the effect of slack diversification and time to recall on stock market reaction to toy recalls abstract past toy recalls have led to an increase in consumer concerns while toy manufacturers and retailers increasingly outsource and create longer supply chains making it more challenging for them to ensure toy safety this article examines firms making toy recall announcements to assess the impact operational characteristics have on the negative stock market reaction to the announcement 135 toy recall announcements in the u s from 1979 to 2016 were analyzed using event study and cross sectional regression while a toy recall announcement results in a negative stock market reaction our results show that greater levels of business diversification inventory slack and a longer time to recall are all associated with a less negative stock market reaction in contrast greater capacity slack is associated with a more negative stock market reaction we find no evidence that geographic diversification or financial slack influences the stock market reaction nor have reactions changed appreciably over time this article contributes to the product harm and product recall literature by focusing on these operational elements managers should be aware of the benefits of greater slack and business diversification while planning their business and the impact of a longer time to recall

fixing exchange rates a virtual quest for fundamentals abstract fixed exchange rates are less volatile than floating rates but the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes this suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful it also suggests that there is no clear tradeoff between reduced exchange rate volatility and macroeconomic stability

exchange rate regime credibility the agency cost of capital and devaluation abstract hong kong pegs their currency to the us dollar with a currency board in the wake of the asian financial crisis in 1997 the us hong kong interest rate differential jumped from 1 2 to 4 6 investors feared hong kong would abandon the peg this paper analyzes the crucial role of credibility in a stochastic dynamic rational expectations regime switch model i parameterized the model using estimates of the exchange rate process for hong kong the model generated interest rate differentials are consistent with the interest differentials in hong kong before the asian financial crisis in july of 1997 but not after the crisis

the changing role of consumers and suppliers in a food safety event the 2006 foodborne illness outbreak linked to spinach abstractthis article provides a means for testing whether buyers or sellers are responsible for a drop in sales following a market shock we show that suppliers responses dominated the market reaction to the 2006 us food and drug administration warning to avoid fresh spinach contaminated with potentially deadly bacteria escherichia coli o157 h7 a modified durbin wu hausman test for temporary price endogeneity is developed and used in a leafy green vegetable demand model test results indicate the price of bagged spinach was exogenous before the announcement but endogenous for approximately 12 weeks afterward we show these results are consistent with the notion that suppliers temporarily limited the availability of spinach to consumers instead of consumers choosing the quantity purchased given exogenous prices it was suppliers who limited the quantity marketed and consumers choices established the market price

crossing the lines the conditional relation between exchange rate exposure and stock returns in emerging and developed markets this paper examines the importance of exchange rate exposure in the return generating process for a large sample of non financial firms from 37 countries we argue that the effect of exchange rate exposure on stock returns is conditional and show evidence of a significant return impact to firm level currency exposures when conditioning on the exchange rate change we further show that the realized return to exposure is directly related to the size and sign of the exchange rate change suggesting fluctuations in exchange rates as a source of time variation in currency return premia for the entire sample the return impact ranges from 1 2 to 3 3 per unit of currency exposure and it is larger for firms in emerging markets compared to developed markets overall the results indicate that foreign exchange rate exposure estimates are economically meaningful despite the fact that individual time series results are noisy and many exposures are not statistically significant and that exchange rate exposure plays an important role in generating cross sectional return variation moreover we show that the relation between exchange rate exposure and stock returns is more consistent with a cash flow effect than a discount rate effect

exchange rates and cash flows in differentiated product industries a simulation approach how do exchange rate changes impact firms cash flows we extend a simulation method developed in industrial organization to answer this question we use prices quantities and product characteristics for differentiated products coupled with a discrete choice framework and an assumption of price competition to estimate marginal costs for all producers using a monte carlo approach we generate counterfactual prices and profits for different levels of exchange rates we illustrate the method using the market for bottled water our results stress that even in a relatively simple market such as this one different brands face very different exchange rate risks consider a firm that produces a good in france using mainly local inputs and sells it abroad in locations that have a floating exchange rate vis a vis the euro profits and in turn the value of the firm are potentially exposed to exchange rate changes if the euro appreciates profits when measured in euros are likely to decrease how large is the decrease in profits similarly what is the impact of such an exchange rate change on the profits of an import competing firm these are the questions that a large literature on exchange rate exposure attempts to answer

impacts of meat product recalls on consumer demand in the usa the impact of meat product recall events on consumer demand beef pork poultry and other consumption goods in the usa is tested empirically beef pork and poultry recall indices are constructed from both the food safety inspection service s meat recall events and from newspaper reports over the period 1982 1998 following previous product recall studies recall indices are incorporated as shift variables in consumers demand functions estimating an absolute price version of the rotterdam demand model findings indicate that food safety inspection service s meat recall events significantly impact demand and newspaper reports do not moreover although elasticities related to recall events are significant they are small in magnitude relative to price and income effects any favourable effects on the demands of meat substitutes for a recall are offset by a more general negative effect on meat demand the general negative effect indicates a shift out of meat to non meat consumption goods

a cautionary note in using patterns of shocks to determine optimal exchange rate policy an exploration of nepalese and indian exchange rate relations 1964 1994 nepal and india are developing countries in asia whose hard peg has existed for almost forty years as well as no restriction on capital mobility between both countries however empirical results suggest that nepal and india do not face symmetric patterns of shocks and are thus not suitable for a fixed exchange rate under this criteria one possible explanation may be that the monetary authority plays some role in the short run to reduce the cost of the exchange rate regime this suggests that some caution should be used in basing optimal exchange rate policy on this single criteria

real exchange rates within and between currency areas how far away is emu the renewed quest for a european monetary union raises the question is europe ready for a common currency we compare the conditional variance and the persistence of real exchange rate shocks within the german monetary union and between germany and eight european countries to assess the viability of a monetary union in europe the results suggest a europe of two speeds a core union among germany her smaller neighbors and france would be viable today further reduction of real exchange rate variability is needed in contrast between these countries and denmark italy and the united kingdom alternatively monetary union should be postponed until further adjustment has occurred such a waiting period would neither require nor benefit much from further tightening of the current ems copyright 1994 by mit press

determinants of the implied shadow exchange rates from a target zone abstract the paper provides a continuous time model of the dynamic behavior of exchange rates and interest rates when exchange rates are managed within a target zone with the possibility of realignments in the case of a realignment the exchange rate jumps to a shadow exchange rate the timing of realignments is modelled by a cox process with an intensity that depends on the location of the exchange rate in the target zone band as well as the distance to the shadow exchange rate we set up an approximate maximum likelihood estimation approach and provide parameter estimates for six erm target zones moreover in the empirical analysis we filter out the shadow exchange rates and investigate which fundamental macroeconomic factors are able to explain the short run and long run behavior of the filtered shadow exchange rates

the nature of shocks in europe and in germany demand and supply shocks in the participating countries this paper addresses that question empirically using a bivariate var identification of the underlying orthogonal demand and supply shocks is achieved using only long run restrictions data for 16 european countries

speculative currency attacks and balance of payments crises abstract this paper reviews the recent theoretical literature on collapsing exchange rate regimes using a combination of technique intuition and realworld observation we discuss the literature s main insights point out some unresolved questions and offer suggestions for future research the survey should be of interest to both specialists and non specialists in the field of international macroeconomics

international policy coordination for financial market stability in the asian economies based on the understanding of financial crisis as the self fulfilling crisis of speculators belief system this paper examines the feasibility of introducing the tobin tax system to reduce financial volatility in the asian foreign exchange markets the model analysis in this paper provides the following policy implications to reduce the motivation to deviate from the policy coordination it is required to allow all tax revenues to collecting countries especially to singapore and hong kong even without the participation of the major western countries the start of the tax policy coordination in the asian region can have significant signalling effects to reduce speculative motivation

speculation and the decision to abandon a fixed exchange rate regime this paper investigates the extent to which it is possible for speculative attacks to be predictable given information on economic fundamentals a standard model of predictable attacks is extended to incorporate an optimizing monetary authority it is shown that while incorporating a forward looking monetary authority improves our understanding of many observed phenomena it also implies that the branch of the literature that places emphasis on predictable movements in fundamentals cannot generate predictable speculative attacks in addition the model provides useful insights into the viability of temporary nominal anchor policies and a theoretical foundation for an important empirical methodology

what does reputation really assure the relationship of trademarks to expectations and legal remedies i introduction klein and leffler 1981 and shapiro 1982 1983 have shown that a firm that engages in repeat transactions has an incentive to use the market as distinct from formal legal processes to assure the quality of its product the firm charges a price above salvageable costs of production and invests the premium in reputation trademark capital that it forfeits wholly or in part if it allows quality to fall below the standards it represents to its customers 1 the quality assurance hypothesis seems to be supported by stock market event studies such as those by jarrell and peltzman 1985 and karpoff and lott 1993 which show that product recalls airline crashes deceptive advertising and fraud result in trademark losses the quality assurance hypothesis however does not explain the massive size of these losses which typically are many times the outlays incurred by the firm as a result of the event the law and economics literature on contracts offers an answer to this and related puzzles suggesting that trademark capital does more than assure quality it assures specific performance that is fulfillment of the precise terms of the contract 2 after developing the specific performance hypothesis section ii we show that it is supported by the evidence from event studies furthermore it explains other phenomena not covered by the quality assurance hypothesis including why competitors of firms whose products are recalled lose wealth why some damages such as those in airline crashes intentionally fail to provide full compensation and why firms who sell to other firms also invest in trademark capital section iii we conclude with a summary and a few remarks on the issue of market versus legal forces section iv ii the specific performance hypothesis the quality assurance hypothesis focuses on the problems that arise when the physical characteristics of a commodity are costly to determine even after purchase and sellers warranties and quality representations are costly to enforce because higher quality usually costs more to produce and can be sold at a higher price producers have an incentive to represent their goods as being of higher quality than they really are or having established a reputation to cut quality and costs when consumers observe that the quality of the goods they purchase is lower than they had been led to believe they shift to lower cost lower quality goods whose quality is easier to determine higher quality goods seemingly are driven off the market klein and leffler 1981 hypothesize that a firm that engages in repeat transactions can gain by producing higher quality goods charging a price above salvageable costs of production and investing the premium in firm specific trademark capital the value of this trademark also described as reputation or goodwill is the present value of the expected stream of price premiums misrepresentation causes a reduction in this income stream and a corresponding loss in trademark capital 3 thus trademarks assure quality without a third party to enforce the contract 4 a buyer however is concerned about other characteristics of a transaction besides the physical attributes of the product the expected harm if the seller breaches the contract for example by misrepresenting the product failing to deliver it on time or failing to provide future service and the ability of the legal system to assure full compensation also matter accordingly a seller who engages in repeat transactions has an incentive to provide a bond that assures specific performance rather than just product quality when a breach results in damages that are hard to measure and the legal system does not enforce contracts costlessly the next task therefore is to examine the limitations of the legal system in enforcing contracts and providing compensation in case of breach specific performance and penalty clauses the courts could require contracting parties to provide specific performance

exchange rate hedging financial versus operational strategies exchange rate exposure is an important source of risk for multinational corporations to mitigate the impact of exchange rate fluctuations it has been claimed that multinational corporations can employ risk management strategies not only through financial derivatives but also through operational hedges for example schering plough in its 1995 annual report p 25 argues in support of exclusive use of operational hedges to date management has not deemed it cost effective to engage in a formula based program of hedging the profitability of these operations using derivative financial instruments some of the reasons for this conclusion are the company operates in a large number of foreign countries the currencies of these countries generally do not move in the same direction at the same time conversely many corporations with large worldwide networks such as ibm or coca cola make extensive use of derivative financial instruments this paper investigates both financial and operational exchange rate risk management strategies of multinational firms while several studies have examined either firms financial hedging or firms operational hedging activities no study thus far has examined financial and operational hedging simultaneously for a large cross section of firms to the extent that the decision to use financial hedging strategies is related to and affected by the operational strategies that a firm employs it is important to examine how each strategy contributes to the overall goal of mitigating risk and improving shareholder value using a sample of u s multinational nonfinancial firms during 1996 1998 we find that operational hedging is not an effective substitute for financial risk management however we find that the more geographically dispersed a firm is the more likely it is to use financial hedges the end result on firm value is that operational hedging strategies benefit shareholders only when used in combination with financial hedging strategies

the foreign exchange exposure of japanese multinational corporations we find that about 25 percent of our sample of 171 japanese multinationals stock returns experienced economically significant positive exposure effects for the period january 1979 to december 1993 the extent to which a firm is exposed to exchange rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs highly leveraged firms or firms with low liquidity tend to have smaller exposures foreign exposure is found to increase with firm size we also find that keiretsu multinationals are more exposed to exchange rate risk than nonkeiretsu firms it is conventional wisdom that exchange rate movements affect both the cash flows of a firm s operations and the discount rate employed to value these cash flows measuring foreign exchange exposure is now a central issue of international financial management and this issue has spawned a considerable amount of research existing empirical evidence on foreign exchange exposure however seems perplexing studies have so far documented a weak link between contemporaneous exchange rate fluctuations and stock returns of u s multinational firms 2 gendreau 1994 finds it difficult and unconvincing that the weak results imply that exchange rate changes have no effect on exporters stock returns bartov arnd bodnar 1994 attribute the observed insignificant relationship between exchange rate changes and st ock returns to probable problems associated with the previous studies samiple selection procedure or to mispricing caused by investors errors in estimat

a political economic critique on the theory of optimum currency areas and the implications for east asia in recent years dynamic debate has arisen as to the desirability and feasibility of creating a monetary union in east asia while the debate has relied heavily on the theory of optimum currency areas this theory has weaknesses in explaining the actual formation of monetary unions at this point political economy analysis appears to demonstrate stronger explanatory power this paper provides a systematic review of the main developments in the literature on optimum currency area theory and in the political economy literature on monetary union in addition it addresses the feasibility of an east asian monetary union by applying the findings in these two academic strands to the region it finds that even though formation of an east asian monetary union may be to some extent feasible from an economic perspective the region s political situation does not appear favourable for the creation of one

resolving the exposure puzzle the many facets of exchange rate exposure theory predicts sizeable exchange rate fx exposure for many firms however empirical research has not documented such exposures to examine this discrepancy we extend prior theoretical results to model a global firm s fx exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges for a typical sample firm pass through and operational hedging each reduce exposure by 10 15 financial hedging with foreign debt and to a lesser extent fx derivatives decreases exposure by about 40 the combination of these factors reduces fx exposures to observed levels

a currency crisis model with an optimising policymaker abstract a model is presented in which the abandonment of a fixed exchange rate regime is triggered by an optimising policymaker who wants to loosen monetary policy and boost aggregate demand agents in the foreign exchange market know the policymaker s objective function and build expectations of a regime switch into interest differentials the resulting rise in interest rates affects the policymaker s decision to switch regime it is shown that a rational expectations equilibrium exists where the fixed rate is abandoned in response to adverse demand shocks in some circumstances multiple equilibria arise which may lead to self fulfilling crises

did the euro common currency increase or decrease business cycle synchronization for its member countries we use two variants of markov switching models to assess changes in output synchronization since the creation of the euro out of eight eurozone countries investigated only one the netherlands has synchronization increased since euro adoption supporting the endogenous optimal currency area argument of frankel and rose however in three other cases business cycle synchronization actually fell since the euro s creation thus the endogeneity of the optimal currency area criteria can go both ways adopting a common currency may increase synchronization for nations ready for a common currency but it can lower synchronization for nations that are far from synchronized before monetary unification

shadow rates and multiple equilibria in the theory of currency crises abstract this note generalizes to second generation models of currency crises the arbitrage based approach first applied by flood and garber to first generation models deriving policy switching rules based on the shadow exchange rate facilitates the comparative analysis of the literature using the shadow rate we provide and discuss an example of a common mechanism generating multiple equilibria in both first and second generation models

learning large deviations and recurrent currency crises this article studies a version of obstfeld s journal of international economics 43 1997 61 77 escape clause model the model is calibrated to produce three rational expectations equilibria two of these equilibria are e stable and one is unstable dynamics are introduced by assuming that agents must learn about the government s decision rule it is assumed they do this using a stochastic approximation algorithm it turns out that as a certain parameter describing the sensitivity of beliefs to new information gets small the algorithm converges to a small noise diffusion process the dynamics of exchange rate changes are then characterized using large deviation techniques from freidlin and wentzell random perturbations of dynamical systems second edition berlin springer verlag 1998 these methods describe the sense in which the limiting distribution of exchange rate changes is approximated by a two state markov switching process where the two states correspond to the two e stable equilibria the model is calibrated to the exchange rate histories of argentina brazil and mexico currency crises in these countries resemble the predicted escape routes of the model a key feature of these escape routes is that expectations of a devaluation erupt suddenly without large contemporaneous shocks this is consistent with evidence showing that crises are often poorly anticipated by financial markets

the corporate social responsibility of pharmaceutical product recalls an empirical examination of u s and u k markets the pressure on companies to practice corporate social responsibility csr has gained momentum in recent times as a means of sustaining competitive advantage in business the pharmaceutical industry has been acutely affected by this trend while pharmaceutical product recalls have become rampant and increased dramatically in recent years no comprehensive study has been conducted to study the effects of announcements of recalls on the shareholder returns of pharmaceutical companies as product recalls could significantly damage a company s reputation profitability and brand integrity this paper investigates the effect on shareholder wealth and the extent to which the adoption of csr practices by pharmaceutical companies in the united kingdom u k and the united states u s the two largest markets for pharmaceutical products in the world affected market reactions surrounding product recall announcements the analysis of product recall announcements from 1998 to 2004 compiled from the pharmaceutical journal and u s food and drug administration enforcement reports revealed marked differences in the way market participants in the two countries responded to news of product recalls u s investors penalised firms according to the severity of product defects while u k investors were indifferent while u k investors rewarded product recalls by firms which were not usually csr active u s investors punished non csr active firms that performed recalls these observations could pose strategic challenges to pharmaceutical firms operating in both countries

the economic side effects of dangerous drug announcements immediately prior to the passage of the 1962 food and drug administration amendments there were a number of drugs recalled from markets worldwide announcements about the dangerous side effects of these drugs were associated with lower share prices for their manufacturers and the industry as a whole we perform several analyses to sort out alternative explanations for the observed declines we find that dangerous drug announcements had no effect on the sales of other drugs and did not affect the share values of european drug makers doing little business in the united states we also find that share price reductions associated with recalls in the 1970s and 1980s were confined to the manufacturers of the recalled drugs these patterns are consistent with the hypothesis that drug company shareholders viewed the recalls in the early 1960s as signals of an increase in the cost of compliance with new and more stringent drug testing requirements

currency and financial crises in turkey 2000 2001 bad fundamentals or bad luck this paper attempts to explore the underlying causes of twin crises experienced by turkey in november 2000 and february 2001 we study an extensive set of leading indicators of crises that are drawn from the existing literature our results identify three sets of vulnerabilities in the turkish economy in triggering the financial crisis and bringing about the collapse of the turkish lira these are first the weak external position caused by excessive debt burden combined with the loss of competitiveness second the weak fiscal position resulting from the record levels of interest payments on domestic borrowing and most importantly third weaknesses in the financial and banking sector given these observations we argue that the success of financial sector reform is instrumental not only for putting the economy on a sustainable recovery path but also for reducing the likelihood of similar crises in the future the general lesson to be drawn from this experience is that a sound financial system is a pre condition for the successful operation of a fixed exchange rate regime

estimating the market effect of a food scare the case of genetically modified starlink corn abstract in 2000 a genetically modified corn variety called starlink that was not approved for human consumption was discovered in the food corn supply to estimate the price impact of this event on the u s corn market we develop the relative price of a substitute method this method applies not only to the starlink event but also to rare events in other markets we find that the contamination led to a 6 8 discount in corn prices and that the suppression of prices lasted for at least a year

the southern african development community suitable for a monetary union abstract this paper investigates whether a monetary union is desirable among the countries of the southern african development community sadc we employ a generalised auto regressive conditional heteroscedasticity garch model to consider the share of the variation in real exchange rates rers vis a vis south africa that can be explained by the divergence in monetary and fiscal policies the results show that monetary integration would substantially eliminate real exchange rate variation due to different monetary policies for some members the study concludes that a monetary union that embraces all sadc members would amass large costs relative to the benefits and hence would not be desirable

gold monetization and gold discipline gold and its price have emerged as frequent topics of both academic and government debate 2 public attention focused on the gold market since gold s price began fluctuating violently in 1980 and 1981 has turned to gold as a possible means of removing some discretion inherent in the current fiat money system since lack of adherence to monetary rules can lead to problems of dynamic policy inconsistency academic economists have begun seriously to reconsider monetary standards based either on gold or on some other commodity as politically feasible methods of establishing rules 3

a currency crisis model with a misaligned central parity a stochastic analysis abstract the currency crisis model outlined in this paper assumes state contingent reserve dynamics which depend on the deviations of the exchange rate from a misaligned central parity the size of the misalignment is affected by an underlined fundamental which embodies money aggregates and a stochastic shock the main result in the presence of an irreversible switch of regime is that the size of the attack is amplified by the feedback effect from the composite fundamental to the exchange rate

the financial impact of product recall announcements in china abstract a product recall can be viewed as a firm s worst nightmare although the long term damage to brand equity and company reputation may be difficult if not impossible to quantify the short term impact on shareholders wealth is readily estimable while many studies have examined this issue in the western context little is known about the financial impact of a product recall announcement in china to advance the knowledge about the financial impact of a product recall announcement we explore this issue using event study methodology in general our findings are congruent with previous research that product recalls result in negative abnormal returns interestingly however we found that chinese companies suffered from greater financial losses than their western counterparts did this study also provides evidence that the chinese food industry experiences a more severe stock market reaction than the automobile industry and that a passive recall strategy was associated with a more negative stock market reaction than a proactive recall strategy we conclude with several future research avenues for global research on product recalls

the economics of nested names name specificity reputations and price premia a good can be identified by its region or country of origin the firm that produces it and its product name in other words names can nest within each other to categorize goods with increasing specificity this article develops a conceptual framework for jointly analyzing the effect of product firm and collective reputations on market price the model is estimated via quantile regression with california wine market data the results portray how the structure and relative importance of reputations change as product prices vary specifically reputation premia migrate from collective to specific names as prices increase

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

market incentives for safe foods an examination of shareholder losses from meat and poultry recalls meat and poultry recalls while voluntary are carried out under governmental oversight if firms have financial incentives to avoid being implicated in a recall situation governmental involvement in recalls may cause firms to internalize social costs when making investment decisions concerning food safety controls to examine these incentives we analyze federally supervised meat and poultry recalls from 1982 to 1998 within an event study results show significant shareholder losses when publicly traded food companies are implicated in a recall involving serious food safety hazards we find no evidence that the stock market reacts negatively when recalls involve less severe hazards each year unsafe foods sicken millions and lead to losses in terms of life and productivity mead et al estimate that foodborne pathogens account for 76 million illnesses and 5 000 deaths in the united states given human error and the limitations of food safety technology food items that pose undue risks to the public will be distributed from time to time when this occurs the firms involved stand to incur expenses related to recovering disposing of or reconditioning potentially contaminated products already placed on the market in addition negative publicity can lead to reductions in product demand and may erode prior investments in reputation and brand capital these firms may also face costs from liability claims associated with an outbreak of food related illnesses or injury our main objective in this paper is to examine reductions in food company valuations that result from food contamination incidents we focus specifically on meat and poultry firms that have shipped products that were later recalled for food safety reasons because preventative actions taken by firms can affect the probability of being implicated in a product recall situation the wealth that is lost when companies are required to recall

the impact of derivatives on firm risk an empirical examination of new derivative users abstract the appropriateness of financial reporting rules for derivative securities depends on corporations reasons for using the instruments empirically little is documented about how the instruments affect firms risk exposures this study examines derivatives roles in firms initiating derivatives use the results are consistent with firms using derivatives to hedge and not to increase entity risk firm risk measured several ways declines following derivatives use realized risk reductions and decisions to initiate derivatives programs vary across firms with the expected benefits from hedging the findings emphasize the importance of hedge accounting rules that incorporate the impact of derivatives and hedged items simultaneously

does food safety information impact u s meat demand a theoretical model of consumer response to publicized food safety information on meat demand is developed with an empirical application to u s meat consumption evidence is found for the existence of pre committed levels of consumption seasonal factors time trends and contemporaneous own and cross commodity food safety concerns the average demand response to food safety concerns is small especially in comparison to price effects and to previous estimates of health related issues this small average effect masks periods of significantly larger responses corresponding with prominent food safety events but these larger impacts are short lived with no apparent food safety lagged effects on food safety concerns in the united states have dramatically increased in the past decade with regard to incidences of contaminated meat products concerns have arisen because contaminated meat products can result in serious risk to the well being and health of consumers contamination comes from a myriad of sources including but not limited to outbreaks of listeria monocytogenes escherichia coli e coli and salmonella centers for disease control and prevention food safety problems are not isolated to the united states as other unsafe contaminates in meats have emerged across the world including highly publicized outbreaks of bovine spongiform encephalopathy bse in europe the potential impacts of publicized food safety events on consumer s demand for meat products in the united states include own effects on the demand for the contaminated meat involved as well as cross effects impacting the demand for other meats the objective of this article is to investigate whether publicized food safety concerns surrounding beef pork and poultry chicken and turkey have impacted meat consumption food safety indices are constructed separately for beef pork and poultry

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

estimating the structure of market reaction to news information events and lumber futures prices we develop a new event study technique the distributional event response model derm appropriate to relatively slowly evolving information events we apply the model to twelve years of daily lumber futures prices and analyze the effects of three different types of information releases a monthly housing starts estimates b aperiodic administrative and judicial announcements about u s canada trade disputes and c novel and unprecedented court decisions related to the endangered species act esa the information releases are different in ways that predict their relative speeds of impoundment in prices we find that housing start events are absorbed more quickly than trade events which are absorbed more quickly than esa events

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

fiscal policies and the choice of exchange rate regime a common argument against either a monetary union or a regime or a fixed exchange rates is that they preclude flexible use of the inflation tax the authors address this point of view by comparing three alternative exchange rate regimes a pure float an ems regime in which the exchange rate is fixed but can be realigned and a monetary union the authors model the three regimes as alternative commitments on future seigniorage policies this approac h suggests that it is not possible to pareto rank the three regimes o n the other hand the authors provide intuitive conditions under which each of the systems is superior to the others copyright 1993 by royal economic society

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

a literature survey on proposed african monetary unions this study provides a survey of recent advances in the literature on proposed african monetary unions the survey comprises about 60 empirical papers published during the past fifteen years four main strands are discussed individually and collectively notably the proposed west african monetary zone wamz east african monetary union eamu southern african monetary union samu and african monetary union amu we observe a number of issues with establishing the feasibility and or desirability of potential monetary unions inter alia variations in choice of variables empirical strategies sampled countries and considered periodicities we address this ambiguity by reviewing studies with scenarios that are consistent with hegelian dialectics and establish selective expansion as the predominant mode of monetary integration some proponents make cases for strong pegs and institutions as viable alternatives to currency unions using cluster analysis disaggregating panels into sub samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications we caution that for inquiries using the same theoretical underpinnings variables and methods just by modifying the scope context and periodicity may only contribute to increasing the number of conflicting findings authors should place more emphasis on new perspectives and approaches based on caveats of and lessons from the european monetary union emu and cfa zones

capital controls and foreign exchange market crises in the ems abstract it is widely held that capital controls are necessary to prevent foreign exchange market crises in a fixed but adjustable exchange rate system like the ems it was therefore argued that capital market liberalization which came in july 1990 might lead to recurrent crises in the ems events since july 1990 have shown that capital controls were not necessary for the stability of the ems this paper shows that even with capital controls the system might enter turbulent periods and might experience a self fulfilling balance of payments crisis if the authorities are perceived to dislike high domestic interest rates a crisis can then be triggered by any small shock if the authorities are not willing to raise domestic interest rates sufficiently to defend the exchange rate

exchange rate exposure hedging and the use of foreign currency derivatives abstract we examine whether firms use foreign currency derivatives for hedging or for speculative purposes using a sample of s p 500 nonfinancial firms for 1993 we find evidence that firms use currency derivatives for hedging as their use significantly reduces the exchange rate exposure firms face we also find that while the decision to use derivatives depends on exposure factors i e foreign sales and foreign trade and on variables largely associated with theories of optimal hedging i e size and r d expenditures the level of derivatives used depends only on a firm s exposure through foreign sales and trade

towards european monetary union without the ems towards emu without the ems paul de grauwe this paper examines the causes of the breakdown of the ems arguing that ems credibility has always been impaired by recessions this has relevance both for the future of monetary union in europe and for the path by which it might be attained i argue that in comparison with the erm the present more flexible exchange rate arrangements will ease not exacerbate some of the technical problems in making the transition to emu i then analyse the political economy of monetary union and identify the main stumbling blocks that remain finally i set out a specific proposal that takes advantage of the new opportunities to move forward towards emu

speculative attacks with unpredictable or unknown foreign exchange reserves during a currency crisis speculators usually do not know the value of a central bank s foreign exchange reserves in this paper i show that modelling speculators as having imperfect knowledge of reserves enriches the predictions of the classical model of specula tive attacks with realistic lags in reserve reporting and costs to unsuccessful speculation successful speculative attacks will involve a jump depreciation unsuccessful attacks may occur attacks may occur when fundamentals are improving attacks may not be preceded by large increases in interest rates and fixed exchange rates may be abandoned with no attack and no decline in the money supply jel classification f3 1 attaques speculatives quand les reserves de devises etrangeres sont soit imprevisibles soit inconnues au cours d une crise monetaire les speculateurs ne connaissent pas normalement la valeur des reserves de devises etrangeres que la banque centrale a en main ce memoire montre qu une modelisation des speculateurs en postulant qu ils ont une connaissance imparfaite des reserves permet d enrichir les predictions du modele classique des attaques speculatives a partir d une evaluation realiste des delais dans les rapports sur la quantite de reserves et des couits d une speculation ratee on deter mine que les attaques speculatives reussies vont impliquer que se produise une deprecia tion discontinue que des attaques speculatives ratees puissent se produire que des attaques peuvent se produire quand les donnees fondamentales s ameliorent que des at taques ne peuvent pas etre precedees par de fortes augmentations des taux d interet et que des taux de change fixes peuvent etre abandonnes sans attaques et sans chute dans

the term structure of interest rate differentials in a target zone theory and swedish data abstract the term structure of interest rate differentials is derived in a model of a small open economy with a target zone exchange rate regime for given time to maturity the interest rate differential is decreasing in the exchange rate and for given exchange rate the interest rate differential s absolute value and its instantaneous variability are both decreasing in the time to maturity devaluation realignment risks are incorporated and imply upward shifts of the interest rate differentials several implications of the theory are found to be broadly consistent with data on swedish exchange rates and interest differentials for the period 1986 1989

european monetary union a cointegration analysis this paper employs systems based cointegration techniques developed by johansen 1988 1995 to determine which european union countries would form a successful economic and monetary union emu based on long run behavior of the nominal convergence criteria laid down in the maastricht treaty the original 12 european union countries are analyzed together nominal exchange rates real exchange rates longterm interest rates and government budget deficits are each analyzed for co movements among the 12 countries and various subgroups of them the results suggest that not all of the 12 original countries of the european union could possibly form a successful emu over time unless several countries made significant adjustments

policy measures to avoid a currency crisis this paper considers a number of policy measures that may be used to preserve a fixed exchange rate these are analyzed in a model where a switch of exchange rate regime is triggered by an optimizing policymaker in response to extreme economic conditions it is shown how a number of policy measures can be used to alter the balance between the costs and benefits of switching between regimes these policy measures have both a direct effect on the policymaker s choice of regime switching point and an indirect effect through private sector expectations of a regime switch copyright 1995 by royal economic society