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Inter-American Development Bank Research Department – Latin American Research Network Debt Composition and Balance Sheet Effects of Exchange and Interest Rate Volatility: A Firm Level Analysis Registration Form 1. Name of institution: Instituto Tecnológico Autónomo de México 2. Name of the participants: • • • • 3. 4 Project Directors: Sangeeta Pratap Researcher 1: Ignacio Lobato Researcher 2: Alejandro Somuano Researcher 3: _____________________________________________________ Name, title, phone number and e-mail of the person responsible for signing the letter of agreement with the Bank: • Name: Dr. Arturo M. Fernandez Perez • Title: Rector of ITAM • Phone Number: 52 55 56284101 • Fax: 52 55 56284102 • E-mail: [email protected] Does the proposal include..? (Please check in the appropiate space): • • • • • • • • • The research question and why this topic is relevant for the country in question: Yes The description of the data to be used for the study: Yes The description of the theoretical framework and the statistical methodology to be employed. Yes The hypotheses: Yes The expected analytical and policy-oriented implications of the study: Yes Background of the researchers involved: Yes Curriculum vitae of the researchers (3 pags. maximum): Yes The most relevant dissemination activities to discuss the lessons of the country studies: Yes Detailed outline of the budget indicating the time and resources that will be used within the context of a research work plan and the items to be financed by the IDB contribution and by the research center Yes 5. Is an original copy of the proposal (without plastic or vinyl covers) enclosed? Pages should be numbered and unstapled. Yes PLEASE ATTACHED ALL REQUESTED INFORMATION TO THIS FORM AND MAIL/E-MAIL TO: Raquel Gomez Inter-American Development Bank Research Department, Stop W0436 1300 New York Avenue N.W. Washington, D.C. 20577, USA Phone: (202) 623-2355;Fax: (202) 623-2481 E-mail: [email protected] Debt Composition and Balance Sheet Effects of Exchange Rate and Interest Rate Volatility in Mexico: A Firm Level Analysis A proposal presented to the Inter-American Development Bank Ignacio Lobato* Sangeeta Pratap* CIE-ITAM CIE-ITAM Alejandro Somuano** Ministry of Finance June 2002 Abstract. Using firm level data from the Mexican stock market, we describe how we plan to estimate the effects of exhange rate volatility on firm investment. We describe the data and sketch out a methodology to identify net effects of exchange rate changes on investment which work through the balance sheet effects of currency mismatches as well as expansionary effects on firm fundamentals. –––––––– ∗ Camino Sta Teresa 930, Mexico D.F., 10700. [email protected], [email protected]. ∗∗ Director of Fiscal Policy, Ministry of Finance, Palacio Nacional Patio Central, Mezzanine 1010 , Col. Centro, MEXICO, D.F., 06066, [email protected] We are grateful to Lorenza Martínez for providing us with the data. Marco Gonzalez gave us valuable research assistance. We are also grateful to Julio Burciaga for help with the data. 1 1 Data Availability and Description The Mexican tequila crisis of 1994 has posed a puzzle for the traditional explanations of financial crises based on macroeconomic imbalances. In 1994, the Mexican rate of growth of GDP was 4.4%, while the traditional fiscal deficit and the current account deficit accounted for 0.1% and 7.0% of GDP, respectively. Nevertheless, the crisis of 1994-95 involved a peso devaluation of 44% in nominal terms, and nominal interest rates increased from 16% in the last quarter of 1994 to 49% in the first quarter of 1995. This led to a substantial decline of 6.2% in GDP in 1995 and 16.4% fall in capital investment. Credit to the private sector as a percentage of GDP fell from over 45% of GDP in the last quarter of 1994 to less than 41% in the last quarter of 1995 and further to roughly 20% by 2000.1 A new view has emerged in the literature which emphasizes currency mismatches of assets and liabilities by agents within the economy as the engine for the propagation of financial crises. (See for example Mishkin 1999, Krugman 1999, Aghion, Bachetta and Banerji 2001). In this study, we seek to assess the validity of this claim using firm level data from Mexico. We propose to study whether firm investment was adversely affected by dollarized liabilities and the extent to which they were able to hedge their exchange rate risk. This study will give us some insight into the role of a currency mismatch in exacerbating the crisis of 1994 in the corporate sector. The data we use comes from the Mexican stock market (Bolsa Mexicana de Valores or BMV) We have quarterly data from 1989 to 2000. While the sample is restricted to mostly publicly traded firms and some non traded ones, this is not a serious limitation for the study. First, this is the only data set of its kind available in Mexico and provides detailed information on the maturity structure of debt as well as its currency composition. Second, while small firms which are not listed on the stock market can probably be exporters, they are not likely to have access to capital markets in the United States. Our sample therefore contains the firms where we would be most 1 All figures are from the Secretaría de Hacienda y Crédito Público. 2 likely to observe currency mismatches. Each firm has an identifier which allow us to link it across time. The panel is not balanced and we do observe entry and exit. Exit can take place if a firm is de-listed from the stock exchange, or if it merges with another one. In either case, the BMV does not remove the firm from the panel. We plan to retain firms which are de-listed in the panel for the entire period for which data is available. For mergers or other ownership changes, we have two options. The first is to eliminate that firm from the sample entirely, and the second is, following Bleakely and Cowan (2002) to aggregate data for all firms which participate in a merger into one artificial firm throughout the sample. We plan to use both options and see whether our results are significantly different in each case. Tables 1, 2 and 3 present some features of our data as it stands. All data is in real terms, deflated by the GDP deflator (1994=100) as a first step. We expect to use appropriate sector specific price indices and capital good price indices in our final version. The first table presents quarterly data on debt and its breakdown in terms of maturity structure, currency composition, and source. The debt-asset ratio increased sharply after the crisis from about 24% to 31%. Foreign debt which was about 60% of total debt, increased to more than 70%. It is also interesting to see that the ratio of short term debt to sales abroad is much higher than 1, although it has been decreasing in recent years. In the years leading up to the crisis debt held in foreign currency was almost 6 times higher than sales abroad which made the economy vulnerable to exchange rate shocks. The last two columns show the breakdown of debt into financial debt (bank and market) and suppliers credit. The latter went down in importance as a source of credit after the crisis. Table 2 shows some information about sales, assets, investment and earnings. One interesting feature is that exports as a fraction of sales increased dramatically after 1994 from about 10% to almost 25%. The value of total assets declined in this 3 period while earnings went up slightly. Finally Table 3 shows that interest payments increased substantially in the immediate aftermath of the crisis, which is consistent with the increase in the value of debt. Investment fell drastically, both in property, plant and equipment and in inventories. To summarize the immediate effects of the crisis on our sample, we also reproduce a table from Burciaga (2002). He uses the same data base but his sample is much smaller than ours. He divides the sample into 4 sub samples based on two key variables, the ratio of net sales abroad to the book value of assets and the ratio of debt in foreign currency to book value of assets in the last quarter of 1993. The first group refers to firms with high sales abroad as well as a high levels of foreign debt relative to total assets.2 , while the second to firms with high foreign sales but low foreign debt. If the currency mismatch explanation is valid, we would expect that these two groups of firms would perform better than average. The third and fourth group of firms refer to those with low sales abroad but high debt and those with low sales and low debt respectively. The results of this exercise are presented in Table 4. The first noteworthy feature of the data is that the degree of exposure to exchange rate risk varies across firms. While 58 firms seem to have had some coincidence between their foreign debt and sales abroad in 1993, there is a significant number which does not. Infact, 14 firms had high sales abroad and low debt and another 14 had high debt and low sales. This division of the sample helps identify variations in performance of firms due to currency mismatches. The next few rows show us the effect of the crisis between 1994.4 and 1995.5 on some key variables. We see that the value of the firm (defined as total debt plus the book value of capital) declined the most for the third and fourth groups, i.e. those with low sales abroad. Earnings before taxes, interest and amortization (EBITDA) declined significantly for the fourth group, i.e. firms with mainly domestic operations. The third group, i.e. firms with high debt and low sales abroad showed 2 High in this case refers to above median values and low to values below the median in 1993.4. 4 a modest increase of 8% while the largest increases were reserved for the first two groups. There was a large decline in investment in physical capital in this period. The smallest declines were for firms which were best protected against currency exposure, i.e. group 2, with high sales abroad and low debt and group 4 with low sales and low debt. The remaining two groups suffered much larger declines. As far as foreign sales are concerned, the second group did somewhat better than the first. Domestic sales also increased the most of this group while the largest declines were in Group 3 and Group 4. In sum, the set of firms which seem to have had the best performance in the immediate aftermath of the crisis is the one with high sales abroad and low foreign debt. This is what one would expect, since these firms were in a position to reap the benefits of the devaluation without having to pay most of its costs. The first groups, or those who had high sales and high debt positions before the crisis also did not do too badly since they were able to hedge their exchange rate risk. The previously discussed tables amply demonstrate our access to the data. In addition, they also show that there is a case for further investigating the phenomenon of currency mismatches in the corporate sector given the variations in the performance of the different types of firms that we saw in Table 4. 2 Methodology Given the data availability, we think that it would be most appropriate to focus specifically on the currency mismatch in the corporate sector. While a similar phenomenon may be observed in the household sector, we do not know of any database which would allow us to investigate these issues. While we will continue looking for such data, we focus our immediate attention on the corporate sector. Following the project guidelines, we will seek to answer the following questions 1) What determines the currency composition and term structure of debt? 2) Does the holding of dollar denominated debt affect firm investment adversely? 5 As the previous section demonstrates, running the Bleakely-Cowan type of regressions is a straightforward exercise. Furthermore, apart from the larger number of observations, our data set has some important advantages over theirs. First, they do not have any data on exports and have to proxy for it by earnings or total sales. Hence as they conclude, their result that dollar debt is positively related to investment is probably driven by omitted variables like exports which are related to foreign currency denominated debt. In contrast we have data on net sales in foreign currency so we can actually control for that and estimate the direct effect of dollar debt on a firm performance.3 The paper which is most similar to this proposal is Aguiar (2002) which looks at the immediate effect of the crisis on investment and currency composition of debt in 1995. He finds that the immediate effect of the devaluation was to reduce investment for firms whose net worth declined. He also finds that exporting and large firms borrowed the most in foreign currency. However, the time period on which this study focuses is limited to the 1994-1995 and is not able to exploit any of the panel characteristics of the data. The author is unable to account for firm heterogeneity and longer term effects of the devaluation. Furthermore, it is not clear what determines the net worth of firms. While it is true that the firms with larger foreign debt have a lower net worth, the effect is not statistically significant. It is not clear therefore, whether the net worth of firms declined due to the effects of devaluation on their debt or because of factors related to their fundamentals. To answer the first question, the equation we would like to look at is Dit = Zitf α + Ztm γ + δ i + uit where Dit is the share of dollar denominated debt to total debt and Z f and Z m 3 One shortcoming of our data is that we do not have information on imports. Obstfeld (2001) and Reif (2001) have shown that devaluations may have contractionary effects through the costs of imported inputs. However we have data on net sales, which is total sales net of expenditures which should help mitigate the problem. 6 refer to firm specific and macro variables respectively. In the firm specific variables it would be important to include a dummy for foreign ownership or collaboration4 as well as sector dummies. The other variables would be net worth or collateral related variables such as total assets as well as sales abroad. We would also include debt in domestic currency as an independent variable to see whether it is a substitute for or a complement of foreign currency denominated debt. Since the dependent variable cannot be negative and some firms may have zero debt abroad, this equation will be estimated with a Tobit. For the second question, the basic equation would be Iit = Xitf α + Xtm γ + β i + εit Kit where I K is the ratio of investment to capital for firm i at time t, Xitf refers to firm specific independent variables and Xtm denotes macro variables such as exchange rates and interest rates, total bank credit and other macro indicators. These macro indicators also include measures of volatility of these variables. β i is a firm specific effect and εit is the error term. Within the firm specific independent variables, we would include total sales and exports, total debt and foreign currency debt. An important issue here is that debt, and especially foreign currency debt is likely to be endogenous. Firms who have good fundamentals are likely to be able to raise more debt abroad and are also likely to invest more. We think that an estimation using fixed effects should mitigate that problem to a large extent, but we would also find some appropriate instruments. Another related equation that we would like to estimate refers to how the performance of the firms is affected by the exchange-rate movements and the composition of the debt. In this case the dependent variables of our equations would be sales, current and future earnings. It can be anticipated that firms with a high proportion 4 Since we know the names of all firms in our sample, finding ownership details is a relatively simple matter. 7 of their debt nominated in dollars will suffer a severe reduction in earnings, at least in the short run. This would shed additional light on the second question, namely, how was the performance of firms affected by currency mismatches. A final issue of interest is whether these relationships changed across time. In other words, was the pre-crisis relationship between investment and dollar denominated debt the same as the post crisis relationship? The length of our panel will allow us to estimate these relationships before and after 1994. 3 Previous Studies There are some establishment level studies using the Annual Industrial Survey conducted by the National Institute of Statistics, Geography and Information (INEGI). The survey covers roughly 3199 manufacturing establishments and is a balanced panel. The exiting panels are discarded by the collecting agency. While this data base has information about production, sales, inventories, investment and capital stock, it does not have any financial information about debt or earnings. The papers most relevant to this topic based on this data base are: Babatz, G. and Conesa, A. (1997), “The Effect of Financial Liberalization on the Capital Structure and Investment Decisions of Firms: Evidence from Mexican Panel Data”, mimeo. Gelos, R. Gaston and Isgut, Alberto (2001), “Fixed Capital Adjustment: Is Latin America Different? Evidence from the Colombian and Mexican Manufacturing Sector”, Review of Economics and Statistics, Vol 83, No. 4, pp. 717-726. Gelos, R. Gaston and Werner, Alejandro M. (1999), “Financial Liberalization, Credit Constraints and Collateral: Investment in the Mexican Manufacturing Sector”, IMF Working Paper 99/25 Gelos, R. Gaston (1998), “Fixed Investment in the Mexican Manufacturing Sector: Adjustment Costs, Credit Constraints and the Effects of Financial Liberalization”, 8 PhD. Dissertation, Yale University. Papers based on the data base that we plan to use are: Martínez, L. and Werner A. (2002), “Exchange rate regimes and the composition of the corporate debt: the Mexican experience”, Banco de Mexico, working paper. Schneider, Frank (2000), “Determinantes de Aplancamiento: El Efecto de Tratado de Libre Comercio sobre la Estructura Financiera de las Empresas de la BMV”, Gaceta de Economia, 11, 99-146. Aguiar, M. (2002), “Devaluation, Foreign Currency Exposure and Investment: The Case of Mexico”, mimeo, U. of Chicago. Burciaga, Julio (2002), Exposición al Tipo de Cambio en México (1990-2001), Undergraduate thesis, ITAM. References [1] Aghion, P., Bachetta, P., and Banerji, A. (2001), “Currency Crises and Monetary Policy in an Economy with Credit Constraints”, European Economic Review, 45 (7), 1121-50. [2] Aguiar, M. (2002), “Devaluation, Foreign Currency Exposure and Investment: The Case of Mexico”, mimeo, U. of Chicago. [3] Bleakley, H. and Cowan, K., “Corporate Dollar Debt and Devaluations: Much Ado About Nothing”, mimeo, MIT. [4] Burciaga, Julio (2002), Exposición al Tipo de Cambio en México (1990-2001), Undergraduate thesis, ITAM. [5] Krugman, P. (1999), “Balance Sheets, the Transfer Problem, and Financial Crises”, International Tax and Public Finance, 6(4), 459-72. 9 [6] Mishkin. F. (1999), “Global Financial Instability: Framework, Events, Issues”, Journal of Economic Perspectives, 13, 3-20. [7] Obstfeld, M. (2001), “Global Implications of Self Oriented National Monetary Rules”, mimeo, UC Berkeley. [8] Reif, T. (2001), “The Real Side of Currency Crises”, mimeo. Columbia University. 10 EXCHANGE RATE, 1994-2002 (Pesos per dollar) 11 9 7 5 3 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 94 95 96 97 98 99 00 01 02 Source: Banco de México. Figure 1: INTEREST RATES, 1994-2002 (%) 60 50 40 30 20 10 0 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 94 95 96 97 98 99 00 01 02 Domestic (Cetes 90 days) Source: Banco de México and Federal Reserve. Figure 2: Treasury Bills (90 days) Table 1: Composition of Debt 1989.1 1989.2 1989.3 1989.4 1990.1 1990.2 1990.3 1990.4 1991.1 1991.2 1991.3 1991.4 1992.1 1992.2 1992.3 1992.4 1993.1 1993.2 1993.3 1993.4 1994.1 1994.2 1994.3 1994.4 1995.1 1995.2 1995.3 1995.4 1996.1 1996.2 1996.3 1996.4 1997.1 1997.2 1997.3 1997.4 1998.1 1998.2 1998.3 1998.4 1999.1 1999.2 1999.3 1999.4 2000.1 2000.2 2000.3 2000.4 No. of Firms D=Assts Df =D Dfs=Ds Df l =Dl Dfs=Sf Ds=D Dl =D Dfn =D Dtr =D 90 0.178 0.443 0.298 0.612 2.198 0.625 0.375 0.677 0.216 99 0.170 0.419 0.312 0.583 2.401 0.635 0.365 0.666 0.229 99 0.141 0.456 0.332 0.639 1.464 0.696 0.304 0.592 0.294 103 0.161 0.494 0.382 0.660 2.265 0.712 0.288 0.611 0.269 180 0.196 0.486 0.392 0.648 2.966 0.675 0.325 0.592 0.311 188 0.179 0.481 0.369 0.673 3.182 0.646 0.354 0.547 0.346 196 0.181 0.480 0.407 0.619 2.981 0.731 0.269 0.566 0.336 210 0.195 0.526 0.438 0.684 2.771 0.719 0.281 0.566 0.352 229 0.194 0.464 0.396 0.597 4.137 0.706 0.294 0.551 0.347 228 0.212 0.500 0.419 0.639 4.892 0.652 0.348 0.594 0.315 228 0.211 0.525 0.450 0.651 4.833 0.695 0.305 0.609 0.308 238 0.218 0.544 0.488 0.640 5.471 0.667 0.333 0.517 0.392 232 0.201 0.500 0.464 0.563 6.449 0.682 0.318 0.539 0.369 231 0.205 0.505 0.432 0.623 6.122 0.620 0.380 0.540 0.378 230 0.201 0.514 0.446 0.616 6.129 0.656 0.344 0.467 0.461 239 0.186 0.528 0.436 0.653 6.545 0.683 0.317 0.383 0.505 229 0.198 0.531 0.429 0.667 6.749 0.688 0.312 0.463 0.440 236 0.218 0.551 0.449 0.680 7.108 0.592 0.408 0.515 0.412 230 0.195 0.573 0.461 0.703 6.852 0.635 0.365 0.472 0.451 234 0.229 0.588 0.444 0.743 3.564 0.557 0.443 0.525 0.397 230 0.229 0.608 0.460 0.752 5.528 0.542 0.458 0.554 0.375 224 0.224 0.604 0.451 0.750 5.135 0.542 0.458 0.539 0.398 221 0.238 0.591 0.422 0.752 4.220 0.489 0.511 0.589 0.357 212 0.271 0.638 0.483 0.803 4.446 0.509 0.491 0.589 0.363 199 0.313 0.712 0.577 0.850 4.451 0.516 0.484 0.663 0.303 210 0.277 0.685 0.544 0.838 3.168 0.533 0.467 0.690 0.262 204 0.283 0.693 0.563 0.824 3.444 0.502 0.498 0.700 0.255 195 0.316 0.705 0.589 0.834 3.714 0.528 0.472 0.667 0.283 201 0.317 0.693 0.567 0.831 3.785 0.524 0.476 0.712 0.238 194 0.393 0.685 0.568 0.811 3.480 0.501 0.499 0.770 0.191 189 0.378 0.672 0.564 0.790 3.623 0.511 0.489 0.770 0.196 190 0.388 0.672 0.532 0.818 3.129 0.497 0.503 0.736 0.214 205 0.319 0.675 0.560 0.812 4.102 0.546 0.454 0.717 0.225 180 0.390 0.679 0.536 0.835 2.688 0.511 0.489 0.776 0.182 185 0.374 0.675 0.530 0.835 3.567 0.512 0.488 0.764 0.195 183 0.388 0.697 0.486 0.886 2.445 0.459 0.541 0.739 0.211 166 0.361 0.703 0.501 0.890 2.992 0.470 0.530 0.743 0.205 144 0.394 0.700 0.514 0.869 2.977 0.466 0.534 0.757 0.200 144 0.393 0.723 0.550 0.881 3.102 0.467 0.533 0.772 0.195 169 0.374 0.670 0.489 0.855 2.700 0.510 0.490 0.744 0.210 157 0.358 0.662 0.471 0.859 3.178 0.508 0.492 0.765 0.185 146 0.354 0.611 0.384 0.873 2.672 0.539 0.461 0.757 0.195 147 0.321 0.597 0.380 0.857 2.901 0.566 0.434 0.769 0.187 149 0.321 0.604 0.368 0.875 2.887 0.542 0.458 0.723 0.222 135 0.361 0.595 0.354 0.882 2.510 0.541 0.459 0.625 0.179 135 0.362 0.598 0.349 0.900 2.170 0.516 0.484 0.623 0.181 135 0.357 0.575 0.344 0.901 2.463 0.549 0.451 0.620 0.184 124 0.377 0.568 0.364 0.892 1.850 0.573 0.427 0.594 0.203 Note: Averages across companies. D= Total Debt, Df =Debt in foreign currency, Dfs=Short term debt in foreign currency, Ds=Total short term debt, Df l =Long term debt in foreign currency, Dl =Total long term debt, Sf =Sales in foreign currency, Dfn =Financial Debt including bank debt and market debt, Dtr =Trade Debt. 1 Table 2: Earnings and Sales 1989.1 1989.2 1989.3 1989.4 1990.1 1990.2 1990.3 1990.4 1991.1 1991.2 1991.3 1991.4 1992.1 1992.2 1992.3 1992.4 1993.1 1993.2 1993.3 1993.4 1994.1 1994.2 1994.3 1994.4 1995.1 1995.2 1995.3 1995.4 1996.1 1996.2 1996.3 1996.4 1997.1 1997.2 1997.3 1997.4 1998.1 1998.2 1998.3 1998.4 1999.1 1999.2 1999.3 1999.4 2000.1 2000.2 2000.3 2000.4 Sf =Sales 0.134 0.148 0.209 0.187 0.149 0.138 0.137 0.179 0.125 0.114 0.111 0.104 0.102 0.091 0.093 0.075 0.086 0.080 0.081 0.126 0.102 0.104 0.113 0.150 0.213 0.262 0.250 0.243 0.237 0.240 0.227 0.208 0.222 0.236 0.203 0.207 0.197 0.203 0.216 0.196 0.206 0.199 0.153 0.158 0.195 0.216 0.203 0.274 Net Assets 16221.7311 14687.1244 16412.0205 16947.2272 13771.2190 12537.8215 12670.1626 11889.2268 11693.1286 10734.2335 10936.0127 10451.7927 10814.6094 10065.3693 10329.3845 10310.3267 10971.6953 10686.0598 11548.4462 11987.1602 12472.7809 12668.0699 13341.4283 15507.1091 17385.3568 15206.2061 15322.9025 15024.4394 14964.2107 14764.1596 14984.9668 14921.1408 10354.0029 15137.6939 15107.3313 15998.8482 18419.5028 17373.8274 18718.1845 17209.8444 16611.8264 17337.6823 19363.7589 19623.7647 19082.2847 19263.5011 18891.0064 19038.1596 Sales EBITDA 3847.275 805.400 3633.993 982.320 4949.620 1308.327 4298.565 1251.370 3643.378 617.440 3234.147 752.543 4037.760 970.399 3775.572 997.634 3282.889 531.715 2869.599 703.602 3383.671 875.972 3410.857 960.579 2973.225 527.045 2919.846 667.555 3159.860 843.374 3511.722 1002.459 3068.046 575.332 3226.372 732.828 3358.227 928.418 3993.579 1158.267 3409.379 650.888 3575.961 894.426 3784.755 1126.036 4531.683 1393.289 4586.787 1046.325 3980.011 1111.431 3741.348 1358.057 4516.172 1589.739 4067.669 907.909 4365.039 1201.832 4257.519 1427.508 5018.203 1841.801 2863.564 622.630 5608.493 1425.374 4590.968 1561.092 5746.107 1984.884 5273.216 1070.577 5777.050 1550.493 6138.528 1997.144 6497.801 2239.166 4885.370 1039.489 5407.015 1544.149 6863.913 2785.453 6602.695 2907.622 6456.576 1589.835 7030.494 2226.976 7053.084 2722.874 9168.143 3493.472 Note: Averages across companies. All data in thousands of 1994 pesos. I=K =Investment to Capital Ratio. 2 Table 3: Investment and Interest Payments Inventory Fixed Interest Investment Investment 1989.1 360.045 1989.2 303.677 -0.569 43.264 1989.3 474.354 3.225 23.587 1989.4 284.420 0.693 21.521 1990.1 291.231 10.414 62.179 1990.2 283.593 -1.542 -31.512 1990.3 320.882 0.452 0.185 1990.4 204.575 -2.145 -2.945 1991.1 218.760 1.354 -2.353 1991.2 191.546 -3.638 -28.838 1991.3 223.056 -0.402 -6.206 1991.4 203.293 -0.367 -0.130 1992.1 179.489 -1.615 -12.698 1992.2 144.252 -1.642 -20.463 1992.3 191.445 0.779 1.737 1992.4 209.530 0.307 4.400 1993.1 209.700 -0.930 -5.149 1993.2 210.415 -0.199 -2.419 1993.3 215.599 -0.446 0.688 1993.4 209.495 0.070 8.271 1994.1 175.147 -1.020 1.103 1994.2 199.265 -0.117 -2.568 1994.3 236.860 0.400 -2.273 1994.4 290.321 3.465 36.656 1995.1 557.285 -1.822 5.657 1995.2 595.675 -5.072 -52.301 1995.3 446.781 -2.410 -22.029 1995.4 557.828 -0.736 -7.665 1996.1 430.076 -0.853 -17.628 1996.2 402.816 -1.173 -10.358 1996.3 371.691 -1.223 -10.605 1996.4 446.443 -0.126 -7.758 1997.1 225.357 -3.143 -31.262 1997.2 399.438 2.287 20.907 1997.3 311.649 -0.650 -2.893 1997.4 367.748 1.025 1.837 1998.1 315.613 -0.674 -7.654 1998.2 324.710 -1.988 -17.447 1998.3 361.649 0.090 2.876 1998.4 486.763 0.475 2.619 1999.1 335.483 -1.989 -16.537 1999.2 318.796 -0.833 -5.232 1999.3 378.052 -0.118 12.894 1999.4 362.209 0.541 1.581 2000.1 313.786 -0.582 -6.740 2000.2 359.412 -0.134 0.903 2000.3 352.460 -0.101 -1.956 2000.4 547.855 0.639 -2.140 Note: Averages across companies. All data in thousands of 1994 pesos. 3 Table 4: Immediate Eects of the 1994 Peso Devaluation Group 1 Group 2 Group 3 Group 4 All No. of Firms 29 14 14 29 86 Ratio of Exports 0.24 0.10 0.01 0.01 0.10 to Total Sales in 1994.4 Ratio of Foreign 0.69 0.21 0.56 0.11 0.40 to Total Debt in 1994.4 % Change between 1994.4 and 1995.4 in Exports 28 56 0 0 61 Domestic Sales -10 19 -37 -18 -14 Investment -83 -56 -77 -69 -74 EBITDA 37 48 8 -47 10 Firm Value -17 -33 -59 -50 -35 Note: Group 1 rms have both high sales abroad and high dollar denominated debt. Group 2 rms have high sales abroad but low dollar denominated debt while Group 3 rms have low sales abroad and high dollar denominated debt. Finally Group 4 rms have low sales abroad and low dollar denominated debt. 4 11 4 Dissemination Activities Our goal is to produce, present, and publish high-quality research in the best peerreviewed journals. Hence, our strategy is to first present our results at two major conferences. After incorporating comments and suggestions gained at these conferences and from other peers, we will then submit the resulting papers to peer-reviewed journals. The chosen conferences are the annual meetings of the North American and Latin American Econometric Society (NAMES and LAMES), (LAMES), the Latin American and Caribbean Economics Association (LACEA) Meetings, and the NBER summer workshops. The next step is to revise and submit the papers to academic journals. Our goal is to submit the papers to the highest possible quality of peer-reviewed journal. In addition to top general interest journals such as the American Economic Review, the Review of Economics and Statistics, the International Economic Review or the Journal of Business and Economic Statistics, we will also consider top field journals such as the Journal of Monetary Economics, Journal of International Economics and Journal of Development Economics 12 13 IGNACIO N. LOBATO ADDRESS: Centro de Investigación Económica ITAM Av. Camino a Sta. Teresa 930 Ciudad de México 10700 México EDUCATION: • Licenciatura en Ciencias Económicas (BSc. In Economics). Universidad Autónoma de Madrid. (July 1988). • M.Sc. in Economics. Centro de Estudios Monetarios y Financieros (CEMFI). (July 1990). • M.Sc. in Econometrics and Mathematical Economics. London School of Economics. (July 1991). • Ph.D. in Economics. London School of Economics. (June 1995). Supervisor: Professor P.M. Robinson. SCHOLARSHIPS: • Instituto de Economía y Geografía Aplicadas (IEGA). Consejo Superior de Investigaciones Científicas (CSIC)- Applied Economic and Geography Institute of the Spanish Scientific Research National Council. Sept 1986-July 1988. • Centro de Estudios Monetarios y Financieros (CEMFI)- Center for Monetary and Financial Studies of the Bank of Spain. Sept.1988-July 1990. • Bank of Spain. October 1990 - July 1994. • College of Business Summer Grant. University of Iowa. July 1995. • Old Gold Summer Fellowship. University of Iowa. July 1997. AWARDS: • Premio Extraordinario de Licenciatura (Special B.Sc. Award). • Tercer Premio Nacional de Licenciatura (B.Sc. National Prize). • Distinction in the MSc. in Econometrics and Mathematical Economics. London School of Economics. • Sistema Nacional de Investigadores (SNI) Nivel II. -National Researchers System-Conacyt. Level II. July 2001. WORKING EXPERIENCE: • Teaching Assistant. Economics and Statistics Departments. London School of Economics. October 1991 - July 1994. • Research Assistant to Professor P.M. Robinson. Economics Department. LSE. October 1991 - June 1994. • Assistant Professor. Economics Department. University of Iowa. August 1994-.July 1998. • Profesor Investigador. Centro de Investigación Económica, ITAM. August 1998-. FOCUS: Econometrics EXPERTISE: Econometric Theory, Time Series Analysis, Applied Economics. PROFESSIONAL ACTIVITIES: • Member: Econometric Society, Institute of Mathematical Statistics. • Referee: Journal of Econometrics, Econometrica, Journal of Business and Economic Statistics, Journal of Applied Econometrics, Scandinavian Journal of Statistics, Journal of the American Statistical Association, Journal of Statistical Planning and Inference, Review of Economic Studies, Econometric Theory, Journal of Empirical Finance, Journal of Futures Markets. • Member of the Program Committee of the XVII Latin American Meeting of the Econometric Society. • Member of the Editorial Board Gaceta de Economía del ITAM. PAPERS: • Averaged Periodogram Estimation of Long Memory (with Peter Robinson), J. of Econometrics, 1996, 73, 303-324. • Consistency of the Averaged Cross-Periodogram in Long Memory Series, J. of Time Series Analysis, 1997, 18, 137-155. • Semiparametric Estimation of Seasonal Long Memory Models: Theory and an Application to the Modeling of Exchange Rates, Investigaciones Económicas, vol XXI(2), 1997, pp.273-295. • Real and Spurious Long Memory Properties of Stock Market Data (with N.E. Savin), J. of Business and Economic Statistics, vol. 16, 1998, pp. 261-283 (including comments and reply). • A Nonparametric Test for I(0) (with Peter Robinson), Review of Economic Studies, 1998, vol. 65, pp.475-495. • A Semiparametric Two-Step Estimator for a Multivariate Long Memory Model, J. of Econometrics, 1999, Vol. 90, pp. 129-153. • Long Memory in Stock Market Trading Volume (with Carlos Velasco), J. of Business and Economic Statistics, 2000, vol. 18, pp.410-427. • Testing for Autocorrelation Using a Modified Box-Pierce Q test (with N.E. Savin and John Nankervis), International Economic Review, 2001, vol. 42, pp.187-205. • Testing that a dependent process is uncorrelated, Journal of the American Statistical Association, 2001, vol.96, pp.1066-1076. • Testing for Zero Autocorrelation in the Presence of Statistical Dependence (with N.E. Savin and John Nankervis), Econometric Theory, 2002, vol. 18, pp. 730-743. • Testing for nonlinear autoregression, Journal of Business and Economic Statistics, forthcoming. Working Papers: • Consistent test for the martingale difference hypothesis (with Manuel Domínguez), submitted to Econometric Reviews, second round. • A simple test for normality in the presence of serial correlation (with Carlos Velasco), submitted to Econometrica. • Bootstrapping the Box-Pierce Q test: a robust test of uncorrelatedness (with Joel Horowitz, John Nankervis and N.E. Savin), submitted to Journal of Econometrics. PRESENTATIONS AT CONGRESSES: Invited: • Real and Spurious Long Memory Properties of Stock Market Data, Joint Statistical Meeting, Anaheim, August 1997. • Long Memory in Stock Market Trading Volume. Latin American Meeting of the Econometric Society. Cancún, August 1999. Contributed: • A Lagrange Multiplier test for I(0). Midwest Econometric Group Meeting, Iowa City, October 1994. • Multivariate Quasi-Maximum Likelihood Analysis of Long Memory Series. Séminaire Européen de Statistique: Likelihood, Time Series, with Econometric and other Applications, Nuffield College, Oxford, December 1994. • Multivariate Quasi-Maximum Likelihood Analysis of Long Memory Series. Seventh World Congress of the Econometric Society, Tokyo, August 1995. • Real and Spurious Long Memory Properties of Stock Market Data. Midwest Econometric Group Meeting, Madison, November 1996. • A Nonparametric Test for I(0). North American Meeting of the Econometric Society, New Orleans, January 1997. • A Semiparametric Two-Step Estimator for a Multivariate Long Memory Model. European Meeting of the Econometric Society, Berlin, September 1998. • Long Memory in Stock Market Trading Volume. European Meeting of the Econometric Society. Santiago de Compostela, August 1999. • Testing that a dependent process is uncorrelated. Fifth World Congress of the Bernouilli Society and the Institute of Mathematical Statistics, Guanajuato, May 2000. • Consistent test for the martingale difference hypothesis. Eighth World Congress of the Econometric Society, Seattle, August 2000. • Testing for nonlinear autoregression, Joint Statistical Meeting, Atlanta, August 2001. • Testing for nonlinear autoregression, European Meeting of the Econometric Society, Laussane, August 2001. • Testing for nonlinear autoregression, Latin American Meeting of the Bernouilli Society, La Habana, November 2001. Sangeeta Pratap Curriculum Vitae Personal Information Address: Centro de Investigación Económica Instituto Tecnológico Autónomo de México Av. Camino de Sta. Teresa #930 Mexico D.F. 10700 Mexico Phone: Fax: E-mail: + (52 5) 628 40 00 extn 2966 + (52 5) 628 40 58 [email protected] Education PhD., Economics, New York University, 1998 Dissertation: Essays on Firm Investment under Imperfect Capital Markets Committee: Professors Mark Gertler, Christopher J. Flinn, Jason Cummins M.Phil, Economic Theory, University of Cambridge, U.K. 1990 M.A., Economics, Jawaharlal Nehru University, New Delhi, 1988 B.A., Economics (with Honors), Lady Shri Ram College, Delhi University, 1986 Fields of Interest Macroeconomics, Econometrics, Applied Microeconomics Work Experience ITAM, Assistant Professor, August 1998 to present Research Fellow, Institute for Studies in Industrial Development, New Delhi, 1990-1993 Academic Papers “Firm Investment Under Imperfect Capital Markets: A Structural Estimation” (with Silvio Rendón), March 2002 (revised and resubmitted to the Review of Economic Dynamics) “Do Adjustment Costs Explain Investment Cash Flow Insensitivity?” Journal of Economic Dynamics and Control, forthcoming “Financial Market Discipline in early 20th century Mexico” November 2000 (with Elisabeth Huybens and Astrid Luce) “Are Labor Markets Segmented in Argentina: A Semi Parametric Approach” April 2002 (with Erwan Quintin) Research in Progress “Some Identification Issues in the Estimation of Dynamic Models”, (with Silvio Rendón). “Nutrition Curves and the Intra household Allocation of Calories in Mexico” (with Tridib Sharma) Seminar Presentations ITAM_University of Texas Workshop, November 2001 Federal Reserve Bank of Dallas April 2001 Stanford University, November 2000 Institute of Fiscal Studies, London, May 1999 York University, York, Canada, March 1998 ITAM, February 1998 Wellesley College, February 1998 SUNY Binghamton, January 1998 European University Institute, September 1996 Conference Presentations Society for Economic Dynamics Meetings, New York, June 2002 1st ITAM Conference on Poverty, May 2002 LACEA Meetings, Montevideo, October 2001 Society for Economic Dynamics Meetings, Stockholm, June 2001 Meeting of the Society for Computational Methods in Economics, Barcelona, 2000 Latin American Meetings of the Econometric Society, Cancun, 1999 Society for Economic Dynamics Meetings, Sardinia, 1999 South Asian Meetings of the Econometric Society, Delhi, December 1996 Honors: MacCracken Fellowship, New York University, 1993 to 1998 GSAS Dissertation Fellowship, New York University, 1996 C.V. Starr Center Advanced Scholars Fellowship, New York University, 1996 Alejandro Somuano Rio Guadiana 10 - 301 Mexico, D.F. 06500 Fax: (55) 9158-14-65 (55) 5566-08-19 e-mail: [email protected] ________________________________________________________________________________________ EDUCATION 8/95 - 5/01 8/88 - 12/92 The University of Texas at Austin Austin, TX, USA Ph.D. Program in Economics Main fields: Monetary Economics, International Trade, Econometrics, Latin American Economics Instituto Tecnológico Autónomo de México (ITAM) Bachelor of Science in Economics Mexico City, MEXICO EXPERIENCE Ministry of Finance 5/01 - present 6/98 - 8/98 1/95 - 7/95 10/93 - 12/94 1/90 - 9/93 SKILLS Mexico City, MEXICO Director of Fiscal Policy • Estimation of econometric models of public revenues and public expenditure. • Elaboration of periodical reports on public finances and public debt. • Analysis of fiscal policy sustainability. Mckinsey and Company, Inc. Mexico City, MEXICO Summer Internship • Constructed a financial model. • Helped to define a long-term commercial strategy. • Developed the path to implement a new organizational structure. • Prepared and led a number of presentations. Ministry of Commerce and Industrial Promotion Mexico City, MEXICO Assistant Director of Antidumping and Safeguards • Helped to analyze dumping case against Mexican cement industry. • Analyzed cost structure of fishmeal industry in several countries. • Helped to determine degree of import dumping in Mexican fishmeal market. • Helped to determine optimal trade policy for domestic fishmeal industry. Federal Antitrust Commission Mexico City, MEXICO Assistant Director of Mergers and Acquisitions • Analyzed mergers and acquisitions from a competitive perspective. • Analyzed various highly concentrated industries in Mexico. • Helped develop merger guidelines for Mexico. • Conducted extensive research project on the Mexican cement industry. Inteligencia Comercial, S.A. de C.V. Mexico City, MEXICO Co-owner - Consultant • Analyzed franchising potential of interested businesses. • Developed strategies for new franchises and designed franchising contracts. • Promoted expansion of domestic and foreign franchising businesses. • Served as investment broker for domestic and foreign franchises. Languages: Spanish (native), English (fluent), Portuguese (fluent). Computer Skills: Unix, Windows, SAS, TSP, EViews, MATLAB, FORTRAN. HONORS & AWARDS • “Scholarship for Graduate Studies,” CONACYT, Mexico (8/95 - 8/00). • “Pre-dissertation Grant” for field research in Brazil, Ford Foundation (Summer 97). • “Solidaridad” Presidential Scholarship, Center of Mexican Studies, UT (8/98 - 6/99). • “E.D. Farmer” Fellowship, University of Texas (1/00 – 12/00). • “Hale” Fellowship, University of Texas (6/00 – 8/00). PUBLICATIONS • “Banking Crises in the 1990s: the cases of Mexico and Japan,” with Pere Gomis, Inverworld, Quarterly Report, June 1999. • “Optimal Number of Outlets in a Pure Franchise System,” Gaceta de Economía 9, ITAM, Mexico, December 1999. • “Privatization, Deregulation and Competition in the Mexican Airlines Industry,” with Fabián Sánchez, Latin American Competition Bulletin 9, European Community Publications, January 2000. • “Currency Substitution in Latin America: Lessons from the 1990s,” with Pere Gomis and Carlos Serrano, Research Policy Working Paper 2340, World Bank, May 2000. • “Innovations in High-Tech Firms: Evidence from Texas,” with Elsie Echeverri, Southwestern Journal of Economics, June 2001. • “Productivity and Exporting Behavior: Micro-evidence from Mexican Manufacturing,” with Alexandra Thome, in revision for The Journal of International Trade. • “Fiscal Rules in Mexico,” with Andrés Conesa, Volume on Fiscal Rules in Emerging Economies, International Monetary Fund, forthcoming 2002. WORK IN PROGRESS • “Full Dollarization and Credit Markets: Is it Worthwhile to Abandon the Local Currency?,” with Pere Gomis, submitted to The International Journal of Money and Finance. • “Reserve Requirements, Inflation and Welfare,” submitted to The International Review of Economics and Finance. • “Currency Substitution in Mexico: Some Empirical Evidence,” mimeo, University of Texas, June 2000. • “Incentives and Efficiency in Monetary Union Design,” with Christopher Sleet, mimeo, University of Texas, July 2000.