Recently, central banks expanded the size of their balance sheets in an attempt to mitigate the financial turmoil that began in 2008. In order to accomplish this goal, various unconventional operations were implemented, such as a liquidity provision to households and businesses, bailouts to financial institutions and foreign exchange swaps with foreign central banks. All of the above mentioned operations inflated the central banks balance sheets, and the magnitude of these operations was significant. These operations can be referred to as "quasi fiscal activities" because they do not conform to traditional monetary policy, which is used to stabilize inflation by controlling the policy interest rate.
Neoclassical theories in information economics model public information and private information as substitutes and find that earnings announcements reduce information asymmetry by reducing the informational advantage of informed traders. However, recent theoretical models find that earnings can increase information asymmetry by providing informed traders with an ability to better interpret the earnings announcement than uninformed traders. In a recent study, Ng, Verrecchia and Weber (2009) show that earnings that are not informative about underlying volatility increase information asymmetry. We use the financial crisis as an experimental setting which resulted in a shock to firms’ underlying volatility and examine whether earnings decrease information asymmetry by providing information about underlying volatility or whether they exacerbate information asymmetry by providing some traders with a better ability to interpret these announcements.
Financial reporting for banks has come under increased scrutiny during the recent financial crisis and has been subject to intense criticism. Motivated by concerns in the media and the regulators about the failure of accounting information to provide timely information about bank performance, we examine changes in information asymmetry around bank earnings announcements during the financial crisis period. Several factors have been argued to have aggravated the crisis, such as executive compensation schemes which encouraged bank managers to move into more opaque and risky transactions and the lack of relevant, reliable and understandable financial reporting information by firms (Rajan (2006), Ryan (2008), OECD Report (2009), Schwarcz (2009)). We investigate the role of exposure to sub-prime assets, equity-based managerial incentives, risk-management disclosure, bank size, loss recognition and fair value hierarchy information in alleviating or exacerbating information asymmetry around bank earnings announcements.
Longitudinal datasets with information about firms investment, employment or price decisions, among others, show how frequently firms do not respond to observed changes in costs or in the demand, and they prefer \doing nothing". Retail firms may not change their prices for several months even if wholesale prices are changing. Firms wait to renovate their capital stock even when technological change is rapidly depreciating this stock, or when significant reductions in real interest rates occur. Employment in a plant may not be reduced even if the plant is suffering significant and persistent reductions in its demand. This lack of response to sizable changes in relevant variables can be also observed in individuals' purchasing decisions of durable goods. From a theoretical point of view there are several potential characteristics of the decision problem that can explain the existence of this censoring in observed decision variables: non-negativity constraints, partial irreversibility of the decision, kinked adjustment costs, indivisibilities, or lump-sum adjustment costs, among others. Each of these sources of censoring can have different economic interpretations for each particular decision problem, e.g., regulatory or technological restrictions, or market conditions in which the agents operate.
In this paper we analyze the identification and estimation of the sources of censoring in dynamic structural models. The paper discusses different econometric issues associated to the estimation of these models and presents several approaches to overcome some of these problems. Special emphasis is placed on the identification and estimation of the parameters of interest under different assumptions on the stochastic structure of the unobservables and under different characteristics of the longitudinal dataset, like its temporal dimension, the frequency of corner solutions, or the distribution of duration spells between two consecutive interior solutions.
