issue costs in the eurobond market the effects of market integration this study compares the issuance costs of eurobonds before and after the completion of the economic and monetary union emu in 2002 we find that the introduction of the euro has significantly reduced the issue cost of euro denominated bonds compared to bonds denominated in the legacy currencies the reduction in issue cost is not due to a decrease in underwriter compensation but rather to the elimination of underpricing the difference between the market price after trading commences and the offering price underwriter fee has declined substantially after the completion of the emu but this decline has been offset by an increase in underwriter spread the difference between the offering price and the guaranteed price to the issuer leaving total underwriter compensation unchanged the emu is also associated with significant reductions in bond maturity and syndicate size consistent with its expected effects on liquidity and issue costs in the eurobond market

why does the economy fall to pieces after a financial crisis the worst fi nancial crisis in the history of the united states and many other he worst fi nancial crisis in the history of the united states and many other countries started in 1929 the great depression followed the second worst countries started in 1929 the great depression followed the second worst struck in the fall of 2008 and the great recession followed commentators struck in the fall of 2008 and the great recession followed commentators have dwelt endlessly on the causes of these and other deep fi nancial collapses have dwelt endlessly on the causes of these and other deep fi nancial collapses less conspicuous has been the macroeconomists concern about why output and less conspicuous has been the macroeconomists concern about why output and employment collapse after a fi nancial crisis and remain at low levels for several or employment collapse after a fi nancial crisis and remain at low levels for several or many years after the crisis this article pursues modern answers to that question it many years after the crisis this article pursues modern answers to that question it focuses on events in the united states since 2008 focuses on events in the united states since 2008 existing macroeconomic models account successfully for the immediate effects existing macroeconomic models account successfully for the immediate effects of a fi nancial crisis on output and employment i will lay out a simple macro model of a fi nancial crisis on output and employment i will lay out a simple macro model that captures the most important features of modern models and show that realistic that captures the most important features of modern models and show that realistic increases in fi nancial frictions that occurred in the crisis of late 2008 will generate increases in fi nancial frictions that occurred in the crisis of late 2008 will generate declines in real gdp and employment of the magnitude that occurred but this declines in real gdp and employment of the magnitude that occurred but this model cannot explain why gdp and employment failed to recover once the fi nancial model cannot explain why gdp and employment failed to recover once the fi nancial crisis subsided the model implies a recovery as soon as fi nancial frictions return to crisis subsided the model implies a recovery as soon as fi nancial frictions return to normal at the end of the article i will mention the ideas that are in play to explain normal at the end of the article i will mention the ideas that are in play to explain the persistent adverse effects of temporary crises but these ideas have not made their the persistent adverse effects of temporary crises but these ideas have not made their way into the mainstream model way into the mainstream model this article cites only a few of the many important contributions to the mainthis article cites only a few of the many important contributions to the mainstream model my paper hall 2009 contains many citations and the forthcoming stream model my paper hall 2009 contains many citations and the forthcoming new volume of the new volume of the handbook of monetary economics discusses the literature fully discusses the literature fully

how debt markets have malfunctioned in the crisis the financial crisis that began in 2007 is especially a crisis in debt markets a full understanding of what happened in the financial crisis requires investigation into the plumbing of debt markets during a financial crisis when funds often cannot be raised easily or quickly the fundamental values for certain assets can become separated for a time from market prices with consequences that can echo into the real economy this article will explain in concrete ways how debt markets can malfunction with deleterious consequences for the real economy after a quick overview of debt markets i discuss three areas that are crucial in all debt markets decisions risk capital and risk aversion repo financing and haircuts and counterparty risk in each of these areas feedback effects can arise so that less liquidity and a higher cost for finance can reinforce each other in a contagious spiral i will document the remarkable rise in the premium that investors placed on liquidity during the crisis next i will show how these issues caused debt markets to break down indeed fundamental values and market values seemed to diverge across several markets and products that were far removed from the toxic subprime mortgage assets at the root of the crisis finally i will discuss briefly four steps that the federal reserve took to ease the crisis and how each was geared to a specific systemic fault that arose during the crisis

structural causes of the global financial crisis a critical assessment of the new financial architecture we are in the midst of the worst financial crisis since the great depression this crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s this evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises governments respond to crises with bailouts that allow new expansions to begin as a result financial markets have become ever larger and financial crises have become more threatening to society which forces governments to enact ever larger bailouts this process culminated in the current global financial crisis which is so deeply rooted that even unprecedented interventions by affected governments have thus far failed to contain it in this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform

firm valuation earnings expectations and the exchange rate exposure effect consistent with previous research we fail to find a significant correlation between the abnormal returns of our sample firms with international activities and changes in the dollar we investigate the possibility that this failure is due to mispricing lagged changes in the dollar are a significant variable in explaining current abnormal returns of our sample firms suggesting that mispricing does occur a simple trading strategy based upon these results generates significant abnormal returns corroborating evidence from returns around earnings announcements as well as errors in analysts forecasts of earnings is also provided it is a widely held view that exchange rate movement should affect the value of a firm standard economic analysis implies that the profitability and value of most u s firms with foreign sales or operations abroad should increase decrease with an unexpected depreciation appreciation of the dollar as expected foreign currency cash flows translate into larger smaller u s

cognition market sentiment and financial instability the purpose of this paper is to explore the role for psychology within an open system structural theory of financial instability and to consider the implications for policy while behavioural finance has drawn on ideas from psychology in order to explain evidence of behaviour that deviates from the rationality axioms it is argued that the way in which psychology is framed by this approach is unduly limiting minsky s structural theory of financial instability with its keynesian and ultimately humean roots incorporates psychology into the theoretical foundations in particular cognition and sentiment are shown to be interconnected rather than separable it is concluded that the policy implications for addressing the current crisis while apparently similar between these different approaches are in fact very different the underlying theory involves different methodology and indeed different framing from behavioural finance the way in which the crisis is understood is therefore important for policy copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

macroeconomics after the crisis time to deal with the pretense of knowledge syndrome the recent financial crisis has damaged the reputation of macroeconomics largely for its inability to predict the impending financial and economic crisis to be honest this inability to predict does not concern me much it is almost tautological that severe crises are essentially unpredictable for otherwise they would not cause such a high degree of distress what does concern me about my discipline is that its current core by which i mainly mean the so called dynamic stochastic general equilibrium approach has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one this is dangerous for both methodological and policy reasons to be fair to our field an enormous amount of work at the intersection of macroeconomics and corporate finance has been chasing many of the issues that played a central role during the current crisis including liquidity evaporation collateral shortages bubbles crises panics fire sales risk shifting contagion and the like however much of this literature belongs to the periphery of macroeconomics rather than to its core i will discuss the distinction between the core and the periphery of macroeconomics as well as the futile nature of the integrationist movement that is the process of gradually bringing the insights of the periphery into the dynamic stochastic general equilibrium structure i argue that the complexity of macroeconomic interactions limits the knowledge we can ever attain and that we need to place this fact at the center of our analysis we should consider what this complexity does to the actions and reactions of the economic agent and seek analytical tools and macroeconomic policies that are robust to the enormous uncertainty to which we are confined

orthogonalized regressors and spurious precision with an application to currency exposures abstract regressions often use pre orthogonalized regressors prior to the main regression an independent variable x i is regressed upon the other regressor s and its residuals are used in the right hand side of the main regression instead of the raw variable itself for example the exposure of a stock s return to exchange rate changes is conventionally estimated by a regression and often the market return is included as an additional regressor by first orthogonalizing the market return on the exchange rate in a regression separate from the main one one seems to have the best of both worlds the market factor cannot subsume part of the exposure present in a stock s return and the standard error se of the estimate beats both the simple and the multiple regression se s this last effect is illusory since the simple regression and its two step variant with the orthogonalization produce the same exposure estimate given the sample their precision must be identical too technically the source of the problem is that the uncertainty about the market s exposure estimate is left out of the calculated se in published work the calculated error variances should be corrected upward by 20 100 percent

crossing the lines the conditional relation between exchange rate exposure and stock returns in emerging and developed markets this paper examines the importance of exchange rate exposure in the return generating process for a large sample of non financial firms from 37 countries we argue that the effect of exchange rate exposure on stock returns is conditional and show evidence of a significant return impact to firm level currency exposures when conditioning on the exchange rate change we further show that the realized return to exposure is directly related to the size and sign of the exchange rate change suggesting fluctuations in exchange rates as a source of time variation in currency return premia for the entire sample the return impact ranges from 1 2 to 3 3 per unit of currency exposure and it is larger for firms in emerging markets compared to developed markets overall the results indicate that foreign exchange rate exposure estimates are economically meaningful despite the fact that individual time series results are noisy and many exposures are not statistically significant and that exchange rate exposure plays an important role in generating cross sectional return variation moreover we show that the relation between exchange rate exposure and stock returns is more consistent with a cash flow effect than a discount rate effect

reading about the financial crisis a twenty one book review the recent financial crisis has generated many distinct perspectives from various quarters in this article i review a diverse set of twenty one books on the crisis eleven written by academics and ten written by journalists and one former treasury secretary no single narrative emerges from this broad and often contradictory collection of interpretations but the sheer variety of conclusions is informative and underscores the desperate need for the economics profession to establish a single set of facts from which more accurate inferences and narratives can be constructed jel e32 e44 e52 g01 g21 g28

the value of corporate risk management we model and estimate the value of corporate risk management we show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices for a sample of 34 oil refiners we find that hedging concave revenues and leaving concave costs exposed each represent between 2 and 3 of firm value we validate our approach by regressing tobin s q on the estimated value and level of risk management and find results consistent with the model

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

ontology and the study of social reality emergence organisation community power social relations corporations artefacts and money the conception of social reality i have previously defended and here extend positing features such as social relations positions and powers is thoroughly naturalistic and even consistent with modern interpretations of quantum field theory it also serves to ground a social science that can be scientific in the sense of natural science this is the thesis defended here central to the argument is an emphasis on a strong form of emergence and the category of organisation in process to bring out various salient features of the position defended i take the opportunity to compare aspects of it with relevant components of the contribution of john searle whose ontological conception appears at once to be both very similar yet also very different copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

computer mediated transactions every now and then a set of technologies becomes available that sets off a period of combinatorial innovation think of standardized mechanical parts in the 1800s the gasoline engine in the early 1900s electronics in the 1920s integrated circuits in the 1970s and the internet in the last decade or so the component parts of these technologies can be combined and recombined by innovators to create new devices and applications since these innovators are working in parallel with similar components it is common to see simultaneous invention there are many well known examples such as the electric light the airplane the automobile and the telephone many scholars have described such periods of innovation using terms such as recombinant growth general purpose technologies cumulative synthesis and clusters of innovation the internet and the web are wonderful examples of combinatorial innovation in the last 15 years we have seen a huge proliferation of web applications all built from a basic set of component technologies the internet itself was a rather unlikely innovation i like to describe it as a lab experiment that got loose since the internet arose from the research community rather than the private sector it had no obvious business model other public computer networks such as aol compuserve and minitel generally used a subscription models but were centrally controlled and offered little scope for innovation at the user level the internet won out over these alternatives precisely because it offered a flexible set of component technologies which encouraged combinatorial innovation

on dfis liability management beyond reference rate setting strategies derived in a capm framework the paper addresses two related questions i limited deposit accommodation under capital regulation and ii characterization of rate differentials in correlated uncorrelated multideposit markets under certain circumstances an optimal rate capacity choice policy will imply deposit capacity is not fully utilized all the time since capacity is not costless excess liability capacity may be an optimal financial decision when the intermediary must meet adequacy test assorted with financial penalties or with enforceable limitations on its balance sheet growth in the other case the intermediary is likely to introduce risky rate differentials to the extent risk is actually reduced enough to increase its market valuation for correlated multideposit markets this obtains whenever pairs of supplies are sufficiently negative to make their weighted covariance sum larger than the segment own variance alternatively for uncorrelated segments higher rates will be offered to steady depositors whose standard deviation of class supply contributes little to total risk

corporate financial policies and performance around currency crises this paper studies firm level leverage and performance measures before and after a currency crisis using data from 17 countries we show that prior to a crisis companies that expect to benefit from currency depreciations increase their leverage more than companies that are expected to be harmed by the depreciation profitability and financial fragility ratios display consistent patterns we provide evidence that the asian crisis is different from the previous european and latin american ones in asia all firms become more fragile after the crisis and their profitability declines and leverage increases further whereas elsewhere there are clear signs of recovery after a crisis occurs

exchange rate exposure and industry characteristics evidence from canada japan and the usa abstract this paper examines industry level exchange rate exposures for canada japan and the usa measuring exposure by adding the change in the exchange rate to the domestic market model of industry portfolio returns some industries in all three countries display significant exposures moreover for each country the exchange rate is important for explaining industry returns at the economy wide level to explore whether exchange rate exposures are systematically linked to the activities of the industries we model exposure as a function of industry characteristics for all three countries the relation between exposure and industry characteristics is broadly consistent with economic theory jel f3

the current economic crisis its nature and the course of academic economics the current crisis has triggered significant debate concerning economic theory and policy largely absent from this debate is an informed discussion of the methods used by economists in analysing the economy and formulating their proposals but method matters here i argue that current academic research practices need to be transformed before real insight can be achieved specifically i indicate why and how a more grounded framework than that presupposed by current research practices facilitates a potentially more fruitful approach to understanding the crisis

technology distribution and the rate of profit in the us economy understanding the current crisis this paper offers a synoptic account of the state of the debate among marxist scholars regarding the current structural crisis of capitalism identifies two broad streams within the literature dealing in turn with aggregate demand and profitability problems and proceeds to concentrate on an analysis of issues surrounding the profitability problem in two steps first evidence on profitability trends for the non farm non financial corporate business the non financial corporate business and the corporate business sectors in post war usa are summarised a broad range of profit rate measures are covered and data from both the us bureau of economic analysis nipa and fixed assets tables and the federal reserve flow of funds account are used second the underlying drivers of profitability in terms of technology and distribution are investigated the profitability analysis is used to offer some hypotheses about the current structural crisis copyright oxford university press

resolving the exposure puzzle the many facets of exchange rate exposure theory predicts sizeable exchange rate fx exposure for many firms however empirical research has not documented such exposures to examine this discrepancy we extend prior theoretical results to model a global firm s fx exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges for a typical sample firm pass through and operational hedging each reduce exposure by 10 15 financial hedging with foreign debt and to a lesser extent fx derivatives decreases exposure by about 40 the combination of these factors reduces fx exposures to observed levels

the double bubble at the turn of the century technological roots and structural implications this paper argues that the two boom and bust episodes of the turn of the century the internet mania and crash of the 1990s and the easy liquidity boom and bust of the 2000s are two distinct components of a single structural phenomenon they are essentially the equivalent of 1929 developed in two stages one centred on technological innovation the other on financial innovation hence the frequent references to that crash to the 1930s and to bretton woods are not simple journalistic metaphors for interpreting the credit crunch and its solution but rather the intuitive recognition of a fundamental similarity between those events and the current ones the paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions it will discuss why it occurred in two bubbles on this occasion it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences

the credibility revolution in empirical economics how better research design is taking the con out of econometrics since edward leamer s memorable 1983 paper let s take the con out of econometrics empirical microeconomics has experienced a credibility revolution while leamer s suggested remedy sensitivity analysis has played a role in this we argue that the primary engine driving improvement has been a focus on the quality of empirical research designs the advantages of a good research design are perhaps most easily apparent in research using random assignment we begin with an overview of leamer s 1983 critique and his proposed remedies we then turn to the key factors we see contributing to improved empirical work including the availability of more and better data along with advances in theoretical econometric understanding but especially the fact that research design has moved front and center in much of empirical micro we offer a brief digression into macroeconomics and industrial organization where progress by our lights is less dramatic although there is work in both fields that we find encouraging finally we discuss the view that the design pendulum has swung too far critics of design driven studies argue that in pursuit of clean and credible research designs researchers seek good answers instead of good questions we briefly respond to this concern which worries us little

the effects of industry structure on economic exposure abstract a firm is subject to economic exposure if changes in exchange rates affect the firm s value as measured by the present value of its future cash flows this paper shows that in many forms of competition including the most commonly studied case of monopoly the economic exposure of an exporting firm is simply proportional to the firm s net revenues based in foreign currency this simple result breaks down under some but not all forms of competition between the exporting firm and foreign firms in that case the exporting firm needs to know about the price elasticity of its product demand and its marginal cost in order to assess its exposure to exchange rates the key determinant of economic exposure therefore is the competitive structure of the industry in which a firm operates

mortgages and monetary policy mortgages are long term nominal loans under incomplete asset markets monetary policy is shown to affect housing investment and the economy through the cost of new mortgage borrowing and the value of payments on outstanding debt these channels distinct from traditional transmission of monetary policy are evaluated within a general equilibrium model persistent monetary policy shocks resembling the level factor in the nominal yield curve have larger effects than transitory shocks manifesting themselves as long short spread the transmission is stronger under adjustable than fixed rate mortgages higher persistent inflation benefits homeowners under frms but hurts them under arms

currency crises and monetary policy in an economy with credit constraints this paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities the possibility of multiple equilibria including a currency crisis equilibrium with low output and a depreciated domestic currency results from the following mechanism if nominal prices are sticky a currency depreciation leads to an increase in the foreign currency debt repayment obligations of firms and thus to a fall in their profits this reduces firms borrowing capacity and therefore investment and output in a credit constrained economy which in turn reduces the demand for the domestic currency and leads to a depreciation we examine the impact of various shocks including productivity fiscal or expectational shocks we then analyze the optimal monetary policy to prevent or solve currency crises we also argue that currency crises can occur both under fixed and flexible exchange rate regimes as the primary source of crises is the deteriorating balance sheet of private firms

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

financial intermediation and macroeconomic analysis a macroeconomic framework in which fi nancial intermediation matters for the allocation of resources allocation of resources in this paper i fi rst discuss why neither standard macroeconomic models that in this paper i fi rst discuss why neither standard macroeconomic models that abstract from fi nancial intermediation nor traditional models of the bank lending abstract from fi nancial intermediation nor traditional models of the bank lending channel are adequate as a basis for understanding the recent crisis i argue that channel are adequate as a basis for understanding the recent crisis i argue that instead we need models in which intermediation plays a crucial role but in which instead we need models in which intermediation plays a crucial role but in which intermediation is modeled in a way that better conforms to current institutional intermediation is modeled in a way that better conforms to current institutional realities in particular we need models that recognize that a market based fi nan realities in particular we need models that recognize that a market based fi nan cial system one in which intermediaries fund themselves by selling securities in cial system one in which intermediaries fund themselves by selling securities in competitive markets rather than collecting deposits subject to reserve require competitive markets rather than collecting deposits subject to reserve require ments is not the same as a frictionless system ments is not the same as a frictionless system i then sketch the basic elements of an approach that allows fi nancial inter i then sketch the basic elements of an approach that allows fi nancial inter mediation and credit frictions to be integrated into macroeconomic analysis in a mediation and credit frictions to be integrated into macroeconomic analysis in a straightforward way i show how the model can be used to analyze the macroeco straightforward way i show how the model can be used to analyze the macroeco nomic consequences of the recent fi nancial crisis and conclude with a discussion of nomic consequences of the recent fi nancial crisis and conclude with a discussion of some implications of the model for the conduct of monetary policy some implications of the model for the conduct of monetary policy

the economic crisis from a neoclassical perspective abstract this paper assesses the 2007 2009 recession using neoclassical business cycle theory i find that the 2007 2009 u s recession differs substantially from other postwar u s recessions and also from the 2008 recession in other countries in that lower labor input accounts for virtually all of the decline in income and output in the united states while lower productivity accounts for much of other u s recessions and the 2007 2009 recession in other countries i also find that existing classes of models including financial market imperfections models do not explain the u s recession this is because the 2007 2009 recession is almost exclusively related to what appear to be labor market distortions that drive a wedge between the marginal product of labor and the marginal rate of substitution between consumption and leisure a topic about which current classes of financial imperfection models are largely silent i discuss future avenues for developing this class of models and i consider alterna

financial constraints competition and hedging in industry equilibrium we analyze the hedging decisions of firms within an equilibrium setting that allows us to examine how a firm s hedging choice depends on the hedging choices of its competitors within this equilibrium some firms hedge while others do not even though all firms are ex ante identical the fraction of firms that hedge depends on industry characteristics such as the number of firms in the industry the elasticity of demand and the convexity of production costs consistent with prior empirical findings the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries

trade and exposure are firms that engage in trade more vulnerable to exchange rate risk in this paper we examine the relationship between exchange rate movements firm value and trade our empirical work tests whether exchange rate exposure can be explained by variables that proxy for the level of international activity firm size industry affiliation and country affiliation the results suggest that while a significant fraction of firms in these countries is exposed to exchange rate movements there is little evidence of a systematic link between exposure and trade indeed what little evidence there is of a link suggests that firms that engage in greater trade exhibit lower degrees of exposure this may reflect the fact that those firms most engaged in trade are also the most aware of exchange rate risk and therefore are the most likely to hedge their exposure

investment pass through and exchange rates a cross country comparison using detailed data from the united states canada the united kingdom and japan we examine the implications of exchange rates for time series of sectoral investment both theoretically and empirically we show that investment responsiveness to exchange rates varies over time positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production important differences exist in investment endogeneity across high and low price over cost markup sectors with investment in low markup sectors often significantly more responsive to exchange rates cross country differences in investment response are only partially explained by industrial organization arguments

investment in manufacturing exchange rates and external exposure abstract this paper introduces a new measure of external exposure which emphasizes exposure to external markets both through export sales and imported inputs into production and uses this measure to explore the linkage between exchange rates and investment in us industry on average manufacturing sectors have evolved to being primarily import exposed by the early 1980s in low price over cost markup sectors markups are relatively unresponsive to exchange rate changes whereas sectoral investment patterns are strongly affected by contrast high markup industries absorb much of the exchange rate fluctuations in markups and pass relatively little through to real investment

credit rationing as a temporary suboptimal equilibrium with imperfect information abstract jaffee and russell 1976 characterized partial rationing as a contract rate and contract size below those of the no rationing equilibrium their non price rationing here obtains as a suboptimal equilibrium for a risk averse rate setting intermediary with marginal increasing cost and a monopolistically competitive loan demand the temporary dis equilibrium corresponds to a dominated strategy and the wider class of models of which j r s solution is but a singular case is touched upon

financial development and the instability of open economies this paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies our basic model is a dynamic open economy model with a tradeable good produced with capital and a country specific factor we also assume that firms face credit constraints with the constraint being tighter at a lower level of financial development a basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies this is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles thus countries that are going through a phase of financial development may become more unstable in the short run similarly full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development phases of growth with capital inflows are followed by collapse with capital outflows on the other hand foreign direct investment does not destabilize

how can we explain the persistence of the great recession a balanced stability approach the great recession gr brings about a stalemate in macroeconomics on the one hand while describing the immediate effects of the gr standard models fail to account for its persistence on the other heterodox approaches do not regain consensus as they fail to devise an alternative method for capturing the deep causes of the gr that account for its persistence in a systematic way this paper fills this gap by proposing a new framework called balanced stability approach unlike standard macro which takes stability for granted it provides a balanced assessment of stability considering both threats and opportunities for phenomena such as the so called new economy ne on a par on these grounds the paper draws the conclusion that the persistence of the gr is due to a low level of aggregate demand rooted in the structural changes generated by the ne

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

exposure to exchange rate movements abstract this paper suggests an approach to measuring a firm s exposure which depends on the stochastic relationship between the firm s real rate of return and exchange rate movements using a simplified two country model exposure is shown to depend on the extent to which individual asset prices adjust with exchange rates the distribution of such adjustments between countries and the relationship between domestic inflation and exchange rate movements while the distribution of real and nominal positions across countries is also a determinant of exposure it is shown that purely domestic firms no foreign assets or liabilities will typically be exposed

global convergence of financing policies evidence for emerging market firms as globalization spreads one of the key challenges that emerging market firms face is how to finance their growth opportunities using data from close to 10 000 firms from more than 30 emerging markets this paper investigates how over time leverage is determined by firms business models and also by the overall country environment i find significant changes over the last two decades in the early 1990s country characteristics dominated firm characteristics and it was difficult for firms to overcome the limitations of their domestic environment as emerging markets became better integrated with the world economy the importance of firm characteristics has increased at the end of the sample period emerging market capital structure determinants resemble those of developed markets and country characteristics have become less important in explaining financing structures i also show how over the last two decades the maturity structure of debt has changed and that in recent years firms with more tangible assets are able to attract more debt financing overall i conclude that financing choices in emerging markets are now being made in the same way as in developed markets this means that emerging market firms now rely much more on their own strengths when obtaining debt than on country characteristics

risk pooling and intermediate trading agents this paper argues that intermediate trading agents itas besides providing services like the service of availability and information economizing activity serve another important role which is to provide producing firms with a vehicle to shift forward their retailing risks of unsold products the gains from trade from intermediation as risk bearers need not beg arbitrary assumptions that itas compared to firms must have better information regarding consumer demands or less costly retailing technologies neither does it necessarily rely on the assumption that itas are inherently less risk averse rather risk pooling via product diversification by itas under plausible conditions is sufficient to provide the profit incentive for intermediation for such insurance service producing firms pay risk premia embedded in price discounts which increase or decrease with bulk orders of itas depending on whether firms have increasing or decreasing returns to scale production technologies respectively la mise en commun des risques et les intermediaires commerciaux ce memoire sugg re que les interm6diaires commerciaux en plus de produire des services de disponibilite et une activite qui reduit les coats de l information peuvent aussi constituer un moyen pour les entreprises productrices de transferer les risques de produits invendus vers leur client le ou leurs agents pour que les intermediaires commerciaux jouent ce role et que des gains soient engendr6s par cette activite d interm6diation il n est pas n6cessaire de postuler que les intermediaires ont des renseignements plus clairs quant a la demande des consommateurs ou qu ils ont acc s a des technologies de mise en march6 moins cofiteuses ou que ces intermediaires ont moins de repugnance pour le risque il suffit que les intermediaires puissent esperer faire des profits par ces operations d intermediation en mettant en commun certains risques par une diversification de leurs activit6s pour obtenir cette sorte de service d assurance les entreprises productrices vont etre pretes h consentir des escomptes de prix qui vont croitre ou d6croitre a proportion que les commandes des intermediaires commerciaux prennent des dimensions plus importantes selon que les entreprises productrices ont des technologies dont les rendements h l echelle sont croissants ou decroissants the author is grateful to joel fried and john palmer for useful comments and discussions many thanks are also due to keizo nagatani and the anonymous referees for helpful suggestions to improve on an earlier version canadian journal of economics revue canadienne d economique xiv no 2 may mai 1981 printed in canada imprime au canada 0008 4085 81 0000 0261 01 50 1981 canadian economics association this content downloaded from 157 55 39 208 on fri 29 jul 2016 04 21 50 utc all use subject to http about jstor org terms

linear and nonlinear exchange rate exposure abstract this paper presents a new methodological approach to examine exchange rate exposure which takes account of the role of the market portfolio and macroeconomic variables in exposure regressions exchange rate regimes based on periods of depreciation and appreciation and nonlinear exposure within each regime we show that the stock market s own exposure to exchange rates should be taken into account before considering industry exposure in addition we adjust the exchange rate and the stock market for common economy wide factors that are unrelated to exchange rates within this framework we show that exposure to bilateral exchange rates is statistically and economically important and that industries with extensive international trade are more often exposed than industries with low levels of international trade the signs of exposure coefficients in each regime are consistent with the extent to which an industry exports we also show that nonlinear exposure is often statistically and economically significant interestingly there is little evidence that industries are exposed to a currency basket

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

pass through and exposure firms differ in the extent to which they pass through changes in exchange rates into foreign currency prices and in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates because pricing affects profitability a firm s pass through and exposure should be related this paper develops models of exporting firms under imperfect competition to study these related phenomena from these models we derive the optimal pass through decisions and the resulting exchange rate exposure the models are estimated on eight japanese export industries using both the price data pass through and financial data for exposure exchange rates can have a major inf luence on the pricing behavior and profitability of exporting and importing firms firms differ in the extent to which they pass through the change in exchange rates into the prices they charge in foreign markets they also differ in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates previous papers have studied either pass through or exposure but none has studied these two phenomena together yet because pricing directly affects profitability the exposure of a firm s profits to exchange rates should be governed by many of the same firm and industry characteristics that determine pricing behavior this paper develops models of firm and industry behavior that are used to study these closely related phenomena together it also provides estimates of pass through and exposure behavior using data from japanese export industries to examine pass through behavior and exchange rate exposure we model a firm with sales to a foreign export market this exporting firm competes with a foreign firm in that export market the costs of the exporting firm are based primarily in the local domestic currency while the foreign firm

exposure and markups this article examines how to properly specify and test for factors that affect exchange rate exposure starting from theoretical underpinnings and a sample of u s manufacturing industries between 1979 and 1995 we find that 4 of 18 industry groups are significantly exposed to exchange rate movements through the effect of industry competitive structure export share and imported input share on average a 1 appreciation of the dollar decreases the return of the average industry by 0 13 consistent with our model s predictions as an industry s markups fall rise its exchange rate exposure increases decreases exchange rate movements are an important source of risk for a firm they affect a firm s expected cash flows and or change the terms of competition for exporters importers and multinationals hung 1992 estimates that during the 1980s u s manufacturing industries lost approximately 23 billion year or 10 of total profits due to the dollar s movements surprisingly early studies which assume exchange rate exposure to be constant e g jorion 1990 bodnar and gentry 1993 and amihud 1994 find that exchange rates have no effect on the stock returns of u s multinationals exporters or manufacturing industries recently however allayannis 1997 and bodnar dumas and marston 1998 examine time varying exposure of industry returns 1 in particular the former article focuses on the effect the variation of u s industries import and export shares have on exposure while the latter focuses on pass through and exposure in a sample of japanese export oriented industries besides trade shares and pass through exchange rate exposure also depends on the markup of an industry specifically in industries with

risky choices and correlated background risk the analysis of a risky project should take into account not only uncertainties about the return from that project project risk but also uncertainties associated with other ongoing projects and with exogenous factors that can impact final wealth background risk the presence of background risk can change the optimal course of action with respect to a project and ignoring such risk might lead to a poor decision most work on background risk assumes that project risk and background risk are independent and are additive in their impact on wealth however independence is often unrealistic and background risk operates in a multiplicative manner in many situations we relax the independence assumption and consider a model with both additive and multiplicative background risk the optimal decisions in the correlated setting can be very different than those that would appear optimal if the correlation were ignored the impact of correlation differs in the additive and multiplicative cases with positive correlation being beneficial in some cases and negative correlation in others the analytical and numerical results indicate that in analyzing decision making problems it is very important to understand the direction and degree of dependence between project risk and background risks