Essays on the Impacts of the "Great Moderation" on Business Cycle Modeling
Year of Dissertation:
2009
The research presented here is a comprehensive analysis of research on the "Great Moderation" and its impact on business cycle modeling. In the presence of a less volatile aggregate economy, the methods of modeling business cycles have fundamentally changed along with the ability to detect turning points in the business cycle using standard algorithms. Chapter One lays out the historical case for modeling the business cycle in a manner placing importance on the ability of a model to replicate features observed in actual GDP data, such as the depth and length of recessions, or the average height of expansions. Chapter Two compares different business cycle models by their ability and accuracy in reproducing features of observed GDP data in simulated Monte Carlo paths. Comparisons are made by examining how volatility moderation affects business cycle modeling for the U.S., U.K., and Australia. Univariate ARIMA, structural change, and Markov-switching ("MS") models are estimated and used to simulate time paths using Monte Carlo methods. These results generally support previous findings that MS models are superior to linear models and comparable to structural change models at fitting business cycle characteristics. Tests show that to replicate business cycle characteristics, MS models must account for independent shifts in mean and volatility parameters. Substantial new evidence shows that commonly specified MS models with a simple linear structure, constant variance, or state-dependent volatility are sub-optimal and should be avoided in practice. Results indicate that models attempting to replicate business cycle features in any series should consider the importance of how volatility is modeled prior to estimation. Evidence is also presented showing that the Great Moderation may have recently ended. Chapter Three examines algorithm robustness used to conclude that independent switching models are better able to replicate business cycle features. Robustness is tested by varying the parameters of dating algorithms used to detect turning points. Evidence shows that the "window" and "censor" used for turning point selection criteria does not lead to substantial changes in the conclusions of our previous findings implying that our results are not artifacts of the algorithm, but due to the actual economic model itself.
Governance and Merger Activity in Banking
Year of Dissertation:
2011
One method of evaluating the success of management decisions regarding acquisitions is to examine equity price movements as the news of the merger is made public. The price movement of the acquiring firm's equity around the announcement of the acquisition indicates if shareholders believe management has acted in their interest. In the banking industry, researchers have found that on average equity values of the acquiring bank do not display abnormal positive returns upon announcement, and often display statistically significant negative returns. Another line of research has documented that CEOs are better compensated for managing larger organizations, particularly when involved in merger activity. This study investigates the possibility of a linkage between weak firm-level corporate governance structures at banks and their propensity to make acquisitions that produce negative reactions from equity holders. A commercially-sold governance index from Institutional Shareholder Services is used to measure governance strength. Acquisition events are from the comprehensive Thomson Reuters SDC merger database and equity values are from CRSP. I find that weaker corporate governance is associated with inferior stock market reactions upon announcement of an acquisition. This result should be of interest to regulators as they monitor corporate actions for covert motives, and to investors in their investment selection process. I then explore which aspects of corporate governance have the most significant connection to the equity market reception. Surprisingly, a parsimonious index of two factors has the explanatory power of the 55 available governance attributes in this bank merger context. I also show that in this dataset, which is composed of US banks purchasing US entities, acquirers with stronger (weaker) governance have a propensity to select targets with stronger (weaker) governance. Lastly, for cases in which the target firm is a bank that is publicly held or that has an ultimate parent that is publicly held, I investigate whether good governance at the target or its parent is associated with more positive movement of the acquirer's equity price at the time of the merger announcement. The results are robust to the use of a bank sector market index in place of the overall market index.
ESSAYS ON INCOME DISTRIBUTION
Year of Dissertation:
2009
Three papers comprise this dissertation. The first reexamines the relationship between the urbanization and the income inequality of the total China's residents. We start from the question whether the change of the income inequality of China's residents follows the Kuznets's Inverted-U hypothesis. Although the change of the income inequality inside the rural area and urban area doesn't follow the Kuznets's Inverted-U hypothesis, according to our research, the change of the income inequality of the total residents supports the Kuznets's Inverted-U hypothesis. The most important cause resulting in the change of the income inequality of the total residents appearing the inverted-U is that the change of the income inequality caused by urbanization has entered the decreasing phase during the recent years, which makes the income inequality of the total residents begin to decrease, or makes its increasing speed begin to decrease gradually. In the future, for decreasing the income inequality of the total residents, the two kinds of the polices will be provided: on the one hand, the barrier which block the shift of the labor from the rural area to urban area must be broken, and the urbanization should be accelerated; on the other hand the income of the rural residents must be improved as soon as possible, the urban-rural gap will shrink.
The Financial Accelerator and Fixed Asset Investment
Year of Dissertation:
2011
The foundation of this paper is the theory of the financial accelerator. The implication of the financial accelerator is that small firms have less access to debt than do large firms, and this difference is greater during recessions. Therefore, smaller firms are at a disadvantage during recessions, and this disadvantage can have significant and long-lasting effects. This paper examines the role of credit and the effect on fixed asset investment over the business cycle. The results confirm that there is a shift in credit from small firms to large firms during recessions, and, more specifically, that banks shift short-term debt from small to large firms. The main contribution of this paper to the work on financial accelerators is the focus on fixed asset investment. The results show that a positive shock to the Federal Funds Rate has no impact on large firms' fixed asset investment; however, a positive shock to the Federal Funds Rate negatively impacts the smallest firms' fixed asset investment five quarters after the shock occurs. During monetary tightening, small firms' fixed asset investments are more negatively impacted than are large firms' fixed asset investments, and this discrepancy is partially explained by access to credit.
Demand for Cigarettes by Teenagers and Young Adults and Their Smoking Transitions
Year of Dissertation:
2011
This paper provides the first comprehensive analysis of the effects of cigarette prices, cigarette excise taxes, smoke-free air laws, youth access laws, state spending on comprehensive tobacco control programs, socio-economic factors, and demographic characteristics on measures of demand for smoking, especially light and intermittent smoking by teenagers and young adults in a long panel. I employ the panel to estimate demand for cigarette smoking by young people and the determinants of transitions from light or intermittent smoking to heavy or regular smoking in the following years. Finally, I estimate transitions in the opposite direction: from regular or heavy smoking to light or intermittent smoking and to quitting. My findings indicate that the cigarette price and the price change significantly reduce the smoking prevalence, the conditional cigarette consumption, and the probabilities of some progressive smoking transitions, as well as increase the probabilities of regressive smoking transitions. The price elasticities implied for demand for cigarettes and smoking transitions are consistent with previous literature. In addition, most smoke-free-air laws, youth access laws, state spending on comprehensive tobacco control programs are effective in preventing progressive smoking transitions or promoting regressive transitions.
School Finance Reform in Vermont: Essays Evaluating Equity, Achievement, and Capitalization under Vermont's Equal Education Opportunity Act
Year of Dissertation:
2009
Advisor:
Timothy Goodspeed
This dissertation consists of three papers exploring the impacts of Vermont's Equal Education Opportunity Act, Act 60, on equity, student achievement, and property values.
Asset Prices, Wealth, and Inflation Predictability
Author:
Francois de Paul Silatchom Foyou
Year of Dissertation:
2009
This study examines the relationship between wealth, consumption and inflation. The study investigates whether the movements in asset prices can, among other things, have significant impact on the level of inflation. The study finds, from a permanent-transitory decomposition analysis of the variables, that consumption shocks are transitory while wealth shocks are permanent. It also finds evidence that the consumption-wealth ratio significantly predicts not only future asset returns, but also future inflation, over the entire time-horizon considered. These results imply that asset values appear to give helpful information about inflation in advance of its appearance, and to that extent it can help guide monetary policy.
Essays on Foreign Direct Investment, Trade and Development
Year of Dissertation:
2011
Essay 1: Most of studies on developing countries have found evidence that international linkages, such as foreign ownership, exporting, or importing, affect productivity growth, but since these variables are correlated, it is hard to distinguish among their effects. This paper tackles this issue by explicitly investigating and comparing the productivity effects of all three international linkages at plant levels in case of Indonesian manufacturing plants during 1993-2001. Overall, the paper finds that foreign ownership, first, and importing, second, but exporting doubtfully, promoted productivity growth. Productivity jumps in the year when plants are acquired by foreigners or when plants first start to import, although the productivity effects from importing become smaller after two years following the initiation of imports. Methodologically, I first obtain a measure of plant productivity that corrects for the selection and simultaneity biases. Then I control for plant characteristics through matched sampling techniques to establish proper comparison sets between plants with and without international linkages. Thirdly I apply difference-in-differences model and plant-pair fixed-effects regressions on matched samples. The unobserved plant characteristics are effectively controlled this way.
Default Risk
Year of Dissertation:
2010
The hazard rate models used in recent bankruptcy literature assume censoring and default are two independent events, which means the censored company will eventually default. However we believe there will be a portion in the censored group that will be long-term survivors and we propose a mixture model of survivors and risky companies. Moreover this dissertation models the event and the timing of default incident at the same time. For the event of default and the timing of default we utilize a logistic regression. The results have justified the advantage of our model over the standard hazard rate models and proved its predictive power. The companies identified as high default risk by our model proved to deliver extremely low returns in the market.
EXCHANGE RATES, PRICES AND PROFITABILITY: THE TURKISH EVIDENCE
Year of Dissertation:
2012
This dissertation consists of three essays. The first essay, published in the Turkish Central Bank Review I, 2010, examines the impact of exchange rate movements on export prices and profitability, at sectoral and at firm level respectively, for Turkish manufacturing. The results suggest that i) Turkish firms tend to stabilize their local currency prices implying that they have market power in international markets, and ii) exchange rate movements affect the profitability of firms. The results also show that the profits of export oriented firms are more likely to be affected by exchange rate movements.