Adjustment Asymmetry Research Articles

Spatial Product Market Integration between Two Small, Open Neighbouring Economies

ABSTRACTThis paper contributes with an in‐depth investigation of spatial wheat producer market integration between two neighboring countries, net exporting Hungary and net importing Slovenia. One of the key features of this spatial producer price transmission is the very important role Hungary plays in supplying wheat to Slovenia. Using monthly data from January 2000 to April 2011, spatial price transmission is analyzed from a number of perspectives, using a wealth of econometric techniques in order to shed light upon the degree of integration, adjustment asymmetries and the role of market share upon price transmission. Empirical results rejected the validity of the Law of One Price, identified Hungary as the price‐leading market, confirmed competitive symmetric price adjustment, and emphasized the role of Hungarian market share in total Slovenian imports with respect to wheat price transmission elasticity. The results imply that wheat producer prices in both of the analyzed countries tend to be internationally determined. Hungarian exports are unable to price discriminate in wheat trade between the two neighboring markets.

Asymmetric changes in Australia’s small business loan rate

This paper examines the dynamic asymmetric relationship between changes in the Reserve Bank of Australia’s (RBA) cash rate and the interest rate for small business loans using monthly data (1990–2011). The results provide support for the rockets-and-feathers hypothesis with respect to both the amount and adjustment asymmetries. While the RBA’s rate rises exert a one-to-one and instantaneous impact on the loan rate, its rate cuts are only slowly and partially passed onto small businesses with a delay of 1–2 months. The results also suggest that the recent global financial crisis increased the cost of borrowing for small businesses in Australia by 2.21 %. These findings indicate that small businesses have limited time to respond to interest rate rises and not provided with the full benefit of interest rate decreases. Addressing this problem should ease the interest rate burden for small businesses and enhance their contribution to the economy.

Asymmetric adjustment toward optimal capital structure: Evidence from a crisis

We employ dynamic threshold partial adjustment models to study the asymmetries in firms' adjustments toward their target leverage. Using a sample of US firms over the period 2002–2012, we document a negative impact of the Global Financial Crisis on the speed of leverage adjustment. In our subperiod analysis, we find moderate evidence of cross-sectional heterogeneity in this speed, which seems more pronounced pre-crisis and provides little support for the financial constraint view. Over the pre-crisis period, more constrained firms, such as those with high growth, with large investment, of small size, and with volatile earnings, adjust their capital structures more quickly than their less constrained counterparts. These firms rely heavily on external funds to offset large financing deficits, suggesting that their higher adjustment speeds may be driven by lower adjustment costs that are shared with the transaction costs of accessing external capital markets. During the crisis, the speed of adjustment varies with the deviation from target leverage: only firms with sufficiently large deviations attempt to revert to the target, albeit slowly. Overall, our results provide new evidence of both cross-sectional and time-varying asymmetries in capital structure adjustments, which is consistent with the trade-off theory.

INCOME REDISTRIBUTION AND PUBLIC GOOD PROVISION: AN EXPERIMENT

We experimentally investigate the impact of income redistribution on voluntary contributions by groups of four subjects. We compare equalizing and unequalizing redistribution. Our data are consistent with the neutrality theorem: Redistribution does not affect the amount of voluntarily provided public good at the group level. However, at the individual level, subjects tend to underadjust with respect to the Nash prediction. We also observe an insignificant adjustment asymmetry between the poor and the rich: Subjects who become poorer adjust their contribution by a larger absolute amount than subjects who become richer. Finally, poor subjects tend to overcontribute significantly more than rich subjects.

Downward stickiness of interest rates in the Australian credit card market

This paper measures the full extent of downward stickiness in credit card interest rates by testing for the amount and adjustment asymmetries. We found that lenders behave asymmetrically in response to changes in the Reserve Bank of Australia's (RBA) cash rate. The RBA's rate rises are passed on to borrowers much faster than rate cuts and the aggregate credit card interest rate showed a very resilient degree of downward rigidity. Overall, based on the estimated short-run dynamic model, banks immediately pass on 112% of any RBA's rate rises, but only 53.7% of any rate cut. In other words, the short-run effects of rate cuts were not only less than half of the rate rises but also were delayed on average by two months. As far as changes in the credit card interest rate are concerned, an expansionary monetary policy is thus less effective than a contractionary policy.

The pricing behaviour of Australian banks and building societies in the residential mortgage market

This paper examines if the dynamic interplay between the Reserve Bank of Australia's (RBA) cash rate and the standard variable mortgage rates of 23 major lenders is subject to both the amount and adjustment asymmetries. Using weekly data (2000–2012), the cash rate and lending rates are pairwise cointegrated. An asymmetric short-run dynamic model is then estimated in which both the size and sign of disequilibria are taken into account. Significant evidence of the adjustment asymmetry is found among 8 lenders (including all foreign subsidiary banks). This paper also finds that the three largest domestic banks pass on the RBA's official rate rises to borrowers more than they do for rate cuts, affecting the efficacy of expansionary versus contractionary monetary policy.

Examining the nature of the relationship between Tapis crude oil and Singapore petrol prices

Fuel prices play a crucial role in the supply side of many economies across the globe. Hence, it is important to ensure that fuel pricing is efficient and free from any asymmetric behaviour. This paper examines the long- and short-run relationships between the price of unleaded petrol in Singapore (Mogas95) and the price of Tapis crude oil using 4,929 daily observations (4 June 1993–25 April 2012). As expected, we found that these two key energy indicators are cointegrated. We then developed a modelling framework that allowed us to test for adjustment asymmetries that distinguish between the size and sign of disequilibria, proxied by three different error correction terms. We found no significant evidence of any asymmetric pricing behaviour and market inefficiency. However, our results revealed a significant weekly cyclical pattern, with petrol being more expensive on Thursdays/Fridays than the rest of the week.

Interest Rate Pass‐Through and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate*

There is an ongoing controversy over whether banks’ mortgage rates rise more rapidly than they fall due to their asymmetric responses to changes in the cash rate. This paper examines the dynamic interplay between the cash rate and the standard‐variable mortgage rate using monthly data in the post‐1989 era. Unlike previous Australian studies, our proposed threshold and asymmetric error‐correction models account for both the amount and adjustment asymmetries. We found that the Reserve Bank of Australia’s rate rises have a much larger and more instantaneous impact on the mortgage rate than rate cuts.

Asymmetric capital structure adjustments: New evidence from dynamic panel threshold models

We develop a dynamic panel threshold model of capital structure to test the dynamic trade-off theory, allowing for asymmetries in firms' adjustments toward target leverage. Our novel estimation approach is able to consistently estimate heterogeneous speeds of adjustment in different regimes as well as to properly test for the threshold effect. We consider several proxies for adjustment costs that affect the asymmetries in capital structure adjustments and find evidence that firms with large financing imbalance (or a deficit), large investment or low earnings volatility adjust faster than those with the opposite characteristics. Firms not only adjust at different rates but also seem to adjust toward heterogeneous leverage targets. Moreover, we document a consistent pattern that firms undertaking quick adjustment are over-levered with a financing deficit and rely heavily on equity issues to make such adjustment.

Brazilian Retail Banking and the 2008 Financial Crisis: Were the Government-Controlled Banks that Important?

We revisit the interest rate pass-through effect using weekly retail banking data from May 2006 to March 2010. Our choice of data avoids caveats of previous studies concerning excessive data aggregation and the estimation of how fast changes in benchmark interest rates impact those charged on short-term loans in Brazil. Our analysis focuses on four large retail banks – two of them privately owned and run, two of them government-controlled – before and after September 2008. They account for 60% of the total credit supplied by retail banks. Results indicate that government control over two of the largest banks, supposedly an asset for crisis management, may have had higher welfare costs than assumed. We find no evidence of asymmetry in adjustments of retail rates charged by private and government-controlled banks.

Brazilian retail banking and the 2008 financial crisis: Were the government-controlled banks that important?

We revisit the interest rate pass-through effect using weekly retail banking data from May 2006 to March 2010. Our choice of data avoids caveats of previous studies concerning excessive data aggregation and the estimation of how fast changes in benchmark interest rates impact those charged on short-term loans in Brazil. Our analysis focuses on four large retail banks – two of them privately owned and run, two of them government-controlled – before and after September 2008. They account for 60% of the total credit supplied by retail banks. Results indicate that government control over two of the largest banks, supposedly an asset for crisis management, may have had higher welfare costs than assumed. We find no evidence of asymmetry in adjustments of retail rates charged by private and government-controlled banks.

Business as usual: A consumer search theory of sticky prices and asymmetric price adjustment

Empirical evidence suggests that prices are sticky with respect to cost changes. Moreover, prices respond more rapidly to cost increases than to cost decreases. We develop a search theoretic model which is consistent with this evidence and allows for additional testable predictions. Our results are based on the assumption that buyers do not observe the sellers' costs, but know that cost changes are positively correlated across sellers. In equilibrium, a change in price is likely to induce consumer search, which explains sticky prices. Moreover, the signal conveyed by a price decrease is different from the signal conveyed by a price increase, which explains asymmetry in price adjustment.

Asymmetric Capital Structure Adjustments: New Evidence from Dynamic Panel Threshold Models

We develop a dynamic panel threshold model of capital structure to test the dynamic trade-off theory, allowing for asymmetries in firms’ adjustments toward target leverage. Our novel estimation approach is able to consistently estimate heterogeneous speeds of adjustment in different regimes as well as to properly test for the threshold effect. We consider several proxies for adjustment costs that affect the asymmetries in capital structure adjustments and find evidence that firms with large financing imbalance (or a deficit), large investment or low earnings volatility adjust faster than those with the opposite characteristics. Firms not only adjust at different rates but also seem to adjust toward heterogeneous leverage targets. Moreover, we document a consistent pattern that firms undertaking quick adjustment are over-levered with a financing deficit and rely heavily on equity issues to make such adjustment.

Business as Usual: A Consumer Search Theory of Sticky Prices and Asymmetric Price Adjustment

Empirical evidence suggests that prices are sticky with respect to cost changes. Moreover, prices respond more rapidly to cost increases than to cost decreases. We develop a search theoretic model which is consistent with this evidence and allows for additional testable predictions. Our results are based on the assumption that buyers do not observe the sellers costs, but know that cost changes are positively correlated across sellers. In equilibrium, a change in price is likely to induce consumer search, which explains sticky prices. Moreover, the signal conveyed by a price decrease is different from the signal conveyed by a price increase, which explains asymmetry in price adjustment.

Costs, Demand, and Producer Price Changes

We estimate an ordered probit model in order to explain the occurrence and magnitude of producer price changes in the French manufacturing sector. We use data consisting essentially of the Banque de France monthly business surveys, pooled over the years 1998-2005. Our results show that changes in the price of intermediate inputs are the main driver of producer price changes. Firms also appear to react significantly to changes in the producer price index of their industry. Variations in labor costs as well as in the production level also appear to increase the likelihood of a price change but their influence seems to be of a lesser importance. We also show that estimating an unconstrained dynamic model allows improving the estimation results as compared to those associated with a standard state-dependent model. Finally, our results point to an asymmetry in price adjustments. When they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward.

Costs, Demand, and Producer Price Changes

We estimate an ordered probit model in order to explain the occurrence and magnitude of producer price changes in the French manufacturing sector. We use data consisting essentially of the Banque de France monthly business surveys, pooled over the years 1998-2005. Our results show that changes in the price of intermediate inputs are the main driver of producer price changes. Firms also appear to react significantly to changes in the producer price index of their industry. Variations in labor costs as well as in the production level also appear to increase the likelihood of a price change but their influence seems to be of a lesser importance. We also show that estimating an unconstrained dynamic model allows improving the estimation results as compared to those associated with a standard state-dependent model. Finally, our results point to an asymmetry in price adjustments. When they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward.

Price asymmetric adjustment in Taiwan broiler industry

The broiler industry is one of the most important livestock industries in Taiwan. The purpose of this paper is to figure out the price adjustment characteristics of broiler industry in Taiwan. The threshold autoregressive model (TAR) and Momentum-TAR (MTAR) are applied to verify the existence of asymmetry in price adjustment. Based on monthly data, it is found that the price adjustment process is dynamic and asymmetric. The threshold value of asymmetric price adjustment is not zero. A price stabilization policy should be adopted when a big negative shock occurred in Taiwan broiler industry.

Are US gasoline price adjustments asymmetric?

We use the LSE-Hendry general to specific approach to analyse if US gasoline price adjustments are asymmetric with respect to changes in crude oil prices. Furthermore, we modify some weaknesses in the earlier works by Borenstein et al. (1997) and Bachmeier and Griffin (2003) and shows that if the price adjustment equations are properly specified and estimated, alternative specifications and temporal aggregation of data do not affect the results. Monthly US data are used to show that alternative specifications give equally good results and there is no asymmetry in the US gasoline price adjustments.

Cultural distance asymmetry in expatriate adjustment

PurposeThe current literature implicitly assumes a symmetric impact of cultural distance (CD) on expatriate adjustment. By using distance as a predictor of adjustment, the literature has rendered the direction of the flow irrelevant: a US expatriate in Germany is presumed to face the same hurdle as a German expatriate in the USA. Not only is there no evidence to justify that suggestion, but logic and related findings suggest just the opposite. The aim of the present paper is to test the proposition that such impact is asymmetric, that is, the impact of CD is contingent on the direction of the assignment.Design/methodology/approachUsing a two‐flow sample of US expatriates in Germany and German expatriates in the USA, we examine and compare the psychological and socio‐cultural adjustment of each group of executives.FindingsControlling for the length of assignment, we find that German expatriates in the USA were better adjusted, both socio‐culturally and psychologically, than American expatriates in Germany. These results support the asymmetry hypothesis and call into question previous findings attesting to the relationship between CD and expatriate adjustment.Originality/valueThe paper offers new insights into the concept of CD and the findings may amount to a potentially fundamental contribution to the literature with important implications for the theory and practice of international human resource management.

Second harmonic generation in an asymmetric rectangular quantum well under hydrostatic pressure

The effects of structure parameters and hydrostatic pressure on the electronic states and the second harmonic generation (SHG) susceptibility of asymmetric rectangular quantum well (ARQW) are studied. The asymmetry of the potential can be controlled by changing the structural parameters and this adjustable asymmetry is important for optimizing the SHG susceptibility. We have calculated analytically the electronic states in ARQW within the framework of the envelope function approach. Numerical results for Al xl Ga 1 −xl As/GaAs/Al xr Ga 1− xr As quantum well are presented. The results obtained show that the hydrostatic pressure and the structure parameters of ARQW significantly influence the SHG susceptibility. This behavior in the SHG susceptibility gives a new degree of freedom in regions of interest for device applications.