signalling commitment with monetary and inflation targets abstract this article studies a two period game between the public and a central bank about whose ability to commit to an announced target the public is uncertain the central bank chooses between announcing a target for an intermediate variable money growth and its goal variable inflation prior to setting its instrument the central bank receives private noisy information about the link between money growth and inflation monetary targeting facilitates communication of the central bank s type in that the probability of separation is always higher than under inflation targeting this advantage of monetary targets from a dependable central bank s perspective is outweighed for most parameter values by the advantage of inflation targeting in terms of inflation control if the regime choice is treated as a strategic decision over a large range of parameter values both central banks choose the regime that a dependable central bank would prefer

are corruption and taxation really harmful to growth firm level evidence exploiting a unique data set containing information about the estimated bribe payments of ugandan firms the authors study the relationship between bribe payments taxes and firm growth in uganda for the period 1995 97 using industry location averages to circumvent the potential problem of endogeneity and to deal with issues of measurement error they find that both the rate of taxation and the rate of bribery are negatively correlated with firm growth for the full data set a one percentage point increase in the bribery rate is associated with three percentage point reduction in firm growth an effect about three times that of taxation moreover after excluding outliers the authors find that bribery has a much greater negative impact on growth and taxation a considerably smaller one this provides some validation of firm level theories of corruption which posit that corruption retards development even more than taxation does

monetary policy inclinations we examine whether central banks should complement their inflation forecasts with interest rate projections introducing a central bank loss function that accounts for deviations from announcements we incorporate the publication of policy inclinations into a dynamic monetary model we show that in the presence of cost push shocks the publication of interest rate forecasts tends to improve welfare

firm level corruption in vietnam abstractthis article uses panel data from a survey of small and medium sized enterprises in vietnam to uncover which firms pay bribes and which do not we also study how bribe paying evolved between 2005 and 2007 and test how the determinants of bribes changed between the two years three sets of insights emerge first bribe incidence is highly associated with firm level differences in visibility sunk costs ability to pay and some but not all types of interaction with public officials second the magnitudes of bribes are distinctly higher for firms which get preferential tax benefits and government contracts third the observed decrease in bribe incidence between 2005 and 2007 is largely driven by significant behavioral changes these behavioral changes seem to be associated with policy initiatives to improve law enforcement and increased media focus on punitive actions against corruption

firm growth and corruption empirical evidence from vietnam this paper tests whether firm growth reduces corruption using data from over 10 000 vietnamese firms we employ instrumental variables based on growth in a firm s industry in other provinces within vietnam and in china we find that firm growth reduces bribes as a share of revenues we propose a mechanism for this effect whereby government officials decisions about bribes are modulated by inter jurisdictional competition this mechanism also implies that growth reduces bribery more for more mobile firms consistent with this prediction we find a larger effect for firms with transferable rights to their land or operations in multiple provinces this article is protected by copyright all rights reserved

on the public economics of annuities with differential mortality this paper studies the problem of redistribution between individuals having different mortality rates we use a continuous time model in which there are two types of individuals characterized by different survival probability paths individual preferences are represented by a generalized life cycle utility function which can exhibit temporal risk aversion we successively compare utilitarian allocations when individuals exhibit temporal risk neutrality and temporal risk aversion this problem is analyzed successively in the context of full information and asymmetric information on mortality rates

does firm growth increase corruption evidence from an instrumental variable approach prior literature on the role that firm heterogeneity plays in corruption finds that larger firms pay smaller bribes and are less likely to pay bribes than smaller firms these studies however often overlook the plausible reverse causality between firm growth or firm size and corruption utilizing an innovative identification strategy that accounts for this source of endogeneity this study finds that increased firm size actually causes greater corruption and bureaucratic burdens on a typical firm and provides evidence against the argument for a uniform corruption burden regardless of size it was determined that a one standard deviation increase in sales leads to 0 33 standard deviation increase in bribes and to 0 36 standard deviation increase in management time spent dealing with public officials moreover although corruption burden increases with increasing firm size we find that this relationship is non linear and diminishes in magnitude as firm size approaches to medium and large we conclude with implications and policy considerations

multinational investment under uncertainty in the chemical processing industries this study uses a sample of chemical processing industries to evaluate the effect of two types of uncertainty on the decision to invest in an industry it analyzes the effects of relative price uncertainty through exchange rates and input prices and demand uncertainty on the probability of expansion in a particular country the study then focuses on the behavior of individual companies and distinguishes companies by whether or not they are multinationals in the production of the product the results confirm previous evidence that exchange rate uncertainty has a negative effect on capacity expansions by domestic corporations and no effect on investment by multinational corporations finally the study also shows that expansions of production capacity in this industry are more likely to occur in those countries where capacity utilization is higher

the impact of perceived expectations and uncertainty on firm investment this paper analyses the differential impact of perceived expectations and uncertainty on investment spending in small and large firms we analyse two types of investment viz aggregate investment and investment in energy saving technologies using dutch firm level data the results show that expectations and uncertainty about input and output prices and domestic demand have sub stantial but different effects on investment spending in firms of different sizes furthermore we find evidence at least for small firms that there are important differences between the effects of uncertainty about input and output variables

announcements inflation targeting and central bank incentives this paper studies the incentives a central bank faces in announcing inflation targets when the central bank has private information about the economy and the public is uncertain about the central bank s preferences targeting rules in the absence of announcements reduce the inflationary bias of discretionary policy but they distort the central bank s response to private information about the economy this distortion is eliminated when the central bank is allowed to announce the inflation target announcements also affect credibility although the way they do so depends on the exact definition of credibility that is employed in standard models of monetary policy in which dynamic inconsistency plays a prominent role announcements from the central bank about its policy inten tions are not believable the central bank has an incentive to lie yet central banks often do make announcements and they are legally required to do so in some cases the bank of england for example must issue periodic inflation reports the chairman of the federal reserve is required by the humphrey hawkins act to testify before congress twice each year to explain the fed s policy actions and to detail the fed s outlook for future economic develop ments similarly the reserve bank of new zealand is required under the reserve bank act of 1989 to publish policy statements that spell out its plans the january 1994 legislation governing the banque de france requires its gov ernor to appear before parliament and the european central bank must under the maastricht treaty report at least annually to the european parlia ment if public statements about policy intentions are not credible the question naturally arises as to why central banks are frequently required to make them the answer of course is that announcements do provide the public with some information given the growing interest in policy transparency particu larly among those central banks that have adopted some form of inflation targeting it is perhaps surprising that there has been relatively little explicit analysis of how inflation targeting requirements might combine with reporting requirements to influence the informational content of announcements the conduct of stabilization policies and the central bank s credibility the purpose of this paper is to analyse the way inflation targeting affects the incentives the central bank faces in announcing targets when the central bank has private information about the economy and the public is uncertain about the central bank s preferences inflation targeting has seen increased popularity in recent years but a fixed target for inflation is generally suboptimal in the face of supply shocks while state contingent targets are viewed as not feasible an important result of this paper is that allowing the central bank to announce its own inflation target

optimal inflation contracts and inflation targets with uncertain central bank preferences accountability through independence this paper examines some problems which arise when monetary policy is delegated to an independent central bank and where the central bank s preferences are unknown two key conclusions emerge from the paper first even with optimal targets or contracts central bank independence may not always be desirable because central banks may have distorted preferences relative to society second if the delegation solution is preferable and the independent central bank responds to information about supply shocks the central bank may be made more accountable by allowing it to set its own inflation targets i e by making it goal independent

sme credit constraints in asia s rising economic star fresh empirical evidence from vietnam this study provides a fresh look at the sme sector s economic backbone vis a vis credit constraint dichotomy in vietnam asia s rising economic star the study uses data from the survey of manufactu

state contingent inflation contracts and unemployment persistence this paper shows that if unemployment or some other real variable follows a dynamic autoregressive process the government can still achieve its precommitment outcome in monetary policy by offering the central banker a linear inflation contract where the penalty for incremental inflation depends positively on lagged unemployment this note therefore offers an extension of recent results of c walsh 1995 to the case of persistence in real economic variables such as output or unemployment copyright 1997 by ohio state university press

uncertainty and the employment dynamics of small and large businesses we examine the impact of uncertainty on employment dynamics alternative measures of uncertainty are constructed based on the survey of professional forecasters and regression based forecasting models for gdp growth inflation sp the impact on large businesses are generally non existent or weaker our results suggest that to truly understand the effects of uncertainty on employment dynamics we need to focus on the relatively smaller and entrepreneurial businesses we discuss implications for the framing of economic policy

inflation targets and contracts with uncertain central banker preferences within a standard model of monetary delegation the authors show that the optimal linear inflation contract performs strictly better than the optimal inflation target when there is uncertainty about the central banker s preferences the optimal combination of a contract and a target performs best and eliminates the inflation bias and any variability not associated with supply shocks however variability due to shocks is enhanced by uncertain central banker preferences quadratic contracts are shown to overcome this problem partly but the advantages of delegation may still be dominated by the excess variability due to shocks hence the credibility stabilization tradeoff is restored

price level versus inflation targeting abstract this paper shows that price level targeting outperforms inflation targeting in the standard new keynesian model under the assumption that the central bank is forced to operate in an environment characterized by discretion in the benchmark case with no persistence in the shocks the commitment solution can be fully replicated intuitively price level targeting introduces history dependence and a stationary level of prices both of which are prominent features of the commitment solution

capital constraints and the performance of entrepreneurial firms in vietnam entrepreneurship has been among the key driving forces of the emergence of a dynamic private sector during the recent decades in vietnam this article addresses for vietnam the questions how capital constraints affect the performance of family firms and how entrepreneurs human and social capital interact with capital constraints to leverage entrepreneurial income a panel of 1721 firms in 4 years is used results are consistent with the resource dependency approach indicating an adverse effect of capital constraints on firm performance firms suffering capital constraints perform substantially better suggesting that they need more capital simply to finance newly recognized profit opportunities human capital plays a vital role in relaxing capital constraints and improves the entrepreneurial performance whereas the effect of social capital stemming from strong ties and weak ties is limited strong ties bring emotional support and weak ties give nonfinancial benefits from regular and useful business contacts advanced econometric analysis tools to take into account the endogeneity of capital constraints are used to establish relationships among relevant variables

the differential impact of uncertainty on investment in small and large businesses we study the impact of profit uncertainty on investment and whether or not this response is different in industries that are dominated by small firms versus those that are dominated by relatively larger firms our key findings are that the sign of the investment uncertainty relationship is negative and that the quantitative negative impact is substantially greater in industries dominated by small firms these results are robust to accounting for potential endogeneity of the uncertainty measure alternate procedures for measuring uncertainty and alternate ways of segmenting industries into small and large firm groups

the benefits of formalization evidence from vietnamese manufacturing smes summary based on unique panel data consisting of both formal and informal firms this paper uses a matched double difference approach to examine the relationship between legal status and firm level outcomes in micro small and medium manufacturing enterprises smes in vietnam controlling for determining factors and observable time variant factors that may simultaneously influence the decision to formalize and subsequent firm performance we find evidence that becoming officially registered leads to an increase in profits and investments and a decrease in the use of casual labor improved contract conditions for workers thus we conclude that formalizing is beneficial both to firms and the workers in these firms

adjustment costs uncertainty and the behavior of the firm this paper examines the effects of demand and cost uncertainty on a firm s investment output and pricing decisions but unlike most earlier studies in which demand and cost are simply not known at the time an output or pricing decision is made here i consider uncertainties over future demand and costs it will be seen that the effects of such uncertainties depend critically on the characteristics of the firm s adjustment costs i treat demand uncertainty in a dynamic context by letting the market demand function shift randomly but continuously through time according to a stochastic process this means that today s demand is known exactly but future demand may be larger or smaller and has a variance that increases with the time horizon likewise uncertainty over factor costs is characterized by treating those variables as stochastic processes i combine this characterization of uncertainty with a dynamic model of the firm in which some factor inputs can be adjusted freely in response to stochastic demand changes but other factors are quasi fixed in that adjustment costs are incurred when they are changed in this model the firm s price and output are random processes but we can examine the firm s behavior in expected value terms of interest is whether the presence of uncertainty should cause competitive or monopolistic firms to invest and produce more or less than they would otherwise how the effects of uncertainty are influenced by the presence of risk aversion and how the use of inventories can alter the impact of uncertainty on capacity and sales of course these questions have been addressed by others in the past among the earliest studies of demand uncertainty are those of edwin mills 1959 1962 and samuel karlin and charles carr 1962 mills examined a single period monopolistic firm that sets both output and price and showed that additive demand uncertainty i e the demand function is of the form q q p u where u is a random variable leads to a lower price if marginal cost is constant so that the firm reduces the expected loss from discarding unsold production karlin and carr confirmed for both the static case and the multiperiod case with inventory carryover that additive uncertainty tends to reduce the price and increase the output of a risk neutral firm while multiplicative uncertainty does the opposite other papers have been concerned with the way in which the error term enters the demand function additively multiplicatively or nonlinearly the implications of choosing price ex ante instead of output the implications of risk aversion and the use of inventories for example agnar sandmo 1971 and david baron 1970 showed that a risk averse competitive firm will produce less when the price is a random variable or subject to an additive error term but a riskneutral firm will not alter its production hayne leland 1972 extended these results to a monopolistic firm whose demand can depend in a general way on a random error term for example q q p u and showed that uncertainty reduces the production of a

finite durability of capital and the investment uncertainty relationship abstract this paper shows that if the useful lifetime of capital is shorter than the firm s horizon then an increase in uncertainty over the future output price lowers the current investment even without irreversibility of investment the usual explanation of such a negative effect

does inflation targeting anchor long run inflation expectations evidence from the u s uk and sweden we investigate the extent to which inflation expectations have been more firmly anchored in the united kingdom a country with an explicit inflation target than in the united states a country with no such target using the difference between far ahead forward rates on nominal and inflation indexed bonds as a measure of compensation for expected inflation and inflation risk at long horizons we show that far ahead forward inflation compensation in the u s exhibits substantial volatility especially at low frequencies and displays a highly significant degree of sensitivity to economic news similar patterns are evident in the uk prior to 1997 when the bank of england was not independent but have been strikingly absent since the bank of england gained independence in 1997 our findings are further supported by comparisons of dispersion in longer run inflation expectations of professional forecasters and by evidence from sweden another inflation targeting country with a relatively long history of inflation indexed bonds our results support the view that an explicit and credible inflation target helps to anchor the private sector s views regarding the distribution of long run inflation outcomes jel e31 e52 e58

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

schumann a modeling framework for supply chain management under uncertainty abstract we present a modeling framework for the optimization of a manufacturing assembly and distribution mad supply chain planning problem under uncertainty in product demand and component supplying cost and delivery time mainly the automotive sector has been chosen as the pilot area for this type of multiperiod multiproduct multilevel problem but the approach has a far more reaching application a deterministic treatment of the problem provides unsatisfactory results we use a 2 stage scenario analysis based on a partial recourse approach where mad supply chain policy can be implemented for a given set of initial time periods such that the solution for the other periods does not need to be anticipated and then it depends on the scenario to occur in any case it takes into consideration all the given scenarios very useful schemes are used for modeling balance equations and multiperiod linking constraints a dual approach splitting variable scheme is been used for dealing with the implementable time periods related variables via a redundant circular linking representation

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

is transparency about central bank plans desirable a central bank with private information about its preferences has an incentive to reduce its planned inflation to increase the public s perception of its inflation aversion and lower expected future inflation a regime is said to be transparent if planned inflation is observable and reveals the central bank s preferences and to be non transparent if planned inflation is unobservable and can be only imperfectly inferred from actual inflation a central bank in the non transparent regime is said to become more transparent when actual inflation becomes a better signal of planned inflation i find several results about transparent and non transparent regimes some are novel and some contrast with the results of earlier papers in particular i demonstrate that in a non transparent regime increased transparency need not improve the public s ability to infer a central bank s private information i show that society and central banks are better off with more transparency my numerical results suggest that society and central banks prefer the transparent to the non transparent regimes

international experiences with different monetary policy regimes any views expressed in this paper are those of the author only and not those of columbia university or the national bureau of economic research abstract this paper examines the international experiences with four basic types of monetary policy regimes 1 exchange rate targeting 2 monetary targeting 3 inflation targeting and 4 monetary policy with an implicit but not an explicit nominal anchor the basic theme that emerges from this analysis is that transparency and accountability are crucial to constraining discretionary monetary policy so that it produces desirable long run outcomes because the devil is in the details in achieving transparency and accountability what strategy will work best in a country depends on its political cultural and economic institutions as well as on its past history

irreversible investments and volatile markets a study of the chemical processing industry this paper investigates the empirical effect of volatility on irreversible investments we use a sample of chemical products in the united states and the european union to test the impact of volatility on new investments in capacity we distinguish among three sources of volatility exchange rates input prices and product demand we find that the effects of volatility on the amount of capacity investment differ depending on the source of volatility input prices and product demand volatility do not appear to have a material and statistically significant effect in either the united states or the european union in contrast exchange rate volatility has a significant negative impact on investment by chemical manufacturers in the european union

gender and corruption in business abstractare firms with female owners or managers less corrupt than other firms we test this question using firm level data on corruption ownership and management we find that women in positions of influence are associated with less corruption female owners are associated with a lower incidence of bribery and report smaller levels of bribery moreover corruption is seen as less of an obstacle in companies where women are represented in top management by providing evidence that women are associated with lower levels of corruption in business our research contributes to the literature on development gender equality and corruption

corruption types of corruption and firm financial performance new evidence from a transitional economy using a nationwide survey of provincial institutional quality and a sample of private manufacturing small and medium scale enterprises the smes this paper contributes to the literature by considering for the first time the effects of corruption on the financial performance of vietnamese private smes interestingly contrary to previous findings we find that corruption when measured by a dummy variable does not affect firms financial performance after controlling for heterogeneity simultaneity and dynamic endogeneity however the intensity of bribery and the majority of the forms of corruption were found to have negative impacts on firms financial performance hence a typical approach using only a dummy variable for bribery might not adequately evaluate the impact of bribe intensity or even ignores the negative impacts of some types of bribes on firms financial performance the findings suggest that anti corruption measures are vital for the development of the vietnamese private smes

investment and demand uncertainty this paper investigates the effects of uncertainty on the investment decisions of a sample of italian manufacturing firms using information on the subjective probability distribution of future demand for firms products according to the entrepreneurs the results support the view that uncertainty weakens the response of investment to demand thus slowing down capital accumulation consistent with the predictions of the theory there is considerable heterogeneity in the effect of uncertainty on investment it is stronger for firms that cannot easily reverse investment decisions and for those with substantial market power we show that the negative effect of uncertainty on investment cannot be explained by uncertainty proxying for liquidity constraints

investment climate and firm productivity an application to vietnamese manufacturing firms abstractthe fundamental aspect of a national competitive advantage is a good investment climate understanding the role of the investment climate in generating firm productivity has received extensive attention by policymakers and economists in many countries the article studies the effect of different dimensions of the investment climate on firm productivity using a large dataset of vietnamese manufacturing firms the article finds that deficiencies in the investment climate are prejudicial to firm productivity and competition furthermore in examining the effect of corruption in association with the quality of the business environment the study also investigates the possibility that corruption may compensate firms for a bad investment climate or at least may neutralize the negative impact of inefficient government regulations in other words corruption acts as speed money to improve the efficacy of the provision of public services or provides leeway for entrepreneurs to bypass the inefficient reg

inflation forecast contracts we introduce a new type of incentive contract for central bankers inflation forecast contracts which make central bankers remunerations contingent on the precision of their inflation forecasts we show that such contracts enable central bankers to influence inflation expectations more eectively thus facilitating more successful stabilization of current inflation inflation forecast contracts improve the accuracy of inflation forecasts but have adverse consequences for output on balance paying central bankers according to their forecasting performance improves welfare

the role of planning in small firms empirical evidence from a service industry the relation between planning behaviour and performance is analyzed for a large number of small real estate firms in the netherlands a firm s planning behaviour appears to be influenced by the way it perceives its environment in terms of complexity and dynamics as well as its own characteristics size age and activities the explanation of performance is dominated by a firm s size and the nature of its activities hardly and effect of planning on a firm s performance is found though it appears that in an environment perceived as highly dynamic planning is merely counter productive

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

the influence of uncertainty on uk manufacturing investment this paper reports the results of including proxies for growth and inflation uncertainty in an accelerator style investment equation set up in error correction form for u k manufacturing plant and machinery expenditure the uncertainty proxies are constructed as cross section dispersion indices of independent economic forecasts the results confirm the importance of output growth uncertainty as a negative determinant of capital formation inflation uncertainty was found to have a short run influence only copyright 1991 by royal economic society