva et al 2008 furthered the econometric analysis of such data and presented evidence in favor of the reh in employing publicly available professional forecaster data several concerns related to pooling data revisions and the possibility of signaling on the part of forecasters have been raised 1 further pesaran and weale 2006 review a large and growing literature on survey expectations of households and the attendant econometric and substantive issues in analyzing qualitative response expectations data from such surveys they conclude for myriad reasons that it remains the case that the analysis of individual responses to such surveys and in particular to those who collect only qualitative information is underdeveloped these issues can be addressed in part by data on quantitative expectations about privately observed variables this paper employs data from two new survey sources that provide such information the resulting panel of 775 firms in canada contains quantitative information on expectations about purchases of new machinery and equipment investment as well as realized levels of investment over 7 yr the data are particularly useful because they avoid some of the issues raised for previous studies and their analysis helps to contribute on the firm side to the agenda laid out by manski 2004 who sees a critical need for basic research on expectations formation figure 1 omitted estimation results suggest that investment expectations are not rational if the assumed underlying loss function is assumed to be symmetric that is the usual unbiasedness and efficiency requirements for rational expectations clearly elucidated for instance by lovell 1986 do not hold for the collected data further hypothesis tests on statistical models implied by conventional adaptive expectations do not suggest the prevalence of such behavior in the data however a particular version of such extrapolative expectations namely regressive expectations formation does find support in the data the paper is structured as follows section ii discusses the data on 775 manufacturing plants over 7 yr that was compiled by merging two national surveys in canada in section iii the statistical models and attendant hypothesis tests as implied by various expectations formation assumptions are described followed by their estimation results section v concludes ii the data data were compiled from two confidential proprietary surveys conducted by statistics canada the capital expenditures survey ces and the annual survey of manufactures asm over 7 yr 1986 1992 2 the ces contains data on one step ahead expected expect sub it and realized actualit capital expenditures on machinery and equipment i e investment and the asm on shipments shipment sub sit 3 owing to the lumpy and long term nature of construction expenditures this variable was excluded finally only manufacturing sector records were selected for both surveys

subjective expectations and income processes in rural india this paper uses unique primary data on directly elicited individual subjective expectations to analyse and characterize the process that generates the income of poor rural indian households we validate and use responses to subjective expectations questions and a parametric assumption to fit a household specific probability distribution for future income combining computed moments from this distribution with data for actual current income we specify and estimate a dynamic model of household income we find that our households face a very persistent income process our paper is one of the first that uses subjective expectations data to model income processes

new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

collateral and credit rationing a review of recent empirical studies as a guide for future research abstract the relationship between firms and banks often suffers from informational opacity that may result in credit rationing in theory providing collateral to the bank can have a mitigating effect on these informational asymmetries and thus solve the credit rationing problem even though collateral is already a widespread debt contract feature recent trends predict that in the future collateral will become even more important for informationally opaque firms the aim of this paper is twofold first we provide a review of the recently growing empirical research on collateral as a remedy for credit rationing second we would like to pinpoint gaps and limitations in current empirical research most studies contend with a flawed research design by not distinguishing between business and personal collateral and excluding other information opaqueness reducing tools such as the strength of the relationship between borrower and lender loan maturity and covenants we also discuss the limitations of using a single equation estimation method and the usefulness of incorporating interaction effects into the estimation models finally we provide suggestions for fruitful research avenues that would fill these gaps and enrich the empirical knowledge in this research domain

vive la difference social banks and reciprocity in the credit market social banks are financial intermediaries paying attention to non economic i e social ethical and environmental criteria to investigate the behavior of social banks on the credit market this paper proposes both theory and empirics our theoretical model rationalizes the idea that reciprocity can generate better repayment performances based on a unique hand collected dataset released by a french social bank our empirical results are twofold first we show that the bank charges below market interest rates for social projects second regardless of their creditworthiness motivated borrowers respond to advantageous credit terms by significantly lowering their probability of default we interpret this outcome as the first evidence of reciprocity in the credit market

expected and realized income changes evidence from the dutch socio economic panel abstract income expectations play a central role in household decision making in the life cycle model for example consumption and savings decisions reflect expectations of future income in empirical applications where direct information on expectations is not available it is usually assumed that expectations are rational and reflected by observed future realizations in this paper we analyze direct subjective information on expected changes of household income in one panel wave of dutch families first we describe these data and investigate how the expectations can be explained by among other variables income changes in the past second we combine these data with information on realized income changes in the next panel wave and analyze the differences between expected and realized changes we find that on average households underestimate their future income changes significantly in particular this holds for those families whose income has fallen in the past

fixed versus flexible exchange rates and the measurement of exchange rate instability a recent study by rana that examined exchange rate instability in eight asian countries concluded that owing to the non normality of the underlying exchange rate distributions the standard deviation was an erratic and misleading measure of variability the present paper argues that the choice of a suitable measure of instability cannot be made on mathematical grounds alone rana s preferred measure is shown to be inappropriate since it excludes from consideration precisely those observations of greatest significance conversely given the assumption of risk aversion the standard deviation is an entirely consistent measure results are also presented for an expanded study covering more than 150 countries

banking competition risk and regulation in a dynamic framework commercial banks compete for customers by setting acceptance criteria for granting loans while taking into account regulatory requirements by easing its acceptance criteria a bank faces a trade off between attracting more demand for loans thus making higher per period profits and deterioration in the quality of its loan portfolio thus tolerating a higher risk of failure our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria and that increased competition in the banking industry leads to riskier bank behaviour it is shown that risk adjusted regulation is effective in an extension of our basic model we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator even though issuing equity is more expensive than attracting deposits

has the european monetary system led to more exports evidence from four european union countries abstract we attempt to investigate whether the exchange rate mechanism erm period has coincided with an increase in intra eu exports we conclude that this has not been the case but it is likely that the elimination of nominal exchange rate variability arising from a single currency will boost intra european union trade

bargaining power and information in sme lending small and medium sized enterprises smes are informationally opaque and bank dependent in sme lending banks largely rely on soft information because the scale and scope of hard information are limited we analyze whether and how hard and soft information affects the borrower s bargaining power vis a vis its bank we use the fact that for a given credit rating certain borrowers obtain better loan terms than others to define measures of relative bargaining power using sme loan data from the usa and germany we find that more favorable soft information management skills and character increases borrower bargaining power we also show that more favorable soft than hard information improves borrower bargaining power the results are not driven by manipulation or statistical limitations of the credit ratings our study suggests that soft information represents an important and direct determinant of borrower bargaining power affecting the outcomes of the loan contracting process

the impact of social mobility and within family learning on voter preferences evidence from a sample of twins abstract income maximizing consumers should vote in predictable ways support for liberal redistributive governments should fall as income rises but weak empirical evidence for these voting patterns might suggest that voters are influenced by alternative factors such as perceptions of social mobility from within family learning to examine these effects this paper uses a data set of twins and a recently developed econometric approach to show that within family learning and family specific effects are important determinants of voting preferences and preferences for redistribution

contract length monetary policy and exchange rate variability abstract this paper investigates the dependence of exchange rate variability on average contract length in the goods market when changes in the money supply are the driving force for movements in the exchange rate it is shown that in general an increase in average contract length will increase the volatility of the exchange rate we then discuss how changes in the money supply process affect average contract length besides providing an explanation for changes in the conditional variance of the exchange rate our results are interesting in the light of the changes in monetary control procedures implemented by the federal reserve board in october 1979 and the consequent increase in exchange rate volatility

asymmetric changes in australia s small business loan rate this paper examines the dynamic asymmetric relationship between changes in the reserve bank of australia s rba cash rate and the interest rate for small business loans using monthly data 1990 2011 the results provide support for the rockets and feathers hypothesis with respect to both the amount and adjustment asymmetries while the rba s rate rises exert a one to one and instantaneous impact on the loan rate its rate cuts are only slowly and partially passed onto small businesses with a delay of 1 2 months the results also suggest that the recent global financial crisis increased the cost of borrowing for small businesses in australia by 2 21 these findings indicate that small businesses have limited time to respond to interest rate rises and not provided with the full benefit of interest rate decreases addressing this problem should ease the interest rate burden for small businesses and enhance their contribution to the economy

equilibrium loan pricing under the bank client relationship abstract we determine the loan interest rate policy of a lender who is better informed about a client than other potential lenders the informational advantage possessed by the informed lender derives from the durability of information acquired as a result of an extant relationship given heterogeneous potential loan rate offers to the client by competitive lenders and client search costs the incumbent lender s policy of loan interest rate offers is examined we show that the optimal loan rate will exceed the incumbent lender s cost of funds and will exceed the average offer of competing lenders the potential lenders will offer loan rates that are exceeded by their cost of funds implying immediate losses in order to attract the client and to thereby earn expected profits in the future finally we show that the expected remaining duration of a lender client relationship is decreasing in the existing length of the relationship thus clients that have been with a particular lender longer will be more likely to leave and establish a relationship with another lender

financial integration gdp correlation and the endogeneity of optimum currency areas the paper analyses the relationship between trade financial integration and business cycle synchronization in the euro area the introduction of the euro has had a noticeable impact on european financial markets evidence that capital market integration exerts a positive effect on output correlation has two major implications first it corroborates the hypothesis of the endogeneity of optimum currency areas whereby after joining a monetary union countries better meet standard oca criteria second it provides european policy makers with yet another reason to pursue financial integration in the euro area and in prospective members as well

explaining loan rate differentials between small and large companies evidence from switzerland the lending rate differentials between loans to small and large companies are striking according to several studies these disparities of loan rates are primarily a result of a lower informational efficiency at small companies this study examines to what extent such differences in loan rates are caused not only by informational inefficiencies but also by operational costs and the borrower s negotiation power by using unique hand collected data from the credit pricing models of 15 swiss regional banks we provide new empirical evidence that operational costs are a key factor in explaining differences in lending rates between small and large enterprises furthermore we also found that the lack of negotiation power of small enterprises expressed in the profit margin amount of the bank has significant explanatory power

consumption and happiness we examine the relationship between relative consumption and happiness using panel data for china an important developing country we find that consumption has a positive effect on happiness an

banks lending decisions after loan acquisitions do banks favour pre existing relationships this article examines the lending decisions of korean banks after they acquire loan portfolios from failed banks we find that a firm s pre existing relationships positively affect the continuation of those relationships and that pre existing relationships negatively impact increases in loan size once those relationships are maintained these results suggest that banks have a conflict of interest that comes with pre existing lending relationships and that bank quality does not necessarily convey the risk classes of its client firms

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

a panel data model for subjective information on household income growth abstract subjective expectations about future income changes are analyzed using household panel data the models used are extensions of existing binary choice panel data models to the case of ordered response we consider static models with random and fixed individual effects we also look at a dynamic random effects model which includes a measure for permanent and transitory income we find that income change expectations strongly depend on realized income changes in the past those whose income fell are more pessimistic than others while those whose income rose are more optimistic expected income changes are also significantly affected by employment status family composition permanent income and past expectations expectations are then compared to the head of household s ex post perception of the realized income change for the same period the main finding is that rational expectations are rejected and that in particular households whose income has decreased in the past underestimate their future income growth

overconfidence in forecasts of own performance an experimental study systematic overconfidence by individuals regarding their abilities and prospects could have important economic consequences but overconfidence has received little direct testing within economics we use experiments to test for overconfidence in people s forecasts of their absolute or relative performance in two unfamiliar tasks given their chosen effort participants have incentives to forecast accurately with opportunities for feedback learning and revision forecasts are evaluated at aggregate and individual levels we find zero mean error or underconfidence far more prevalent than overconfidence underconfidence is greatest in forecasts of absolute rather than relative performance and among those using greater effort quantity or quality

is relationship lending special evidence from credit file data in germany the german financial market is often characterized as a bank based system with strong bank customer relationships the corresponding notion of a housebank is closely related to the theoretical idea of relationship lending it is the objective of this paper to provide a direct comparison between housebanks and normal banks as to their credit policy therefore we analyze a new data set representing a random sample of borrowers drawn from the credit portfolios of five leading german banks over a period of five years we use credit file data rather than industry survey data and thus focus the analysis on information that is directly related to actual credit decisions in particular we use bank internal borrower rating data to evaluate borrower quality and the bank s own assessment of its housebank status to control for information intensive relationships the major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long term commitment we find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings with respect to loan pricing we find no evidence for intra or intertemporal price differentiation related to housebanking

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

precautionary saving and subjective earnings variance abstract in this paper i examine a model of precautionary saving and i show that the fact that people may insure against income risk makes it difficult to evaluate the extent of precautionary accumulation by simply looking at the relationship between wealth and earnings variance i also argue that occupations may represent a bad proxy for income risk

moral hazard and secured lending in an infinitely repeated credit market game we analyze repeated moral hazard with discounting in a competitive credit market with risk neutrality even without learning or risk aversion long term bank borrower relationships are welfare enhancing the main result is that the borrower obtains an infinite sequence of unsecured loans at below spot market cost following the first good project realization this contract produces first best action choices prior to this stage the borrower gets secured loans with above market borrowing cost the optimal contract thus displays a selective memory feature taking only one of two forms at any given point in time depending on prior history we consider an infinitely repeated bank borrower relationship with moral hazard and universal risk neutrality and explore the ramifications of credit contract duration when the two well known benefits of long term contracting learning and improved risk sharing are absent our objectives are twofold the first is to analyze an infinitely repeated game with discounting in a credit market context we thus relate the theory of repeated games to financial intermediation theory particularly to issues of moral hazard and collateral related distortions the second objective is to understand noteworthy stylized facts of credit markets such as durability in credit relationships lower borrowing costs for established borrowers and unsecured loans for established borrowers versus secured loans for newer borrowers while these practices may be partly due to learning we show that learning is not essential to rationalize them even if information decays rapidly and banks learn nothing about borrowers through time these aspects of credit contracting arise in a repeated game context our main results are as follows first despite universal risk neutrality and the absence of learning a durable bank relationship benefits the borrower 2 the intuition is that the long term contracting permitted by a durable relationship enables the bank to efficiently tax and subsidize the borrower through time to reduce the use of costly collateral second the average welfare loss due to moral hazard per period is positive even as the time horizon goes to infinity third the optimal infinite horizon contract has the striking property that following the period

the implications of corporate bond ratings drift examination of the ratings of over 7000 bonds issued in the 1970 88 period reveals that some 40 to 80 of bonds initially rated bb and above can be expected to experience at least one rating change in the 1 0 years following issuance a rated bonds appear to be more stable than aaarated bonds bb rated bonds the highest junk bond category are the least stable furthermore bonds initially rated a and above have a greater tendency to be downgraded than to be upgraded among the investment grades only bonds initially rated bbb tend to be upgraded more than they are downgraded as for bonds originally rated non investment grade junk there does not appear to be a tendency toward either upgrades or downgrades in the sample period

can households see into the future survey evidence from the netherlands abstract this paper presents new evidence on the expectation formation process from a dutch household survey households become too optimistic about their future income after their income has improved consistent with the overextrapolation of their experience we show that this effect of experience is persistent and that households overextrapolate income losses more than income gains furthermore older households overextrapolate more suggesting that they did not learn over time to form more accurate expectations finally we study the relationship between expectation errors and consumption we find that more overoptimistic households intend to consume more and subsequently report higher consumption even though they do not consume as much as they intended to these results suggest that overextrapolation hurts consumers and amplifies business cycles

saving and income smoothing evidence from panel data abstract in this paper we use data from a panel of dutch households to investigate the behavior of savings as in campbell 1987 we examine whether the pattern of savings is consistent with the predictions of the rational expectations permanent income model we consider one important prediction of the model whether savings anticipate future income changes we test the predictions of the permanent income model in several ways first we propose some informal tests that exploit directly the information on expected future income changes available in the data we then perform a test of the model by setting up a vector autoregression var in terms of savings and income changes and by using euler equations expressed in terms of savings the empirical evidence shows that in all the specifications used in this paper the permanent income model is rejected contrary to the evidence from u s macro data we do not find that the excess sensitivity of consumption to income is responsible for the rejection of the model

the effects of real exchange rate risk on international trade abstract by assuming real profit maximization and uncertain prices as well as exchange rates we conclude that it is uncertain percentage changes in the real exchange rate that are risky in international trade empirical estimation of fourteen bilateral trade flows among industrialized countries finds a significant negative effect on trade quantity from such risk in a number of these cases the expectation variable has a positive effect in a larger number of cases significant price effects from the expectation variable are fewer and from risk are negligible

borrowing constraints and portfolio choice this paper examines how borrowing ceilings in the personal loan market affect the portfolio choice of consumers most papers on borrowing constraints do not address the question of portfolio choice it is typically assumed that all assets can be liquidated to finance consumption in the case of an income shortfall in this case borrowing ceilings will never bind until consumers have run their assets down to zero and borrowed up to their limits however it may be more realistic to assume that consumers have a choice of allocating wealth between short term liquid assets e g cash that can be used for current consumption purposes and longer term illiquid assets e g housing equity cds that cannot be used for current consumption purposes but may be used as collateral for loans the central question of this paper is whether the presence of borrowing ceilings in the personal loan market will induce individuals to hold a larger share of their assets in liquid form this question is addressed within the context of two types of borrowing ceilings first it is assumed that borrowing ceilings are exogenous in that they are unaffected by the individual s portfolio choice this assumption is similar to that made in many papers on borrowing constraints 2 the presence of exogenous borrowing ceilings will unambiguously lead to more liquid portfolios individuals who know that there is a limit to the amount that can be borrowed will hold a larger share of their wealth in liquid form since by doing so the probability of becoming credit constrained in the future is reduced the case of exogenous borrowing ceilings is contrasted with the case in which borrowing ceilings are due to interest rate ceilings in

expectations heterogeneous forecast errors and consumption micro evidence from the michigan consumer sentiment surveys the household data underlying the michigan index of consumer sentiment are used to test the rationality of consumer expectations and their usefulness in forecasting expenditure the results can be interpreted as characterizing the shocks that hit different types of households over time expectations are found to be biased and inefficient at least ex post people underestimated the disinflation of the early 1980s and the severity of recent business cycles people s forecast errors are also systematically correlated with their demographic characteristics in part because of time varying group level shocks further sentiment helps forecast consumption growth some of this rejection of the permanent income hypothesis is due to the systematic demographic components in forecast errors

relationship lending and sme financing in the continental european bank based system this paper analyzes the relationship between banks and smes in the continental european bank based system we find that smes with longer bank relationships have enhanced access to loans but at the same time they bear a higher cost for their debt we also find that firms maintaining two bank relationships get the cheapest debt which establishes a limit for the degree of concentration of bank relationships our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs whereas it increases the likelihood that guarantees will have to be provided as a consequence it seems that a relationship based on trust is a better strategy to improve smes access to finance than the establishment of longer or more concentrated relationships

income risk borrowing constraints and portfolio choice economic theory suggests that uninsurable income risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household s portfolio if the utility function exhibits decreasing absolute risk aversion and decreasing prudence an individual will reduce his exposure to rate of return risks when confronted with other independent risks if there are transaction costs the expectation of future borrowing constraints should induce individuals to keep a lower proportion of their wealth in the form of illiquid and risky assets the authors find support for these propositions in a cross section of italian households copyright 1996 by american economic association

efficiency and formation of expectations evidence from the european investment survey the european commission conducts an annual survey regarding planned and realized business fixed investment across various manufacturing sectors in euroland in this study we investigate the predictive content of survey based expectations on investment in addition we empirically test the rationality of respondents both in a time series as well as in a panel context according to our results based on pooling the data efficiency is rejected since expectations are biased predictors of actual outcomes furthermore expectations revisions are found to be correlated with components of the information set known at the time of decision making finally our results qualify regressive expectations as the mechanism that more adequately describes the formation of expectations

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

measuring and analysing the effects of short term volatility in real exchange rates this paper examines short term volatility in the real effective exchange rates of industrial countries and its impact on their imports it yields three conclusions first volatility has not diminished as markets have gained experience with floating exchange rates the trend appears to be in the opposite direction for some countries second exposure to short term volatility has differed among countries japan and sweden have experienced much more than most other industrial countries third volatility appears to depress the volume of international trade this third finding is consistent with results reported by cushman and by akhtar and hilton and challenges earlier findings by hooper and kohlhagen

on the rationale of bank lending in pre crisis thailand evidence from credit files is provided to examine bank lending determinants of thai commercial banks their lending practice follows reasonable patterns as a standard set of variables including indirect risk variables explains much of the variance in interest rate spread reflecting institutional differences with mature markets we find a higher importance of relationship banking and risk control via credit availability information about later default reveals prudent relationship lending however banks could have made better use of available information about borrowers riskiness these findings do not support a general verdict of bad banking but indicate room to improve lending decisions

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

misalignment of the baht and its trade balance consequences for thailand in the 1980s and 1990s this paper examines thailand s pre crisis exchange rate policy focusing on the degree of the country s real exchange rate misalignment pre crisis and its consequent effects on thailand s trade balance with its two large trading partners the us and japan in the 1980s and 1990s defining misalignment as the difference between actual and equilibrium exchange rates we estimate three key equilibrium exchange rates of the thai baht a the real effective equilibrium exchange rate of the thai baht against its twenty two major trading partners b the bilateral real equilibrium exchange rates of the baht against the us dollar and c the bilateral real equilibrium exchange rate of the baht against the japanese yen

estimation of rating class transition probabilities with incomplete data abstract this paper shows that the well known duration and cohort methods for estimating transition probabilities of external bond ratings are not suitable for internal rating data more precisely the duration method cannot and the cohort method should not be used in connection with banks ratings generated from internal models structural differences within the borrower monitoring process of banks and rating agencies are responsible for this result a maximum likelihood ml estimation procedure which accounts for the peculiarities of internal bank ratings is introduced and applied to data from a german bank the empirical results indicate that the differences between cohort and ml transition matrices are both statistically and economically significant furthermore evidence of rating reversals business cycle dependent transition probabilities and on the factors which determine the borrower monitoring intensity of banks is provided

personality traits and the marriage market which and how many attributes are relevant for the sorting of agents in a matching market this paper addresses these questions by constructing indices of mutual attractiveness that aggregate information about agents attributes the first k indices for agents on each side of the market provide the best approximation of the matching surplus by a k dimensional model the methodology is applied on a unique dutch household survey containing information about education height body mass index health attitude toward risk and personality traits of spouses

an analysis of the determinants of job satisfaction when individuals baseline satisfaction levels may differ a growing literature seeks to explain differences in individuals self reported satisfaction with their jobs the evidence so far has mainly been based on cross sectional data and when panel data have been used individual unobserved heterogeneity has been modelled as an ordered probit model with random effects this article makes use of longitudinal data for denmark taken from the waves 1995 1999 of the european community household panel and estimates fixed effects ordered logit models using the estimation methods proposed by ferrer i carbonel and frijters 2004 and das and van soest 1999 for comparison and testing purposes a random effects ordered probit is also estimated estimations are carried out separately on the samples of men and women for individuals overall satisfaction with the jobs they hold we find that using the fixed effects approach that clearly rejects the random effects specification considerably reduces the number of key explanatory variables the impact of central economic factors is the same as in previous studies though moreover the determinants of job satisfaction differ considerably between the genders in particular once individual fixed effects are allowed for

the role of low expectations in health and education investment and hazardous consumption young people with little social or health capital may be more likely to take up hazardous consumption and shun investments in human capital raising their likelihood of a rags to rags sequence first diminishing marginal utility could raise the marginal benefit of hazardous consumption and the cost of investment but poor youths may also have lower expectations of future success independent of the choices they make lower expectations of success could reduce the future cost of hazardous consumption and benefit of investment we test the effect of expectations on decisions to smoke drink hazardously exercise and complete high school using a longitudinal study of youth in new zealand we find that 15 year olds expectations of success predict the subsequent onset of smoking lack of exercise and failure to complete high school but not hazardous drinking while some of the influence of expectations can be explained by low social and health capital iq and other factors expectations retain a direct effect on smoking and exercise once these other factors are controlled for les jeunes personnes qui possedent peu de capital social ou de sante peuvent etre plus susceptibles de s adonner a la consommation de produits dangereux et d eviter les investissements en capital humain avec pour consequence qu elles ne peuvent pas se sortir de ce cercle vicieux d abord l utilite marginale decroissante peut accroitre l avantage marginal de cette consommation dangereuse et les couts de l investissement mais les jeunes personnes pauvres peuvent aussi avoir des expectatives plus faibles quant aux succes que leur reserve l avenir quels que soient les choix qu elles fassent ces expectatives plus faibles peuvent reduire les couts futurs de la consommation dangereuse et les avantages a l investissement on teste l effet des expectatives sur les decisions de fumer de boire dangereusement de faire de l exercice et de finir ses etudes secondaires a l aide d une etude longitudinale des jeunes en nouvelle zelande on montre que les expectatives de succes des jeunes de 15 ans predisent bien le fait qu on va subsequemment fumer faire de l exercice et finir ses etudes secondaires mais pas le fait de boire dangereusement meme si une portion de l impact des expectatives peut etre expliquee par le faible capital social et capital de sante de depart le quotient intellectuel et d autres facteurs les expectatives demeurent un facteur qui a un effet direct sur la decision de fumer et de faire de l exercice meme quand on a normalise les donnees pour tenir compte de ces facteurs

gender biases in student evaluations of teaching abstract this article uses data from a french university to analyze gender biases in student evaluations of teaching sets the results of fixed effects and generalized ordered logit regression analyses show that male students express a bias in favor of male professors also the different teaching dimensions that students value in male and female professors tend to match gender stereotypes men are perceived by both male and female students as being more knowledgeable and having stronger class leadership skills which are stereotypically associated with males despite the fact that students appear to learn as much from women as from men

the role of demographics in small business loan pricing demographic change influences the structure of the entrepreneurially active population which may affect credit risk and financing conditions of small firms using bank internal data of small business loans in germany we find that the lending relationship plays a larger role for loan prices than demographics loan rates decrease with soft information gained through longer loan processing time and a larger number of accounts at the same bank they increase with hard information about repayment arrears and reminders late payments have the largest influence on loan prices older entrepreneurs do not seem to be discriminated rather the younger have to pay more because their loans and businesses are smaller and they lack liquidity to pay in time marital status and population density of the business district do not matter this is good news for aging economies with a rising share of elderly and singles and growing disparities between peripheral and agglomerated regions

international financial volatility and commodity exports evidence from the thai agricultural sector using 1981 2006 data from the bank of thailand i estimate the effect of four measures of real exchange rate volatility on thai exports of five key agricultural commodities controlling for both the level of the real exchange rate and foreign incomes estimates of the effect of volatility on export volume are generally negative and often significant lending support to a range of theoretical models that predict such an effect no such relationship exists between lagged values of exchange rate volatility and agricultural production the range of results obtained using various measures of volatility suggests caution in comparing studies using different measures copyright 2010 oxford university press

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

is greater exchange rate flexibility stabilizing some evidence from us data abstract this paper examines the hypothesis that greater exchange rate flexibility is stabilizing in external adjustment processes the results indicate that floating exchange rates tend to magnify changes in relative prices without stabilizing income as the trade balance adjusts

the effect of exchange rate variability on trade the case of the west african monetary union s imports abstract the west african monetary union during the period of this study 1976 1982 comprised six countries benin burkina faso co te d ivoire niger senegal and togo since their common currency the cfa franc has been pegged to the french franc at an unchanged rate since 1948 the entire nominal exchange rate variability that traders in the region face is due to movements in the french franc with respect to other currencies in the face of exchange rate risk that is not always coverable trade should be adversely affected using three measures of variability in the nominal effective exchange rate index this paper finds that exchange rate variability has not affected the union s real imports or the diversification of trade away from the franc zone

collateral relationship lending and family firms prior research suggested that relationship lending could play a role in solving asymmetric information problems between borrower and lender other studies suggest a relationship between family ownership and the shareholder bondholder agency conflict the present paper investigates the impact of relationship characteristics family ownership and their interaction effects upon the use of collateral in sme lending we examine the determinants of collateral as well as the determinants of the choice between business and personal collateral using decision tree analysis the results reveal that relationship characteristics have a significant influence but not always in the direction as expected moreover they do not seem to be the primary determinants in our classification models the most important determinants in both classification models seem to be the loan amount total assets and the family versus non family firm distinction in addition we differentiate between line of credit and non line of credit loans and find significant differences between these decision trees

some evidence on the empirical significance of credit rationing this paper examines the credit rationing debate using detailed contract information on over one million commercial bank loans from 1977 to 1988 while commercial loan rates are sticky consistent with rationing this stickiness varies with loan contract terms in ways that are not predicted by equilibrium credit rationing theory in addition the proportion of new loans issued under commitment does not increase significantly when credit markets are tight despite the fact that borrowers without commitments can be rationed whereas commitment borrowers are contractually insulated from rationing overall the data suggest that equilibrium rationing is not a significant macroeconomic phenomenon

exchange rate dynamics under gradual portfolio and commodity price adjustment abstract this paper studies exchange rate dynamics within the context of a model that allows for gradual portfolio and commodity price adjustment the model encompasses as a special limiting case the orthodox portfolio balance model wherein portfolio adjustment is instantaneous the focus of the paper is on the process of adjustment to a once and for all open market operation under a bond financed government budget deficit the generalized portfolio balance model which we formulate generates a varied menu of adjustment paths for the exchange rate and the aggregate price level which are more successful than the orthodox instantaneous portfolio equilibrium models in accomodating the divergent experiences of various countries

effect of the number of banking relationships on credit availability evidence from panel data of spanish small firms this paper investigates how the choice between single or multiple banking relationships affects credit availability for a complete panel of small and medium sized spanish firms the results seem to indicate the existence of rationing since a substitution relation has been found between trade and bank credit we also analyse the relationship between the level of indebtedness and the interest rate for each group of firms the results show that those smes that work with fewer financial intermediaries obtain fewer funds for the same increase in the interest rate which indicates that these companies have more financial restraints