Financial Frictions, Investment and Tobin's q

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin’s q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When insiders’ wealth is scarce, they earn a rate of return higher than the market rate of return, i.e. insiders earn a quasi-rent on invested capital. This rent is priced into the value of the firm, so Tobin’s q is driven by two forces: changes in the value of invested capital, and changes in the value of the insiders’ future rents. The second effect weakens the correlation between q and investment. We calibrate the model and show that, thanks to this effect, the model can generate realistic correlations between investment, q and cash flowFinancial constraints, Tobin's q, limited enforcement, investment, optimal capital structure

Expectation driven business cycles with limited enforcement

We explore the implications of shocks to expected future productivity in a setting with limited enforcement of financial contracts. As in Lorenzoni andWalentin (2007) optimal financial contracts under limited enforcement imply that to obtain external finance firms have to post collateral in terms of liquidation value of the firm. In contrast to earlier real one-sector models, we show that a model with this type of 'collateral constraint' generates an increase in stock prices in response to positive news about future productivity, as well as the other properties of an expectation driven business cycle, that is, an increase in consumption, investment and hours. The positive stock price response is in line with Beaudry and Portier's (2006) empirical results and the emerging standard view of expectation driven booms

Financial Frictions, Investment and Tobin's q

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher than the market rate of return, i.e., they receive a quasi-rent on invested capital. This rent is priced into the value of the firm, so Tobin's q is driven by two forces: changes in the value of invested capital, and changes in the value of the insiders' future rents per unit of capital. This weakens the correlation between q and investment, relative to the frictionless benchmark. We present a calibrated version of the model, which, due to this effect, generates realistic correlations between investment, q, and cash flow.

Earnings inequality and the equity premium

We present data from the Survey of Consumer Finances showing that the increased earnings (labor income) inequality, in combination with increased stockmarket participation, has roughly doubled stockholders' share of aggregate labor income in the last four decades. We explore the impact of the increase in this share on returns to equity and returns to a risk-free bond in a model with limited stockmarket participation, labor income and borrowing constraints. The main result is that the increase in stockholders' share of aggregate labor income has lead to 130 basis points (45 percent) decrease in the ex ante equity premium (i.e. the discount rate applied to equity). The reason for this change is that the increase in stockholders' share of aggregate labor income leads to a change in income composition for stockholders - an increase in the fraction of their income that consists of labor income and a decrease in the fraction that consists of dividend income. This reduces the covariance between stockholder income growth and dividend growth. The size of the decrease in the equity premium implied by our model roughly coincides with the historical change in the post-1951 equity premium implied by the simple dividend growth model in Fama and French (2002)

Involuntary unemployment and the business cycle

We propose a monetary model in which the unemployed satisfy the official US definition of unemployment: they are people without jobs who are (i) currently making concrete efforts to find work and (ii) willing and able to work. In addition, our model has the property that people searching for jobs are better off if they find a job than if they do not (i.e., unemployment is ‘involuntary’). We integrate our model of involuntary unemployment into the simple New Keynesian framework with no capital and use the resulting model to discuss the concept of the ‘non-accelerating inflation rate of unemployment’. We then integrate the model into a medium sized DSGE model with capital and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to the three shocks. JEL Classification: E2, E3, E5, J2, J6Bayesian estimation, business cycles, DSGE, monetary policy, Unemployment

Man, Death & Ethics

Aim of work: the research of the determination and destination of human for nature and cognition. The basis of the research is Karl Raimund Popper's article «Evolutionary epistemology». A critical analysis of Popper's proposed theses and the scheme of theory evolution is conducted. The signifi-cance of the occurrence of the system of tenses of the language as an implication of the descriptive function of the language is noted. The issue with which the cycle of evolution of life and cognition begins is revealed. The language is included in the scheme proposed by Popper. As a result of the reasoning the pivotal feature of the human essence is identified: awareness the problem of death. This awareness makes it possible to relate oneself to the problem, which is the reason for the presence of the most aggregate evaluation categories: «good» and «evil». This is how a person may determine the purpose of evolution: overcoming the problem. In contrast to nature, the evolution of which is aimed at avoiding the problem. Having reached the goal, a person will go beyond himself as a phe-nomenon defined by the awareness of the problem. In this case, self-transcendence is a person's tran-sition to a new quality. The role of philosophy in the procedures of self-transcendence occurring in contemporary society is discussed

Geografia klasyczna w czasach postprawdy. Artykuł polemiczny

The article answers to the polemic paper ‘About the importance of geographical naming’ by Witold Wilczyński. The discussion refers to some problems of classical and contemporary humanistic geography, i.e. the relations between civilisations, geographical regions and geographical names. The issues raised in this article are discussed in terms of the concept of post-truth. W. Wilczyński claims that during the period of classical geography and according to the clas-sical geographers, ‘Europe was not a „continent”, but a “homogeneous region, populated by Western (Latin) civilisation’”. These ideological abuses are based only on his own imagination, without refer-ring to any historical sources, as well as without indicating a map from the period of classical geogra-phy. Those ideological theses ignore the works of many ancient cartographers and historians. Their maps, texts and other documents confirmed that Sarmatia always included lands from contemporary Poland and its neighbouring countries of Eastern Europe. Both classical and contemporary scientific maps show that Europe is a western part of Eurasia that covers lands and cultures of Orthodox, Latin, and other civilisations. Some of the most early populated and oldest regions of Europe, e.g. Trace, Macedonia, Dacia, Thessaly, Attica, Beotia, Arcadia, Epirus, etc., represent other civilisations and cul-tural spheres. Moreover, W. Wilczyński states that Sarmatia is a 'historical region located on the east from Poland’. According to his suggestions, the Eastern Slavs (Byelorussians, Ukrainians and Russians) are not Europeans, but they are 'ancestors' of old Sarmatia and Sarmatians. The eastern border of Poland in various periods was not a boundary which divided Europe from Sarmatia. The largest part of Sar-matia (Sarmatia Europeana) was regarded as a part of Europe. Over the last centuries, the Polish social thought, e.g. historiosophy, antropology and literature, regards sarmatism as a genuine trend of the national history and culture. The present author shows a series of arguments against imaginations of Europe and Sarmatia presented by W. Wilczyński, which have nothing to do with the achievements of both classical and contemporary geography. Another line of critique is drown by the problem of the lack of humanistic values in the way in which W. Wilczyński treats different civilisations and cultures

Involuntary unemployment and the business cycle

Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks

Involuntary Unemployment and the Business Cycle

Can a model with limited labor market insurance explain standard macro- and labor market data jointly? We seek to construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible New Keynesian framework with no capital. We then integrate the model into a medium sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks