is minsky s financial instability hypothesis valid in this article i reassess the validity of minsky s financial instability hypothesis and the main criticism about its internal coherence starting from this fundamental objection i study minsky s contribution within the scope of a highly simplified macro model it is shown that the financial instability hypothesis increasing debt ratios during economic expansion remains valid in numerous cases it appears amongst other things that a sufficient fall in the retention rate reinforces minsky s conclusions emphasising the destabilising role of shareholders in the distribution of net profits

credit rationing and credit view empirical evidence from an ethical bank in italy attempts have been made in the empirical literature to identify credit rationing and its determinants using balance sheet data or evidence from corporate surveys however observational equivalence identification problems and interview biases are serious problems in these studies we analyze directly the determinants of credit rationing in credit files by examining the differencebetweentheamountsdemandedbyandsuppliedtoeachborrower as shown by official bank records our findings provide microeconomic evidence that supports the credit view hypothesis by showing that the european central bank refinancing rate is significantly and positively related to partial but not total credit rationing this finding is consistent with the hypothesis that this variable affects the total volume of bank loans

investment cash flow sensitivity and financial constraint a cluster analysis approach this article sheds light on the mixed empirical evidence concerning financial constraint and investment sensitivity to cash flow the literature suggests that measuring financial constraint is far from straightforward and we therefore propose a cluster analysis procedure to identify unambiguous groups of constrained firms we found the investment results to be highly sensitive to cash flow for financial constraint firms moreover in line with previous research our results showed that the traditional criteria used to identify financially constrained firms led to ambiguous interpretations overall our results propose that the cluster analysis can be used to encompass the various single criterion approaches thereby providing a finer measurement of the financial constraint construct and deeper insight into the relationship between investment sensitivity to cash flow and financial constraint

business groups and internal capital markets the recovery of the mexican economy in the aftermath of the 1995 crisis in the second half of the nineties the mexican economy experienced a severe financial crisis however as the initial panic subsided mexico started to show promising signals of macroeconomic recovery not only did the economy rebound within a year but also grew steadily afterward averaging an annual rate slightly above 5 during 1996 2000 in this article it is suggested that the business group structure helped in the recovery of the economy the collapse of the banking system and the interruption of financing flows through the domestic financial markets was overcome by a change in the firms capital structure firms when possible started to depend more on trade credit and the internal capital market of business groups created a financial cushion that kept the economy working in order to offer a rationale for the mexican experience a theoretical model is presented where it is shown that moral hazard problems are reduced within a business group as long as affiliated firms in the nontradable sector surrender control rights during periods of crisis copyright 2007 oxford university press

financial factors and investment in belgium france germany and the united kingdom a comparison using company panel data we construct company panel data sets for manufacturing firms in belgium france germany and the united kingdom covering the period 1978 1989 these data sets are used to estimate empirical investment equations and to investigate the role played by financial factors in each country a robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the united kingdom than in the three continental european countries this is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market oriented u k financial system

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

how important is precautionary saving we estimate how much of the wealth of a sample of psid respondents is held because some households face more income uncertainty than others we begin by solving a theoretical model of saving which we use to develop appropriate measures of uncertainty we then regress measures of wealth on our measures of uncertainty and find evidence that households engage in precautionary saving finally we simulate the wealth distribution that our empirical results imply would prevail if all households had the same uncertainty as the lowest uncertainty group we find that between 39 and 46 percent of wealth in our sample is attributable to the extra uncertainty that some consumers face compared to the lowest uncertainty group

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

an analytical approximate solution to the problem of precautionary savings abstract this paper considers the problem of precautionary savings for an expected utility specification with finite horizon the exact solution is known for only a few cases numerical methods have limited applications because of bellman s curse of dimensionality this paper derives a simple analytical approximate solution for a general specification of the felicity function which is linear in the variance of the innovations on human wealth numerically the approximation is very accurate for realistic values of the parameters of the problem

the second moments matter the impact of macroeconomic uncertainty on the allocation of loanable funds abstract this paper investigates how variations in macroeconomic uncertainty distort commercial banks allocation of loanable funds by analyzing the dispersion of banks total loan to asset ratios over a quarter century period

precautionary behavior migrant networks and household consumption decisions an empirical analysis using household panel data from rural china abstract we develop a test of precautionary behavior in the consumption decisions of rural agricultural households among surveyed households facing a median level of consumption risk 10 of savings can be attributed to a precautionary motive and this increases to 15 for households with consumption per capita below the poverty line we next use distant lags of local rainfall shocks uncorrelated with current consumption growth to identify the size of migrant networks outside the village and then present evidence that both poor and nonpoor households engage in less precautionary saving as the size of the village migrant network increases

a closed form solution for a model of precautionary saving this paper analyses life cycle consumption plans and distinguishes between temporal risk aversion and intertemporal substitution the results assume that felicity functions are quadratic and that income follows a linear model with normally distributed errors stochastic dynamic programming then yields closed loop linear decision rules certainty equivalence no longer holds but instead households play a min max strategy against nature one finds a rationale for precautionary saving and a larger sensitivity of changes in consumption to income innovations

uncertainty and the neutrality of government financing policy abstract some ideas from the theory of finance are applied to consider whether debt financed tax cuts affect desired consumption it is shown that government financing policy is a matter of indifference to infinitely lived households if a perfect substitute for public debt exists the analysis allows for uncertainty about future taxes and for missing markets in some kinds of assets income redistribution risk and the public insurance aspects of an income tax scheme qualify this neutrality result but in general the net effect is ambiguous the real resource costs of financial transacting as well as government superiority in the intermediation process may be one rationale for activist debt management policy a better understanding of functioning capital markets is essential to evaluate these arguments

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

investment and the exchange rate an analysis with firm level panel data abstract this paper investigates the relationship between exchange rate fluctuations and the investment decisions of a sample of italian manufacturing firms the results support the view that a depreciation of the exchange rate has a positive effect on investment through the revenue channel and a negative effect through the cost channel the magnitude of these effects varies over time with changes in the firm s external orientation as measured by the share of foreign sales over total sales and the reliance on imported inputs consistent with the predictions of our theoretical framework the effect of exchange rate fluctuations on investment is stronger for firms with low monopoly power facing a high degree of import penetration in the domestic market and of a small size we also provide evidence that the degree of substitutability between domestically produced and imported inputs influences the effect through the expenditure side

household production and the excess sensitivity of consumption to current income empirical research on the permanent income hypothesis pih has found that consumption growth is excessively sensitive to predictable changes in income this finding is interpreted as strong evidence against the pih we propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors although the pih is true this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

precaution and liquidity in the demand for housing we exploit cross sectional mortgage data to investigate the importance of liquidity constraints and a precautionary motive in the demand for housing households that are not liquidity constrained consume housing services essentially as the life cycle hypothesis suggests but with a significant precautionary component households that are liquidity constrained in terms of not meeting standard loan to value or payments to income constraints are similar to unconstrained households in most respects including the precautionary motive but they respond somewhat less to fluctuations in their lifetime income suggesting some influence of bank induced liquidity constraints we additionally find however that banks enforce liquidity constraints only weakly jel d91 d12 r21 i introduction the benchmark theory in the economics of consumption is the life cycle or permanent income hypothesis lcpi based on the work of modigliani and brumberg 1954 and friedman 1957 its empirical validity is sometimes questionable especially when compared against alternatives that incorporate liquidity constraints or the precautionary motive for saving see for instance deaton 1992 for a survey rejection of the lcpi may however be just a manifestation of the poor quality of consumption data at the micro level these data are typically subject to the reporting biases and omissions inherent in consumer surveys there are further difficulties in measuring a desired stream of consumption services nondurable consumption goods are a small fraction of total consumption and in the case of food essentials hardly a consumer choice variable durable consumption goods have the feature that they are lumpy and that the consumption services at any point in time are hard to measure we propose to test the lcpi at the micro level with a quite different type of data the data are obtained from the residential mortgage finance database collected by the national association of realtors they are based on actual home purchases and the associated mortgage transactions reported by realtors and thus avoid some of the reporting biases of the consumer surveys more important they allow us to accurately identify households that in principle have instantaneous access to additional liquidity by lowering the down payment for the house purchase or increasing the size of the loan further the purchase of a house provides an accurate measure of a relatively large fraction of consumption services obtained for a medium to long horizon and measured at the time of the consumption decision although our data also have some serious shortcomings they allow a look at the lcpi from an unconventional vantage point perhaps the most influential study employing the standard consumer survey in testing the lcpi at the micro level is that of hall and mishkin 1982 it examines food expenditure from the panel study of income dynamics one of their key results is that consumption tracks income more closely than would be expected under the lcpi they demonstrate that this result could be explained by assuming a group of liquidity constrained consumers consuming their income at each point in time of 20 of the total sample some of the drawbacks of this study are the use of food expenditures to represent consumption the underreporting of income and absence of proper wealth data inherent in the consumer survey and the associated inability to individually separate liquidity constrained consumers from the rest of the sample several previous studies have attempted to improve on this way of testing the lcpi by examining other data sets bernanke 1984 used data on durable consumption goods automobiles to overcome the drawbacks of using food consumption in the hall and mishkin study his results support the lcpi but are still suspect because of possible reporting biases and the lack of good wealth and savings observations

corporate investment with financial constraints sensitivity of investment to funds from voluntary asset sales we examine the importance of financial constraints for firm investment by looking at the relationship between investment expenditures and proceeds from voluntary asset sales asset sales provide a cleaner indicator of liquidity than cash flows since it appears not to be positively correlated with investment opportunities the cross sectional differences in firm investment are examined using an endogenous switching regression model with unknown sample separation we find that cash obtained from asset sales is a significant determinant of corporate investment and that the sensitivity of investment to proceeds from asset sales is significantly stronger for firms that are likely to be financially constrained

life cycle consumption under social interactions abstract in this paper we examine how social interactions affect consumption decisions at various levels of aggregation in a life cycle economy made up of peer groups for this purpose we consider two analytically solvable life cycle models one under certainty equivalent behavior and one under prudence and explicitly allow for three different forms of social interactions in peer groups namely conformism altruism and jealousy we show that whether social interactions have any effects on individuals optimal consumption decisions critically depends on intertemporal rather than static considerations this is true regardless of whether individuals preferences are time separable or exhibit habit formation and whether information within peer groups is homogeneous or disparate it implies that analyzing the effects of social interactions in static rather than intertemporal settings is likely to be misleading we also show that social interactions when coupled with either habit formation or prudence can significantly strengthen the effects of habit formation or prudence in the direction of resolving two well known puzzles in the literature on the permanent income hypothesis namely excess smoothness and excess sensitivity

family labor supply and asset returns abstract we study how shocks to wages and asset prices affect consumption and labor supply decisions of two earner households in a life cycle framework with housing and flexible preferences we provide a micro foundation of the wealth effects on consumption and labor supply we find evidence for non separability between non durable consumption housing services and hours of work the results also highlight the importance of family labor supply in understanding how households respond to shocks to financial and housing markets

the permanent income hypothesis estimation and testing by instrumental variables the permanent income hypothesis with rational expectation is restated estimated and tested by an instrumental variables technique on the postwar u s aggregate time series data the hypothesis is accepted on a consumption series which includes service flows from consumer durables if the consumption series is the one in the national income and product accounts the hypothesis is decisively rejected an explanation is suggested to reconcile the conflicting test results

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

a synthetic stock flow consistent macroeconomic model of financialisation this article is centred around the notions of shareholder value orientation and financialisation shareholder value orientation is reflected by a high dividend payout ratio applied by firms and the reluctance of firms to finance physical investment via new equity issues financialisation is the more general development towards an increased importance of the financial sector of the economy relative to the non financial sector in this article a synthetic stock flow consistent model is developed that attempts to encompass some important recent works on the effects of financialisation this includes contributions from the fields of mainstream information economics and post keynesian economics we conduct simulations reflecting increased shareholder value orientation and show that the results are consistent with important stylised facts copyright the author 2008 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

firms leverage ratio and the financial instability hypothesis an empirical investigation for the us economy 1970 2014 there are many minskian interpretations of how financial fragility builds up reflecting the unsolved tensions regarding the transition from micro to macro results in minsky s financial instability hypothesis fih using firm level and macroeconomic data to comply with the variety of fih s interpretations we empirically assess the relations between leverage and financial fragility in the us economy 1970 2014 to evaluate firms financial fragility we deploy minsky s scale from the financially sounder to the more fragile firms hedge speculative and ponzi the main findings are the following i the evolution of the aggregate leverage ratio does not account for the systemic financial fragility measured by the frequency of speculative and ponzi firms and ii within the biggest firms the leverage has increased along with the incidence of hedge financing and for the smallest firms group the opposite has happened we conclude that a positive relation between leverage and financial fragility cannot be deemed to be a general outcome

the dynamic relation between financial positions and investment evidence from company account data a key feature of recent financial business cycle theories is the existence of a two way dynamic relation between financial factors and investment over time firms financial positions are affected by and in turn affect investment decisions this paper investigates the dynamic interaction between financial conditions and investment by estimating and testing vector autoregressions on company account panel data for us manufacturing firms while considering explicitly sectional and time heterogeneity the results show that indicators of liquidity and solvency contain significant predictive information for investment at the firm level we also find evidence of both cross sectional and time heterogeneity the role played by financial factors is significantly more important for highly leveraged than for low debt firms capital market frictions are shown to have asymmetric effects over the business cycle displaying a larger impact in contractions than in expansions overall the evidence supports the hypothesis that capital market imperfections have an important role in explaining aggregate cyclical dynamics

global capital flows and financing constraints firms often cite financing constraints as one of their primary obstacles to investment global capital flows by bringing in scarce capital may ease the financing constraints of host country firms but if incoming foreign investors borrow heavily from domestic banks foreign direct investment may exacerbate financing constraints by crowding host country firms out of domestic capital markets combining a unique cross country firm level panel with time series data on restrictions on international transactions and capital flows harrison love and mcmillan find that different measures of global flows are associated with a reduction in firm level financing constraints first the authors show that one type of capital inflow foreign direct investment is associated with a reduction in financing constraints second they test whether restrictions on international transactions affects the financing constraints of firms the results suggest that only one type of restriction those on capital account transactions negatively affects firms financing constraints the authors also show that multinational firms are not financially constrained and do not appear to be sensitive to the level of foreign direct investment this implies that foreign direct investment eases financing constraints for non multinational firms finally the authors show that 1 foreign direct investment only eases financing constraints in the non g7 countries and 2 other kinds of flows such as portfolio investment have no impact on financing constraints

financial credibility ownership and financing constraints in private firms as shown in the international business literature the ability of controlling owners to extract private benefits is greater in countries with weaker legal institutions in these countries providing credible financial information could play an especially important role in reducing information asymmetry between private firms and external providers of finance for our sample of firms across 68 countries we find that firms with greater financial reporting credibility i e annual financial statements reviewed by an external auditor experience significantly lower perceived problems in gaining access to external finance further the impact of financial credibility in reducing financing constraints in the presence of a controlling owner is more pronounced in countries with weaker creditor rights given the predominance of private firms around the world their economic significance and the fact that an increasing number of private firms now operate in multinational environments with different institutional features we contribute to the literature on the role of financial information firm characteristics and country level institutions for an important and interesting group of firms

endogenous financial constraints and innovation we investigate which indicators of a firm s innovation activities are associated with financial constraints and analyze the nature and direction of causal links between innovation and financial constraints by estimating simultaneous bivariate probit models on data from the uk innovation surveys we show that among innovation inputs research and development r d activity increases the likelihood that firms face financial constraints among innovation outputs only new to market products generate financial constraints reverse effects on innovation appear limited to external r d

short and long run credit constraints in french agriculture a directional distance function framework using expenditure constrained profit functions this empirical application investigates the eventual presence of credit constraints using a panel of french farmers the credit constrained profit maximization model proposed by fare grosskopf and lee is extended in three ways first we rephrase the model in terms of directional distance functions to allow duality with the profit function second we model credit constraints in the short run and investment constraints in the long run using short and long run profit functions third we lag the expenditure constraint one year to account for the separation between planning and production we find empirical evidence of credit and investment constraints financially unconstrained farmers are larger perform better and seem to benefit from a virtuous circle where access to financial markets allows better productive choices

investment irreversibility and financing constraints evidence from a panel of transition economies abstract focusing on a panel of unlisted firms from transition economies we observe that only firms facing low irreversibility exhibit high and significant investment cash flow sensitivities our findings provide a new explanation for why some financially constrained firms may exhibit low sensitivities

effects of financial liberalisation and political connection on listed chinese firms financing constraints this paper examines the impact of recent financial liberalization in china on the financing constraints of publicly listed chinese firms with and without politically connected ceo chairman two continuous indices are used to measure the evolution and intensity of financial reforms a financial liberalization index and a capital control index the results indicate that while firms without politically connected ceo chairman face significant financing constraints and politically connected firms do not financial liberalization has reduced the constraints for the former similarly lower capital control in china s equity market lessens credit constraints for non connected firms no statistically significant impact is detected with regards to firms that have ceo chairman with powerful political background

a measure of the sensitivity of saving to interest rate uncertainty with non expected preferences abstract we propose a local measure of the precautionary premium when the consumer faces interest rate uncertainty and has selden type preferences it appears to be useful in order to generalize and to rationalize different results obtained in comparative statics

explicit lagrange multiplier for firms facing a debt ceiling constraint abstract this paper provides the explicit expression of investment facing a binding debt ceiling and the explicit expression of the lagrange multipliers related to the binding debt ceiling constraint this result allows us to check for misspecification of the parameterizations of these lagrange multipliers used in euler investment equations tests during the 1990 s

no money no honey financial versus knowledge and demand constraints on innovation the paper adds to the literature on the barriers to innovation in two ways first we assess comparatively what mostly constrains firms ability to translate investment in innovation activity into new products and processes whether it is mainly finance as most of the literature would suggest or whether it is mostly knowledge and market related aspects second we suggest a method to correct for the sample selection bias that often affects empirical contributions to this scholarship by filtering out firms that are not interested in innovation from those that struggle to engage in it we obtain a relevant sample of potential innovators which allows us to analyse the comparative effect of financial and non financial barriers on innovation success we find that demand side factors particularly concentrated market structure and lack of demand are as important as financial constraints in determining firms innovation failures this evidence redirects attention from financial to non financial barriers by considering traditional demand market structure and regulation factors involved in reduced firm innovation performance the empirical analysis is based on an unbalanced panel of firm level data from four waves of the uk community innovation survey cis between 2002 and 2010 merged with data from the uk business structure database

why is consumption so smooth for thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income this paper considers the evidence for the contrary position that permanent income is in fact less smooth than measured income so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory the paper argues that in postwar u s quarterly data consumption is smooth because it responds with a lag to changes in income

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

precautionary savings and the permanent income hypothesis this paper derives the explicit solution of a dynamic stochastic optimal consumption problem for infinitely lived agents whose preferences exhibit in the presence of non diversifiable labour income uncertainty a constant elasticity of intertemporal substitution and constant absolute risk aversion the constancy of the elasticity of intertemporal substitution which implies that marginal utility at zero consumption is infinite guarantees that the non negativity constraint on consumption is never binding along the optimal path the assumption of constant absolute risk aversion allows an explicit computation of human wealth and provides a simple representation of the precautionary savings motive

robustly strategic consumption portfolio rules with informational frictions this paper provides a tractable continuous time constant absolute risk aversion gaussian framework to explore how the interactions of fundamental uncertainty model uncertainty due to a preference for robustness and state uncertainty due to information processing constraints rational inattention affect strategic consumption portfolio rules and precautionary savings in the presence of uninsurable labor income specifically after solving the model explicitly i compute and compare the elasticities of strategic asset allocation and precautionary savings to risk aversion robustness and inattention furthermore for plausibly estimated and calibrated model parameters i quantitatively analyze how the interactions of model uncertainty and state uncertainty affect the optimal share invested in the risky asset and show that they can provide a potential explanation for the observed stockholding behavior of households with different education and income levels this paper was accepted by neng wang finance

investment and uncertainty in the international oil and gas industry abstract the standard theory of irreversible investments and real options suggests a negative relation between investment and uncertainty richer models with compound option structures open for a positive relationship this paper presents a micro econometric study of corporate investment and uncertainty in a period of market turbulence and restructuring in the international oil and gas industry based on data for 115 companies over the period 1992 2005 we estimate four different specifications of the q model of investment with robust results for the uncertainty variables the estimated models suggest that macroeconomic uncertainty creates a bottleneck for oil and gas investment and production whereas industry specific uncertainty has a stimulating effect

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

does r d spending boost tangible investment an analysis on european firms this article investigates the relationship between firm s r d intensity expressed as r d expenditure over sales and investment intensity in tangible assets it is commonly acknowledged that r d r

foreign lenders and the real sector we develop a theory of the interaction between the entry of lenders and the real sector the high liquidation skills of incumbent lenders render them too tough in terminating high risk return projects being foreign to the market newcomers have lower ability to liquidate than incumbents this makes them softer in liquidating high risk return projects but renders their funding more costly we show that the entry of lenders and the share of high risk return projects can reinforce each other through firms liquidation values this interaction dampens the output impact of liquidity shocks hence financial liberalization can enhance stability

investment decisions in troubled times a bayesian approach applied to brazilian firms abstract this study analyses the investment decision of 497 brazilian firms during a period of unstable macroeconomic conditions the role of financial constraints is considered in a bayesian econometric model we estimate three different models and the results indicate the presence of financial restrictions especially for capital intensive firms the recursive predictive density criterion indicates that the most preferred model is the one in which firm specific effects are correlated with cash flow financial restrictions are more important for capital intensive firms probably due to their lower profitability indexes higher fixed costs and higher degree of property diversification

minsky s induced investment and business cycles this paper reviews the recently published phd thesis of hyman p minsky summarising its main contributions to methodology and microeconomics these are aspects of economics with which minsky is not usually associated but which lie at the foundation of his later work they include critical remarks on cambridge economics the paper then draws out some antecedents of minsky s ideas in the work of henry simons and highlights the marshallian monetary analysis that he adopted it is argued that this analysis is incompatible with the kaleckian theory of profits that minsky was later to adopt

zeros and lumps in investment empirical evidence on irreversibilities and nonconvexities the objective of this paper is to investigate if and how capital adjustment departs from the smooth pattern implied by standard model based on convex adjustment costs using norwegian micro data we start by documenting the intermittent and lumpy nature of investment rates we then present two pieces of econometric evidence on these issues first we estimate a discrete hazard model to determine the probability of having an episode of high investment conditional on the length of the interval from the last high investment episode second we estimate a switching regression model that allows for the response of the investment rate to fundamentals to differ across regimes in both cases we investigate the aggregate implications of our results

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

success of start up firms the role of financial constraints although there are some studies that empirically test the impact of financial constraints on the success of start ups the persistence of this impact is not well understood using survey data for a cohort of swiss start ups that were observed during a period of 10 years we find that financial constraints are not only a problem of the first years although the negative impact of financial constraints on firm survival disappears with increasing age of the firms profit is persistently negatively affected by financial constraints copyright 2014 the author 2013 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

determinants of corporate capital structure evidence from hungarian firms this paper investigates the capital structure of hungarian firms using a cross section and a panel data approach the data set is composed of balance sheet data and information on market structure for 1100 firms from 1992 to 1996 evidence is found of imperfections that constrain firms in the achievement of their optimal capital structure but also some positive indications there are no distortions typical of the planned system and no signs of the presence of soft budget constraints

some puzzles about money finance and the monetary circuit this paper discusses three puzzles about money and finance having to do with the velocity of circulation the marxian concept of the monetary circuit and the deceptively simple question of whether there is enough money in existence at any point in time to purchase the full value of output these issues take on particular significance at times of economic and financial crisis but have often been neglected by the mainstream of the economics profession leaving the field to keynes s brave heretics

temporal risk aversion intertemporal substitution and keynesian propensities to consume abstract a two period life cycle model of precautionary saving is constructed in which the link between the coefficient of relative risk aversion and the inverse of the elasticity of intertemporal substitution is broken there is excess sensitivity of consumption to unanticipated changes in future income if there is temporal risk aversion consumers with ricardian rationality display keynesian propensities to consume out of a tax cut however if there is temporal love for risk rational consumers save less and consume more in response to a postponement of taxation

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

deleveraging crises and deep recessions a behavioural approach macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings standard micro founded macro economic models account for these patterns through exogenous and persistent shocks in this paper we develop a fully decentralized and micro founded macro economic agent based model augmented with an opinion model which produces endogenous waves of pessimism and optimism that feed back into firms leverage and households precautionary saving behaviour a major emergent property of our model is precisely the complex successions of stable and unstable macro economic regimes the model is further able to account for a wide spectrum of macro and micro empirical regularities within this framework we analyse a series of macro economic phenomena of key relevance in the current macro economic debate especially the occurrence of deleveraging crises and fisherian debt deflation recessions our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation ary path are critical determinants of the severity of the recession and the chances of recovery

an investigation of ricardian equivalence in a common trends model abstract to empirically discriminate between ricardian and non ricardian behaviour we have to use a method that distinguishes between expected and unexpected as well as permanent and transitory changes in taxes and government consumption one method that provides these distinctions between different types of changes is the common trends framework used in this paper which is a var model with cointegrating constraints in the empirical study of us data there is some support for the ricardian hypothesis but there are also some deviations from its predictions however the differences do not lend support to a keynesian view of budget deficits but rather to the view of expansionary fiscal contractions this can be motivated theoretically by uncertainty about future taxes in combination with prudent households

precautionary saving and the timing of taxes this paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely lived households having uncertain and heterogeneous incomes the special structure of the model allows exact aggregation across households despite incomplete markets the effects of government debt are shown to be substantial roughly comparable to those resulting from finite horizons and crucially dependent on the length of time until the debt is repaid also anticipated changes in taxes are shown to cause anticipated changes in consumption finally an index of fiscal stance is derived

the relation between firm growth and q with multiple capital goods theory and evidence from panel data on japanese firms we derive from a model of investment with multiple capital goods a one to one relation between the growth rate of the capital aggregate and the stock market based q we estimate the growth q relation using a panel of japanese manufacturing firms taking into account the endogeneity of q identification is achieved by combining the theoretical structure of the q model and an assumed serial correlation structure of the technology shock which is the error term in the growth q equation for early years of our sample cash flow has significant explanatory power over and above q the significance of cash flow disappears for more recent years for the heavy industry when japanese capital markets was liberalized the estimated q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment cost

cyclical uncertainty precautionary saving and economic growth this paper studies the interaction between cyclical uncertainty precautionary saving and economic growth in a stochastic endogenous growth model the analysis provides insight into the potential connection between technological uncertainty of the sort popularized in real business cycle models and the determinants of economic growth in a stochastic version of a popular model of endogenously determined economic growth the magnitude of the link between cyclical uncertainty and growth is quantified and found to be small in terms of its effect on the growth rate but possibly large in terms of its effect on levels of macroeconomic variables moreover the welfare costs of reduced cyclical uncertainty can be substantial owing to the lower historical rate of capital accumulation induced by a decrease in precautionary saving the chief implications of the model are found to be roughly consistent with the postwar experience of several countries although the predictions of the model with regard to growth rates are too small to explain much of the variation in growth rates across time or across countries

a simplified stock flow consistent dynamic model of the systemic financial fragility in the new capitalism in the last few years many financial analysts and heterodox economists but even some dissenters among orthodox economists have referred to the contribution of hyman p minsky as fundamental to understanding the current crisis however it is well known that the traditional formulation of minsky s financial instability hypothesis shows serious internal logical problems furthermore minsky s analysis of capitalism must be updated on the basis of the deep changes which during the last three decades have concerned the world economy in order to overcome these theoretical and empirical troubles this paper first introduces the reader to the mechanics of the financial instability theory according to the formulation of the traditional minskian literature section 2 second it shows why minsky s theory cannot be regarded as a general theory of the business cycle section 3 third the paper attempts to supply a simplified but consistent re formulation of minsky s theory by inter breeding it with inputs coming from the new cambridge theories and the current formal minskian literature the aim of this is to analyze the impact of both capital asset inflation and consumer credit on the financial soundness of the non financial business sector sections 4 7 some concluding remarks are provided in the last part of the paper section 8

precautionary saving and fuzzy information abstract we consider a two period life cycle model where uncertainty about future labour income is modelled by a fuzzy set applying a defuzzification strategy that explicitly takes the individual s behaviour towards risk into account we show that pessimistic individuals engage in precautionary savings even if marginal utility is not convex e g in case of a quadratic utility function

the deaton paradox in a long memory context with structural breaks this article contributes to the permanent income hypothesis pih and excess consumption smoothness debate in the context of fractional integration we show that the excess consumption smoothness result is a consequence of the quarterly data frequency commonly employed in the empirical work in fact the i 1 hypothesis is rejected for the income process with monthly data in favour of a fractional integration order lower than 1 moreover if a structural break is taken into account we observe a substantial reduction in the degree of consumption smoothness especially after the break found in 1975

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

credit constraints and determinants of the cost of capital in vietnamese manufacturing this paper examines the extent to which borrowing constraints restrict firm access to credit and identifies individual firm and loan characteristics which determine the cost of capital in vietnamese manufacturing using direct information from a vietnamese enterprise survey the paper shows that between 14 and 25 of the enterprises are credit constrained and these enterprises would increase their debt holdings by between 40 and 115 if borrowing constraints were relaxed moreover it emerges that informal credit markets play an important role for fast growing firms enterprises do not appear to have the necessary time to go through the many administrative difficulties in the formal credit system if they want to seize the day finally collateralized loans face larger interest rates explained by the significant influence of policy lending in vietnamese credit markets

investment cash flow sensitivities credit rationing and financing constraints in small and medium sized firms the controversy on whether investment cash flow sensitivity is a good indicator of financing constraints is still unsolved we apply a comprehensive approach by cross validating our analysis with both balance sheet and qualitative data on self declared credit rationing and financing constraints on a sample of mainly small and medium sized firms our qualitative information shows that self declared credit rationing is weakly related to both traditional a priori factors such as firm size age and location and lenders rational decisions taken on the basis of their credit risk models we use the qualitative information on firms which were denied additional credit to provide evidence relevant to the investment cash flow sensitivity debate the evidence shows that self declared credit rationing significantly discriminates between firms which possess or not such sensitivity while a priori criteria do not the same result does not apply when we consider the wider group of financially constrained firms which do not seem to have a higher investment cash flow sensitivity supporting the more recent empirical evidence in this direction