Arnab Bhattacharjee

Macroeconomic Instability and Business Exit: Determinants of Failures and Acquisitions of UK Firms

We study the impact of the macroeconomic environment on business exit in a world where acquisition and bankruptcy are co-determined. We estimate competing risk hazard regression models using data on UK quoted firms spanning a 38-year period that witnessed several business cycles. We find that the processes determining bankruptcies and acquisitions depend on the macroeconomic environment. In particular, macroeconomic instability has opposing effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter. While bankruptcy hazard is counter-cyclical and acquisition hazard pro-cyclical, the US business cycle is a better predictor than the UK cycle itself.

Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms

Using data over a 34-year span on UK quoted firms, this paper seeks to identify the factors that increase the likelihood of exit of firms. Firms may disappear through the mutually precluding events of bankruptcies and acquisitions. We use a competing-risks hazard model to determine characteristics leading to each outcome. Hazard models make use of the data on timing of these alternative outcomes and we exploit this to focus attention on how the hazards change over the business cycles, conditional on the post-listing age of the firm. We find that the volatility in macro environment has a role in determining, in different ways, the hazard of firms going bankrupt or being acquired.

Taking Personalities Out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England's MPC

The transparency of the monetary policymaking process at the Bank of England has provided very detailed data on both the votes of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider interval censored responses of individual committee members in the context of a model in which inflation forecast targeting is used but there is both heterogeneity and interaction among the members of the committee. We find substantial heterogeneity in the policy reaction function across members. Further, we identify significant interactions between individual decisions of the committee members. The nature of these interdependencies inform about information sharing and strategic interactions within the Bank of England’s Monetary Policy Committee.

Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC

Policymaking at the Bank of England has provided detailed information on both the decisions of individual members of the Monetary Policy Committee. We consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that forecasts of output and inflation provide the best description of discrete changes in interest rates. We find a role for asset prices through the equity market, foreign exchange market and housing prices. There is also identifiable heterogeneity among members of the committee that improves predictabilit(This abstract was borrowed from another version of this item.)

Estimation in hazard regression models under ordered departures from proportionality

Notions of monotone ordering with respect to continuous covariates in duration data regression models have recently been discussed, and tests for the proportional hazards model against such alternatives have been developed (Bhattacharjee and Das, 2002). Such monotone/ ordered departures are common in applications, and provide useful additional information about the nature of covariate dependence. In this paper, we describe methods for estimating hazard regression models when such monotone departures are known to hold. In particular, it is shown how the histogram sieve estimators (Murphy and Sen, 1991) in this setup can be smoothed and order restricted estimation performed using biased bootstrap techniques like adaptive bandwidth kernel estimators (Brockmann et. al., 1993; Schucany, 1995) or data tilting (Hall and Huang, 2001). The performance of the methods is compared using simulated data, and their use is illustrated with applications from biomedicine and economic duration data.

Rational Partisan Theory, Uncertainty, and Spatial Voting: Evidence for the Bank of England's MPC

The transparency and openness of the monetary policymaking process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that rational partisan theory can explain spatial voting behaviour under forecast uncertainty about the output gap. Internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates, in combination with uncertainty in the macroeconomic environment. There is also a role for developments in asset housing and labour markets. Further, spatial voting patterns clearly differentiates between internal and externally appointed members of the Monetary Policy Committee. The results have important implications for committee design and the conduct of monetary policy.

Business Failure in UK and US Quoted Firms: Impact of Macroeconomic Instability and the Role of Legal Institutions

Firms exit through the mutually precluding events of bankruptcy and acquisition. We use a competing risks hazard regression model to identify the characteristics leading to each of these two outcomes using over thirty years of data on US and UK quoted firms. We find evidence about the way in which macroeconomic factors affect firm survival in these two economies, in addition to firm and industry-specific factors. Further, there are significant differences in the way in which firms in the US and the UK react to changes in the macroeconomic environment and, particularly to macroeconomic instability. We argue that these differences in response may be attributable to differences in bankruptcy codes in the US and the UK.

Macroeconomic Instability and Corporate Failure: The Role of the Legal System

We examine how macroeconomic instability affects risk of bankruptcy and liquidation. In periods of macroeconomic instability more firms become financially distressed, while the number of potential acquirers falls. Reorganization systems such as Chapter 11 can decouple liquidation from macroeconomic conditions. We develop a model in which a firms bankruptcy and acquisition hazards are co-determined by firm-level and sector-level factors, and by macroeconomic conditions. As a control, we also estimate the model for the UK, which is an economy without an equivalent system to Chapter 11. Differences in the responsiveness of bankruptcy to instability are largely attributable to reorganization under Chapter 11.

Money and Monetary Policy in Dynamic Stochastic General Equilibrium Models

We compare two methods of motivating money in New Keynesian DSGE Models: Money-in-the-utility function and cash-in-advance constraint, as well as two ways of modelling monetary policy: interest rate feedback rule and money growth rules. As an aid to model selection, we use a new econometric measure of the distance between model and data variance-covariance matrices. The proposed measure is useful in distinguishing between alternative general equilibrium models. We find that the models closed by an estimated interest rate feedback rule imply counter-cyclical policy and inflation rates, which is at odds with the data. This problem is not a feature of models closed by an estimated money growth rule. Drawing on our econometric analysis, we argue that the cash-in-advance model, closed by a money growth rule, comes closest to the data.

Testing Proportionality in Duration Models with Respect to Continuous Covariates

Several omnibus tests of the proportional hazards assumption have been proposed in the literature. In the two-sample case, tests have also been developed against non-parametrically specified ordered alternatives. This paper considers a natural extension of such monotone ordering to the case of continuous covariates, and develops tests for the proportional hazards assumption against such ordered alternatives. Small sample properties of the tests are explored. The use of the test statistics, and use of histogram sieve estimators in the case where proportionality does not hold, are illustrated with application to data on strike durations.