Partial Adjustment Approach Research Articles

The impacts of information technology and E-commerce on operational performances: A two-stage dynamic partial adjustment approach

ABSTRACT This study proposes an unconventional partial adjustment valuation approach, as a comparison to stochastic production frontier approach, to evaluate the business values of information technology and E-commerce. Based on the different settings of the speeds of adjustment, two different cases, constant case and dynamic case, are conducted and compared. With the more realistic model design, we can investigate and compare the business values of information technology and E-commerce with not only the constant but also the time-varying dynamic setting empirically. The empirical results indicate that the adoptions of information technology and E-commerce contribute to operational performances positively in most cases, but the power differs depending on the different industries.

Agricultural supply response for sunflower in South Africa (1947–2016): The partial Nerlovian framework approach

The study estimates sunflower supply response in South Africa using time series data from 1947 to 2016, modelled through the Nerlovian Partial Adjustment approach. Short- and long-run price elasticities of 0.238 and 0.313 respectively, suggest that farmers do not easily adjust acreage devoted to sunflower given price changes, indicating the influence of other non-price factors. An adjustment coefficient of 0.272 indicates that the time taken to adjust from the actual to the desired acreage level is slow, at 27% per year. The estimated elasticities provide some scope for using price and non-price incentives to influence sunflower production in the long-run. This could facilitate decision-making by sunflower producers to spearhead internal and external adjustment processes. The study contributes to a growing body of literature on agricultural supply response determinants, thus providing evidence-based macro-economic tools towards agricultural policy-making and reform process.

Comparison of adjustment speeds in target research and development and capital investment: What did the financial crisis of 2007 change?

This paper investigates the dynamics of R&D and capital investment using a large sample of US firms during the period 2002–2016. A partial adjustment approach is employed with a specific focus on the impact of the financial crisis on target adjustment speed. Evidence suggests that firms have a target in both types of investment and adjust to it at varying speeds. Specifically, firms adjusted to the capital investment target faster than to R&D investment. However, firms increased the adjustment speed in R&D investment significantly during the crisis, and it has remained at similar levels during the post-crisis period. The changes in adjustment speeds can be explained by several firm-specific characteristics that are related to the ability of firms to raise internal finance.

Cash holdings between public and private insurers ‒ a partial adjustment approach

Abstract Cash holdings of financial institutions, especially private firms, have been understudied in existing literature. This paper fills that gap by examining the cash holdings of US property-liability insurers in order to analyze the difference in cash holdings and cash adjustments between public and private stock insurers and between mutual and stock insurers within the private insurer category. We find that public insurers hold much less cash than private stock insurers, which differs from the findings for non-financial firms. Additionally, we find that mutual insurers hold less cash than private stock insurers. Public insurers adjust their cash holdings much faster toward their target cash levels than private stock insurers do when facing an extreme cash shortfall, but their adjustment speed is indifferent from that of private stock insurers when both having excess cash. Mutual insurers are able to adjust cash holdings slightly faster than private stock insurers when there is an extreme cash shortfall but are indifferent in adjustment speed from private stock insurers when having excess cash in hand. Overall, our results are more consistent with the financing frictions hypothesis of cash holdings and are inconsistent with the owner-manager agency problems of free cash flow.

Aggregate and regional demand for electricity in Malaysia

The main objective of this paper is the analysis of electricity consumption in Malaysia as a whole and its three regions, namely, Peninsular Malaysia, Sabah and Sarawak. This analysis has been carried out using distinguished data in sectoral level for 44 quarters (2000Q1-2010Q4). For this purpose, two log-log static and dynamic panel demand functions are estimated. The dynamic model, which is based on a partial adjustment approach, is used to compare with the static model. The aggregate and the three regional models are estimated based on their economic sectors in both the dynamic and static methods. This study seeks to reveal some features of electricity consumption in Malaysia and its regions. It is found that the short and long- run price elasticities of electricity demand in all regions of Malaysia are inelastic. Consumers’ responsiveness to changes in electricity prices in the short-run is low, while they have a high response to the long-run changes in the entire Malaysian economy and its regions. This means that, while the short and long-run price elasticities of electricity demand are lower than one, the magnitudes of the long-run elasticities are greater than the short-run elasticities. Moreover, all elasticities in the dynamic models are smaller than the static models. The estimated short and long-run cross-price elasticities of Liquefied Petroleum Gas (LPG) are negative which suggests that LPG and electricity are complementary goods.

Residential electricity demand in Spain: New empirical evidence using aggregate data

This paper presents an empirical analysis on residential demand for electricity. This analysis has been performed using aggregate panel data at the province level for 47 Spanish provinces for the period from 2000 to 2008. For this purpose, we estimated a log–log demand equation for electricity consumption using a dynamic partial adjustment approach. This dynamic demand function has been estimated using a two-step system GMM estimator proposed by Blundell and Bond (1998). The purpose of this empirical analysis is to highlight some of the characteristics of Spanish residential electricity demand. Particular attention has been paid to the influence of price, income, and weather conditions on electricity demand. The estimated short and long-run own price elasticities are negative, as expected, but lower than 1. Furthermore, weather variables have a significant impact on electricity demand.

Conditional dynamic forecast of electrical energy consumption requirements in Ghana by 2020: A comparison of ARDL and PAM

The frequent power outages which characterises Ghana's electricity sector have raised serious concerns among policy makers and stakeholders. The causes of this problem have been cited as growing demand and inadequate investment. The objective of this study, therefore, was to identify the factors that affect aggregate electricity demand in Ghana both in the short and long-run as a guide for demand-side management based on two econometric approaches-ARDL and PAM. Also predictions of aggregate electricity demand based on these econometric methods were obtained to guide investment decisions in the electricity sector. The result revealed that the positive output, urbanisation, and income effects more than offset the negative efficiency effects leading to growth in electricity consumption both in the short-run and long-run. The result further establishes the superiority of the ARDL approach to forecasting over the Partial adjustment approach to forecasting. For all three scenarios, future domestic consumption levels of electrical energy are predicted to increase ad infinitum from 2012 to 2020. Specifically electricity demand is estimated to fall within 20,453 and 34,867 GWh by the year 2020 for all three scenarios. This requires huge capital investments in additional plant capacity.

A partial adjustment approach to evaluating and measuring the business value of information technology

In this paper we develop a partial adjustment approach, based on the theory of partial adjustment, to assess the value of information technology. We also propose a performance measure derived from the approach. The constrained (structural or implicit) and unconstrained (non-structural or explicit) models derived from the approach are fitted into a set of panel data at the country level, covering the period from 1993 to 2006 for a sample of 12 countries including the G7 nations; and are estimated by the seemingly unrelated regression estimation. The results produced by the models are robust with respect to the choice of the production function representing the true (desired or maximum) output and challenge the widely held belief that the productivity paradox has disappeared and the view that the productivity paradox exists in developing economies only. The proposed approach compares favorably with the time-varying stochastic production frontier approach since it is easier and simpler to apply. But, unlike the non-parametric data envelopment analysis approach, it is parametric.

Determination of capital structure in India: a partial adjustment approach

We investigate the role of adjustment costs and other firm-specific variables like tangibility, growth opportunity, size of the company, profitability, volatility, nondebt tax shields and uniqueness of the company in the determination of capital structure in the case of 793 Indian manufacturing companies for the period 1995–1996 to 2006–2007. A dynamic partial adjustment model, more specifically the Generalised Method of Moments (GMM) technique, is used to test the dynamics of capital structure. The results indicate that firms do have a target capital structure. The adjustment speed towards the target capital structure is reasonably high and it varies with the definition of leverage ratio. All these results are consistent with the tradeoff theory of corporate capital structure.

How Do Large Banking Organizations Manage Their Capital Ratios?

U.S. banks hold significantly more equity capital than required by their regulators. We test competing hypotheses regarding the reasons for this “excess” capital, using an innovative partial adjustment approach that allows estimated BHC-specific capital targets and adjustment speeds to vary with firm-specific characteristics. We apply the model to annual panel data for publicly traded U.S. bank holding companies (BHCs) from 1992 through 2006, an extended period of increasing bank capital that ended just before the subprime credit crisis of 2007–2008. The evidence suggests that BHCs actively managed their capital ratios (as opposed to passively allowing capital to build up via retained earnings), set target capital levels substantially above well-capitalized regulatory minima, and (especially poorly capitalized BHCs) made rapid adjustments toward their targets.

The demand for residential, industrial and total electricity, 1973–1998

This paper estimates residential, industrial, and total electricity demand by a partial-adjustment approach and by a simultaneous equation approach. Simultaneous equation models are more appropriate since they provide negative price elasticity estimates for the residential, industrial and total electricity samples. Flow-adjustment models yield positive price elasticity estimates in some cases, suggesting they fail to identify proper supply considerations that may be influencing prices. The simultaneous equation approach suggests that residential customers are more price sensitive than industrial customers. Weather seems to have the greatest impact on the residential sector, and cold weather appears to affect demand more than hot weather.

Interest Rate Smoothing in New Zealand and Other Dollar Bloc Countries

This paper utilises the partial adjustment approach of Judd and Rudebusch (1998) to empirically estimate the degree of short-term interest rate smoothing by central banks in the dollar block countries. All countries appear to smooth short-term interest rates significantly, with New Zealand and Canada smoothing rates by less than what appears to be the case for Australia and the United States. We then examine the macroeconomic implications of interest rate smoothing using the Reserve Bank of New Zealand's macro model. The model is constructed such that the more interest rates are smoothed in the short-term, the larger inflation and output variability will be over the cycle. However, at least over the narrow range of the empirically based smoothing approaches, the results suggest that there may be little cost in smoothing short-term interest rates in New Zealand to the degree seen in Australia or the United States.

Structural reforms and inventory management: Evidence from Indian industries

The study in its analysis on the effects of structural reforms on management of inventories in selected public and private sector industries in India, observed that on the basis of ratios in inventory management techniques, over investment still seems to prevail. Besides, the results of partial adjustment approach show that finished goods inventory and raw materials as a component of inventory, adjust faster to the desired level, than the inventory as a whole, for the selected industries under private limited companies in India.

Ownership Structure across Lines of Property-Casualty Insurance

Ownership Structure across Lines of Property-Casualty Insurance

The Short-Run Demand for Money: A Reconsideration

The partial-adjustment approach to the specification of the short-run demand for money has dominated the literature for more than a decade. There are three basic problems with this approach. First, the same lag structure is imposed on all variables, and each independent variable enters only as a current value. In contrast a rational individual would respond to different variables (income, interest rates, prices) with quite different lags. Second, when the general price levelis subject to gradual adjustment hut can move quickly in response to supply shocks, the influence of these supply shocks should enter with a negative sign. Third, the estimated equation for real balances may not be a money demand equation at all, but rather its coefficients may represent a shifting mixture of demand and supply responses.The empirical work examines several alternative dynamic specifications, including a generalized partial adjustment framework and the error-correction model. Both of the latter specifications exhibit greater structural stability after 1973 than the standard partial adjustment specification, and the generalized partial adjustment model also yields relatively small errors in post-sample dynamic simulations. Shifts in coefficients as the sample period is extended after 1973 are consistent with the interpretation that the real balance equation no longer traces out structural demand parameters, hut rather a mixture of demand and supply responses.