This case study applies Monte Carlo-based real options to analyse the
expansion of a port. A stochastic model is defined for the Santarém port, in
Brazil, and the optimal moment for expanding the terminal is determined. The application
resorts to a common spreadsheet and a simulation add-in, allowing the
quantification of both the value of expanding the terminal and the flexibility
to determine when to expand. The results
allow us to conclude that deterministic cash flow models, based on the expected
value, may lead to important biases in projects with capacity constraints. We
also conclude that the expansion option may have a high value, which is
strongly determined by the initial conditions, and that the expansion
thresholds (the values of demand that trigger the expansion) change
significantly along the project.
Does corporate debt overhang affect investment over the medium term? To uncover this association, I measure debt overhang with a concept of debt accumulation or debt boom, and combine leverage with liquid assets to capture financial constraints. Using a large US firm-levelpanel over 1985Q1-2019Q1, I find that debt overhang leads financially vulnerable firms to cutpermanently back on investment: a 10 p.p. increase in the three-year change in the leverageratio is associated with lower investment growth of 5 p.p. after five years compared to the mostresilient firms. I also find that vulnerable firms experience weaker intangible capital growth inthe aftermath of debt booms. Finally, I find that general equilibrium effects dominate, stressingthe risk that firm-specific debt booms in a subset of firms may spill over to the rest of theeconomy.
Corporate debt booms; Firm investment; Financial constraints; Local projections
In this paper, we devise a forward-looking methodology to determine efficient credit portfolios under the IFRS 9 framework. We define and implement a credit loss model based on prospective point-in-time probabilities of default. We determine these probabilities of default and the credits’ stage allocation through a credit stochastic simulation. This simulation is based on the estimation of transition matrices. Using data from 1981 to 2019, in a non-homogeneous Markov chain setting, we estimate transition matrices conditional on the global real gross domestic product growth. This allows considering the effects of the economic cycle, which are of great importance in bank management. Finally, we develop a robust optimization model that allows the bank manager to analyze the tradeoff between the annual average portfolio income and the corresponding portfolio volatility. According to the proposed bi-objective model, we compute the efficient credit portfolios constructed based on 10-year maturity credits. We compare their structure to those generated by the IAS 39 and CECL accounting frameworks. The results indicate that the IFRS 9 and CECL frameworks generate efficient credit portfolios whose structure penalizes riskier-rated credits. In turn, the riskier efficient credit portfolios under the IAS 39 framework concentrate entirely on speculative-grade credits. This pattern is also encountered in efficient credit portfolios constructed based on credits with different maturities, namely 5 and 15 years. Moreover, the longer the maturity of the credits that enter into the composition of the efficient portfolios, the more the speculative-grade credits tend to be penalized.
A number of
recent scientific articles have studied the relationship between
entrepreneurial orientation (EO) and firm’s performance, though not all came in
the scope of international entrepreneurship (IE). Researchers often test
mediating or moderating variables that help explain this relationship. The extensive
academic findings lead us to a wide range of mediating/moderating variables and
to a lack of consensus in this domain. This study is in scope of IE literature,
and it aims to provide new and robust insights supported by consistent
empirical findings and to adopt
this structural-model approach as a reference in the absence of academic consensus.
Specifically, the paper examines the contribution of intrapreneurship to both the
firm’s international orientation (IO) and performance in light of the IE
guidelines. To this end, we examine how the EO of Portuguese exporters
influences corporate performance taking into account the meditating effect of
their IO on the EO – performance association through structural equation modelling.
Results confirm that IO positively and significantly mediates the relationship
between EO and corporate performance. EO and IO were also found to have a direct
and positive effect on corporate performance. These findings confirm the
relevance of intrapreneurship and international commitment to a better organisational
performance and gives us empirical support to conclude that effort taken in these
domains could enhance the exporters’ performance. Moreover, this study makes an
empirical and theoretical contribution to the IE topic and therefore aims to be
a reference to the literature in this domain.
Intrapreneurship, Entrepreneurial orientation, International orientation, Performance, Exporting firms
This paper compares the performance of efficient portfolios based on
the Markowitz (1952) mean-variance model with portfolios with high skewness. The
assumption that the return of assets follows the normal distribution is the basis
of the mean-variance model. However, the return of financial assets often deviates
from the normal distribution, namely due to positive skewness, which may offer
some advantages to investors. Previous literature reports several obstacles that
make it difficult to include skewness in portfolio optimization, and that there
is a trade-off between return and skewness maximization. Mean-variance
optimization versus the search for positive skewness is addressed in this paper
by estimating comparative performance ratios between mean-variance efficient
portfolios and portfolios with high skewness. The paper also estimates probit
models which highlight the probability of obtaining higher return from
portfolios with high skewness than from
mean-variance optimized portfolios. The probability given by our estimations is,
in general, relatively low, which suggests that mean-variance optimization must
be preferred to the search for positive skewness as method of portfolio choice.
Making use of a
two-country, two-sector, New Keynesian model with essential and non-essential
goods we assess the macroeconomic consequences of a labor supply shock in the
Euro Area. Our model incorporates health status in the households' maximization
problem which depends on the time devoted to leisure. Health status is linked
to the consumption of non-essential goods, such that the demand for
non-essentials is decreasing with contemporaneous health. After calibrating the
model for the case of Portugal and the rest of the Euro Area, our simulations
show that, a labor supply shock affecting only the latter, reduces the demand
for non-essential goods, generates inflation in the Portuguese economy and
pushes both regions into economic recession, depriving households from
essential goods. If the labor supply shock affects both economies, the negative
income effect dominates the decreased demand effect for non-essential goods and
that stagflation is a plausible scenario. In addition, our calibration scheme
allows us to conclude that the asymmetric effects across economies may be due
to different price rigidities between sectors and to different production
structures between countries.
Essential goods, Non-essential goods, COVID-19, DSGE, Euro Area.
This paper describes WISER CD (Welfare
Intervention by the State and Economic Resilience - Comprehensive Dataset) a
cross-country panel dataset that includes relevant indicators for the analyses
of the relationship between the welfare state and aggregate macroeconomic
performance, highlighting human capital and inequality as the channels of
transmission. WISER CD covers 36 OECD countries over the period 1980-2017
resulting in 1085 variables from primary sources and five constructed variables
for the measurement of human capital. We gathered data from a range of primary
data sources that were grouped in six relevant dimensions: economic growth;
welfare state; human capital; inequality; control variables; government size
and financing. Two additional datasets were generated with no missing values,
although at the cost of a shorter time coverage and more limited cross-country
availability. The former broaden the options faced by researchers in terms of
econometric methodologies (and others) for the investigation of the
relationship under analysis.
This paper analyzes
the main determinants of Foreign Direct Investment (FDI) in the member
countries of Mano River Union: Côte d’Ivoire, Guinea, Liberia and Sierra Leone.
We use both data at the firm level and at the country level - and employ OLS
and ARDL techniques - in order to examine the differences and similarities in
FDI drivers across these four countries. Our results show that
international trade, investment in infrastructures and access to credit have a
positive impact on FDI. While credit and trade have a similar influence across
countries, the effect of investment is distinct across Mano River members,
which raises political implications for policy coordination among states. We
also conclude that policies aimed to boost human capital, as well as political
and economic stability, are relevant, as they augment FDI inflows.
Foreign Direct Investment; FDI determinants; Mano River Union; West Africa.
Objective: To examine socioeconomic inequality in dietary
habits and obesity in Portugal, looking at their evolution from 2005/06 to
Methods: Cross-sectional data collected by Statistics Portugal
– National Health Survey. Samples used in this study include 18–64-year olds (n=23,049 in 2005/06 and n=10,312 in 2014). The analysis focusses
on differences in the prevalence of intake (at main meals) of nine foods across
income groups and over time. Multiple logistic regression analysis is adopted
to analyse association between socioeconomic factors (income and education) and
obesity, controlling for behavioural and demographic characteristics.
Results: Mean prevalence (%) in intake of food in 2005-06/2014
– soup (66/59: P<0.01), beans (22/28: P<0.01), meat (80/80), fish
(48/46), carbohydrates (88/88), cakes (26/40: P<0.01). Intake increases with
income in both periods for salad, fruit, fish and cakes; in 2014, intake
decreases for soft drinks. The ratio between intake in highest income group and
intake in lowest income group for fish, salad, cakes and soft drinks, changed
from 1.24, 1.13, 1.6, 0.9, in 2005/06, to 1.71, 1.37, 1.2, 0.66, in 2014,
respectively. Association between income and obesity is significant only in
highest income group (OR about 0.78 in both periods). Risk of obesity is lower
for secondary and superior education, compared to basic, in both years (OR=0.616
in 2005/06 and OR=0.820 in 2014, for secondary education; OR=0.525 in 2005/06 and
OR=0.608 in 2014, for superior education).
Conclusions: Differences in dietary habits tended to increase in
a decade, favouring the better-off. Socioeconomic inequality in obesity is
clearer for education than income and persisted over time.
Socioeconomic inequality, Food intake, Obesity, Multiple logistic analysis, Portugal
We reassess the impact that robotization has on wages and employment,
using a database on US commuting zones from 1990 to 2007. Using an
argument based on the transitional dynamics we show that the negative
displacement effects of robotization can be surpassed by productivity
and reallocation effects, leading to positive effects on employment
after a certain level of penetration in industry. In fact, we confirm
this effect through regressions that are subject to different robustness
checks. Previous evidence according to which robotization always
decreases employment and wages are thus not confirmed.
Robots, Employment, Fourth Industrial Revolution, Nonlinear effects of robots
This paper investigates the pricing patterns of 161 IPOs that occurred
in 2009-2017 in the Euronext markets of Amsterdam, Brussels, Lisbon, and Paris.
Across all the IPOs, we find a first-day raw return of 1.4% and an industry-adjusted
return of 1.2%. After one year, the average raw returns are slightly higher,
around 4.5%, and the average adjusted returns are negative, around -2.7%. These
first-day returns are lower whilst long-run returns are higher than those
reported in other studies, most notably in those that use periods that overlap
our sample Healthcare is the industry that presents a higher initial
underpricing (2.3% industry-adjusted return), whilst the Technology industry
presents the higher year underperformance (-29.5% industry-adjusted return).
Mainly, results are in line with the market conditions and investor sentiment
hypotheses according to which, when market conditions are bad (crises),
uninformed investors are not so active and optimistic in the IPO market, hence
initial underpricing and subsequent underperformance tend to be lower.
Since late 2014, Portuguese Governments adopted
ambitious minimum wage policies. Using linked employer-employee data,
we provide an econometric evaluation of the impact of those policies.
Our estimates suggest that minimum wage increases reduced employment
growth and profitability, in particular for financially distressed
firms. We also conclude that minimum wage increases had a positive
impact on firms’ exit, again amplified for financially distressed firms.
According to these results, minimum wage policies may have had a supply
side effect by accelerating the exit of low profitability and low
productivity firms and, thus, contributing to improve aggregate
productivity through a cleansing effect.
This article analyzes
spatial autocorrelations and the formation of clusters of exports, based on
Research and Development (R&D) intensity in Portugal. The central idea is
that exports show relative interdependence and spillover effects among nearby
regions and a direct relationship with R&D expenditures. It adopts the new
taxonomy of the OECD, separating exports by manufacturing and non-manufacturing
activities. Methodologically, is was used Exploratory Spatial Data Analysis
(ESDA), utilizing Global Moran's Index and LISA. The results showed the
presence of positive spatial autocorrelation of exports and the formation of a
cluster of the High-High type for the Porto metropolitan region and Aveiro
region. There was no confirmation of positive spatial autocorrelation for
R&D expenditures among the regions of Portugal. However, there was both a
positive spatial autocorrelation for exports associated with R&D
expenditures as well as the formation of a regional cluster with high-high
pattern for the Aveiro region. This outcome can be explained, in part, by
nationally and internationally recognized universities and research centers
surrounding the region, favoring knowledge spillovers across the regions.
Export; R&D expenditures; Spatial autocorrelation; Technological intensity; Clusters; Spillovers; Portugal
Despite some recent evidence according to which
different inflation rates have effects on long run growth, endogenous
growth theory had advanced little on explaining the mechanics of
monetary influence on economic growth. We follow the increasing interest
in the issue offering a new explanation for the influence of monetary
policy on growth in both long and short run: the cash requirements for
households expenditures in education. Quantitatively, the model
replicates both the small influence of monetary policy on growth while
also highlighting the effects it can have on welfare and allocations of
resources throughout different sectors in the economy.
The literature on development has pointed out
some deeply-rooted determinants of current economic development. Most
research on the field has been devoted to developing countries or
specific to single countries. We focus on deeply-rooted determinants of
development of European regions, in particular on the influence of human
capital. Following an identification strategy using instrumental variables, we approach the historical links between current human
capital and the presence of universities and trade guilds in medieval
times. We show that human capital is an important determinant of
income disparities across European regions, and that trade guilds and
universities at 1500 are good instruments to track the exogenous
influence of the current levels of human capital. This finding shows
robustness to several econometric specifications.
Development, regions, historical determinants of development.
We contribute to the renewable energy consumption-income (and growth) nexus literature by performing an empirical study on a worldwide
panel data, also accounting for cross-country dependency using a
parsimonious specification that accounts for traditional sources of
income differences as well as institutional features of the countries.
Our results present either negative or nonsignificant influence of the share of renewable energies consumption to economic growth and income.
Renewable energy consumption, economic growth regressions, economic growth
We devise a North-South endogenous growth model
with international trade and money to study the effects of inflation
(and monetary policy) on wage inequality, specialization, and growth.
The relationship between monetary policy and wage inequality depends on
the fact that skilled-production firms are less credit constrained than
unskilled-production firms. Interestingly, inflation affects the
structure of production by increasing the production share made by
skilled-intensive firms, and decreases economic growth. Furthermore,
inflation decreases the difference of wage inequality between
countries; shrinking the skill premia difference. Moreover, inflation
and trade have opposite effects on wage inequality and on
specialization: while trade tends to decrease intra-South wage
inequality, inflation tends to increase it; while trade tends to
increase the number of different intermediate goods produced with
unskilled technology in the South; inflation acts the other way around.
Results are confirmed quantitatively.
Inflation; Wage inequality; North-South trade; CIA constraints; Technological knowledge bias
This study investigates the effect of the
political connections of members of banks' Boards of Directors on the
remuneration of these boards, taking into account the gender diversity of their
members. Using a panel of observations on 77 banks supervised by the ECB for
the period 2013 to 2017, and the generalized method of moments (GMM), our
results show that, when analyzing linear effects, political connections have a
negative impact on the remuneration of the members of the banks' Boards of
Directors, reducing them. However, when investigating the possible moderating
effect, we found that when gender diversity is high, there is a non-linear,
inverted U-shaped relationship between the political connections and the
remuneration of members of the Boards of Directors of banks. Our results also
show that the differentiating characteristics of the female gender, accentuate
the negative effects of political connections on remuneration, making the
institution's interests to be privileged at the expense of those of its
personal agendas. Overall, these general results prove to be robust across
different choices of the measures used for gender diversity.
Political connections, Gender diversity, Remuneration, ECB, GMM
We develop a directed technical change model
with two sectors, tradable and non-tradable, and dynamic firms’
decisions to invest in R&D in the presence of financial constraints.
The model establishes a linkage between R&D decisions, product and
process innovations, future productivity, profits, and credit
constraints. The model is estimated using Portuguese firms’ data of the
tradable and non-tradable sectors. We find that the previous R&D
investments raises the innovating probabilities, the innovating
probabilities are higher in the tradable sector, and the startup costs
of innovation tend to be higher than the maintenance costs. The results
also show complementary between the R&D benefits and the firm’s
financial strength, diminishing marginal returns to capital on
innovation benefits, and high heterogeneity of the innovation costs
across industries. Finally, when the firms’ financial strength and the
tradable and non-tradable goods are considered, the R&D benefits in
the non-tradable sector do not compensate its cost given the higher
productivity and innovation probabilities of the tradable sector. As a
result, the R&D investments in the tradable sector illustrates a
misallocation of financial resources.
Credit constraints, firm-level data, productivity, R&D, tradable and non-tradable goods
In this paper we perform a quantitative analysis, under the IFRS 9 framework, on the tradeoff of classifying a financial asset at amortized cost versus at fair value. We define and implement a banking impairment model in order to quantify the forward-looking expected credit loss. Based on the suggested impairment model we conduct a backtest on the 10-year Portuguese Government bonds, for the time period from January 2003 to December 2019. The Portuguese bonds’ history constitutes a very rich data set for our experiment, as these bonds have experienced significant downgrades during the 2011-2014 financial crisis. We suggest a quantitative and systematic approach in order to find efficient allocations, in an income/downside comprehensive income bi-dimensional space. Resorting to stochastic simulation, we show a possible approach to mitigate the estimation error ingrained in the proposed bi-objective stochastic model. Finally, we assess the out-of-sample performance of some of the suggested efficient allocations.
We devise a generalized Directed Technical Change growth model in which
firms spend resources in lobbying activity. As expected, the presence
of lobbying distorts the skill premium and economic growth. Lobbying
also contributes to a lower technological-knowledge bias toward the
skill-sector and constitutes a possible explanation for the diverging
empirical evidence on the relationship between the skill premium and the
relative supply of skills. An increase in the relative lobbying power
of the skilled intensive intermediate goods firms can lead to an
increase or decrease in the skill premium, depending on the elasticity
of substitution between the skilled and unskilled sectors. Lobbying also
introduces possibility of a dual economy, with two different steady
states, one characterized by low growth and another by high growth,
depending on a threshold level of the lobbying power and on the
elasticity of substitution. Quantitative exercises show that lobbying
can indeed be quite important in distorting the skill premium and the
We show that the labor share of income is an important factor affecting the mechanisms behind fiscal consolidation programs, thus requiring consideration when evaluating fiscal multipliers across countries. We calibrate a life-cycle, overlapping generations model to match key characteristics of different European economies and evaluate the recessive impacts of fiscal consolidation programs. We find a positive relationship between the labor share and the impact fiscal multipliers generated by our model. This result directly follows from the higher weight of labor on production and the lower opportunity cost of leisure present in economies with a higher labor share. Following the impact period, the relationship between the labor share and the fiscal multipliers is dependent on the type of fiscal instrument employed in the consolidation.
Fiscal Consolidation, Labor Share, Fiscal Multipliers, Public Debt
study investigates the effect of gender diversity on the impact of board
members' political connections on banking performance. Using panel data on 83
banks supervised by the European Central Bank (ECB) for the period 2013-2017,
our results suggest that when gender diversity is high, there is a U-shaped nonlinear
relationship between political connections and banking performance. Empirical
evidence also indicates that differentiating characteristics of women, such as
greater ethical concern and risk aversion, help mitigate the negative effects
of political connections on banking performance, safeguarding the institutions’
interests from the adverse effects of personal agendas. In addition, our
results also suggest that a minimum of 14% gender diversity can actually contribute
to a greater social justice and beneficial structural change. Overall, these general
conclusions seem fairly robust, being drawn from several versions of the
regression model adopted in the study, using different sets of control variates
and different gender diversity measures.
Political connections, Gender diversity, Bank performance, ECB, GMM.
We examine the long-
and short-run relationships between USD/EUR official rates and implicit
exchange rates, through Bitcoin as a currency vehicle, over the period from
March 07, 2016 to November 22, 2019. The results show that the two exchange
rates are cointegrated and that the cointegrating vector is not statistically
different from the theoretical one that results from the law of one price. In
the short-run, the implied rate Granger-causes the official reference rate. Our
main conclusion is that Bitcoin USD and EUR prices incorporate fundamental
information from the USD/EUR official exchange rate
The aim of this paper is to analyze the performance of
several models for forecasting exports. We collected data on Portugal’s real
exports of goods and on the variables suggested by models based on the
assumption of perfect competition and of monopolistic competition. We estimated
Vector Autoregressive (VAR) models with those variables and compared the
performance of the forecasts produced by those models with the forecasts
obtained from simpler, univariate models, namely ARIMA models and Holt’s linear
trend model. We consider four alternative frameworks in which the forecasts
might be produced. These scenarios correspond to “static forecasts”, “recursive
forecasts”, “dynamic forecasts” and “dynamic forecasts with known exogenous
variables”. We also consider the computation of recursive forecasts including
dummies related to the international financial crisis. The best model
(according to the root mean squared error of the forecasts in the period since
the start of the international financial crisis) depends on the scenario
considered for the computation of the forecasts. The theory-based models do not
produce forecasts that are clearly better than the forecasts produced by the
simpler univariate models. In addition, the impact of the international
financial crisis appears to be better represented by a temporary shock than by
a permanent shock (with a constant effect). The results cast doubts on the
relevance of traditional measures of competitiveness for the evolution of
exports. As a consequence of the above, it is not clear that discussions of
competitiveness that put the emphasis on costs, namely on wages, or on the
exchange rate provide useful guides to policy.
At the time of joining the European Economic Community (precursor to the European Union) and the Eurozone, Portuguese agents were very optimistic about the level of development that the country would be able to achieve as a result of being a member of those economic areas. In this paper we describe the changes occurred in the Portuguese economy since joining the European Union and later the Eurozone. In addition, we provide estimates of the evolution of the expectations of Portuguese agents with respect to long-term real per capita GDP, based on a simple intertemporal macroeconomic model. Over the period under analysis, there was an impressive progress in standards of living. Before joining the euro, Portuguese agents were optimistic about long-term income. Expectations remained high until the onset of the debt crisis, at which time expectations collapsed. A slow recovery is visible in our estimates for the most recent years.
Development, Euro, European Union, Macroeconomic expectations, Portugal.
In this paper we
investigate the impact of corruption on economic growth in Portugal over the
period 1980-2018. The empirical approach makes use of a VAR model inspired by
the standard Cobb-Douglas aggregate production function. The VAR model includes
the capital stock, hours worked, total factor productivity and the corruption
perceptions index (CPI) of Transparency International. The CPI combines several
sources of information on the level of corruption in each country. The scale of
this index goes from 0, the highest level of corruption, to 10, the lowest
level. The magnitude of the estimated effect of corruption on economic growth in
the unrestricted VAR model is large (and positive), but statistically not significantly
different from zero. However, the results from the estimation of a structural VAR
model with economically plausible long-run restrictions indicate modest gains
from reducing corruption.
Corruption; Economic Growth; Portugal; VAR model; SVAR
Zeuthen-Hicks bargaining model connects strategic and axiomatic bargaining
models by providing a description of the behavior of each party, and showing
that the entire process leads to the axiomatically founded Nash bargaining
solution. In its original formulation, the model treats parties asymmetrically
by considering different decision alternatives of the focal party (who can
either accept the opponent's offer or make a counteroffer, but not quit the
negotiation) and the opponent (who can accept the focal party's offer or quit
the negotiation, but not make a counteroffer). We extend the model to consider
the full set of possible actions from both sides, which requires explicit modeling
of the expectations of the parties concerning outcomes and outside options that
become available during the process. We show analytically that under the assumption
of concave utilities of both parties, the bargaining process converges to the
nonsymmetric Nash bargaining solution. This result provides a new interpretation
of the parameters of the nonsymmetric Nash bargaining solution, linking them to
behavior in the bargaining process. Furthermore, we perform a simulation study
to analyze the outcomes for non-concave utilities.
In this paper we introduce NIESIM (Network Information Economics
SIMulation), a software for simulating a mobile communications scenario
and studying the value of information in the context of mobile network
management. The modelling principles and the simulation strategy used to
design and develop NIESIM software are introduced, along with
simulation results. We consider an application of NIESIM to support the
definition of the grade of service in a network that is exposed to
failures. An exploratory discussion of the findings and their
implications to future work is also presented.
Telecommunications, Mobile Networks Management, Value of Information, Simulation
A new approach is considered to estimate risk-neutral densities (RND) within a kernel regression framework, through local cubic polynomial estimation using intraday data. There is a new strategy for the definition of a criterion function used in nonparametric regression that includes calls, puts, and weights in the optimization problem associated with parameters estimation. No-arbitrage restrictions are incorporated in the problem through equality and bound constraints. This yields directly density functions of interest with minimum requirements needed. Within a simulation framework, it is demonstrated the robustness of proposed procedures. Additionally, RNDs are estimated through option prices associated with two indices, S&P500 and VIX.
kernel functions, Local polynomials, No-arbitrage constraints, Option prices, Risk-neutral density
This paper consists of a literature review of the impact of High Performance Work Systems (HPWS) on employee outcomes such as job satisfaction and organizational affective commitment, based on employees’ perceptions. After reviewing the strategic importance of Human Resources Management, we draw on theories like AMO and Social Exchange to understand the impact of HPWS on employee outcomes, suggesting possible relations that can shed some light into the “blackbox” of HPWS-performance linkage.
High Performance Work Systems; Employee Outcomes; AMO Theory; Social Exchange.
The present text is focused on the evaluation of the influence that determinants of loan contracts’ design may have on loan renegotiation. This general purpose is faced with the possible simultaneity of determination of some such factors (namely the use of collaterals and loan interest rate) and the likelihood of contract renegotiation. Naturally, this simultaneity corresponds to an issue of endogeneity of these factors within econometric models of the conditional probability of renegotiation. If neglected, covariates’ endogeneity causes model misspecification, translating into unreliable empirical assessments of the marginal effects of all renegotiation determinants on the probability of loan redesign. Building on the theory of incomplete contracts, suggesting that the possibility of contract renegotiation is already anticipated at the contracting date, the empirical findings of the paper, based on a dataset provided by a Brazilian bank, provide strong indication that this can indeed be the case. Accordingly, the empirical assessment of the marginal contributions of important variables to the likelihood of renegotiation is revisited, thereby enabling a deeper understanding of renegotiation processes.
This paper investigates the commonalities and differences between benign credit booms and those that end up in banking crises by employing a Multinomial and a Sequential Logit model over a panel of industrial and developing countries. Some economic, political and institutional factors are found to play an important role in understanding the credit booms dynamics. In particular, this study shows that the quantity and price of credit, liquidity in the economy, economic growth, openness of the economy, government orientation, political stability and Central Bank independence are relevant to explain not only the occurrence of credit booms but also – and most importantly – whether they end up in a systemic banking crisis or not. While a better economic environment and Central Bank independence are essential for both industrial and developing countries to avoid credit booms from going badly, political factors seem to exert a stronger influence in developing countries.
Credit booms; Multinomial Logit; Sequential Logit; Government Ideology; Central Bank Independence.
This paper addresses measurement error (ME) of double bounded variables, of which fractional variables, defined on the interval [0,1], constitute a prominent example. The text discusses consequences of ME and suggests a specification test sensitive to ME of such variables. Given the latter’s bounded support, ME is not independent of the original error-free variate, a fact that invalidates classical ME assumptions as a framework for the test. This is circumvented with a score test of independence between the error-free variate and ME, under which the latter becomes degenerate at zero and their joint distribution, specified as a copula function, reduces to the original variable’s distribution. This procedure yields a specification test of the distribution of the error-free variable, valid under mild assumptions on the marginal distribution of ME and under departures from the specified copula. The test’s finite-sample behaviour is also evaluated through a set of simulation experiments.
Copula; Fractional variable; Maximum likelihood; Measurement error; Probability integral transform; Score test.
The present article studies the determinants of banking spreads, allowing for the possibility that the impact of some of these determinants on spreads may differ according to the particular loan type. This concern is fostered by both theoretical and empirical evidence supporting the general idea that the hetero-geneity of banks’ loan portfolios should be taken into account when studying the drivers of spread. This approach is distinct from previous work in the liter-ature, usually utilizing a single interest margin per bank, in order to measure the impact of its determinants. Using a dataset of observations on various per-sonal loan categories and the Difference GMM approach, the present study es-timates that marginal effects of, respectively, banks’ risk aversion, credit risk, and market share on spreads differ significantly according to whether the loan is a consumer loan, a paycheck-linked credit line or a revolving credit line for individuals. These findings suggest, accordingly, that central banks and regula-tory agencies should observe the composition of banks’ loans portfolios when writing their policies aiming at spread reduction.
The present study examines the impact of family involvement on the debt structure of family businesses. Family corporate involvement is considered in three related but distinct dimensions: capital ownership, firm’s management and corporate control. The marginal effect of each of these three dimensions is specified as a unique regression parameter in a conditional mean model for the proportion of medium- plus long-term debt to total debt. This general strategy calls for an appropriate modelling and estimation approach, taking due account of the response variable’s inherent fractional definition and consequential nonlinear functional form of its conditional expectation, given covariates. Such an approach, combining a probit model for the equation of interest with a control function estimation method, is applied to a panel data set on Portuguese family businesses. Estimation results confirm the uniqueness of the impact of each of the three considered dimensions of families’ corporate involvement on the debt structure of firms.
Family firms; Management and control considerations; Debt maturity structure; Panel fractional data.
This paper examines stock returns and dividend growth predictability using dividend yields in seven large developed markets: US, UK, Japan, France, Germany, Italy and Spain. Altogether, these countries account for around 85% of the MSCI World Index. We use annual data, and for the US, UK, Japan, and France the time series are long enough to conduct a separate analysis of the pre- and post-IIWW periods. We also study the relationship between the predictability in dividend growth and the degree of dividend smoothness. For the post-IIWW period, returns are predictable in the US and the UK but dividends are unpredictable, while the opposite pattern is observed in Spain and Italy. In Germany, there is some evidence of short-term predictability for both returns and dividends, while in France only returns are predictable. In Japan, neither variable can be forecasted. Generally, there is no clear connection between dividend smoothness and predictability.
The literature that investigates credit booms has essentially focused on their economic determinants. The purpose of this paper is to explore the importance of political conditionings and central bank independence. In doing so, a fixed effects logit model is estimated over a panel of 67 countries for the period 1975q1-2016q4. The results show that not only the economic but also the political environment influences significantly the likelihood of credit booms. Even though lending booms have not proven to depend on the electoral cycle, they are less likely when right-wing parties are in office, especially in developing countries, and when the political environment is more unstable. In addition, more independent Central Banks are found to reduce the probability of credit booms. However, when a country’s monetary policy in the hands of a single regional monetary union they are more likely to occur and spread. Some significant differences are also unveiled when comparing industrial with developing countries.
Credit booms; Logit model; Political cycles; Government ideology; Central Bank independence.
The purpose of this paper is to study the relation between Portuguese exports of goods and a set of variables that theoretical models suggest as the main determinants of export behavior. Given that the exchange rate is one of the key variables identified by the theoretical models, we begin by reviewing the evolution of Portugal’s exchange rate policy between the 1977 and 1999, when Portugal joined the European Monetary Union. In addition, we discuss how the exchange rate policy has been related to the issue of competitiveness of Portuguese firms. We then present the theoretical models and proceed to an empirical analysis of their adequacy. The results of our empirical analysis indicate that the perfect competition model does not provide an acceptable representation of the behavior of Portugal's exports of goods. The results improve when the monopolistic competition model is estimated. The estimation of a modified version of the monopolistic competition model suggests that Portugal's exports of goods are very elastic with respect to demand and productivity, but very inelastic with respect to wages. Nevertheless, certain variables are not significant, which indicates that there are problems to be solved either in the theoretical framework or in the empirical approach. The estimates reported support the conclusion that to foster exports a focus on wage costs and on exchange rate fluctuations is probably inefficient or even misguided. Productivity and demand seem to be more important determinants of exports. If one believes in this conclusion, then views
The aim of this study is to analyse the circular linkages between recycling and economic development, where renewable energy plays an additional role in this process. We use a two-equation model, which describes a cumulative causation process with feedback effects, where recycling (among other growth inducing factors) is assumed to be important for sustainable economic development (given by the Human Development Index) and vice-versa. The system of simultaneous equations is estimated by 3sls, both in a static form and introducing dynamics into the model, for a panel of 28 OECD countries over the period 2004-2015. The empirical evidence suggests a strong relationship between the economic development level and the recycling rate with feedback effects, supporting the idea of a circular cumulative causation process driven mostly by higher human capital skills and, to a lesser extent, by innovation. Atmospheric pollution also stimulates the recycling process.
This paper investigates the information transmission between the most important cryptocurrencies - Bitcoin, Litecoin, Ripple, Ethereum and Bitcoin Cash. We use a VAR modelling approach, upon which the Geweke’s feedback measures and generalized impulse response functions are computed. This methodology allows us to fully characterize the direction, intensity and persistence of information flows between cryptocurrencies. At this data granularity, most of information transmission is contemporaneous. However it seems that there are some lagged feedback effects, mainly from other cryptocurrencies to Bitcoin. The generalized impulse-response functions confirm that there is a strong contemporaneous correlation and that there is not much evidence of lagged effects. The exception appears to be related to the overreaction of Bitcoin returns to contemporaneous shocks.
This paper offers novel insights regarding the role of complexity in both the transitional and the long-run dynamics of the economy. We devise an endogenous growth model using the concept of entropy as a state-dependent complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence on the existence of scale effects in history with evidence of no or reduced scale effects in today’s economies. We show that empirical evidence supports entropy as a “first principle” operator of the complexity effect. The model features endogenous growth, with null or small (positive or negative) scale effects, or stagnation, in the long run. These different long-run possibilities have also policy implications. Then, we show that the model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XXth century. Future scenarios based on in-sample calibration are discussed, and may help to explain (part of) the growth crises affecting the current generation.
As a multidisciplinary concept, entrepreneurship can be explained by numerous factors. Therefore, the aim of this study is to test empirically the determinants of entrepreneurship (overall and sectoral) in the Portuguese economy. Despite the methodological limitations inherent in such studies, which are mainly due to the incompatibility of some series and the temporal limitations of some data, the novelty involving a cross-sectoral view of the entrepreneurial phenomenon fuels this challenge. For this purpose, we employ an estimation approach based on time series models to confirm (or reject) a diversity of hypotheses. The main results indicate that the determinants of entrepreneurship in industry are significantly different from the determinants of entrepreneurship in the service sector in Portugal. On the other hand, the determinants of entrepreneurship in the service sector are very similar to those explaining the overall entrepreneurial activity, due to the high share of services in total economic activity. The main conclusions of the study can guide institutional decision-makers to adopt adequate policies for promoting entrepreneurship in Portugal. Additionally, strategic routes for the sustainable development of entrepreneurial activity are suggested.
entrepreneurship; sectoral entrepreneurship; determinants of entrepreneurship; entrepreneurial activity; business services; time series models.
Worldwide, demand for blood and blood products has increased. It is important to work on donor recruitment strategies. Because in developed countries the young have been more reluctant to donate, it is particularly pertinent to assess their motivations. In addition, there is sparse evidence regarding this research topic in Portugal. Using a self-administered questionnaire by a sample of university students and adopting multiple logistic regression analysis, the aims of this study are to assess attitudes, knowledge and motivations regarding blood donation and to identify factors associated with donation among young donors.
This paper studies the relationship between the electricity spot and futures prices in the Iberian electricity market, with a special focus on the ex-post risk premium of monthly futures contracts. The study covers the period from 1 July 2006 to 31 March 2017, during which 128 monthly futures contracts were traded. We show that the risk premium is dynamic and presents on average a negative value. Within contracts, the risk premium presents a non-linear dependence on the remaining trading days until maturity. There is no statistical evidence for rejecting the unbiased forward hypothesis of the futures prices. However, the sequence of futures prices near maturity has some predictive power on the risk premium.
This paper analyses the relationship between health human capital and economic growth for a maximum sample of 92 countries over the period 1980-2010 applying the methodology proposed by Canay (2011) for regression by quantiles (Koenker 1978; 2004; 2012a,b) in a panel framework. This approach allows for the identification of different impacts of the explanatory variables across the growth rate distribution. According to Mello & Perelli (2003), quantile regression allows to capture countries’ heterogeneity and assess how policy variables affect different countries according to their position on the conditional growth distribution. Quantile regression analysis allows us to identify those growth determinants that do not have the expected relationship with growth and hence determine the policy implications specifically for under-performing versus over achieving countries in terms of output growth. Our findings indicate that better health is positively and robustly related to growth at all quantiles, but the quantitative importance of the respective coefficients differs across quantiles in some cases, with the sign of the relationship greater for countries that recorded lower growth rates. These results apply to both positive (life expectancy, consumption of calories per person per day) and negative (infant mortality rate, prevalence of undernourishment in populations) health status indicators. Given the predominantly public nature of health funding, cuts in health expenditures should thus be carefully balanced even in times of public finances sustainability problems, particularly in times of growth slowdowns, since a decrease in the stock of health human capital can be particularly harmful for growth for under achievers.
health; human capital; economic growth; quantile regression.
Two main issues, closely related to each other, have occupied the European Central Bank in recent years: the sovereign debt crisis and the possibility of deflation in the Euro Zone. In this paper we discuss the causes, the consequences and the policy options regarding deflation. In addition, we assess the magnitude of the risk of deflation in the Euro Zone. For this purpose, we will employ the methodology of Kilian and Manganelli (2007). Our results suggest that the threat of deflation in the Euro Zone is related to the international financial crisis and to the sovereign debt crisis in Europe. Thus, the probability of deflation in the Euro zone increased in recent years. Nevertheless, it appears to have subsided in 2017, justifying the view taken by the ECB’s Governing Council, according to which deflation is no longer a problem for the Euro zone.
Following the Great Recession, many European countries implemented fiscal consolidation policies aimed at reducing government debt. Using three independent data sources and three different empirical approaches, we document a strong positive relationship between higher income inequality and stronger recessive impacts of fiscal consolidation programs across time and place. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of European economies, including the distribution of wages and wealth, social security, taxes and debt, and study the effects of fiscal consolidation programs. We find that higher income risk induces precautionary savings behavior, which decreases the proportion of credit-constrained agents in the economy. Credit-constrained agents have less elastic labor supply responses to fiscal consolidation achieved through either tax hikes or public spending cuts, and this explains the relationship between income inequality and the impact of fiscal consolidation programs. Our model produces a cross-country correlation between inequality and the fiscal consolidation multipliers, which is quite similar to that in the data.
fiscal consolidation, income inequality, fiscal multipliers, public debt, income risk.
The relationship between renewable energy sources and economic growth has attracted the interest of researchers in recent years. However, the analysis has focused mostly on measuring the impact of renewable energy consumption on economic performance (such as economic growth) that does not reflect the quality of standards of living. We employ a different approach measuring the impact of renewable energy consumption on the Human Development Index (HDI) that considers these qualitative characteristics associated with better health and educational standards along with income performance. Additionally, we develop a simultaneous equation system approach that describes the interrelations between economic variables, renewable energy and pollution emissions with feedback effect tendencies. We provide robust evidence using panel data for a set of 28 OECD countries over the period 2004-2015. The system of equations is estimated by 3sls considering a static and dynamic specification of the model. It is shown that renewable energy consumption along with human and physical capital are important factors for explaining the sustainable development level of the countries considered. Renewable energy consumption is mostly determined by higher levels of human capital, the R&D spending and the stage of countries’ development. Factors like the stage of development, total energy consumption, renewable energy consumption and standard levels of education are important elements for explaining environmental pollution (measured by CO2 emissions per capita). It is also established a non-linear relationship between the countries` stage of development and carbon emissions.
Renewable energy, human development index, simultaneous equation system, panel data.
The purpose of this paper is to describe the evolution of China’s exchange rate policy, relate it to the international competitiveness of the Chinese economy and assess the claims that China has been manipulating the exchange rate to foster its competitiveness. We begin by reviewing the historical evolution of China’s exchange rate policy. We then describe the implications of the constraint represented by the “trilemma” (or “impossible trinity”) of international economics for China’s economic policy. We assess whether the Renminbi can meet the requirements to be considered an international reserve currency. We also propose to evaluate the degree of currency manipulation by looking at the magnitude of the exchange rate forecast errors. Our interpretation of the test is that currencies subject to higher degrees of manipulation should be easier to forecast. We find that the magnitude of the forecast errors associated with the Chinese currency’s exchange rate is not noticeably smaller than the magnitudes observed for other currencies. This leads us to conclude that our test does not corroborate the view that China is a notorious currency manipulator. Countries wishing to improve their international competitiveness may therefore look to China’s history for insights. However, it is unlikely that policies oriented to setting the exchange rate to artificial values will find support in China’s exchange rate policy in recent years. Our conclusion runs counter the common view on China’s exchange rate policy.
The European economic and monetary integration of Portugal should be analyzed from a historical perspective, taking into account not only economic but also political aspects.Despite its colonial heritage, Portugal is a country of emigrants in which Europe holds a very important part. Portuguese people have a European feeling they do not forget a dictatorship that has lasted almost half a century. The incomes of Portuguese are nowadays much higher as also the level of fixed capital - especially in infrastructure - and human capital than before European integration. The recent economic problems of the Portuguese economy are the result of imbalances that developed during the years after the Democratic Revolution. The absence of more appropriate policies for a monetary zone with a fixed exchange rate and with financial shocks caused by the reduction of interest rates and the massive entry of structural funds is responsible for the poor performance of the Portuguese economy after 2002 At present the banking crisis and public debt does not allow the exit of the Euro. But in spite of this constraint Portuguese governments and the great majority of the political parties envisage a deeper integration on the monetary union.
Emigration, dictatorship, democracy, public debt, real exchange rate, Euro.
The study of the relationship between public debt and economic growth came again to the spotlight with the financial crisis (2007-2008) and with the sovereign debt crisis that followed in Europe. This literature aims to shed light about the sign, magnitude, mechanisms and threshold regimes relating debt to growth and to make policy recommendations with important consequences in terms of government’s policies.
We empirically investigate this relationship for a group of 60 countries for a long-time period (the shorter one from 1970 to 2012) using the historical public debt database (HPDD) built by the International Monetary Fund (IMF) and we defend that the empirical strategy underlying most of the studies on this topic should be revised. We claim that: a) the study of the long-memory property of the public debt GDP ratio and stationarity (using the last generation tests) has to be performed as a first step of the empirical analysis, what has been done using 87 countries; b) In the presence of a non-stationary public debt GDP ratio cointegration analysis was used to estimate the relationship between the public debt GDP ratio and output; c) under the no rejection of the null of no cointegration, the above mentioned relationship was studied between the public debt GDP ratio first difference and GDP growth rate using threshold models and searching for thresholds using a wide variety of variables.
The main conclusions of this study are that the debt series have a long memory and should not be analyzed in a short-term framework; additionally, the non-stationarity of the debt series does not allow researchers to apply stationary econometrics methods to model its behavior. This finding implies that the relationship between economic growth and national debt that has been characterizing the literature on the subject, has disputable econometric foundations. We thus recommend our empirical strategy to overcome the above-mentioned drawbacks of the existent empirical literature. Finally, it should be mentioned that the relationship between the public debt GDP ratio first difference and GDP growth rate is always negative despite the different threshold regimes identified.
Public Debt, Growth, Long Memory, Stationary, Co-integration and Thresholds
This paper analyses the determinants of null and blank voting at the 2011 Portuguese legislative elections. An extensive datasets at the parish level and a fractional regression model estimator are used to estimate both voting alternatives. The results found point to some common explanatory patterns as well as to important differences between the two choices. Evidence also indicates that the performance of the local economy, especially unemployment, is important but only for the explanation of blank variations and in more urban areas, where more sophisticated voters reside. Furthermore, results point to the presence of a relevant degree of persistence in both choices and indicate that past electoral choices influence both voting choices in a way that seems to suggest the existence of protest motives.
This paper analyses the price discovery process in the USD/Bitcoin market since the Mt.Gox bankruptcy until the aftermath of the hack attack on Bitfinex (01-Mar-2014 until 30-Nov-2016). The Geweke feedback measures, estimated pairwise using hourly returns, show that there is a positive relationship between the total feedback and market share, measured by trading volume, that most of the information is transmitted between exchanges within an hour, at least for the main four exchanges (Bitfinex, Bitstamp, BTC-e and ItBit), while lagged feedback runs mainly from the major exchange. Other minor exchanges seem to react to price information with some delay and are thus considered as merely satellite exchanges. Bitfinex stands out as the most important exchange in transmitting information to the market: the relative importance of the lagged feedback from Bitfinex to the market is 18.29% while the lagged feedback from the market to Bitfinex accounts only for 0.60% of the total feedback. The volatility in the major exchange in each pair is the main factor explaining the feedback measures, sustaining the claim that the information-based component of volatility increases with the relative dimension of the exchange.
Non-price competitiveness given by the ratio of the income elasticity of the demand for exports relatively to the income elasticity of the demand for imports is the key factor for measuring the competitiveness of an economy associated with the quality of the produced goods. This factor is essential in the export-led growth theory and the balance-of-payments constraint hypothesis advocated by Thirlwall´s Law (1979). Increasing returns to scale in the production process are also important for generating a cumulative causation growth circle and this factor has been earlier identified by Verdoorn (1949) and later by Kaldor (1966). According to Palley (2002) it is the non-price competiveness (through mostly changes in the income elasticity of the demand for imports) that adjusts to close the gap between the actual and the potential income. Setterfield (2012) on the other hand attributes higher importance to increasing returns to scale as the responsible for closing the income gap, implying changes in the Verdoorn coefficient. The aim of this paper is to shed light to this discussion bringing empirical evidence that shows how the non-price competitiveness (through the income elasticity of imports) and productivity (through increasing returns to scale) react with respect to previous income gaps. It is verified that both factors react significantly to changes in passed income gap but the reaction of the non-price competitiveness is more pronounced.
non-price competitiveness, increasing returns to scale, potential income, income gap, overlapping and non-overlapping regressions.
ulgaria, Croatia, Estonia, Latvia, Lithuania, Hungary, Poland, Czech Republic, Romania, Slovenia, and Slovakia have all benefited from an increase of European Union capital transfers of funds since the demand for European integration. At the same time, foreign direct investments have risen, mainly due to the liberalisation of capital movements. The effects of those funds and the reduction of financial costs can be considered as analogous to the phenomenon known as Dutch Disease. That is to say, the inflow of financial transfers is also considered a curse. In order to eliminate this curse we must take into account the two effects associated with Dutch Disease: the ‘spending effect’ and the ‘resource movement effect’. Public policies have not been appropriate and have not prevented the real exchange rate appreciation, thereby contributing to a poor performance in terms of competitiveness and economic growth. After a descriptive analysis of some variables, we estimate a set of equations that take account of the direct and indirect effects of European Union funds and financial costs on the economy where the effects on the real exchange rate play the major role.
GMM, foreign transfers, financial costs, Dutch Disease, Dynamic Models, and public policies.
In this paper we conduct an empirical analysis on the performance gains of using high frequency data in portfolio selection. Within a CRRA-utility maximization framework, we suggest the construction of two different portfolios: a low and a high frequency portfolios. For ten different risk aversion levels, we compare the performance of both portfolios in terms of several out-of-sample measures. Using data on fourteen stocks of the CAC 40 stock market index, from January 1999 to December 2003, we conclude that the “fight” is always “won” by the high frequency portfolio for all the considered performance evaluation measures.
portfolio selection, utility maximization criteria, higher moments, high frequency data, out-of-sample analysis
Increasing returns to scale are important for economic growth, generating higher levels of productivity. This view was earlier suggested by Verdoorn (1949) and Kaldor (1966) in formulating the basic Laws of economic growth. The later demand-orientated approach based on the export-led growth, gave higher importance to the non-price competitiveness reflected in the income elasticities of trade, as the main determinants of the long-term economic growth, along with external demand. This view was expressed in Thirlwall’s Law (1979) on the balance- of-payments equilibrium growth inspired from the early Harrodian concept of the foreign trade multiplier. This paper aims at considering both concepts, that is, increasing returns to scale (through the Verdoorn’s Law) and non-price competition (through the Thirlwall’s Law) in order to access whether growth adjustments over time are due mostly to productivity changes or due to changes in competitiveness. To do so, we employ a regression analysis which comprises a set of 23 OECD countries over the period 1980-2016. The estimation approach sheds light on whether growth adjustments between the balance-of-payments growth rate and that of actual or potential income are driven by improvements in productivity or improvements in non-price competiveness, or in both.
increasing returns to scale, non-price competitiveness, income gap adjustments, regression analysis