financialisation income distribution and aggregate demand in the usa this paper investigates the effects of financialisation and functional income distribution on aggregate demand in the usa by estimating the effects of the increase in rentier income dividends and interest payments and housing and financial wealth on consumption and investment the redistribution of income in favour of profits suppresses consumption whereas the increase in the rentier income and wealth has positive effects a higher rentier income decreases investment without the wealth effects the overall effect of the changes in distribution on aggregate demand would have been negative thus a pro capital income distribution leads to a slightly negative effect on growth i e the usa economy is moderately wage led

u s metropolitan house price dynamics abstract using data for 70 u s metropolitan areas this study explores spatial heterogeneity in house price dynamics we use recent advances in panel econometrics that allow for spatial heterogeneity cross sectional dependence and non stationary but cointegrated data we test for spatial differences and analyze the relationship between the price elasticity of housing supply and the income elasticity of prices as well as bubble size and duration the long term elasticity of house prices with respect to aggregate personal income averages 0 81 but varies considerably across metropolitan areas the long term income elasticity generally is greater in the more supply inelastic metropolitan areas and we show that bubble size and duration are inversely related to supply elasticity also short term momentum and reversion dynamics show substantial spatial heterogeneity

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

the effect of land use regulation on housing and land prices abstract this paper investigates the effects of land use regulation restrictiveness on house and vacant land prices in contrast to prior studies the index of restrictiveness is treated as an endogenous variable and estimated effects are allowed to vary by market setting using data on more than 100 florida cities greater regulation restrictiveness is found to increase house price and decrease land price evidence is also provided showing that more restrictiveness increases the size of newly constructed homes

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

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

habit formation in consumer preferences evidence from panel data this paper tests for the presence of habit formation using household data a simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time when the condition is estimated with food consumption data from the panel study on income dynamics the results yield no evidence of habit formation at the annual frequency this finding is robust to a number of changes in the specification it also holds for several proxies for nondurables and services consumption created by combining psid variables with weights estimated from consumer expenditure survey data

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

housing bubbles and busts the role of supply elasticity existing studies of the relationship between housing price dynamics and housing supply which have relied upon questionable proxies for supply elasticity have yielded highly mixed results in this paper we provide new evidence on this relationship based on actual estimates of the price elasticity of supply for local markets in florida intermarket differences in housing supply elasticity are found to explain much of the variation in housing price movements and new construction during the most recent boom bust cycle additionally we find that variance in the elasticity of housing supply can be attributed to differences in land availability and the local fiscal and regulatory environment jel r14

bubbles in us regional house prices evidence from house price income ratios at the state level we investigate the presence of bubbles in the us house price income ratio at the state level by applying the recent time series based econometric test to data from january 1975 to december 2014 we

on the correspondence between multivariate risk aversion and risk aversion with state dependent preferences abstract this paper establishes the correspondence between multivariate risk aversion and risk aversion with state dependent preferences it shows that the prerequisite for comparability of risk aversion in the multivariate case namely identical ordinal preferences on the commodity space corresponds to identical properly defined reference sets in the case of state dependent preferences for comparable decision makers the condition that the utility function of one is a concave transformation of that of the other on the commodity space corresponds to the condition that the expected utility of one is a concave transformation of that of the other on the reference set

finance dominated capitalism and re distribution of income a kaleckian perspective in this article a major channel through which financialisation or finance dominated capitalism affects macroeconomic performance is examined the distribution channel empirical data for the following dimensions of re distribution in the period of finance dominated capitalism since the early 1980s is provided for 15 advanced capitalist economies functional distribution personal household distribution and the share and the composition of top incomes based on the kaleckian approach to the determination of income shares the effects of financialisation on functional income distribution are studied in more detail some stylised facts of financialisation are integrated into the kaleckian approach and by means of reviewing empirical and econometric literature it is found that financialisation and neoliberalism have contributed to the falling labour income share since the early 1980s through three main kaleckian channels 1 a shift in the sectoral composition of the economy 2 an increase in management salaries and rising profit claims of the rentiers and thus in overheads and 3 weakened trade union bargaining power

financial liberalization private investment and portfolio choice financialization of real sectors in emerging markets abstract using firm level panel data we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets argentina mexico and turkey employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s we suggest that rather than investing in irreversible long term fixed investments firms may choose to invest in reversible short term financial investments depending on respective rates of returns and the overall uncertainty in the economy the empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments

financialisation and capital accumulation in the non financial corporate sector a theoretical and empirical investigation on the us economy 1973 2003 recent research has explored the growing financialization process in the u s and other advanced economies the term is a catch all phrase used to denote important changes in the structure of non financial corporations balance sheets including the growth of income from financial subsidiaries and investment as well as growth in the transfer of earnings to financial markets in the forms of interest payments dividend payments and stock buybacks this paper seeks to empirically explore the relationship between financialization in the u s economy and real investment at the firm level using data from a sample of non financial corporations from 1973 to 2003 i find a negative relationship between real investment and financialization first increased financial investment and increased financial profit opportunities may have crowded out real investment by changing the incentives of firm managers and directing funds away from real investment second increased payments to the financial markets may have impeded real investment by decreasing available internal funds shortening the planning horizons of the firm management and increasing uncertainty these two channels can help explain the negative relationship i find between investment and financialization

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

a simple nonadditive preference structure for models of household behavior over time intertemporal separability is an almost universal assumption in empirical work on household behavior but a good deal of recent work on consumption and labor supply suggests that it may not be tenable the traditional weakening of this assumption is to allow for habit formation i propose an alternative structure for intertemporal preferences that nests intertemporal additivity in a simple way and yields closed form solutions for demand functions this structure includes the neoclassical durables model as a special case i derive a demand system that nests the almost ideal system as its time separable counterpart this model is estimated on u k aggregate time series data for seven goods time separability is decisively rejected moreover i find that ignoring temporal dependencies leads to considerable bias in the estimates of elasticities of the seven goods durables display the strongest nonseparable effect the estimated reactions are consistent with the neoclassical durables model

the demands of finance and the glass ceiling of profit without investment in post keynesian recent works the profit without investment case has made its appearance as a particular accumulation regime one claiming along with two others the contractive and the expansive case that it can account for the different conceivable dynamic patterns at work in financialised capitalism actually profit without investment or rather profit beyond investment is in the very nature of capitalism it is not a special case the dividend channel is an essential component of profit formation we show that its enabling condition and what at the same time limits its width is firms resort to debt beyond a certain point the divorce between dividends and investment is such that firms policies leave their viable domain a domain bounded by their wishes to be self financing past that point any increase in profits runs into a glass ceiling in terms of outlets for those profits it is when the demands of finance i e of shareholders reach this limit that the three regimes identified in the literature make their appearance including the one called profit without investment seen in this light these regimes are therefore all cases of profit without investment ones that take on some reality and some plausibility when finance tries to drag profit without accumulation outside of its viable domain

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

the effect of liquidity constraints on consumption a cross sectional analysis this paper examines the effect of liquidity constraints on consumption expenditures using a single year cross section data set a reduced form equation for consumption is estimated on high saving households by the tobit procedure to account for the selectivity bias since high saving households are not likely to be liquidity constrained the estimated equation is an appropriate description of how desired consumption that would be forthcoming without liquidity constraints is related to the variables available in the cross section data when the reduced form equation is used to predict desired consumption the gap between desired consumption and measured consumption is most evident for young households

housing market resilience neighbourhood and metropolitan factors explaining resilience before and after the us housing crisis the advent of the millennium witnessed unparalleled volatility in the housing market a cycle of bust and recovery to which some us neighbourhoods were resilient and others not most planning schol

life cycle preferences revisited an axiomatic construction for life cycle preferences accounting for the finiteness and the randomness of life duration is provided we emphasize the role of intertemporal correlation aversion and explain why multiplicative preferences provide an interesting alternative to additive preferences allowing risk aversion and intertemporal elasticity of substitution to be separated implications regarding the shape of the optimal consumption profiles are discussed

the effect of temporal risk aversion on optimal consumption the equity premium and the equilibrium interest rate this paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive while the usual risk aversion makes it more attractive as temporal risk aversion increases the equilibrium interest rate decreases and the equity premium increases this paper also shows a striking and novel result that an increase in time impatience can lead to either a decrease or an increase in the interest rate depending on the nature of the nonseparability

interurban house price gradient effect of urban hierarchy distance on house prices this paper applies a general spatial equilibrium model to investigate the effect that distance within the urban hierarchy can have on interurban house prices our spatial model predicts a negative

consumption and habits evidence from panel data the purpose of this paper is to test for the presence of habit formation in consumption decisions using household panel data we use the test proposed by meghir and weber 1996 and estimate the within period marginal rate of substitution between commodities which is robust to the presence of liquidity constraints to that end we use a spanish panel data set in which households are observed up to eight consecutive quarters this temporal dimension is crucial since it allows us to take into account time invariant unobserved heterogeneity across households fixed effects and therefore to investigate if the relationship between current and past consumption reflects habits or heterogeneity our results confirm the importance of accounting for fixed effects when analyzing intertemporal consumption decisions allowing for time non separabilities once fixed effects are controlled for and a proper set of instruments is used the results yield supporting evidence of habit formation in the demand system of food at home transport and services

the impact of income inequality on rental affordability an empirical study in large american metropolitan areas american metropolitan areas have experienced rising income inequality and worsening rental affordability in the past few decades has the rise of inequality caused worsening rental affordability t

risk aversion and planning horizons a number of empirical studies seem to reject the additive separability of preferences that is assumed in most theoretical models of the life cycle we show that when additive separability is abandoned and interactions between consumptions at different dates are taken into account an interesting relation emerges between risk aversion and length of the planning horizon specifically we show that when consumptions at different dates are specific substitutes risk aversion increases with horizon length this may explain the surprising empirical finding that individuals seem to increase the share of wealth held in risky assets as they become older jel d11 d91 g11

testing for strategic interaction among local governments the case of growth controls this paper helps to fill a gap in the public economics literature by providing empirical evidence on strategic interaction among local governments using the methodology of case et al journal of public economics 52 285 307 1993 the paper focuses on the adoption of growth control measures by cities in california and looks for evidence of policy interdependence in these choices the data are drawn from an elaborate survey of growth control practices in california cities conducted by glickfeld and levine regional growth local reaction lincoln institute of land policy cambridge ma 1992 the survey results are used to compute an index of the stringency of growth controls in each city which serves as the dependent variable for the study

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

the effects of financialization on investment evidence from firm level data for the uk this paper estimates the effects of financialization on physical investment in the uk using panel data based on balance sheets of publicly listed non financial companies supplied by worldscope for the period 1985 2013 we find robust evidence of an adverse effect of not only financial payments interests and dividends but also financial incomes on the rate of accumulation the negative impacts of financial incomes from interests and dividends are particularly strong for the pre crisis period our findings support the financialization thesis that the increasing orientation of the non financial sector towards financial activities is ultimately leading to lower physical investment hence to stagnant or fragile growth as well as long term concerns for productivity

residential land use regulation and the us housing price cycle between 2000 and 2009 abstract in a sample covering more than 300 cities in the us from january 2000 to july 2009 we find that more restrictive residential land use regulations and geographic land constraints are linked to larger booms and busts in housing prices the natural and man made constraints also amplify price responses to the subprime mortgage credit expansion during the decade leading to greater price increases in the boom and subsequently bigger losses contrary to prior literature our findings indicate a significant link between supply inelasticity and price declines during the bust whereas glaeser et al 2008 found little evidence of such a relationship from an earlier downturn from 1989 to 1996

is urban land price adjustment more sluggish than housing price adjustment empirical evidence this article hypothesises that due to factors such as thin trading and lack of publicly available data on transactions in the land market urban land prices react more sluggishly to shocks in market fundamentals than housing prices do based on a vector error correction model utilising quarterly data for the helsinki metropolitan area in finland over 1988q1 2008q2 the empirical analysis provides support for this hypothesis in particular the results suggest that new information regarding the market fundamentals is more rapidly reflected in housing prices than in land prices nevertheless it is the housing price level instead of land prices that adjusts towards a cointegrating long run equilibrium between housing prices land prices and construction costs

on the cyclicity of regional house prices new evidence for u s metropolitan statistical areas abstract this paper is mainly concerned with the analysis of regional house price cycles we introduce a wavelet transform based metric to study the housing cycle synchronization across the largest u s msas with a focus on the recent housing bubble we derive several conclusions i we show that regional housing cycle dissimilarities are significantly and strongly connected to geography ii after the burst of the recent housing bubble there was greater significant co movement in shorter cycles for a short period of time iii coastal regions which have a higher house price volatility compared to other msas are also those with a higher degree of house supply regulation iv a mortgage rate reduction decrease the dissimilarity between the msas and the national housing cycle before the end of 2006 at higher frequencies hence monetary policy is partially effective whereas effectiveness depends on time frequency and the considered msa

risk aversion wealth and background risk we use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security we relate this measure to consumer s endowments and attributes and to measures of background risk and liquidity constraints we find that risk aversion is a decreasing function of the endowment thus rejecting cara preferences we estimate the elasticity of risk aversion to consumption at about 0 7 below the unitary value predicted by crra utility we also find that households attributes are of little help in predicting their degree of risk aversion which is characterized by massive unexplained heterogeneity we show that the consumer s environment affects risk aversion individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion consistent with recent theories of attitudes toward risk in the presence of uninsurable risks jel d1 d8

local taxation and urban development testing for the side effects of the italian property tax land is an essential yet limited natural resource its current unsustainable use asks for a better understanding of the main determinants of urban expansion a heuristic approach is used to analyze urban development in italy in particular the paper estimates an econometric model to test the impact of the italian property tax ici on the local authorities behavior and in particular on urban planning and development it tests whether its introduction has fostered rather than dampened construction activity the hypothesis put forward is that because of the concurrent market conditions the introduction of the tax has facilitated urban development the structure of the tax and the devolution process that began in the 90s induced local municipalities to adopt less tight accommodative urban policies to offset budgetary needs a more elastic urban policy reduces price volatility however its overall welfare effect is not clearly determined indeed ceteris paribus geographical areas with more elastic housing supply witness larger land consumption the land use changes we witnessed in the last decades could be the combined effect of financial and fiscal aspects if this is so careful attention should be given to the issue of whether leaving urban planning and the power to levy property taxes under the same jurisdiction

the financialisation offshoring nexus and the capital accumulation of us non financial firms the financialisation of the nonfinancial corporation has drawn the attention of many scholars who have identified two channels by which financialisation happens a higher proportion of financial assets compared to nonfinancial ones and a higher amount of resources distributed to financial markets one of the consequences of this is the decrease in investment parallel to financialisation many nonfinancial corporations have also engaged in an internationalization of their productive activities organizing them under global value chains surprisingly the intersections between the literature on financialisation and the literature on global value chain are still underdeveloped although for example offshoring may also explain the decrease in investment of nonfinancial firms this paper fills this gap using panel regressions for u s nonfinancial corporations between 1995 and 2011 we find evidence that both offshoring and financialisation are determinants to the decrease in investment and that financialisation occurs mainly for firms belonging to high offshoring sectors la financiarisation des societes non financieres a attire l attention de nombreux chercheurs qui ont identifie deux canaux par lesquels elle se produit les bilans des societes sont composes d une plus grande proportion d actifs financiers relativement aux actifs non financiers et une plus grande part des ressources est redistribuee vers les marches financiers l une des consequences qui en resulte est la baisse de l investissement parallelement a ce mouvement de financiarisation beaucoup de societes non financieres ont developpe l internationalisation de leur production en l organisant selon des chaines globales de valeur il est surprenant de constater que les liens entre la litterature sur la financiarisation et celle sur les chaines globales de valeur soit peu developpee bien que par exemple le transfert de la production a l etranger puisse aussi expliquer la baisse de l investissement des firmes non financieres cet article vise a combler cette lacune en menant des regressions sur un panel de firmes americaines entre 1995 et 2011 nous montrons que tant le transfert de production a l etranger que la financiarisation sont des determinants de la baisse de l investissement nous montrons egalement que la financiarisation touche surtout les firmes appartenant a des secteurs fortement inserees dans les chaines globales de valeur

why financialisation hasn t depressed us productive investment the rate of capital accumulation in the usa has fallen markedly in recent decades works in the financialisation literature have tried to explain this phenomenon by arguing that rising financial payments and purchases have come at the expense of productive investment this article shows that such arguments are not supported by the data it also explains theoretically why rising dividend payments and the growth of corporations portfolio investment are compatible with the fact that corporations productive investment did not decline during the first two decades of neoliberalism in the usa there would necessarily be a trade off between these uses of funds if they were all funded out of current profits but there is no necessary trade off because borrowed funds are an additional source finally the article shows that the fall in us corporations rate of profit rate of return on investment in fixed assets fully accounts for the fall in their rate of capital accumulation

financialisation and tendencies towards stagnation the role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007 09

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

financialisation and the dynamics of offshoring in the usa imports are linked to higher cost mark ups and firm profits and the gains from such non competitive imports the result of offshoring are increasingly associated with the reinvestment of these higher profits our regression analysis of 35 us manufacturing and service industries over the period 1998 2006 supports aggregate and firm level studies showing that offshoring is associated with a higher share of corporate profit in total value added but the dynamic gains from offshoring have not been fully realised because firms have purchased financial assets especially share buybacks and higher dividend payments to raise shareholder value rather than investing in productive assets that raise productivity growth employment and income despite the corporate sector s contribution to national savings over the past decade the offshoring financialisation linkage reduces the capacity of non financial corporations to act as a driver of the recovery from the economic crisis that emerged in 2008

height restrictions and housing prices a difference in discontinuity approach abstract in this paper we exploit the enactment of a city level building height restriction law in some but not all counties located in the largest city of northeast brazil to investigate how restrictions to urban land use affect real estate market prices using a difference in geographic discontinuity design we show that the imposed restriction led apartments houses to experience a significant increase decrease in unit prices

assessing the efficiency of local open space provision abstract this paper tests the efficiency of local provision of land conservation i examine how housing prices which capitalize open space amenities and future tax obligations change after municipalities vote on referendums for conservation spending using a dynamic regression discontinuity based on voting outcomes results suggest that average housing prices increase about 0 68 1 12 for every 1000 per household of open space spending authorized which indicates inefficiency and underprovision of conservation i also examine tax capitalization and supply side explanations for estimated capitalization

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

unemployment and the real wage the economic basis for contesting political ideologies using the keynesian theory of effective demand this paper demonstrates how particular models such as that of cooperative capitalism enunciated by the left keynesian social democrats the marxian model of profit squeeze emphasizing distributive conflict and even the conservative model relying on supply side stimulus fit in as particular variants of a more general theoretical scheme through a reconstruction of the familiar is schedule the argument is weaved around the theme of the relations between unemployment and real wage in the context of both a closed and an open economy to explain the common macroeconomic basis of contesting ideologies copyright 1990 by oxford university press

financialisation and the slowdown of accumulation over the past decades financial investment of non financial businesses has been rising and accumulation of capital goods has been declining the first part of the paper offers a novel theory to explain this phenomenon financialization the shareholder revolution and the development of a market for corporate control have shifted power to shareholders and thus changed management priorities leading to a reduction in the desired growth rate in the second part the link between accumulation and financialization is tested econometrically by means of a time series analysis of aggregate business investment for usa uk france and germany extensive test of robustness are performed for the first three countries evidence that confirms the negative effect of financialization on accumulation is found author s abstract

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

portfolio selection with consumption ratcheting abstract in this paper we study the portfolio selection problem of a finite lived agent who does not tolerate a decline in standard of living the preference can be regarded as exhibiting extreme form of habit formation and also related to loss aversion in the prospect theory we show that the agent s optimal portfolio exhibits a trend chasing behavior and the portfolio share of the risky asset fluctuates between 0 and the value of an unconstrained individual the fluctuations do not attenuate as time gets near the end of the planning horizon we also explore implications of the model for asset pricing and show that the model has a potential to match better the recent us data than traditional habit models we provide a complete solution to the problem by considering a transformed problem which is similar in its formal structure to an irreversible incremental investment problem and equivalent to an infinite series of optimal stopping problems

supply constraints and housing market dynamics abstract although the volatility of house prices is often ascribed to demand side factors constraints on housing supply have important and little studied implications for housing dynamics i illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply i then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship i find that supply constraints increase volatility through two channels first regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin second geographic limitations on the area available for building houses such as steep slopes and water bodies lead to less investment on average relative to the size of the existing housing stock leaving less scope for the supply response to attenuate the effects of a demand shock my estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks which in turn amplifies house price volatility

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

the impact of cash flows and firm size on investment the international evidence abstract this paper examines the degree to which cash flow availability influences firm investment in six oecd countries in particular we are interested in the extent to which the reliance on internal funds is affected by firm size since there is general agreement that smaller firms have less access to external capital markets and thus should be more affected by the availability of internal funds earlier work has concluded that the documented positive relationship between cash flow and investment is evidence of the existence of financial constraints we first examine all firms regardless of size in each country and we find that the amount of corporate investment is affected by internal resources in all six countries that is internal financing affects firm investment we then repeat the analysis segmenting the sample using three measures of firm size contrary to our a priori expectations we find that the cash flow investment sensitivity is generally highest in the large firm size group and smallest in the small firm size group we deduce that the explanations for these findings are grounded in managerial agency considerations and in the greater flexibility enjoyed by large firms in timing their investments thus we conclude that the degree of sensitivity of a firm s investments to its cash flows cannot be interpreted as an accurate measure of its access to capital markets as do kaplan s zingales l 1997 the quarterly journal of economics 169 215 since small firms are known to have less access to external markets

why does liquidity matter in investment equations that liquidity variables affect investment spending is widely accepted despite important recent empirical work questions remain concerning the interpretation of liquidity variables in investment equations and the sources and economic importance of finance constraints these questions are addressed by estimating a variety of econometric models that exploit distinctive canadian institutional features to identify firms that face relatively severe information problems the initial econometric evidence confirms the existence of finance constraints and identifies their source as the problems faced by firms in credibly communicating private information to outsiders this conclusion is robust to biases from the capitalization of finance constraints into asset prices scale economies or imperfect competition which are accounted for directly in the econometric specifications copyright 1995 by ohio state university press