Business Finance in Less Developed Capital Markets

By Klaus P. Fischer; George J. Papaioannou | Go to book overview

11
Macro Shocks and Industrial Portfolio Responses: Econometric Model for LDCs

JAMES TYBOUT and TAEHO BARK


INTRODUCTION

Macroeconomic conditions change frequently and dramatically in the semiindustrialized countries. In this turbulent environment, policymakers hope that the industrial sector not only remains financially sound, but manages to grow rapidly. This study identifies the macro conditions under which industrial growth and financial stability are most likely, and those conditions that are most prone to create disaster. 1

We model interest rates, exchange rates, and aggregate demand conditions as affecting industrial growth and financial risk through two channels. First, because these variables affect firms' income, they affect firms' net worth expansion. Second, because the link between macro variables and income depends on the proportions in which firms hold fixed capital, inventories, financial assets, and debts (hereafter the "portfolio mix"), changes in macro variables also induce portfolio adjustments. This chapter develops an empirical model that allows us to calibrate the strength and timing of each effect.

The model has several antecedents in the literature ( Taggart 1977; Yardeni 1978; Jalilvand and Harris 1984). However, it breaks new ground by (1) treating corporate net income and savings as endogenous functions of macroeconomic and firm-specific variables; (2) treating fixed capital accumulation as endogenous; (3) distinguishing between domestic and foreign-currency-denominated balance sheet items; and (4) relaxing assumptions regarding functional forms and error structures. The model is also unique in that it is estimated with micro data from a developing country.

When fit to Uruguayan data, the model yields several basic findings. First, corporate income is very sensitive to output demand and the cost of dollar credit. Second, fluctuations in corporate income have a clear direct effect on the rate of

-211-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Business Finance in Less Developed Capital Markets
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 398

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.