We estimate exponential smooth transition autoregressive (ESTAR) models of deviations from PPP, which are obtained using the Johansen cointegration method, for both CPI-and WPIbased measures and a broad set of U.S. trading partners. In several cases, we nd clear evidence of a mean-reverting dynamic process for sizable deviations from PPP, with the equilibrium tendency varying nonlinearly with the magnitude of disequilibrium. Analysis of impulse response functions also supports a nonlinear dynamic structure, but convergence to long-run PPP in the post-Bretton Woods era is very slow.
We investigate the impact of measures of uncertainty on firms' capital investment behavior using a panel of U.S. firms. Increases in firmspecific and CAPM -based measures have a significant negative effect on investment spending, while market-based uncertainty has a positive impact.
In this paper, we empirically investigate the impact of exchange rate volatility on real international trade ows utilizing a 13 country dataset of monthly bilateral real exports for 1980 1998. We compute one month ahead exchange rate volatility from the intra monthly variations in the exchange rate to better quantify this latent variable. We nd that the effect of exchange rate volatility on trade ows is nonlin-
1We acknowledge the expert research assistance provided by Tairi Room, and thank John Barkoulas and Franc Klaassen for productive conversations on these issues. Consultations with Nicholas J. Cox on programming practices were very helpful. We received useful comments on an earlier
We investigate the analytical and empirical linkages between cash flow, uncertainty and firms' capital investment behavior. Our empirical approach constructs measures of own-and market-specific uncertainty from firms' daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. Our results indicate that even in the presence of important firm-specific variables, uncertainty is an important determinant of firms' investment behavior. Depending on the measure of uncertainty used, investment may be stimulated or curtailed by the effects of uncertainty on its own or through its interactions on cash flow.Keywords: capital investment, cash flow, uncertainty, CAPM JEL: E22, D81, C23 * We are grateful for comments received from seminar participants at Koç University, the University of Strathclyde and the 13th International Conference on Panel Data, University of Cambridge, Fabio Schiantarelli and the constructive suggestions of an anonymous reviewer.
This paper empirically investigates whether changes in macroeconomic volatility affect the efficient allocation of non‐financial firms' liquid assets. We argue that higher uncertainty will hamper managers' ability to accurately predict firm‐specific information and induce them to implement similar cash management policies. Contrarily, when the macroeconomic environment becomes more tranquil, each manager will have the latitude to behave more idiosyncratically as she can adjust liquid assets based on the specific requirements of the firm, bringing about a more efficient allocation of liquid assets. Our empirical analysis provides support for these predictions.
In this paper, we propose a framework aimed at giving empirical content to the idea that monetary instability adversely affects the allocation of investment. To this end, we develop a simple macro model to illustrate the impact of monetary instability on the allocation of investment. In particular, we show that as monetary policy becomes more predictable and, as a consequence, individual relative prices become easier to forecast, the cross-sectional distribution of investment should widen. The reason is that better quality information should lead to a more unequal distribution of investment across firms as the market takes advantage of more precise knowledge of different investment opportunities. When firm specific differences in profit opportunities are, instead, hard to predict, we should observe less cross-sectional variations in investment rates. Therefore, our framework predicts a negative association between the crosssectional variance of investment and nominal (aggregate demand) uncertainty. In accordance with this observation, our empirical strategy consists of examining whether different measures of nominal uncertainty help in explaining the time-variation in the cross-sectional distribution of investment. In our empirical work, we exploit a panel data set covering a large number of quoted UK companies over the period 1970-1990, and we make use of both macro and micro based measures of uncertainty.
This article empirically investigates the effects of macroeconomic and firm-specific risk on firms' leverage. The analysis is carried out for a large panel of public and nonpublic UK manufacturing firms over the period 1999-2008. Our investigation provides evidence that UK manufacturing firms use less short-term debt during periods of high risk. However, the leverage of nonpublic manufacturing firms is more sensitive to firm-specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly. Our investigation also shows that firms with high liquid assets reduce their leverage more (less) during periods of heightened firmspecific (macroeconomic) risk. (JEL C23, G32)
This paper analyzes the effects of parliamentary election cycles on the Turkish banking system. Using annual bank-level data representing all banks in Turkey during 1963-2007, we present evidence of meaningful differences in the structure of bank assets, liabilities and financial performance across different stages of the parliamentary election cycle. However, we find that government-owned banks' behavior does not meaningfully differ from that of either domestic and foreign-owned private sector banks before, during or after elections. Our estimates also show that government-owned banks underperform both domestic and foreign-owned private sector counterparts.JEL classification: G21, G28
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