Author: Morgan YurosekPublisher:
ISBN:
Category : Business and politics
Languages : en
Pages : 49
Book Description
Investment Dynamics Under Recent Trade Policy Uncertainty
Author: Morgan YurosekPublisher:
ISBN:
Category : Business and politics
Languages : en
Pages : 49
Book Description
Trade and Investment Under Policy Uncertainty
Author: Kyle HandleyPublisher:
ISBN:
Category : Economics
Languages : en
Pages : 0
Book Description
We provide theoretical and empirical evidence that policy uncertainty can significantly affect firm level investment and entry decisions in the context of international trade. When market entry costs are sunk, policy uncertainty can create a real option value of waiting to enter foreign markets until conditions improve or uncertainty is resolved. Using a dynamic, heterogeneous firms model we show that: (i) investment and entry into export markets is reduced when trade policy is uncertain, and (ii) preferential trade agreements (PTAs) are valuable to exporters even if applied trade barriers are currently low or zero. We derive a structural equation that predicts how firm entry responds to changes in applied tariffs and a theory-based measure of policy uncertainty. Our novel approach using observable trade policies allows us to estimate the impact of policy uncertainty and quantify its aggregate implications. We apply this method to Portugal's accession to the European Community in 1986 using new firm-level trade data. We find that (i) the trade policy reform accounted for a large fraction of the observed Portuguese exporting firms' entry and sales upon accession (ii) the accession removed uncertainty about future preferences and (iii) this uncertainty channel accounted for a large fraction of the predicted growth. These results have broader implications for other PTAs and our approach can be applied to analyze other sources of policy uncertainty.
Investment under Uncertainty
Author: Robert K. DixitPublisher: Princeton University Press
ISBN: 1400830176
Category : Business & Economics
Languages : en
Pages : 484
Book Description
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
Economic and Policy Uncertainty
Author: Jerónimo CarballoPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We examine the interaction of economic and policy uncertainty in a dynamic, heterogeneous firms model. Uncertainty about foreign income, trade protection and their interaction dampens export investment. This can be mitigated by trade agreements, which are particularly valuable in periods of increased demand volatility. We use firm data to establish new facts about U.S. export dynamics in 2003-2011 and estimate the model. We find a significant role for uncertainty in explaining the trade collapse in the 2008 crisis and partial recovery in its aftermath. Consistent with the model predictions, we find that the negative effects worked (1) through the extensive margin, (2) in destinations without preferential agreements with the U.S. (accounting for over half its trade) and (3) in industries with higher potential protection. U.S. exports to non-preferential markets would have been 6.5% higher under an agreement--equivalent to an 8% foreign GDP increase. These findings highlight and quantify the value of international policy commitments through agreements that mitigate uncertainty, particularly during downturns.
The Era of Uncertainty
Author: Francois TrahanPublisher: Wiley
ISBN: 9781118027738
Category : Business & Economics
Languages : en
Pages : 256
Book Description
Macroeconomic Investment Strategies for an Era of Economic Uncertainty “Over the years, François’ insightful analyses of the business cycle has led to market calls that have both benefitted investors on the upside and (more important to many) protected them from losses on the downside. François’ incredible track record in successfully interpreting the trends that can be found in leading indicators and other macroeconomic data have also led to his well deserved reputation as an expert in sector rotation - providing investors on both the long and short side of the market opportunities to profit from his ideas. In my opinion, his most important and influential macro prediction to date was his call in the middle of the last decade when he predicted that the worst housing crisis in American history would soon be upon us, and that it would have far-ranging implications for both the global economy and world financial markets.” From the foreword by Robert Doll, Vice Chairman & CIO of Global Equities, Blackrock Advisors, LLC “François Trahan is an insightful observer and student of market forces. His research has identified key drivers of stock market performance over decades in various cycles of inflation, credit growth, and economic developments. In his new book, François tries to sort out and explain for market participants the dynamics that brought us to this point and what he sees as the future path of economic and market developments. It is an essential read for anyone participating in or interested in the stock market.” Robert Soros, Chairman, Soros Fund Management “The Era of Uncertainty is terrific. It challenges conventional Wall Street wisdom, gives investors the necessary tools to successfully navigate the new world order and has policy prescriptions to get the U.S. economy on the right track.” Consuelo Mack, Anchor & Managing Editor, Consuelo Mack WealthTrack “Valuation is not everything. An important lesson from the global financial crisis is that macro matters. In The Era of Uncertainty, François Trahan and Katharine Krantz show how macroeconomic analysis can be incorporated into the investment process and provide a road map for investing in the difficult times ahead.” Edward Chancellor, Author of Devil Take the Hindmost: A History of Financial Speculation and member of GMO's Asset Allocation team “François consistently sets a high bar for strategist and thought leaders in the markets, and I can safely say he’s done it yet again with this book. Always insightful, and willing to challenge the ‘stale’ thinking of the establishment on The Street, François' thoughts and analysis are appropriate for anyone who cares not only about markets, but the future of our world.” Jeff deGraaf, Chairman, Renaissance Macro Research, LLC With macro forces governing the post-credit crisis world, and most likely to remain dominant for some time to come, the power of the business cycle is once again in the spotlight. In this type of environment, stock picking will have far less impact on portfolio returns than getting the "big picture" right. And using the last twenty years as a playbook will prove costly to investors. The Era of Uncertainty provides a new way of thinking about investing in a dynamic, macro-driven world. In it, François Trahan and Katherine Krantz discuss the importance of macroeconomic perspectives in an unstable global economy. They go on to cover three possible future scenarios: inflation, deflation, or the middle ground. With each scenario the authors discusses the likely causes and consequences as well as the best strategies for investing profitably. Draws on the experiences of prior credit-driven deleveraging cycles to develop a dynamic framework for investing in an era of economic uncertainty Contains insights on the future of the financial industry Provides fascinating anecdotes from Trahan's time at Bear Stearns prior to its collapse and sale Includes interactive digital tool for users to determine investment strategies based on personal predictions If you intend on succeeding in today's economic environment you can't follow yesterday's investment strategies. The Era of Uncertainty reveals what it will take to make it in such a different market and how you can incorporate new strategies into your everyday investment endeavors. The book comes with an interactive digital tool allowing users to make their own predictions about the economic future and receive asset allocation and sector allocation advice.
Economic and Policy Uncertainty
Author: Jerónimo CarballoPublisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 86
Book Description
We examine the interaction of economic and policy uncertainty in a dynamic, heterogeneous firms model. Uncertainty about foreign income, trade protection and their interaction dampens export investment. This can be mitigated by trade agreements, which are particularly valuable in periods of increased demand volatility. We use firm data to establish new facts about U.S. export dynamics in 2003-2011 and estimate the model. We find a significant role for uncertainty in explaining the trade collapse in the 2008 crisis and partial recovery in its aftermath. Consistent with the model predictions, we find that the negative effects worked (1) through the extensive margin, (2) in destinations without preferential agreements with the U.S. (accounting for over half its trade) and (3) in industries with higher potential protection. U.S. exports to non-preferential markets would have been 6.5% higher under an agreement—equivalent to an 8% foreign GDP increase. These findings highlight and quantify the value of international policy commitments through agreements that mitigate uncertainty, particularly during downturns.
Policy Uncertainty in Japan
Author: Ms.Elif C ArbatliPublisher: International Monetary Fund
ISBN: 1484302362
Category : Business & Economics
Languages : en
Pages : 48
Book Description
We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards building on the approach of Baker, Bloom and Davis (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates and interest rates and with a survey-based measure of political uncertainty. The EPU index rises around contested national elections and major leadership transitions in Japan, during the Asian Financial Crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, and Japan’s recent decision to defer a consumption tax hike. Our uncertainty indices for fiscal, monetary, trade and exchange rate policy co-vary positively but also display distinct dynamics. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan’s macroeconomic performance, as reflected by impulse response functions for investment, employment and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by, in part, reducing policy uncertainty.
Alternative Economic Indicators
Author: C. James HuengPublisher: W.E. Upjohn Institute
ISBN: 0880996765
Category : Business & Economics
Languages : en
Pages : 133
Book Description
Policymakers and business practitioners are eager to gain access to reliable information on the state of the economy for timely decision making. More so now than ever. Traditional economic indicators have been criticized for delayed reporting, out-of-date methodology, and neglecting some aspects of the economy. Recent advances in economic theory, econometrics, and information technology have fueled research in building broader, more accurate, and higher-frequency economic indicators. This volume contains contributions from a group of prominent economists who address alternative economic indicators, including indicators in the financial market, indicators for business cycles, and indicators of economic uncertainty.
New Perspectives on Policy Uncertainty
Author: Sandile HlatshwayoPublisher:
ISBN:
Category :
Languages : en
Pages : 157
Book Description
In recent years, the ubiquitous and intensifying nature of economic policy uncertainty has made it a popular explanation for weak economic performance in developed and developing markets alike. The primary channel for this effect is decreased and delayed investment as firms adopt a ``wait and see'' approach to irreversible investments (Bernanke, 1983; Dixit and Pindyck, 1994). Deep empirical examination of policy uncertainty's impact is rare because of the difficulty associated in measuring its magnitude and changes over time. In this dissertation, I leverage the recent advent of global news aggregators to directly identify and measure policy uncertainty shocks based on ``news chatter'' in the press. Unlike previously used measures of economic uncertainty (e.g., strike days or exchange rate volatility), ``news chatter'' uncertainty indices pick up economic volatility as well as the threat or anticipation of volatility stemming from policy uncertainty, whether or not it comes to fruition. The more holistic character of such measures allows for a more nuanced examination of uncertainty's impact on firm decisions and outcomes. After constructing novel measures of policy uncertainty, I then explore how they translate into economic outcomes that extend beyond the traditional investment channel. In Chapter 1, I offer new insights into the channels policy uncertainty operates through by constructing a novel and rich dataset of type-specific policy uncertainty indices and leveraging previously unexamined variation in firm-level exposure to external markets to create firm-specific measures of policy uncertainty. Specifically, I exploit variation in firms' exposure to external markets to construct a firm-level measure of policy uncertainty. The approach both highlights a new channel for policy uncertainty and allows for stronger causal identification of the effects of policy uncertainty on economic performance. As part of this effort, I refine prior approaches to measuring policy uncertainty and distinguish between generic, fiscal, monetary, and trade policy uncertainty. I find that firms with greater exposure to external markets tend to experience larger declines in investment, sales, profits, and employment when fiscal and monetary policy uncertainty increase. Unexpectedly, increases in trade policy uncertainty appear to have a positive impact on exports for exposed firms. Both sets of findings can be rationalized in a standard model of firm investment under uncertainty. In particular, I present evidence that exposed firms may perceive increased uncertainty around trade agreement negotiations as a signal that negative outcomes are less likely in the near-term, incentivizing immediate investments. Historically, exchange rate depreciation makes a country's exports more competitive and cheaper, increasing its exports. Since the end of the Great Recession, many countries have seen this relationship weaken. In Chapter 2, I advance policy uncertainty as a new explanation for such dilutions in the relationship between exchange rates and export performance. Using South Africa as a case study, I find that increased policy uncertainty diminishes the responsiveness of exports to exchange rate fluctuations. In Chapter 3, I examine a more extreme version of policy uncertainty--regime uncertainty. In 2010, the International Criminal Court (ICC) issued an indictment against six of Kenya's foremost leaders for crimes against humanity related to 2008 post-election violence. I find strong evidence that firms connected to the accused experienced declines in valuations during ICC shocks, with particularly negative revaluations for firms with highly public links to the accused. The results suggest that the negative effects of regime uncertainty outweighed any positive ``rule of law'' shock that the ICC's intervention might have provided to firms. Together the studies provide new insights on the connections between policy uncertainty and weak aggregate economic performance. In addition to offering more nuance for policy directives, the results will help discipline future theoretical efforts to more accurately model complex dynamics in modern open economies.
Recursive Methods in Economic Dynamics
Author: Nancy L. StokeyPublisher: Harvard University Press
ISBN: 0674735188
Category : Business & Economics
Languages : en
Pages : 607
Book Description
This rigorous but brilliantly lucid book presents a self-contained treatment of modern economic dynamics. Stokey, Lucas, and Prescott develop the basic methods of recursive analysis and illustrate the many areas where they can usefully be applied.