the effectiveness of keynes tobin transaction taxes when heterogeneous agents can trade in different markets a behavioral finance approach abstract we develop a model in which boundedly rational agents apply technical and fundamental analysis to identify trading signals in two different speculative markets whether an agent trades and if so in which market with which strategy depends on profit considerations as it turns out an ongoing evolutionary competition between the trading strategies causes complex price dynamics which closely resembles the behavior of actual speculative prices moreover we find that if the agents have to pay a transaction tax in one market price variability decreases in this market but increases in the other market however the imposition of a uniform tax on all transactions stabilizes both markets our results suggest that if regulators of a market introduce a transaction tax other markets are likely to follow

what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

animal spirits in the foreign exchange market it is traditionally assumed in finance models that the fundamental value of an asset is known with certainty in this paper we depart from that assumption we propose a simple model of the exchange rate in which agents have biased and unbiased beliefs about the fundamental rate we show that such a model produces waves of optimism and pessimism unrelated to the underlying fundamental value in addition the model shows that in a world characterized by the existence of heterogeneous beliefs about the fundamental exchange rate movements can be remarkably complex even if only fundamentalist traders operate in the market

taking stock a rigorous modelling of animal spirits in macroeconomics modelling animal spirits this paper is a survey of the burgeoning literature that seeks to take the enigmatic concept of the animal spirits more seriously by building heterodox macro dynamic models that can capture some of its crucial aspects in a rigorous way two approaches are considered the discrete choice and the transition probability approach where individual agents face a binary decision and choose one of them with a certain probability these assessments are adjusted upward or downward in response to what the agents observe which leads to changes in the aggregate sentiment and the macroeconomic variables resulting from the corresponding decisions typical applications of the two approaches alternatively give rise to what will be called a weak and a strong form of animal spirits on the whole the literature included in this survey provides examples of applications of a modelling tool that demonstrates a considerable flexibility within a canonical framework

global warming irreversibility and learning a number of economists have argued that the literature on the irreversibility effect implies that current abatement of greenhouse gas emissions should be greater when there is the possibility of obtaining better information in the future about the potential damages from global warming than when there is no possibility of obtaining better information in this paper we show that even the simplest model of global warming does not satisfy either of epstein s 1980 sufficient conditions so it is not possible to use epstein s analysis to tell whether the irreversibility effect applies to models of global warming we derive an alternative sufficient condition for the irreversibility effect to hold

the role of games in security design we contend that security design should be approached as a problem of game design that is contracts should specify the procedures that govern the behavior of contract participants in determining outcomes as well as the allocations resulting from those outcomes we characterize optimal contracts in two nested classes all contracts including those that depend on the state and state independent contracts we demonstrate that in situations in which the dependence of contracts on the state is limited contracts designed as games can improve the allocation of resources relative to nonstrategic allocation rules article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a dynamic analysis of moving average rules abstract the use of various moving average ma rules remains popular with financial market practitioners these rules have recently become the focus of a number empirical studies but there have been very few studies of financial market models where some agents employ technical trading rules of the type used in practice in this paper we propose a dynamic financial market model in which demand for traded assets has both a fundamentalist and a chartist component the chartist demand is governed by the difference between current price and a long run ma both types of traders are boundedly rational in the sense that based on a fitness measure such as realized capital gains traders switch from a strategy with low fitness to the one with high fitness we characterize the stability and bifurcation properties of the underlying deterministic model via the reaction coefficient of the fundamentalists the extrapolation rate of the chartists and the lag length used for the ma by increasing the intensity of choice to switching strategies we then examine various rational routes to randomness for different ma rules the price dynamics of the ma rule are also examined and one of our main findings is that an increase of the window length of the ma rule can destabilize an otherwise stable system leading to more complicated even chaotic behaviour the analysis of the corresponding stochastic model is able to explain various market price phenomena including temporary bubbles sudden market crashes price resistance and price switching between different levels

precautionary principle and the optimal timing of environmental policy under ambiguity i consider a problem in environmental policy design in which i focus on stock pollutants in particular i consider stock pollutants that cause severe damage on the environment and do not depreciate at all once they are released into the atmosphere and the ocean the purposes of this paper are 1 to provide an economic foundation for environmental policies based on the precautionary principle and the 1992 rio declaration on environment and development and 2 to show that this optimal timing rule has a reservation property furthermore i analyze the effect of an increase in ambiguity on the optimal timing of adopting some environmental policy and show that an increase in ambiguity decreases the optimal timing of adopting the environmental policy

stock market conditions and monetary policy in a dsge model for the u s abstract this paper investigates the interactions between stock market fluctuations and monetary policy within a dsge model for the u s economy first we design a framework in which fluctuations in households financial wealth are allowed but not necessarily required to exert an impact on current consumption this is due to the interaction in the financial markets of long time traders holding wealth accumulated over time with newcomers holding no wealth at all importantly we introduce nominal wage stickiness to induce pro cyclicality in real dividends additional nominal and real frictions are modeled to capture the pervasive macroeconomic persistence of the observables employed to estimate our model we fit our model to post wwii u s data and report three main results first the data strongly support a significant role of stock prices in affecting real activity and the business cycle second our estimates also identify a significant and counteractive response of the fed to stock price fluctuations third we derive from our model a microfounded measure of financial slack the stock price gap which we then contrast to alternative ones currently used in empirical studies to assess the properties of the latter to capture the dynamic and cyclical implications of our dsge model the behavior of our stock price gap is consistent with the episodes of stock market booms and busts occurred in the post wwii as reported by independent analyses and closely correlates with the current financial meltdown typically employed proxies of financial slack such as detrended log indexes or growth rates show limited capabilities of capturing the implications of our model consistent index of financial stress cyclical properties of the model as well as counterfactuals regarding shocks to our measure of financial slackness and monetary policy shocks are also proposed

looking for a guide to protect the environment the development of the precautionary principle abstract if the precautionary principle is to become the guide of the international community for environmental protection policies an economic interpretation of the principle is in order the analysis of case studies and a survey of the recent decision theoretic literature show the lack of a fully satisfactory economic model more generally various theoretical and empirical results show that the principle cannot be assumed to apply a priori though it has been proposed by international treaties as a rule of thumb for situations of scientific uncertainty the precautionary principle could actually be inefficient

volatility effects of news shocks in new keynesian models with optimal monetary policy abstract this paper studies the volatility implications of anticipated cost push shocks i e news shocks in a hybrid new keynesian model both under optimal unrestricted and discretionary monetary policy in both regimes the volatility of the output gap and the central bank s loss are increasing with the anticipation horizon under sufficiently flexible inflation targeting by contrast under nearly strict inflation targeting an anticipated cost push shock leads to a smaller central bank s loss than an unanticipated shock of the same size if additionally the phillips curve is sufficiently backward looking

control rights and capital structure an empirical investigation we show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy net debt issuing activity experiences a sharp and persistent decline following debt covenant violations when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit the effect of creditor actions on debt policy is strongest when the borrower s alternative sources of finance are costly in addition despite the less favorable terms offered by existing creditors borrowers rarely switch lenders following a violation a fundamental question in financial economics is how do firms choose their financial policies extant empirical research on this question has focused primarily on the presence of taxes and bankruptcy costs e g scott 1976 information asymmetry e g myers and majluf 1984 and more recently market timing behavior e g baker and wurgler 2002 however beginning with jensen and meckling 1976 a large body of theoretical research examines how incentive conflicts between managers and external investors affect corporate financial policies in particular theoretical research on financial contracting shows that in the presence of incentive conflicts optimal debt contracts will allocate certain rights to creditors after negative performance in order to help firms secure financing ex ante e g aghion and bolton 1992 and dewatripont and tirole

covenants in venture capital contracts this paper studies how covenants are included in contracts between venture capitalists vcs and entrepreneurs i show that vcs hold covenanted veto rights even though they are shareholders who have access to other powerful governance solutions unlike bank loans and bonds venture capital vc contracts exhibit considerable variation in their contractual designs i exploit this variation to confirm the argument that covenants are in place to overcome a conflict of interest that arises from debt like contractual features of a venture capitalist s preferred stock in particular i find that contracts with higher fixed payoffs include 1 6 more covenants than do contracts with lower fixed payoffs similarly vc contracts with no vc board majority requirement include 0 6 more covenants than do contracts that require a vc board majority covenants are also more common with older companies and when fewer vcs invest in a round my findings contribute to both the debt covenant literature and the entrepreneurial finance literature this paper was accepted by brad barber finance

seniority and maturity of debt contracts abstract this paper provides a model of how borrowers with private information about their credit prospects choose seniority and maturity of debt increased short term debt leads lenders to liquidate too often it also increases the sensitivity of financing costs to new information although better than average borrowers desire information sensitivity the model implies that short term debt will be senior to long term debt and that long term debt will allow the issue of additional future senior debt the model also has implications on the structure of leveraged buyouts and on how various types of lenders respond to potential defaults

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

optimists pessimists and the precautionary principle the precautionary principle has emerged as a leading guide to public decision making about environmental risks under irreversibility and uncertainty in this paper we adopt a two period model with irreversibility and agents differentiated by their degree of optimism to characterize the conditions under which the precautionary principle applies we show in particular that it is more often applied if the decision maker has an intermediate optimism index if scientific research is more effective at reducing uncertainty and if the same decision maker makes the decisions for both periods moreover we show that socially optimal decisions lead to apply the precautionary principle more often than an elected decision maker does

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

structural stochastic volatility in asset pricing dynamics estimation and model contest abstract in the framework of small scale agent based financial market models the paper starts out from the concept of structural stochastic volatility which derives from different noise levels in the demand of fundamentalists and chartists and the time varying market shares of the two groups it advances several different specifications of the endogenous switching between the trading strategies and then estimates these models by the method of simulated moments msms where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index in addition to the standard version of msm with a quadratic loss function we also take into account how often a great number of monte carlo simulation runs happen to yield moments that are all contained within their empirical confidence intervals the model contest along these lines reveals a strong role for a tamed herding component the quantitative performance of the winner model is so good that it may provide a standard for future research

covenants and collateral as incentives to monitor although monitoring borrowers is thought to be a major function of financial institutions the presence of other claimants reduces an institutional lender s incentives to do this thus loan contracts must be structured to enhance the lender s incentives to monitor covenants make a loan s effective maturity and the ability to collateralize makes a loan s effective priority contingent on monitoring by the lender thus both covenants and collateral can be motivated as contractual devices that increase a lender s incentive to monitor these results are consistent with a number of stylized facts about the use of covenants and collateral in institutional lending modern finance theory suggests that financial intermediaries such as commercial banks insurance companies and finance companies monitor and control their borrowers on behalf of other investors 1 this article investigates how the loans made by these institutions can be structured so as to best enhance the institutions role as delegated monitors covenants and collateral are common features of loans made by financial institutions but these features are somewhat difficult to justify consider loan covenants clauses in a loan contract that require the borrower to take or refrain from various actions berlin and mester 1992 magee and sridhar 1994 and park 1994 show that by giving institutions the right to renegotiate or call loans when covenants are violated covenants serve as tripwires that enhance the flexibility and efficiency of financial contracting also as documented in smith and warner 1979 control rights from covenants reduce borrower adverse selection or moral hazard nevertheless by allowing institutions to demand repayment based on any information contractible or not

secured lending and default risk equilibrium analysis policy implications and empirical results the authors examine collateral in a competitive equilibrium in which borrowers can choose hidden actions and may additionally possess hidden knowledge apart from explaining the widespread use of collateral despite deadweight costs they show that an increase in the riskless interest rate causes equilibrium loan rates and collateral requirements to increase a decline in the deadweight costs of collateral reduces the equilibrium collateral use under moral hazard and an increase in the borrower s project size reduces equilibrium collateral use under moral hazard some of these predictions are tested and found to be supported by the data copyright 1991 by royal economic society

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

scaling in economics a reader s guide this paper discusses examples of scaling laws in economics and finance it argues that these regularities in data are useful for disciplining theory formation estimation of the conditional predictive distribution and estimation of impulse response functions is a main goal of econometric work scaling type regularities give useful information on the underlying data generating process the ability of scaling laws to suggest lines of potentially fruitful research was illustrated by the suggestion of several speculative research projects in this paper most importantly the paper stresses the challenges that face empirical and theoretical researchers who wish to make use of scaling law type regularities to improve econometric identification of the underlying causal data generating mechanism copyright 1999 by oxford university press

contracts and exits in venture capital finance using a sample of european venture capital vc investments i study the relation between vc contracts and exits the data indicate that ex ante stronger vc control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition rather than through a write off or an ipo my findings are robust to controls for a variety of factors including endogeneity and cases in which the vc preplans the exit at the time of contract choice my findings are consistent with control based theories of financial contracting such as aghion and bolton 1992

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the bull and bear market model of huang and day some extensions and new results abstract we develop a financial market model with interacting chartists and fundamentalists that embeds the famous bull and bear market model of huang and day as a special case their model is given by a one dimensional continuous piecewise linear map our model on the other hand is more flexible and is represented by a one dimensional discontinuous piecewise linear map nevertheless we are able to provide a more or less complete analytical treatment of the model dynamics by characterizing its possible outcomes in parameter space in addition we show that quite different scenarios can trigger real world phenomena such as bull and bear market dynamics and excess volatility

heterogeneous speculators endogenous fluctuations and interacting markets a model of stock prices and exchange rates abstract we develop a discrete time model in which the stock markets of two countries are linked via and with the foreign exchange market the foreign exchange market is characterized by nonlinear interactions between technical and fundamental traders such interactions may generate complex dynamics and recurrent switching between bull and bear market phases via a well known pitchfork and period doubling bifurcation path when technical traders become more aggressive the two stock markets are populated by fundamentalists and prices tend to evolve towards stable steady states driven by linear laws of motion a connection between such markets is established by allowing investors to trade abroad and the resulting three dimensional dynamical system is analyzed one goal of our paper is to explore potential spill over effects between foreign exchange and stock markets a second related goal is to study how the bifurcation sequence which characterizes the market with heterogeneous speculators is modified in the presence of interactions with other markets

the information content of distressed restructurings involving public and private debt claims abstract this paper examines debt restructurings by financially distressed firms we develop a model which predicts that in public debt exchange offers firms with unfavorable private information will offer equity claims to convince bondholders that the firm s prospects are poor in contrast offering equity to well informed private lenders conveys favorable private information to outsiders consistent with our analysis we find positive average abnormal returns around restructurings that offer equity to private lenders and senior debt to public debtholders and we find significant negative average abnormal returns when private lenders are offered senior debt and public lenders are offered equity

precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses abstract the paper investigates a decision making process involving both risk and ambiguity differently from existing papers basili m chateauneuf a fontini f 2005 choices under ambiguity with familiar and unfamiliar outcomes theory and decision 58 195 207 chichilnisky g 2000 axiomatic approach to choice under uncertainty with catastrophic risks resources and energy economics 22 221 231 chichilnisky g 2002 in el shaarawi a h piegorsch w w eds catastropic risks encyclopedia of environmetrics vol 1 john wiley sons ltd chichester uk pp 274 279 we assume that in a choquet expected utility framework the decision maker is pessimistic with respect to unfamiliar catastrophic losses optimistic with respect to unfamiliar windfall gains and ambiguity neutral with respect to the familiar world a representation of the decision maker s choice is obtained that mimics the restricted bayes hurwicz criterion in this way a characterization of the precautionary principle is introduced for decision making processes under ambiguity with catastrophic losses and or windfall gains

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the design of internal control and capital structure we study the design of internal control and capital structure we pose the question when is control allocated only to shareholders and when is it allocated to other stakeholders such as debtholders or the management team we show that shareholders debtholders get control when the firm s cash flow is relatively sensitive insensitive to managerial effort our theory implies that the signs of the correlations between endogenous variables when shareholders have absolute control are reversed when debtholders have veto power in particular debt level and firm value are negatively positively correlated when debtholders have veto power shareholders have absolute control article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

taking stock a rigorous modelling of animal spirits in macroeconomics this paper is a survey of the burgeoning literature that seeks to take the enigmatic concept of the animal spirits more seriously by building heterodox macro dynamic models that can capture some of its crucial aspects in a rigorous way two approaches are considered the discrete choice and the transition probability approach where individual agents face a binary decision and choose one of them with a certain probability these assessments are adjusted upward or downward in response to what the agents observe which leads to changes in the aggregate sentiment and the macroeconomic variables resulting from the corresponding decisions typical applications of the two approaches alternatively give rise to what will be called a weak and a strong form of animal spirits on the whole the literature included in this survey provides examples of applications of a modelling tool that demonstrates a considerable flexibility within a canonical framework

bounded awareness heuristics and the precautionary principle the precautionary principle has been proposed as a basis for making decisions about environmental issues but remains controversial using a model of inductively justified propositions about awareness this paper shows how the precautionary principle may be interpreted as a heuristic guide for boundedly rational decision makers faced with the possibility of unfavorable surprises

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

inflation targeting rules history dependent or forward looking abstract this note discusses the inflation targeting strategy if price setting gives rise to a hybrid phillips curve the strategy is inverted relative to private sector pricing behavior if private sector price setting is backward looking policy should be forward looking and vice versa

choice under uncertainty with the best and worst in mind neo additive capacities the concept of a non extreme outcome additive capacity neo additive capacity is introduced neo additive capacities model optimistic and pessimistic attitudes towards uncertainty as observed in many experimental studies moreover neo additive capacities can be applied easily in economic problems as we demonstrate by examples this paper provides an axiomatisation of choquet expected utility with neo capacities in a framework of purely subjective uncertainty

optimal monetary policy in a new keynesian model with animal spirits and financial markets this article presents a macro finance interaction model that integrates a nkm with bounded rationality and an agent based financial market model we derive four interactive channels between the two sectors where two channels are strictly microfounded we analyze the impact of the different channels on economic stability and derive optimal conventional and unconventional monetary policy rules we find that coefficients of optimal taylor rules do not significantly change if financial market stabilization becomes part of the central bank s objective function additionally we show that rule based backward looking monetary policy creates huge instabilities if expectations are boundedly rational our model is externally validated by showing that it generates fat tailed output growth rates

agent based macroeconomics a baseline model abstract this paper develops a baseline agent based macroeconomic model and contrasts it with the common dynamic stochastic general equilibrium approach although simple the model can reproduce a lot of the stylized facts of business cycles the author argues that agent based modeling is an adequate response to the recently expressed criticism of macroeconomic methodology because it allows for aggregate behavior that is more than simply a replication of microeconomic optimization decisions in equilibrium at the same time it allows for absolutely consistent microfoundations including the structure and properties of markets most importantly it does not depend on equilibrium assumptions or fictitious auctioneers and does therefore not rule out coordination failures instability and crisis by definition a situation that is very close to a general equilibrium can instead be shown to result endogenously from non rational micro interaction

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

schumpeter meeting keynes a policy friendly model of endogenous growth and business cycles this paper studies an agent based model that bridges keynesian theories of demandgeneration and schumpeterian theories of technology fueled economic growth we employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply demand and the fundamentals of the economy we find profound complementarities between factors influencing aggregate demand and drivers of technological change that affect both short run fluctuations and longterm growth patterns from a normative point of view simulations show a corresponding complementarity between keynesian and schumpeterian policies in sustaining long run growth paths characterized by milder fluctuations and relatively lower unemployment levels the matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct regimes of growth or absence thereof characterized by different short run fluctuations and unemployment levels

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

monetary policy and large crises in a financial accelerator agent based model abstract an accommodating monetary policy followed by a sudden increase of the short term interest rate often leads to a bubble burst and to an economic slowdown through the implementation of an agent based model with a financial accelerator mechanism we are able to study the relationship between monetary policy and large scale crisis events a two step computational approach is proposed which performs i a pattern search of double dip episodes and ii counter factual simulations implementing unconventional monetary policy the main results can be summarized as follow a sudden and sharp increases of the policy rate can generate recessions b after a crisis returning too soon and too quickly to a normal monetary policy regime can generate a double dip recession while c keeping the short term interest rate anchored to the zero lower bound in the short run can successfully avoid a further slowdown

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these

risk analysis with contractual default does covenant breach matter abstract mergers and acquisitions m a private equity and leveraged buyouts securitization and project finance are characterized by the presence of contractual clauses covenants these covenants trigger the technical default of the borrower even in the absence of insolvency therefore borrowers may default on loans even when they have sufficient available cash to repay outstanding debt this condition is not captured by the net present value npv distribution obtained through a standard monte carlo simulation in this paper we present a methodology for including the consequences of covenant breach in a monte carlo simulation extending traditional risk analysis in investment planning we introduce a conceptual framework for modeling technical and material breaches from the standpoint of both lenders and shareholders we apply this framework to a real case study concerning the project financing of a 64 million euro biomass power plant the simulation is carried out on the actual model developed by the financial advisor of the project and made available to the authors results show that both technical and material breaches have a statistically significant impact on the net present value distribution and this impact is more relevant when leverage and cost of debt increase