Contributions published at Department of Banking and Finance (Pablo Koch Medina)

The impact of exchange-rate changes on industrial prices seems ambiguous. Incomplete and even "perverse" pass-through has been observed: the import prices in the depreciating country decrease while those in the appreciating country increase. To explain these "counterintuitive" price reactions we consider a situation of international Bertrand competition: two firms, based in different countries, are selling in both countries simultaneously. The profit-maximizing duopolists set the prices for their products in each of the two markets which are segmented on the demand side. We then study the qualitative effect of an exogenous exchange-rate change on the Bertrand-Nash equilibrium. Under the strong assumption of linear demand and cost functions we have "normal" exchange-rate pass-through. However, allowing for more general cost structures in this simple static model enables us to show that the import prices in both countries might move in counterintuitive directions.

The purpose of this study was to examine crucial predictors of driving frequency. In contrast to traditional psychological environmental research emphasizing primarily personal variables in explaining environmental behavior, the perspective taken in this article is that behavior is generally prevented by a host of constraints. Therefore, this study was aimed at identifying prevalent constraints inhibiting individuals from reducing their driving frequency. By means of questionnaire data collected from a sample of Swiss adults two classes of constraints were examined: (a) Subjective factors that were assumed to affect the preference for proenvironmental behavioral alternatives (sense of responsibility, perceived behavioral barriers); and (b) objective conditions that inhibit the performance of proenvironmental action (socio-demographic variables such as lack of automobile, place of residence, income). Multiple regression analyses indicated that subjective constraints explained a significant amount of variance in behavioral reports, but structural constraints also contributed to explaining variance. Theoretical and applied implications of examining constraints to which people are subjected to and implications for further research are discussed.

We model the role various forms of nonrecourse secured debt play in efficiently redeploying assets whose value is state‐specific. Ex ante, an entrepreneur and an asset redeployer make noncontractible state‐specific investments in the primary and next‐best uses of an asset, respectively. The redeployer provides a secured nonrecourse loan equal to the value of the asset in the critical state that separates the good and bad states. In the event of a bad state, this contract averts ex post bargaining over the asset's quasi‐rents on redeployment and leaves the parties' ex ante investments undistorted.

The purpose of this paper is to explain empirical observations concerning the impact of exchange rate changes on industrial prices. As exchange rates change the pass-through into industrial prices is often incomplete and sometimes it goes into the "wrong" direction, i.e. the prices in the depreciating country decrease while those in the appreciating country increase. The latter is called "perverse pass-through". The usual context for such observations is one of segmented markets and imperfect competition. We consider the simplest model with these characteristics: Two duopolistic firms which both operate in two countries. The markets of the two countries are separate and each of the firms produces its good in one of these countries. We study the effect of an exchange rate change on the prices in each country and on the level of sales and of profits of each of the firms. When strong restrictions such as constant marginal costs are imposed, prices move in the "right" direction in response to an exchange rate change. However, with general cost and demand structures, even in this simple model, it is possible for prices in both countries to move in "perverse" directions.

We prove that locally, Walras' law and homogeneity characterize the structure of market excess demand functions when financial markets are incomplete and assets' returns are nominal. The method of proof is substantially different from all existing arguments as the properties of individual demand are also different. We show that this result has important implications and is part of a more general result that excess demand is an essentially arbitrary function not just of prices, but also of the exogenous parameters of the economy as asset returns, preferences, and endowments. Thus locally the equilibrium manifold, relating equilibrium prices to these parameters has also no structure.

The paper reviews contributions in the literature, which lend theoretical and empirical credibility to the idea that the banking relationship is valuable and important for the firm. Banks offer a lending relationship as the solution to the firm's ongoing credit needs. Bank default disrupts this relationship. Hence risk in the banking sector influences the value of the relationship, the cost of corporate finance, and the level and growth of real activity. As bank default is often the result of fraud and internal irregularities, it is hard to predict. Bank default affects the economy through a number of different channels. The loss of the relationship, benefit for the firm is an important route through which the health of the banking sector influences real activity.

This study compares the out-of-sample forecasting performance of single-equation monetary exchange rate models against the random walk. We look at spot exchange rates of Norwegian Krone vis-à-vis four major currencies from June 1986 until October 1996. We find that an error correction model outperforms the random walk in out-of-sample forecasting exercises at six and twelve month horizons.

The recent flows of immigrants to many countries has been categorized by both legal/illegal migrants. Such migration flows have occurred despite the presence of domestic unemployment of various categories of labour. It has also been observed that migration has lowered the reward of unskilled workers. These problems are analysed on the basis of two alternative models: (i) where skilled workers and (ii) where unskilled workers are unemployed. It is shown that migration may raise both skilled/unskilled employment and welfare under plausible factor intensity conditions. More importantly, illegal migration may help in lowering the relative price of the non-traded good while the impact of migration on structural adjustment is ambiguous.

In this study we re-examine the pricing of equity and the risk incentives of shareholders in levered firms. We derive a down-and-out call equity valuation model which rests on the assumption that shareholders choose the optimal investment and asset returns' volatility as a function of current leverage. Contrarily to the Black and Scholes framework where, irrespective of the firm's leverage, they would always select infinite volatility projects, here the more deep out-of-the-money the shareholders' claim, the greater their incentives to select riskier investment projects. The model is thus consistent with and quantifies the asset substitution problem previously acknowledged by the agency literature.