Financing constraints, irreversibility and investment dynamics

We develop a model of an industry with many heterogeneous firms that face both financingconstraints and irreversibility constraints. The financing constraint implies that firmscannot borrow unless the debt is secured by collateral; the irreversibility constraint thatthey can only sell their fixed capital by selling their business. We use this model to examinethe cyclical behavior of aggregate fixed investment, variable capital investment, and outputin the presence of persistent idiosyncratic and aggregate shocks. Our model yields threemain results. First, the effect of the irreversibility constraint on fixed capital investmentis reinforced by the financing constraint. Second, the effect of the financing constraint onvariable capital investment is reinforced by the irreversibility constraint. Finally, the interactionbetween the two constraints is key for explaining why input inventories and materialdeliveries of US manufacturing firms are so volatile and procyclical, and also why they arehighly asymmetrical over the business cycle.

Testing financing constraints on firm investment using variable capital

We consider a dynamic multifactor model of investment with financing imperfections,adjustment costs and fixed and variable capital. We use the model to derive a test offinancing constraints based on a reduced form variable capital equation. Simulation resultsshow that this test correctly identifies financially constrained firms even when the estimationof firms investment opportunities is very noisy. In addition, the test is well specified inthe presence of both concave and convex adjustment costs of fixed capital. We confirmempirically the validity of this test on a sample of small Italian manufacturing companies.

Strategic delegation in monetary unions

In monetary unions, monetary policy is typically made by delegates of the member countries. This procedure raises the possibility of strategic delegation - that countries may choose the types of delegates to influence outcomes in their favor. We show that without commitment in monetary policy, strategic delegation arises if and only if three conditions are met: shocks affecting individual countries are not perfectly correlated, risk-sharing across countries is imperfect, and the Phillips Curve is nonlinear. Moreover, inflation rates are inefficiently high. We argue that ways of solving the commitment problem, including the emphasis on price stability in the agreements constituting the European Union are especially valuable when strategic delegation is a problem.

Firm-specific investment, sticky prices and the Taylor principle

According to the Taylor principle a central bank should adjust the nominal interest rate by more than one-for-one in response to changes in current inflation. Most of the existing literature supports the view that by following this simple recommendation a central bank can avoid being a source of unnecessary fluctuations in economic activity. The present paper shows that this conclusion is not robust with respect to the modelling of capital accumulation. We use our insights to discuss the desirability of alternative interest raterules. Our results suggest a reinterpretation of monetary policy under Volcker and Greenspan: The empirically plausible characterization of monetary policy can explain the stabilization of macroeconomic outcomes observed in the early eighties for the US economy. The Taylor principle in itself cannot.

Department of Administrative Services Strategic Plan, 2008-2011

This report outlines the strategic plan for Department of Administrative Services, including, motto, goals and mission.

Audit report on Wave 2 of the Phase II Strategic Sourcing Initiative implemented by the Department of Administrative Services

Audit report on Wave 2 of the Phase II Strategic Sourcing Initiative implemented by the Department of Administrative Services

A-1 Monthly Public Assistance Statistical Report Family Investment Program, April 2008

A-1 - Monthly Public Assistance Statistical Report Family Investment Program

Unobserved heterogeneity and censoring in the demand for health care

This paper analyses the demand for private health care by Spanishhouseholds using a micro budget survey. The methodology used takescare of the three part decision process involved in this type ofbehaviour, namely the decision to use private health care, howoften to do so and how much to spend each time and also the effectsof unobserved heterogeneity. Since the theoretical frameworkcorresponds to the Grossman model of health investment, the resultsalso provide a test of the theory when these issues are considered.Finally, the obtained evidence also suggest that the current systemof tax deductions for private health care expenditures is regressive.

A-1 Monthly Public Assistance Statistical Report Family Investment Program, May 2008

A-1 - Monthly Public Assistance Statistical Report Family Investment Program

A-1 Monthly Public Assistance Statistical Report Family Investment Program, December 2007

A-1 - Monthly Public Assistance Statistical Report Family Investment Program

A-1 Monthly Public Assistance Statistical Report Family Investment Program, October 2007

A-1 - Monthly Public Assistance Statistical Report Family Investment Program

Strategic ambiguity in electoral competition

Many have observed that political candidates running for election areoften purposefully expressing themselves in vague and ambiguous terms. In thispaper we provide a simple formal model of this phenomenon. We model theelectoral competition between two candidates as a two--stage game. In thefirst stage of the game two candidates simultaneously choose their ideologies,and in the second stage they simultaneously choose their level of ambiguity.Our results show that ambiguity, although disliked by voters, may be sustainedin equilibrium. The introduction of ambiguity as a strategic choice variablefor the candidates can also serve to explain why candidates with the sameelectoral objectives end up ``separating'', that is, assuming different ideological positions.

Specificity revisited: The role of cross-investments

Previous analysis has shown that traders may opt for specific technologies with nojoint productivity advantage as a way to commit themselves to trading jointly, butonly when long-term contracting is infeasible. This paper proves that speciÞcity canalso be optimal (by relaxing the budget-balance constraint) in settings with long-termcontracting. Traders will opt for specificity when one trader makes a cross-investmentand either (1) this cross-investment has a direct externality on the other trader, (2) bothparties invest, or (3) private information is present. The specificity (e.g. from non-salvageable investments, specific assets and technologies, narrow business strategies,and exclusivity restrictions) is equally effective regardless of which trader's alternativetrade payoff is reduced. Specificity supports long-term contracts in a broad rangeof settings - both with and without renegotiation. The theory also offers a novelperspective on franchising and vertical integration.

On forward induction and evolutionary and strategic stability

We analyze which normal form solution concepts capture the notion offorward induction, as defined by van Damme (JET, 1989) in the classof generic two player normal form games preceded by an outsideoption. We find that none of the known strategic stability concepts(including Mertens stable sets and hyperstable sets) captures this form of forward induction. On the other hand, we show that the evolutionary concept of EES set (Swinkels, JET, 1992) is always consistent with forward induction.

A-1 Monthly Public Assistance Statistical Report Family Investment Program, June 2008

A-1 - Monthly Public Assistance Statistical Report Family Investment Program