This paper uses a panel of 24,184 UK firms over the period 1993–2003 to study the extent to which the sensitivity of investment to cash flow differs at firms facing different degrees of internal and external financial constraints. Our results suggest that when the sample is split on the basis of the level of internal funds available to the firms, the relationship between investment and cash flow is U-shaped. On the other hand, the sensitivity of investment to cash flow tends to increase monotonically with the degree of external financial constraints faced by firms. Combining the internal with the external financial constraints, we find that the dependence of investment on cash flow is strongest for those externally financially constrained firms that have a relatively high level of internal funds.

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Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of UK firms.

Regional economic outlook

This work analyses the effect of public subsidies on firms’ investments and investment–cash flow sensitivity in a longitudinal sample of 288 Italian unlisted non-venture capital backed owner-managed new-technology-based firms (NTBFs), observed over a 15-year period from 1994 to 2008. Seventy five of these firms received one or more public subsidies in the observation period. We use an error correction model (ECM) specification and system generalised method of moment (GMM) techniques that take into account the endogeneity of public subsidies. First, we find that the investments of small NTBFs are sensitive to internal cash flows, while those of large NTBFs are not. Receipt of public subsidies by small NTBFs results in an increased investment rate and a reduced investment–cash flow sensitivity, in the immediately following year. We interpret these results as an indication of the relaxation of financial constraints. Moreover, while the increase in the investment rate does not persist in the long run, the dependence of investments on cash flow remains negligible after receipt of the first public subsidy. These results support the view that public subsidies can help small NTBFs in persistently removing the financial constraints that bind their investment activity.

The Effect of Public Subsidies on Firms’ Investment-Cash Flow Sensitivity: Transient or Persistent?

In 1998, I published a paper that showed that under a wide range of specifications, residential investment led GDP, while non-residential investment did not. That papers was followed by a number of others, including Coulson and Kim (2000), Davis and Heathcoate (2005) and Leamer (2007) that used more sophisticated techniques than my paper, but found the same outcome— that residential investment led GDP. Leamer famously announced that housing was the business cycle. But in light of the Great Financial Crisis, the subsequent crash in residential investment, and the fundamental changes in the mortgage market, I thought it worth revisiting housing as a leading indicator. I have found that it is a much weaker leading indicator than before, and that it is much less sensitive to Federal Reserve Policy—especially changes in the Federal Funds Rate—than before. It is possible that the increasing stringency of local land use policy had interfered with the ability of the Federal Reserve to use housing as an instrument on monetary policy.

Is housing still the business cycle? Perhaps not

Interpretations of the Belt and Road Initiative (BRI) mostly agree that it is a policy opening that offers some remedies for China's economic and security challenges, as well as reflects China's increasing regional and global ambitions. This paper argues that the multiple drivers characterizing the BRI result from the multiple identities of China as a developing country struggling with several sources of instability and macroeconomic problems and, simultaneously, a regional and an emerging power, and finally a major global power with significant economic capacity to shape the global economic order. The paper aims to substantiate the entanglement of the defensive and ambitious motivations behind the BRI by examining the background against which the Chinese Communist Party leadership has suggested it. In so doing, it draws on Chinese official policy documents and statistics, speeches from Chinese leaders and existing social–scientific research on the transformation of China's economic and political ...

China's Belt and Road Initiative: at the crossroads of challenges and ambitions

Previous studies have focused on when the renminbi will play a significant role as an international currency, but less attention has been paid to where. We fill this gap by contrasting two ...

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RMBI or RMBR: Is the Renminbi Destined to Become a Global or Regional Currency?

Monetary policy transmission in systemically important economies and China’s impact

Previous studies have focused on when the renminbi will play a significant role as an international currency, but less attention has been paid to where. We fill this gap by contrasting two answers to the question. One is that the renminbi will assume the role of a global currency similar to the U.S. dollar. Supporters point to China’s widely diversified trade and financial flows and to its institutional initiatives, not just in Asia but around the world. The other is that the renminbi will play a regional role in Asia equivalent to that of the euro in greater Europe. Proponents of this view argue that China has a natural advantage in leveraging regional supply chains and deepening its links with other Asian countries as well as in developing regional institutions. Asia, they argue on these grounds, will become the natural habitat for the renminbi.

This study tests for the presence of real options effects induced by uncertainty and (partial) irreversibility on fixed capital investment using Italian company data The approach recognizes that firm-level investment spending may, itself, be aggregated over multiple investment decisions in separate types of capital goods and emphasizes effects of uncertainty on short-run investment dynamics Using a survey-based measure of uncertainty related to the assessment of managers responsible for the firms' investment plans, the study finds evidence of heterogeneous and nonlinear dynamics pointing to a slower adjustment of investment in response to demand shocks at higher levels of uncertainty The results also point to an additional source of nonlinearity originating from a convex response of investment to demand shocks

To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data

INTRODUCTION FOREWORD 1. The Role of the IMF in Low-Income Countries: An Overview HISTORY AND NATURE OF THE ROLE OF THE IMF IN LOW-INCOME COUNTRIES 2. Bretton Woods and the Debate About Development 3. Lending to and for the Poor: How the IMF's Role has Evolved 4. The Case for a Universal Financial Institution 5. The Role of the IMF in Low-Income Countries: An Institutional Approach IMF POLICIES AND FINANCING IN LOW-INCOME COUNTRIES 6. Financier or Facilitator? The Changing Role of the IMF in Low- Income Countries 7. The IMF's Approach to Macroeconomic Policy in Low-Income Countries 8. Signaling, Aid, and IMF Financial Arrangements for Low-Income Countries 9. The Debt Relief in Low Income Countries: Background, Evolution and Effects 10. The Role and Performance of the IMF in Aid to Low-Income Countries: Lessons from Evaluation 11. Participation in IMF Programs and Income Inequality THE ROLE OF LOW-INCOME MEMBER COUNTRIES IN THE GOVERNANCE OF THE IMF 12. Governance Matters: the IMF and Sub-Saharan Africa 13. Proposing IMF Reforms for Low Income Countries 14. Rethinking the Governance of the International Monetary Fund

Domenico Lombardi

Papers

RMBI or RMBR: Is the Renminbi Destined to Become a Global or Regional Currency?

Monetary policy transmission in systemically important economies and China’s impact

RMBI or RMBR: Is the Renminbi Destined to Become a Global or Regional Currency?

To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data

Finance, development, and the IMF