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Industrial portfolio responses to macroeconomic shocks : an econometric model for developing countries

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  • Tybout, James R.
  • Bark, Taeho

Abstract

This study identifies the macro conditions under which industrial growth and financial stability are most likely, and those conditions which are most prone to create disaster. The paper models 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 upon the proportions in which firms hold fixed capital, inventories, financial assets, and debts, changes in macro variables also induce portfolio adjustments. The paper then develops an empirical model which allows one to calibrate the strength and timing of each effect. The paper is composed of two sections; one to develop the model, and one to report an application to Uruguayan data. There is also a brief summary section.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 103.

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Date of creation: 31 Oct 1988
Date of revision:
Handle: RePEc:wbk:wbrwps:103

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Related research

Keywords: Economic Theory&Research; Environmental Economics&Policies; International Terrorism&Counterterrorism; Banks&Banking Reform; Fiscal&Monetary Policy;

References

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  1. Jalilvand, Abolhassan & Harris, Robert S, 1984. " Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study," Journal of Finance, American Finance Association, vol. 39(1), pages 127-45, March.
  2. Prucha, Ingmar R. & Nadiri, M. Ishaq, 1986. "A comparison of alternative methods for the estimation of dynamic factor demand models under non-static expectations," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 187-211.
  3. Taggart, Robert A, Jr, 1977. "A Model of Corporate Financing Decisions," Journal of Finance, American Finance Association, vol. 32(5), pages 1467-84, December.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  5. de Melo, Jaime & Tybout, James, 1986. "The Effects of Financial Liberalization on Savings and Investment in Uruguay," Economic Development and Cultural Change, University of Chicago Press, vol. 34(3), pages 561-87, April.
  6. Yardeni, Edward E, 1978. "A Portfolio-Balance Model of Corporate Working Capital," Journal of Finance, American Finance Association, vol. 33(2), pages 535-52, May.
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