deficit finance and monetary dynamics in brazil and mexico abstract the paper develops a model of seigniorage in an open economy linking inflation the government budget and the external balance it introduces financial markets and interest rates in the traditional cagan style model of inflationary dynamics and it evaluates the experiences of brazil and mexico the model relates inflation in the 1980s to interest payments on the external public debt the paper also argues that inflationary finance has been combined with very fast growth of domestic debt setting the stage in brazil for unsustainable domestic debt growth in the sargent wallace style the collor plan stopped this process temporarily

the impacts of tourism energy consumption and political instability on economic growth in the mena countries using panel data of 24 countries in the middle east and north african mena region from 2001 to 2009 the purpose of this study is to examine the impacts of tourism energy consumption and political instability on economic growth within the neoclassical growth framework to address the objective of this study we utilise both the static panel data approach as well as the dynamic generalised method of moments gmm estimator to examine the impact of candidate variables our results show that energy consumption and tourism significantly contribute to the economic growth of countries in the mena region hence our study lends some support to the existence of the tourism led growth and energy led growth hypotheses in the region in line with our expectation our estimation results also reveal that political instability impedes the process of economic growth and development in the mena region therefore macroeconomic policies to promote expansion in tourism and energy consumption will directly stimulate economic growth additionally efforts to help the region overcome its history of political instability would attract more international tourist arrivals and further invigorate economic growth

corporate conservatism and relative compensation this paper demonstrates that in a simple setting with managerial concern for reputation and asymmetric information on ability most managers may refrain from undertaking innovations that stochastically dominate an industry standard common components of uncertainty lead to market inferences of managerial ability based on relative performance managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those innovating discontinuities in compensation when performance is low because of firings lead managers to have differing valuations of an accurate benchmark depending on type in particular very high and very low ability managers are more likely to undertake superior innovations than those of average ability

tourism as a long run economic growth factor the spanish case this paper examines the role of tourism in the spanish long run economic development the tourism led growth hypothesis is confirmed through cointegration and causality testing the results indicate that at least during the last three decades economic growth in spain has been sensible to persistent expansion of international tourism the increase of this activity has produced multiplier effects over time external competitivity has also been proved in the model to be a fundamental variable for spanish economic growth from the empirical analysis it can be inferred the positive effects on income that government policy in the adequacy of supply as well as in the promotion of tourist activity may bring about

the contribution of tourism development to economic growth in the korean economy abstract this study investigates the causal relations between tourism growth and economic expansion for the korean economy by using engle and granger two stage approach and a bivariate vector autoregression var model two principle results emerge from this study first the results of a cointegration test indicate that there is no long run equilibrium relation between two series second the outcomes of granger causality test imply the one way causal relationship of economic driven tourism growth the hypothesis of tourism led economic growth is not held in the korean economy this consequence is supported by testing the sensitivity of causality test under different lag selections along with the optimal lag

exploring the relationship among co2 emissions real gdp energy consumption and tourism in the eu and candidate countries evidence from panel models robust to heterogeneity and cross sectional dependence a major criticism to the existing energy growth environment literature we notice is the selection of methodology panel estimation techniques that fail to consider both heterogeneity and cross sectional dependence across countries may cause forecasting errors the other concern related to the literature is that only a small number of studies analyze the influence of tourism on co2 emissions even though tourism sector has potential for affecting the environment to fulfill the mentioned gaps in the literature this study analyzes the relationship among carbon emissions real income energy consumption and tourism for a panel of the eu and candidate countries over the period 1995 2011 by using heterogeneous panel estimation techniques with cross sectional dependence results from the cadf and the cips panel unit root tests show that the analyzed variables become stationary at their first differences the lm bootstrap panel cointegration test indicates the presence of a long run relationship among the analyzed variables results from the ols with fixed effects the fmols the dols and the group mean estimator reveal that energy consumption contributes to the level of emissions while real income and tourism mitigate co2 emissions the emirmahmutoglu kose panel granger causality test suggests that there is one way causality running from tourism to carbon emissions and two way causality between co2 emissions and energy consumption and between real income and co2 emissions policy implications are further discussed

evidence on corporate hedging policy this paper provides empirical evidence on the determinants of corporate hedging decisions the paper examines the evidence in light of currently mandated financial reporting require ments and in particular the constraints placed on anticipatory hedging data on hedging are obtained from 1992 annual reports for a sample of 3 022 firms out of the 771 firms classified as hedgers 543 firms disclose information in their annual reports on their hedging activities the remaining 228 firms report use of derivatives but no information on hedging activities based on the evidence i draw the following conclusions with respect to the models of hedging evidence is inconsistent with financial distress cost models evidence is mixed with respect to contracting cost capital market imperfections and tax based models and evidence uniformly supports the hypothesis that hedging activities exhibit economies of scale

testing intertemporal budget constraints theory and applications to u s federal budget and current account deficits this paper extends previous tests of intertemporal budget balance and present value relationships by expanding the set of allowable deficit processes and by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive using these tests the authors find that both the postwar federal budget deficit process and the process governing accumulation of u s assets by foreigners are consistent with intertemporal budget balance copyright 1991 by ohio state university press

ceo risk preferences and hedging decisions a multiyear analysis abstract theory and previous empirical studies suggest that ceo risk preferences affect hedging we challenge this idea in a 5 year time series setting by using inside debt i e ceo pension and deferred compensation and the ceo vega and ceo delta as proxies of ceo risk preferences and document that neither risk averse i e debt like compensation nor risk seeking i e convex compensation inducing ceo compensation packages influence corporate hedging moreover we find ceos who have more previous work experience and high job tenure to be positively related to hedging

empirical evidence on the relation between stock option compensation and risk taking abstract we examine whether executive stock options esos provide managers with incentives to invest in risky projects for a sample of oil and gas producers we examine whether the coefficient of variation of future cash flows from exploration activity our proxy for exploration risk increases with the sensitivity of the value of the ceo s options to stock return volatility eso risk incentives both eso risk incentives and exploration risk are treated as endogenous variables by adopting a simultaneous equations approach we find evidence that eso risk incentives has a positive relation with future exploration risk taking additional tests indicate that eso risk incentives exhibits a negative relation with oil price hedging in a system of equations where eso risk incentives and hedging are allowed to be endogenously determined overall our results are consistent with esos providing managers with incentives to mitigate risk related incentive problems

how stable is the tourism led growth hypothesis in malaysia evidence from disaggregated tourism markets abstract we contribute to the tourism growth literature by applying the newly developed combined cointegration test and the recursive granger causality test to re assess the stability of the tourism led growth hypothesis in malaysia with respect to 12 different tourism markets the cointegration test results suggest that economic growth of malaysia is cointegrated with all the 12 selected tourism markets however the recursive granger causality test shows that the tourism led growth hypothesis in malaysia is valid and stable with respect to tourist arrivals from only 8 out of the 12 tourism markets almost all of them are from developed countries hence not all international visitor arrivals could effectively drive the growth of the malaysian economy in light of this tourism marketing policies should focus more on those tourism markets that could significantly stimulate economic growth however there should not be total neglect of others as they potentially contribute to the economies of scale

co integration and error correction models the temporal causality between government taxes and spending several interesting papers have recently considered whether government taxes granger cause government spending or vice versa the findings based on standard granger 6 causality tests are not consistent manage and marlow 10 conclude that when evidence of one way causality exists federal taxes granger cause federal spending while anderson wallace and warner 1 conclude that the evidence supports one way causality in the opposite direction ram 11 reexamining the issue concludes that taxes granger cause spending at the federal level but that spending granger causes taxes at the state and local level von furstenberg green and jeong 13 in another related article examine the tax and spend spend and tax causality issue using a more general vector autoregressive var model they introduce in addition to federal taxes and spending two economic variables the gnp gap and the inflation rate decompose federal spending into several categories and remove the effects of automatic stabilizers when appropriate they find little evidence that taxes granger cause spending and limited evidence that spending causes taxes a finding which corresponds most closely to that of anderson wallace and warner 1 our purpose is to reconsider the causality issue with the aid of co integration and errorcorrection modeling our analysis illustrates with a specific example how sources of causality can be neglected in standard granger causality tests moreover addressing the question of temporal causality between government taxes and spending provides insight as to how different policies might or might not help control the growth of government the results of our estimating various co integration and error correction models with quarterly data suggest bi directional causality between government taxes and spending both for the federal and state and local sectors this finding counters the conclusions of previous studies when annual data are used however our

the demand for home produced and imported alcoholic beverages in cyprus the aids approach the purpose of this paper is to investigate the demand and its composition between home produced and imported for alcoholic beverages in cyprus the methodological approach used is the almost ideal demand system aids both in static and dynamic terms empirically the aids both in its static and dynamic version was estimated using time series 1970 1992 for three sets of data which include 1 alcoholic beverages wine beer other brandies broken down between home produced and imported model a 2 alcoholic beverages only without disaggregation between home produced and imported model b and 3 aggregate alcoholic beverages wine beer other brandies and food model c zellner s iterative estimation procedure was used for estimating the model the empirical findings 1 strongly support the dynamic version of the aids over its static alternative and 2 provide certain guidelines concerning economic policies relating to an increase in government revenues and changing the composition between

is there a relationship between international trade and international travel this paper investigates for the first time whether there is a relationship between international trade and international travel flows using time series econometric techniques using data for australia and four important travel and trading partners the usa the uk nz and japan the paper tests three specific hypotheses that business travel leads to international trade that international trade leads to international travel and that international travel other than business travel leads to international trade using cointegration and granger causality approaches the paper finds support for prior beliefs that there is a relationship between international travel and international trade and suggests that this may be a fruitful area for further research

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

time varying linkages between tourism receipts and economic growth in south africa the causal link between tourism receipts and gdp has recently become a major focus in the tourism economics literature results obtained in recent studies about the causal link appear to be sensitive with respect to the countries analysed sample period and methodology employed considering the sensitivity of the causal link we use rolling window and time varying coefficient estimation methods to analyse the parameter stability and granger causality based on a vector error correction model vecm when applied to south africa for the period 1960 2011 the findings are as follows results from the full sample vecm indicate that there is no granger causality between tourism receipts and gdp while the findings from the time varying coefficients model based on the state space representation show that tourism receipts have positive predictive content for gdp for the entire period with the exception of the period between 1985 and 1990 full sample time varying causality tests show bidirectional strong causal

is the budget deficit too large yes specifically we find that recent spending and taxing policies of the government if continued violate the government s intertemporal budget constraint as a result government spending must be reduced and or tax revenues must be increased these conclusions are based on tests of whether government spending and revenue are cointegrated in addition to examining real spending and revenue we also normalize these variables by real gnp and population for a growing economy these normalized measures are perhaps more pertinent we also test and find support for the hypothesis that deficits have become a problem only in recent years

tourism trade and growth the case of cyprus although the relationship between international trade and economic growth has found a wide application area in the literature over the years this can not be said about tourism and growth or trade and tourism this study employs the bounds test for cointegration and granger causality tests to investigate a long run equilibrium relationship between tourism trade and real income growth and the direction of causality among themselves for cyprus results reveal that tourism trade and real income growth are cointegrated thus a long run equilibrium relationship can be inferred between these three variables on the other hand granger causality test results suggest that real income growth stimulates growth in international trade both exports and imports and international tourist arrivals to the island furthermore growth in international trade both exports and imports also stimulates an increase in international tourist arrivals to cyprus and finally real import growth stimulate growth in real export

intertemporal solvency and indexed debt evidence from brazil 1976 1991 abstract this paper examines domestically held government debt financial indexation inflation and intertemporal solvency in brazil an error correction model is used to examine the temporal causality of expenditures taxation and real indexation evidence shows that for the 1986 1991 period reductions in real indexation followed increases in government spending such reductions while generally associated with anti inflation plans served as implicit defaults the policy was largely unrelated to foreign factors of course such a policy cannot be sustained in the long run accordingly brazil recently ended backward looking financial indexation

does executive portfolio structure affect risk management ceo risk taking incentives and corporate derivatives usage abstract this paper extends the investigation of the effect of managerial motives on hedging policy i utilize a proxy variable that incorporates ceo incentives to increase risk relative to incentives to increase stock price the variable is directly measured using observed characteristics of ceo portfolios of stock and option holdings furthermore ceo risk taking incentives are modeled as a choice variable to eliminate the simultaneity bias of modeling risk taking incentives as an exogenous variable if modeled as a simultaneous system of equations a strong negative link between ceo risk taking incentives and the amount of derivative holdings exists this result is consistent with the notion that derivatives are used for hedging purposes both the characteristics of stock and option holdings are important in determining cross sectional differences in corporate derivative holdings

price and income elasticities of disaggregated import demand results from uecms and an application this paper presents an empirical analysis of the demand for maize milk powder butter and rice imports in cyprus using annual time series data covering the period 1975 1994 none of these products is produced in cyprus and all the necessary quantities are imported to meet domestic demand the primary objective of the paper is to derive long run price and income elasticities of import demand that can be used to analyse the impact of various policies such as the adoption of the common agricultural policy cap when and if the republic of cyprus joins the european union eu in so doing the paper takes on board some recent developments in time series econometrics the cointegration test used the bounds test is a recent test and is based on the estimation of an unrestricted error correction model uecm parsimonious models were derived using hendry s general to specific approach the estimated elasticities were subsequently used to quantify some of the implications for cyprus had the cap been ope

exchange rate hedging financial versus operational strategies exchange rate exposure is an important source of risk for multinational corporations to mitigate the impact of exchange rate fluctuations it has been claimed that multinational corporations can employ risk management strategies not only through financial derivatives but also through operational hedges for example schering plough in its 1995 annual report p 25 argues in support of exclusive use of operational hedges to date management has not deemed it cost effective to engage in a formula based program of hedging the profitability of these operations using derivative financial instruments some of the reasons for this conclusion are the company operates in a large number of foreign countries the currencies of these countries generally do not move in the same direction at the same time conversely many corporations with large worldwide networks such as ibm or coca cola make extensive use of derivative financial instruments this paper investigates both financial and operational exchange rate risk management strategies of multinational firms while several studies have examined either firms financial hedging or firms operational hedging activities no study thus far has examined financial and operational hedging simultaneously for a large cross section of firms to the extent that the decision to use financial hedging strategies is related to and affected by the operational strategies that a firm employs it is important to examine how each strategy contributes to the overall goal of mitigating risk and improving shareholder value using a sample of u s multinational nonfinancial firms during 1996 1998 we find that operational hedging is not an effective substitute for financial risk management however we find that the more geographically dispersed a firm is the more likely it is to use financial hedges the end result on firm value is that operational hedging strategies benefit shareholders only when used in combination with financial hedging strategies

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

exploring the effects of international tourism on china s economic growth energy consumption and environmental pollution evidence from a regional panel analysis abstract this study explores the effects of international tourism on china s economic growth energy consumption and environmental pollution as proxied by co 2 emissions in a multivariate framework using regional panel data over the period 1995 2011 our findings suggest that the tourism induced ekc hypothesis does not exist in central china and is merely weakly supported in eastern and western china however results show that tourism has a negative impact on co 2 emissions in the eastern region which contradicts with our perception to some extent panel causality tests show that the directions of causality in both short and long runs are mixed among regions nevertheless our findings reveal that tourism causally affects economic growth and co 2 emissions in the long run thus tourism led growth hypothesis is verified under all three scenarios our findings also suggest that in all three regions there is bidirectional causality between economic growth and co 2 emissions overall these results imply that low carbon tourism in china should be continuously supported which provides significant insights to policy makers at various government levels

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

are bond financed deficits inflationary a ricardian analysis this paper considers the possible theoretical validity of the following monetarist hypothesis that a constant positive government budget deficit can be maintained permanently and without inflation if it is financed by the issue of bonds rather than money the question is studied in a discrete time perfect foresight version of the competitive equilibrium model of sidrauski modified by the inclusion of government bonds as a third asset it is shown that the monetarist hypothesis is invalid if the deficit is defined exclusive of interest payments but that it is valid under the conventional definition it is also shown that the stock of bonds can grow indefinitely at a rate in excess of the rate of output growth provided that the difference is less than the rate of time preference these formal conclusions do not take account of possible limitations on taxing capacity arising from default incentives that tend to grow with the stock of bonds

the volatility and price sensitivities of managerial stock option portfolios and corporate hedging we use estimates of the black scholes sensitivity of managers stock option portfolios to stock return volatility and the sensitivity of managers stock and stock option portfolios to stock price to test the relationship between managers risk preferences and hedging activities we find that as the sensitivity of managers stock and stock option portfolios to stock price increases firms tend to hedge more however as the sensitivity of managers stock option portfolios to stock return volatility increases firms tend to hedge less one of the agency costs associated with the corporate form of ownership comes from the risk aversion of the firm s managers the typical corporate manager has a significant portion of his or her wealth invested in the corporation both through portfolio holdings and the value of firm specific human capital as a result managers have an incentive to reduce firm risk more than may be desirable from the perspective of an unaffiliated diversified shareholder one way to mitigate managerial risk aversion is to provide the manager with contracts that have a payoff structure that is a convex function of the firm s stock price smith and stulz 1985 guay 1999 finds that stock options are an important way in which convexity is added to managers portfolios however as recognized by carpenter 2000 and lambert larcker and verrecchia 1991 stock options create two opposing effects on managerial incentives the first effect is sensitivity to stock return volatility due to the convex payoff structure of options the value of a manager s stock option portfolio increases with the volatility of the firm s stock returns this sensitivity to stock return volatility should ceteris paribus give the manager an incentive to take more risk the second effect is sensitivity to stock price this effect comes from the direct link between the payoff of an option and

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

tourism and economic development the beach disease abstract this paper analyses empirically the danger of a dutch disease effect in tourism dependent countries in the long run data on 134 countries of the world over the period 1970 2007 is used in a first step the long run relationship between tourism and economic growth is analysed in a cross country setting the results are then checked in a panel data framework on gdp per capita levels that allows to control for reverse causality non linearity and interactive effects it is found that there is no danger of a beach disease effect on the contrary tourism dependent countries do not face real exchange rate distortion and deindustrialisation but higher than average economic growth rates investment in physical capital such as for instance transport infrastructure is complementary to investment in tourism

liability dollarization exchange market pressure and fear of floating empirical evidence for turkey the objective of this article is to examine the relationship between liability dollarization and the exchange market pressure emp in turkey within an autoregressive distributed lag ardl and granger causality framework using monthly data from 1991 12 to 2006 08 the findings suggest that there exists a long term equilibrium relationship between emp and liability dollarization where liability dollarization granger causes emp both in the short and long run with no evidence of reverse causality this suggests that the predominance of foreign currency liabilities in the banks balance sheets in turkey induces a selling pressure in the exchange market as well as a fear of floating

corporate financial hedging with proprietary information abstract if a firm has information pertinent to its own dividend stream that is not made available to its shareholders it may be in the interests of the firm and its shareholders to adopt a financial hedging policy this is in contrast with the modigliani miller theorem which implies that with informational symmetry such financial hedging is irrelevant in certain cases hedging policies are identified that are unanimously supported by shareholders

the sensitivity of ceo wealth to equity risk an analysis of the magnitude and determinants abstract to control risk related incentive problems equity holders are expected to manage both the convexity and slope of the relation between firm performance and managers wealth i find stock options but not common stockholdings significantly increase the sensitivity of ceos wealth to equity risk cross sectionally this sensitivity is positively related to firms investment opportunities this result is consistent with managers receiving incentives to invest in risky projects when the potential loss from underinvestment in valuable risk increasing projects is greatest firms stock return volatility is positively related to the convexity provided to managers suggesting convex incentive schemes influence investing and financing decisions

international tourism higher education and economic growth the case of north cyprus this study investigates the long run equilibrium relationship between international tourism higher education growth real income growth and the direction of causality among these variables for the turkish republic of northern cyprus which is not recognised by any country other than turkey results reveal that international tourism and higher education are in a long run equilibrium relationship with real income growth international tourism and higher education have an inelastic yet positively significant impact on real income growth in the long run period finally the results of the present study reveal that both the tourism led growth and the higher education led growth hypotheses are confirmed for north cyprus

why do we have nominal government debt abstract we study the choice between nominal and indexed debt in a stochastic macroeconomic model with discretionary monetary and fiscal policy with distortionary taxes nominal debt provides valuable insurance against the budgetary effects of economic fluctuations we show that a welfare maximizing government always issues some nominal debt even though nominal debt increases inflation along the time consistent path of the economy the result is fairly robust with respect to changes in assumptions about policy constraints and about the macroeconomic setting

asset returns with transactions costs and uninsured individual risk abstract we explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post war u s economy i the low risk free real interest rate ii the large spread between returns on liquid assets and stocks and iii the greater transaction velocity of liquid assets relative to stocks we introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels

is globalization reducing absolute poverty summary using data from 114 countries 1983 2007 we examine the relationship between globalization and world bank absolute poverty estimates we find a significant negative correlation between globalization and poverty robust to several econometric specifications including a fixed effect panel a long run first difference and a pooled ols regression introducing two instruments for globalization we also show that results are robust to correction for potential endogeneity we motivate and test the instruments in several ways in particular information flows and more liberal trade restrictions robustly correlate with lower absolute poverty

causality between exports and economic growth abstract this paper utilizes granger causality tests in investigating the relationship between exports and national income from a consistent data set for 47 developing countries in africa new empirical results as well as suggestions for future research are presented

the impact of political instability on a fragile tourism product abstract the eastern mediterranean and aegean sea are not the first areas to find themselves engulfed in a political situation which threatens economies so reliant upon tourism and foreign currency receipts recent examples along the coast of north africa and former yugoslavia for instance show how foreign tourism can be all but obliterated by political instability and civil upheaval the on going dispute between the two partitioned communities on the island of cyprus threatens not only a tourism destination already suffering from increased competition and quality problems but also the neighbouring countries greece and turkey who rely upon tourism to contribute to their economies downturns in these economies can only exacerbate the problems in a vicious circle the reader is introduced to the more recent causes and the threats occurring in the area

balancing the budget with implicit domestic default the case of brazil in the 1980s abstract this paper examines the breakdown of the brazilian government s budget balance mechanism which began in the mid 1980s the brazilian government became unable to balance its budget through tax increases or expenditure decreases evidence presented in this paper suggests that the government began to rely on unannounced reductions in the indexed inflation compensation on its debt these reductions can be thought of as an implicit default on domestically held debt while the temporary asset freeze of the march 1990 collor plan was a highly publicized instance of such a default it was not the first

causality between export growth and industrial development empirial evidence from the nics abstract this paper investigates the causal relationship between export growth and industrial development in eight newly industrializing countries nics results of sims causality test show that for most of the nics there is a strong bidirectional causality between the growth of exports and industrial development these findings support the export led growth strategy in that expansion in exports not only promote the growth of national income but also lead to structural transformation of the developing countries

exports growth and causality in developing countries abstract previous empirical studies have interpreted results in regressions of output variables on export variables as providing support for an export promotion development strategy such an interpretation is questionable since these regressions provide no means of determining the direction of causality this paper performs causality tests between exports and growth for 37 developing countries the results cast considerable doubt on the validity of the export promotion hypothesis

the demand for money in brazil what happened in the 1980s abstract some of cardoso s 1983 money demand specifications are used here the estimates are based on quarterly data for the period 1966 1985 it is shown that due to financial innovation the money demand function shifted downwards in the 1980 s also a comparison is made between the actual demand for money and that predicted by the model during the period in which the economic reforms of the cruzado plan were in force

investigating causality in international air freight and business travel the case of australia few studies have examined the link between air cargo and business travel despite there being a generally accepted understanding that these two variables are inextricably related to each other thi

asset substitution money demand and the inflation process in brazil various domestic financial assets in brazil have provided relatively liquid nonmonetary alternatives monthly money demand estimates which include domestic asset opportunity costs and take account of t bill repurchase agreements in a dynamic error correction model demonstrate the importance of domestic substitutes in explaining money holdings money demand appears responsive and stable moreover t bills and indexed bonds have acted as an alternative to central bank liabilities as a source of finance for government deficits evidence indicates that the initial financing of government deficits through bonds bills and other nonmonetary liabilities may explain why money lags price shocks rather than vice versa copyright 1989 by ohio state university press

asymmetric causality between australian inbound and outbound tourism flows abstractwe employ the asymmetric version of the granger causality test to assess how australian inbound and outbound tourism flows across 49 markets countries are driven by the sign dependent variations in departure series or vice versa a multivariate generalized autoregressive conditional heteroscedasticity mgarch model is also estimated to study the time varying co volatility between inbound and outbound tourism growth rates we find that rising co volatility spillovers between inbound and outbound tourism are statistically significant for a number of markets the six markets that are most susceptible to global shocks are china hong kong papua new guinea singapore south africa and the united kingdom china is by far the largest of these markets and except for the united kingdom both arrivals and departures for each of these countries represent growing markets for australia we present recommendations for policymakers and destination management organizations dmos to assist in developing cust

estimating the value of employee stock option portfolios and their sensitivities to price and volatility the costs associated with compiling data on employee stock option portfolios is a substantial obstacle in investigating the impact of stock options on managerial incentives accounting choice financing decisions and the valuation of equity we present an accurate method of estimating option portfolio value and the sensitivities of option portfolio value to stock price and stock return volatility that is easily implemented using data from only the current year s proxy statement or annual report this method can be applied to either executive stock option portfolios or to firm wide option plans in broad samples of actual and simulated ceo option portfolios we show that these proxies capture more than 99 of the variation in option portfolio value and sensitivities sensitivity analysis indicates that the degree of bias in these proxies varies with option portfolio characteristics and is most severe in samples of ceos with a large proportion of out of the money options however the proxies explanatory power remains above 95 in all subsamples

tax incentives to hedge for corporations facing tax function convexity hedging lowers expected tax liabilities thereby providing an incentive to hedge we use simulation methods to investigate convexity induced by tax code provisions on average the tax function is convex although in approximately 25 percent of cases it is concave carrybacks and carryforwards increase the range of income with incentives to hedge other tax code provisions have minor impacts among firms facing convex tax functions average tax savings from a five percent reduction in the volatility of taxable income are about 5 4 percent of expected tax liabilities in extreme cases these savings exceed 40 percent if a firm faces a convex tax function then hedging that reduces the volatility of taxable income reduces the firm s expected tax liability for a firm facing some form of tax progressivity when taxable income is low its effective marginal tax rate will be low but when income is high its tax rate will be high if such a firm hedges the tax increase in circumstances where income would have been low is smaller than the tax reduction in circumstances where income would have been high thus lowering expected taxes in examining the importance of various motives to hedge researchers have employed two general methods survey and regression analysis there are potential problems with each for example some managers might view the information requested in a survey as proprietary or might hesitate to admit that they employ derivatives to speculate rather than hedge to employ regression methods researchers must generate proxies for tax status in addition to other firm characteristics to the extent that a tax variable e g whether the firm has a net operating loss carryforward proxies for factors such as financial distress as well as tax circumstances analysts face an identification problem in interpreting the results

fiscal sustainability and monetary versus fiscal dominance evidence from brazil 1991 2000 under a monetary dominant md regime the primary surplus adjusts to limit debt growth permitting monetary policy to be conducted independently of fiscal financing requirements in brazil some evidence favours an md regime for 1995 1997 but not for the decade of the 1990s as a whole while fiscal adjustments of 1999 yielded a primary surplus of about 3 of gdp consistent with solvency a credible md regime would require further adjustments of the primary surplus if debt increases growth falls or interest rates rise

do firms hedge in response to tax incentives there are two tax incentives for corporations to hedge to increase debt capacity and interest tax deductions and to reduce expected tax liability if the tax function is convex we test whether these incentives affect the extent of corporate hedging with derivatives using an explicit measure of tax function convexity we find no evidence that firms hedge in response to tax convexity our analysis does however indicate that firms hedge to increase debt capacity with increased tax benefits averaging 1 1 percent of firm value our results also indicate that firms hedge because of expected financial distress costs and firm size an increasing number of corporations use financial derivatives each year the international swaps and derivatives association reports that the notional value of outstanding otc swap contracts increased from 11 3 trillion in 1994 to more than 60 trillion by mid 2000 http 00www isda org this is interesting because financial theory tells us that corporate risk management enhances value only in the presence of costly market imperfections a number of empirical studies examine derivative holdings to identify which of the proposed theoretical incentives and imperfections lead to corporate hedging our paper adds to the hedging literature by testing whether corporations respond to two tax related incentives to hedge the incentive to reduce volatility thereby increasing debt capacity and the tax benefits of debt and the incentive to reduce expected tax liabilities by reducing the volatility of taxable income we also use a refined dependent variable to measure net

optimal maturity of nominal government debt an infinite horizon model the role of debt maturity is analyzed in a framework that blends tax smoothing with time inconsistency of optimal policy when policymakers have an incentive to use unanticipated inflation to reduce the real value of nominal government liabilities three conclusions emerge 1 nominal debt leads policymakers to resort to inflation even though in equilibrium inflation collects no revenue 2 when under full precommitment the optimal policy calls for complete tax smoothing and a constant debt level the equilibrium policy without precommitment calls for anticipating tax collection and early debt repayment and 3 management of debt maturity is an essential component of the equilibrium policy copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

financial decision making are women really more risk averse 40 males 33 females gain gambling gain domain loss gambling loss domain a contextual frames b abstract gambling frames studies the application of experimental methods provided stronger control of the economic environment in which decisions were made we elicited data which call into question the prevalence of stereotypic risk attitudes in financial decision making first we find that the comparative risk propensity of male and female subjects is strongly dependent on the financial decision setting second and more important we observe no gender differences in risk propensity when subjects face contextual decisions since in practice financial decisions are always contextual our results suggest that the above gender stereotype may not reflect true male and female attitudes toward financial risks i gender specific risk behavior an experimental design our experiment was designed to examine gender specific risk propensity in decisions relevant for investors and managers table 1 gives an overview of the experimental design in the main treatment we implemented risky choices in the form of investment and insurance decisions choice behavior in this treatment henceforth called the context treatment directly measures the risk behavior of male and female subjects in contextual financial decisions we also ran a control treatment in which the same risky choices were presented as abstract gambling decisions this control treatment henceforth called the abstract treatment allows us to validate the risk behavior induced by our experimental procedure in the light of the above mentioned gambling evidence in the context treatment subjects were confronted with risky choices in two different decision contexts subjects first had to complete a series of investment decisions they were then presented with a series of identical choices this time however framed as insur1 wealth effects from income differences outside the laboratory may still affect risk behavior in our experiment they are controlled for in our model 2 experimental instructions are available in german from the authors or in english from our web page www wif ethz ch publikationen htm ance decisions each investment and insurance decision incorporated a choice between a risky lottery and a certain payoff with the series of choices implemented in the two frames we elicited our subjects certainty equivalents for the same four risky lotteries l1 l2 l3 l4 in both contexts we implemented two frames in the context treatment in order to measure the risk propensity of subjects toward both perceived gains and perceived losses in both frames all possible payoffs for each decision were positive in the investment frame these payoffs were also presented as gains while in the insurance frame the same payoffs were presented as losses relative to an initial endowment therefore elicited certainty equivalents in the investment frame measure subjects risk propensities in the gain domain while certainty equivalents in the insurance frame measure risk propensity in the loss domain if in contextual financial decisions female subjects are generally more risk averse than men our results should display ceteris paribus lower female certainty equivalents in both the investment and insurance frames 3 the four lotteries l1 l2 l3 and l4 each had two possible outcomes payoffs in swiss francs 1 sfr a 0 60 and their probabilities were 30 sfr 6 10 sfr 6 30 sfr 2 10 sfr 2 30 sfr 6 10 sfr 6 and 50 sfr 2 20 sfr 2 respectively 4 experimental evidence suggests that individual risk propensity will vary systematically between the gain and loss domain daniel kahneman and amos tversky 1979 383 vol 89 no 2 gender and economic transactions 3y16 my68 mp 383 friday dec 10 08 20 am lp aer my68 figure 1 differences in mean certainty equivalents ce between male and female subjects by frame note certainty equivalents and male female differences are measured in swiss francs in the abstract treatment we confronted a different group of subjects with exactly the same risky decisions as those in the main treatment however as mentioned before all choices in this control treatment were framed as abstract gambling decisions again two frames were implemented in the gaingambling and loss gambling frames we measured the risk attitudes of subjects toward gambles in the gain and loss domain respectively subjects in both treatments were told in advance that one of their choices would determine their experimental earnings further all subjects completed a post experimental questionnaire which yielded information on each subject s disposable income this information is necessary to exclude wealth effects due to income differences outside the laboratory as an explanation of gender specific choice behavior

uk tourism arrivals and departures seasonality persistence and time trends issues such as seasonality persistence and trends are examined in the series referring to the number of uk arrivals and departures using techniques based on fractional integration this methodolog

is the budget deficit too large some further evidence i introduction since the early 1980s the u s federal government has run unprecedented peacetime deficits the size of these deficits became a major issue in recent u s presidential elections for example during the 1992 elections ross perot successfully used his simple charts and tables to convey the notion that the size of the deficit was too large economists look at the deficit issue from a different perspective instead of emphasizing the size of the deficit at any particular point in time they are more concerned with the intertemporal solvency condition the present value of debt in the long run this condition focuses on the long run paths of interest inclusive expenditures and revenues unless these two variables trend together over the long run the government will have an incentive to default on the debt losing the confidence of investors from the standpoint of the intertemporal solvency condition are recent deficits too large do they represent boundless growth of government debt as an empirical proposition boundless growth of the debt corresponds to non stationarity of the deficit or the first difference of the debt recent developments in time series econometrics have provided ways to examine the intertemporal solvency condition for example hamilton and flavin 1986 and trehan and walsh 1991 apply stationarity tests to the u s federal deficit similarly hakkio and rush 1991 test for cointegration between interest inclusive expenditures and revenues while bohn 1991 tests for the cointegration of debt non interest expenditures and revenues hakkio and rush s results suggest that the deficit is too large for intertemporal solvency and thus the government has an incentive to default on its debt they conclude that over the period 1950 through 1989 interest inclusive expenditures and revenues are cointegrated but not one to one this suggests that although the present discounted value of the debt tends to zero the undiscounted value of the debt will be unbounded moreover they find that interest inclusive expenditures are not cointegrated with revenues over the period 1964 to 1989 the government debt appears to drift upward without bound overall hakkio and rush s results suggest that the government will have an incentive to default on the debt at some point in the future 1 we look at the issue from a different point of view we believe that a discrete break in the fiscal process occurred in the early 1980s as a result of several policy changes such as the 1981 economic recovery and tax act during the first reagan administration this reagan era change is modeled as a one time upward shift in the constant component of the deficit as mccallum 1984 shows a constant interest inclusive deficit does not imply boundless growth of government debt and should not provide an incentive to inflate away the debt as did previous research we conduct tests for the cointegration of interest inclusive expenditures and revenues as well as stationarity tests on the deficit 2 however we allow a shift in the intercept term of the cointegration and stationarity tests to capture the break in the fiscal process our results show that when the break is included expenditures and revenues are cointegrated with a coefficient not statistically different from unity i e that the deficit is stationary this contradicts the conclusions of hakkio and rush of course the way we choose the break date may be crucial to our analysis our initial choice of break date is based on prior information this is the approach used by perron 1989 who tests the u s gnp with a break chosen using prior information christiano 1992 criticizes perron 1989 on the a priori choice of the break date he suggests that the break date should be chosen using a formal pre test procedure moreover any statistical inference that follows must take this pre test procedure into account

enjoying the quiet life corporate governance and managerial preferences much of our understanding of corporations builds on the idea that managers when they are not closely monitored will pursue goals that are not in shareholders interests but what goals would managers pursue this paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences we use plant level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws we find that when managers are insulated from takeovers worker wages especially those of white collar workers rise the destruction of old plants falls but the creation of new plants also falls finally overall productivity and profitability decline in response to these laws our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life

introducing convexity into optimal compensation contracts abstract we study when it is appropriate to add a convex component such as stock options to an optimal managerial compensation contract we show that convexity is introduced when managers have moderate levels of relative risk aversion and decreasing absolute risk aversion in addition we study how convexity is affected as the distribution of outcomes becomes more skewed toward low outcomes here we show that while convexity increases when skewness is increased without regard to the effect on mean stock price the opposite effect results when increases in skewness leave the mean stock price unchanged

exchange rate exposure hedging and the use of foreign currency derivatives abstract we examine whether firms use foreign currency derivatives for hedging or for speculative purposes using a sample of s p 500 nonfinancial firms for 1993 we find evidence that firms use currency derivatives for hedging as their use significantly reduces the exchange rate exposure firms face we also find that while the decision to use derivatives depends on exposure factors i e foreign sales and foreign trade and on variables largely associated with theories of optimal hedging i e size and r d expenditures the level of derivatives used depends only on a firm s exposure through foreign sales and trade

does option compensation increase managerial risk appetite this paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls under the manager s optimal policy the option ends up either deep in or deep out of the money as the asset value goes to zero volatility goes to infinity however the option compensation does not strictly lead to greater risk seeking sometimes the manager s optimal volatility is less with the option than it would be if he were trading his own account furthermore giving the manager more options causes him to reduce volatility managers with convex compensation schemes play an important role in financial markets this paper solves for the optimal dynamic investment policy for a risk averse manager paid with a call option on the assets he controls the paper focuses on how the option compensation impacts the manager s appetite for risk when he cannot hedge the option position on one hand the convexity of the option makes the manager shun payoffs that are likely to be near the money under the optimal policy the manager either significantly outperforms his benchmark or else incurs severe losses furthermore in examples of optimal trading strategies asset volatility goes to infinity as asset value goes to zero yet option compensation does not strictly lead to greater risk seeking as asset value grows large or if the evaluation date is far away the manager moderates asset risk for example if the manager has constant relative risk aversion crra asset volatility converges to the merton constant as asset value goes to infinity in some situations the manager actually chooses a lower asset volatility than he would if he were investing on his own because the leverage inherent in his option magnifies his exposure to the asset volatility in addition with all constant or decreasing absolute risk averse utility functions from the hyperbolic absolute risk averse hara class giving the manager more options causes him to reduce asset volatility in the crra case for example the manager targets a fixed volatility for his personal

on the determinants of corporate hedging finance theory indicates that hedging increases firm value by reducing expected taxes expected costs of financial distress or other agency costs this paper provides evidence on these hypotheses using survey data on firm s use of forwards futures swaps and options combined with computstat data on firm characteristics of 169 firms in the sample 104 firms use hedging instruments in 1986 the data suggest that firms which hedge face more convex tax functions have less coverage of fixed claims are larger have more growth options in their investment opportunity set and employ fewer hedging substitutes