01.01 Domínguez, M. A., y Lobato I., "A Consistent Test for the Martingale Difference Hypothesis"
Resumen: This paper considers testing that an economic time series follows a martingale difference process. The martingale difference hypothesis has been typically tested using information contained in the second moments of a process, that is, using test statistics based on the sample autocovariances or in the periodograms. Tests based on these statistics are inconsistent since they just test necessary conditions of the null hypothesis. In this paper we consider tests that are consistent against all fixed alternatives and against Pitman's local alternatives. Since the asymptotic distributions of the tests statistics depend on the data generating process, the tests are implemented using a modification of the wild bootstrap procedure. The paper justifies theoretically the proposed tests and examines their finite sample behavior by means of Monte Carlo experiments. In addition we include an application to exchange rate data.
Key words and Phrases: nonlinear dependence, nonparametric, correlation, bootstrap.
JEL classification numbers: C12 and C52.
01-02. Domínguez, M. A., y Lobato, I. "Size Corrected Power for Bootstrap Tests"
Resumen: This note provides an alternative perspective for size-corrected power for a test. The advantage of this approach is that it allows the calculation of size-corrected power for bootstrap tests.
Key words and Phrases: Size-adjusted power, Monte Carlo.
JEL classification number: C12.
01-03. Pratap, S. "Do Adjustment Costs Explain Investment-Cash Flow Insensitivity?"
Resumen: In this paper, I explain two "puzzles" which have been observed in firm level data.
(1) Firms which display a high sensitivity of investment to cash flow (commonly believed to be an indicator of liquidity constraints) usually have large unutilized lines of credit which, presumably, could be used to overcome the shortage of funds.
(2) Firms which are perceived to be extremely liquidity constrained actually show very little sensitivity of investment to cash flow.
I use a dynamic model of firm investment with liquidity constraints and non convex costs of adjustment of capital which can explain these facts. The fixed cost of adjustment in the presence of liquidity constraints implies that firms need to have a certain threshold level of financial resources before they can afford to invest and incur these costs. Below this level, investment will not be sensitive to increases in cash flow. Once they cross this threshold, firms' investment will be positively correlated with their financial resources until they reach their desired level of capital stock. However, even if investment is sensitive to cash flow, firms always borrow below their credit limit to guard against future bankruptcy or binding liquidity constraints. I show therefore, that a firm which displays investment cash-flow sensitivity is certainly liquidity constrained. However, the reverse is not necessarily true.
01-04. Huybens, E., Luce, A., y Pratap, S. "Financial Market Discipline in Early 20th Century Mexico"
Resumen: We test for the presence of market discipline in the banking sector in early 20th century Mexico. Using a panel of financial data from note-issuing banks between 1905 and 1910, we examine whether bank fundamentals influenced the pattern of withdrawals. If we do not control for exit, our estimation suggests that fundamentals were not a significant determinant of depositor behavior. Instead, bank specific fixed effects and systemic risk seem to have been the most important determinants of net changes in deposits. However this period included the banking crisis of 1907 and the subsequent exit of several banks. Our results change when we use a two step estimator to take this into account. Controlling for the selection bias created by exiting banks, we show that fundamentals were indeed an important determinant of bank withdrawals in this period, indicating the existence of market discipline.
01-05. Kaplan, D. S. y Pierce, B. "Firm-Wide Versus Establishment-Specific Labor-Market Practices"
Resumen: Economists have devoted substantial effort to understanding why some productive activities are organized under the same firm, with the majority of empirical studies focusing on product or capital markets. Using a unique data set that links occupational data from separate establishments to the establishments ultimate beneficial owners, we are the first to study labor markets across establishments and across industries within large and diverse firms. We use these data to determine how wages and employment in firms different establishments and different industries are related. We first identify patterns in the wage and occupational profiles of the industries that multi-industry firms choose to enter. We then show there to be a substantial component of wage rates common to all establishments and all industries within individual firms, even after netting out industry and occupation effects. This demonstrates the extent that internal labor markets of large, multi-establishment, multi-industry firms are linked throughout their entire organizations. Finally, we show that employment changes tend to be localized within establishments, suggesting that demand or productivity shocks to an establishment do not permeate throughout the firm.