the effect of financial repression and enforcement on entrepreneurship and economic development abstract a general equilibrium model with heterogeneous agents with respect to wealth and ability shows that differences across countries in intermediation costs and enforcement generate differences in occupational choice firm size credit output and income inequality counterfactual experiments are performed for latin american european transition and high growth asian countries with empirical estimates of each country s financial frictions and united states values for all other parameters the results isolate the quantitative effect of these financial frictions in explaining the performance gap between each country and the united states and depend critically on whether a general equilibrium factor price effect is operative

a meta analytic reassessment of the effects of inequality on growth this paper develops a meta analysis of the empirical literature that estimates the effect of inequality on growth it covers studies published in scientific journals during 1994 2014 that examine the impact on growth of inequality in income land and human capital distribution we find traces of publication bias in this literature as authors and journals are more willing to report and publish statistically significant findings and the results tend to follow a predictable time pattern over time according to which negative and positive effects are cyclically reported after correcting for these two forms of publication bias we conclude that the high degree of heterogeneity of the reported effect sizes is explained by study conditions namely the structure of the data the type of countries included in the sample the inclusion of regional dummies the concept of inequality and the definition of income in particular our meta regression analysis suggests that cross section studies systematically report a stronger negative impact than panel data studies the effect of inequality on growth is negative and more pronounced in less developed countries than in rich countries the inclusion of regional dummies in the growth regression of the primary studies considerably weakens such effect expenditure and gross income inequality tend to lead to different estimates of the effect size land and human inequality are more pernicious to subsequent growth than income inequality is we also find that the estimation technique the quality of data on income distribution and the specification of the growth regression do not significantly influence the estimation of the effect sizes these results provide new insights into the nature of the inequality growth relationship and offer important guidelines for policy makers

the resolution of financial distress most models of financial structure embody an assumption about financial distress that causes debt to be costly to the issuing firm this approach has been criticized on the grounds that the assumed costs could be avoided by a costless financial reorganization in this article we show that despite the possibility of costless reorganization it may be rational for firms to incur significant costs in the resolution of financial distress the main assumptions that give rise to our results are the existence of asymmetric courts to impose a reorganization on the claimants of a firm article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a new bankruptcy procedure that uses multiple auctions abstract we propose a new bankruptcy procedure that makes use of multiple auctions the procedure is designed to work even when capital markets do not function well for example in developing economies or in economies in transition although it can be used in all economies

timing and real indeterminacy in monetary models an increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy policy is typically conducted in terms of directives for the nominal interest rate this paper uses a discrete time money in the utility function model to demonstrate how seemingly minor modifications in the trading environment result in dramatic differences in the policy restrictions needed to ensure real determinacy these differences arise because of the differing pricing equations for the nominal interest rate

supply side effects of monetary policy and equilibrium multiplicity abstract empirical evidence indicates that changes in the nominal interest rate significantly affect lending costs of firms introducing working capital into an otherwise conventional new keynesian model active interest rate policy remains necessary but should be moderate to ensure real determinacy the likelihood for the latter can approach zero when utility is linear in leisure

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

do interest rates drive inflation dynamics an analysis of the cost channel of monetary transmission abstract this paper proposes a novel approach to empirically assessing the impact of the cost channel of monetary transmission on the dynamics of inflation within a new keynesian phillips curve framework according to the cost channel higher interest rates translate into higher marginal costs of production and eventually into higher inflation we exploit the present value implications of the model to derive a series of fundamental inflation that is contrasted with actual inflation we show that the cost channel adds significantly to the explanation of inflation dynamics in forward looking sticky price models for the us the uk and the euro area moreover the cost channel can explain inflation episodes that cannot be accounted for by the standard new keynesian model

institutionalisation of sustainable consumption patterns based on shared use the product service system pss concept has been proposed as a way of dealing with unsustainable patterns of consumption in the business to consumer b2c domain existing alternatives to traditional consumption based on ownership such as car sharing communal washing centres and tool sharing schemes indicate that more sustainable patterns of consumption may be found for other household functions however the low profile of these examples in society and on the market calls for a query into factors that may facilitate or hinder broader acceptance of more sustainable alternatives in this study the aforementioned examples are analysed from institutional and product service system perspectives and it is suggested that the embodiment of alternative consumption patterns into every day routines depends on institutional arrangements regulatory and normative on how the product service systems are designed and applied in practice and oil the socio cultural background of the society the systems are implemented in c 2004 elsevier b v all rights reserved less

inflation dynamics and the cost channel of monetary transmission evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so called cost channel of monetary transmission in this paper we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in g7 countries we augment the so called hybrid new keynesian philips curve by letting firms costs for external funds rise with the short run nominal interest rate our estimates reveal that the magnitude of this cost channel strongly varies between countries including member countries of the emu in accordance with differences in their financial systems simulations of a new keynesian model further show that the presence of the cost channel substantially affects the transmission of monetary policy shocks in particular the inflation response

the time varying cost channel of monetary transmission abstract this paper studies the time varying role of the cost channel of monetary transmission i e the supply side effect of monetary policy based on firms costs of holding working capital for that purpose we provide rolling window estimates of an augmented new keynesian phillips curve and show that the cost channel exhibits important time varying dynamics we find as a general pattern that the cost channel was most important in the pre volcker period and less important in the volcker greenspan era recently however the cost channel regained importance since the cost channel is based on the transmission of policy impulses through bank lending it is likely that the time varying cost channel reflects the cyclical nature of financial frictions

modelling sustainability performance to achieve absolute reductions in socio ecological systems as the world s natural resources dwindle and critical levels of environmental pollution are approached sustainability becomes a key issue for governments organisations and individuals with the consequences of such an issue in mind this paper introduces a unifying approach to measure the sustainability performance of socio economic systems based on the interplay between two key variables essentiality of consumption and environmental impact this measure attributes to every system a fitness value i e a quantity that reflects its ability to remain resilient healthy by avoiding ecological social and economic collapse as it consumes the available resources this new measure is tested on a system where there is a limited supply of resources and four basic consumption types the analysis has theoretical implications as well as practical importance as it can help countries organisations or even individuals in finding better ways to measure sustainability performance

consumption sustainable welfare and human needs with reference to uk expenditure patterns between 1954 and 1994 abstract this paper explores the complex relationship between economic consumption and human welfare or well being conventional economics suggests that increasing levels of economic consumption lead to increasing levels of well being however this view has been criticised on both environmental and social grounds on the one hand the material impacts of increasing consumption are environmentally unsustainable on the other hand material consumption can conflict with crucial social and psychological components of human welfare this paper develops a perspective on human welfare which is based on max neef s characterisation of human needs it discusses the implications of this alternative perspective for the conventional viewpoint and illustrates the importance of it with reference to patterns of consumer expenditure in the uk over the last 40 years the authors suggest that from this perspective modern societies may be seriously adrift in their pursuit of human well being however they also point out that addressing this situation provides far more opportunity for ecologically sustainable development than is generally recognised

beyond the economics of more the place of consumption in ecological economics abstract the relation between consumption and welfare generally assumed by orthodox economists must be re examined by ecological economists present attitudes towards consumption among the latter are often ambiguous resulting in a modified form of consumerism yet questioning the often dubious benefits of consumption is as important for the environmental debate as emphasising its neglected costs beyond basic needs satisfaction it is at most one s consumption level relative to others which counts for welfare so that benefits from consumption cannot be increased in the aggregate thus there is much scope for reducing consumption and thus environmental costs while increasing or maintaining welfare identifying those goods the consumption of which adds little or nothing to welfare and assessing the effect of reducing their consumption on resource use natural and human should be a major concern of an ecological economics aimed at promoting sustainable welfare

the politics of legal reform as a result of the emerging market crises of the last decade and a large body of academic research on the influence of investor protection in the development of capital markets and economic growth there is a growing consensus that reforming the legal infrastructure supporting business should be an important component of reforms in many developing countries but the consensus is unwieldy as there are still many forces against reform and little agreement about what constitutes feasible legal reforms this paper has two parts in the first we identify the forces for and against legal reform and review the role these forces play in episodes of reform in the second we seek to further our understanding of what constitutes good laws and regulatory mechanisms and more importantly how to make them enforceable in different countries if legal reform is to succeed the commonly advocated principles of corporate governance in the international community must be brought down to the local political and judicial realities translating international corporate governance initiatives into clear and enforceable rights for creditors and shareholders that incorporate these constraints will be difficult but necessary bankruptcy law and corporate law reform need to be politically feasible and enforceable legal reforms should be complemented with carefully drafted judicial reforms as well as market based mechanisms that foster a culture of corporate governance

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

optimal bankruptcy law and firm specific investments in this paper we characterize an optimal bankruptcy law that takes into consideration the incentives of managers to invest in firm specific human capital we show that the optimal bankruptcy law is biased towards the management team and may be implemented by the use of a restricted auction mechanism in which creditors have the right to refuse bankruptcy but are not allowed to bid for the firm the bankruptcy law is needed as a commitment device to implement the optimal outcome

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

the default rate experience on high yield corporate debt recent 1978 83 net returns on high yield low rated debt have been impressive averaging 490 to 580 basis points above the long term government bond index but low rated junk bonds pose a risk of default not present in the higher rated segment of the bond market the authors divided the par value of defaulting debt by total low rated straight debt outstanding to arrive at an estimate of the default rate for high yield bonds excluding johns manville which had the only defaulting debt rated investment grade just prior to the default date for the 1974 84 period this averaged 1 52 per cent or 152 basis points annually year to year variations in the rate were substantial furthermore default experience differed across various industry segments railroads and reits were particularly vulnerable to default in the past although they are unlikely to represent a large portion of future defaults retailer electronic computer airline and oil and gas defaults have become more common in recent years losses from default are actually lower than the default rate alone implies defaulted bonds traded on average at 41 per cent of par shortly after default after accounting for the bonds retained value and the loss of interest the average reduction in return to the investor who had purchased the bonds at par would have been in the range of 96 to 100 basis points annually

self confirming equilibrium rium path of play thus if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs even though beliefs about play at off path information sets need not be correct we characterize the ways in which self confirming equilibria and nash equilibria can differ and provide conditions under which self con firming equilibria correspond to standard solution concepts nash equilibrium and its refinements describe a situation in which i each player s strategy is a best response to his beliefs about the play of his opponents and ii each player s beliefs about the opponents play are exactly correct we propose a new equilibrium concept self confirming equilibrium that weakens condition ii by requiring only that players beliefs are correct along the equilibrium path of play thus each player may have incorrect beliefs about how his opponents would play in contingencies that do not arise when play follows the equilibrium and moreover the beliefs of different players may be wrong in different ways the concept of self confirming equilibrium is motivated by the idea that noncooperative equilibria should be interpreted as the outcome of a learning process in which players revise their beliefs using their observations of previous play suppose that each time the game is played the players observe the actions chosen by their opponents but that players do not observe the actions their opponents would have played at the information sets that were not reached along the path of play then if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs so the equilibrium is self confirming in the weak sense of not being inconsistent with the evidence by analogy with the literature on the bandit problem e g rothschild 1974 one might expect that a non nash self confirming equilibrium can be the outcome of plausible learning processes this point was made by fudenberg and

financial factors and monetary policy determinacy and learnability of equilibrium abstract we contribute to the debate on whether central banks should respond to financial factors in monetary policy rules by evaluating equilibrium determinacy and e stability in the presence of a financial accelerator policies responding to lagged asset prices either reduce the region of determinacy or e stability in the parameter space however a response to current asset prices expands both regions of determinacy and e stability policy rules reacting to credit volume constrict the determinacy region most policies responding to credit spreads expand determinacy and e stability regions we favor the inclusion of current asset prices or credit spreads in monetary policy rules

climate change mitigation potential of norwegian households and the rebound effect abstract an increasing number of studies show that efficiency improvements alone will not be sufficient to attain the substantial emission reductions needed to mitigate global warming to a target of 2 c consumption side changes are likely to be needed to achieve sufficient emission reductions the united nations emphasize the importance of developed countries taking the lead in lowering emissions to achieve the sustainable development goals this paper assess to what extent norwegian households can lower their carbon footprint consistent with territorial emission reductions towards the 2 c target of global warming through implementing a set of behavioral actions we evaluate the efficacy of the set of actions both initially and after considering rebound effects a multiregional environmentally extended input output database is linked with the norwegian consumer expenditure survey to analyze both average and marginal expenditure per unit of increased income further linear programming is applied to examine the changes needed by households to reach different emission reduction targets we find that households implementing the full set of actions without re spending can obtain a 58 decrease in their carbon footprint when accounting for the effect of re spending this reduction drops to 24 35 which is not within the requirements of the 2 c target the optimization analysis suggests households can achieve reductions up to 45 by restricting re spending to specific goods and services this indicates that curbing the rebound effect is key to achieving real reductions in household carbon footprints we show that changing consumption patterns can significantly contribute to lowering anthropogenic greenhouse gas emissions without compromising the level of economic activity

learning about monetary policy rules when the cost channel matters abstract we study how monetary policy may affect determinacy and expectational stability e stability of rational expectations equilibrium when the cost channel of monetary policy matters focusing on instrumental taylor type rules and optimal target rules we show that standard policies can induce indeterminacy and expectational instability when the cost channel is present a naive application of the traditional taylor principle could be misleading and expectations based reaction function under discretion does not always induce determinate and e stable equilibrium this result contrasts with the findings of bullard and mitra 2002 learning about monetary policy rules journal of monetary economics 49 1105 1129 and evans and honkapohja 2003 expectations and stability problem for optimal monetary policies review of economic studies 70 807 824 for the standard new keynesian model the ability of the central bank to commit to an optimal policy is an antidote to these problems

real wage rigidity and the taylor principle abstract this paper investigates conditions for equilibrium determinacy in the basic new keynesian model with real wage rigidity the determinacy region is increased under forward looking rules and the taylor principle continues to ensure equilibrium uniqueness under current looking rules

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

claimholder incentive conflicts in reorganization the role of bankruptcy law when a firm is financial distress in most cases a set of mutually advantageous reorganization plans exist this article shows that the bankruptcy code by providing rules governing the negotiation process yields a unique solution to the reorganization process in addition the structure imposed by the code mitigates the holdout problem created by the individual claimant s divergent incentives article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

making consumption reasonable abstract in light of the theoretical implications from ecological economics and industrial ecology increased efforts should be undertaken by policy makers to make consumption reasonable to remain sustainable reasonable decisions should take into account the long term survival of ecosystem and acknowledge the fact that the existence of human species ultimately depends on it two additional objectives should complement reasonable consumption 1 changing product systems so that products are properly managed at the end of their useful lives 2 making products more environmentally friendly a case study of the integrated product policy of the european union reveals that it addresses the above objectives selectively the general conclusions are that reasonable behaviour is challenged by conflicting interests of various market actors that economic reasoning should complement environmentally reasonable behaviour and that reasonable consumption should indeed be discussed in conjunction with reasonable production

bankruptcy law in latin america past and future this paper studies bankruptcy law in latin america focusing on the brazilian reform we start with a review of the international literature on this subject next we examine the economic incentives associated with several aspects of bankruptcy laws and insolvency procedures in general as well as the trade offs involved we follow this theoretical discussion with an empirical evaluation of the quality of current insolvency procedures in latin america we find that the region is governed by a set of laws that is inefficient even when compared with regions of lower per capita income this inefficiency has severe consequences for credit markets and the cost of capital next we focus on the recent brazilian bankruptcy reform analyzing its main components and possible effects the appendix describes difficulties of the reform process in brazil and lessons other latin american countries can learn from it

when does the cost channel pose a challenge to inflation targeting central banks abstract in a sticky price model where firms finance their production inputs there is both a lower and an upper bound on the central bank s inflation response necessary to rule out the possibility of self fulfilling inflation expectations this paper shows that real wage rigidities decrease this upper bound but coefficients in the range of those on the taylor rule place the economy well within the determinacy region however when there is time variation in the share of firms who finance their inputs i e markov switching then inflation targeting interest rate rules frequently result in indeterminacy even if the central bank also targets output adding a nominal growth target to the policy rule can often alleviate this indeterminacy and therefore anchor inflation expectations

the resolution of claims in financial distress the case of massey ferguson when a firm s business deteriorates to the point where it cannot meet its financial obligations the firm is said to have entered the state of financial distress the first signals of distress are usually violations of debt covenants coupled with the omission or reduction of dividends some financially distressed firms eventually go bankrupt others recover or manage to settle the claims against them out of court 1 the behavior of firms in financial distress is interesting for two reasons first the costs of financial distress are an important element in capital structure theory in many models 2 these costs are hypothesized to counteract the tax benefits of leverage and lead to an internal optimum for the capital structure of the firm second financial distress has come to be recognized as a state in which contractual claims are incompletely specified standard terms of the debt equity contract are violated when the firm enters financial distress and claimants may then decide not to act according to previously agreed upon rules or legal formulas recent history has provided a number of examples of firms in financial distress including massey ferguson international harvester chrysler and braniff the resolution of claims in these situations often differs from what is predicted by legal rules or standard theoretical models this paper examines the actual resolution of claims in the reorganization of massey ferguson ltd in part i we use time series data on daily stock returns to test different specifications of priority rules for debt and equity claims in part ii we consider whether massey ferguson avoided deadweight costs of financial distress through the restructuring of claims negotiated among creditors during the winter of 1980 81

interest rate rules vs money growth rules a welfare comparison in a cash in advance economy abstract this paper considers the welfare consequences of two particularly simple rules for monetary policy an interest rate peg and a money growth peg the model economy consists of a real side that is the standard real business cycle model and a monetary side that amounts to imposing cash in advance constraints on certain market transactions the paper also considers the effect of assuming a rigidity in the typical household s cash savings choice the competitive equilibrium of the economy is not pareto efficient partly because of two distortions a distortion on the capital accumulation decision and a distortion on portfolio choice that arises from the assumed rigidity the principal result of the paper is that the interest rate rule but not the money growth rule entirely eliminates these two distortions and is thus the benevolent central banker s policy choice

the costs of bankruptcy chapter 7 liquidation versus chapter 11 reorganization our paper explores a comprehensive sample of small and large corporate bankruptcies in arizona and new york from 1995 to 2001 bankruptcy costs are very heterogeneous and sensitive to the measurement method used we find that chapter 7 liquidations appear to be no faster or cheaper in terms of direct expense than chapter 11 reorganizations however chapter 11 seems to preserve assets better thereby allowing creditors to recover relatively more our paper also provides a large number of further empirical regularities our paper analyzes the largest sample of corporate bankruptcies to date we research approximately 300 cases from the arizona and new york federal bankruptcy courts from 1995 to 2001 these cases consist of 1 both publicly traded and privately held corporations and 2 both chapter 7 liquidations and chapter 11 reorganizations this sample is practically the entire population of unique corporate bankruptcies in these courts our paper s primary objective is to measure how the two available bankruptcy procedures differ especially but not only in terms of cost we explore four variables namely the change in the estate s value during bankruptcy a measure of indirect costs the time spent in bankruptcy another and more common measure of indirect costs the expenses submitted to and approved by the bankruptcy court a measure of direct costs and the recovery rates for creditors and apr violations our most important findings are that chapter 7 liquidations are not cheaper than chapter 11 reorganizations particularly after we control for endogenous self selection of firms into bankruptcy procedure bankruptcy professionals attorneys accountants trustees regularly end up with most of the post bankruptcy firm s value in chapter 7 arturo bris is at imd yale school of management and ecgi ivo welch is at brown uni