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on Business Economics |
| By: | Andrew T. Foerster; Pierre-Daniel G. Sarte; Mark W. Watson |
| Abstract: | This paper uses factor analytic methods to decompose industrial production (IP) into components arising from aggregate shocks and idiosyncratic sector-specific shocks. An approximate factor model finds that nearly all (90%) of the variability of quarterly growth rates in IP are associated with common factors. Because common factors may reflect sectoral shocks that have propagated by way of input-output linkages, we then use a multisector growth model to adjust for the effects of these linkages. In particular, we show that neoclassical multisector models, of the type first introduced by Long and Plosser (1983), produce an approximate factor model as a reduced form. A structural factor analysis then indicates that aggregate shocks continue to be the dominant source of variation in IP, but the importance of sectoral shocks more than doubles after the Great Moderation (to 30%). The increase in the relative importance of these shocks follows from a fall in the contribution of aggregate shocks to IP movements after 1984. |
| JEL: | C32 E23 E32 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14389&r=bec |
| By: | M. Ayhan Kose; Christopher Otrok; Eswar S. Prasad |
| Abstract: | This paper analyzes the evolution of the degree of global cyclical interdependence over the period 1960-2005. We categorize the 106 countries in our sample into three groups -- industrial countries, emerging markets, and other developing economies. Using a dynamic factor model, we then decompose macroeconomic fluctuations in key macroeconomic aggregates -- output, consumption, and investment -- into different factors. These are: (i) a global factor, which picks up fluctuations that are common across all variables and countries; (ii) three group-specific factors, which capture fluctuations that are common to all variables and all countries within each group of countries; (iii) country factors, which are common across all aggregates in a given country; and (iv) idiosyncratic factors specific to each time series. Our main result is that, during the period of globalization (1985-2005), there has been some convergence of business cycle fluctuations among the group of industrial economies and among the group of emerging market economies. Surprisingly, there has been a concomitant decline in the relative importance of the global factor. In other words, there is evidence of business cycle convergence within each of these two groups of countries but divergence (or decoupling) between them. |
| JEL: | C11 C32 E32 F41 F42 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14292&r=bec |
| By: | Stefano Battilossi; James Foreman-Peck; Gerhard Kling |
| Abstract: | In the first age of rapid economic growth after 1945, fluctuations of western European output and employment were so mild that the very notion of a cycle was transformed or even seemed obsolete. A second period of much slower average economic growth was marked by large and frequent oscillations, associated with the oil shocks and the Great Inflation of the 1970s and early 1980s. The last phase, characterized by smooth and ampie swings in output and inflation, has been dubbed the Great Moderation , reflecting the gradual reduction of inflationary trends. Different reasons have been proposed for these changing patterns but a common factor is that the conduct of economic policy was critical. In this paper we survey the evolution of basic features of cycles in Europe, such as volatility and synchronization; explain why changes in economic policy-making were a fundamental driver of changing patterns; and provide analytical narratives of the responses of national governments and central bankers to cyclical fluctuations. Finally we briefly look at the historical and recent experience of Eastern Europe, assessing the área s reintegration from 1989 after the long economic decoupling from the rest of the continent in 1945. |
| Keywords: | Business cycle, Inflation, Great moderation, Fiscal and monetary policies |
| JEL: | E32 E63 N14 N36 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:wp08-13&r=bec |
| By: | Penasse, Julien |
| Abstract: | The Asset Backed CDS contract was introduced in 2005 as an extension of the standard corporate CDS. It generally trades under the ISDA "pay-as-you-go'' (PAUG) confirmation which handles the unique features of ABS - amortization, principal writedowns and interest shortfalls. The current market standard for pricing is a simple adaptation of the widely used intensity based model, where the amortization schedule of the security is deterministic. Taking example from some European ABS, we establish stylized facts about their default. In particular, we show that principal writedowns often come along with an extension of the ABS' maturity and can also be preceded by interest shortfalls. This paper introduces adjustments to the classical framework to account for these specificities, with amortization profile becoming a default-dependent function. We show that the resulting duration becomes an increasing function of spread, capturing the fact that distressed ABS shift toward slower amortization. |
| Keywords: | Asset-Backed Securities (ABS); credit default swap (CDS); ABCDS; pay-as-you-go (PAUG); securitization; valuation |
| JEL: | G12 G13 |
| Date: | 2008–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10853&r=bec |
| By: | Andrea Cipollini; Giuseppe Missaglia |
| Abstract: | In this paper, using industry sector stock returns as proxies of firm asset values, we obtain bank capital requirements (through the cycle). This is achieved by Montecarlo simulation of a bank loan portfolio loss density. We depart from the Basel 2 analytical formula developed by Gordy (2003) for the computation of the economic capital by, first, allowing dynamic heterogeneity in the factor loadings, and, also, by accounting for stochastic dependent recoveries. Dynamic heterogeneity in the factor loadings is introduced by using dynamic forecast of a Dynamic Factor model fitted to a large dataset of macroeconomic credit drivers. The empirical findings show that there is a decrease in the degree of Portfolio Credit Risk, once we move from the Basel 2 analytic formula to the Dynamic Factor model specification. |
| Keywords: | Dynamic Factor Model, Forecasting, Stochastic Simulation, Risk Management, Banking |
| JEL: | C32 C53 E17 G21 G33 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:010&r=bec |
| By: | Gabriel Jiménez (Banco de España); José A. López (Federal Reseve Bank of San Francisco); Jesús Saurina (Banco de España) |
| Abstract: | Since bank credit lines are a major source of corporate funding, we examine the determinants of credit line usage with a comprehensive database of Spanish corporate credit lines. A line’s default status is a key factor driving its usage, which increases as a firm’s financial condition worsens. Line usage decreases by roughly 10% for each year of its life. Lender characteristics, such as the number and length of a firm’s banking relationships, are found to affect a firm’s usage decisions, and credit line usage is found to be inversely related to macroeconomic conditions. |
| Keywords: | credit lines, firm default, bank lending, exposure at default |
| JEL: | E32 G18 M21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0821&r=bec |
| By: | Mario J. Crucini; M. Ayhan Kose; Christopher Otrok |
| Abstract: | We examine the driving forces of G-7 business cycles. We decompose national business cycles into common and nation-specific components using a dynamic factor model. We also do this for driving variables found in business cycle models: productivity; measures of fiscal and monetary policy; the terms of trade and oil prices. We find a large common factor in oil prices, productivity, and the terms of trade. Productivity is the main driving force, with other drivers isolated to particular nations or sub-periods. Along these lines, we document shifts in the correlation of the G-7 component of each driver with the overall G-7 cycle. |
| JEL: | E3 E32 F4 F41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14380&r=bec |
| By: | S. Boragan Aruoba; Francis X. Diebold; Chiara Scotti |
| Abstract: | We construct a framework for measuring economic activity at high frequency, potentially in real time. We use a variety of stock and flow data observed at mixed frequencies (including very high frequencies), and we use a dynamic factor model that permits exact filtering. We illustrate the framework in a prototype empirical example and a simulation study calibrated to the example. |
| Keywords: | Business conditions |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-19&r=bec |
| By: | Alex Coad (Max Planck Institute of Economics, Jena, Germany) |
| Abstract: | Recent work drawing on data for large and small firms has shown a Pareto distribution of firm size. We mix a Gibrat-type growth process among incumbents with an exponential distribution of firm's age, to obtain the empirical Pareto distribution. |
| Keywords: | Firm size distribution, Firm growth, Gibrat's Law, Pareto distribution, Zipf Law |
| JEL: | L20 L25 |
| Date: | 2008–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-072&r=bec |
| By: | Matthias Kräkel; Anja Schöttner (University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany; University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany) |
| Abstract: | Several empirical studies have challenged tournament theory by pointing out that (1) there is considerable pay variation within hierarchy levels, (2) promotion premiums only in part explain hierarchical wage differences and (3) external recruitment is observable on nearly any hierarchy level. We explain these empirical puzzles by combining job-promotion tournaments with higher-level bonus payments in a two-tier hierarchy. Moreover, we show that under certain conditions the firm implements first-best effort on tier 2 although workers earn strictly positive rents. The reason is that the firm can use second-tier rents for creating incentives on tier 1. If workers are heterogeneous, the firm strictly improves the selection quality of a job-promotion tournament by employing a hybrid incentive scheme that includes bonus payments. |
| Keywords: | bonuses, external recruitment, job promotion, limited liability, tournaments |
| JEL: | D82 D86 J33 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:245&r=bec |
| By: | Danny Leung; Alexander Ueberfeldt |
| Abstract: | Why do employed persons in large firms earn more than employed persons in small firms, even after controlling for observable characteristics? Complementary to previous results, this paper proposes a mechanism that gives an answer to this question. In the model, individuals accumulate human capital and are exposed to the risk of losing some of their human capital as they change jobs, voluntarily or involuntarily. The model, calibrated to the United States and Canada, accounts for one-third of the firmsize wage premium. Regarding the earnings gap between Canada and the United States, the model finds that it is solely due to differences in labor market uncertainty. |
| Keywords: | Economic models; Labour markets; Productivity |
| JEL: | J24 J31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-33&r=bec |
| By: | Alexander Sebald (Department of Economics, University of Copenhagen); Markus Walzl (Department of Economics, University of Maastricht) |
| Abstract: | We show that individuals’ desire to protect their self-esteem against ego-threatening feedback can mitigate moral hazard in environments with purely subjective performance evaluations. In line with evidence from social psychology we assume that agents’ react aggressively to evaluations by the principal which do not coincide with their own positive self-perceptions and thereby generate costs of conflict for the principal. We identify conditions for a positive welfare effect of increasing costs of conflict or increasing sensitivity to ego-threats, and a negative welfare effect of a more informative information technology. As a consequence, principals may choose imperfect information technologies in equilibrium even if the signal quality is costless. |
| Keywords: | contracts; Subjective evaluations; self-esteem; ego-threats |
| JEL: | D01 D02 D82 D86 J41 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0819&r=bec |
| By: | Martina Lawless (Central Bank and Financial Services Authority of Ireland); Karl Whelan (University College Dublin) |
| Abstract: | The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic empirical assessment of the Melitz framework using a unique Irish dataset that includes information on destinations and firm characteristics such as productivity. We find a number of interesting deviations from the model’s predictions including a high degree of unpredictable idiosyncratic participation in export markets by firms, a relatively weak positive correlation between the extent of export participation and export sales, and a limited role for productivity in explaining firm exporting behavior. We illustrate the effect of firm heterogeneity on gravity regressions of aggregate trade flows and show how past exporting to a particular market has a strong impact on the current probability of exporting there. |
| Date: | 2008–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:200821&r=bec |
| By: | Yu, Li; Orazem, Peter |
| Abstract: | Kremer’s O-Ring production theory (QJE, 1993) describes a process in which a single mistake in any one of several tasks in firm’s production process can lead to catastrophic failure of the product’s value. This paper tests the predictions of the O-Ring theory in the context of a single market for a relatively homogeneous product: hog production. Consistent with the theory, the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more. As with observed skills, workers with the greatest endowments of unobserved skills also sort themselves into the largest and most technology intensive farms. |
| JEL: | L1 |
| Date: | 2008–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12992&r=bec |
| By: | Mirabelle Muûls (National Bank of Belgium, Microeconomic Information department; London School of Economics) |
| Abstract: | By building a theoretical model and taking it to the data with two novel datasets, this paper analyses the interaction between credit constraints and exporting behaviour. Building a heterogeneous firms model of international trade with liquidity-constrained firms yields several predictions on the equilibrium relationships between productivity, credit constraints and exports that are then verified in the data. The main findings of the paper are that firms are more likely to be exporting if they enjoy higher productivity levels and lower credit constraints. Also, credit constraints are important in determining the extensive but not the intensive margin of trade in terms of destinations. This introduces a pecking order of trade. Finally, an exchange rate appreciation will cause existing exporters to reduce their exports, entry of credit-constrained potential exporters and exit of the least productive exporters |
| Keywords: | Credit constraints, heterogeneous firms, margins of export, export destinations, exchange rates and trade |
| JEL: | D92 F10 F36 G28 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200809-22&r=bec |
| By: | Björn Bartling; Urs Fischbacher |
| Abstract: | To fully understand the motives for delegating a decision right, it is important to study responsibility attributions for outcomes of delegated decisions. We conducted an experiment in which subjects were able to delegate the choice between a fair or unfair allocation, and used a punishment option to elicit responsibility attributions. Our results show that, first, responsibility attribution can be effectively shifted and, second, this constitutes a powerful motive for the delegation of a decision right. Furthermore, we propose a formal measure of responsibility and show that this measure outperforms measures based on outcome or intention in predicting punishment behavior. |
| Keywords: | delegation, decision rights, moral responsibility, blame shifting |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0032&r=bec |
| By: | Ashot Tsharakyan |
| Abstract: | This paper explores the link between mortgage origination fees and housing prices. It is argued that sharp decline in mortgage origination fees in US since the late 1980s was caused by mortgage market deregulation and mortgage innovation. Based on this reasoning the sources of exogenous variation in mortgage fees are identified, and the effect of mortgage fees on housing prices is quantified. The results indicate that decline in mortgage fees had robust statistically significant positive effect on housing prices. The lagged effect of mortgage fees on housing prices is also present. |
| Keywords: | Mortgage origination fees, housing price, branching restrictions , mortgage market deregulation. |
| JEL: | R21 R31 C33 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp357&r=bec |
| By: | Raouf Boucekkine (CORE -); Patricia Crifo (LEEP - Laboratoire d'econometrie de l'école polytechnique - CNRS : UMR7657 - Polytechnique - X); Claudio Mattalia (Université Catholique de Louvain. -) |
| Abstract: | Les changements organisationnels reposant sur la polyvalence et les TIC qui se sont diffusés dans la plupart des pays de l'OCDE depuis les années 1990 ont de fortes conséquences sur les conditions de travail. Les données disponibles montrent, parallèlement à l'émergence de nouvelles formes organisationnelles fondées sur la polyvalence, une augmentation de la main d'oeuvre employée dans les postes managériaux et une augmentaion des besoins en qualification. Cet article propose un modèle théorique analysant l'allocation optimale du nombre de tâches par individu lorsque le passage à une organisation fondée sur la polyvalence accroît les coûts de coordination entre les individus et les tâches. Les entreprises peuvent réduire ces coûts de coordination en affectant plus de salariés à la gestion des ressources humaines. Le capital humain est accumulé de manière endogène par les travailleurs. Le modèle reproduit assez bien les régularités observées dans les données. En particulier, des accélérations technologiques endogènes tendent à accroître à la fois le nombre de tâches tréalisées et les besoins en qualification, tout en augmentant la part de la main d' qui se consacre à la gestion des ressources humaines. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00240715_v1&r=bec |