Exchange Rate Regime Choice

The choice of an adequate exchange rate regime proves to be a highly sensitive field within which the economic authorities present and confirm themselves. The advantages and disadvantages of fixed and flexible exchange rate regimes, which have been quite relativized from the conventional point of view, together with simultaneous, but not synchronised effects of structural and external factors, remain permanently questioned throughout a complex process of exchange rate regime decision making. The paper reflects the attempt of critical identification of the key exchange rate performances, with emphasis on continuous non-uniformity and (un)certainty of shelf life of a relevant choice.Exchange rate regimes, Structural determiners, External determiners

RETAINED EARNINGS DYNAMIC, INTERNAL PROMOTIONS AND WALRASIAN EQUILIBRIUM

In the early stages of the process of industry evolution, firms are financially constrained and pay different wages because workers have heterogeneous expectations about the prospects for advancement offered by each firm's job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of a Walrasian equilibrium. To some extent, it is not technological efficiency but workers' self-fulfilling expectations about their prospects for advancement within the firm what explains which firms have lower unit costs, grow more and dominate the market.Industry Evolution - Market Selection Hypothesis - Production under Incomplete Markets - Retained Earnings Dynamic - Self-Fulfilling Expectations - Internal Labor Markets

Retained Earnings Dynamic, Internal Promotions and Walrasian Equilibrium

In the early stages of the process of industry evolution, firms are financially constrained and might pay different wages to workers according to their expectations about the prospects for advancement offered by each firm’s job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of aWalrasian equilibrium. To some extent, it is not technological efficiency but workers’ self-fulfilling expectations about their prospects for advancement within the firm that explains which firms have lower unit costs, grow more, and dominate the market.Industry Evolution ; Market Selection Hypothesis ; Production under Incomplete Markets ; Retained Earnings Dynamic ; Self-Fulfilling Expectations ; Internal Labor Markets

Market Selection and Payout Policy Under Majority Rule

The purpose of this paper is to explain how the choice between distributing cash through dividends or shares repurchases affects the firm’s ability to raise capital in the financial market. I assume investors have quadratic preferences over wealth but different prior beliefs about the likelihood a distribution takes place. At date zero agents purchase shares given their expectation about the firm’s payout method. At date 1 the firm announces whether the payout takes place that period. As in Brennan and Thakor [3], investors with different shareholdings have different incentives to gather information and, therefore, heterogeneous preferences about payout methods at date 1. I assume the firm adopts the payout method preferred by the majority of shareholders at date 1 under the one share/one vote rule. At date 2 the firm is liquidated and the remaining output is distributed among its shareholders. If at date zero agents disagree but not too much on the probability a distribution takes place, I show that a firm expected to pay dividends raises strictly more financial capital than an otherwise identical firm which is expected to repurchase shares. Therefore, a larger fraction of cash is distributed as dividend than through repurchases. One concludes that even in the presence of a small tax disadvantage financial markets favor dividend paying firms.Market Selection Hypothesis ; Payout Policy ; Production under Incomplete Markets

Bidding markets with financial constraints

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on differences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks

Too good to be true : asset pricing implications of pessimism

We evaluate whether the introduction of pessimistic homogeneous beliefs in the frictionless Lucas-Mehra-Prescott model and the Kehoe-Levine-Alvarez-Jermann model with endogenous bor- rowing constraints, helps explain the equity premium, the risk-free rate and the equity volatility puzzles as well as the short-term momentum and long-term reversal of excess returns. We cal- ibrate the model to U.S. data as in Alvarez and Jermann [4] and we find that the data does not contradict the qualitative predictions of the models. When the preferences parameters are disciplined to match both the average annual risk-free rate and equity premium, the Lucas-Mehra- Prescott model gives a more quantitatively accurate explanation for short-term momentum than the Kehoe-Levine-Alvarez-Jermann model but the latter gives a more quantitatively accurate ex- planation for the equity volatility puzzle. Long-term reversal remains quantitatively unexplained in both models

Consumption Dynamics in General Equilibrium : A Characterisation when Markets are Incomplete

We introduce a methodology for analysing infinite horizon economies with two agents, one good, and incomplete markets. We provide an example in which an agent’s equilibrium consumption is zero eventually with probability one even if she has correct beliefs and is marginally more patient. We then prove the following general result: if markets are e?ectively incomplete forever then on any equilibrium path on which some agent’s consumption is bounded away from zero eventually, the other agent’s consumption is zero eventually–so either some agent vanishes, in that she consumes zero eventually, or the consumption of both agents is arbitrarily close to zero infinitely often. Later we show that (a) for most economies in which individual endowments are finite state time homogeneous Markov processes, the consumption of an agent who has a uniformly positive endowment cannot converge to zero and (b) the possibility that an agent vanishes is a robust outcome since for a wide class of economies with incomplete markets, there are equilibria in which an agent’s consumption is zero eventually with probability one even though she has correct beliefs as in the example. In sharp contrast to the results in the case studied by Sandroni (2000) and Blume and Easley (2006) where markets are complete, our results show that when markets are incomplete not only can the more patient agent (or the one with more accurate beliefs) be eliminated but there are situations in which neither agent is eliminated. JEL Codes: D52 ; D61

Kaon Phase Space Density in Heavy Ion Collisions

The first measurement of kaon phase space densities are presented as a function of transverse mass, center of mass energy and the number of participants. The kaon phase space density increases with the number of participants from e+e- to Pb+Pb collisions. However the ratio of the kaon and pion phase space densities at low transverse momentum is independent of the number of participants for sqrt{s}=17GeV/nucleon This paper is dedicated to Francis Riccardelli, engineer for the Port Authority, who died on September 11th 2001 while evacuating others.Comment: 4 pages, 2 eps figures, proceedings of Strange Quarks in Matter, Frankfurt 2001, submitted to J. Phys. G In response to referees comments I derived an expresion for the ratio of kaon and pion phase space densites and made several clarifications in the tex

ECONOMIC SURVIVAL WHEN MARKETS ARE INCOMPLETE

We consider an infinite horizon economy with incomplete markets with two agents and one good. We begin with an example in which an agent's equilibrium consumption is zero eventually with probability one even if she has correct beliefs and is marginally more patient. We then prove the following general result: if markets are effectively incomplete forever then on any equilibrium path on which some agent's consumption is bounded away from zero eventually, the other agent's consumption is zero eventually. This implies that either some agent vanishes, in that she consumes zero eventually, or the consumption of both agents is arbitrarily close to zero infinitely often. Later we show that the first possibility is a robust outcome since for a wide class of economies with incomplete markets, there are equilibria in which an agent's consumption is zero eventually with probability one even though she has correct beliefs as in the example. Our results mark a sharp contrast with the case studied by Sandroni (2000) and Blume and Easley (2004) where markets are complete.Market selection hypothesis, General Equilibrium with Incomplete markets, Wealth accumulation