the choice of regulatory instrument when there is uncertainty about compliance with fisheries regulations noncompliance is an important problem for fisheries regulators and a number of studies have considered optimal enforcement issues within fisheries regulation our article extends this literature by studying the implications of noncompliance for the choice between tax and quota regulation we first develop a general stock recruitment model of a search fishery with illegal landings and show that compliance uncertainty where the regulator is uncertain about the extent of noncompliance generates an efficiency advantage for taxes over individual transferable quotas we also provide evidence that uncertainty about compliance is an important source of uncertainty for regulators copyright 2008 oxford university press

which market integration measure abstract this paper compares the dynamics of the financial integration process as described by different empirical approaches to this end a wide range of measures accounting for several dimensions of integration is employed in addition we evaluate the performance of each measure by relying on an established international finance result i e increasing financial integration leads to declining international portfolio diversification benefits using monthly equity market data for three different country groups i e developed markets emerging markets developed plus emerging markets and a dynamic indicator of international portfolio diversification benefits we find that i all measures give rise to a very similar long run integration pattern ii the standard correlation explains variations in diversification benefits as well or better than more sophisticated measures these findings are robust to a battery of robustness checks

the case for gdp indexed bonds gds indexed bonds this paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of gdp we show that gdp indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro cyclical fiscal policies we simulate the effects of gdp indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood of debt gdp paths becoming explosive the insurance premium would likely be small because cross country comovement of gdp growth rates is low and cross country gdp growth risk is thus largely diversifiable for an investor holding a portfolio of gdp indexed bonds potential obstacles to the emergence of a market for these bonds include the verifiability of gdp data the trade off between insurance and moral hazard and the need for liquidity theory and past experience suggest that financial innovation often requires official intervention and its timing and form are difficult to predict we discuss institutional fixes and suggest an approach for attempting to start up a market eduardo borensztein and paolo mauro

modelling sovereign credit spreads with international macro factors the case of brazil 1998 2009 abstract this paper develops a macro finance model of the brazilian economy and its sovereign debt markets that allows for domestic and international macroeconomic influences as well as swings in investor confidence it finds significant evidence of common trends in the us and brazilian economies and bond markets as well as spillover effects from us inflation and business cycles to the brazilian economy the us fed funds rate influences brazilian sovereign spreads as do brazilian inflation and policy rates the brazilian confidence factor dominates the behavior of the spreads during periods of crisis and we find that it also has a powerful effect on the level and volatility of macroeconomic variables these results suggest that the macro finance approach could throw light upon the behavior of other economies that are troubled by sovereign risk

common factors in latin america s business cycles this paper constructs new business cycle indices for argentina brazil chile and mexico based on common dynamic factors extracted from a comprehensive set of sectoral output external trade fiscal and financial variables the analysis spans the 135 years since the insertion of these economies into the global economy in the 1870s the constructed indices are used to derive a business cycle chronology for these countries and characterize a set of new stylized facts in particular we show that all four countries have historically displayed a striking combination of high business cycle volatility and persistence relative to benchmark countries and that such volatility has been time varying with important differences across policy regimes we also uncover a sizeable common factor across the four economies which has greatly limited scope for regional risk sharing

why does sovereign risk differ for domestic and external debt evidence from scandinavia 1938 1948 abstract this study shows empirically that the political costs of sovereign default can differ considerably for domestic and external debt the analysis uses new evidence from danish and swedish bond markets around world war ii a time when markets went from being fully integrated to fully segmented overnight by linking the exogenous wartime shocks to changes in default costs on domestic and external debt it is found that these costs explain a significant part of the variation in the sovereign yield spread across markets the results suggest that governments can choose strategically on which debt the domestic or the external to default on and that this decision hinges on the relative size of the political default costs

option markets and implied volatility past versus present abstract traders in the nineteenth century appear to have priced options the same way that twenty first century traders price options empirical regularities relating implied volatility to realized volatility stock prices and other implied volatilities including the volatility skew are qualitatively the same in both eras modern pricing models and centralized exchanges have not fundamentally altered pricing behavior but they have generated increased trading volume and a much closer conformity in the level of observed and model prices the major change in pricing is the sharp decline in implied volatility relative to realized volatility evident immediately upon the opening of the cboe

pass through rates and the price effects of mergers abstract we investigate the relationship in bertrand oligopoly between the price effects of mergers absent synergies and the rates at which merger synergies are passed through to consumers in the form of lower prices we find that the demand conditions that cause a merger to result in large price increases absent synergies also cause the pass through rate to be high the low estimated pass through rate and the relatively large predicted merger effect thus likely were inconsistent in an important u s merger case

middleman minorities and ethnic violence anti jewish pogroms in the russian empire using detailed panel data from the pale of settlement area between 1800 and 1927 we document that anti jewish pogroms mob violence against the jewish minority broke out when economic shocks coincided with political turmoil when this happened pogroms primarily occurred in places where jews dominated middleman occupations i e moneylending and grain trading this evidence is inconsistent with the scapegoating hypothesis according to which jews were blamed for all misfortunes of the majority instead the evidence is consistent with the politico economic mechanism in which jewish middlemen served as providers of insurance against economic shocks to peasants and urban grain buyers in a relationship based on repeated interactions when economic shocks occurred in times of political stability rolling over or forgiving debts was an equilibrium outcome because both sides valued their future relationship in contrast during political turmoil debtors could not commit to paying in the future and consequently moneylenders and grain traders had to demand immediate re payment this led to ethnic violence in which the break in the relationship between the majority and jewish middlemen was the igniting factor

emerging market spreads then versus now we analyze yield spreads on sovereign bonds issued by emerging markets using modern data from the 1990s and newly collected historical data on bonds traded in london during 1870 1913 a previous era of global capital market integration we show that spreads today comove across emerging markets to a significantly higher degree than they did in the historical sample moreover sharp changes in spreads in the 1990s tend to be mostly related to global events whereas they were primarily related to country specific events in 1870 1913 although we find that fundamentals comove somewhat more strongly today than they did in the past we conjecture that today s investors pay less attention to country specific events than their predecessors did

default correlation at the sovereign level evidence from some latin american markets using the eruption of argentina debt crisis in 2001 as a natural experiment we investigated the correlated default at the sovereign level for some latin american countries daily closing market quotes for sovereign credit default swaps cds of argentina brazil mexico and venezuela were obtained from credittrade database using copula approach we observed increased dependences among sovereign cds markets during the crisis period their dependence structures were found to be asymmetric moreover the degree of credit contagion was related to the creditworthiness of the country this study also discussed the implications of these findings for policymakers

measuring financial market integration over the long run is there a u shape abstract using long time series for sovereign bond markets of fifteen industrialized economies from 1875 to 2009 i find that financial market integration by the end of the 20th century was higher than in earlier periods and exhibited a j shaped trend with a trough in the 1920s the main reason for the higher financial integration seen today is the recent extensive globalization around the turn of the 20th century countries frequently drifted apart conversely in recent years the bond markets of most countries have moved together both policy variables and the global market environment play a role in explaining the time variation in integration while unexplained changes in the overall level of country risk are also empirically important my methodology based on principal components analysis is immune to outliers and accounts for global and country specific shocks and hence can capture trends in financial integration more accurately than standard techniques such as simple correlations

central banks at war war is expensive troops must be equipped and weapons must be procured when the enormous borrowing requirements of war make the sovereigns credibility problem more difficult central banks enhance a government s ability to borrow by being the sole direct purchaser of government debt the central bank increases the effective punishment that can be imposed on the government for defaulting on the marginal lender this increases lenders confidence that the government will be punished in case of default making lenders willing to purchase the debt at a lower rate of interest the sovereign dependent on the low borrowing costs offered by the central bank has an incentive to retain the bank data covering the nineteenth and early twentieth centuries reveal that possessing a central bank lowers the sovereign s borrowing costs particularly during times of war

war international finance and fiscal capacity in the long run in this article i revisit the relationship between war and state making in modern times by focusing on two prominent types of war finance taxes and foreign loans financing war with tax money enhances the capacity to assess wealth and monitor compliance namely fiscal capacity tax financed war facilitates the adoption of power sharing institutions which transform taxation into a non zero sum game carrying on the effect of war in the long run financing war with external capital does not contribute to long term fiscal capacity if borrowers interrupt debt service and as part of the default settlement war debt is condoned or exchanged for nontax revenue the empirical evidence draws from war around the world as early as 1816 results suggest that globalization of capital markets in the nineteenth century undermined the association between war state making and political reform

comovement or safe haven the effect of corruption on the market risk of sovereign bonds of emerging economies during financial crises in this study i explore the role of corruption in the cross market time varying linkage between sovereign bonds of emerging markets and the us stock market it shows that corruption plays a prominent role in the behaviour of capm beta under different market conditions the sensitivity of sovereign bonds issued by countries perceived as more corrupt to systematic shocks increases during financial crises the prices of bonds issued by less corrupt countries are determined more idiosyncratically under extreme market conditions and realize more hedging benefits against s p 500 risk to explain these findings i integrate results from behavioural finance i propose a comovement model built on barberis et al 2005 where investors load more worldwide news on sovereign bonds issued by more corrupt countries when their sentiment deteriorates

international political risk and government bond pricing abstract this paper investigates the impact of international political risk on government bond yields in 34 debtor countries using a comprehensive database of 109 international political crises from 1988 through 2007 after employing the total number of international political crises as a proxy for political risk and controlling for country specific economic conditions we establish a positive and significant link between international political risk and government bond yields this is consistent with global bond investors demanding higher returns at times of high political uncertainty in addition we show that international political risk has a reduced adverse effect on bond prices when the debtor country has a stable political system and strong investor protection

a multivariate latent factor decomposition of international bond yield spreads a factor analysis of long term bond spreads is performed by decomposing international interest rate spreads into national and global factors the factors are latent and are assumed to have garch type specifications as well as exhibiting serial dependence an indirect estimator is used to compute estimates of the unknown parameters the sampling performance of this estimator is investigated and compared with an alternative direct estimator based on the kalman predictor the factor model is applied to weekly data on long bond spreads between five countries australia japan germany canada and the uk and the usa over the period 1991 to 1999 the resulting factor decomposition is used to examine the international investor s optimal portfolio decision in a mean variance framework copyright 2000 john wiley sons ltd

bank sovereign risk spillovers in the european debt crisis this paper investigates contagion between bank risk and sovereign risk in europe over the period 2006 2011 since this period covers various stages of the banking and sovereign crisis it oers a fertile ground to analyze bank sovereign risk spillovers we de ne contagion as excess correlation i e correlation between banks and sovereigns over and above what is explained by common factors using cds spreads at the bank and at the sovereign level moreover we investigate the determinants of contagion by analyzing bank speci c as well as country speci c variables and their interaction we provide empirical evidence that various contagion channels are at work including a strong home bias in bank bond portfolios using the eba s disclosure of sovereign exposures of banks we nd that banks with a weak capital and or funding position are particularly vulnerable to risk spillovers at the country level the debt ratio is the most important driver of contagion

globalization and changing patterns in the international transmission of shocks in financial markets abstract this paper compares the strength of and patterns in the transmission of shocks and currency crises during two periods of globalization the pre wwi classical gold standard era 1880 1914 and the post bretton woods era 1975 2001 our results suggest that financial market shocks were more globalized before 1914 compared to the present we postulate that this difference in systemic stability between the two eras reflects factors such as strong cross country interdependence fostered through links to gold the growing financial maturity of advanced countries and the widening of the center to include a more diverse group of countries spanning several regions

the anatomy of sovereign risk contagion the channels for the cross border propagation of sovereign risk in the international sovereign debt market are analysed identifying sovereign credit events as extraordinary jumps in cds spreads we distinguish between the immediate effects of such events and their longer term spillover effects to analyse fast and furious contagion we use daily cds data to conduct event studies around a total of 89 identified credit events in a global country sample to analyse slow burn spillover effects we apply a multifactor risk model distinguishing between global and regional risk factors we find that fast and furious contagion has been primarily a regional phenomenon whilst slow burn spillover effects can often be global in scope especially those of the recent european debt crisis the global risk factors are found to be driven by investor risk appetites and debt levels whilst the regional factors depend on economic fundamentals of countries within a region