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The purpose of this paper is to re‐examine the structural origins of international crude oil price fluctuation.
Abstract
Purpose
The purpose of this paper is to re‐examine the structural origins of international crude oil price fluctuation.
Design/methodology/approach
The paper establishes a structural vector autoregression model based on the generalized supply and demand analysis of crude oil price fluctuation and performance the structural decomposition of price shocks with impulse response analysis of those factors.
Findings
It is found that four kinds of structural shocks derived from the generalized supply and demand analysis are the essential determinants of crude oil prices fluctuation. On one hand, similar to Kilian's results, the supply side shocks – both the exogenous geopolitical ones and other oil supply shocks have little influence. Whereas, the demand side shocks – both the aggregate demand shock and the oil market specific demand shock have prominent effects. On the other hand, with the expanded sample range, it is found that the dynamic characteristic of the impulse response of oil price to demand side factors is not only incompatible with the basic economic theory, but also clashes with Kilian's statement based upon his research. It is conjured that the incompatibility comes from the ignorance of the finer decomposition of demand side factors. To decompose those demand side factors further, the US dollar liquidity was added into the model. The results show that the impact of US dollar liquidity on the fluctuation of oil prices cannot be ignored. The argument that ascribes the soaring international crude oil price to China's economic growth lacks theoretical and empirical evidence.
Originality/value
The paper contributes marginally to the research on the structural origins of international crude oil price fluctuation and sheds light on the possibility of finer decomposition of demand side oil shocks.
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Jiehong Zhou, Yu Wang, Rui Mao and Yuqing Zheng
As technical barriers gradually become the important tools of trade protection, it is important to understand whether intensified enforcement of border controls is adopted as a…
Abstract
Purpose
As technical barriers gradually become the important tools of trade protection, it is important to understand whether intensified enforcement of border controls is adopted as a hidden tool of trade protectionism and differs across periods and industries.
Design/methodology/approach
This article applies a panel structural vector autoregression (PSVAR) model to investigate the potential role of trade protectionism motives in Food and Drug Administration (FDA) import refusals on China's agricultural exports, utilizing newly constructed monthly data at the industry level.
Findings
The results show that import refusal is mainly driven by the inspection history, highlighting the importance of the intrinsic product quality and maintaining an excellent inspection history in border inspection. The novel finding is that US employment contractions would also lead to a small increase in FDA import refusals, especially those taking place within ten months and made without sampling tests. Such an association is driven by industry-specific employment shocks and becomes stronger after the financial crisis. It is also more evident in industries where the US lacks competitiveness against China, being manufactured without mandatory safety regulations, and with negative skewness of employment growth.
Originality/value
This research is one of the preliminary attempts to understand whether the de facto border controls are worked as a hidden tool of protectionism to agricultural products, and what the specific trajectory and duration of the impacts at the monthly level. This study provides empirical evidence showing the role of protectionism motives in FDA import refusals and is heterogeneous across industries, which generate new insights and policy implications to predict and cope with additional barriers on agricultural trade.
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Izzet Darendeli, T.L. Hill, Tazeeb Rajwani and Yunlin Cheng
This paper aims to explore the ideas that social legitimacy (acceptance by the public within a country) serves as a hedge against political risk and that the perceived social…
Abstract
Purpose
This paper aims to explore the ideas that social legitimacy (acceptance by the public within a country) serves as a hedge against political risk and that the perceived social value of Multinational Enterprises (MNEs’) products or services improves firms’ social legitimacy and so resilience to political shock.
Design/methodology/approach
Drawing from a unique data concerning global construction activity and taking advantage of the Arab Spring as an exogenous, political shock, this paper teases out the relative effects of pre-shock experience and product/service emphasis.
Findings
The authors find that construction firms that worked on a higher proportion of socially beneficial projects – such as water infrastructure, transportation and telecommunications – recovered more quickly from political shock than did those that worked on projects primarily for manufacturing interests or the oil industry. The authors also find that deep experience in a country had no bearing on a firm’s ability to recover from political shock.
Originality/value
The findings suggest that market behaviors that enhance social legitimacy also enhance MNEs’ ability to survive in volatile political settings. These insights add to the political risk and nonmarket strategy literatures the idea that market strategies that are attentive to nonmarket strategic goals are an important addition to the toolkit for managing political risk. More specifically, when it comes to surviving political shock, pre-shock emphasis on socially beneficial products seems to create a social legitimacy buffer that enhances resilience more than do deep country experience and associated social and political ties with the political elite.
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This paper aims to examine whether an exogenous shock to the supply of financial capital mitigates agency conflicts between managers and shareholders and incentivizes managers to…
Abstract
Purpose
This paper aims to examine whether an exogenous shock to the supply of financial capital mitigates agency conflicts between managers and shareholders and incentivizes managers to channel available financial resources into value-increasing acquisitions.
Design/methodology/approach
The authors use a difference-in-differences approach to mitigate endogeneity concerns. To address the concern that substantial differences between the treatment and control groups may violate the parallel-trend assumption of the D-in-D approach, the authors use a propensity score-matching procedure and construct a matched sample for their empirical analysis.
Findings
The authors find that below-investment-grade firms are significantly less likely to make acquisitions relative to unrated firms following the collapse of the junk bond market in 1989. Conditional on initiating a successful acquisition, below-investment-grade acquirers are less likely to acquire diversifying targets and public targets, but more likely to acquire subsidiary targets. In addition, below-investment-grade acquirers experience higher post-merger operating and stock performance for acquisitions initiated in the post-shock period.
Originality/value
The authors demonstrate that capital shocks negatively impact managers’ propensity to make acquisitions, which are considered a well-established outlet for agency conflicts between managers and shareholders. In addition, managers who are subject to capital shocks tend to manage available financial resources more efficiently and make better acquisition decisions that lead to greater value creation.
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Jonas Hahn, Verena Keil, Thomas Wiegelmann and Sven Bienert
The purpose of this paper is to estimate the impact of changes in macro-economic conditions going forward, focusing on a change in interest policy, with regard to office letting…
Abstract
Purpose
The purpose of this paper is to estimate the impact of changes in macro-economic conditions going forward, focusing on a change in interest policy, with regard to office letting and investment markets.
Design/methodology/approach
For this analysis, the authors constructed two vector-autoregressive models, measuring the response of office rents and capital values in Germany to economic impulses. The authors isolated effects of unique exogenous positive shocks (such as economic growth or interest leaps) on the basis of impulse-response functions in order to understand the complex dynamic interdependence between several economic factors and office performance changes.
Findings
The authors initially find a moderately positive development of both office performance components even although supposing an increase in interest level. In terms of capital values, the authors find that they do not drop before 1.5 years after the interest impulse and the negative effect peaks after approximately nine quarters. Furthermore, the reaction to a change in GDP is significantly lower than a reaction to the interest rate, but impulses in other macro-economic factors provoke stronger reactions. Finally, the authors find that a positive interest shock leads to a comparably robust development and economic sustainability in office rents throughout a consideration horizon of 24 quarters.
Research limitations/implications
Estimations are based on observations from a time period containing two rather extraordinary market phases. As they included bubble growth and the low-interest environment, the authors find that certain patterns in both phases neutralize each other when looking at the total time frame. The authors constructed sub-samples to compensate for this. However, the research does not provide to what extent the measured impulse-responses stay forecast-proof, if the market moves into a phase of short-term normalization.
Practical implications
This paper provides insights into estimated impulse-response patterns on a hypothetical sudden increase of several macro-economic determinants. On this basis, the probable reaction to an increase in, for example, the interest rate level can be approximated. Also, the paper provides a fundamental understanding of the economic sustainability of German office properties in terms of their value and rent performance in the case of exogenous shocks.
Originality/value
This paper contains the first vector-autoregressive, impulse-response analysis of office markets in Germany in the context of several macro-economic drivers, including the interest level. It delivers insights into market reaction patterns on the basis of simulated one standard deviation shocks in all included variables.
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The purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed…
Abstract
The purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed unexpected equity excess returns into three news components: risk premium news, real interest rate news and cash-flow news. The literature has determined the monetary policy (MP) effects on these news components. The authors propose an alternative MP shock identification approach to analyze the MP effects on the above-mentioned news components under a structural vector autoregression (SVAR) setup. Under this approach, one can apply an MP indicator in the SVAR, which helps forecast equity excess returns along with its external instruments for identification. Further, this study uses the various recently proposed measures of exogenous MP shocks and Fed information shocks as external instruments, and shows the different patterns of the news components' responses depending on the information in the applied instruments.
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Jefferson Marlon Monticelli and Douglas Wegner
This study aims to analyze the dynamics of the institutional change and institutional stability undergone by strategic networks (SNs) in the pharmaceutical industry.
Abstract
Purpose
This study aims to analyze the dynamics of the institutional change and institutional stability undergone by strategic networks (SNs) in the pharmaceutical industry.
Design/methodology/approach
The authors performed a case study with four Brazilian SNs which followed different patterns of institutional change and institutional stability. Twenty network managers and network members from the pharmaceutical industry were interviewed, and documents were analyzed.
Findings
The results show how and why institutions changed or remained the same. More specifically, exogenous shocks can negatively impact the competitive environment influencing institutional change in SNs. Moreover, endogenous shocks may prevent institutional change and stimulate institutional stability. Continuous interaction between institutions and SNs is the key to institutional change, especially if public and private policies are considered a source of political institutions.
Originality/value
Research has highlighted the endogenous influence of SNs on firms in selecting their partners and arranging their positions in the SNs, but little attention has been paid to how SNs themselves respond to institutions or promote institutional change. This study explains how and why change fails at the network level, additionally pinpointing the main sources of the institutional change and inertia in SNs. As such, network members may use different strategies to stimulate institutional change or stability according to their interests.
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Pedro Esteban Moncarz and Sergio Victor Barone
Brazil, a large developing economy whose main exports consist of primary commodities, benefited greatly from the boom in commodity prices during the first decade of the current…
Abstract
Purpose
Brazil, a large developing economy whose main exports consist of primary commodities, benefited greatly from the boom in commodity prices during the first decade of the current century. However, with a large share of its population with low and very low incomes, there is a potential for some adverse redistributive effects. The purpose of this paper is to address this issue by simulating the ex ante effects using a mixed endogenous–exogenous social accounting matrix (SAM) price model.
Design/methodology/approach
The methodology consists of two parts. First, using a mixed endogenous–exogenous SAM price model, the authors obtain the elasticities of domestic prices (goods, services and factors) in response to the increase in international prices of three types of commodities: agricultural, oil/gas and minerals. Second, the authors run micro-simulations at the household level on welfare effects, as well as on some distributive indices. Analysis at the regional level is also carried out.
Findings
Following increases in the international prices of primary commodities, the responses of internal prices (goods, services and factors) mean a welfare loss all over the entire distribution of household per capita expenditure; the least affected are those households at the low end and around the median of the distribution. However, the differences among households are not very important. Moreover, once we take into account government transfers and payments from social security, the magnitude of the effects reduces even further. Also, inequality indices and poverty rates show little responsiveness to the simulated shocks. Finally, poorer regions are the most likely to be affected, but also the distribution of effects across households shows differences between regions.
Originality/value
Economies with comparative advantages in the production of primary commodities can benefit at a macro-level from the increase in the international prices of such commodities. However, when a large part of the population spends a high proportion of its income on goods whose prices may be affected by the increase in commodity prices, there is a room for some undesirable effects from a redistributive standpoint. This study provides valuable results about such potential effects for Brazil, a large developing economy.
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William Obenauer and Shafagh Rezaei
Replication is essential to science for the purpose of (1) updating previously accepted knowledge and (2) testing the boundary conditions of this knowledge. Although Bader et al…
Abstract
Purpose
Replication is essential to science for the purpose of (1) updating previously accepted knowledge and (2) testing the boundary conditions of this knowledge. Although Bader et al.’s (2018) impactful paper on gender harassment experienced by expatriates was only published five years ago, there have been two relevant exogenous shocks to the environment since they collected their data, making this study an excellent target for replication.
Design/methodology/approach
Three-hundred ninety-one expatriates who were currently working in 79 different countries completed an electronic survey that included scales for gender harassment, ethnicity harassment, general stress, frustration and job satisfaction. Data were analyzed using partial least-squares structural equation modeling (PLS-SEM) in Stata17.
Findings
Consistent with prior research, gender had a significant relationship with workplace gender harassment (ß = 0.228, p < 0.001) such that males experienced lower levels of harassment than other expatriates. The relationship between race/ethnicity and experiences of ethnicity harassment was dependent upon model specification. Workplace harassment had a negative relationship with job satisfaction (gender harassment, ß = −0.114, p = 0.030; ethnicity harassment; ß = −0.146, p = 0.002) and a positive relationship with frustration (gender harassment, ß = 0.231, p < 0.001; ethnicity harassment, ß = 0.213, p < 0.001).
Originality/value
Using a larger, more diverse sample than that used in prior research, the authors were able to test the generalizability of accepted knowledge. While the authors replicated many findings identified in prior research, they failed to replicate the effects pertaining to the relationship between macro-level variables and experiences of harassment. Given that macro-level variables play a key role in status construction theory (SCT), this research raises important questions for future work.
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This paper surveys the treatment of expectations in estimated Dynamic Stochastic General Equilibrium (DSGE) macroeconomic models.A recent notable development in the empirical…
Abstract
This paper surveys the treatment of expectations in estimated Dynamic Stochastic General Equilibrium (DSGE) macroeconomic models.
A recent notable development in the empirical macroeconomics literature has been the rapid growth of papers that build structural models, which include a number of frictions and shocks, and which are confronted with the data using sophisticated full-information econometric approaches, often using Bayesian methods.
A widespread assumption in these estimated models, as in most of the macroeconomic literature in general, is that economic agents' expectations are formed according to the Rational Expectations Hypothesis (REH). Various alternative ways to model the formation of expectations have, however, emerged: some are simple refinements that maintain the REH, but change the information structure along different dimensions, while others imply more significant departures from rational expectations.
I review here the modeling of the expectation formation process and discuss related econometric issues in current structural macroeconomic models. The discussion includes benchmark models assuming rational expectations, extensions based on allowing for sunspots, news, sticky information, as well as models that abandon the REH to use learning, heuristics, or subjective expectations.
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