DOCSLIB.ORG

Investment Opportunities

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Investment Opportunities INTRODUCTION WHAT ARE TREASURY BONDS? PARTICIPANTS IN THE TREASURY AUCTION • The maximum bid limitation Lesotho Treasury Bonds In an effort to develop the domestic SECURITIES MARKET Treasury Bills are auctioned every on the non-competitive bids These are securities offered market, the Central Bank of Lesotho, Who can invest in Securities two weeks and Treasury Bonds as is M99,900 per investor in any by Lesotho Government with on behalf of the Government of Market? per the approved auction calendar. issue. maturity of more than one year Lesotho, continues to undertake Treasury securities auctions are All auctions take place at the • Separate bid forms should be with the longest being 10 years. reforms that are aimed at open to individual investors (18 Central Bank of Lesotho and are completed for each tenor e.g. They are available in tenors that deepening the financial market in years and above), commercial banks, conducted on a Wednesday at 9:00 91, 182, 273 and/or 364 days. line with regional developments. the Government of Lesotho has non-bank financial institutions, a.m. while payment and settlement The Bank has developed these opened for issuance at a particular corporates and societies. Non- take place on the same day before TRADING METHOD rules and regulations to guide and time. Bonds are issued at either a residents are also eligible to close of business. The Central In the auction, bids are invited from inform all investors on the issuance discount, par or premium to their participate. The secondary market Bank of Lesotho issues annual individuals, groups and institutions. of Lesotho Government Securities. face value (meaning that an investor for securities exists and any person calendar for Treasury Securities Such bids are classified into may pay less, equal or more than who holds such securities is free to auctions which is available at the the par value and if held to maturity competitive and non-competitive WHAT ARE TREASURY BILLS? trade, exchange, pledge or transfer Bank’s website(URL:http://www. receives the par value). bids. Treasury Bills (T-Bill) are debt them in the market. centralbank.org.ls) or (www.msm. successful bids, will be suspended instruments issued by the org.ls . for a period of six months from COMPETITIVE BIDS Government in exchange for lending WHAT ARE TREASURY BONDS? PARTICIPANTS IN THE TREASURY investing in subsequent treasury APPLICATION TO BID These entail bids that are greater it money. They are short-term Lesotho Treasury Bonds SECURITIES MARKET securities offers. The Central Bank of Lesotho than or equal to M100, 000. They instruments, which mature in less These are securities offered Who can invest in Securities announces the amounts to be are applications in which a yield TAXATION than a year and can be negotiated by Lesotho Government with Market? offered, maturity dates for securities rate is specified. Thus, the success Is there any Tax Payable on and traded freely in the market. maturity of more than one year Treasury securities auctions are to be issued and settlement dates of of a bidder’s application depends Treasury Securities? Treasury bills are primarily intended with the longest being 10 years. open to individual investors (18 securities by issuing press releases 7 on other competitive bidders’ Withholding Tax is payable on to mop up/ inject liquidity in the They are available in tenors that years and above), commercial banks, days prior to every auction. Tenders yield rates. The lower the yield interest income earned from economy thereby reducing the the Government of Lesotho has non-bank financial institutions, for Treasury Securities auctions are rate the more likely the bid will be investment in treasury securities. inflationary pressure and are sold opened for issuance at a particular corporates and societies. Non- made by completing Government successful. The rates are 10% and 15% for on a discount basis – (i.e., they are time. Bonds are issued at either a residents are also eligible to of Lesotho Securities Bid Form Bids must show the amount of residents and non-residents sold originally at a price below their discount, par or premium to their participate. The secondary market (CBL/TBR/1) available at the Central tender and yield rate expressed respectively. The interest that is face value, with face value payable face value (meaning that an investor for securities exists and any person Bank of Lesotho and other branches as an annual rate to three decimal earned at maturity or as coupon at maturity). They are preferred by may pay less, equal or more than who holds such securities is free to of commercial banks in the country. places. payments will therefore be net of investors because they are backed the par value and if held to maturity trade, exchange, pledge or transfer The following information is withholding tax. by the government and constitute a receives the par value). Treasury them in the market. required on the form: risk free investment. Bonds make interest (coupon) NON-COMPETITIVE BIDS • Name of the Bidder DISINVESTMENT OF TREASURY payments semi-annually on the REQUIREMENTS FOR TRADING IN These are bids that are less than • Amount of Tender SECURITIES face value held during the life of TREASURY BILLS/BONDS M100, 000. In this category, bidders TYPES OF TREASURY BILLS • Security Type The Central Bank of Lesotho offers the bond. They can be used by the i. Individual investors are guaranteed allocation and they Currently there are four tenors of T-Bills a rediscounting facility through Government of Lesotho to finance • Investor’s identification (Valid • Maturity Period receive either the weighted average offered by the Government of Lesotho • Bid Price which it can buy back the treasury through the Central Bank of Lesotho. These identified capital projects, finance Passport or National ID) price or cut off price as determined • Bidder’s Bank and Settlement securities provided that 75% of are; the 91, 182, 273 and 364 days T-Bills government budgetary needs, and • Bank account held at any local by the accepted competitive bids. the maturity period has elapsed. respectively. for development of the domestic commercial bank Account Bidders must therefore state only However, the treasury securities debt market. ii. Societies the bid amount without specifying can be traded amongst investors. • Certificate of Registration All bids must be received by the the yield rate. • Society’s Constitution Central Bank of Lesotho prior to On the auction date, results for both ADVANTAGES OF INVESTING IN • Society resolution by members deadlines stated on the auction the successful and unsuccessful WHAT HAPPENS UPON MATURITY TREASURY SECURITIES to invest announcement. Late applications bidders are announced at 11:00 OF TREASURY SECURITIES? • They are risk-free investments • Bank account held at any local will not be accepted. a.m. Successful bidders are Upon maturity, the principal • The rate of return is competitive commercial bank expected to collect their “Awarded plus interest are deposited into • They can be pledged as ENQUIRIES CONCERNING FURTHER DETAILS • Identification of all signatories SPECIFIC BID REQUIREMENTS Advices” from the Central Bank of the investor’s bank account. For SHOULD BE DIRECTED TO: collateral Markets Operations iii. Company • For all securities, each bid must Lesotho and settle on the same day treasury bonds, coupon payments Financial Markets Department • They are transferable and Central Bank of Lesotho • Certificate of Incorporation / state the face value. (T+0) of the auction. Settlement are made semi-annually until the negotiable P.O. Box 1184 and redemption of the securities security matures. If an investor Maseru 100 Trader’s License • All bids must equal or exceed Tel: (+266) 2223 2143/ 2223 2103/ 2223 2423 • Bank account held at any local minimum threshold of M5, 000. is done through commercial banks. wishes to continue investing, then a Fax: (+266) 22 322 767 E-Mail: [email protected] commercial bank All bids must be in multiples of Thus, payment is not done in the new application has to be filled to Website: www.centralbank.org.ls • Identification of at most three M100. form of cash or banker’s cheques. re-invest the maturing amount. DISCLAIMER: signatories Investors, who fail to pay for their This brochure is for general information only and has no binding legal authority. Central Bank of Lesotho excludes any liability for any costs, losses, claims, damages, expenses, proceedings incurred or suffered by you arising directly or indirectly in connection with this brochure. SELELEKELA MATSETE A NAKO E TELELE (TREA- ii. Likhoebo Sephetho sa fantisi ka ‘ngoe se E meng ea mesebetsi ea Banka e SURY BONDS) • Lengolo la khoebo phatlalatsoa letsatsing lona leo kholo ea Lesotho ke ho batalatsa Ana ke matsete a nako e ka • Litokomane tsa boitsebiso tsa la fantisi, hona ho etsahala ka mabala le ho ntlafatsa mebaraka ea holimo ho selemo ho ea holimo. litho tse tekenang hora ea leshome le motso o mong lichelete kahar’a naha. Sena Banka A ka fumaneha ka mekhahlelo e • Polokelo ho e nngoe ea libanka hoseng (11:00 a.m.). Ba atlehileng e seetsa ka ho fana kapa ho rekisa fapaneng ho latela lithloko tsa iii. Mekhatlo fantising ba fumants’oa mangolo a matsete a ‘Muso. ‘Muso ka nako eo. Matsete ana • Lengolo le bontshang hore pakang hore ba se ba ena le matsete a fana ka phaello kappa tsoala mokhatlo o ngolisitsoe Bankeng e Kholo. Hang kamora ho MATSETE A NAKO E KHUTS’OANE makhetlo a mabeli ka selemo, ebe • Polokelo ho e nngoe ea libanka phatlalatsa ba atlehileng, chelete (TREASURY BILLS) ha letsete le butsoa motseteli o • Litokomane tsa boitsebiso tsa eo ba e tsetelang e huloa ho tsoa Ana ke matsete a nako e sa feteng boelloa ke chelete eohle eo a e litho tse tekenang polokelong ea motseteli ka mong le selemo kapa likhoeli tse leshome tsetetseng qalong.
Load more

Recommended publications
  • The Socialization of Investment, from Keynes to Minsky and Beyond
    Working Paper No. 822 The Socialization of Investment, from Keynes to Minsky and Beyond by Riccardo Bellofiore* University of Bergamo December 2014 * [email protected] This paper was prepared for the project “Financing Innovation: An Application of a Keynes-Schumpeter- Minsky Synthesis,” funded in part by the Institute for New Economic Thinking, INET grant no. IN012-00036, administered through the Levy Economics Institute of Bard College. Co-principal investigators: Mariana Mazzucato (Science Policy Research Unit, University of Sussex) and L. Randall Wray (Levy Institute). The author thanks INET and the Levy Institute for support of this research. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad. Levy Economics Institute P.O. Box 5000 Annandale-on-Hudson, NY 12504-5000 http://www.levyinstitute.org Copyright © Levy Economics Institute 2014 All rights reserved ISSN 1547-366X Abstract An understanding of, and an intervention into, the present capitalist reality requires that we put together the insights of Karl Marx on labor, as well as those of Hyman Minsky on finance. The best way to do this is within a longer-term perspective, looking at the different stages through which capitalism evolves.
    [Show full text]
  • Investment Interests Safe Harbor (42 C.F.R
    Investment Interests Safe Harbor (42 C.F.R. § 1001.952(a)) (a) As used in section 1128B of the Act, “remuneration” does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor as long as all of the applicable standards are met within one of the following three categories of entities: (1) If, within the previous fiscal year or previous 12 month period, the entity possesses more than $50,000,000 in undepreciated net tangible assets (based on the net acquisition cost of purchasing such assets from an unrelated entity) related to the furnishing of health care items and services, all of the following five standards must be met— (i) With respect to an investment interest that is an equity security, the equity security must be registered with the Securities and Exchange Commission under 15 U.S.C. 781 (b) or (g). (ii) The investment interest of an investor in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity must be obtained on terms (including any direct or indirect transferability restrictions) and at a price equally available to the public when trading on a registered securities exchange, such as the New York Stock Exchange or the American Stock Exchange, or in accordance with the National Association of Securities Dealers Automated Quotation System. (iii) The entity or any investor must not market or furnish the entity's items or services (or those of another entity as part of a cross referral agreement) to passive investors differently than to non-investors.
    [Show full text]
  • 15 Theories of Investment Expenditures
    Economics 314 Coursebook, 2010 Jeffrey Parker 15 THEORIES OF INVESTMENT EXPENDITURES Chapter 15 Contents A. Topics and Tools ..............................................................................2 B. How Firms Invest ............................................................................2 What investment is and what it is not ............................................................................ 2 Financing of investment ................................................................................................ 3 The Modigliani-Miller theorem ..................................................................................... 5 Sources of finance and credit availability effects ............................................................... 6 C. Investment and the Business Cycle ...................................................... 8 Keynes and the business cycle ........................................................................................ 8 The accelerator theory of investment ............................................................................... 9 The multiplier-accelerator model .................................................................................. 10 D. Understanding Romer’s Chapter 8 ..................................................... 12 The firm’s profit function ............................................................................................ 13 User cost of capital .....................................................................................................
    [Show full text]
  • The Flexible Accelerator Model of Investment: an Application to Ugandan Tea-Processing Firms
    African Journal of Agricultural and Resource Economics Volume 10 Number 1 pages 1-15 The flexible accelerator model of investment: An application to Ugandan tea-processing firms *Edgar E. Twine International Livestock Research Institute, c/o IITA East Africa Hub, Dar es Salaam, Tanzania. E-mail: [email protected] Barnabas Kiiza Makerere University, Kampala, Uganda. E-mail: [email protected] Bernard Bashaasha Makerere University, Kampala, Uganda. E-mail: [email protected] Abstract The study uses the flexible accelerator model to examine determinants of the level and growth of investment in machinery and equipment for a sample of tea-processing firms in Uganda. Using a dynamic panel data model, we find that, in the long run, the level of investment in machinery and equipment is positively influenced by the accelerator, firm-level liquidity, and a favourable investment climate in the country. Depreciation of the exchange rate negatively affects investment. We conclude that firm-level strategies that increase output and profitability, and a favourable investment policy climate, are imperative to the growth of the tea industry. Key words: accelerator model; fixed asset investments; Ugandan tea-processing firms 1. Introduction Investment or capital accumulation is widely regarded as important in raising output and income at both the firm and national level. The private sector in Uganda has responded to macroeconomic policy reforms with private investment increasing by 13% per year on average from 1986/1987 to 1997/1998 (Collier & Reinikka 2001). The sectors that have attracted most investment in recent years are manufacturing, agriculture, forestry, fishing, construction and services.
    [Show full text]
  • How Do Central Banks Invest? Embracing Risk in Official Reserves
    How do Central Banks Invest? Embracing Risk in Official Reserves Elliot Hentov, PhD, Head of Policy and Research, Official Institutions Group, State Street Global Advisors Alexander Petrov, Senior Strategist, Official Institutions Group, State Street Global Advisors Danae Kyriakopoulou, Chief Economist and Director of Research, OMFIF Pierre Ortlieb, Economist, OMFIF How do Central Banks Invest? Embracing Risk in Official Reserves This is an update to the 2017 SSGA study of central bank asset allocation.1 In contrast to the last study which focused on the allocation of excess reserves (i.e. the investment tranche) exclusively, this study reviews the entire reserve portfolio. Two years on, the main findings are: • Overall, there is greater diversity of asset • Central banks hold around $800bn (6% of classes and a broader use of risk assets, portfolio) in equities and over one trillion with roughly 15% ($2tn out of total $13tn) (9% of portfolio) in return-enhancing2 bonds in unconventional reserve instruments. (mainly investment-grade corporates and • Based on official reserves, central banks asset-backed securities) compared with are significant, frequently dominant, close to zero at the beginning of the century. capital markets participants: they hold about a third of all supranational debt and nearly a fifth of high-grade sovereign debt (or nearly half if domestic QE holdings are added). Central Banks as Asset Owners In December 2017, total global central bank reserves5 stood at around $13.3tn, recovering from their end- After a decade of unconventional monetary policy, one 2015 trough but below the mid-2014 peak of over could be forgiven for confusion around central bank $13.6tn (see Figure 1).
    [Show full text]
  • Saving, Investment, and the Financial System
    LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College [email protected] http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution is permitted for educational and research purposes, so long as no changes are made. All copies must be provided free of charge and must include this copyright notice. Ch 26 Saving, Investment, and the Introduction When Financial a country saves System a large fraction of its income, more resources are available for investment in capital, and higher capital raises the economy’s productivity, raising living standards still further. But within that country, at any given point in time, some people will want to save some of their income for the future, while others will want to borrow to finance investments in physical capital. How are savers and investors coordinated? The financial system consists of those institutions in my the econo that help to match ’s one person savings with another person’s investment. This chapter: 1. Describes the variety of ns institutio that make up the financial system in the US today. 2. Describes the relationship between the financial system and these key macroeconomic variables: saving and investment. 3. Develops a model that describes how the interest rate adjusts mand so as to equate the de for and supply of funds in the financial system and uses this model to show how various government policies affect the interest rate, saving, and investment. Outline 1. Financial Institutions in the US Economy A. Financial Markets i. Bond Market ii. Stock Market B.
    [Show full text]
  • The Investment Currency Market There Are Two
    The investment currency market There are two recognised foreigncurrency markets in the United Kingdom: the official market, through which most payments between residents and non-residents pass; and the investment currency market, in which the 'dollar premium' arises. The investment currency market is available for certain specified capital transactions, and only residents of the Scheduled Territories[l] have access to it. The purpose of this article is to explain what is meant by 'investment currency' and the 'dollar premium', and to show how the investment currency market works. It should be mentioned at the outset that payments through the investment currency market are subject to the provisions of the Exchange Control Act 1947, just as much as are payments through the official market. In particular, residents need permission to purchase any foreign currency and are required to sell any foreign currency in their possession on the official market unless they have been given permission to sell it on the investment currency market or to retain it for some particular purpose. Moreover, any permissions given may be conditional. It is these and other powers in the Act which provide the legislativebasis of the investment currency market and enable it to be controlled. What is investment currency? Investment currency is foreign currency which has originated in the main from the sale abroad of foreign currency securitiesowned by UK residents, and which may be used by residents of the Scheduled Territories to acquire foreignassets, for which currency from the official marketis not made available. The investment currency market is primarily a mechanism to enable portfolio investments in foreign currency securities to be transferred among UK residents; other permitted uses include the purchase of properties abroad for private use and, to a very small extent, the financing of direct investments abroad.
    [Show full text]
  • Which Equity Sectors Can Combat Higher Inflation? Some Investors Are Worried That Inflation Is Set to Rise
    SECOND QUARTER 2021 Insight Which Equity Sectors Can Combat Higher Inflation? Some investors are worried that inflation is set to rise. We look at which equity sectors could prove to be the most resilient. Insight from sub-adviser THE SHARP RISE IN BOND YIELDS OVER RECENT WEEKS HAS RATTLED Schroders Investment Management EQUITY MARKETS AMID FEARS THAT FISCAL STIMULUS AND A POST- PANDEMIC SPENDING SPLURGE COULD STOKE HIGHER INFLATION. Sean Markowicz, CFA Five-year inflation expectations, as measured by the yield difference Strategist, Research and Analytics between nominal and inflation-protected US Treasury bonds, have rebounded sharply from their pandemic lows and are now at 2.5%— their highest level since 2008. Moderate inflation is generally good for equities because it tends to be associated with positive economic growth, rising profits, and stock price gains. However, things can quickly turn ugly for stock-market investors if the economy overheats and inflation rises too high. Our research has found that equities outperformed inflation 90% of the time when inflation has been low (below 3% on average) and rising—this is where we are today. But when inflation was high (above 3% on average) and rising, equities fared no better than a coin toss, as shown in the chart below. FIGURE 1 % of Rolling 12-Month Periods When US Equity Returns Exceeded Inflation Rate, 1973-2020 100% Key Points 90% 90% Five-year inflation 81% expectations, as measured by 80% 76% the yield difference between 70% nominal and inflation- protected US Treasury bonds, 60% 48% have rebounded sharply from 50% their pandemic lows.
    [Show full text]
  • Investment Funds Description P Series of the Wespath Funds Trust
    ` AS OF JANUARY 1, 2021 Investment Funds Description P Series of the Wespath Funds Trust a general agency of The United Methodist Church INVESTMENT FUNDS DESCRIPTION P Series of the Wespath Funds Trust As of January 1, 2021 (Containing performance and other information as of December 31, 2020, unless otherwise noted) The information contained in this Investment Funds Description – P Series is intended for (1) organizations that are controlled by or associated with The United Methodist Church (the “Church”) that elect to or are required to sponsor retirement and/or health and welfare benefit plans and programs for clergy and lay employees of a church or a tax-exempt convention or association of churches consistent with Section 414(e) of the Internal Revenue Code (each a “Church Plan”) administered by the General Board of Pension and Health Benefits of The United Methodist Church, Incorporated in Illinois, a general agency of the Church doing business under the assumed name of Wespath Benefits and Investments (“WBI”) (such Church Plans hereafter referred to as the “Benefit Plans”) for the benefit of their employees (such organizations hereafter referred to as the “Plan Sponsors”); (2) the Benefit Plans; (3) individuals who are eligible to participate in the Benefit Plans, as a result of their employment (or former employment) with a Plan Sponsor, or beneficiaries of such individuals (“Participants”); and (4) other investors approved by the Fund Manager under exceptional circumstances. Plan Sponsors, Benefit Plans, Participants and other investors approved by the Fund Manager under exceptional circumstances are collectively referred to herein as “Eligible Investors.” All such Eligible Investors shall qualify as permissible investors in a fund excepted from the definition of “investment company” under Section 3(c)(14) of the Investment Company Act of 1940, as amended (the “1940 Act”).
    [Show full text]
  • Basic Investment Terms
    Because money doesn’t come with instructions.SM Robert C. Eddy, CFP® Margaret F. Eddy, CFP® Matthew B. Showley, CFP® Basic Investment Terms ANNUITY – A financial product sold by financial institutions pay out a stream of payments to the individual at a later point; primarily used as a means of providing guaranteed cash flow for an individual during their retirement years. ASSETS – Resources with economic value owned by a company, fund, or individual, especially those that can be converted to cash; i.e. real estate, automobiles, investments (stocks and bonds), materials, inventories, etc. ASSET CLASS – An investment category; i.e. equities (stocks), fixed income (bonds), or money market (cash). Asset classes can be divided into size (small, mid and large capitalization stocks), geographic location (international, emerging markets, etc.), and other (real estate, commodities, hedge funds, etc.). BEAR OR BULL MARKET – A bear market is a prolonged market period where investment prices fall, usually accompanied by widespread pessimism, as a result of economic recession, high unemployment, or rising inflation (the Depression and Tech Bust of 2000 are examples). A bull market is a prolonged period where investment prices rise faster than their historical average, as a result of economic recovery, boom, or investor psychology; these terms are most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies, and commodities, i.e. Tech Boom of the late 1990’s. BOND – A debt security issued for a period longer than one year by corporations, governments, or their agencies, with the intent of raising capital by borrowing; a bond is the promise to repay the principal along with interest on a specified date; some bonds do not pay interest, but all bonds require a repayment of principal.
    [Show full text]
  • Investment Efficiency and the Distribution of Wealth Iii Acknowledgments
    WORKING PAPER NO.53 Investment Effi ciency and the Distribution of Wealth Abhijit V. Banerjee Cover_WP053.indd 1 5/11/2010 11:01:03 PM WORKINGPAPERNO.53 = InvestmentEfficiencyand theDistributionofWealth AbhijitV.Banerjee = = = = = = = = = ©2009TheInternationalBankforReconstructionandDevelopment/TheWorldBank OnbehalfoftheCommissiononGrowthandDevelopment 1818HStreetNW= Washington,DC20433 Telephone:2024731000 Internet: www.worldbank.org = www.growthcommission.org Email: [email protected] = [email protected] = Allrightsreserved= = 1234511=100908 = ThisworkingpaperisaproductoftheCommissiononGrowthandDevelopment,whichissponsoredby thefollowing=organizations: = AustralianAgencyforInternationalDevelopment(AusAID)= DutchMinistryofForeignAffairs SwedishInternationalDevelopmentCooperationAgency(SIDA) U.K.DepartmentofInternationalDevelopment(DFID) TheWilliamandFloraHewlettFoundation TheWorldBankGroup= = Thefindings,interpretations,andconclusionsexpressedhereindo=notnecessarilyreflecttheviewsofthe sponsoringorganizationsorthegovernmentstheyrepresent. = Thesponsoringorganizationsdonotguaranteetheaccuracyofthedataincluded=inthiswork.The boundaries,colors,denominations,andotherinformationshownonanymapinthisworkdonotimply anyjudgmentonthepartofthesponsoringorganizationsconcerningthelegalstatusofanyterritoryor theendorsementoracceptanceofsuchboundaries. = Allqueriesonrightsandlicenses,includingsubsidiaryrights,should=beaddressedtothe OfficeofthePublisher,TheWorldBank,1818HStreetNW,Washington,DC20433,USA; fax:2025222422;email:[email protected].
    [Show full text]
  • Investment Choice and Inflation Uncertainty
    Investment Choice and Inflation Uncertainty Greg Fischer∗ June 2016 Abstract This paper investigates the relationship between inflation uncertainty and investment using a panel of loan-level data from small businesses. Micro-level data makes it possible to study phenomena that are obscured in country or industry aggregates. The data show that periods of increased inflation uncertainty are associated with substantial reductions in total investment. Moreover, there is a shift in the composition of investment away from fixed assets and towards working capital—the more flexible factor of production—and fixed asset investment exhibits periods of inaction consistent with real option models of investment under uncertainty. JEL: E22, E31, D92, G21 Keywords: inflation, investment, uncertainty ∗Contact information: London School of Economics, g.fi[email protected]. I would like to thank Esther Duflo, Abhijit Banerjee, Oriana Bandiera, Tim Besley, Robin Burgess, Francesco Caselli, Victor Chernozhukov, Raymond Guiteras, Rick Hornbeck, Konrad Menzel, Trang Nguyen, Torsten Persson, Silvana Tenreyro, Tom Wilkening, and seminar par- ticipants at Columbia University, LSE, and the World Bank for many useful comments. The borrower data for this project were developed as part of joint research with Antoinette Schoar and Alejandro Drexler, for which Héber Delgado Medrano provided excellent research assistance. The management of ADOPEM in Santo Domingo, Dominican Repub- lic, in particular Mercedes Canalda de Beras-Goico and Juan Francisco Terrero Silva, was incredibly helpful and patient in providing access to their data and an understanding of their business. I gratefully acknowledge the financial support of the National Science Foundation’s Graduate Research Fellowship. 1 Introduction There is a general presumption that inflation—and, in particular, uncertainty about future infla- tion—has negative consequences for economic growth.
    [Show full text]