estimation of de facto flexibility parameter and basket weights in evolving exchange rate regimes a new technique for estimating countries de facto exchange rate regimes synthesizes two approaches one approach estimates the implicit de facto basket weights in an ols regression of the local currency value rate against major currency values here the hypothesis is a basket peg with little flexibility the second estimates the de facto degree of exchange rate flexibility by observing how exchange market pressure is allowed to show up here the hypothesis is an anchor to the dollar or some other single major currency but with a possibly substantial degree of exchange rate flexibility around that anchor it is important to have available a technique that can cover both dimensions inferring anchor weights and the flexibility parameter we test the synthesis technique on a variety of fixers floaters and basket peggers we find that real world data demand a statistical technique that allows parameters and regimes to shift frequently accordingly we here take the next step in estimation of de facto exchange rate regimes endogenous estimation of parameter breakpoints following bai and perron jel numbers f31 f41

a conditional variance tale from an emerging economy s freely floating exchange rate this article studies daily return and volatility dynamics in the exchange rate of an emerging market economy turkey over the recent floating period we use generalized autoregressive conditional heteroscedastic garch and fractionally integrated garch figarch models with various error distributions findings show that a parsimonious figarch model with an asymmetric error distribution characterizes the daily turkish lira tl returns against us dollar and euro considerably well we find statistically significant asymmetry and peakedness in conditional returns and time varying volatility with long range dependence in conditional volatility long memory finding is robust to different specifications for the conditional returns as well as possible shifts in the return and volatility dynamics over sub periods results in the article show that despite the decline in volatility over the course of the recent float tl returns are still wild compared to developed economies exchange rates during the same period

the mirage of floating exchange rates this note summarizes some of the highlights of my longer paper with guillermo calvo fear of floating many emerging market countries have suffered financial crises one view blames soft pegs for these crises adherents to that view suggest that countries move to corner solutions hard pegs or floating exchange rates we analyze the behavior of exchange rates reserves and interest rates to assess whether there is evidence that country practice is moving toward corner solutions we focus on whether countries that claim they are floating are indeed doing so we find that countries that say they allow their exchange rate to float mostly do not there seems to be an epidemic case of fear of floating

mergers and acquisitions between risk averse parties abstract this paper evaluates mergers and acquisitions ma however it may yield a higher price for the consumer moreover we show that a decentralized supply chain can be more beneficial for the parties than a centralized supply chain formed by acquisition

coexistence of strategic vertical separation and integration abstract this paper gives conditions under which vertical separation is chosen by some upstream firms while vertical integration is chosen by others in the equilibrium of a symmetric model a vertically separating firm trades off fixed contracting costs against the strategic benefit of writing a two part tariff exclusive dealing contract with its retailer coexistence emerges when more than two vertical cournot oligopolists supply close substitutes when vertical integration and separation coexist welfare could be improved by reducing the number of vertically separating firms the scope for coexistence diminishes when assumptions on contract observability and commitment are relaxed

speculative profit opportunities in the canadian foreign exchange market 1974 78 this paper shows that a number of simple theoretically based exchange rate models could have been used to speculate profitably in the canada united states exchange market over the period 1974 78 and that these unexploited profits were surprisingly large estimated models and autoregressive forecasts of their explanatory variables based only on information available at each point in time were used to take uncovered positions based on the forecasted direction of forward rate error these unexploited profits provide strong evidence of market inefficiency and or the existence of a time varying risk premium possibilites de profits speculatifs sur le marche des changes canada etats unis 1974 78 ce memoire montre qu on aurait pu faire bon usage d un certain nombre de modeles theoriques simples du taux de change entre le canada et les etats unis pour speculer avec profit sur le marche des changes canada etats unis entre 1974 et 1978 il semble que la taille de ces profits non encaisses est etonnamment considerable l auteur utilise des modeles et des previsions a partir de specifications autoregressives pour obtenir la valeur des variables independantes en utilisant seulement les renseignements disponibles a tout moment donne afin de definir les positions speculatives a decouvert suggerees par la direction prevue de l erreur dans le taux de change sur le marche a terme l existence de tels profits non exploites suggere l existence d inefficacite dans le inarche et ou l existence d une prime de risque qui varie avec le temps

what factors determine the outsourcing intensity a dynamic panel data approach for manufacturing industries the present article investigates the determinants of outsourcing production using a panel of 93 spanish manufacturing industries for the period 1993 to 2002 outsourcing is measured as production tasks which are contracting out to external suppliers a more direct and suitable indicator after controlling for unobserved heterogeneity and simultaneity our results show a high persistence of the outsourcing intensity moreover outsourcing of production is positively related to unit labour costs skills requirements national ownership and orientation to international markets we also find evidence for a negative link between the outsourcing intensity and the share of small firms

balance of payments crises under inflation targeting abstract this paper analyzes a small open economy model under inflation targeting it shows why such a monetary regime is vulnerable to speculative attacks that take place over a short period rather than instantaneously the speed at which the regime collapses and the extent of reserve losses are increasing in the central bank s explicit or implicit commitment to intervene in the foreign exchange market attacks are therefore ranked from most to least severe as follows exchange rate targeting cpi inflation targeting domestic nontradables inflation targeting and money targeting under inflation targeting the size of the attack is increasing in the tradables consumption share

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

classifying exchange rate regimes deeds vs words abstract most of the empirical literature on exchange rate regimes uses the imf de jure classification based on the regime announced by the governments despite the recognized inconsistencies between reported and actual policies in many cases to address this problem we construct a de facto classification based on data on exchange rates and international reserves from all imf reporting countries over the period 1974 2000 which we believe provides a meaningful alternative for future empirical work on the topic the classification sheds new light on several stylized facts previously reported in the literature in particular we find that the de facto pegs have remained stable throughout the last decade although an increasing number of them shy away from an explicit commitment to a fixed regime hidden pegs we confirm the hollowing out hypothesis but show that it does not apply to countries with limited access to capital markets we also find that pure floats are associated with only relatively minor nominal exchange rate volatility and that the recent increase in the number of de jure floats goes hand in hand with an increase in the number of de facto dirty floats fear of floating

game theoretical perspectives on dual channel supply chain competition with price discounts and pricing schemes abstract this paper evaluates the impact of price discount contracts and pricing schemes on the dual channel supply chain competition channel conflict occurs when the supplier enters the online direct channel traditional contracts normally require tedious administrational participation full information of the cost structures and other factors the introduction of simple price discount contracts aims at providing easy implementation and effective coordination results from supplier stackelberg retailer stackelberg and nash game theoretic perspectives we show that the scenarios with price discount contracts can outperform the non contract scenarios in addition we show consistent pricing scheme can reduce the channel conflict by inducing more profit to the retailer the leader in the games might but is not guaranteed to have advantages

the real interest rate and aggregate supply abstract this paper analyzes the effects of the anticipated real interest rate on aggregate supply variables in a model where time to produce and variable capital utilization play a crucial role the potential importance of the present mechanism for business cycle theory lies in its ability to generate positive co movements of employment capital utilization labor productivity output and investment these variables are predicted to be affected negatively by the real interest rate reduced forms for output and employment are derived and tested with canadian data taking estimates of the real interest rate prevailing in the united states as the relevant exogenous price

cost raising strategies advantage rivals by raising their costs in this paper we show that strategies designed to raise rivals costs have a number of advantages over predatory pricing they are credible do not necessarily require the victim to exit and do not necessarily require the existence of classical market power the paper sets up a general model proves a number of general results and then applies the model to specific strategies involving overbuying inputs and vertical integration

exchange rate volatility across financial crises abstract this paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries spillovers from advanced financial markets to currencies in emerging countries are likely to be exacerbated during crisis periods to test this hypothesis we assess the exchange rate policies by currencies volatility and investigate their relationship to a global financial stress indicator measured by the volatility on global markets we introduce the possibility of nonlinearities by running smooth transition regressions over a sample of 21 emerging countries from january 1994 to september 2009 the results confirm that exchange rate volatility does increase more than proportionally with the global financial stress for most countries in the sample we also evidence regional contagion effects spreading from one emerging currency to other currencies in the neighboring area

strategic outsourcing revisited this paper analyzes a sequential game where firms decide about outsourcing the production of a non specific input good to an imperfectly competitive input market we apply the taxonomy of business strategies introduced by fudenberg and tirole 1984 to characterize the different equilibria and find that outsourcing generally softens competition in the final product market if firms anticipate the impact of their outsourcing decisions on input prices there may be equilibria where firms outsource so as to collude or to raise rivals costs we illustrate our analysis using a linear cournot model

terms of trade and exchange rate regimes in developing countries abstract since friedman essays in positive economics university of chicago press chicago 1953 157 203 an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks i use a post bretton woods sample 1973 96 of 75 developing countries to assess whether the responses of real gdp real exchange rates and prices to terms of trade shocks differ systematically across exchange rate regimes i find that responses are significantly different across regimes in a way that supports friedman s hypothesis the paper also examines the importance of terms of trade shocks in explaining the overall variance of output and prices in developing countries

trade liberalization and strategic outsourcing this paper develops a model of strategic outsourcing with trade liberalization in the intermediate product market a domestic firm may choose to purchase a key intermediate good from a more efficient foreign producer who also competes with the domestic firm for a final good this has a strategic effect on competition unlike the outsourcing motivated by cost saving the strategic outsourcing has a collusive effect that could raise the prices of both intermediate and final goods trade liberalization in the intermediate good market has a very different effect compared with trade liberalization in the final good market d 2003 elsevier b v all rights reserved

determinants of exchange rate regime switching abstract exchange rate policy in many emerging markets shifts between a stronger and weaker commitment to peg this observation raises the following questions which we address in our paper does intervention policy exhibit switching and if so what causes policy to shift the theoretical literature increasingly points to the critical importance of financial fundamentals chinn m d kletzer k m 2001 imperfect information domestic regulation and financial crises in glick r moreno r spiegel m eds financial crises in emerging markets cambridge university press cambridge pp 196 237 dooley 2000 chang r velasco a 2005 monetary policy and the currency denomination of debt a tale of two equilibria kennedy school of government working paper series harvard university cambridge massachusetts among others direct empirical validation to date is limited however although relevant intuitions come from duration and indicators literature kaminsky g l reinhart c m vegh c a 2004 when it rains it pours procyclical capital flows and macroeconomic policies nber macroeconomics annual national bureau of economic research inc domac i peria m s 2003 banking crises and exchange rate regimes is there a link journal of international economics 61 41 72 tudela m 2004 explaining currency crises a duration model approach journal of international money and finance 23 799 816 we use a panel of quarterly data starting 1985 through 2004 for 14 countries mainly from latin america and east asia and adopt a novel two step empirical strategy first we apply regime switching methods to two simple indices of central bank exchange rate policy this generates likelihoods of high and low intervention in the second step we establish the variables that determine these probabilities we find strong evidence that the economy s balance sheet and economic performance determine the likelihood of switching in the exchange rate regime specifically an increase in reserve currency debt relative to assets raises potential capital losses from devaluation and reduces the probability of switching to a low intervention regime as does a decline in growth the purpose here is not to present an alternative regime classification levy yeyati e sturzenegger s 2005 classifying exchange rate regimes deeds vs words european economic review 49 1603 1635 reinhart c m rogoff k 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics available at http www puaf umd edu faculty papers reinhart papers htm but to establish the relative importance of different constraints on the central bank which has policy implications the empirical approach and specification is flexible to whether intervention is discrete or gradual and to whether or not the central bank sterilizes

understanding the gains from wage flexibility the exchange rate connection we study the gains from increased wage exibility and their dependence on exchange rate policy using a small open economy model with staggered price and wage setting two results stand out i the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize the exchange rate and ii an increase in wage exibility often reduces welfare and more likely so in economies under an exchange rate peg or an exchange rate focused monetary policy our ndings call into question the common view that wage exibility is particularly desirable in a currency union

terms of trade and real exchange rates the canadian evidence abstract this paper presents empirical evidence linking the canada us real exchange rate with the terms of trade using recently developed econometric methods for nondashstationary data we find that the real exchange rate is cointegrated with terms of trade variables and that causality runs from the terms of trade to the exchange rate we then construct a simple exchange rate equation that satisfies several specification tests and performs better than a random walk in post sample forecasting experiments the results suggest that much of the variation in the real exchange rate is attributable to movements in the terms of trade and that the influence of monetary factors is secondary

a test of a keynesian alternative to hercowitz s aggregate supply theory abstract hercowitz 1986 estimates aggregate output and hours equations which are derived from a new classical model of aggregate supply under an alternative interpretation his aggregate supply equation is in fact an is curve with one omitted variable while his hours equation is best interpreted as an okun s law relationship when the hercowitz equations are nested in more general formulations which incorporate these alternatives the new classical restrictions are rejected resoundingly

implicit bands in the yen dollar exchange rate this article attempts to identify implicit exchange rate regimes for the yen dollar exchange rate to that end we apply a sequential procedure that considers both the dynamics of exchange rates and central bank interventions to data covering the period from 1971 to 2003 our results suggest that implicit bands existed in two subperiods april december 1980 and march october 1987 the latter coinciding with the louvre accord furthermore the study of the credibility of such implicit bands indicates the high degree of confidence attributed by economic agents to the evolution of the yen dollar exchange rate within the detected implicit band rate thus lending further support to the relevance of such implicit bands

approximations of dynamic multilocation production and inventory problems consider a central depot or plant which supplies several locations experiencing random demands orders are placed or production is initiated periodically by the depot the order arrives after a fixed lead time and is then allocated among the several locations the depot itself does not hold inventory the allocations are finally received at the demand points after another lag unfilled demand at each location is backordered linear costs are incurred at each location for holding inventory and for backorders also costs are assessed for orders placed by the depot the object is to minimize the expected total cost of the system over a finite number of time periods this system gives rise to a dynamic program with a state space of very large dimension we show that this model can be systematically approximated by a single location inventory problem all the qualitative and quantitative results for such problems can then be applied

government incentives when pollution permits are durable goods this paper analyzes the incentive effects of pollution taxes versus pollution permits for a budget oriented government pollution permits are analyzed as durable goods and a pollution tax is seen as being equivalent to leasing out pollution permits first a general model is developed and then four stylized types of government are discussed a benevolent dictator a pure leviathan a green and a business friendly government we show that all types of government prefer a pollution tax system but this regime is not necessarily the best in social welfare terms the intuition is that a tax or leasing system makes it easier for the government to credibly commit to the budget maximizing level of pollution permits which is good for government revenues but not necessarily for social welfare

an empirical inquiry into the role of sectoral diversification in exchange rate regime choice abstract whether sectoral diversification affects the exchange rate regime choice and the mechanisms through which this effect might work are largely unknown this study identifies two mechanisms through which sectoral diversification and exchange rate regime choice may be related namely the external shock absorption and rent seeking mechanisms a direct effect of diversification on regime choice is also hypothesized using a panel dataset covering 91 countries over the period 1985 2006 the paper runs a horse race among these potential channels the results show that diversification is associated with flexible regimes in countries experiencing greater external shocks additionally countries characterized by higher levels of corruption and lower levels of diversification opt for fixed regimes suggesting that a fixed regime may shield the powerful elites from international competition there is also weak evidence of the direct effect of diversification in adopting flexible regimes

empirical evidence on the strength of the monetary transmission mechanism in canada an aggregate approach abstract this paper examines the transmission of monetary policy in canada it emphasizes the transmission through interest rates and the exchange rate rather than through changes in monetary aggregates and provides empirical evidence on the strength of these channels using a highly aggregated structural model implications of these structural equations for the dynamic effects of monetary policy are explored through a simulation analysis

interest rate volatility in emerging markets we use high frequency interest rate data for a group of latin american and asian countries to analyze the behavior of volatility through time we focus on volatility comovements across countries our analysis relies on univariate and bivariate switching volatility models we compare the results from the switching models with those from rolling standard deviation models we argue that the switching models are superior our results indicate that high volatility episodes are in general short lived lasting from 2 to 7 weeks we also find some evidence of interest rate volatility comovements across countries

vertical mergers and market foreclosure ythe model in this paper illustrates three effects of vertical mergers when both stages are oligopolistic and vertically integrated and unintegrated producers coexist first the merging firm increases its final good output second the resulting backward shift in the residual demand curve facing unintegrated final good producers ylowers their demand for the intermediate good third the merged firm withdraws from the intermediate good market the increased concentration pushes the intermediate good price upward which effect dominates depends on market structure under some conditions a vertical merger causes the price of the final good to increase

consumption permanent income and financial wealth in canada empirical evidence on the intertemporal approach to the current account the intertemporal approach to the current account is rejected as a complete explanation of the canadian current account federal government fiscal policy plays an important role in the determination of the current account a private sector agent that treats its holdings of net liabilities of the federal government as net wealth accumulates the sum of these liabilities and the net liabilities of non residents as part of an intertemporally optimal plan this result indicates both fiscal policy and intertemporal considerations are important determinants of current account behaviour consommation revenu permanent et richesse financiere au canada resultats empiriques d une approche au compte courant mettant l accent sur la dimension intertemporelle cet article montre que l approche mettant l accent sur la dimension intertemporelle ne produit pas une explication complte du comportement du compte courant canadien i1 semble que la politique fiscale du gouvernement federal joue un r6le important dans la conformation du compte courant un agent economique prive composite qui traite son portefeuille de dettes nettes du gouvernement federal comme richesse nette va accumuler la somme de ces dettes et des dettes nettes des non residents dans le cadre de son plan intertemporel optimal les resultats montrent que la politique fiscale et des considerations intertemporelles sont des elements determinants du comportement du compte courant

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

financial instability in latin america in this paper i deal with a number of issues related to financial instability in latin america i first discuss from a macroeconomic research perspective what i believe are some of the most important policy issues faced by the latin american nations these include the effectiveness of controls on capital inflows the effect of exchange rate depreciation on output and the international transmission of the business cycle second i argue that the economic research agenda on latin america should not ignore history in latin america more so than in any other region in the world there has been a self destructing tendency for repeating history 2003 elsevier ltd all rights reserved

a model for analyzing multi channel distribution systems to capture customers in different market segments many firms distribute their products using multiple channels involving in store mail order and electronic mediums nevertheless the business literature is replete with examples where the management of multiple distribution channels becomes unwieldy as a way to evaluate different distribution strategies arising from multiple channels we develop a model of a general multi channel distribution system subject to stochastic demand since the exact analysis of our model is intractable we propose a decomposition scheme that enables us to develop a near optimal distribution policy with minimum total expected distribution cost we utilize our analysis of this multi channel system in two specific applications arising from multi channel distribution the first application deals with a store based retailer expanding into a direct sales channel the retailer can fill the orders generated from this additional sales channel by using the existing stores or the existing depots for this application we evaluate the trade off between these two options the second application intends to find a cost effective way to distribute products by utilizing the combined distribution system of two retailers after a potential merger and acquisition m a for this application we quantify the benefit of an m a in terms of distribution efficiency

performance measures and metrics in outsourcing decisions a review for research and applications outsourcing an operations strategy that influences the performance of a supply chain has become an important component of global operations management an effective global sourcing strategy helps companies to manage the flow of parts and finished products in meeting the needs of overseas and domestic markets outsourcing reduces the cost of assets facilitates core competencies to reduce production costs leads to strategic flexibility and reduces administrative and overhead costs some of the reasons why companies are against outsourcing include integration challenges sacrificing their competitive base opportunistic behaviour rising transaction and coordination costs limited innovation and higher procurement costs despite these shortcomings outsourcing will continue to play an important role in enhancing organizational competitiveness therefore an attempt has been made to review the literature on outsourcing with particular reference to performance measures and metrics pmms used in arriving at outsourcing decisions the main objective of this paper is to present a taxonomy classification of pmms in outsourcing decisions at the pre outsourcing during outsourcing and post outsourcing stages also based on the literature review and analysis an attempt is made to determine a list of specific tools and techniques for pmms in outsourcing finally the limitations of the paper and future research directions are presented

how are exchange rates managed evidence of an anchor based heuristic central banks often intervene in the foreign exchange market to obtain desirable exchange rates how this is done has remained totally opaque although central banks are likely to adopt a satisficing rather than optimizing strategy as they need to intervene frequently in a timely manner under incomplete information in this paper we propose a simple exchange rate management rule that spreads the volatilities originated from the anchor currencies among the exchange rates with the domestic currency we test out this rule on 10 currencies and find the empirical evidence consistent with the proposed anchor based heuristic

equilibrium structures in vertical oligopoly abstract the central purpose of this paper is to examine vertical integration as an equilibrium phenomenon we model it as integration between cournot oligopolists in both the upstream and the downstream stages we consider the issue of private profitability versus collective profitability and show that under several situations the equilibrium outcomes may result in a prisoner s dilemma the analysis is extended to consider equilibrium outcomes in a dynamic setting where we find no integration to be a relatively common outcome

optimal centralized ordering policies in multi echelon inventory systems with correlated demands this paper treats a depot warehouse system in which demand occurs at the warehouse or retail level this work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products we observed both high correlations between successive monthly demands around 0 7 and correlations between demands for an item at different locations also about 0 7 in a given time period we derive an explicit expression for the optimal safety stock as a function of the level of correlation through time the analysis requires two assumptions 1 the allocation assumption and 2 the equal coefficient of variation assumption similar assumptions have been used by other researchers finally numerical evaluations are included to illustrate the impact of the various magnitudes of correlation

the dynamics of a newly floating exchange rate the turkish case in recent years many emerging market economies have switched or are in the process of switching to a floating exchange rate regime most of these economies have a history of high inflation and a high level of foreign currency denominated debt therefore the stability of the exchange rate and the dynamics of its volatility are more crucial than before this paper analyses the dynamics of exchange rate in turkey in the aftermath of recent float in february 2001 the turkish experience is a particularly important one and provides valuable lessons for other countries as the central bank is trying to simultaneously contain the volatility of exchange rate and pursue an implicit inflation targeting policy the reported findings indicate that the central bank policies accompanied with favourable external factors were effective in taming the volatility of the exchange rate in a relatively short period of time however there is a significant real appreciation of the currency during the same period given the

foreign exchange market efficiency tests implications of recent empirical findings abstract the recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence these contradictions result because 1 different maintained hypotheses are held and 2 different criteria e g micro versus macroeconomic are used to judge the evidence in this survey we organize the empirical literature under several headings the presence of risk premiums empirical regularities in regression tests profitable trading rules and advanced econometric techniques in integrating this material we consider the implications of the current evidence for investors forecasters policy makers and theorists

persistent deficits and the market value of government debt summary this paper investigates whether postwar canadian public financial policy satisfies a borrowing constraint direct tests of the present value relation suggested by this constraint shed light on the sustainability of current policy we examine monthly data on canadian federal government finances using tests for cointegration the finding is that the joint behaviour of real debt and real surpluses is inconsistent with intertemporal budget balance for the government one interpretation of this finding is that the government is systematically paying real returns to bondholders by issuing further debt alternatively bondholders may expect the government to finance future interest payments from a source other than primary surpluses e g the sale of physical assets much empirical macroeconomics is concerned with the effects of public financial policies numerous studies have examined whether such policies affect interest rates inflation or national income and its components these examinations raise the question of the efficacy of government budget deficits they generally assume that a borrowing constraint holds in the public finances some positive theories of public debt creation also make this assumption examples include barro s 1979 history of us federal deficits and sargent s 1986 rationalizations of recent us budgetary policy lucas and stokey s 1983 discussion of optimal taxation also involves this assumption hansen roberds and sargent 1987 outline the testable implications of present value budget balance and hamilton and flavin 1986 investigate the feasibility of recurring deficits by directly testing the us federal government s borrowing constraint such tests seem natural given both the recent boom is testing more complicated first order difference equations in macroeconomics and the widespread discussion of current deficits this paper tests the present value borrowing constraint using recently constructed data on the market value of outstanding canadian federal government debt we use monthly rather than annual as in hamilton and flavin data and conduct tests of univariate integration and of bivariate cointegration to investigate the joint time series properties of debt and deficits one finding is that real debt and real surpluses are integrated processes evidence of their cointegration is mixed and point estimates of the cointegrating vector suggest that the expected real rate of return on debt is negative moreover the surplus measured to include interest payments as government spending is nonstationary these findings are inconsistent

why do some firms contract out production evidence from firm level panel data this article examines which factors determine outsourcing decision using firm level data according to the theoretical and empirical literature firm industry and market characteristics influence the likelihood of contracting out we try to identify which firm characteristics are prerequisites for becoming an outsourcer using a dynamic panel data probit model our results show that firms with previous subcontracting experience higher wages frequent market changes r d activities product differentiation large size and exporter status are more likely to engage in outsourcing

an empirical assessment of currency devaluation in east asian countries the hypothesis of contractionary devaluation has received surprisingly strong empirical support especially in the context of latin american countries in this paper we study whether it applies equally well in seven east asian countries when we use the pre 1997 crisis data and the trade weighted exchange rate we find no evidence of contractionary devaluations in fact currency devaluation appears strongly expansionary in several countries this is contrasted to the case of chile and mexico where the evidence of devaluation is persistent we find that the results are somewhat sensitive to the definition of the exchange rate and the period of estimation

financial markets in times of stress abstract in this paper we examine which markets are most synchronized internationally and exhibit the greater extent of co movement we focus on daily data for four asset markets bonds equities foreign exchange and domestic money market our sample covers 35 developed and emerging market countries during 1997 1999 the extent of co movement and responsiveness to external shocks is examined in different ways to measure the response of these markets to adverse external shocks we date the peaks in domestic interest rates and bond spreads and the largest daily declines in equity prices and assess the extent of clustering around the same period we also analyze which markets show evidence of greatest co movement in general irrespective of whether there are adverse shocks or not

outsourcing decisions product innovation and the spatial dimension evidence from the spanish footwear industry recent studies in developed countries frequently emphasise the importance of outsourcing as a strategy for manufacturing industries to survive however there is little qualitative evidence that specifically describes outsourcers in mature industries with competitive problems particularly in southern europe this paper attempts to fill this gap by investigating the distinctive traits of firms located in the most important spanish footwear industrial districts from a sample of 401 spanish firms surveyed in january and february 2006 it was found that size design and product innovation prior institutional networks and location in specific industrial districts favour the development of outsourcing strategies by contrast clients prior networks are negatively related with contracting out productive activities these results are relevant in several dimensions however the positive impact of some districts in the externalisation decision should be specifically mentioned such evidence seems to confirm t

emerging floaters pass throughs and some new commodity currencies in spite of early skepticism on the merits of floating exchange rate regimes in emerging markets 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade using parsimonious var specifications covering the period of floating exchange rates this study computes the dynamics of exchange rate pass throughs to consumer price indices we find that pass throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities previous studies that set out to estimate exchange rate pass throughs ignored changes in policy regimes making them vulnerable to the lucas critique we find that within the group of emerging floaters estimated pass throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods these findings are consistent with the pass through model of floden and wilander 2006 and earlier findings by campa and goldberg 2005 respectively furthermore we find that the indonesian rupiah the thai baht and possibly the mexican peso are commodity currencies in the sense that their real exchange rates are cointegrated with international commodity prices

sterilization of short term capital inflows through lower interest rates reductions in international interest rates are a major cause of capital flows to emerging economies increases in domestic interest rates are a frequent policy response to the resulting price increases this is often unsuccessful the paper suggests a theoretical explanation based on distinctive features of emerging financial markets including imperfect asset substitutability and imperfect capital mobility for some sectors of the economy it concludes that the appropriate policy response to capital inflows may be lower interest rates

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

a neoclassical perspective on budget deficits i n the 1988 presidential campaign virtually every serious candidate spoke of the urgent need to trim government budget deficits public opinion polls have identified federal deficits as a key economic issue second only to unemployment while many economists are relieved by what they perceive to be a long overdue political response to a critical economic problem others regard the fuss as much ado about nothing it is indeed remarkable that economists can disagree so severely over an issue which commands such a uniform reaction from laymen of widely different ideologies and political affiliations generally speaking there are three schools of thought concerning the economic effects of budget deficits neoclassical keynesian and ricardian before proceeding further it is useful to review the basic structure and implications of each paradigm the neoclassical paradigm envisions farsighted individuals planning consumption over their own life cycles budget deficits raise total lifetime consumption by shifting taxes to subsequent generations if economic resources are fully employed increased consumption necessarily implies decreased saving interest rates must then rise to bring capital markets into balance thus persistent deficits crowd out private capital accumulation in the current economic environment most economists would agree that these consequences would be highly detrimental

vertical integration or separation of the sales function as implied by competitive forces abstract in the present paper we link the decisions concerning the sales strategies that are made by competing firms we demonstrate that when the demand schedules facing competing firms are moderately correlated asymmetric equilibria may arise where only one firm decides to establish its own sales force while its competitor sells its product through an independent sales agency when demand schedules are highly correlated however only symmetric equilibria can arise since firms derive greater benefits from imitating rather than contradicting their rivals choices we demonstrate that vertical separation of its sales function is more likely than vertical integration when firms produce products that are highly substitutable