online and official price indexes measuring argentina s inflation abstract prices collected from online retailers can be used to construct daily price indexes that complement official statistics this paper studies their ability to match official inflation estimates in five latin american countries with a focus on argentina where official statistics have been heavily criticized in recent years the data were collected between october 2007 and march 2011 from the largest supermarket in each country in brazil chile colombia and venezuela online price indexes approximate both the level and main dynamics of official inflation by contrast argentina s online inflation rate is nearly three times higher than the official estimate

investment and financing activity following calls of convertible bonds abstract the staged financing hypothesis of mayers mayers d 1998 why firms issue convertible bonds the matching of financial and real investment options journal of financial economics 47 83 102 predicts that investment and financing activity will increase following in the money convertible bond calls the prediction for out of the money convertible calls is different no increase is expected we study the rate of both corporate investment and external financing around forced conversions using benchmarks that are analogous to those recommended by barber and lyon barber b lyon j 1996 detecting abnormal operating performance the empirical power and specification of test statistics journal of financial economics 41 359 400 we also examine the cross section of changes in investment and financing activity conversion forcing firms exhibit an increase in both capital expenditures and debt financing around the year of the convertible bond call however the same result holds for the sample firms that conducted out of the money convertible calls further there is no relation between changes in investment activity and changes in debt issuance at the firm level the evidence is inconsistent with the notion that forced conversions serve as a catalyst for staged financing and investment

price setting in online markets does it click using a unique dataset of daily u s and u k price listings and the associated number of clicks for precisely defined goods from a major shopping platform we shed new light on how prices are set in online markets which have a number of special properties such as low search costs low costs of monitoring competitors prices and low costs of nominal price adjustment we document that although online prices are more flexible than offline prices they nevertheless exhibit relatively long spells of fixed prices large size and low synchronization of price changes considerable crosssectional dispersion and low sensitivity to predictable or unanticipated changes in demand conditions qualitatively these patterns are similar to those observed for offline prices a finding that suggests a need for more research on the sources of price rigidities and dispersion

oil supply shocks and international policy coordination abstract this paper examines the value of international cooperation in an oil supply disruption the perspective is that of oil importing countries since the oil market is integrated internationally the actions of one have spillover effects on the others we focus on buffer stock policies with each player maximizing the present value of national income less the cost of operating the stockpile program we contrast cooperative and cournot nash solutions to the dynamic game paying special attention to the asymmetries between small and large countries the principal results are reviewed to assess the viability of current international agreements

macroeconomic policy interaction under flexible exchange rates a two country model this paper analyses macroeconomic policy interaction in a two country flexible exchange rate model each country has a short run non vertical phillips curve and there is positive transmission of e

central banks inflation forecasts under asymmetric loss evidence from four latin american countries we study the rationality of the inflation forecasts of the central banks of argentina brazil chile and mexico we reject rationality under a symmetric chile is an exception but not under an asymmetric loss function an overprediction implies a larger loss than an underprediction we also analyze alternative rationality tests growth forecasts and private sector forecasts

is inflation persistence different in reality this study examines the inflation persistence using both online and official price indexes in argentina brazil china japan germany south africa the uk and the us using fractional integration technique the main results suggest that the degree of persistence estimated by the long memory parameter is smaller when using online price indexes believed to be a more realistic measure of inflation mainly in the cases of argentina brazil china and the uk monetary policy implications are discussed

price setting under uncertainty about inflation abstract we analyze the manipulation of inflation statistics that occurred in argentina starting in 2007 to test the relevance of informational frictions in price setting we estimate that the manipulation of statistics was associated with a higher degree of price dispersion this effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices reporting inaccurate measures of the cpi entails significant welfare losses especially in economies with volatile monetary policy

a note on the possibility of an international equilibrium with low levels of activity abstract this note studies the interaction through international trade of decision making in two countries where the decision makers have preferences regarding the level of economic activity and the balance of trade non cooperative and cooperative equilibria in the sense of game theory are studied it is demonstrated that non cooperative equilibria can easily be sub optimal for a complete characterization it is necessary to take into account the capacity constraints in both countries this leads to the possibility of many different types of equilibrium situations as well as to the possibility that no non cooperative equilibrium in pure strategies will exist this fact may point to an inherent difficulty in decision making concerning demand management in an international system

convertible bond design and capital investment the role of call provisions if firms issue convertible securities to facilitate sequential investment the securities should be engineered to give sufficient flexibility to accommodate timing of follow on investment we examine call provisions in convertible bonds and argue that firms with investment options expected to expire sooner later will offer weaker stronger call protection we find that issues with weak or no call protection are offered by firms that invest greater amounts soon after issuance than those issuing convertibles with strong protection moreover capital expenditure levels during the 5 year period following issuance are inversely related to the length of call protection periods most convertible bonds and notes have call provisions and most provisions have important qualifications or protection broadly speaking convertibles may have absolute protection not callable hard call protection noncallable for a specified period provisional or soft call protection callable if certain conditions on stock price are met or no protection callable anytime in this study we investigate the relations between the strength and length of call protection and firms subsequent investment behavior our hypothesis is a natural implication of the sequential financing motive for convertible debt financing for example in mayers 1998 firms finance their planned multistage investment programs with convertibles besides mayers sequential financing motive other explanations for convertible financing include theories based on post issuance risk shifting jensen and meckling 1976 green 1984 heterogeneous risk assessment brennan and schwartz 1988 and asymmetric information stein 1992 in a recent study lewis rogalski and seward 2001 offer an explanation based on equity market rationing stein s 1992 model has at least an implicit role for callability but we believe mayers explanation has direct implications for the nature of call provisions that we examine here he argues that convertible financing is well suited to

skill premium labor supply and changes in the structure of wages in latin america earnings inequality declined rapidly in argentina brazil and chile during the 2000s a reduction in the experience premium is a fundamental driver of declines in upper tail 90 50 inequality while a decline in the education premium is the primary determinant of the evolution of lower tail 50 10 inequality relative labor supply is important for explaining changes in the skill premiums relative demand trends favored high skilled workers during the 1990s shifting in favor of low skilled workers during the 2000s changes in the minimum wage and more importantly commodity led terms of trade improvements are key factors behind these relative skill demand trends

new evidence on the valuation effects of convertible bond calls this study examines the wealth effects of convertible bond call announcements on stock holders straight bondholders and called and non called convertible debtholders we docu ment that forced conversions are associated with a significant loss in firm value the results suggest that convertible call announcements can trigger both negative signal and wealth transfer effects we show that at least part ofthe negative effect on stock prices results from wealth transfer to straight bondholders our analysis also lends empirical validity to the common contention that called convertible bondholders suffer wealth expropriation due to the elimination ofthe premium the wealth effect on non called convertible debtholders is insignificant cross sectional analysis reveals that the negative signal effect is important in explaining bond stock and firm excess returns finally we present evidence that refutes the notion that bonds are called to relieve the firm from restrictive debt covenants

is a convertible bond call really bad news we test and reject the hypothesis that managers call in the money convertibles when they view a decline in the value of the firm as likely inconsistent with this view we find that insiders generally buy equity before conversion forcing calls also analysts tend to raise their earnings forecasts following a call thus our evidence supports the alternative hypothesis that the price decline immediately following conversion forcing calls is a purely transitory decline caused by the anticipated increase in the supply of equity indeed our evidence confirms that the initial price decline is reversed in the weeks following the announcement

debt investment and product market competition a note on the limited liability effect abstract this paper extends a model by brander and lewis brander j lewis t 1986 oligopoly and financial structure the limited liability effect american economic review 76 956 970 on the relationship between capital structure investment and product market competition based on the limited liability effect of debt empirical papers see for example campello campello m 2003 capital structure and product markets interactions evidence from business cycles journal of financial economics 68 353 378 and chevalier chevalier j 1995a capital structure and product market competition empirical evidence from the supermarket industry american economic review 85 415 435 chevalier j 1995b do lbo supermarkets charge more an empirical analysis of the effect of lbos on supermarket pricing journal of finance 50 1095 1112 generally reject the limited liability theories in favor of the predatory theories because leverage leads to less investment and weaker product market competition this paper shows that when firms also have an investment choice leverage can lead to weaker product market competition in a limited liability model in addition non zero leverage is still optimal within this model based solely on the limited liability effect in predatory models debt is motivated by issues outside of product market concerns for example to solve an agency problem finally this model is also consistent with the investment decisions documented empirically

international cooperation and exchange rate stabilization abstract we show that exchange rate stabilization can be viewed as a public good consequently when countries do not coordinate their economic policies the exchange rate fluctuates more than in the case of international cooperation we consider a quite standard two country model where the policymakers of each country have at their disposal one policy instrument the money stock and want to reduce the fluctuations of both the domestic output and the domestic price level then we compare the non cooperative nash equilibrium to the set of pareto optima our analysis provides a formal argument for some exchange rate stabilization

prices inflation and smoking onset the case of argentina this article examines the effect of tobacco prices on the decision to start smoking in argentina argentina is an interesting case to explore given its high smoking rates its recent experience with periods of very high and hyperinflation and the mixed evidence of the effect of prices on smoking onset particularly in low and middle income countries we used data from four cycles of two large national surveys conducted between 2005 and 2011 and discrete time hazard models we found that tobacco prices had a statistically significant and fairly large impact on the hazard of smoking onset and these findings were robust to alternative specifications we also found that prices had little effect on the hazards of smoking onset during periods of hyper and very high inflation which provide some support for the notion that prices lose their informational role in such periods governments need to be cognizant that their most important policy tool to reduce tobacco use taxes that increase real tobacco prices is likely no longer effective during these times jel c41 h20 i12 i18

the welfare case for the european monetary system abstract this paper argues that the european monetary system can be interpreted as a cooperative game yielding benefits to its members a simple model is set up in which it is shown that the ems solution is superior to nash if the menber countries differ this superiority to nash may require an occasional realignment it will also then require that there be no sterilization of foreign exchange interventions since otherwise the system would collpase the ems is interpreted in this paper as an arrangement manner and not o bretton woods type of arrangement when there is a leader follower relationship inside

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

commodity booms and busts in emerging economies abstract emerging economies particularly those dependent on commodity exports are prone to highly disruptive economic cycles this paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles the economy consists of two sectors one of which produces commodities with prices subject to exogenous international fluctuations these fluctuations affect both the competitiveness of the economy and its borrowing terms as higher commodity prices are associated with lower spreads between the country s borrowing rate and world interest rates both effects jointly result in strongly positive effects of commodity price increases on gdp consumption and investment and a negative effect on the total trade balance furthermore they generate excess volatility of consumption over output and a large volatility of investment besides explicitly incorporating a double role of commodity prices the model structure nests the various candidate sources of shocks proposed in previous work on emerging economy business cycles estimating the model on argentine data we find that the contribution of commodity price shocks to fluctuations in post 1950 output growth is in the order of 38 in addition commodity prices account for around 42 and 61 of the variation in consumption and investment growth respectively we find transitory productivity shocks to be an important driver of output fluctuations exceeding the contribution of shocks to the trend which though smaller is not negligible

scraped data and sticky prices i use daily prices collected from online retailers in five countries to study the impact of measurement bias on three common price stickiness statistics relative to previous results i find that o

investor protection and convertible debt design abstract an important issue that firms consider when designing convertible debt is to specify security features such as conversion ratio maturity date and call period following lewis et al lewis m rogalski r seward j 2003 industry conditions growth opportunities and market reactions to convertible debt financing decisions journal of banking and finance 27 153 181 we employ a single measure that simultaneously considers all of these features the expected probability measured at issue date that the convertible will be converted to equity at maturity we find that firms in countries with stronger shareholder rights issue convertible debt with a higher expected probability of converting to equity the positive association between the expected probability of conversion and shareholder rights is less pronounced in firms for which ownership structures create potentially high managerial agency costs specifically in countries with stronger shareholder rights firms with higher separation of control rights and cash flow rights tend to issue convertibles with lower probability of conversion furthermore we find that large non management block ownership strengthens the likelihood of issuing convertible debt with higher probability of conversion in countries with stronger shareholder rights in contrast firms in countries with stronger creditor rights issue convertibles with lower probability of conversion we also document that the negative association between creditor rights and probability of conversion is more pronounced in firms with higher separation of control rights and cash flow rights

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection