A simple model of discontinuous firm’s growth

Typically, firms change their size through a row of discrete leaps over time. Sunk costs, regulatory, financial and organizational constraints, talent distribution and other factors may explain this fact. However, firms tend to grow or fall discontinuously even if those inertial factors were removed. For instance, a very essential model of discontinuous growth can be based on a couple of assumptions concerning only technology and entrepreneurs’ strategy, that is: (a) in the short run, the firm’s equipment and organization provide the maximum profit only for a given production level, and diverging form it is costly; and (b) in the long run, the firm adjusts its size as if the current equipment had to be exploited until overall profit exceeds the profit expected from the new desired plant at the current production level. Combining the latter two hypotheses entails a number of testable consequences, usually regarded as nuisance facts within the traditional theoretical framework. First of all, an upper bound constraints both investment and disinvestment. Secondly, the profitability is not a continuous function of the firms’ size, but exhibits a number of peaks, each corresponding to a locally optimal size. Thirdly, firms tend to invest when profit approaches a local minimum, corresponding to the lowest profit claimed by the entrepreneur. Therefore, firm’s level data would prove only weak statistical relationships among profitability, output and investment. Finally, the distribution of firms by growth rate is multimodal since, within each sector, every firm typically adjusts its size through the same sequence of leaps. There are a number of analogies between the firm’s growth process predicted by the model and some physical phenomena explained by the quantum theory.Capacity utilization; Discontinuity; Firm’s size; Growth; Lumpy investment

Actual and perceived inflation

The concept of inflation perceived by consumers came in the recent debate on inflation since it may affect consumer behaviour even if the perception was completely wrong. A misperception of inflation occurs particularly when households tend to label incorrectly inflation what really is a reduction in their disposable income, as in declining or stagnant economies and during public budget consolidation processes. Also a cash changeover may alter the perception of price changes. Nevertheless, even in a perfect perception framework, each consumer evaluates the inflation rate taking into account only his own consumption basket and the dynamics of the particular prices he pays. Hence, perceived inflation may differ systematically from the official one calculated by the statistical agencies, that necessarily make use of a common basket of consumption and the average market price of each product. The official inflation rate may be either beyond or below the average individual inflation rate in accordance with the sign of the covariance between individual budget shares and the corresponding price changes. Since economic theory suggests that the latter sign is positive under price discrimination, inflation faced by consumers is often higher than the official one. As far as the perceived inflation is strictly related to the cost of living, an aggregation fallacy may bias downward the estimation of official consumer price indices. At variance, just under price discrimination, firms tend to perceive an inflation rate very close to the official one, or even smaller. The arguments above provide a number of testable consequences.Aggregation fallacy; Inflation measurement; Perceived inflation; Price discrimination

Hedonic Regressions, Matched Models and Economic Theory

Quality adjustment of price indexes affects the analysis of many sensitive economic issues, such as real growth, productivity, international competitiveness, real wages, per-capita consumption and poverty, other than inflation. Hedonic methods are often recommended and increasingly used in the compilation of consumer price indexes. Nevertheless many official statistical agencies continue adopting traditional methods considering only the dynamics of prices of products matching in two adjacent periods of time. Indeed, a number of studies have even recently remarked that hedonic methods sometimes provide results very similar to the traditional matching models approach, particularly when models included in price index sample are replenished frequently. This paper briefly surveys the economic theory behind hedonic and traditional quality adjustment methods, and demonstrates that average price changes estimated by hedonic regressions differ from matched models estimation only because of the sum of regression residuals associated to disappearing and new models included in the sample. Thus, hedonic regressions including among the explanatory variables some indicators of the novelty and oldness of models provide exactly the same results of traditional methods. This fact casts some doubt on the overall effectiveness of hedonic methods in quality adjustment. The paper also focuses on that some economic and statistical hypotheses underlying hedonic methods possibly conflict with the assumptions and practices embodied in compiling the harmonised index of consumer prices for European countries.Consumer price index; Harmonised Index of Consumer Prices (HICP); Hedonic regressions; Matched models; Measurement of inflation; Quality adjustment

Predictions vs preliminary sample estimates

In general, rational economic agents are not in the position to wait for the statistical agencies disseminate the final results of the relevant surveys before making a decision, and have to make use of some model based predictions, even when agents are not assumedly forward looking. Thus, from the viewpoint of agents, predictions and preliminary results from surveys often compete against each other. Agents are aware to incur in a loss basing their decisions on predictions instead of sound statistical data, but the loss could be smaller than the one related to waiting for the dissemination of final data. Comparing the loss attached to predictions, on the one hand, and to possible preliminary estimate from incomplete samples, on the other, provides a broad guidance in deciding if and when statistical agencies should release preliminary and final estimates of the key variables. The main result of the analysis is that, in general, preliminary sample estimates are useful for the users only if they come from unexpectedly large sub-samples, even when the predictability of relevant variables is scarce. Nevertheless, the cost of delaying decisions for many economic agents may support the dissemination of early estimates of the main economic aggregates even if their accuracy is not fully satisfactory from a strict statistical viewpoint.Accuracy; Data Dissemination; Forecast; Preliminary Estimates; Timeliness

The first qualitative survey on Albanian firms: preliminary results

The Banks&Businesses Regional Observatory on Economy and Finance (OBI) and the University of Tirana carried on the first qualitative survey on Albanian enterprises between July and September 2008. The main advantages of qualitative surveys are that they are able to catch the “business climate”; are very timely and quite inexpensive; are more robust against misreporting than traditional surveys. A number of statistical techniques allow converting the results of qualitative surveys in quantitative indicators. In general, the survey was a successful experiment that shed some light on the structure and dynamics of the Albanian economy. In particular, the survey confirmed that Italy and Apulia are among the most interesting markets for the Albanian firms, and vice versa, also thanks to subcontracting agreements. Also, many Albanian firms declared to compete with Italian firms on the same markets. The majority of respondents seem to have balanced and “modern” relationships with the bank system, even though the local small Albanian banks seem to be unable to follow the fast evolution of the most dynamic firms. This fact suggests the need for restructuring the Albanian credit sector. The survey confirmed that Albanian economy is fast growing, and that entrepreneurs are more optimistic about the future, compared to their European counterparts, at least just before the worsening of the ongoing world financial crisis. In any case, a number of firms complained for some credit restriction. Finally, the network of interviewers and respondents established during the survey can be exploited in the next years to gather timely information on the evolution of the Albanian economy during 2008 summer.Albania; Business survey; Manufacturing industry

Gauge-invariant field-strength correlators for QCD in a magnetic background

We consider the properties of the gauge-invariant two-point correlation functions of the gauge-field strengths for QCD in the presence of a magnetic background field. We discuss the general structure of the correlators in this case and provide the results of an exploratory lattice study for $N_f = 2$ QCD discretized with unimproved staggered fermions. Our analysis provides evidence for the emergence of anisotropies in the non-perturbative part of the correlators and for an increase of the gluon condensate as a function of the external magnetic field.Comment: Published version. Added table with perturbative parameters values. 8 pages, 5 figure

Inflation perceived by consumers in the Eurozone and proxy exchange rates against euro

During 2002, the discrepancy between the official inflation rate and that perceived by consumers picked up to an all time record in the Eurozone. A measure of this misperception is provided by the results of the monthly qualitative consumer surveys carried out by the European Commission. Of course, many reasons may explain the misperception by part of consumers. Here the latter is related to the fact that almost everybody in Eurozone still tends to evaluate prices by using former national currencies and, what is more, adopts proxy exchange rates against euro instead of the official ones, that are computationally too demanding. By accident, in almost every Eurozone countries the use of a feasible proxy of exchange rate against euro implies some overestimation of price changes between 2001 and 2002 (1.4% on average in the Eurozone). The impact of this effect is confirmed by the evidence that in most countries inflation misperception is positively related to the discrepancy between proxy and official conversion rates of euro against the former national currencies

A simple model of discontinuous firm’s growth

Typically, firms change their size through a row of discrete leaps over time. Sunk costs, regulatory, financial and organizational constraints, talent distribution and other factors may explain this fact. However, firms tend to grow or fall discontinuously even if those inertial factors were removed. For instance, a very essential model of discontinuous growth can be based on a couple of assumptions concerning only technology and entrepreneurs’ strategy, that is: (a) in the short run, the firm’s equipment and organization provide the maximum profit only for a given production level, and diverging form it is costly; and (b) in the long run, the firm adjusts its size as if the current equipment had to be exploited until overall profit exceeds the profit expected from the new desired plant at the current production level. Combining the latter two hypotheses entails a number of testable consequences, usually regarded as nuisance facts within the traditional theoretical framework. First of all, an upper bound constraints both investment and disinvestment. Secondly, the profitability is not a continuous function of the firms’ size, but exhibits a number of peaks, each corresponding to a locally optimal size. Thirdly, firms tend to invest when profit approaches a local minimum, corresponding to the lowest profit claimed by the entrepreneur. Therefore, firm’s level data would prove only weak statistical relationships among profitability, output and investment. Finally, the distribution of firms by growth rate is multimodal since, within each sector, every firm typically adjusts its size through the same sequence of leaps. There are a number of analogies between the firm’s growth process predicted by the model and some physical phenomena explained by the quantum theory

Measuring inflation when prices change slowly

Inflation is currently low and falling in the OECD area. A side effect of these facts is that they made harder the task of price index compilers. First of all, researchers and analysts are moving their attention from aggregate price dynamics to price differentials (among products, markets, consumers groups, and countries), since relative differences among single prices did not tend to narrow as inflation falls. Thus the distribution of price changes (and underlying price dispersion) has become more and more relevant for users. In addition, important factors, such as market segmentation and consumers stratification, should be taken into account both in CPIs and in harmonised indexes, above and beyond usual “consumption purpose” of goods and services. For instance, the relation between price level, on the one side, and price dynamics cannot be disregarded Finally, the “trivial” problem of rounding should be considered. This paper provides some empirical evidence concerning price changes dispersion and its effects on economic analysis and the dependency of inflation from initial price level

Actual and perceived inflation

The concept of inflation perceived by consumers came in the recent debate on inflation since it may affect consumer behaviour even if the perception was completely wrong. A misperception of inflation occurs particularly when households tend to label incorrectly inflation what really is a reduction in their disposable income, as in declining or stagnant economies and during public budget consolidation processes. Also a cash changeover may alter the perception of price changes. Nevertheless, even in a perfect perception framework, each consumer evaluates the inflation rate taking into account only his own consumption basket and the dynamics of the particular prices he pays. Hence, perceived inflation may differ systematically from the official one calculated by the statistical agencies, that necessarily make use of a common basket of consumption and the average market price of each product. The official inflation rate may be either beyond or below the average individual inflation rate in accordance with the sign of the covariance between individual budget shares and the corresponding price changes. Since economic theory suggests that the latter sign is positive under price discrimination, inflation faced by consumers is often higher than the official one. As far as the perceived inflation is strictly related to the cost of living, an aggregation fallacy may bias downward the estimation of official consumer price indices. At variance, just under price discrimination, firms tend to perceive an inflation rate very close to the official one, or even smaller. The arguments above provide a number of testable consequences