Three essays in international finance

Executive Summary The first essay of this dissertation investigates whether greater exchange rate uncertainty (i.e., variation over time in the exchange rate) fosters or depresses the foreign investment of multinational firms. In addition to the direct capital financing it supplies, foreign investment can be a source of valuable technology and know-how, which can have substantial positive effects on a host country's economic growth. Thus, it is critically important for policy makers and central bankers, among others, to understand how multinationals base their investment decisions on the characteristics of foreign exchange markets. In this essay, I first develop a theoretical framework to improve our knowledge regarding how the aggregate level of foreign investment responds to exchange rate uncertainty when an economy consists of many firms, each of which is making decisions. The analysis predicts a U-shaped effect of exchange rate uncertainty on the total level of foreign investment of the economy. That is, the effect is negative for low levels of uncertainty and positive for higher levels of uncertainty. This pattern emerges because the relationship between exchange rate volatility and 'the probability of investment is negative for firms with low productivity at home (i.e., firms that find it profitable to invest abroad) and the relationship is positive for firms with high productivity at home (i.e., firms that prefer exporting their product). This finding stands in sharp contrast to predictions in the existing literature that consider a single firm's decision to invest in a unique project. The main contribution of this research is to show that the aggregation over many firms produces a U-shaped pattern between exchange rate uncertainty and the probability of investment. Using data from industrialized countries for the period of 1982-2002, this essay offers a comprehensive empirical analysis that provides evidence in support of the theoretical prediction. In the second essay, I aim to explain the time variation in sovereign credit risk, which captures the risk that a government may be unable to repay its debt. The importance of correctly evaluating such a risk is illustrated by the central role of sovereign debt in previous international lending crises. In addition, sovereign debt is the largest asset class in emerging markets. In this essay, I provide a pricing formula for the evaluation of sovereign credit risk in which the decision to default on sovereign debt is made by the government. The pricing formula explains the variation across time in daily credit spreads - a widely used measure of credit risk - to a degree not offered by existing theoretical and empirical models. I use information on a country's stock market to compute the prevailing sovereign credit spread in that country. The pricing formula explains a substantial fraction of the time variation in daily credit spread changes for Brazil, Mexico, Peru, and Russia for the 1998-2008 period, particularly during the recent subprime crisis. I also show that when a government incentive to default is allowed to depend on current economic conditions, one can best explain the level of credit spreads, especially during the recent period of financial distress. In the third essay, I show that the risk of sovereign default abroad can produce adverse consequences for the U.S. equity market through a decrease in returns and an increase in volatility. The risk of sovereign default, which is no longer limited to emerging economies, has recently become a major concern for financial markets. While sovereign debt plays an increasing role in today's financial environment, the effects of sovereign credit risk on the U.S. financial markets have been largely ignored in the literature. In this essay, I develop a theoretical framework that explores how the risk of sovereign default abroad helps explain the level and the volatility of U.S. equity returns. The intuition for this effect is that negative economic shocks deteriorate the fiscal situation of foreign governments, thereby increasing the risk of a sovereign default that would trigger a local contraction in economic growth. The increased risk of an economic slowdown abroad amplifies the direct effect of these shocks on the level and the volatility of equity returns in the U.S. through two channels. The first channel involves a decrease in the future earnings of U.S. exporters resulting from unfavorable adjustments to the exchange rate. The second channel involves investors' incentives to rebalance their portfolios toward safer assets, which depresses U.S. equity prices. An empirical estimation of the model with monthly data for the 1994-2008 period provides evidence that the risk of sovereign default abroad generates a strong leverage effect during economic downturns, which helps to substantially explain the level and the volatility of U.S. equity returns.

Hospital transfers between Swiss cantons: a first look

Objective: To assess the importance of hospital transfers between Swiss cantons and the factors associated with them. Methods: Hospital discharge data, mean number of hospitals, hospital beds and corresponding density per 100.000 inhabitants for period 1998-2008 were provided by the Federal Office of Statistics. Inclusion criteria were: >=18 years; transferred from one hospital to another and living in a canton different from the one they were transferred to. Cumulative data for the study period was used. Results: Between 1998 and 2008, 247.355 hospital transfers occurred between cantons, representing 17.7% of all hospital transfers. This value ranged between 2.7% (Geneva) and 81.6% (Appenzell Innerrhoden). The main diagnoses were: circulatory system (20.1%); musculoskeletal system (9.3%); mental and behavioural disorders (6.5%); oncology (4.6%) and repertories diseases (2.6%). Factors influencing health status (28.7%) and injuries and external causes (12%) were not included in the analysis. Cantons with a university hospital received more patients than they transferred to other cantons. The other cantons were either "senders" or "receivers" according to the disease considered. German-speaking cantons transferred patients more easily than the others. Most transfers were made between geographically or linguistically close cantons. The number of patients received was associated with the number of hospitals (r = 0.82, p <0.001) or beds (r = 0.85, p <0.001)in the canton; bed density (r = 0.51, p <0.01), but not with hospital density(r = 0.08, p <0.7). Conclusions: in Switzerland, over one-sixth of hospital transfers occur between cantons. Several cantons are dependent of others for the treatment of specific diseases. Cantons with a university hospital attract more patients, suggesting an optimisation of health resources.

Trends in hospital discharges, management and in-hospital mortality from acute myocardial infarction in Switzerland between 1998 and 2008.

BACKGROUND: Since the late nineties, no study has assessed the trends in management and in-hospital outcome of acute myocardial infarction (AMI) in Switzerland. Our objective was to fill this gap. METHODS: Swiss hospital discharge database for years 1998 to 2008. AMI was defined as a primary discharge diagnosis code I21 according to the ICD10 classification. Invasive treatments and overall in-hospital mortality were assessed. RESULTS: Overall, 102,729 hospital discharges with a diagnosis of AMI were analyzed. The percentage of hospitalizations with a stay in an Intensive Care Unit decreased from 38.0% in 1998 to 36.2% in 2008 (p for trend < 0.001). Percutaneous revascularizations increased from 6.0% to 39.9% (p for trend < 0.001). Bare stents rose from 1.3% to 16.6% (p for trend < 0.001). Drug eluting stents appeared in 2004 and increased to 23.5% in 2008 (p for trend < 0.001). Coronary artery bypass graft increased from 1.0% to 3.0% (p for trend < 0.001). Circulatory assistance increased from 0.2% to 1.7% (p for trend < 0.001). Among patients managed in a single hospital (not transferred), seven-day and total in-hospital mortality decreased from 8.0% to 7.0% (p for trend < 0.01) and from 11.2% to 10.1%, respectively. These changes were no longer significant after multivariate adjustment for age, gender, region, revascularization procedures and transfer type. After multivariate adjustment, differing trends in revascularization procedures and in in-hospital mortality were found according to the geographical region considered. CONCLUSION: In Switzerland, a steep rise in hospital discharges and in revascularization procedures for AMI occurred between 1998 and 2008. The increase in revascularization procedures could explain the decrease in in-hospital mortality rates.

TRENDS IN HOSPITAL MANAGEMENT OF ACUTE MYOCARDIAL INFARCTION IN SWITZERLAND, 1998 TO 2008 THE REGION MAKES THE DIFFERENCE: DISPARITIES IN MANAGEMENT OF ACUTE MYOCARDIAL INFARCTION WITHIN SWITZERLAND

The aim of this master's thesis was to assess the ten- year trends and regional differences in management and outcome of acute myocardial infarction (AMI) within Switzerland. The thesis is composed of two articles. First, in the article "Trends in hospital management of acute myocardial infarction in Switzerland, 1998 to 2008" over 102,700 cases of AMI with corresponding management and revascularization procedures were assessed. The results showed a considerable increase in the numbers of hospital discharges for AMI, namely due to the increase of between- hospital transfers. Rates of intensive care unit admissions remained stable. All types of revascularization procedures showed an increase. In particular, overall stenting rates increased with drug-eluting stents partly replacing bare stents. Second, in the article "The region makes the difference: disparities in management of acute myocardial infarction within Switzerland" around 25,600 cases of AMI with corresponding management were assessed for the period of 2007-2008 and according to seven Swiss regions. As reported by our results, considerable regional differences in AMI management were stated within Switzerland. Although each region showed different trends regarding revascularization interventions, Leman and Ticino contrast significantly by presenting the minimum and maximum rates in almost all assessed parameters. As a consequence these two regions differ the most from the Swiss average. The impact of the changes in trends and the regional differences in AMI management on Swiss patient's outcome and economics remains to be assessed. Purpose: To assess ten-year trends in management and outcome of acute myocardial infarction (AMI) in Switzerland. Methods: Swiss hospital discharge database for the 1998 to 2008 period. AMI was defined as a primary discharge diagnosis code I21 according to the CIM-10 classification of the World Health Organization. Management and revascularization procedures were assessed. Results: Overall, 102,729 hospital discharges with a diagnosis of AMI were analyzed. The number of hospital discharges increased almost three-fold from 5530 in 1998 to 13,834 in 2008, namely due to a considerable increase in between-hospital transfers (1352 in 1998, 6494 in 2008). Relative to all hospital discharges, Intensive Care Unit admission rate was 38.0% in 1998 and remained stable (36.2%) in 2008 (p for trend=0.25). Percutaneous revascularization rates increased from 6.0% to 39.9% (p for trend<0.001). Non-drug-eluting stent use increased from 1.3% to 16.6% (p for trend<0.05). Drug eluting stents appeared in 2004 and increased to 23.5% of hospital discharges in 2008 (p for trend=0.07). Coronary artery bypass graft increased from 1.0% to 3.0% (p for trend<0.001). Circulatory assistance increased from 0.2% to 1.7% (p for trend<0.001). Thrombolysis showed no significant changes, from 0.5% to 1.9% (p for trend=0.64). Most of these trends were confirmed after multivariate adjustment. Conclusion: Between 1998 and 2008 the number of hospital discharges for AMI increased considerably in Switzerland, namely due to between-hospital transfers. Overall stenting rates increased, drug-eluting stents partly replacing bare stents. The impact of these changes on outcome and economics remains to be assessed.