Speed Of Adjustment Parameter Research Articles

Does the Long-Term Developmental Effect of Mergers and Acquisitions and Greenfield Investment Differ in Host African Economies?

The choice between greenfield investment (GFIELDI) and mergers and acquisitions (M&As) is rarely straightforward for host developing countries (DCs), as this subject has not been thoroughly researched. Thus, this study fills this gap in the literature. It compares the overall long-term dynamic effect of GFIELDI and M&As on host African countries (ACs) from 1990 to 2020. The study, in particular, adopted a rigorous analytical framework that optimizes the welfare-decreasing and welfare-increasing effects of these two main FDI entry modes in the countries under study. The study used panel data from 15 African countries and adopted the PMG/ARDL approach. Therefore, the empirical findings of this study surprisingly contradict not only the preferred GFIELDI entry option of governments and development partners but also nearly all of the existing empirical literature in other developing regions. The results specifically demonstrate that while M&As outperform the GFIELDI in terms of their size effects, they both have net positive long-term dynamic effects on real GDP per capita in the studied countries. In practical terms, a 1% increase in GFIELDI has, on average, a weaker positive long-term dynamic effect on real GDP per capita than an equivalent investment in M&As. Except for Malawi and Botswana, evidence shows that the speed of adjustment parameter is consistently negative and statistically significant. South Africa (SA) has the lowest adjustment speed rate (=-0.157), while Morocco has the highest (=-1.554). Our findings have important policy implications, which are outlined in the conclusion of this study.

Dynamic analysis of Caribbean food import demand

Short- and long-run price and income elasticities are generally unavailable at the regional level for major imported food groups for the Caribbean. These elasticity measures are needed to enhance policymaking. This paper therefore seeks to determine the income, own-price and cross-price elasticities of eight major imported food groups. This will show the relationships between income and price changes on the import quantities for the major food groups. This was done using an error-corrected linear approximate almost ideal demand system (EC-LA-AIDS) for the period 1961–2021, using annual data. The study found that the theoretical restrictions of homogeneity and symmetry did not hold in the static LA-AIDS model but did in the EC-LA-AIDS model. The speed of adjustment parameter in the EC-LA-AIDS model revealed that imported beverages had the slowest adjustment to long-run equilibrium while all other imported food categories had a moderate adjustment speed. The study also derived short- and long-run income and price elasticities of import demand for the eight imported food categories. In both time horizons, income elasticities revealed that all imported food categories were normal goods. In both time horizons, imported meat and seafood, and sugar and honey were the most responsive to changes in income, while spices and tea was the least responsive. Own-price elasticities revealed that all imported food categories were import price inelastic except for meat and seafood which was found to be import price elastic in both time horizons. Additionally, cross-price elasticities unveiled various substitution and complementary relationships between pairs of imported foods. The study not only contributed empirical insights into the import demand dynamics of the Caribbean, but also emphasized significant policy implications arising from the research findings.

Nonlinear Dynamics and Multistability in a Cobweb Model

This paper studies the dynamic characteristics of an economic cobweb model whose producers adopt a gradient-based mechanism. The model’s producers are taken to be boundedly rational, and then the model is studied as a 1D and 2D discrete time dynamical system. Due to the lack of information in the market regarding the function of demand, the producers depend on the estimation of the marginal profit variations so as to update their prices next period. The equilibrium price point is calculated, and its local stability conditions are discussed through analytical and numerical investigations. In the 2D model, where the memory factor is introduced, the equilibrium price is obtained, and it is shown that it can be destabilized through chaotic behaviors, which are formed due to period doubling and Neimark-Sacker bifurcation. Furthermore, we study the symmetric case when the producers update their prices based on the marginal profit in the past two time periods, and therefore, we investigate the influence of the speed of adjustment parameter on the stability of equilibrium price.

Economic Growth, Financial Development, Income Inequality and Poverty Relationship: An Empirical Assessment for Developing Countries

The paper contributes to the current literature by investigating the effects of economic growth, income inequality, and financial development on poverty for fifteen (15) developing countries. Panel data over the period from 2002 to 2018 has been used. Pooled Mean Group (PMG) technique has been applied for estimating the results. The study employs panel unit root tests namely: LLC and IPS for checking the unit root in the data. The long results show that all variables turned significant in the model. The income inequality shows positive relationship with poverty. Financial development and economic growth reveal adverse impact on poverty. Government spending and employment (increase in labor force participation) impact on poverty are negative. Furthermore, trade openness and inflation coefficients turned significant however, its sign are not according to the theory. Moreover, in the short run income inequality and economic growth show no impact on poverty. Financial development relationship with the poverty is still positive. Inflation revealed positive relationship with poverty. Trade openness show positive relationship with poverty. And other two variables government spending and labor force participation rate coefficients remained insignificant. The error correction coefficient i.e. speed of adjustment parameter is - 0.089. On the basis of the findings it is suggest that effective policies for boosting up economic growth, advancement of financial sector and reducing income inequality can significantly contribute towards the poverty reduction in the developing countries. It is suggested that the government shall formulate appropriate policies for the development of financial sector, boosting up economic growth and reduction of income inequality which will contribute to the reduction in poverty of the selected countries.

On a Bertrand Duopoly Game With Heterogeneous Expectations and Emissions Costs

This study was based on the dynamics of a nonlinear Bertrand-type duopoly game with differentiated goods, linear demand and a cost function that included emissions costs. This duopoly game was modeled with a system of two difference equations. Existence and stability of equilibria of this system were studied. It was shown that the model gave more complex chaotic and unpredictable trajectories as a consequence of changes in the speed of adjustment parameter and horizontal product differentiation parameter. Numerical simulations showed that a higher value of the speed of adjustment and a higher or lower (negative) value of product differentiation (weaker or fiercer competition) can destabilize the economy. The chaotic features were justified numerically via computing Lyapunov numbers and sensitive dependence on initial conditions. Also, it was shown that in this case of a duopoly game, there were stable trajectories, and a higher (lower) degree of product differentiation did not tend to destabilize the economy.
 Keywords: Bertrand duopoly game, discrete dynamical system, heterogeneous expectations, stability, chaotic behavior

Further Investigations on the Dynamics and Multistability Coexisted in a Memory-Based Cobweb Model

Based on a nonlinear demand function and a market-clearing price, a cobweb model is introduced in this paper. A gradient mechanism that depends on the marginal profit is adopted to form the 1D discrete dynamic cobweb map. Analytical studies show that the map possesses four fixed points and only one attains the profit maximization. The stability/instability conditions for this fixed point are calculated and numerically studied. The numerical studies provide some insights about the cobweb map and confirm that this fixed point can be destabilized due to period-doubling bifurcation. The second part of the paper discusses the memory factor on the stabilization of the map’s equilibrium point. A gradient mechanism that depends on the marginal profit in the past two time steps is adopted to incorporate memory in the model. Hence, a 2D discrete dynamic map is constructed. Through theoretical and numerical investigations, we show that the equilibrium point of the 2D map becomes unstable due to two types of bifurcations that are Neimark–Sacker and flip bifurcations. Furthermore, the influence of the speed of adjustment parameter on the map’s equilibrium is analyzed via numerical experiments.

Do natural resources determine energy consumption in Pakistan? The importance of quantile asymmetries

Unlike prior studies, this paper examines the nonlinear and distributional asymmetric effects of natural resources abundance on energy consumption in Pakistan controlling for the effects of economic growth, oil prices, exports diversification and economic complexity. Using quarterly data over the period 1972–2018, we employed several advanced econometric techniques such as quantile unit root test developed by Köenker and Xiao (2004) is used to check the stationarity of the variables at different quantiles. Afterwards, the quantile ARDL model is employed to account for the distributional asymmetry between energy consumption and its determinants. Lastly, we apply quantile causality test of Troster (2018) in order to examine causality at different quantiles. The empirical results show that speed of adjustment parameter is significantly negative at the low quantiles (0.05 to 0.30) ensuring thus the stability of ARDL model at these quantiles. Furthermore, natural resources have a positive contemporaneous effect on energy consumption and a negative one-period lagged effect, leading to a positive cumulative short-run effect of natural resources on energy consumption. Similarly, economic growth and oil prices add to energy consumption. Export diversification does not determine energy consumption in the short-run but economic complexity influences energy consumption contemporaneously and negatively at all quantiles but the extreme ones. The causality analysis reveals the presence of causal relation running from natural resources, economic growth and oil prices, to energy consumption at all quantiles except at the two highest quantiles (0.90 and 0.95). Energy consumption is cause of exports diversification and economic complexity. This empirical evidence opens new insights for policy makers to use natural resources as economic tool to maintain energy demand for long run economic growth.

Exchange rate nonlinearities in India’s exports to the USA

Exchange rate nonlinearities in India’s exports to the USA

Duopolistic Stackelberg game: investigation of complex dynamics and chaos control

The current paper introduces a duopolistic Stackelberg game under the assumption of differentiated products. The game is built based on a cost function that is nonlinear and depends on the quantities produced by firms and the announced plan products. Indeed, there is a difference between the actual product and the plan product. Here, we try to confirm that the equilibrium production of a firm is no more than its announced plan product. The dynamic of the proposed game is described by a nonlinear discrete dynamical system with bounded rationality mechanism by which the time evolution of the competing firms is analyzed. The equilibrium point of the system is obtained and its local stability is discussed using the eigenvalues properties or Jury conditions. The discussion shows that the stability of equilibrium point is affected by the speed of adjustment parameter and some other cost parameters. Confirmation of this discussion is supported by some numerical simulations that lead to the existence of complex dynamic phenomena such as bifurcation and chaos. In addition, we are applied a feedback control scheme to suppress and overcome chaos existed and at the same time to force the system to go back to its stabilization behavior.

An Improved Valuation Model for Technology Companies

This paper estimates some of the parameters of the Schwartz and Moon (2001)) model using cross-sectional data. Stochastic costs, future financing, capital expenditures and depreciation are taken into account. Some special conditions are also set: the speed of adjustment parameters are equal; the implied half-life of the sales growth process is linked to analyst forecasts; and the risk-adjustment parameter is inferred from the company’s observed stock price beta. The model is illustrated in the valuation of Google, Amazon, eBay, Facebook and Yahoo. The improved model is far superior to the Schwartz and Moon (2001) model.

Discrete time dynamic oligopolies with adjustment constraints

A classical $n$-firm oligopoly is considered first with linear demand and cost functions which has a unique equilibrium. We then assume that the output levels of the firms are bounded in a sense that they are unwilling to make small changes, the output levels are bounded from above, and if the optimal output level is very small then the firms quit producing, which are realistic assumptions in real economies. In the first part of the paper, the best responses of the firms are determined and the existence of infinitely many equilibria is verified. The second part of the paper examines the global dynamics of the duopoly version of the game. In particular we study the stability of the system, the bifurcations which can occur and the basins of attraction of the existing attracting sets, as a function of the speed of adjustment parameter.

Persistence of firm-level profitability in Turkey

The dynamics of company profits for 172 of the largest manufacturing firms in Turkey are studied. A time-series analysis is used to estimate the long-run projected profits and firm-specific speed of adjustment parameters that measures the rate at which short-run rents are eroded. While persistent profitability differences across firms are observed, there is also a moderately quick erosion of rents except for the most highly profitable firms. Firm characteristics rather than industry effects account for the differences in permanent profits. Contrary to the widespread view that developing countries suffer from uncompetitive markets, the results in this paper suggest that the intensity of competition in Turkey is no less than in developed countries and similar to other developing countries.

Measuring Labour Market Flexibility in the OECD Countries

This paper investigates the adjustment of employment to population shocks in 22 OECD countries over the period 1960–1997. Most of the countries have experienced significant population shocks during that period – due to migration and other reasons. We estimate the speed of adjustment parameter which is used as a measure of the functioning of the labour market. If the OECD countries are compared using this measure, it turns out that the Anglo Saxon countries clearly outperform the other (European) countries in terms of labour market adjustment. In the case of the Nordic countries, the results presented are the most extreme. In practically all OECD countries, the functioning of the labour market seems to have deteriorated over time. These observations seem to be helpful in explaining the behaviour of unemployment rates in the OECD area.

Speed of adjustment to the long-run equilibrium: an application with US Stock Price and Dividend data

The speed of adjustment parameters of the long-run relationship between stock prices and dividends are estimated. By using a recent technique called ‘persistence profiles’, the short-run dynamics of the simple present discount value relationship for the US annual data between 1878 and 1987 is investigated. Estimates of the persistence profiles implied that system-wide shocks to the cointegrating relationship between stock prices and dividends take around 16 years to die out completely. The results obtained in this study can be interpreted with the existence of transaction costs in the financial markets or market inefficiencies.

Market Structure and the Speed of Price Adjustments: Evidence Of Non-Monotonicity

Rational distributed lag and partial adjustment models are used in this paper to analyze the speed of adjustment of consumer deposit rates. Dummy variables conditioned on market concentration are added to the rational distributed lag model to test for speed of adjustment differences across high, medium, and low concentration markets. The estimated model parameters suggest low, as well as high, concentration markets exhibit slower speed of adjustment (or more price rigidity) than the medium group. Thus, the results for the rational distributed lag model estimation provide empirical evidence of a possible non-monotonic relationship between market concentration and price rigidity. This relationship is further examined within the context of a partial adjustment model by estimating the speed of adjustment parameter as a non-linear (quadratic) function of market concentration. The results support the findings derived from the estimation of the rational distributed lag model. These findings have important implications for: (1) future research that attempts to empirically estimate relationships between market structure and price behavior, and (2) antitrust policies that assume reductions in market concentration will always lead to more competitive, presumably less rigid, pricing behavior.

Speed of adjustment and estimation of the partial adjustment model

The effect which the speed of adjustment parameter has on the statistical properties of the partial adjustment model, and estimates of its parameters, is investigated. It is shown that in the case of very rapid adjustment, the model approaches a classical (static) regression model, but in the case of very slow adjustment, the dependent (or state) variable displays near random walk behaviour. The finite sample performance of the nonlinear least squares estimator is investigated in a simulation study, and it is found that substantial bias and mean squared error can be a feature of the estimates in the model with very slow adjustment. This suggests that extreme caution should be exercised in situations where the estimated speed of adjustment parameter is found to be small.

Long-Term Effects of Firm Size on Life Insurer Mortgage Investment

In this paper the reoccurring question of whether the life insurance industry's largest insurers possess and benefit from unique mortgage investment opportunities is examined. A portfolio adjustment model is presented which incorporates mortgage commitment behavior. Using this model and data for 15 insurers, speed of adjustment parameters are estimated for each insurer. The speed of adjustment, which is utilized as a measure of mortgage lending efficiency, is found to be invariant with respect to insurer size. This evidence suggests that the likelihood of significant aggregation bias in previous econometric work on life insurer mortgage investment is quite low. Amidst the vast and growing literature on bank and nonbank demand for financial assets, only a few studies have pursued questions concerning individual firm investment behavior. This preoccupation with aggregate analysis is surprising to the extent that the framework for financial modeling, first introduced by Meigs [23], DeLeeuw [12], and Goldfield [14], evolved from the fixed capital investment literature where models of aggregate behavior generally follow from investigations of how individual economic units behave.1 To assume incorrectly that firms behave in much the same way will not, in accordance with the doctrine of positive economics, invalidate the theory underlying the model. To assume incorrectly homogeneous behavior among firms may, however, lead to specifications bias and inconsistent estimates of model parameters. In this paper, the empirical question of homogeneous firm behavior is examined for life insurer mortgage lending activity. The purpose of the investigation is to consider the reoccurring question of whether certain very large [26, p. 559, n. 15] or super large [8, p. 269] life insurers possess and benefit from unique mortgage investment opportunities among firms in the industry. The examination is conducted using a partial adjustment model which specifically incorporates determinants of forward commitment behavior in the adjustment from desired to actual mortgage stocks. The empirical analysis uses annual data from 15 insurers over the period 1951 through

Regressions from Samples Having Different Characteristics

Economists are sometimes interested in explaining variation in parameters estimated from samples having different characteristics. In this REVIEW Russell (1967) has explained Houthakker's (1957) country income elasticity of demand estimates by regressing these estimates on such country characteristics as consumption per capita and relative prices. Similarly, Wachter (1970) demonstrates that high wage, noncompetitive industries (by contrast with low wage, competitive industries) have a positive relation between their relative wages and unemployment by regressing the estimated coefficient of the unemployment term in a relative wage regression on concentration ratios and unionization variables. Elsewhere, Williamson (1971) explains differences in the sectoral speed of adjustment parameter with a regression using sectoral elasticities, sectoral capital growth rates and a time dummy, while Lave and Lave (1970) account for differences in individual hospital cost function parameters by regressing these parameters on a variety of time-invariant characteristics of individual hospitals. Regression analyses such as these raise at least two issues. First, a kind of a priori information is available on the dependent variables in these regressions. How can this information best be incorporated into the estimation procedure? Second, what is the meaning of the two-step procedure implicitly adopted by the above authors? How does this approach compare with methods that would estimate the observations on the dependent variable and simultaneously provide an explanation of their variation?