Serie
2004
04-01. Lobato, I. N., and C. Velasco "Optimal
Fractional Dickey-Fuller Tests for Unit Roots"
pdf
file
Abstract: This article studies the fractional
Dickey- Fuller (FDF) test for unit roots recently introduced
by Dolado, Gonzalo and Mayoral (2002). Apart from the
analogy with the Dickey-Fuller test, the main motivation
for their method relies on simulations since these authors
do not provide any justification for their particular
implementation of the FDF test. In order to give additional
rationale to the test, we frame the FDF test in a model
where a nuisance or auxiliary parameter is not identified
under the null hypothesis. Within this framework we investigate
optimality aspects of the class of tests indexed by this
auxiliary parameter and show that the test proposed by
these authors is not optimal. In addition, we propose
feasible FDF tests with good asymptotic and finite sample
properties.
04-02. Maurer, N., and A. Gomberg "When
the State is Untrustworthy: Public Finance and Private
Banking in Porfirian Mexico"
pdf file
Abstract: All sovereign governments face a commitment
problem: how can they promise to honor their own agreements?
The standard solutions involve reputation or political
institutions capable of tying the hands of the government.
Mexico's government in the 1880s used neither solution.
It compensated its creditors by enabling them to extract
rents from the rest of the economy. These rents came through
special privileges over banking services and the right
to administer federal taxes. Returns were extremely high:
as long as creditors believed that the government would
refrain from confiscating all their assets (let
alone repaying their debts) less than twice a decade,
they would break even.
04-03. Sadka, J., and J. L. Negrín. "Full
vs. Light-Handed Regulation of a Network Industry"
pdf file
Abstract: The access pricing problem emerges
when a vertically integrated firm (the incumbent) provides
an essential service in the upstream market, to an entrant.
Both firms produce a final service and compete in the
downstream market. The standard treatment of this problem
has been to add the access price to the list of instruments
available to a regulator who maximizes a social welfare
function. Motivated by the international trend to reduce
the number of prices set by regulation, we use a light
handed regulation approach in which the only tool available
to the regulator is the access price, and where retail
prices are set by quantity competition in the downstream
market. In this setup, we find that a regulator seeking
to maximize total market surplus will set an access
price that subsidizes the entrant, so that entrants
that are less efficient than the incumbent firm can
survive in the market. We then compare the outcomes
of the full regulation model with those of the light-handed
regulation model, in terms of final prices, firm profits,
and consumer surplus. When the regulator faces incomplete
information about entrant firms' costs and cannot offer
a menu of contracts to potential entrants, we find examples
in which light handed regulation can dominate full regulation.
04-04. Martinelli, C., and R. Sicotte. "Voting
in Cartels: Theory and Evidence from the Shipping Industry"
pdf file
Abstract: We examine the choice of voting rules
by legal cartels with enforcement capabilities in the
presence of uncertainty about demand and costs. We show
that cartels face a trade-off between the commitment
advantages of more stringent majority requirements and
the loss of flexibility resulting from them. Expected
heterogeneity in costs or demand conditions leads away
from simple majority toward more stringent rules, while
larger membership to the cartel leads away from unanimity
toward less restrictive rules. Evidence from the shipping
conferences of the late 1950s largely supports our model.
With few firms, the rule favored by heterogeneous conferences
is unanimity. In larger cartels, the favored rule is
either 2/3 or 3/4-majority rule.
04-05. Lobato, I., S. Pratap, and A. Somuano "Debt
Composition and Balance Sheet Effects of Exchange Rate
Volatility in Mexico: A Firm Level Analysis"
pdf file
Abstract: We use Mexican firm-level data to study
the role of currency mismatches in exacerbating the negative
effects of a devaluation in the corporate sector and to
investigate what drives Mexican firms to borrow in foreign
currency. Our results show that large firms and exporters
tend to borrow more heavily in foreign currency. The presence
of foreign currency denominated debt poses a significant
risk to balance sheets at the time of devaluation. Our
findings suggest that in Mexico, the balance sheet effects
of a devaluation far outweigh the competitiveness effects.
04-06. Pratap, S., and C. Urrutia "Firm
Dynamics, Investment, and Debt Portfolio: Balance Sheet
Effects of the Mexican Crisis of 1994"
pdf file
Abstract: We build a partial equilibrium model
of firm dynamics under exchange rate uncertainty. Firms
face idiosyncratic productivity shocks and observe the
current level of the real exchange rate each period. Given
their current level of capital stock, firms make their
export decisions and choose how much to invest. Investment
is financed through one period loans from foreign lenders.
The interest rate charged by each lender is set to satisfy
an expected zero-profit condition. The model delivers
a distribution of firms over productivity, capital stocks
and debt portfolios, as well as an exit rule. We calibrate
the model using data from a panel of Mexican firms, from
1989 to 2000, and analyze the effect of the 1994 crisis
on these variables. As a result of the real exchange rate
depreciation, the model predicts: (i) an increase in the
debt burden, (ii) an increase in exports, and (iii) a
large decline in investment. These real effects are consistent
with the evidence for the Mexican crisis.
04-07. Elbittar, A., A. Gomberg, and L. Sour "Group
Decision-Making in Ultimatum Bargaining: An Experimental
Study " pdf file
Abstract: Many rent-sharing decisions in a society
are result from a bargaining process between groups of
individuals (such as between the executive and the legislative
branches of government, between legislative factions,
between corporate management and shareholders, etc.).
The purpose of this work is to conduct a laboratory study
of the effect of different voting procedures on group
decision-making in the context of ultimatum bargaining.
An earlier study (Bornstein and Yaniv, [2]) has suggested
that when the bargaining game is played by unstructured
groups of agents, rather than by individuals, the division
of the payoff is substantially affected in favor of the
ultimatum-proposers. Our theoretical arguments suggest
that one explanation for this could be implicit voting
rules within groups. We propose to explicitly structure
the group decision-making as voting and study the impact
of different voting rules on the bargaining outcome.
04-08. Martinelli, C., and R. Escorza "When
Are Stabilizations Delayed? Alesina-Drazen Revisited"
pdf file
Abstract: In an influential article, Alesina
and Drazen (1991) model delay of stabilization as the
result of a struggle between political groups supporting
reform plans with different distributional implications.
In this paper we show that ex ante asymmetries
in the costs of delay for the groups will reduce the
probability of conflict and will lead to a shorter expected
delay. Accurate common information about the cost of
delay may lead to no delay at all. In an asymmetric
conflict, a wider divergence in the distributional implications
of reform will reduce the probability of conflict
but will lead to a longer expected delay.
04-09. Rojas, J. A., and C. Urrutia, "Social
Security Reform with Uninsurable Income Risk and Endogenous
Borrowing Constraints"
pdf
file
Abstract: We study the aggregate effects of a
social security reform in a large overlapping generations
model where markets are incomplete and households face
uninsurable idiosyncratic income shocks. We depart from
the previous literature by assuming that, because of
lack of commitment in the credit market, the borrowing
constraint in the unique asset is endogenously determined
by the agents' incentives to default on previous debts.
We find that a model with exogenous borrowing constraints
overestimates the positive effect of reforming social
security on the capital stock and the saving rate, compared
to our model with endogenous borrowing limit. The reason
is that, in the latter, the size of precautionary savings
is smaller because after the reform the incentives to
default on previous debts are lower and consequently
households face more relaxed borrowing limits. Adding
retirement accounts to the basic model does not change
these conclusions, although the quantitative importance
of endogenizing borrowing constraints is reduced.
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