market and nonmarket influences on curriculum choice by college students many labor economists and other researchers have attempted to develop models of the workings of the market for college trained manpower this paper reviews this previous research on curriculum choice and then tests an alternative model with data on choices made by male baccalaureates across a wide spectrum of science and engineering curricula the influence of both methodology and the analytical framework on the identification of relevant variables is explored particular attention is then given to nonmarket influences typically assumed in previous studies not to play a significant role results for pooled and time series specifications provide some support for the hypothesis that curriculum choice follows labor market developments but they also suggest that abilities and interests may be important predictors

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

fiscal implications of aids in south africa abstract the number of people living with hiv is alarmingly large in addition to the incomprehensible human suffering of those directly affected aids also has large negative economic effects in this paper i study the fiscal implications of the hiv aids epidemic in south africa in a standard neo classical growth model i find that an antiretroviral program is to a large extent self financing improvement in dependency ratios and health care cost savings would pay for rand 144 billion of a full epidemiological intervention the indirect effect through the changing demographic structure will be more important than the direct health care cost saving effect i also explore different taxation policies the households would be willing to sacrifice an amount equal to 12 of gdp in the first period to be subject to an optimal ramsey fiscal policy rather than an alternative fixed debt to gdp policy the optimal policy implies an increase in government debt during the peak of the epidemic

measuring the liquidity effect this paper measures the effect on the federal funds rate of an open market operation the paper deals with simultaneous equations bias by developing a proxy for the errors the federal reserve makes in forecasting the extent to which treasury operations will add or drain reserves available to private banks these errors induce fluctuations in bank reserves which have measurable consequences for the federal funds rate the paper estimates that a reduction in nonborrowed reserves of 30 million if sustained for an entire fourteen day reserve maintenance period will cause the federal funds rate to rise by ten basis points copyright 1997 by american economic association

testing the liquidity effect with equilibrium interest rate we examine the existence of liquidity effects by using the equilibrium interest rates estimated from the disequilibrium analysis instead of the observed interest rate the use of equilibrium interest rates allows us to take the growth rate in the money supply as being exogenous and circumvent the identification problem away following the traditional ar model and the method proposed by hamilton 1997 we obtain evidences showing the negative relationship between the equilibrium interest rate and the growth rate in money supply

some macro data on the regionalisation globalisation debate a comment on the rugman verbeke analysis this paper critiques an earlier contribution by rugman and verbeke 2004 and it does so by considering the global distribution of foreign direct investment fdi it also adds several new dimensions to the regionalisation globalisation debate noticeably by i the incorporation of inward multinational enterprise mne activity ii evaluating changes in the geography of fdi between 1990 and 2003 and iii the introduction of the concept of revealed investment comparative advantage rica of countries and regions while broadly supporting the findings of rugman and verbeke our paper shows that much of the explanation for the regional concentration of fdi and mne activity reflects that of the gross domestic product gdp and trade of the countries concerned rather than any distinctive strategy on the part of investing firms

the great intervention and massive money injection the japanese experience 2003 2004 abstract from the beginning of 2003 to the spring of 2004 japan s monetary authorities conducted large scale yen selling dollar buying operations in what taylor 2006 has labeled the great intervention this paper examines the relationship between this great intervention and the quantitative easing policy the bank of japan was pursuing at that time first we find that about 40 percent of the yen funds supplied to the market by yen selling interventions were not offset by the boj s monetary operations and remained in the market for a while this is in contrast with the preceding period when almost 100 percent were immediately offset second comparing interventions and other government payments the extent to which the funds were offset was much smaller in the case of interventions suggesting that the boj differentiated between and responded differently to interventions and other government payments these two findings indicate that it is likely that the boj intentionally did not sterilize yen selling interventions to achieve its policy target of maintaining the current account balances of commercial banks at the boj at a high level finally we find that an unsterilized intervention had a greater impact on the yen dollar rate than a sterilized one suggesting that it matters whether an intervention is sterilized or not even when the economy is in a liquidity trap

the liquidity trap and u s interest rates in the 1930s most current literature assumes that a central bank loses the ability to influence interest rates through variations in reserve supply as soon as overnight rates have been driven to zero i argue that reserve supply can be directly related to longer term rates when overnight rates are zero because banks reserve demand is then defined by the role of cash as an asset free of interest rate risk i present evidence that reserve supply affected longerterm interest rates in the u s from 1934 through 1939 while overnight rates were at the zero floor even when the changes in reserve supply reflected factors unlikely to have affected expectations of future overnight rates

why and how fdi stocks are a biased measure of mne affiliate activity many international business ib studies have used foreign direct investment fdi stocks to measure the aggregate value adding activity of multinational enterprises mne affiliates in host countries we argue that fdi stocks are a biased measure of that activity because the degree to which they overestimate or underestimate affiliate activity varies systematically with host country characteristics first most fdi into countries that serve as tax havens generate no actual productive activity thus fdi stocks in such countries overestimate affiliate activity second fdi stocks do not include locally raised external funds funds widely used in countries with well developed financial markets or volatile exchange rates resulting in an underestimation of affiliate activity in such countries finally the extent to which fdi translates into affiliate activity increases with affiliate labor productivity so in countries where labor is more productive fdi stocks also result in an underestimation of affiliate activity we test these hypotheses by first regressing affiliate value added and affiliate sales on fdi stocks to calculate a country specific mismatch and then by regressing this mismatch on a host country s tax haven status level of financial market development exchange rate volatility and affiliate labor productivity all hypotheses are supported implying that fdi stocks are a biased measure of mne affiliate activity and hence that the results of fdi data based studies of such activity need to be reconsidered

preferences and prices in choice of career the switch to business 1972 1987 abstract in the last two decades the largest single change in career plans of college students is the more than doubling from 1972 to 1987 of the proportion opting for business the evidence suggests that a shift in preferences a marked upsurge among the young in money making as a life goal was responsible for this as well as movements in prices the relative returns from different occupations the rise in interest in money making is not due to greater insecurity among the young about their economic future or worsened job expectations rather it reflects greater concern about money among older adults which influenced the young with a lag by re shaping their life goals as they grew up empirical study of occupational choice would benefit from more attention to such non market influences

how trade and investment agreements affect bilateral foreign direct investment results from a structural gravity model the paper develops a new stand alone structural gravity model for explaining bilateral fdi patterns we employ the model to analyse the impact of preferential trade agreements ptas bilateral investment treaties bits and other policies on bilateral foreign direct investment fdi we use the unctad global database on bilateral fdi stocks and flows to control for the heterogeneous nature of ptas we employ two different indicators of pta depth we find that on average signing a pta increases bilateral fdi stocks by around 30 nevertheless we also find that deeper or comprehensive ptas e g including provisions on investment public procurement and intellectual property rights provisions do not have a significantly different impact than signing regular ptas belonging to the eu single market on the other hand has a strong impact and increases bilateral fdi by around 135 and signing a bit has an effect that is comparable to signing a pta

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 reserves and the interbank market large excess reserve balances are held by banks in the u s despite the ability of large banks to closely target end of day balances close to zero we show that the friction faced by small banks to participate in the fed funds market leads to all banks holding precautionary reserves the precautionary motive for reserves can explain that small banks hold relatively large amounts of excess reserves overnight while at the same time lending large amounts to large banks small banks are large net lenders despite their reluctance to lend as large of a percentage of available balances during the day as large banks we also explain an increase in the volatility of the fed funds rate late in the day

a perspective on regional and global strategies of multinational enterprises multinational enterprises mnes are the key drivers of globalization as they foster increased economic interdependence among national markets the ultimate test to assess whether these mnes are global themselves is their actual penetration level of markets across the globe especially in the broad triad markets of nafta the european union and asia yet data on the activities of the 500 largest mnes reveal that very few are successful globally for 320 of the 380 firms for which geographic sales data are available an average of 80 3 of total sales are in their home region of the triad this means that many of the world s largest firms are not global but regionally based in terms of breadth and depth of market coverage globalization in terms of a balanced geographic distribution of sales across the triad thus reflects a special and rather unusual outcome of doing international business ib the regional concentration of sales has important implications for various strands of mainstream ib research as well as for the broader managerial debate on the design of optimal strategies and governance structures for mnes journal of international business studies 2004 35 3 18 doi 10 1057 palgrave jibs 8400073

foreign direct investment and economic growth an increasingly endogenous relationship summary this paper investigates whether foreign direct investment fdi affects economic growth based on a panel of data for 84 countries over the period 1970 99 both single equation and simultaneous equation system techniques are applied to examine this relationship a significant endogenous relationship between fdi and economic growth is identified from the mid 1980s onwards fdi not only directly promotes economic growth by itself but also indirectly does so via its interaction terms the interaction of fdi with human capital exerts a strong positive effect on economic growth in developing countries while that of fdi with the technology gap has a significant negative impact

pandemics of the poor and banking stability we first develop a theoretical model that shows that the likelihood of a collapse of the banking industry of a developing country increases as the joint prevalence of large pandemics such as aids and malaria increases we also show that the optimal bank reserves increase as the prevalence increases in the empirical part of the paper we consider a large dataset of developing countries and we exhibit a causality effect from combined prevalence to deposit turnover as well as causality effect from an increase of combined prevalence to an increase in bank reserves those empirical facts therefore support our theoretical findings

quantitative easing and bank lending evidence from japan abstract prior to the recent global financial crisis one of the most prominent examples of unconventional monetary stimulus was japan s quantitative easing policy qep most analysts agree that the qep did not succeed in stimulating aggregate demand sufficiently to overcome persistent deflation however it remains unclear whether the qep simply provided little stimulus or whether its positive effects were overwhelmed by the contractionary forces in japan s post bubble economy in the spirit of kashyap and stein 2000 and hosono 2006 this paper uses bank level data from 2000 to 2009 to examine the effectiveness in promoting bank lending of a key element of the qep the bank of japan s injections of liquidity into the interbank market we identify a robust positive and statistically significant effect of bank liquidity positions on lending especially for weaker banks suggesting that the expansion of reserves associated with the qep boosted the flow of credit however the overall size of that boost was probably quite small first the estimated response of lending to liquidity positions in our regressions is small second although the boj s reserve injections boosted bank liquidity significantly much of the effect was offset as banks reduced their lending to each other finally the effect of liquidity on lending appears to have held only during the initial years of the qep when the banking system was at its weakest by 2005 even before the qep was abandoned the relationship between liquidity and lending had evaporated

forming wage expectations through learning evidence from college major choices abstract how do college students choose their majors and what role does the family play in their choices i use data from two major longitudinal surveys to develop and estimate a model in which students learn about earning opportunities associated with different majors through the wages of older siblings and parents the probability of a student choosing a major that corresponds to the occupation of a family member is strongly correlated with the family member s wage at the time the major choice is made this correlation remains strong after controlling for family correlated abilities or preferences and additional empirical evidence suggests that the observed correlation arises through a family based wage information channel

aftermath of banking crises effects on real and monetary variables abstract this paper models the effects of a banking crisis and in particular distinguishes between a short term crisis such as a banking panic and a longer term crisis such as a banking insolvency using an optimizing framework it shows that depositors shift from deposits into cash in both types of crises which results in an increase in the interest rates on deposits and loans and a contraction in output and consumption however when the crisis is resolved in a finite time period there is an intertemporal substitution of consumption and consumption is postponed until the crisis is resolved this in turn results in a further decline in the demand for money availability of credit and output

foreign direct investment in the united states an analysis by country of origin given the large size and rapid growth of foreign direct investment in the united states this subject is a central concern of u s firms and u s government policymakers this study explores the factors that contribute to the explanation of fdi in the united states by country of origin of investment evidence from the past twelve years shows that the main significant positive influences are home country s exports to the united states and home country market size significant negative influences include the home country s imports from the united states the cultural and geographic distances of the home country from the united states and the exchange rate fx

entry by foreign firms in the united states under exchange rate uncertainty this paper tests the effects that real exchange rate fluctuations had on foreign direct investment into the united states during the 1980s using a sample of foreign investments in sixty one four digit sic u s wholesale industries this paper finds exchange rate volatility to be negatively correlated with the number of foreign investments that occur in these industries this negative effect is most pronounced for industries where sunk investments in physical and intangible assets are relatively high although exchange rate volatility deters investment from all countries its effect was most significant for investments by japanese companies copyright 1993 by mit press

the gift of the dying the tragedy of aids and the welfare of future african generations this paper simulates the impact of the aids epidemic on future living standards in south africa i emphasize two competing effects on the one hand the epidemic is likely to have a detrimental impact on the human capital accumulation of orphaned children on the other hand widespread community infection lowers fertility both directly through a reduction in the willingness to engage in unprotected sexual activity and indirectly by increasing the scarcity of labor and the value of a woman s time i find that even with the most pessimistic assumptions concerning reductions in educational attainment the fertility effect dominates the aids epidemic on net enhances the future per capita consumption possibilities of the south african economy

monetary policy and the term structure of interest rates in japan this paper uses japanese data to investigate the relationship between monetary policy and the yield curve we find that the response of the yield curve depends in an important way on the maintained hypothesis about how monetary policy affects the economy under the liquidity effect maintained hypothesis monetary policy only has transient effects on the yield curve under the costly price adjustment maintained hypothesis however monetary policy has large and persistent effects on yields of all maturities

a survey of the international evidence and lessons learned about unconventional monetary policies is a new normal in our future this study examines the effectiveness of unconventional monetary policies ump it considers whether these policies have been successful and where their effects remain uncertain we survey both the domestic financial market and macro economic effects of ump in the economies where these policies were introduced and their international spillover effects the paper considers the impact of a wide range of ump rather than the effects of specific policy instruments we also provide a retrospective on the important case of japan beginning in the late1990s and ask whether the eurozone s experience with ump is substantively different given its structure of policymaking finally we ask if the old normal is not in our future should the new normal in monetary policy routinely include what we now refer to as ump we conclude that ump can prevent economic collapse but are not designed to promote stronger long term economic growth apart from new communication strategies the use of ump under normal circumstances does not appear to be a sound monetary policy strategy failure to learn this lesson might also enable future policy makers to ask or expect too much from their central banks

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

a monetary business cycle model for india a new keynesian monetary business cycle model is constructed to study why monetary transmission in india is weak our models feature banking and financial sector frictions as well as an informal sector the predominant channel of monetary transmission is a credit channel our main finding is that base money shocks have a larger and more persistent effect on output than an interest rate shock as in the data the presence of an informal sector hinders monetary transmission contrary to the consensus view financial repression in the form of a statutory liquidity ratio and administered interest rates does not weaken monetary transmission

trends in foreign direct investment flows a theoretical and empirical analysis this paper seeks to provide a rationale for changing trends in the flow and determinants of foreign direct investment fdi as a result of macro economic and firm strategy considerations we identify several factors that impact on such trends and develop propositions that could explain the phenomenon generically the study then provides preliminary empirical support for the propositions presented and outlines the path for further research needed to investigate more causal links the statistical analysis of investments by us multinational enterprises mnes reveals significant changes in the regional distribution of fdi and a change in some of its traditional determinants results show that us mnes are now making increasing investments into asia to exploit low wage levels and to secure entry into new markets

cross country differences in monetary policy execution and money market rates volatility abstract volatility patterns in overnight interest rates display differences across industrial countries that existing models designed to replicate the features of individual countries markets cannot account for this paper presents an equilibrium model of the overnight interbank market that matches cross country differences in patterns in interest volatility by incorporating differences in how central banks manage liquidity in response to shocks our model is consistent with central banks practice of rationing access to marginal facilities when the objective of stabilizing short term interest rates conflicts with another high frequency objective such as an exchange rate target

survey measures of family decision processes for econometric analysis of schooling decisions in this article we consider the collection of novel subjective data on family processes of schooling decisions in particular we review recent progress on survey measurement of expectations information and locus of decision of american families within the context of secondary schooling and we discuss possible future developments by providing concrete examples from recent exploratory efforts we argue that collection of data on adolescents and parents perceptions of the available school options and the application and admission rules their subjective expectations about short and long term consequences of alternative choices and their assessments of the locus of decision making within families could greatly enhance economic modeling and contribute to effective econometric analysis of schooling decisions jel c83 d19 d79 d83 d84 i21 i26 j24

talk softly but carry a big stick transfer pricing penalties and the market valuation of japanese multinationals in the united states corporate income tax law in oecd countries requires multinational enterprises mnes to set their transfer prices according to the arm s length standard in 1990 the united states us government introduced a transfer pricing penalty for cases where mnes deviated substantially from this standard more than two dozen other governments have followed suit our paper uses event study methodology to assess the impact of the us transfer pricing penalty on the stock market valuation of japanese mnes with us subsidiaries in the 1990s we find that the penalty caused a drop in their cumulative market value of 56 1 billion representing 12 6 of their 1997 market value

research on international business problems and prospects this paper reflects on the general problems and specific opportunities faced by contemporary research on multinational enterprise the general problems include controlling properly for the firm s opportunities when testing the effectiveness of its policy choices avoiding biases that result from studying surviving business units and ignoring those that disappeared and mobilizing longitudinal data and exploiting the many census based data sets now coming available

inside the crisis an empirical analysis of banking systems in distress much of the substantial literature on banking crises focuses on early warning indicators the authors look at what happens to the economy and the banking sector after a banking crisis breaks out much of the theory of banking crises assigns a central role to depositor runs with vulnerability to runs viewed as a basic characteristic of banks as financial intermediaries but banking systems can be financially distressed even when depositors do not withdraw their deposits if other bank creditors rush for the exit or if banks become insolvent are contemporary banking crises characterized by large declines in deposits the authors find that contemporary banking crises are not accompanied by declines in aggregate bank deposits and credit does not fall relative to output but the growth of both deposits and credit does slow down substantially output recovery begins the second year after the crisis and is not led by a resumption of credit growth instead banks including the stronger banks reallocate their asset portfolio away from loans this suggests that protecting deposits during a banking crisis may not be enough to protect bank credit as lack of usable collateral and poor borrower creditworthiness discourage banks from lending however protecting bank credit may not be a priority right after a crisis as the real economy can rebound without it at least while there is substantial under used capacity

the liberalization of retail services in india summary despite the recent controversy about opening up the distribution sector to foreign retailers there is political will that remains in favor of pushing through reforms in india in this paper we quantify the economic impact of the removal of barriers to foreign investment in multi brand retailing on different stakeholders using a newly developed general equilibrium model the model accounts explicitly for both foreign direct investment and the activities of foreign affiliates using heterogeneous production technologies we find that the unilateral reduction of barriers to fdi in distribution services in india benefits the economy as a whole consumers and foreign producers but hurts domestic distributors nevertheless when we consider the associated productivity improvements documented in the literature to downstream and upstream industries we find that domestic producers are expected to benefit from the liberalization of the distribution sector as well

college choice as a collective decision although the choice between colleges can be thought of as being made collectively by a family models of educational choice almost universally portray the decision as made by the student alone using a novel experimental method for identifying collective decision functions i find that students have more influence than parents over the decision but not exclusive control students care more than parents about classroom experience and future earnings ignoring the dual agent nature of the decision can weaken predictions and lead to poorly targeted policy designs jel i21 j24 d13

the impact of institutional hazards on foreign multinational activity a contingency perspective prior studies have shown that institutional hazards in the form of formal governance deficiencies and informal cultural distance are both negatively related to the amount of foreign multinational activity in countries we argue that the strength of these negative relationships varies systematically with the type of foreign activity horizontal or vertical and the type of institutional hazard governance or cultural because institutional hazards striking vertical affiliates generally also have negative consequences for other parts of a multinational enterprise mne while those striking horizontal affiliates do not we hypothesize that institutional hazards are more negatively related to vertical foreign activity than to horizontal foreign activity since cultural hazards can generally be reduced or resolved once they materialize while governance hazards cannot we also hypothesize that the impact of governance hazards on each type of foreign activity is more negative than the impact of cultural hazards on that type of activity a panel data analysis of sales by us foreign affiliates to affiliated and local unaffiliated customers over the period 1996 2004 lends support to these hypotheses our findings thus show that the impact of institutional hazards on foreign mne activity is more complex than previously assumed

unconventional monetary policy and the credit channel in the euro area abstract we disentangle credit supply and demand and we then embed this information into a bayesian threshold var model to investigate the importance of the demand channel and the broad credit channel in the transmission of unconventional monetary policy on the macroeconomy during financial stress periods we find that during such periods ump shocks boost aggregate demand for loans increase agents net worth and revitalize credit to firms and households in addition counterfactual analysis suggests that non standard policy measures aiming at stimulating loan demand and relaxing banks balance sheet constraints would provide a significant support to economic activity prices and the financial sector

excess liquidity bank pricing rules and monetary policy abstract this paper studies the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections the demand for excess reserves is determined by precautionary factors and the opportunity cost of holding cash it is argued that excess liquidity may impart greater stickiness to the deposit rate in response to a monetary contraction and induce an easing of collateral requirements on borrowers which in turn may translate into a lower risk premium and lower lending rates as a result asymmetric bank pricing behavior under excess liquidity may hamper the ability of a contractionary monetary policy to lower inflation

identifying the global transmission of the 2007 2009 financial crisis in a gvar model abstract the paper analyses and compares the role that the tightening in liquidity conditions and the collapse in risk appetite played for the global transmission of the financial crisis dealing with identification and the large dimensionality of the empirical exercise with a global var approach the findings highlight the diversity of the transmission process while liquidity shocks have had a more severe impact on advanced economies it was mainly the decline in risk appetite that affected emerging market economies the tightening of financial conditions was a key transmission channel for advanced economies whereas for emerging markets it was mainly the real side of the economy that suffered moreover there are some striking differences also within types of economies with europe being more adversely affected by the fall in risk appetite than other advanced economies

stability vs flexibility the effect of regulatory institutions on opportunity type how entrepreneurial opportunities are formed and exploited depends upon the institutional environment in which they are embedded the varying amounts of risk and uncertainty across and within heterogeneous institutional environments have important implications for the types of opportunity developed while the international business and entrepreneurship literatures consider the effect of environmental risk and uncertainty on firms risk and uncertainty are often treated as interchangeable or synonymous and rarely are both considered to be present together to address this we develop a new theoretical model based on institutional economics describing how institutional arrangements promoting stability thus supporting an entrepreneur s ability to assess risk will lead to more imitative opportunities while institutions promoting flexibility thus supporting an entrepreneur s ability to respond to uncertainty by iterating will foster more innovative opportunities we test this framework using cross national data across 40 countries from the gem survey finding that institutional arrangements that promote stability do lead to more imitation while institutions that promote flexibility foster more innovation by treating risk and uncertainty as distinct constructs our study makes theoretical contributions to research on institutional environments and opportunity types with implications for future research on subsidiary initiatives the evolution of mnes and born global firms

understanding the accumulation of bank and thrift reserves during the u s financial crisis abstract the level of aggregate excess reserves held by u s depository institutions increased significantly at the peak of the 2007 2009 financial crisis although the amount of aggregate reserves is determined almost entirely by the policy initiatives of the central bank that act on the asset side of its balance sheet the motivations of individual banks in accumulating reserves differ and respond to the impact of changes in the economic environment on individual institutions we undertake a systematic analysis of this massive accumulation of excess reserves using bank level data for more than 7000 commercial banks and almost 1000 savings institutions during the u s financial crisis we propose a testable stochastic model of reserves determination when interest is paid on reserves which we estimate using bank level data and censored regression methods we find evidence primarily of a precautionary motive for reserves accumulation with some notable heterogeneity in the response of reserves accumulation to external and internal factors of the largest banks compared with smaller banks we combine propensity score matching and a difference in differences approach to determine whether the beneficiaries of the capital purchase program of the troubled asset relief program accumulated less cash including reserves than non beneficiaries contrary to anecdotal evidence we find that banks that participated in the program accumulated less cash including reserves than nonparticipants in the initial quarters after the capital injection

economic growth liquidity and bank runs abstract we construct an endogenous growth model in which bank runs occur with positive probability in equilibrium in this setting a bank run has a permanent effect on the levels of the capital stock and of output in addition the possibility of a run changes the portfolio choices of depositors and of banks and thereby affects the long run growth rate these facts imply that both the occurrence of a run and the mere possibility of runs in a given period have a large impact on all future periods a bank run in our model is triggered by sunspots and we consider two different equilibrium selection rules in the first a run occurs with a fixed exogenous probability while in the second the probability of a run is influenced by banks portfolio choices we show that when the choices of an individual bank affect the probability of a run on that bank the economy both grows faster and experiences fewer runs

double majors one for me one for the parents i introduction at least a quarter of college students have more than one undergraduate major 2003 national survey of college graduates and the share of college students choosing more than one major is increasing at a very fast rate lewin 2002 it has been postulated that parents inadvertently drive their children to have more than one major that is students major in one field to satisfy their own interests and in another field that meets parents approval 1 other explanations for double majors include students majoring in one field associated with their professional specialty and another that reflects a very different interest like an engineering major who is also majoring in french or students hedging their chances in the labor market by preparing to work in more than field however evidence for all these explanations remains anecdotal gomstyn 2003 lewin 2002 and there is little systematic evidence on how students choose the composition of their double majors this article provides to the best of my knowledge the first direct evidence on how students conditional on having a double major choose the composition of majors 2 students choose a college major or pair of majors in order to influence the occurrence of choice specific outcomes that enter their utility function these outcomes include for example being able to successfully complete a field of study gaining parents approval finding a job upon graduation enjoying coursework or earnings at the job as these outcomes are uncertain at the time the student makes his choice he has a belief distribution of the probability for the occurrence of these outcomes conditional on each major in his choice set therefore a student uses both his preferences and subjective beliefs in choosing his college major s the researcher usually only observes the major s that the student chooses and has to make nonverifiable assumptions on expectations beliefs to infer the parameters of the utility function preferences the basic difficulty is that observed choices may be consistent with several combinations of expectations and preferences and the list of underlying assumptions on expectations may not be valid see manski 1993 for a discussion of this inference problem in the context of how students infer returns to schooling a solution to this identification problem is to use additional data on expectations manski 2004 and that is precisely what i do i survey a group of 69 northwestern university students pursuing double majors and elicit their subjective beliefs about major specific outcomes in my relatively homogenous sample there is substantial heterogeneity in beliefs for outcomes within a major as well as across majors indicative that there exists tremendous heterogeneity in beliefs in the population of college students analysis of beliefs for the same outcome across majors suggests that students have sensible beliefs about the occurrence of outcomes conditional on major for example the belief distribution of reconciling work and family at jobs available in literature and fine arts first order stochastically dominates the corresponding distribution in natural sciences in which most pre med students major comparison of beliefs of being able to graduate with a grade point average gpa of at least 3 5 and expected income at the age of 30 with objective measures reveals that students are aware of differences across majors i find that students believe that their parents are more likely to approve majors associated with high social status and returns in the labor market for example the mean belief of gaining parents approval for majoring in engineering is 0 87 on a scale of 0 1 compared with 0 59 for literature and fine arts the subjective data elicited from the students is employed directly in a structural model of double major choice 3 although i assume that students are forward looking and care about future outcomes when making their choices i do not have data needed to estimate a dynamic model

individual perceptions of the criminal justice system this paper empirically examines belief updating of the perceived probability of arrest and its criminal deterrence effects using two longitudinal data sources while beliefs about the probability of arrest are positively correlated with local official arrest rates they are unresponsive to information acquired from random individuals and local neighborhood conditions importantly perceptions respond to changes in an individual s criminal and arrest history young males who engage in crime without getting arrested revise their perceived probability of arrest downward while those who are arrested revise their probability upward estimates suggest that beliefs about the probability of arrest significantly deter crime jel k42

the cultural relativity of organizational practices and theories this paper summarizes the author s recently published findings about differences in people s work related values among 50 countries in view of these differences ethnocen tric management theories those based on the value system of one particular country have become untenable this concept is illustrated for the fields of leadership organization and motivation a key issue for organization science is the influence of national cultures on introduction management twenty or even 10 years ago the existence of a relationship be management and tween management and national cultures was far from obvious to many and it national cultures may not be obvious to everyone even now in the 1950s and 60s the dominant be lief at least in europe and the u s was that management was something univer sal there were principles of sound management which existed regardless of na tional environments if national or local practice deviated from these principles it was time to change local practice in the future the universality of sound manage ment practices would lead to societies becoming more and more alike this ap plied even to the poor countries of the third world which would become rich as well and would be managed just like the rich countries also the differences be tween management in the first and second world capitalist and socialist would disappear in fact under the surface they were thought to be a lot smaller than was officially recognized this way of thinking which dominated the 1950s and 60s is known as the convergence hypothesis during the 1970s the belief in the unavoidable convergence of management prac tices waned it was too obviously in conflict with the reality we saw around us at the same time supranational organizations like the european common market which were founded very much on the convergence belief had to recognize the stubbornness of national differences even within existing nations regional dif ferences became more rather than less accentuated the welsh the flemish the basques the bangladeshi the quebecois defended their own identity and this was difficult to reconcile with a management philosophy of convergence it slowly became clear that national and even regional cultures do matter for management the national and regional differences are not disappearing they are here to stay in fact these differences may become one of the most crucial problems for man agement in particular for the management of multinational multicultural orga nizations whether public or private

on the implications of market power in banking evidence from developing countries abstract this paper investigates how different degrees of market power affect bank efficiency and stability in the context of developing economies it sheds light on the competition stability nexus by documenting and analyzing the complex interactions between a tripod of variables that are central for regulators the degree of market power bank cost and profit efficiency and overall firm stability the results show that an increase in the degree of market power leads to greater bank stability and enhanced profit efficiency despite significant cost efficiency losses the findings lend empirical justification to the traditional view that increased competition may undermine bank stability and may bear significant implications for stressed banking systems in developing economies

do multinationals operate flexibly theory and evidence do multinational enterprises operate flexibly i e do they shift production in response to currency changes three theoretical perspectives are developed flexibility optimism premised on information and sunk cost advantages takes a macro efficiency perspective and predicts sizable responses flexibility pessimism premised on inertia and internal opportunism takes an organizational perspective and predicts sticky responses flexibility realism premised on the view that to be flexible in the current period multinational enterprises need to have planned and invested accordingly in previous periods predicts positive but relatively modest responses empirical analysis spanning the period 1977 1993 finds that multinational enterprises systematically exploit currency shifts but even in the face of large exchange rate changes their operational responses are relatively modest the results appear most consistent with flexibility realism and this hypothesis is selected over the alternatives considered

the mnc as an agent of change for host country institutions fdi and corruption most empirical research examines how the institutional environment of corruption shapes the behavior of multinational corporations mncs in this study we would like to highlight the other side of the picture how the presence of mncs may shape the institutional environment of corruption over time we propose three avenues through which the mncs may have an impact on its host institutions regulatory pressure effect demonstration effect and professionalization effect based on extensive data on foreign direct investment and corruption for a large sample of countries over the last 30 years the empirical results are generally consistent with our hypothesis such findings provide a glimmer of hope for the future of the host country where corruption is prevalent

the role of financial intermediaries in monetary policy transmission the recent financial crisis has stimulated theoretical and empirical research on the propagation mechanisms underlying business cycles in particular on the role of financial frictions many issues concerning the interactions between banking and monetary policy forced policy makers to redefine economic policies and motivated macroeconomists to focus on the implications of financial intermediation constraints for asset price fluctuations the behavior of non financial firms households governments and in turn for real macroeconomic performance this paper surveys research on the role of financial intermediaries and financial frictions in the transmission of monetary policy and discusses how to design both the new banking regulatory and supervisory structures and monetary policy in order to stabilize the economy it also serves as an introduction to this special issue

financial liberalization structural change and real exchange rate appreciations abstract the last twenty years have witnessed periods of sustained appreciations of the real exchange rate in emerging economies the case of mexico between 1988 and 2002 is representative of several episodes in latin america and central and eastern europe in which countries opening to capital flows experienced large appreciations accompanied by a significant reallocation of workers towards the non tradable sector we account for these facts using a two sector dynamic general equilibrium model of a small open economy with frictions to labor reallocation and two driving forces i a decline in the cost of borrowing in foreign markets and ii differential productivity growth across sectors these two mechanisms account together for 60 of the decline in the domestic relative price of tradables in mexico and for a large fraction of the observed reallocation of labor across sectors the decline in the interest rate faced by mexico in international markets is quantitatively the most important channel our results are robust to the inclusion of terms of trade into the model

cross country growth regressions problems of heterogeneity stability and interpretation the paper discusses the issues of heterogeneity and stability of cross country growth regressions that have been used to study the problem of convergence almost all studies use pooled regressions the paper considers the issue of pooling under heterogeneity using a hierarchical bayesian method and estimates growth regressions for different panels studied in earlier papers and different regimes the conclusion is that the convergence rates are higher than those obtained from pooled regressions under the assumption of homogeneity and that there is instability over time in the relationships

why commercial banks held excess reserves the japanese experience of the late 1990s we investigated empirically why japanese banks held excess reserves in the late 1990s specifically we pin down two factors explaining the demand for excess reserves a low short term interest rate or call rate and the fragile financial health of banks the virtually zero call rate increased the demand for excess reserves substantially and a high bad loans ratio largely contributed to the increase in excess reserve holdings we found that the holdings of excess reserves would fall by two thirds if the call rate were to be raised to its level prior to the adoption of the zero interest rate policy and the bad loans ratio were to fall by 50

the federal reserve s operating procedure nonborrowed reserves borrowed reserves and the liquidity effect abstract recently a number of researchers christiano and eichenbaum 1992 christiano et al 1996a b 1997 evans and marshall 1998 strongin 1995 pagan and robertson 1995 brunner 1994 claim to have found evidence of a statistically significant liquidity effect in a recursive structural var using nonborrowed reserves nbr it is claimed that innovations to nbr reflect the exogenous policy actions of the fed this paper argues that the opposite is true specifically i show that the fed has an incentive to offset bank initiated discount window borrowing when it implements the federal open market committee s policy directive and that it has done so since the late 1950s this practice has created a negative contemporaneous covariance between nbr and the funds rate that has been incorrectly attributed to the liquidity effect by showing that these models capture the endogenous response of the fed to bank borrowing on nbr rather than the effect of exogenous policy actions on the funds rate this paper also resolves the puzzle of the vanishing liquidity effect noted by pagan and robertson 1995 and christiano 1995

larger crises cost more impact of banking sector instability on output growth we propose a method for calculating the macroeconomic costs of banking crises that controls for the downward impact of recessions on banking activity in contrast to earlier research we estimate the cost of crises based on the size of banking crises the extent of a crisis is measured using banking sector aggregates the results based on our method and data from over 100 banking crises suggest that the size of a crisis matters for economic growth lower credit deposit and money growth during crises cause gdp growth to decline

governance infrastructure and us foreign direct investment this paper examines the statistical importance of governance infrastructure as a determinant of us foreign direct investment fdi in broad terms governance infrastructure represents attributes of legislation regulation and legal systems that condition freedom of transacting security of property rights and transparency of government and legal processes our econometric analysis uses a two stage estimation procedure in the first stage the probability that a country is an fdi recipient is estimated the results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any us fdi countries that receive no us fdi are typically countries that do not promote free and transparent markets that have ineffective governments and that often have legal systems that are not rooted in english common law in the second stage the analysis is restricted to those countries that did receive fdi flows the estimated equations focus on the determinants of the amount of fdi received given that a country is a recipient of us fdi governance infrastructure including the nature of the legal system is an important determinant of the amount received

policy and non policy determinants of u s equity foreign direct investment this study examined the effects of policy and non policy variables on the location of new u s direct investment abroad as distinct from reinvested earnings of existing affiliates using 1977 and 1982 benchmark data the data revealed statistically significant effects for investment incentives positive performance requirements negative and host country effective tax rates negative with interesting differences between the two time periods and between developed versus developing countries significance was also found for non policy variables such as political stability cultural distance gdp per capita and infrastructure

the demand for and return to education when education outcomes are uncertain this article treats education as a sequential choice that is made under uncertainty a simple model is used to explore the effects of ability high school preparation preferences for schooling the borrowing rate and ex post payoffs to college on the probability of various post secondary college outcomes and the ex ante return to starting college the model motivates an empirical method of accounting for uncertainty about educational outcomes and for nonlinearity in the relationship between years of education and earnings when estimating the expected return to the first year of college

identifying a liquidity effect in the japanese interbank market this article examines whether there was a liquidity effect in the japanese interbank market for reserves during the period from january 4 1996 to february 12 1999 according to the standard martingale model the only determinant of the overnight rate during the reserve maintenance period is the rate that is expected to prevail on the settlement day the last day of the period but this model ignores the fact that reserves are used for interbank payments if overdraft costs are introduced into banks reserve management problem the overnight rate will also depend on what this paper calls the reserve surplus which captures the liquidity effect of reserves we identify the liquidity effect by exploiting two institutional features first the overnight rates observed in the morning are forward rates for a contract to be settled later in the day second changes in reserves that are due to factors other than open market operations are rendered temporary through defensive operations by the open market desk we show that the liquidity effect can be identified from the regression of the spot forward differential on these temporary liquidity shocks our estimates indicate that there was a liquidity effect at least before the yamaichi debacle of november 1997

on the use of expectations data in estimating structural dynamic choice models despite the importance of expectations in models of decision behavior under uncertainty few empirical economists have made use of subjective expectations data in estimating such models assuming that expectations about future behavior accurately portray optimal future behavior conditional on current information it is shown that such data can provide similar information about the decision process as can data on current or retrospective behavior the value of self reported choice expectations is illustrated by using information on respondents expected future occupation in the estimation of a structural dynamic model of teacher career decisions under uncertainty

reserve requirements and the inflation tax the inflation tax on currency and required bank reserves is modeled in a general equilibrium setting by specifying a transactions technology in which currency and demand deposits allow agents to economize on time spent transacting in the goods market revenue maximizing conditions for the nominal interest rate and reserve ratio are analyzed for any given revenue requirement less than the revenue maximizing level minimization of the welfare costs of inflationary finance results in the choice of a combination of the interest rate and reserve ratio that lies on a set of tangency points formed by iso revenue and iso welfare curves copyright 1989 by ohio state university press

bank reserves and financial stability a stochastic financial model is developed which derives the reserve levels on financial assets which minimize price level fluctuations it is shown that these levels of reserves are a function of the structure of unanticipated shocks to asset demands and are in general quite different from the levels which minimize the fluctuations of either the nominal or real value of these assets application of the model to currency and demand deposits in the u s a suggest that the price stabilizing reserve ratio on demand deposits is approximately one half of the 12 currently mandated by the monetary control act of 1980 required reserves on deposits at financial institutions have two major economic aspects first reserves may be regarded as a tax on bank liabilities if the rate of return on reserves measured either explicitly or implicitly is less than the market rate of interest secondly reserves may be considered an important monetary instrument for controlling the value of monetary aggregates and ultimately such variables as prices interest rates and income 1 unfortunately there appears to be little agreement among economists either as to the optimal level of reserves or to the criteria for setting such reserves in order to achieve macroeconomic stability friedman 3 had formerly advocated 100 percent reserves on both time and demand deposits but recently 4 has claimed that uniformity of reserves on transactions balances is far more important than the level at which they are imposed 2 at the other end of the spectrum carson 1 has advocated abolishing required reserves on all deposits while poole and lieberman 11 have urged elimination of reserves on time deposits only if m1 is accepted as the money stock definition this paper develops a macroeconomic model where it is demonstrated that the levels of reserves which minimize the fluctuations of such ultimate economic variables as prices are in general quite different from those which stabilize various monetary aggregates these reserve levels which minimize price level fluctuations are determined primarily from the covariance structure of unanticipated disturbances influencing financial assets empirical estimation of asset disturbances for the united states suggests that these stabilizing levels of reserves on demand deposit are lower than those scheduled to prevail under the monetary control act of 1980

multinational enterprises and wage costs vertical fdi revisited abstract this study explores how wage costs for high skilled and less skilled labor in host countries affect the level of affiliate activities conducted by foreign mnes we find support for vertical fdi in the sense that more fdi is conducted in countries where less skilled labor is relatively cheap in addition we find that skilled wage cost premia also affect fdi activities previously associated with horizontal fdi i e local affiliate sales consequently the potential effects of relative wage costs on mne activities are large rough calculations suggest that more than 20 percent of us affiliate sales in 1998 can be attributed to skilled wage cost premia

bank liquidity interbank markets and monetary policy a major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs this paper studies the efficiency of the interbank lending market in allocating funds we consider two different types of liquidity shocks leading to di erent implications for optimal policy by the central bank we show that when confronted with a distribu tional liquidity shock crisis that causes a large disparity in the liquidity held among banks the central bank should lower the interbank rate this view implies that the traditional tenet prescribing the separation between prudential regulation and mon etary policy should be abandoned in addition we show that during an aggregate liquidity crisis central banks should manage the aggregate volume of liquidity two di erent instruments interest rates and liquidity injection are therefore required to cope with the two di erent types of liquidity shocks finally we show that failure to cut interest rates during a crisis erodes financial stability by increasing the risk of bank runs