estimation methods in portfolio selection and the effectiveness of short sales restrictions uk evidence forecasting the mean returns vector and the covariance matrix is a key feature in implementing portfolio theory the performance of the bayes stein method for forecasting these parameters for use in the markowitz model with and without short sales was compared with that of seven other estimation methods and three alternative portfolio selection techniques this paper represents the first large scale empirical investigation of the usefulness of the bayes stein approach using historical data this data was drawn from the london stock exchange in contrast to earlier studies the relative performance of bayes stein was mixed while it produced reasonable estimates of the mean returns vector there were superior methods e g overall mean for estimating the covariance matrix when short sales were permitted when short sales were prohibited actual portfolio performance was clearly improved although there was little to choose between the various estimation methods

labor force participation interest rate shocks and unemployment dynamics in emerging economies abstract emerging economies emes have highly volatile unemployment and real wages standard models with interest rate shocks can generate higher unemployment volatility but still fall quantitatively short of matching the empirical volatility of unemployment a small open economy search model with endogenous participation and self employment a feature of emes generates 90 percent of the volatility of unemployment in the data highly volatile wages and quantitatively consistent cyclical aggregate dynamics amid productivity and interest rate shocks of plausible magnitudes endogenous participation amplifies shocks and plays a critical role in overcoming a key limitation of standard search models for emes

does bank competition reduce cost of credit cross country evidence from europe abstract despite the extensive debate on the effects of bank competition on economic welfare and growth only a handful of single country studies deal with the impact of bank competition on the cost of credit we contribute to the literature by investigating the impact of bank competition on the cost of credit in a cross country setting using a panel of firms from 20 european countries covering the period 2001 2011 we consider a broad set of measures of bank competition including two structural measures herfindahl hirschman index and cr5 and two non structural indicators lerner index and h statistic we find that bank competition increases the cost of credit and observe that the positive influence of bank competition is stronger for smaller companies our findings accord with the information hypothesis whereby a lack of competition incentivizes banks to invest in soft information and conversely increased competition raises the cost of credit this positive impact of bank competition is however influenced by the institutional and economic framework as well as by the crisis

more on estimation risk and simple rules for optimal portfolio selection for the risk averse investor consideration of estimation risk is important in selecting an expected utility maximizing portfolio it has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the full covariance model is used alternatively if the market model is used the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk however as is demonstrated in this paper the effect will generally not be as substantive as previously believed and in many situations can be safely ignored in order to determine the composition and location of an efficient frontier from which an optimal portfolio will be selected the investor must employ estimates of expected returns variances and covariances for the set of securities under consideration if the investor simply treats the estimated parameter values for the securities as true parameter values then estimation risk will have been ignored and as shown by barry 1 and klein and bawa 14 15 a suboptimal portfolio will most likely have been selected bawa brown and klein 6 and klein and bawa 14 discuss the effects of estimation risk on the selection of an optimal portfolio from a set of risky assets and note that the location but not the composition of the efficient frontier changes when estimation risk is recognized if security returns are generated by a stationary multivariate normal distribution for which the investor has a diffuse prior furthermore brown 8 has shown these results to be robust for severe misspecification of the underlying multivariate distribution of returns e g assuming it to be normal when in actuality it is student t with small degrees of freedom this paper is concerned with the effects of estimation risk on the composition of the tangency portfolio derived from a set of risky assets and a risk free asset under the assumption that the investor has a diffuse prior 1 barry 2 bawa and brown 4 and brown 7 have shown analytically that the composition of the tangency portfolio is unaffected by estimation risk if the full covariance model is used chen and brown 10 have expanded upon the work of brown 9 and have argued that if security returns are generated by the market model then the composition of the tangency portfolio will be substantively different when estimation risk is recognized

perceived credit constraints in the european union the promotion and support of small and medium sized enterprises smes is an essential component of policies designed to help improve europe s economic performance a crucial issue is whether smes face difficulty obtaining bank loans using pre crisis survey data from 2005 and 2006 for nearly 3 500 smes firms with fewer than 250 employees in the european union eu we investigate the determinants of perceived bank loan accessibility at the firm level and at the country level based on hierarchical multi level binomial logit regressions our findings show that the youngest and smallest smes have the worst perception of access to bank loans the smes in nations with concentrated banking sectors are more positive about loan accessibility in addition a high fraction of foreign owned banks is associated with improved perception of loan accessibility in the eu 15 but not in the eu 10

estimation risk when theory meets reality estimation risk occurs in the almost universal situation where parameters of importance for decision making are not known with certainty bayes criterion is the procedure consistent with expected utility maximization in the presence of estimation risk three interrelated problems in the presence of estimation risk are analyzed i the choice of the utility maximizing decision rule in a mean variance framework ii the calculation of certainty equivalent returns and iii the valuation of additional sample information

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

financial development and financing constraints international evidence from the structural investment model this article provides evidence that financial development impacts growth by reducing financing constraints that would otherwise distort efficient allocation of investment the financing constraints are inferred from the investment euler equation by assuming that the firm s stochastic discount factor is a function of the firm s financial position specifically the stock of liquid assets the magnitude of the changes in the cost of capital is twice as large in a country with a low level of financial development as in a country with an average level of financial development the size effect business cycles and legal environment effects are also considered copyright 2003 oxford university press

does the expectations trap render the natural rate model invalid in the disinflationary zone this chapter raises some questions about the epistemological status of the theory underpinning the original phillips curve formulation and the correspondence between the empirical data and the textbook theoretical representations of the natural rate expectations augmented phillips n reap curve model this is no antiquarian investigation since these curves have dominated applied macroeconomics for over three decades

financial intermediation capital composition and income stagnation the case of europe abstract we look into the role of financial intermediation in inducing the european financial crisis of 2008 by exploring the effects of overall lending and the allocation of credit to specific categories of borrowers namely households vs firms we find that for the eu26 during the period 1995 2008 excessive household leverage through mortgage lending exerted a crowding out effect on availability of credit to support innovation and productive investment the crowding out effect ultimately translated into a gdp growth that was decoupled from real household income in this article we explain that shifting credit towards mortgages and away from corporate projects is consistent with rational behaviour based on historical trends aimed at minimizing short term risk for each individual bank nevertheless as a whole the sum of individual risk reducing attitudes generated a long term systemic risk

competition and operating volatilities around the world numerous papers have shown that developing economies are more volatile we show that despite greater aggregate and industry stability performance and size of individual firms in developed countries are more volatile in developing countries market imperfections insulate incumbent firms from competition consistent with this firms in developing countries have higher profit higher market concentration and less capital raising cross country differences in operating risk and competition intensity are greater in industries that are dependent on external finance where we expect higher impacts of capital market imperfections we show the inverse relation between aggregate and firm level volatilities has important implications for international studies of cash holding

interpreting econometric evidence the behaviour of consumers expenditure in the uk abstract the dynamic models of consumers expenditure proposed by davidson et al 1978 and hendry and von ungern sternberg 1979 are re appraised in the light of hall s 1978 analysis of the empirical implications of the life cycle permanent income hypothesis in particular that the series for consumption should obey a random walk apart from trend in an attempt to reconcile the conflicting findings monte carlo experiments are used to demonstrate that if the davidson et al model were actually correct the hall model would appear to give a good description of the data and would probably not be rejected all the models are re estimated with new data for the uk and these data do reject a modified random walk specification in conclusion we discuss the issue of income exogeneity and comment on questions of model selection and interpretation

extra credit bank finance and firm export status in germany this paper estimates the exporter premium in bank lending we examine credit relationships in germany covering all loans of more than 1 5 million euro over the period from 2005 to 2010 having controlled for a wide range of other firm and bank characteristics our results indicate that exporting firms take out loans around 15 percent larger than those of nonexporters

fiscal deficits output growth and inflation targets in ghana abstract inflation appears to be the macro problem for which no antidote has been found under the economic recovery programme it is possible that either a wrong diagnosis has been made of the problem or that certain factors within the economy are preventing inflation from staying within target levels using an error correction model ecm the paper estimates an inflation equation for ghana the convenience of this model is in the fact that all the data series exhibit an autoregressive scheme of order one that is they are i 1 series in such an instance the granger engle theorem shows that the ecm provides the most efficient model further the ecm unveils some of the short run dynamics which are missing in other estimation techniques the results of the econometric regression show that inflation in ghana either in the long run or short run is influenced more by output volatility than by monetary factors an examination is made of the consistency of fiscal deficit the hypothesis is that an unsustainable fiscal policy would make government miss some macroeconomic targets it is shown that in 1985 and 1989 fiscal policy was consistent inflation was well within target in 1985 for 1986 1988 the government did not maintain consistent fiscal deficits and inflation in those years was well above targets it is recommended that to control inflation in ghana more attention should be paid to supply factors further government should pursue consistent fiscal policies

information and diversity of analyst opinion this paper examines problems in the use of divergence of analyst opinion as a proxy for estimation risk in empirical studies of security returns and asset pricing models we demonstrate that diversity of opinion can increase even though the amount of private information increases and we show that diversity of opinion may overstate estimation risk if the capital market aggregates the information held by investors we produce empirical results consistent with our conclusions specifically we find that divergence of opinion can produce measures of estimation risk that are inconsistent with a received proxy for estimation risk and with observed common stock returns

asymmetries in housing and financial market institutions and emu despite convergence pressures differences in housing and financial market institutions across the 15 member states of the european union are still enormous this paper argues that they have profound effects on the responsiveness of output and inflation in the different countries to changes in short term interest rates as well as to asset market shocks of external origin the economic reasoning behind this claim is set out and the institutional differences are described the paper assesses the sometimes conflicting empirical evidence on this issue barriers to convergence and implications for labour market flexibility are discussed the uk ireland finland and sweden tend to cluster at one extreme of the relevant institutional characteristics the paper concludes with a set of proposals for institutional reforms which would significantly reduce the tensions within emu and the potential for instability in these economies entailed by emu membership

child labor the role of financial development and income variability across countries abstract in this article we examine the link between child labor and financial development using cross country data we show that child labor and financial development display a significant negative relationship which is particularly strong in the sample of low income countries and is robust for a wide range of specifications and estimators including fixed effects and instrumental variables we identify a plausible channel through which financial development affects child labor as we find that income variability has a sizable positive impact on child labor in countries where financial markets are underdeveloped although this is not the case when financial markets are developed our results suggest that policies aimed at widening access to credit could be effective in reducing the extent of child labor

the value of time hypothesis and the demand for money some new evidence for the uk this paper presents some results for a version of the value of time model of the demand for money using uk date the model performs quite well and the value of time hypothesis appears to be confirmed

psychometrics as a tool to improve credit information this paper studies the use of psychometric tests designed by the entrepreneurial finance lab efl as a tool to screen out high credit risk and potentially increase access to credit for small business owners in peru we compare repayment behavior patterns across entrepreneurs who were offered a loan based on the traditional credit scoring method versus the efl tool we find that the psychometric test can lower the risk of the loan portfolio when used as a secondary screening mechanism for already banked entrepreneurs that is those with a credit history the efl tool can also allow lenders to offer credit to some unbanked entrepreneurs that is those without a credit history who were rejected based on their traditional credit scores without increasing the risk of the portfolio

modeling the demand for narrow money in the united kingdom and the united states abstract despite the importance of well specified empirical money demand functions for inference forecasting and policy problems in modeling have arisen concerning the economic theories of money demand the data institutional frameworks financial innovation and econometric implementation by developing constant data coherent m 1 demand equations for the u k and the u s we investigate these issues and explain such puzzles as missing money the great velocity decline and the recent explosion in m 1 the endogeneity of money the lucas critique and the non invertibility of our m 1 models are also discussed

the trade off interpretation of phillips s dynamic stabilization exercise this paper which examines phillips s famous curve is based on phillips s private papers and the london school of economics methodology measurement and testing seminar records sources previously thought to be lost these sources plus phillips s theoretical work suggest that the equilibrium menu of choice is a misinterpretation of phillips s dynamic stabilization exercise phillips had a clearly articulated role for inflationary expectations in his model and had no toleration for the notion that ongoing inflation could purchase sustainable reductions in the rate of unemployment evidence is cited which indicates that milton friedman was profoundly influenced by phillips s analysis of inflationary expectations

optimal portfolio selection under institutional procedures for short selling abstract this study presents and formally justifies a simple ranking approach for optimal portfolio selection under institutional procedures for short selling it also provides economic insights of the explicit solution of the portfolio problem the analysis is applicable to different treatments of the short sale proceeds and any margin deposits in contrast to previous approaches it does not require assumptions that overstate short sale benefits for maintaining analytical tractability and it can easily identify and filter out securities that are undesirable for investing or for short selling thus this study can enhance the usefulness of portfolio modeling for assisting practical investment decisions

the assessment productivity and competitiveness in british manufacturing this issue of the oxford review examines productivity and competitiveness in british manufac turing the simplest and most widely used measure of productivity is output per head from this definition sprout at once the horns of a dilemma for an economy facing unemployment on the present scale for a given rate of expansion of output the higher the rate of productivity growth the greater the decline in employment or at least the smaller its growth on the other hand in an economy open to international competition a high rate of productivity growth relative to that of other countries is the long term key to achieving the favourable international competitive po sition necessary to sustain growth and a low level of unemployment

inference in cointegrating models uk m1 revisited the paper addresses the practical determination of cointegration rank this is difficult for many reasons deterministic terms play a crucial role in limiting distributions and systems may not be formulated to ensure similarity to nuisance parameters finite sample critical values may differ from asymptotic equivalents dummy variables alter critical values often greatly multiple cointegration vectors must be identified to allow inference the data may be 1 2 rather than 1 1 altering distributions and conditioning must be done with care these issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money prices output and interest rates in the uk copyright 1998 by blackwell publishers ltd

a competitive model of the informal sector abstract in developing nations formal workers tend to be more experienced more educated and earn more than informal workers these facts are often interpreted as evidence that low skill workers face barriers to entry into the formal sector yet there is little empirical evidence that such barriers are important this paper describes a model where in equilibrium the characteristics of formal and informal workers differ systematically even though labor markets are perfectly competitive the informal sector emphasizes low skill work as in the data because informal managers have access to less outside financing and choose to substitute low skill labor for physical capital

sme credit constraints in asia s rising economic star fresh empirical evidence from vietnam this study provides a fresh look at the sme sector s economic backbone vis a vis credit constraint dichotomy in vietnam asia s rising economic star the study uses data from the survey of manufactu

the impact of the business environment on young firm financing this paper uses a dataset of more than 70 000 firms in over 100 countries to systematically study the use of different financing sources for new and young firms in comparison to mature firms the authors find that in all countries younger firms rely less on bank financing and more on informal financing however they also find that younger firms use more bank finance in countries with stronger rule of law and better credit information and that the reliance of young firms on informal finance decreases with the availability of credit information overall the results suggest that improvements to the legal environment and availability of credit information are disproportionately beneficial for promoting access to formal finance by young firms

monetary economic myth and econometric reality few of the main macro economic forecasting systems can produce sensible forecasts without the tender loving care of their proprietors many econometric equations in com mon use show significant deterioration in the accuracy with which they characterise data as time passes and many economists are sceptical about empirical evidence feeling it lacks credibility monetary relationships have the dubious distinction of being among the leaders in this field as witnessed by the very large mispredictions of m1 models in the usa over what is now known as the missing money period 1973 76 as well as during the recent great velocity decline 1979 82 in the uk models of m1 and m3 demand experienced large structural breaks following the competition and credit control regu lation changes and the move to floating exchange rates perhaps it is no surprise that goodhart s law should have been formulated with respect to money demand equations

can informal firms hurt registered smes access to credit using firm level survey responses from 2009 to 2012 we examine whether competitors from the informal sector affect the credit constraints of registered smes in 86 countries worldwide we also investigate the role played by the quality of institutional environment in exacerbating or in alleviating such effect a weak quality of institutional environment strengthens inter linkages between the formal and the informal sectors increases the costs and decreases the benefits assumed by formal firms and reduces the costs attributed to informality moreover it also results in a large informal economy which influences perceptions about the substitutability between formal and informal goods and law evasion our findings indicate that registered smes facing competition from informal firms are more likely to be credit constrained than other formal smes that are not confronted with such competition this result is consistent with the parasite view and the entrepreneurial perspective of informality which assert that informal firms are capable of competing against registered smes and hurting the latter s profits further we find that such adverse impact manifests only in countries with weak rule of law and high degree of corruption and bureaucracy our results also show that registered micro and small firms are more likely to be affected by the presence of informal firm competitors than medium sized firms this is because the benefits of formality that include access to credit from financial institutions increase with firm size on the whole our findings suggest that governments must enhance their role in increasing access to credit to smaller firms and in providing incentives for informal firms to be integrated in the formal economy moreover in order to achieve inclusive growth our results highlight the importance of improving the business environment which affects all entrepreneurs

estimation risk in farm planning under uncertainty this paper examines the impact of estimation risk on a decision maker s ability to distinguish between the mean variance characteristics of different farm plans the importance of making such distinctions should be clear risk averse decision makers will want to bear risk only if they can be reasonably confident of commensurate increases in expected return when parameters are unknown statistically testing for differences in their estimated values is appropriate an illustration of such tests using data from hazell suggests considerable resources must be devoted toward data generation if normative statements under uncertainty are to be reliable

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

the historical slave trade and firm access to finance in africa access to finance helps explain the link between the historical african slave trade and current gross domestic product we first present mistrust weakened institutions and ethnic fractionalization as plausible historical channels linking the slave trade to modern finance and development we then show i the slave trade is consistently linked to reduced access to the formal and trade credit needed by modern firms ii this shortage particularly reduces capital investment in smaller firms not in business groups and iii the slave trade cannot explain most other business obstacles suggesting that long term societal shocks are exceptionally important for finance received december 16 2014 editorial decision june 29 2017 by editor philip strahan

trade credit and credit rationing asymmetric information between banks and firms can preclude financing of valuable projects trade credit alleviates this problem by incorporating in the lending relation the private information held by suppliers about their customers incentive compatibility conditions prevent collusion between two of the agents e g the buyer and the seller against the third e g the bank consistent with the empirical findings of petersen and rajan 1995 firms without relationships with banks resort more to trade credit and sellers with greater ability to generate cash lows provide more trade credit finally small firms react to monetary contractions by using trade credit consistent with the empirical results of nilsen 1994 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

firm credit in the euro area a tale of three crises using survey data from 2009 to 2011 we analyse the effects of the recent euro area economic financial and private debt crisis on the supply of and demand for bank finance for small and medium enterprises smes at the country level we identify three distinct aspects of the recent crisis in the euro area affecting firm credit through different channels controlling for country fixed effects the impact of a weak real economy on firm credit operates both by reducing firms demand for bank financing and by lenders increasing loan rejections and tightening terms and conditions on credit allocated on the other hand financial conditions have no significant effect on demand but they do affect credit supply as we find that financial tensions worsen the chances of obtaining credit and its terms and conditions we interpret this as evidence of a bank balance sheet channel negatively impacting credit provision we find that private sector indebtedness has important effects on smes credit access and its terms

long term debt maturity and financing constraints of smes during the global financial crisis we use the recent financial crisis to investigate financing constraints of private small and medium sized enterprises smes in belgium we hypothesize that smes with a large proportion of long term debt maturing at the start of the crisis had difficulties to renew their loans due to the negative credit supply shock and hence could invest less we find a substantial variation in the maturity structure of long term debt firms which at the start of the crisis had a larger part of their long term debt maturing within the next year experienced a significantly larger drop in investments in 2009 this effect is driven by firms which are ex ante more likely to be financially constrained consistent with a causal effect of a credit supply shock to corporate investments we find no effect in placebo periods without a negative credit supply shock

remittances entrepreneurship and employment dynamics over the business cycle abstract we incorporate remittances and micro entrepreneurship self employment into a small open economy business cycle model with capital and labor market frictions countercyclical remittances moderate the decline of households consumption during recessions these remittances also are used to finance the start up costs of microenterprises that bolster households income during economic downturns we show that the positive income effect from countercyclical remittances also leads to a decrease in salaried labor supply which generates offsetting upward pressure on wages during recessions and adversely affects the recovery of the economy consistent with the microeconomic evidence the behavior of remittances decisively affects labor force participation and the composition of employment between non salaried and salaried employment over the business cycle the model delivers labor market and aggregate cyclical dynamics that are consistent with the mexican data including a highly volatile and countercyclical unemployment rate

loan guarantee schemes in the uk the natural experiment of the enterprise finance guarantee and the 5 year rule loan guarantee schemes have existed since 1953 in the us and are widely used throughout the world to provide financial support to smaller firms by guaranteeing loans from commercial banks the uk government has been an active supporter of loan guarantees since 1981 and has a long track record of modifying its scheme to reflect changing market conditions and the financing needs of its sme sector arguably the two most significant changes occurred in 2008 when the 5 year rule on eligibility was removed and in 2009 when the long standing small firms loan guarantee scheme was replaced by the enterprise finance guarantee scheme we treat the removal of the 5 year rule as a natural policy experiment and empirically question whether on economic grounds this was a sensible policy our findings suggest that the 5 year rule was a better policy choice with regard to employment but had no impact on sales growth

financial and legal constraints to growth does firm size matter using a unique firm level survey database covering 54 countries we investigate the effect of financial legal and corruption problems on firms growth rates whether these factors constrain growth depends on firm size it is consistently the smallest firms that are most constrained financial and institutional development weakens the constraining effects of financial legal and corruption obstacles and it is again the small firms that benefit the most there is only a weak relation between firms perception of the quality of the courts in their country and firm growth we also provide evidence that the corruption of bank officials constrains firm growth

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

financial development and corporate growth in the eu single market the establishment of the eu 15 single market in 1993 brought about a high degree of similarity in firms growth opportunities across countries while substantial diversity existed in the development of national financial markets we compare within industry growth rates of similar single market firms facing financial systems of different depth and institutional quality as of 1993 moving from the least to the most developed financial market within the eu 15 boosts firms annual value added growth by about three percentage points our results also suggest that the growth gap due to initially underdeveloped financial systems was closed by 2003

a more complete conceptual framework for sme finance abstract we propose a more complete conceptual framework for analysis of sme credit availability issues in this framework lending technologies are the key conduit through which government policies and national financial structures affect credit availability we emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies these technologies in turn have important effects on sme credit availability financial structures include the presence of different financial institution types and the conditions under which they operate lending technologies include several transactions technologies plus relationship lending we argue that the framework implicit in most of the literature is oversimplified neglects key elements of the chain and often yields misleading conclusions a common oversimplification is the treatment of transactions technologies as a homogeneous group unsuitable for serving informationally opaque smes and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque smes

estimation risk and simple rules for optimal portfolio selection elton gruber and padberg egp 6 7 have recently simplified the process of constructing optimal portfolios by developing simple criteria for optimal portfolio selection which do not involve use of mathematical programming their simple decision rules permit one to determine easily which securities to include in an optimal portfolio and how much to invest in each however in practical applications of theoretical models sample estimators are usually treated as if they were true values of unknown parameters as a result the effect of the standard errors of sample estimators on decision rules are completely ignored bawa brown and klein 1 have shown that what is optimal in the absence of estimation risk is not necessarily optimal or even approximately optimal in the presence of estimation risk moreover brown 4 examined optimal portfolio choice under uncertainty for various portfolio selection procedures the diffuse bayes rule the markowitz certainty equivalent ce rule the aggregation ce rule and the equal weight rule 1 and found that the diffuse bayes rule uniformly dominates the markowitz ce rule in repeated samples for the quadratic utility case as the sample size increases the bayes rule becomes superior to the aggregation ce and the equal weight rules in addition the result holds even where the probability distribution of returns is seriously misspecified thus brown s 4 study has clearly indicated that without taking estimation risk into account portfolio selection rules other than the bayes rule can lead investors to select suboptimal portfolios this paper shows by using the single index model for the return generating process that the simple decision rules for optimal portfolio selection derived by elton gruber and padberg 7 are not identical under the bayesian and the traditional methods of analysis 2 moreover in the case where short sales are not

short selling and efficient sets the effect of short selling on the composition and location of the efficient set has been analyzed in a variety of ways however the situation typically facing investors where the initial margin requirement is less than 100 percent and the riskfree interest rate that is paid on the short proceeds is less than the rate paid on initial margin has not previously been considered the elton gruber padberg algorithm 1976 1978 subject to certain modifications is shown here to be capable of identifying the efflcient set under such conditions when harry markowitz 1952 developed the notion of efficient sets as a method of identifying an investor s optimal portfolio he did so in a setting where short selling was prohibited since then the effect of short selling on the composition and location of the efficient set has been considered in a variety of ways for example lintner 1965 suggested that short sales be treated from the perspective of a broker dealer where an amount of money equal to the short proceeds must be put up as initial margin with the short seller receiving riskfree interest on both the short proceeds and the margin alternatively black 1972 and merton 1972 assumed that the short seller did not have to put up any initial margin and that the short seller actually got the use of the short proceeds more recently dyl 1975 has assumed that the short seller must put up initial margin that is less than the short proceeds but receives no interest on either the margin or short proceeds this paper is concerned with the generation of efficient sets where short selling is allowed but with certain restrictions attached to it referred to hereafter as restricted short selling in particular initial margin is required but can be met by depositing interest bearing securities with the brokerage firm where the short seller s account is kept furthermore the model allows the short seller to earn interest on the short proceeds accordingly the model

when arm s length is too far relationship banking over the credit cycle we conduct face to face interviews with bank ceos to classify 397 banks across 21 countries as either relationship or transaction lenders we then use the geographic coordinates of these banks branches and of 14 100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle we find that while relationship lending is not associated with credit constraints during a credit boom it alleviates such constraints during a downturn this positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn moreover our evidence suggests thatrelationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

what will take the con out of econometrics the paper begins with the question of whether leamer s extreme bounds analysis eba really does take the con out of econometrics by analytically demonstrating that the extreme bounds are simply functions of the f statistic for the deletion of variables from a regression we conclude that the information provided by eba represents no advance over that available from traditional methods furthermore there is a degree of arbitrariness in eba which exactly parallels the selective reporting of regressions it was designed to supplant the last part of the paper attempts a positive response to its title by following a well defined series of modelling steps we maintain that cooley and le roy s eba derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data this abstract was borrowed from another version of this item

access to credit by firms in sub saharan africa how relevant is gender the literature on the determinants of firms financing constraints has paid little attention to gender as a determinant of access to finance using data for 34 342 firms from 90 developing countries the paper analyzes the determinants of firms financing constraints and assesses whether female owned firms are more financially constrained than male owned businesses the results show that female owned firms in sub saharan africa are more likely to be financially constrained than male owned firms but there is no gender gap in other developing regions the gender gap in sub saharan africa is robust to variations in specifications and econometric estimation procedures

bank competition and access to finance international evidence using a unique database for 74 countries and for firms of small medium and large size we assess the effect of banking market structure on the access of firms to bank finance we find that bank concentration increases obstacles to obtaining finance but only in countries with low levels of economic and institutional development a larger share of foreign owned banks and an efficient credit registry dampen the effect of concentration on financing obstacles while the effect is exacerbated by more restrictions on banks activities more government interference in the banking sector and a larger share of government owned banks

partial credit guarantees and firm performance evidence from colombia this paper studies the effect of government backed partial credit guarantees on firms performance in colombia these guarantees are automatically granted by the national guarantee fund ngf to firms without enough collateral to lift their credit constraints we put together a panel of firms covering the period 1997 2007 that allows us to control for observed and unobserved firm characteristics potentially affecting both the selection of firms into the program and firms performance we find that firms that gain access to credit backed by the ngf were able to grow in terms of both output and employment however we do not find any effect on productivity wages or investment

financing patterns around the world are small firms different using a firm level survey database covering 48 countries we investigate how financial and institutional development affects financing of large and small firms our database is not limited to large firms but includes small and medium size firms and data on a broad spectrum of financing sources including leasing supplier development and informal finance small firms and firms in countries with poor institutions use less external finance especially bank finance protection of property rights increases external financing of small firms significantly more than of large firms mainly due to its effect on bank finance small firms do not use disproportionately more leasing or trade finance compared with larger firms so these financing sources do not compensate for lower access to bank financing of small firms we also find that larger firms more easily expand external financing when they are constrained than small firms finally we find suggestive evidence that the pecking order holds across countries

government and inflation competing views on the relationship between government and inflation arise from competing models of inflation neo keynesian models predict that governments can manipulate aggregate demand by suitable combinations of monetary and fiscal policies but that the effects are asymmetrical starting from a state of full employment the short term effects of a rise in demand are mainly in a rise in the inflation rate and only slightly in a rise in output while the shortterm effects of a fall in demand are mainly in a fall in output and only slightly in a fall in inflation throughout this paper i call this the asymmetry it can also be expressed in terms of a short term phillips curve relating real national income to price inflation which is much steeper above than below full employment this short term phillips curve shifts with changes in the core inflation rate defined as the inflation rate ruling when there are neither demand nor supply side shock effects on the price level the core rate may depend on expected future inflation as long as these expectations themselves depend on past inflation rates as in eckstein or it may depend on inertias as in tobin where a concern over relatives makes current wage bargains closely related to past wage bargains the core rate shifts only slowly because it depends on backward looking behavior arthur okun s posthumously published book contributed greatly to the development of the micro underpinnings of this model i have also discussed them in some detail elsewhere 1981 in the new classical model markets clear as if they were perfectly competitive actual income differs from potential income only if errors are made in predicting the rate of inflation which causes firms and or workers to misperceive changes in money prices and wages as changes in relative prices and wages expectations of inflation are rational and hence forward looking if the government adopts appropriate policies to raise or lower the inflation rate this leads immediately to a revision of inflationary expectations to which the actual inflation rate quickly responds thus the asymmetry is absent increases and decreases in aggregate demand have their main effects on increasing or decreasing the inflation rate even in the short term the third theory traditional monetarism is the least explicitly modelled of the three friedman s statement of its theoretical underpinnings was an is lm model closed by a perfectly inelastic aggregate supply curve as although most economists would accept this as the long run as curve provided the long run is long enough agreement on the shape of the monetarist shortterm as curve is less obvious some would appear to accept the virtually inelastic as curve over this period while others such as phillip cagan 1979 and david laidler 1981 would appear to favor the asymmetry monetarism has meant different things at different times perhaps its most enduring central core is the rejection of policy activism and the associated k percent rule for monetary expansion furthermore many monetarists believe that restrictive monetary policy can be advocated as the major anti inflationary tool for governments having threeto five year political time horizons that is they believe in only a short lived asymmetry at most

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

employment and firm heterogeneity capital allocation and countercyclical labor market policies abstract developing and emerging economies have large employment shares in micro and small firms which are characterized by limited access to formal financing and high reliance on input credit these economies implemented a host of countercyclical labor market policies amid the global financial crisis gfc but labor market data limitations prevent detailed empirical assessments of the effectiveness of these policies we develop a business cycle model with frictional labor markets consistent with the employment and firm structure of these economies and assess the aggregate impact of key countercyclical labor market policies implemented amid the gfc improving job intermediation for large firms is particularly effective in aiding recoveries policies targeting smaller firms yield limited aggregate benefits differences in labor productivity and sectoral contribution to employment and output across firm categories are key in explaining the response to policy

government intervention and firm investment evidence from international micro data abstract building on the important study by beck et al 2005 we examine how government intervention in firms decision making is related to their investment and sales growth using the unique world bank dataset wbes covering 6500 firms in 70 countries we find strong evidence that the extent of government intervention in firms investment employment sales pricing dividend and merger and acquisition decisions is negatively related to their investment and sales growth with the effect being more profound in foreign owned firms and less significant in state owned firms the empirical results are robust to a series of robustness tests and instrumental variable regressions

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

financial structure corporate savings and current account imbalances abstract we explore the effects of a country s financial structure on its corporate savings and current account a financial system that relies relatively more on banks and less on the capital market presents more difficulties for small and medium sized enterprises to access external finance these firms find it necessary to accumulate more savings on their own as a result countries that have a less developed capital market are more likely to run current account surpluses or smaller current account deficits using panel data of 66 countries for the period 1990 2007 we find consistent and robust evidence in favor of this hypothesis further explorations based on firm level data reveal that firms especially smaller firms in economies with relatively underdeveloped capital markets do save significantly more than their counterparts in countries with relatively more developed capital markets

financial development unemployment volatility and sectoral dynamics abstract we document a negative and significant relationship between domestic financial development and unemployment volatility in developing and emerging economies demes and the absence of such relationship in advanced economies aes a business cycle labor search model with firm heterogeneity collateral constraints and interfirm input credit capital can quantitatively rationalize these facts greater financial development is associated with lower usage of input credit capital greater bank credit and greater capital accumulation all of which make firms more resilient in the presence of financial shocks firms increased shock resiliency stabilizes employment decisions ultimately leading to smoother unemployment fluctuations then by establishing explicit linkages between firms interfirm input credit acts as an important mechanism that fosters lower volatility across firms under greater financial development as such increases in financial development have a smaller impact in stabilizing unemployment in economies with higher average bank credit gdp ratios and less input credit usage which is the case of aes compared to economies with lower average bank credit gdp ratios and more input credit usage which is the case of demes

access to finance in sub saharan africa is there a gender gap we show the existence of an unconditional gender gap in sub saharan africa however when key observable characteristics of the enterprises or individuals are taken into account the gender gap disappears in the case of enterprises we explain our finding with differences in key characteristics and a potential selection bias in the case of individuals the lower use of formal financial services by women can be explained by gender gaps in other dimensions related to the use of financial services such as their lower level of income and education and by their household and employment status

the commitment problem of secured lending the paper presents a new theory of trade credit in which firms buy inputs on credit from suppliers to restore the benefits of secured bank financing impaired by contract incompleteness in a setting where investment is endogenous and unobservable to financiers we show that a bank secured credit contract is time inconsistent upon being granted credit the entrepreneur has an incentive to alter the original input combination jeopardizing the bank s revenues anticipating the entrepreneur s opportunism the bank offers an unsecured credit contract reducing the surplus from the venture one way for the entrepreneur to commit to the contract terms is to purchase inputs on credit from the supplier the supplier observes the input investment and acts as a guarantor that inputs will be purchased as contracted thus facilitating access to secured bank financing the commitment role of trade credit still holds in a multi period extension that investigates the impact of bank relationship lending on secured debt and trade credit our model provides novel testable predictions on optimal financial contracts in both one period and repeated lending relationships

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

a note on simple criteria for optimal portfolio selection using sharpe s 7 single index model elton gruber and padberg egp 4 5 have established some simple ranking criteria for optimal portfolio selection a further extension has been made by chen and brown 2 and alexander and resnick 1 to incorporate the risk associated with the estimation of input parameters this note explores the economic rationale underlying the portfolio formation process based on the single index model in so doing we seek to enhance the intuitive appeal of the simplified portfolio criteria developed in the above studies to practitioners to this end we restate the egp solution with short sales allowed as

a re examination of the demand for money in small developing economies this paper re examines the money demand function in three small open economies of asia korea pakistan and singapore in addition to using the relatively new procedure of error correction modelling the roles of variables such as a the expected change in the exchange rate b foregin interest rates and c foreign exchange risks on money demand are examined in testing the importance of these variables in the money demand function special attention is paid to testing the assumptions of the classical linear regression model the sample period for each country spans from 1973 1 through 1990 1 the empirical results suggest that the error correction specification performs very well in addition to the traditional variables the results suggest that at least some measure of foreign monetary developments appear to have some significant effect on money demand behaviour in these small developing economies

r d and credit rationing in smes we study the effects of credit rationing on research and development r d investment using survey and accounting data on a large representative sample of manufacturing small and medium sized enterprises smes our econometric model accounts for the endogeneity of our credit rationing indicator and employs an innovative theory based identification strategy we find that credit rationing has a significantly negative effect on both the probability to set up r d activities and on the level of r d spending conditioned on the r d decision but the overall estimated reduction in r d spending is largely to be associated with the first effect jel g21 d82 032 c35 i introduction long run economic growth and welfare resides on the production of new knowledge and its implementation into new or improved products or processes for this reason identification evaluation and correction of the detrimental effects of potential underinvestment in research and development r d activities have a prominent place in the policy agendas of all industrialized countries this is particularly the case in europe where since the start of the recent economic crisis the policy debate has been focused on the role of capital market imperfections as they increase the cost of r d when firms do not have sufficient internal funds to finance it the credit crunch that is the lack of availability or reduction in supply of credit to businesses from traditional financial institutions is said to reduce firms investment in innovative activities and growth prospects however despite its theoretical appeal and in contrast with the proven sensitivity of fixed capital investment to financing constraints evidence on the susceptibility of r d investment to financial frictions and in particular to credit rationing is still mixed and inconclusive three explanations have been put forward for the lack of robust evidence first it is claimed that the variety in the results reflects the contrast between theoretical explanations based on asymmetric information arguments suggesting a sensitivity of r d to financing constraints potentially higher than that of ordinary investment and the characteristics of r d as a long term investment with high adjustment costs suggesting rather the opposite 1 second existing evidence is based almost exclusively on the sensitivity of firm level r d spending to the availability of internal finance typically measured through cash flow which is however known to be problematic in its ability to proxy for financing constraints kaplan and zingales 1997 2000 third recent contributions have stressed the difficulty in identifying the role of financing constraint using standard investment models when firms have access to multiple channels for raising external financial resources and managing buffer stocks of liquidity brown martinsson and petersen 2011 in this study we use firm level data on r d investment and credit constraints to measure the detrimental effect of credit rationing on r d investment dealing with all the above specified issues first we claim that the ambiguity originated by information problems versus the nature of r d as a long term investment might be resolved if we distinguish between the probability of r d investment the r d participation decision and the size of r d investment once the decision to invest has been taken the amount of r d spending decision we therefore study the effect of credit rationing on the decision to do r d and on the amount of r d investment our hypothesis is that credit rationing displays a stronger effect on the first decision compared with the latter while this expectation might seem obvious to our knowledge econometric analyses on the topic have not yet addressed or proven the differential impact of credit rationing on the participation and amount decisions respectively

the empirical minimum variance hedge decision making under unknown true parameters estimation risk is discussed along with bayes and parameter certainty equivalent pce criteria bayes criterion incorporates estimation risk in a manner consistent with expected utility maximization the pce method which is the most commonly used is not consistent with expected utility maximization bayes criterion is employed to solve for the minimum variance hedge ratio empirical application of bayes minimum variance hedge ratio is addressed and illustrated simulations shoe that discrepancies between prior and sample parameters may lead to substantial differences between bayesian and pce minimum variance hedges

inter firm trade finance in times of crisis the paper discusses the main features that distinguish inter firm international trade finance from alternative sources of financing on the one hand inter firm trade finance could help overcome informational problems associated with other lending relationships on the other it may contribute to propagate shocks due to the interconnection among firms along credit chains the paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries it argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions the disadvantages might be exacerbated because of these firms greater exposure to a default chain based on these arguments a menu of choices is identified for what policymakers can do to boost firms access to inter firm trade finance in times of crisis

regional differences in personal savings regional data on consumers expenditure and disposable income are analysed using a conventional error correction specification in an attempt to explain regional disparities in the average propensity to save pooling time series and cross section data the model is quite successful though some degree of remaining ignorance is reflected in a few significant regional dummy variables arising out of the covariance model among the important determinants of saving and consumption are regional unemployment and housing wealth the latter gives limited support to the proposition that burgeoning house prices in the south east may be fuelling a consumption and import boom

collectivism and corruption in commercial loan production how to break the curse recent research suggests that collectivism breeds corruption in bank lending this finding together with the stickiness of culture poses a direct challenge to economic growth in collectivist societies in this paper we address this grim outlook by examining the types of firms that are susceptible to the detrimental effect of collectivism on lending integrity and the formal institutions that can help alleviate such effect we find that the adverse effect of collectivism on bank corruption is more severe in small and medium sized firms privately owned firms and non exporting firms while it is considerably weaker in countries with more effective private monitoring a higher lower fraction of foreign owned government owned banks a more competitive banking sector better information sharing and stronger legal and political institutions our findings are robust to using alternative measures of collectivism and alternative dependent variables these results highlight how firm level characteristics and formal institutions interact with collectivism in affecting firms access to bank credit

performance of currency portfolios chosen by a bayesian technique 1967 1985 abstract this paper is about normative currency portfolio rules it assumes logarithmic investors who maximize the expected utility from lognormal currency returns with and without short sales restrictions a number of implementable portfolio diversification policies are tried out on a large body of data covering nine major currencies and eighteen years of weekly observations in doing so we present ways of dealing with the estimation risk in an international context the necessary mean and covariance inputs are provided by a bayesian prior on the means and by sample means and covariance matrices which are estimated from weekly sample data while some policies do produce abnormal returns over and beyond proper reward for risk none does so in a statistically significant way this means that the evidence does not allow one to conclude that market participants are improperly diversified as a byproduct of this investigation techniques are found which would allow portfolio managers to earn a proper reward for risk by following a purely mechanical procedure such techniques may be valuable in a multi country world where the aggregate portfolio of currencies and securities is unknown and is not supposed to be efficient

the effects of tax increases on negotiated wage increases in the canadian private sector the major objective of this study is to estimate the short run inflationary supply side effects of increases in sales tax rates and income tax rates on canadian negotiated wage rates empirical results are based on an econometric analysis of 867 cola wage contracts and 1662 non cola wage contracts signed during the 1979 to 1992 period in the canadian private sector no statistical evidence is found to show that the substantial increases in the average rate of income tax in canada during this period led to larger negotiated wage increases on the other hand it is found that union workers were able to negotiate wage increases to offset part of the increase in consumer prices attributable to increases in sales tax rates given a 1 increase in the cpi directly attributable to sales tax increases non cola contracts provided a 0 25 wage increase and cola contracts provided a 0 75 wage increase the 6 4 increase in the canadian consumer price index directly attributable to sales tax increases during the

rational expectations and price behavior abstract this paper evaluates the role of rational expectations in price setting behavior in india india has a large informal sector where prices are generally flexible since most economic transactions do not take place under formal and fixed contracts empirical tests suggest that prices respond fully to anticipated changes in demand while unanticipated changes affect output furthermore the price equation was found to be consistent with the money demand and output equation in the past the monetary authority in india have not systematically responded to negative output shocks such as those arising from droughts or famines by introducing unanticipated reductions in money growth this policy has been helpful in minimizing output losses and thereby stabilizing prices

modelling relative price variability and aggregate inflation in the united kingdom the relationship between relative price variability and aggregate inflation in the uk is used to illustrate a number of issues in econometric modelling methodology the rigorous evaluation of models especially testing for congruence and encompassing is emphasized the valuable role of recursive estimation methods in assessing model adequacy is demonstrated attention is drawn to the potential limitations of single equation and univariate analysis of time series data and a recently proposed modelling strategy for analyzing nonstationary variables with cointegrating relationships based on sequential reductions of a congruent var is applied to a small system involving inflation and relative price variability

cointegration and dynamic time series models abstract this paper provides a survey of some of the recent developments in the field of econometric modelling with cointegrated time series in particular we describe the testing and estimation procedures which have become increasingly popular in the recent applied literature in addition to the two stage procedure proposed by engle and granger we consider extensions to the modelling of dynamic models with cointegrated variables such as the estimation of models with multiple cointegration vectors simultaneous systems models with seasonally integrated and cointegrated variables furthermore we illustrate the practical application of the techniques describes in the paper by means of a tutorial data set

the uk economy analysis and prospects world trade and output expanded rapidly in 1984 led by a high rate of growth in the united states however the recovery which started in 1983 has not been evenly spread across countries in the us fiscal policies have been lax and domestic demand has expanded at a breakneck pace japan benefited significantly from rapid growth in the us but europe has done less well partly because fiscal policies remain very tight and domestic demand restrained high real interest rates and the strength of the dollar held down commodity prices and thus stopped the pick up in activity feeding through into inflation rates however unemployment has continued to rise in most countries and in total 30 million people are now out of work in the oecd area

information production dilution costs and optimal security design abstract we investigate the problem of a firm wishing to finance a project by issuing securities under asymmetric information we find that when outside investors can produce noisy information on the firm s quality the degree of information asymmetry resulting in equilibrium is endogenous and depends on the information sensitivity of the security issued thus in contrast to the prediction of the pecking order theory see e g myers and majluf j financial econom 13 1984 187 a security with low sensitivity to private information such as debt does not always dominate one with high information sensitivity such as equity a firm s preference for equity rather than debt depends on the costs of information production the precision of the information production technology and the extent of the information asymmetry we also study the optimal security design problem and find that depending on the cost and precision of the information production technology risky debt or a composite security with a convex payoff emerges as optimal securities

parameter based decision making under estimation risk an application to futures trading this study shows how the standard portfolio model of futures trading should be modified when there is less than perfect information about the relevant parameters estimation risk the standard and the optimal decision rules for futures trading in the presence of estimation risk are compared and discussed an operational model of futures trading for use under estimation risk is advanced in the presence of relevant prior and sample information the model can be used to optimally blend both types of information many of the contributions of economic theory to the study of financial markets involve the use of parameters that are assumed known or estimable by the economic agents examples include the risk premium coefficient 18 and the security market lines that underlie the capital asset pricing model the volatility measures required for option pricing and the minimum variance hedge ratio and expected basis used to construct portfolios of futures contracts and cash positions generally it is left to practitioners to provide estimates of these parameters which are then directly substituted for the actual parameter values of the theoretical model whenever textbooks demonstrate how these parameters can be estimated there is usually a cookbook formula provided that requires some relatively straightforward analysis of the relevant data e g marshall 1989 chapters 6 and 7 cox and rubinstein 1985 chapter 6 the problems with the procedure described above are twofold first the theory has been slow to acknowledge that the practical application of the model almost always involves parameter estimates generally the additional risk of not knowing the true parameters is completely neglected second practitioners or the market participants will often have some type of nonsample information such as insider information or subjective priors that seems relevant for decision making however this potentially important information is ignored altogether when only sample data are used to obtain the parameter estimates