money and asset prices in a continuous time lucas and stokey cash in advance economy abstract this paper develops a continuous time version of the lucas and stokey 1987 money and interest in a cash in advance economy econometrica 55 491 513 cash in advance economy the continuous time setting allows for an exact characterization of equilibrium expected excess returns real and nominal interest rates the price level and the inflation risk premium for general preferences and stochastic processes explicit general equilibrium solutions are obtained for separable logarithmic preferences and serially correlated processes for output and money growth a characteristic feature of the economy is that even when preferences are separable in cash and credit goods money supply still affects asset prices

family involvement and firms establishment mode choice in foreign markets abstract extant literature on foreign entry increasingly recognizes firms heterogeneity as a potential reason for inconsistency in results on the establishment mode choice that is whether and under which conditions firms should choose to enter a new country through a greenfield investment or an acquisition our study contributes to this debate by identifying family ownership and family involvement in management as potential powerful sources of such heterogeneity integrating international business studies with both corporate finance literature on family firms and recent contributions from the socio emotional wealth perspective on family ownership we claim that due to greater risk aversion and lower access to information the family involvement both in the firm ownership and management leads to a higher propensity towards greenfield initiatives vs acquisitions however we also find that such a propensity decreases with international experience especially in family owned firms given the greater ability of professionalized management to overcome family related concerns on making acquisitions our analysis on 1045 foreign initiatives undertaken by 311 italian family and non family firms between 2003 and 2013 confirms our expectations indicating family ownership as a significant driver of firms international strategies

stock returns inflation and the phillips curve in recent years the negative relation between stock returns and inflation has been rigorously investigated studies by lintner 25 bodie 1 jaffee and mandelker 21 nelson 28 fama and schwert 11 and gultekin 17 to name but a few consistently show that stock returns are negatively associated with inflation if associated at all and conclude that the fisher hypothesis does not hold for stocks explanations for this finding are equally abundant for instance fama 10 postulates that the observed negative association is largely a spurious phenomenon a conclusion he justifies by maintaining that it is consistent with a simple money demand quantity theory world geske and roll 15 extend this line of thought by developing a more complex macro economic model that includes such items as unemployment corporate earnings and government financing following a somewhat different approach ram and spencer 32 reexamine fama s work by augmenting the fisher equation to include the phillips curve hypothesis they conclude that there is a positive association between inflation and real activity and a negative relationship between real stock returns and real activity a position that contradicts fama s findings a problem common to the above explanations is that a general equilibrium framework is not employed the purpose of this study therefore is to further develop this work by examining the relationships among real stock returns inflation and unemployment using a general equilibrium model a nonspurious negative relation of real interest and inflation is employed that is based on the levi and makin studies 23 24 it is shown that the natural rate of unemployment phenomenon which causes the phillips curve to shift also simultaneously causes the real interest rate inflation relation to shift using this framework the hypothesis that the real stock return inflation relation shifts concurrently with the phillips curve is empirically tested the hypothesis is not rejected this suggests that the usual simple regression of stock returns on inflation is misspecified so that the slope estimate is not as steep as the true one the plan of the paper is as follows the concurrency of the shift in the real interestinflation relation and the phillips curve is demonstrated in the next section in section iii the shift in the phillips curve is tested by the brown durbin and evans method 3 then using dummy variables to represent the shifting phenomenon of the phillips curve empirical

political institutions and central bank independence a cross country analysis using three quantitative measures of central bank independence we apply ols and tsls regression methods to investigate the possible correlation between political liberty political instability and central bank independence for a sample of western democracies and highly democratic developing countries we show that cukierman s legal independence index is positively correlated with political freedom and regime political stability it is negatively correlated with party political stability for a sample of developing countries that excludes dictatorships we show that a special index of legal central bank autonomy is positively associated with political freedom and political stability finally we observe that for the same sample of nations the turnover index of central bank independence is not sensitive to our political variables

decision specific experience in foreign ownership and establishment strategies evidence from japanese firms in this paper we examine the importance of decision specific experience for a multinational firm s foreign ownership structure and establishment mode decisions a unique procedure to measure the decision specific experience construct is developed based on data for the period 1969 1991 we find strong empirical evidence from experiences of japanese firms to support the hypotheses that firms tend to select ownership structures and establishment modes based on their experiences with similar ownership structures and establishment modes in the past

ownership structure and ceo compensation implications for the choice of foreign market entry modes drawing on agency theory corporate governance and international business literatures we develop arguments relating equity ownership structures and ceo compensation mix to a firm s choice of foreign market entry modes based on a sample of 432 foreign market entries by 118 non diversified firms in the us manufacturing sector between 1991 and 1998 our findings indicate that greater equity ownership by institutional shareholders and inside directors is positively associated with a preference for full control entry modes in addition our results suggest that ceos with a greater proportion of pay tied to firm long term performance are more inclined to choose full control entry modes over shared control modes

acquisition or greenfield start up institutional cultural and transaction cost influences in this paper we develop and test a model of diversification mode choice how firms decide between acquisitions and greenfield start up ventures which includes institutional cultural and transaction cost variables using a sample of japanese firms entering western europe our results show the model correctly predicts over eighty seven percent of the mode choices thus we provide strong initial evidence to support using institutional cultural and transaction cost variables to predict firms choices between acquisitions and greenfield start ups in international expansion our findings also suggest that organizations which have developed strong intangible capabilities may be able to more readily leverage these capabilities through greenfield start ups copyright 2000 john wiley sons ltd

taxing times taxation divided societies and the informal economy in northern nigeria this paper challenges the notion that taxing the informal economy provides a mechanism for increasing popular political voice and rebuilding the social contract it contends that current arguments for taxing the informal economy suffer from a eurocentric understanding of taxation and state formation and a fiscally essentialist and undifferentiated notion of the informal economy drawing on fieldwork in northern nigeria this paper shows that history gender wealth and ethno religious identity influence how taxing the informal economy shapes governance outcomes evidence from nigeria suggests an inverse relationship between informal economy taxation and political voice posing the risk that increased taxation will exacerbate social divisions rather than rebuild the social contract

inflation and asset returns in a monetary economy postwar u s data are characterized by negative correlations between real equity returns and inflation and by positive correlations between real equity returns and money growth these patterns are closely matched quantitatively by an equilibrium monetary asset pricing model the model also implies negative correlations between expected asset returns and expected inflation and it predicts that the inflationasset return correlation will be more strongly negative when inflation is generated by fluctuations in real economic activity than when it is generated by monetary fluctuations the co movements of real asset returns inflation and money growth have been studied extensively over the past fifteen years table i displays some of the statistical properties of these series using quarterly u s data from 1959 to 1990 note first the significantly negative correlation between real equity returns and inflation note also the negative correlation between inflation and the ex post real return to nominally riskless bonds while this fact is not particularly surprising numerous studies conclude that the correlations between ex ante real asset returns and expected inflation are also negative 2 in contrast to these patterns the correlation between money growth and real equity returns is weakly positive in the data while the correlation between money growth and the real bond return is virtually zero initially these empirical patterns were viewed as anomalies negative correlations between inflation and ex post real stock returns contradict the traditional view that equities ought to act as an inflation hedge 3 negative correlations between expected inflation and ex ante real returns violate the

the international penetration of ibusiness firms network effects liabilities of outsidership and country clout the burgeoning of ibusiness firms in the modern digital economy challenges the received internationalization theory given that ibusinesses such as social networking sites create value by providing a digital platform for users to interact with one another we employ a user network perspective and externalization logic suggesting that ibusinesses internationalization process depends critically on users collective interactions instead of being solely driven by firms market commitments as noted by the uppsala model however ibusinesses may suffer from liabilities of outsidership due to the boundedness of international network effects drawing on social network theory we demonstrate that such liabilities can be mitigated by first diffusing the ibusiness platform in countries with higher clout our analysis using a unique dataset of mobile ibusiness platforms finds empirical support for the hypotheses we discuss theoretical implications for the network approach of the uppsala model in the digital era

macro economy stock market and oil prices do meaningful relationships exist among their cyclical fluctuations this paper examines the relationship among consumer price index industrial production stock market and oil prices in greece initially we use a unified statistical framework cointegration and vecm to study the data in levels we then employ a multivariate var model to examine the relationship among the cyclical components of our series the period of the study is from 1996 1 to 2008 6 findings suggest that oil prices and the stock market exercise a positive effect on the greek cpi in the long run cyclical components analysis suggests that oil prices exercise significant negative influence to the stock market in addition oil prices are negatively influencing cpi at a significant level however we find no effect of oil prices on industrial production and cpi finally no relationship can be documented between the industrial production and stock market for the greek market the findings of this study are of particular interest and importance to policy makers financial managers financial analysts and investors dealing with the greek economy and the greek stock market

impact of ownership on the international involvement of smes this paper analyses the relationship between the internationalisation strategies of smes and types of ownership different types of ownership affect firms and this in turn will influence the internationalisation strategy adopted using a sample of spanish smes our results show that internationalisation is negatively related to family ownership and positively related to corporate ownership we have also observed that the presence of a corporate blockholder in family firms encourages internationalisation these results support the idea that ownership type influences the decision to internationalise

the long run relationship between stock return dispersion and output based on the rational that some industry groups are more closely linked to the business cycle than others we re examined a previous analysis on the long term relationship between stock return dispersion by industry and gross domestic product gdp which evaluated data until 1987 by extending it to 2008 using mean square forecast errors msfe statistics we find that incorporating the return dispersion in vector autoregressive var models enhances their forecasting power for output gdp in the long run this article also determines that the relationship between stock return dispersion by industry and gdp is tenuous in the recent decade from 1999

toward a theory of regulation for developing countries following jean jacques laffont s lead the efficient operation and expansion of infrastructures in developing countries is crucial for growth and poverty reduction however recent reforms aimed at improving the performance of these sectors have had limited success evidence suggests that in many instances this was because the traditional regulatory theory relied on by policymakers was not suitable for the institutional context in developing countries this article surveys more recent theoretical work focusing on problems with regulation in these countries at the heart of the survey is the work of jean jacques laffont who in the last decade of his life set about developing a theoretical framework for regulation in developing countries we consider the implications of his work which focused on the key institutional limitations faced in developing countries we then discuss where experience suggests that there are important omissions from this modeling bringing in extensions and alternative approaches pursued by other authors we conclude by summarizing the key ways in which regulatory policy will be different when institutions are weak overall we find that an understanding of the institutional context and its implications are crucial when designing a regulatory framework for developing countries

stock market returns and inflation evidence from other countries this paper investigates the relation between common stock returns and inflation in twenty six countries for the postwar period our results do not support the fisher hypothesis which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one to one correspondence with expected inflation there is a consistent lack of positive relation between stock returns and inflation in most of the countries

why and how does shared language affect subsidiary knowledge inflows a social identity perspective extending existing international business ib research we conceptualize shared social identity as an outcome rather than only an antecedent of multinational enterprise knowledge flows to provide an alternative reason for why such knowledge flows occur we further argue that shared language among subsidiary and headquarters hq managers is an insufficient condition for subsidiary knowledge receipt accordingly we develop a moderated mediation model at the subsidiary level to examine how shared language affects subsidiaries tacit knowledge inflows from hq specifically we study 1 whether this relationship is mediated by the extent to which subsidiary managers share hq goals and vision and the extent to which human resources decisions are centralized at hq and 2 whether subsidiary type greenfields vs acquisitions moderates these mediated relationships such that in both cases the mediation will be stronger in foreign acquisitions compared with foreign greenfields building on a sample of 817 subsidiaries in 9 countries regions and a novel subjective measure of shared language we find support for our model implications for research on hq subsidiary knowledge flows social identity theory and the literature on sociolinguistics and international human resource management are discussed and managerial implications outlined

stock returns inflation and real activity in canada this paper finds evidence that as for the united states there exists an inverse relation between real stock returns and inflation i n canada such a relation if nonspurious could signify a nonneutralit y of money the authors causality tests suggest however that inflation does not cause real stock returns instead their empirical results support e f fama s proxy effect hypothesis according to which the observed inverse relation is proxying for fundamental relations between real stock returns and anticipated real activity and between inflation and real activity the authors therefore cannot reject the fisherian hypothesis that variations in anticipated inflation have no effect on real stock returns

long term drivers of taxation in francophone west africa 1893 2010 abstract which factors have driven fiscal revenue in sub saharan africa in the long run we address this question by studying quantitatively the long term relationship between fiscal outcomes economic expansion and external dependency in four francophone west african countries benin cote d ivoire niger and senegal between 1893 and 2010 using panel co integration modelling we find a long term relationship between on the one hand tax revenue and local economic development proxied by international trade and on the other hand tax revenue and developments of the economy and taxation in the former colonizing power france the results indicate that economic expansion has been a significant factor in driving the long term development of tax revenue in west africa just as it was in historical europe but also point to the historical vulnerability and external dependency of the fiscal systems of the four west african countries we suggest that the wider implication of these results is that they point to the importance of deepening our understanding of how domestic contexts interact with external economic and institutional external forces to shape african fiscal systems in contrast to factors such as inter state warfare that are ubiquitous in narratives of historical european taxation and state development

analysing the risk premium in the italian stock market arch m models versus non parametric models this paper investigates the variability of the risk premium in the italian stock market over the period 1978 89 we have modelled voatility using two different approaches arch m models and non parametric models the estimate of the arch m models confirm the existence of both an arch process in the variance and a time varying risk premium also the non parametric specification confirms the existence of a time varying risk premium moreover in both models the acceleration in the inflation rate has a negative effect on stock prices

stock returns and inflation with supply and demand disturbances we account for the relation between stock returns and inflation with two independent disturbances supply shocks and demand shocks supply shocks reflect real output shocks and cause a negative relation between stock returns and inflation while demand shocks are mainly due to monetary shocks and generate a positive relation between stock returns and inflation we show both theoretically and empirically that the stock return inflation relation varies over time and across countries depending on the relative importance of the two types of shocks our empirical evidence is based on pre and postwar periods in the united states as well as the postwar period in the united kingdom japan germany article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

anticipated inflation and the stock market the relation between fully anticipated inflation and stock prices is analysed in this paper the stock market is modelled within the construct of a choice theoretic intertemporal general equilibrium model where transactions are subject to a cash in advance constraint here a rise of the steady state inflation rate is shown to have a depressing effect on the stock market there are two reasons for this result first the consumption goods value of a given stream of dividends is reduced when inflation rises because the latter acts as a specific tax on dividends and secondly the firm s profits are lowered because the inflation rate distorts the labour leisure choice inflation anticipee et marche boursier l auteur analyse la relation entre l inflation pleinement anticip6e et le prix des actions en bourse a l int6rieur d un modele d 6quilibre g6n6ral de choix inter temporel on insere un march6 boursier dans lequel les transactions doivent etre r6gl6es comptant d avance on voit qu un accroissement du taux d inflation en regime permanent a un effet d6pressif sur le march6 boursier cela tient a deux raisons d abord quand l inflation monte la valeur en termes de biens de consommation d un flux donn6 de dividendes est r6duite parce que l inflation agit comme taxe sp6cifique sur les dividendes ensuite les profits de l entreprise sont r6duits parce que le taux d inflation introduit une distorsion dans la choix entre travail et loisir

infrastructure and public utilities privatization in developing countries should governments in developing countries promote private ownership and deregulated prices in noncompetitive sectors or should they run publicly owned firms and regulate prices at the expense of rents to insiders a theoretical model is used to answer these normative questions the analysis focuses on the tradeoff between fiscal benefits and consumer surplus during privatization of noncompetitive sectors privatization transfers control rights to private interests and eliminates public subsidies yielding benefits to taxpayers at the cost of increased prices for consumers in developing countries where budget constraints are tight privatization and price liberalization may be optimal for low profitability industries but suboptimal for more profitable industries and once a market has room for more than one firm governments may prefer to regulate the industry without a credible regulatory agency regulation is achieved through public ownership

science s reproducibility and replicability crisis international business is not immune international business is not immune to science s reproducibility and replicability crisis we argue that this crisis is not entirely surprising given the methodological practices that enhance systematic capitalization on chance this occurs when researchers search for a maximally predictive statistical model based on a particular dataset and engage in several trial and error steps that are rarely disclosed in published articles we describe systematic capitalization on chance distinguish it from unsystematic capitalization on chance address five common practices that capitalize on chance and offer actionable strategies to minimize the capitalization on chance and improve the reproducibility and replicability of future ib research

the participation dividend of taxation how citizens in congo engage more with the state when it tries to tax them this article provides evidence from a fragile state that citizens demand more of a voice in the government when it tries to tax them i examine a field experiment randomizing property tax collection across 356 neighborhoods of a large congolese city the tax campaign was the first time most citizens had been registered by the state or asked to pay formal taxes it raised property tax compliance from 0 1 in control to 11 6 in treatment it also increased political participation by about 5 percentage points 31 citizens in taxed neighborhoods were more likely to attend town hall meetings hosted by the government or submit evaluations of its performance to participate in these ways the average citizen incurred costs equal to their daily household income and treated citizens spent 43 more than control treated citizens also positively updated about the provincial government perceiving more revenue less leakage and a greater responsibility to provide public goods the results suggest that broadening the tax base has a participation dividend a key idea in historical accounts of the emergence of inclusive governance in early modern europe and a common justification for donor support of tax programs in weak states

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

monetary policy options for mitigating the impact of the global financial crisis on emerging market economies though the hypothesis that exchange rate regimes fully predetermine monetary policy in the face of external shocks hardly finds any advocates on theoretical ground it has crept in the most of empirical research this study adopts a more discerning empirical approach that looks at monetary policy tools used in order to accommodate the recent financial crisis we investigated the gdp growth in 45 emerging market economies in the most intense phase of the crisis and found out that there is no clear difference in the growth performance between countries at the opposite poles of the exchange rate regime spectrum depreciation cum international reserve depletion outperforms the other policy options especially the rise in the interest rate spread we discovered certain complementarities between the information on the policy option and on exchange rate regime taking into account non gaussian settings we decided to use quantile regression which provide in addition more complete picture of relationship between the covariates and the distribution of the gdp growth

do international investors enhance private firm value evidence from venture capital we examine the impact of international venture capital investors on private firm success spanning 81 countries over the years 1995 2010 the data examined indicate that relative to deals in which the investor base is purely domestic private firms that have an international investor base have a higher probability of exiting via an initial public offering ipo and higher ipo proceeds the evidence is consistent with the view that while the benefits of internationalization may be difficult and costly to manage for those firms that succeed in managing cross border coordination costs there is potential value for an ipo firm the benefits relative to the costs of internationalizing the investor base for private firms sold in acquisitions by contrast are much less pronounced the most important source of this benefit appears to be access to capital

the time variation of risk and return in the foreign exchange and stock markets this paper attempts to determine whether the fluctuations of conditional first and second moments which are observed for many assets are consistent with the sharpelintner mossin capital asset pricing model we test the mean variance model under several different assumptions about the time variation of conditional second moments of returns using weekly data from july 1974 to december 1986 that include returns on a portfolio composed of dollar deutsche mark sterling and swiss franc assets together with the u s stock market the results indicate that estimated conditional variances cannot explain the observed time variation of risk premia rates of return on international financial assets are characterized by statistical properties that are quite common to all financial markets they are highly volatile and largely unpredictable these properties make it very difficult to extract statistically reliable estimates of systematic exchange rate and assetprice movements and are at the root of the generally poor empirical performance of international asset pricing models nevertheless two important results have been uncovered by empirical researchers and can be considered a fair characterization of the data a expected returns on foreign assets vary over time cumby and obstfeld 1981 and the numerous articles that followed recently surveyed by frankel and meese 1987 b the volatility of returns of foreign assets also changes over time cumby and obstfeld 1984 hodrick and srivastava 1984 and hsieh 1988 among others as giovannini and jorion 1987 suggest the

founders heirs and corporate opacity in the united states abstract we argue that information about firm activities can vary substantially in the presence of founder or heir ownership thereby influencing the risks borne by minority investors we explore two hypotheses with regard to these controlling shareholders and corporate transparency focusing on their role as monitor in place and their potential to exploit firm opacity to accrue private benefits of control to test these notions we create an opacity index that ranks the relative transparency of the two thousand largest industrial us firms and find founder and heir ownership in 22 and 25 of these firms respectively our analysis indicates that in large publicly traded companies both founder and heir firms are significantly more opaque than diffuse shareholder firms we also find that founder and heir controlled firms exhibit a negative relation to performance in all but the most transparent firms surprisingly additional tests reveal that concerns about divergences in ownership versus control management type dual class shares and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control finally we decompose corporate opacity into disclosure and market scrutiny components finding that the disclosure quality component appears to be of greater importance to investors however irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity our analysis suggests that founders and heirs in large publicly traded firms exploit opacity to extract private benefits at the expense of minority investors

does the lucas critique apply during hyperinflation empirical evidence from four hyperinflationary episodes farmer review of economic studies 58 321 32 1991 suggests that in a model in which there are multiple rational expectations equilibria agents may find it useful to coordinate their expectations in a unique rational expectations equilibrium which is supported by a self fulfilling forecast rule having the property of being immune to the lucas critique in this paper farmer s hypothesis is tested using data from hyperinflationary episodes it is believed that those episodes are suitable for testing this hypothesis because an agent who lives in a hyperinflationary environment usually faces frequent changes in policy regime the agent may thus choose a selffulfilling forecast rule which is immune to the lucas critique as a way of hedging against unanticipated policy regime switches the empirical results show mixed evidence on farmer s hypothesis during the hyperinflationary episodes studied

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

home region focus and performance of family firms the role of family vs non family leaders do family firms benefit more from a regional or a global geographic scope we suggest it depends on their family leadership type family vs non family leadership we offer a nuanced view of agency and stewardship theories to hypothesize that family leaders are most beneficial when pursuing a regional strategy i e high home region focus hrf whereas non family leaders are more advantageous when pursing a global strategy i e low hrf utilizing a sample of 202 western european firms from 1996 to 2006 we find support for this central hypothesis thus family leadership influences the degree to which family firms benefit from hrf

what we talk about when we talk about global mindset managerial cognition in multinational corporations recent developments in the global economy and in multinational corporations have placed significant emphasis on the cognitive orientations of managers giving rise to a number of concepts such as global mindset that are presumed to be associated with the effective management of multinational corporations this paper reviews the literature on global mindset and clarifies some of the conceptual confusion surrounding the construct we identify common themes across writers suggesting that the majority of studies fall into one of three research perspectives cultural strategic and multidimensional we also identify two constructs from the social sciences cosmopolitanism and cognitive complexity that underlie the perspectives found in the literature we then use these two constructs to develop an integrative theoretical framework of global mindset we then provide a critical assessment of the field of global mindset and suggest directions for future theoretical and empirical research

portfolio crowding out empirically estimated this paper tests hypotheses regarding the parameters in investors asset demand functions the hypothesis that federal bonds are closer substitutes for equity than for money implies portfolio crowding out by federal borrowing regression studies of asset demand functions have needed to impose prior beliefs to obtain precise and plausible estimates for the parameters this paper uses a mle technique that dominates regression in that it makes full use of the constraint that the parameters are not determined arbitrarily but rather are determined by mean variance optimization on the part of the investor the striking conclusion is that portfolio effects are close to zero

international corporate governance a review and opportunities for future research we review four decades of research about the corporate governance of multinational corporations mncs which we label international corporate governance icg we identify and discuss three main streams of research that draw on different conceptualizations and theoretical lenses of corporate governance after synthesizing their respective findings we propose several avenues for future research that integrate these three streams of research with the goal of developing a more nuanced understanding of icg we hope this review article will inspire international business scholars to continue examining how corporate governance can be an effective tool for mnc success

output and unemployment dynamics in the united states 1950 1985 for us data over 1950 1985 the stochastic components of gnp growth and the unemployment rate appear to be stationary and there is substantial feedback between these variables the unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the business cycle a bivariate var model is used to describe output unemployment dynamics to estimate the degree of persistence of output innovations and to decompose output into trend and cycle the bivariate results are interpreted using a restricted var and it is shown that a closely related cyclical measure can be obtained directly from the okun s law equation

managerial cognition and internationalization how do the senior decision makers within a multinational enterprise mne think through and determine an internationalization decision despite the cognitive foundations of several key constructs standard internationalization models do not explicitly incorporate managerial cognition we argue that the boundedly rational decision maker is underspecified in international business models and this oversight contributes to weak empirical findings on experience learning internationalization strategy and mne performance drawing on these extant models we identify seven knowledge domains and interdependencies that may make up decision makers mental models granted rare access to senior executives and board members engaged in a foreign direct investment decision we find substantial heterogeneity in the mental models these individuals used to make sense of the opportunity this variance aligns with differences in individuals experience along four dimensions international breadth depth diversity and prior strategic decision making we argue these cognitive processes how individuals exercise judgment about information search parameters assessment and decision integration and how decision teams coalesce in their thinking are crucial microfoundations for modeling heterogeneity in firm level internationalization strategies and performance

from the static to the dynamic some problems in the theory of taxation abstract this paper considers problems and issues that arise when we attempt to extend the static theory of taxation and production planning to a dynamic context and to combine that theory with theories of growth the reasons dynamic theory is less developed include problems with the analytical tractability of even those dynamic models which attempt to retain the basic structure of the static model furthermore difficult and interesting issues arise in a dynamic context which are either not present or are much less severe in the static theory special attention is paid to these new issues and the difficulties they pose

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

inflation and real stock returns revisited i introduction this article empirically reinvestigates the relationship between real stock returns and inflation according to fisher 1930 1 in an efficient market real stock returns should reflect expectations only about real factors such as growth in output and time preference of savers such that real stock returns and inflation should vary independently in other words on average investors are fully compensated for erosions in purchasing power over time however this so called generalized fisher hypothesis has received little empirical support while kaul 1990 boudoukh and richardson 1993 solnik and solnik 1997 madsen 2005 and ryan 2006 find positive or weakly positive correlation between stock returns and inflation most empirical studies including nelson 1976 fama 1981 1983 geske and roll 1983 gultekin 1983 kaul 1987 and solnik 1983 uncover a negative effect of inflation anticipated and or unanticipated on real or nominal stock returns these apparent inconsistencies between the data and the predictions of economic theory have been termed as the stock return inflation puzzle and cited as evidence of monetary nonsuperneutrality or irrationality and market inefficiency 2 to reconcile the seemingly conflicting contributions danthine and donaldson 1986 provide a rational expectations equilibrium model in which a negative relation between stock returns and inflation arises from non monetary sources e g a real output shock and a positive relation is driven by purely monetary sources stulz 1986 marshall 1992 and bakshi and chen 1996 also assert that stock returns may be negatively correlated with inflation especially when the source of inflation is related to nonmonetary factors evidently hess and lee 1999 khil and lee 2000 and lee 2003 find that while monetary shocks drive a positive correlation real fiscal or real output shocks result in a negative correlation between stock returns and inflation from a different perspective kaul 1987 1990 argues that the relation between these two variables depends on both the money demand and the money supply specifically while the combination of money demand effects with a countercyclical monetary response accentuates a negative correlation money demand shocks along with a procyclical monetary response lead to a neutral or positive correlation between real stock returns and inflation similar arguments can be found in day 1984 kaul and seyhun 1990 boudoukh richardson and whitelaw 1994 and gallagher and taylor 2002 and are supported by compelling empirical evidence see e g kim 2003 lee 1992 as an alternative this article models the real stock return inflation relationship as intrinsically dynamic explicitly distinguishing between the short run and the long run such a distinction is crucial because imperfect information rigidity and or contractual obligations are more prevalent in the short run than in the long run in that sense the response of real stock returns to inflation could differ in the short run versus long run moreover we assess the long and short run impacts of inflation uncertainty on real stock returns as argued the real costs of inflation are associated with its uncertainty greater inflation uncertainty resulting from higher inflation may lead to economic inefficiency lower real investment and unemployment thereby reducing economic growth thus it is interesting to see if there are independent effects of inflation uncertainty on real stock returns both in the short run and in the long run in so doing this article uses an innovative econometric technique to explore the long and short run relationships between real stock returns and inflation both anticipated and unanticipated and the relationships with inflation uncertainty it departs from earlier work and complements recent evidence in at least three aspects

the ownership structure contingency in the sequential international entry mode decision process family owners and institutional investors in family dominant versus family influenced firms extending our understanding of family firms and international business research with respect to entry mode decisions this study explains how entry mode choice is the product of a sequential decision making process with an important ownership structure contingency we propose that firms with a dominant family owner family dominant firms prefer low equity ownership as their entry mode for the purpose of preserving their socioemotional wealth their preference is persistent even when the institutional investors are the dominant shareholders in the firm family influenced firms this nuanced examination of the role family values play in the entry mode decision extends our understanding of how family firms enter international markets

a retrospective on institutional cultural and transaction cost influences on entry mode choice and performance for several decades researchers have focused on the entry mode decision because it is critically important for firms expanding abroad despite this attention we still lack clear tools to help managers make effective entry decisions in this paper i review past research exploring transaction cost and institutional perspectives of mode choice provide a critique of this literature and generate suggestions to move our knowledge forward in addition i review the limited research exploring entry mode performance and emphasize the importance of examining the normative merits of proposed theoretical models i hope these suggestions will lead to the development of prescriptive tools for managers to make better entry mode decisions that result in improved firm performance

the effect of national culture on the choice of entry mode characteristics of national cultures have frequently been claimed to influence the selection of entry modes this article investigates this claim by developing a theoretical argument for why culture should influence the choice of entry two hypotheses are derived which relate culture to entry mode choice one focusing on the cultural distance between countries the other on attitudes towards uncertainty avoidance using a multinomial logit model and controlling for other effects the hypotheses are tested by analysing data on 228 entries into the united states market by acquisition wholly owned greenfield and joint venture empirical support for the effect of national culture on entry choice is found

could the global financial crisis improve the performance of the g7 stocks markets abstractfinancial crises are normally associated with negative effects on financial markets in this article we investigate whether the most recent global financial crisis gfc had any positive impact on the g7 canada france germany italy japan the united kingdom and the united states indices to conduct the analysis we employ the mean variance mv analysis capm statistics hurst exponent runs test multiple variation ratio test and stochastic dominance sd tests our mv and capm results conclude that most of the g7 stock indices are significantly less volatile the results from hurst exponent run tests and multiple variation ratio confirm that efficiency improved in the post gfc period finally our sd results conclude that there is no arbitrage opportunity and the markets are efficient due to the gfc and in general investors prefer investing in the indices after the gfc overall we conclude that the gfc led to markets that are more efficient and mature confirming that crises can also

aid nontraded goods and the transfer paradox in small countries this paper constructs a model of the transfer paradox for a small open economy with nontraded goods it demonstrates that increased production of nontraded goods can change their domestic price so as to offset the otherwise beneficial effect of aid and under certain conditions to create a transfer paradox even in a small country the model is estimated with time series data for 44 aid dependent countries for the period 1970 90 the results support the model and show that the nontraded goods expansion effect is more likely to cause immiserization than harry g johnson s 1967 tariff distorting export displacement effect

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

income tax compliance in india an empirical analysis abstract aggregate data are used to study determinants of income tax revenues and taxpayer compliance in india during 1965 1966 to 1992 1993 the estimates show that both revenues collected and compliance were significantly affected by tax structure marginal tax rates and exemption limit in addition inflation as well as declining assessment intensity had a significant negative effect while traditional enforcement tools searches penalties and prosecution activity had only a limited effect best practice enforcement assessment and tax structure policies could have yielded at most a 90 revenue increase leaving india s income tax performance below the average of countries with similar gdp per capita thorough reform of tax administration is therefore needed to raise income tax collection in india to international standards

macroeconomic shocks and stock market returns the case of korea abstractthis study examines the effects of macroeconomic shocks on key macro variables including stock market returns in korea using the structural vector autoregression svar model we suggest a three variable svar model incorporating inflation output growth and stock returns we adopt a nonzero z ratio restriction for the long run identifying assumption to allow for economically meaningful relationships among variables while our results support the negative positive relation of demand supply shocks to stock returns we also find that demand shocks influence stock market variance more significantly than supply shocks do the sub period analysis finds that global market fluctuations during the global financial crisis have relatively little effect on korean stock market performance we also examine a generalized five variable model that includes the foreign exchange rate and interest rate confirming the results from the three variable case

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

price inflation and stock returns abstract this letter demonstrates that price inflation and stock returns display differing relationships depending on the measure of inflation used the regularity that price inflation and stock returns are negatively related in post world war ii depends on the model specification

estimating border tax evasion in mozambique abstract the relationship between border tax rates and evasion is examined for mozambique using the methodology developed by fisman and wei 2004 we find that high tax rates are associated with high levels of under reporting of import values and that tax rates have a strong and positive effect on tax evasion results also strongly confirm the presence of fraudulent classification of merchandise into lower taxed product categories finally analysis of the revenue implications of lower trade taxes finds that the revenue curve is quite flat but remains upward sloping with respect to the tax rate when only evasion is considered

risk inflation and the stock market most explanations for the decline in share values over the past two decades have focused on the concurrent increase in inflation this paper considers an alternative explanation a substantial increase in the riskiness of capital investments we show that the variance of firms real gross marginal return on capital has increased significantly increasing the relative riskiness of investors returns on equity and that this can explain a large part of the market decline we also assess the effects of increase in the mean and variance of the inflation rate and a decline in firms expected return on capital this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

spatial geography and control in foreign acquisitions this article examines how spatial geography influences firms choice of control in cross border acquisitions cbas building our arguments on the information asymmetry in cbas we argue that geographic distance affects adverse selection and moral hazard problems in cbas geographic distance hinders acquirers efforts to assess the true value of the target firm prompting them to opt for a partial control at the same time geographic distance hampers acquirers ability to manage contractual relationships and integrate target firms prompting them to opt for a full control we argue that the cost and benefit trade off of full vs partial ownership varies at different levels of geographic distance accordingly we propose a curvilinear u shaped relationship between geographic distance and equity ownership this relationship is contingent on acquisition relatedness and the listing status of the acquirer public vs private as the geographic distance between acquirer and target increases acquirers assume higher equity stakes in related acquisitions than in unrelated acquisitions at greater geographic distances public firms acquire more equity ownership than do private firms findings from 10 181 deals across 52 acquiring and 61 target countries provide robust support for these arguments

taxation base in developing countries abstract informal sectors are larger in developing countries than in rich countries this is a result of higher fixed costs of entry into the formal economy in developing countries we show that raising barriers to entry is consistent with a deliberate government policy for raising tax revenue by generating market power and hence rents for the permitted entrants market entry fees foster the emergence of large taxpayers the rents can be readily confiscated by the government through entry fees and taxes on profits at a low administrative cost the relevance of the theory is assessed with a sample of 64 countries empirical analysis supports the results of the paper

greenfield vs acquisition the strategy of japanese investors in the united states multinational firms can enter a foreign market by taking over existing local firms acquisitions or by setting up new ventures greenfield investments surprisingly there has been limited empirical work on this topic this paper examines the determinants of this choice by looking at japanese entries into the united states by focusing on firms of one country entering a single market we are able to separate the impact of a firm s strategy from that of the characteristics of the target industry or country this paper tests simultaneously a number of competing hypotheses the results suggest that acquisitions are used by japanese investors with weak competitive advantages while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the u s acquisitions are also chosen to enter industries with either very high or very low growth rates when entry is at a scale that is large relative to the parent and when entry is into a different industry the japanese investor s previous experience of the u s market its financial situation and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode neither do u s stock market conditions

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

why real interest rates were so low in the 1970 s the economic turmoil of the 1970 s resulted in record postwar increases in inflation unemployment and nominal interest rates yet it was declines that were hardest to explain the average real value of a share of common stock plummeted productivity growth evaporated real interest rates measured as the spread between nominal interest rates and the inflation rate turned negative see table 1 over the past decade an explosion has occurred in the amount of attention paid to the relationship between nominal and thus real interest rates and expected inflation rates a good deal of this effort has been directed toward empirical analysis of the fisher neutrality hypothesis that nominal rates respond one for one with expected inflation rates most empirical tests of the fisher hypothesis have been bivariate interest rates were regressed on a constant and on actual or expected inflation measures estimates of the impact of inflation on interest rates in these and even in extended models are often significantly below one are often statistically imprecise and tend to be unstable over time the middle column of table i reflects this the coefficient of inflation on nominal interest rates there drops from 0 78 to 0 59 in the latter 1970 s another branch of work on nominal interest rates has concentrated on the institutional impediments to the fisher hypothesis robert mundell and james tobin demonstrate that nominal rates change by a smaller amount than the expected inflation rate does when a real balance effect exists and money pays no interest michael darby and martin feldstein on the other hand argue that nominal rates should exhibit a greater thanunity response to expected inflation due to the nature of u s income tax laws 2 here i estimate the relation between interest rates expected inflation and real forces such estimates are required for evaluating the effects of inflation on saving investment the distribution of income and the redistribution of wealth to generate estimates of the net impact of these various factors on interest rates and to avoid the identification and simultaneity problems masked but not often remedied by instrumental variables techniques i employ only exogenous regressors to buttress the argument i examine the individual links in the chain which are summarized in the reduced form the novel aspect of the model presented in section i is its addition of aggregate supply shocks to the determination of interest rates i trace the reduction in the supply of complementary factor inputs in the 1970 s to a decline in the demand for capital and therefore in real interest rates the inclusion of this supply force along with expected inflation allows one to distinguish between two offsetting effects on interest rates the depressing effect on real rates through lower investment demand and the elevating effect on nominal rates of higher expected inflation the results in section ii not only strongly support the economic and statistical importance of supply shocks on real interest rates but also resolve some longstanding interest rate puzzles allowing for the impact of factor supply produces a significant estimated response to expected inflation for a sample that ends prior to late 1960 s the magnitude assistant professor school of business administration university of california berkeley i would like to thank george akerlof robert j gordon robert a meyer joe peek janet yellen the members of the economic analysis and policy seminar at berkeley participants at the nber conference on inflation and financial markets and anonymous referees for helpful comments data resources supplied data and computational services financial support was provided by the berkeley program in finance and nsf grant ses8109093 linda pacheco supplied able research assistance errors of omission or commission are my responsibility see william gibson david pyle john carlson and thomas cargill and robert meyer 2maurice levi and john makin derive the reducedform effect of expected inflation on nominal interest rates as a function of the structural parameters

halving global poverty the goal of central importance to this paper is to cut in half the proportion of people living below 1 a day from around 30 percent of the developing world s population in 1990 to 15 percent by 2015 based on population projections in 1990 this would correspond to around one billion people exiting poverty this paper begins by discussing poverty trends on a global scale where the poor are located in the world and how their numbers have been changing over time it then discusses the relationship of economic growth and income distribution to poverty reduction finally it suggests an evidence based agenda for poverty reduction in the developing world full text available at official url

inflation and real interest rates on assets with different risk characteristics given the importance of ex ante real interest rates to economic decision making it is no surprise that much empirical research focuses on them 1 several recent studies find that the ex ante real returns for short term u s treasury securities are not constant and are negatively correlated both with inflation and with nominal interest rates this paper examines the extent to which these findings hold for assets of longer maturity are robust with respect to the choice of price index and are stable over time we expand the set of assets studied to include those of longer maturity both publicly and privately issued for two reasons first their ex ante real returns may differ substantially from that of a short term nominally riskless security second because longer maturity assets have risk characteristics closer to capital their ex ante real returns are potentially more relevant for investment and savings decisions we explore the use of various price indices because the index used in most studies the consumer price index severely overstates inflation during the 1970s as a result of its inappropriate treatment of residential housing costs 2 this overstatement casts doubt on an important finding of previous studies that there are long stretches of time during the 1970s when ex ante real rates are significantly negative given the existence of holding costs for the goods relevant to most price indices and the absence of a riskless real return no arbitrage conditions are violated by a negative ex ante real rate however its persistence is problematical because asset holders are typically assumed to have a positive rate of time preference which ensures a positive ex ante real rate in the long run we find that before 1979 a negative relationship of ex ante real rates both with inflation and with nominal interest rates appears for the longer maturity assets as well as the short term nominally riskless asset indeed the relationship grows

was the money demand during the german hyperinflation time varying two versions of cagan s model are estimated to analyse whether or not the money supply was endogenous during the german hyperinflation the first version is the original version of cagan s model with rational expectations the second version which is called the alternative version builds on cagan s model by considering that the semi elasticity of the demand for money is a time varying parameter the estimation results for both models support the hypothesis that the alternative version provides a better fit to the german hyperinflation data than the original version and that the money supply was endogenous

taxation wage controls and the informal sector abstract in this paper we study the effects of taxation and wage controls in a developing economy with an informal sector for that purpose we build a model with firm heterogeneity in which a formal and an informal sector endogenously emerge in some productive branches of the economy based on the assumption that the marginal cost of tax and regulation evasion increases with the size of the firm our model offers an explanation for the observed discontinuity in the distribution of firms size the missing middle three forms of dualism scale wage and evasion consistent with market segmentation are obtained the model accounts for the presence of waiting unemployment that seems particularly pervasive in urban regions a computable general equilibrium cge model for cameroon is built incorporating these features various reforms of the tax and regulation system are simulated and their effects on the extent of the informal sector are analyzed

public goods hidden income and tax evasion some nonstandard results from the warm glow model abstract a large literature explores crowd out in situations where public goods are jointly provided work in this area typically depicts a tax system where individuals take taxes as given but in some settings such as those in developing economies efforts to evade or avoid taxes may be widespread using the canonical warm glow model this paper considers joint public good provision in a setting where individuals can evade taxes by hiding their income the model s implications change significantly in this setting with hidden income stronger warm glow will lead to greater crowd out not less using research on crowd out and inter family transfers i present suggestive evidence that the model s results may help to reconcile divergent estimates of crowd out in the literature

the welfare effects of repealing the u s offshore assembly provision abstract this paper develops new estimates of the welfare and domestic production effects of repealing the us offshore assembly provision oap although the controversy surrounding the oap has recently intensified the only such estimates of repealing the oap weredeveloped by finger 1976 the estimates are developed by applying a partial equilibrium trade model of a two stage production process to nineteen productct categories in which oap trade was important in 1986 the paper find that repael of the oap reduces domestic welfare however the effects are small and almost negligible in percentage terms the important effects of repeal are distributional

the design of fiscal reforms in revenue constrained developing countries while generalisation is perilous there are many especially small developing countries for which sales taxes and turnover taxes are fairly negligible as revenue sources and for which import duties and export taxes particularly the former are leading revenue sources for evidence from the early i980s see tanzi i987 and greenaway and milner i990 this observation is unsurprising when account is taken of the administrative constraints to which many developing countries are subject sales taxes can be difficult to collect not to mention a complex tax like vat income tax is largely infeasible and often has to take a simple form such as a payroll tax confined in practice to public and large company employment some taxes which would be assumed to be eminently feasible in industrial economies may not generate as much revenue as might be supposed in a developing country for instance tax disks which the law may require heavy goods vehicles to carry may generate a flow of bribes to police and other officials if these are wise enough to set the bribe at a modest level making it cheaper to pay bribes than to buy a disk a cynic might say that the bribes are an unofficial source of revenue if their existence enables the state to get away with paying its officials absurdly low salaries one would have to hope if that argument is accepted that the officials do something socially useful apart from stopping heavy goods vehicles such considerations make it interesting to consider the design of public finance for a country severely constrained in its choice of what musgrave called tax handles that is types of tax instrument which it may practically employ the existing literature for which newbery and stern i987 provides an excellent review throws some light on this issue but the problem is seldom treated explicitly an exception would be dreze and stern i985 whose highly abstract and general treatment of cost benefit analysis theory can be seen to incorporate principles of public finance which fully cover the restricted policy choices which i have in mind because the approach of these authors is so general however it is not easy to extract conclusions for tax design in specific cases this is no criticism of the paper of course as the argument is addressed to cost benefit analysis generally speaking theory has developed in the direction of sophisticated and complex tax systems the next section discusses why this is so from the point of view of theory yet ideal tax systems would be difficult to implement in many developing countries as i shall treat tariffs as a highly feasible revenue

tax morale in latin america in the tax compliance literature there is a lack of empirical evidence on the degree of tax morale in developing countries as a novelty this paper focuses thus on latin america analysing tax morale as a dependent variable and searching for factors that systematically affect tax morale working with the two data sets latinobarometro and world values survey our findings indicate that there is a significant correlation between tax morale and the size of shadow economy furthermore people who said they knew have heard about practised tax avoidance have a significantly lower tax morale than others looking at individuals perception of reasons for tax evasion we found that the tax burden lacking honesty and corruption are seen as the main factors we observed a significantly lower tax morale in south america mexico than in the central american caribbean area furthermore trust in the president and the officials the belief that other individuals obey the law and a pro democratic attitude have a significant positive effect on tax morale

solving estimating and testing a nonlinear stochastic equilibrium model with an example of the asset returns and inflation relationship abstract this paper describes a method for solving estimating and testing a fully specified nonlinear stochastic equilibrium model by simulation a nonlinear stochastic asset pricing model with production and money is formulated which aims to explain observed empirical relations between inflation and asset returns complete solution paths to the equilibrium model are generated through a backwards mapping method the parameters of the model are estimated by simulation taking account of the broad range of dynamics of the model and overidentifying restrictions of the model are tested by extending gmm procedures

generalized fama proxy hypothesis impact of shocks on phillips curve and relation of stock returns with inflation abstract a generalized version of fama s proxy hypothesis identifies a downward bias in phillips curve estimations the spurious negative relation between real stock returns and inflation emerges if output rate fluctuations dominate cyclical component fluctuations of a lucas type phillips curve

taxing the informal economy the current state of knowledge and agendas for future research abstractthis paper reviews the literature on taxation of the informal economy taking stock of key debates and drawing attention to recent innovations conventionally the debate on whether to tax has frequently focused on the limited revenue potential high cost of collection and potentially adverse impact on small firms recent arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic growth broader tax compliance and governance more research is needed we argue into the relevant costs and benefits for all including quasi voluntary compliance political and administrative incentives for reform and citizen state bargaining over taxation

yes we really do need more entry mode studies a commentary on shaver in a recent commentary published in this journal shaver raises the provocative question of whether we need more entry mode studies after assessing the reasons for shaver s doubts and further developing his broad research suggestions we conclude that this question should be answered affirmatively we derive three important questions for future entry mode research 1 what determines the evolution of operations resulting from suboptimal mode choices 2 what causes the replication of past mode choices 3 how is the entry decision process structured focusing on these questions should assure a bright future for entry mode research

taxes and bribery the role of wage incentives this paper presents a simple model to evaluate alternative payment schemes for tax inspectors in the presence of corruption we consider problems of both moral hazard which arises because taking bribes cannot be observed without costly monitoring and adverse selection since not all potential tax inspectors can be identified as being honest or dishonest we identify three wage regimes first one could pay the same wage that a tax inspector could earn elsewhere his reservation wage second one could pay a wage which solves the moral hazard problem i e deters bribery this we call an efficiency wage by analogy with recent models examined i n macro economics third the government could pay a wage below the reservation wage at which only the dishonest become tax inspectors the capitulation wage we make precise the conditions under which each yields the greatest amount o f tax revenues net o f administrative costs many countries in the developing world are undergoing structural adjustment programmes which require fundamental fiscal changes outside agencies advise restoration of budget balance a task which involves expenditure cuts and tax increases the treatment of public employee pay scales often poses a particular dilemma i n this process wages and salaries are a significant component of government expenditures and one important question concerns the extent to which wages rather than employment cuts should be used to save money there is sometimes a reluctance to advocate wage cuts stemming in part from a feeling that this might impair the performance of the public sector hence tanzi 1990 argues that a policy of wage cutting is likely to increase the inefficiency of public sector employees especially at a time when the public sector is expected to play a larger role in restructuring the economy p 16 in the context of tax collection the issue is particularly pressing given the need to raise more tax revenues a reduction in efficiency in this branch of the government i s likely t o mean that fewer returns are processed and when individuals living standards are squeezed their incentive to accept bribes in lieu o f collecting taxes i s increased o n this count i t i s even sometimes suggested that wages of tax inspectors should be increased to aid the effort to the comments of henry bienen john hey and two anonymous referees have been helpful in revising this paper the authors are also grateful t o the john m olin program for the study o f economic organization and public policy at princeton university and the pew charitable trusts for financial support mclaren also acknowledges support from the international finance section of princeton university none of the above should be implicated in any way see for example goode 1984 chapter 1 3 and gould and amaro reyes 1983

agricultural taxation in developing countries a survey of issues and policy this study surveys the experience of agricultural taxation in developing countries in the context of the ongoing policy debate about the tax structure and administration affecting agricultural producers using the examples of a number of countries it analyzes the conceptual and practical problems associated with different tax regimes governments in most countries have reduced indirect export taxes on agricultural producers however the revenue from direct taxes on farmers has not increased a major problem in most countries has been the measurement of actual agricultural income different measures for presumed income have been used with varying success they seem to have the most potential for increased revenue in many countries but their effective implementation is constrained by the political and administrative considerations

arbitrage pricing and the stochastic inflation tax in a multisector monetary economy abstract a dynamic general equilibrium multifactor asset pricing model for a monetary economy with capital accumulation and multisector production is constructed equilibrium clower constraints on some investment goods and some consumption goods are imposed an equilibrium apt model is constructed where the covariance between the inflation tax distorted equilibrium investment returns and fundamental forcing processes are important in determining equilibrium risk prices the model is used to address issues concerning the relative importance of real and nominal factors in asset pricing raised in recent papers by chen roll and ross 1986 and cochrane 1991 1992

testing the canonical model of exchange rates with unobservable fundamentals in this paper the authors test the asset market approach or canonical model of exchange rates they treat exchange rate fundamentals as unobservable the empirical results do not reject the canonical model and therefore the embedded rational expectations assumption in sharp contrast with previous empirical evidence the authors also find evidence of feedback from the exchange rate to fundamentals which is normally omitted in the theoretical literature copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

east asian economic performance miracle or just a pleasant surprise p ublication of the east asian miracle eam world bank 1993 appears to borrow a phrase to have generated more heat than light the eam analysed reasons for the economic success of the eight high performing asian economies hpaes hong kong indonesia japan malaysia republic of korea singapore taiwan and thailand the hope at least of neutral observers was that we would be able to derive lessons regarding effective economic policies from a study of the experiences of the successful east asian economies the general criticism of the report is that it tried to mould the hpaes experiences so that the lessons were consistent with bank policy in the process losing many distinguishing features of the eam more serious criticisms are that the report obfuscated and distorted the truth it is not our intention to reopen debate about the report fully aired in a special issue of world development april 1994 and rodrik 1994 we do wish to address three questions what were the distinguishing features of the east asian economic success that led some observers to claim a miracle what elements of economic policy contributed to their success and are such elements present in the economic policies proposed by the bank in for example adjustment programmes are there features of the hpaes that can be adapted to help design successful policies for other countries put succinctly what did they do that appears so good how did they do it and can others do it writing in 1998 it may appear irrelevant to talk of an east asian miracle as so many of the economies we consider have recently endured currency crises of varying degrees of severity current problems should not detract from the sustained and generally impressive growth achieved by these economies over the

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection