the evolving landscape of banking the structure of the financial services industry is in flux liberalization deregulation and advances in information technology have changed the financial landscape dramatically interbank competition has heated up and banks face increasing competition from nonbanking financial institutions and the financial markets the predictability of the industry with low levels of financial innovation little innovation in distribution channels and well defined and rigid institutional structures is gone product innovations new distribution channels and emerging new competitors are in abundance moreover the subprime crisis that has hit the financial sector in 2007 2008 appears to have a major impact on the structure of the industry this article emphasizes the importance of understanding the economics of banking for assessing the changes in the industry in particular we point at relationship banking as a prime source of the banks comparative advantage the proliferation of transaction oriented banking trading and financial market activities does however seriously challenge relationship banking in order to focus on these issues in a rigorous way we will evaluate the key insights from the relationship banking literature including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market underwriting securitization etc activities we also address the issue of the optimal conglomeration of bank activities including the empirical evidence on scope and scale economies we analyze the strategic positioning of banks in the currently highly uncertain competitive arena and link this to the theory of the firm and particularly firm boundaries and learning

bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

margining in derivatives markets and the stability of the banking sector we investigate the effects of margining a widely used mechanism for attaching collateral to derivatives contracts on derivatives trading volume default risk and on the welfare in the banking sector first we develop a stylized banking sector equilibrium model to develop some basic intuition of the effects of margining we find that a margin requirement can be privately and socially sub optimal subsequently we extend this model into a dynamic simulation model that captures some of the essential characteristics of over the counter derivatives markets contrarily to the common belief that margining always reduces default risk we find that there exist situations in which margining increases default risk reduces aggregate derivatives trading volume and has an ambiguous effect on welfare in the banking sector the negative effects of margining are exacerbated during periods of market stress when margin rates are high and collateral is scarce we also find that central counterparties only lift some of the inefficiencies caused by margining

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

does risk aversion affect bank output loss the case of the eurozone abstract we propose a new model to infer the evolution of bank specific output losses due to the uncertainty in bank output prices losses are based on bank risk aversion with micro foundations tethered to the uncertainty regarding prices our model allows us to measure time varying bank specific output losses and risk aversion while taking into account all bank cross sectional heterogeneity we employ a panel data set to estimate the input and output elasticities with both parametric and non parametric techniques we are the first to document that increasing risk aversion among eurozone banks during the financial crisis resulted in sizable output losses although subdued thereafter losses have been resurging in recent years both conventional and unconventional monetary policy responses by the european central bank ecb mitigated uncertainty in bank output prices though unequally so across countries certain measures of unconventional monetary policy may have even enhanced bank risk aversion and thereby output losses but mainly so for large countries

who borrows from the lender of last resort understanding why banks borrow from the lender of last resort lolr during a nancial crisis is crucial to understanding the macroeconomic impact of such largescale interventions we document a strong divergence among banks take up of lolr assistance during the nancial crisis in the euro area as banks which borrowed heavily also used increasingly risky collateral we propose four explanations for this divergence

hedging and coordinated risk management evidence from thrift conversions we provide an explanation for hedging as a means of allocating rather than reducing risk we argue that when increases in total risk are costly firms optimally allocate risk by reducing increasing exposure to risks that provide zero positive economic rents our evidence shows that mutual thrifts that convert to stock institutions increase total risk following conversion consistent with their increased abilities and incentives for risk taking they achieve this increase by hedging interest rate risk and increasing credit risk we provide some evidence that risk management activities are related to growth capacity and management compensation structure attained at conversion

statistical demand functions for food in the usa and the netherlands summary this paper reports results of an extensive analysis of statistical demand functions for food using household survey data and aggregate time series data on food consumption in the usa and the netherlands using the model put forward by tobin 1950 for survey data we find that socio economic information on the composition education and status of households adds little to the explanation of food consumption the income elasticity of food consumption decreases over time in the usa but increases in the netherlands applying multivariate cointegration analysis to the time series data we find that strict price homogeneity structural stability and weak exogeneity of prices have to be rejected statistically at conventional significance levels whereas weak exogeneity of food consumption cannot be rejected the long run income elasticity tends to decrease over time for us data and is roughly constant for dutch data the findings corroborate earlier findings for the survey data the rejection of price exogeneity is consistent with tobin s model which treats prices as endogenous 1997 john wiley sons ltd

habit formation interdependent preferences and demographic effects in the almost ideal demand system the authors model myopic habit formation interdependence of preferences among consumers and demographic effects as taste shifters in a micro consumer demand model of the almost ideal demand variety the model is estimated for dutch micro data the authors investigate the dynamic properties of the model and find that it behaves very differently from models without interdependence of preferences the implications for micro macro modeling are discussed copyright 1991 by royal economic society

models of banking instability a partial review of the literature abstract this paper critically examines the theoretical literature on banking instability that has followed diamond and dybvig 1983 it explores the extent to which it a explains banking instability within a theoretical context in which financial intermediaries improve on unintermediated markets and b justifies government involvement in the financial intermediation industry it suggests that the literature has yet to provide a satisfactory theoretical basis for banking instability as such since the intermediaries which arise from it are peculiar mutual funds that bear little resemblance to real world banks in addition the paper challenges the widespread belief that this literature provides a sound foundation for government involvement in the industry it suggests that arguments for government intervention are open to objection on various grounds the most important one being that they are inconsistent with the existence of properly motivated financial intermediation in these models

towards a sustainable electrification in ghana a review of renewable energy deployment policies abstract ghana has been facing perennial power rationing over the years due to fuel supply challenges the country s energy system is likely to suffer additional strain from rising energy demand fueled by population growth rapid urbanization and economic development fortunately there are enormous renewable energy resources which can provide sustainable electrification as backbone to socioeconomic development while curbing global warming ghana s energy strategy targets 100 access to electricity and 10 share of sustainable power in national generation mix by 2020 despite the existence of numerous policies and a renewable energy act current contribution of non conventional renewable energy to electricity generation is less than 1 the right mix of policies to address the unique domestic conditions and achieve its specific development goals remains insufficient this study reviews the regulatory framework financing incentives and other provisions of ghana s renewable energy act it critically examines the policy s strengths weaknesses opportunities and treats based on comparative analysis and lessons drawn from failed and successful implementation of similar policies around the world the study also assesses the impact of policy on project development it was found that the performance of ghana s renewable energy policy on grid connected electricity has been poor compared to its target the fundamental reasons for this unsatisfactory performance may be attributed to partial implementation of policies lack of market driven support schemes lack of pricing policy framework weak grid network limited access to funds and inconsistencies in renewable energy development strategies this study proposes the following countermeasures i ghana should comprehensively harmonize renewable energy regulatory and fiscal policies with domestic electricity pricing regime ii market driven support schemes should be prioritized for cost effectiveness and minimum governmental influence these reforms can help eliminate some of the major barriers to sustainable electrification in ghana while the lessons provide a learning curve for other african countries

a macroeconomic evaluation of a carbon tax in overseas territories a cge model for reunion island reunion island similar to most insular regions is ruled by a carbon based economy that is heavily dependent on fossil fuels in recent years the energy transition towards a low carbon economy has become the watchword of this french overseas region with the objective of a 100 renewable energy mix by 2030 reducing fossil fuel use while maintaining economic growth is an important issue for all countries but is even more important for island territories with structural and geographical handicaps energy transition and drastic greenhouse gas emission reductions represent costs and opportunities that need to be quantified this research paper assesses the environmental and macroeconomic effects of the carbon price policy introduced in france to meet the target of the paris agreement the acceptability of the tax significantly depends on the possibility of recycling tax revenues different schemes for recycling tax revenues are considered in simulations the methodology used is a computable general equilibrium cge model for reunion island getrun nrj that takes into account all island specificities the results show that the carbon tax enables substitutions between fossil and renewable energy production and reduces co 2 emissions however the tax has negative effects on the aggregate economy the implemented tax revenue recycling compensation mechanisms mitigate the negative impacts but the results differ significantly as the recycling schemes do not support the same economic actors

a real options approach to bankruptcy costs evidence from failed commercial banks during the 1990s literature identifies three main aspects of liquidation costs firm size asset specificity and industry concentration this paper unifies the theory behind these aspects of bankruptcy costs by treating them as components of a broader option valuation problem faced by the liquidating trustee testing the hypothesized asset price relationships on fdic failed bank liquidation data yields the appropriate results furthermore it appears that liquidation time alone can be used as an effective second order proxy for asset value growth where market value estimates are unavailable

banking a new monetarist approach we develop a model where i banks take deposits and make investments ii their liabilities facilitate third party transactions other models have i or ii not both although we argue they are intimately connected we show that they both emerge from limited commitment we describe an environment characterize desirable allocations and interpret the outcomes as banking arrangements banks are essential without them the set of feasible allocations is inferior as a technical contribution we characterize dynamically optimal credit allocations with frictions show they involve backloading and analyse how this interacts with banking we also confront the theory with economic history copyright 2013 oxford university press

deposit insurance and money market freezes in the presence of deposit insurance a rise in counterparty risk may cause a freeze in interbank money markets we show this in a general equilibrium model with regionally segmented bank based retail financial markets in which money markets facilitate the reallocation of funds across banks from different regions counterparty risk creates an asymmetry between banks in savings rich regions which remain marginally financed by the abundant regional insured deposits and in savings poor regions which have to pay large spreads in money markets this asymmetry distorts the aggregate allocation of credit and in the presence of demand externalities can cause large output losses

alternative models of individual behaviour and implications for environmental policy abstract most insights of environmental economics are in line with the standard neoclassical economic model of rational behaviour formulated in terms of maximization of utility in general or of profits in particular the standard theory of environmental policy is a case in point however the maximization hypothesis and its methodological foundation have been criticized on many grounds related to a lack of either logical or empirical content moreover over the years a great many alternative models of behaviour have been proposed both criticism and alternatives are surveyed here attention is devoted to relevant insights from the philosophy of science the notion of methodological individualism and other criticism the alternative behavioural models include bounded rationality and satisficing lexicographic preferences habitual behaviour incommensurability and multicriteria evaluation and various models of behaviour under uncertainty major implications of the criticism and alternative models of individual behaviour for environmental policy theory are outlined

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

modelling household energy expenditures using micro data this paper is concerned with the empirical modeling of domestic demand for energy in the united kingdom at the level of the individual household a two stage budgeting model of household demand for energy conditional on durable ownership is developed at the first stage income is allocated between energy and nonenergy consumption while at the second stage energy expenditure is disaggregated the second stage allocation is assumed to be between gas electricity and a composite good other fuels estimation takes place using a sample of some 50 000 households drawn from the annual u k family expenditure survey for the years 1972 83 a source that has not been fully exploited in the analysis of energy demand to date copyright 1989 by royal economic society

lender screening and the role of securitization evidence from prime and subprime mortgage markets this article examines the link between mortgage securitization and lender screening during the boom and bust of the u s housing market using comprehensive data on both prime and subprime securitized and bank held loans we provide evidence that securitization affected lenders screening decisions in the subprime market for low documentation loans through two channels the securitization rate and the time it takes to securitize a loan the change in decision making by subprime lenders occurs on dimensions that are unreported to investors examining the time series evolution of the securitization market further reinforces these findings we exploit heterogeneity across subprime and prime markets to illustrate that the potential for moral hazard may be reduced with greater collection of hard information and increased monitoring of lenders our results suggest that the policy debate regarding securitization and lenders underwriting standards should separately evaluate the agency and non agency markets with special attention toward the extent of soft information in assets being securitized the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the impact of contingent liability on commercial bank risk taking abstract from 1863 1935 regulators imposed contingent liability on bank shareholders to discourage risk taking using data from 1900 to 1915 i find that banks subject to stricter liability rules have lower equity and asset volatility hold a lower proportion of risky assets and are less likely to increase their investment in risky assets when their net worth declines consistent with the hypothesis that stricter liability discourages commercial bank risk taking these findings provide lessons for current bank regulatory policy and show that the shape of the residual claimant s payoff function has a significant impact on managerial incentives and firm performance

how excessive is banks maturity transformation we quantify the gains from regulating banks maturity transformation in an infinite horizon model of banks which finance long term assets with non tradable debt banks choose the amount and maturity of their debt trading off investors preference for short maturities with the risk of systemic crises as in stein 2012 pecuniary externalities make unregulated debt maturities inefficiently short the assessment is based on the calibration of the model to eurozone banking data for 2006 lengthening the average maturity of wholesale debt from its 2 8 months to 3 3 months would produce welfare gains with a present value of euro 105 billion

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

garbage recycling and illicit burning or dumping abstract with garbage and recycling as the only two disposal options we confirm prior results that the optimal curbside fee for garbage collection equals the direct resource cost plus external environment cost when illicit burning or dumping is a third disposal option that cannot be taxed directly the optimal curbside tax on garbage changes sign the optimal fee structure is a deposit refund system a tax on all output plus a rebate on proper disposal through either recycling or garbage collection the output tax helps achieve the first best allocation even though it affects the choice between consumption and untaxed leisure

the dynamics of willingness to consume abstract it is increasingly acknowledged that the growing consumption in the north constitutes an important part of global environmental problems to improve the possibilities of dealing with this aspect of the problems this paper explores some of the driving forces behind the growth in consumption the first section introduces the environmental debate on consumption including the relationship between final consumption and the consumption of resources the recent political acceptance of dealing with consumption and the fundamental conditions for consumption growth in the north in the following sections a cross disciplinary approach is applied in a broad search for the driving forces behind the willingness to consume throughout the exposition two questions are explored 1 why are productivity increases largely transformed into income increases instead of more leisure 2 why is such a large part of these income increases used for the consumption of goods and services with a relatively high materials intensity instead of less material intensive alternatives the explanations are divided into three groups first the economic explanations including socio economic aspects related to the institutional set up of the economy second socio psychological explanations focusing on consumption from the perspective of the human being embedded in specific social relations third historical and socio technological explanations focusing on different aspects of everyday life the paper concludes with some reflections on the political implications of the analysis

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

the effects of business models on bank risk before during and after financial crisis evidence from china using chinese data from 2004 to 2016 we investigate the effects of business models on bank risk before during and after financial crisis three main results emerge first insolvency risk and roa

a micro econometric analysis of determinants of unsustainable consumption in the netherlands recently much attention has been given to the notion of sustainable consumption whereas environmental economics traditionally has focused environmental policy analysis on producers this new notion broadens the perspective to include environmental policies aimed at directly influencing consumer decisions regarding buying using and recycling products this could suggest policies that link not only to price incentives but also and especially to persuasive instruments such as education and information provision these policies might take into account certain characteristics of households such as lifestyle and family size this article presents a first econometric analysis of consumption in the context of environmental sustainability relationships between different types of household expenditures and a range of household characteristics are assessed based on a large micro data set of households for the netherlands use is made of various demand models and econometric techniques to adequately address theoretical and technical issues involved the article ends with a discussion of the implications of the results for environmental policy directed at stimulating sustainable consumption

the fragile capital structure of hedge funds and the limits to arbitrage abstract during a financial crisis when investors are most in need of liquidity and accurate prices hedge funds cut their arbitrage positions and hoard cash the paper explains this phenomenon we argue that the fragile nature of the capital structure of hedge funds combined with low market liquidity creates a risk of coordination in redemptions among hedge fund investors that severely limits hedge funds arbitrage capabilities we present a model of hedge funds optimal asset allocation in the presence of coordination risk among investors we show that hedge fund managers behave conservatively and even abstain from participating in the market once coordination risk is factored into their investment decisions the model suggests a new source of limits to arbitrage

reflections on northern rock the bank run that heralded the global financial crisis in september 2007 television viewers and newspaper readers around the world saw pictures of what looked like an old fashioned bank run that is depositors waiting in line outside the branch offices of a united kingdom bank called northern rock to withdraw their money the previous u k bank run before northern rock was in 1866 at overend gurney a london bank that overreached itself in the railway and docks boom of the 1860s bank runs were not uncommon in the united states up through the 1930s but they have been rare since the start of deposit insurance backed by the federal deposit insurance corporation in contrast deposit insurance in the united kingdom was a partial affair funded by the banking industry itself and insuring only a part of the deposits at the time of the run u k bank deposits were fully insured only up to 2 000 pounds and then only 90 percent of the deposits up to an upper limit of 35 000 pounds when faced with a run the incentive to withdraw one s deposits from a u k bank was therefore very strong for economists the run on northern rock at first seemed to offer a rare opportunity to study at close quarters all the elements involved in their theoretical models of bank runs the futility of public statements of reassurance the mutually reinforcing anxiety of depositors as well as the power of the media in galvanizing and channeling that anxiety through the power of television images however the storyline of the northern rock bank run does not fit the conventional narrative on september 13 2007 the bbc s evening television news broadcast first broke the news that northern rock had sought the bank of england s support the next morning the bank of england announced that it would provide emergency liquidity support it was only after that announcement that is after the

financial regulation and securitization evidence from subprime mortgage loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities 2009 elsevier b v all rights reserved

do banks have a future abstract are banks special intermediaries do they play any unique role in the economy and if so will they retain their specialness in the ever faster changing world of finance the rapid evolution of finance over the last two decades and the breathtaking e age revolution have persuaded many that eventually banks will be indistinguishable from other financial intermediaries since all their functions can at least as efficiently be carried out by nonbanks this study re explores the issue of the specialness of banks in light of the large existing literature on the subject and presents an approach which identifies the banks specialness with their unique capacity to lend out claims on their own debt which the public accepts and uses as money the study discusses various structural and policy implications deriving from the approach and draws on it to point to the continuing relevance of banking in a world where nonbanks are taking business away from banks lending to production has become relatively less important and the use of e money may soon be dominating financial transactions

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

the creditor channel of liquidity crises this paper presents a model to study the transmission of liquidity shocks across financial institutions through the creditor channel in the model a borrower institution obtains funds from a large institutional lender and small investors when the large lender s asset market is hit by a liquidity shock it might decide to withdraw funding extended to the borrower the potential withdrawal by the large lender causes small investors to panic and to close positions even if the large lender does not facing funding problems the borrower has to cut its activities contributing to further shocks to the supply of market liquidity the original shock is exacerbated which reinforces withdrawals by all creditors the model helps explain how the spreading of liquidity shocks from the broker dealer sector to the hedge fund sector and the feedback contribute to a systemic crisis

consumption sustainable welfare and human needs with reference to uk expenditure patterns between 1954 and 1994 abstract this paper explores the complex relationship between economic consumption and human welfare or well being conventional economics suggests that increasing levels of economic consumption lead to increasing levels of well being however this view has been criticised on both environmental and social grounds on the one hand the material impacts of increasing consumption are environmentally unsustainable on the other hand material consumption can conflict with crucial social and psychological components of human welfare this paper develops a perspective on human welfare which is based on max neef s characterisation of human needs it discusses the implications of this alternative perspective for the conventional viewpoint and illustrates the importance of it with reference to patterns of consumer expenditure in the uk over the last 40 years the authors suggest that from this perspective modern societies may be seriously adrift in their pursuit of human well being however they also point out that addressing this situation provides far more opportunity for ecologically sustainable development than is generally recognised

does corporate lending by banks and finance companies differ evidence on specialization in private debt contracting this paper establishes empirically the existence of specialization in private market corporate lending adding a new dimension to the public versus private debt distinctions now common in the literature comparing corporate loans made by banks and by finance companies we find that the two types of intermediaries are equally likely to finance information problematic firms however finance companies tend to serve observably riskier borrowers particularly more leveraged borrowers evidence supports both regulatory and reputation based explanations for this specialization in passing we shed light on various theories of debt contracting and intermediation and present facts about finance companies

money financial stability and efficiency most analyses of banking crises assume that banks use real contracts however in practice contracts are nominal and this is what is assumed here we consider a standard banking model with aggregate return risk aggregate liquidity risk and idiosyncratic liquidity shocks we show that with non contingent nominal deposit contracts the first best efficient allocation can be achieved in a decentralized banking system what is required is that the central bank accommodates the demands of the private sector for fiat money variations in the price level allow full sharing of aggregate risks an interbank market allows the sharing of idiosyncratic liquidity risk in contrast idiosyncratic bank specific return risks cannot be shared using monetary policy alone real transfers are needed

bankruptcy priority for bank deposits a contract theoretic explanation over the past decade several countries including the us have introduced or redesigned legislation that confers priority in bankruptcy upon all or some bank deposits we argue that in the presence of contracting costs such rules can increase efficiency we first show in a private information model that a borrower can reduce overall costs of finance by letting informationally heterogeneous lenders choose between junior and senior debt in particular we find that debt priorities reduce socially wasteful information gathering by investors we then argue why particularly in banking legal standardization of debt priorities may be superior to bilateral private arrangements article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an assessment of tarp assistance to financial institutions six years after the passage of the 2008 troubled asset relief program commonly known as tarp it remains hard to measure the total social costs and benefits of the assistance to banks provided under tarp programs tarp was not a single approach to assisting weak banks but rather a variety of changing solutions to a set of evolving problems tarp s passage was associated with significant improvements in financial markets and the health of financial intermediaries as well as an increase in the supply of lending by recipients however a full evaluation must also take into account other factors including the risks borne by taxpayers in the course of the bailouts moral hazard costs that could result in more risk taking in the future and social costs related to perceived unfairness our evaluation is organized in five parts 1 what did policymakers do 2 what are the proper objectives of interventions like tarp assistance to financial institutions 3 did tarp succeed in those economic objectives 4 were tarp funds allocated purely on an economic basis or did political favoritism play a role 5 would alternative policies either alongside or instead of tarp and alternative design features of tarp have worked better

environmental awareness consumption and labor supply empirical evidence from household survey data abstract what is the effect of environmental awareness on the households consumption of polluting goods and labor supply decisions we answer this question using household survey data from the united states and measuring environmental awareness with the decision to make environmental donations we find that environmental awareness has a negative and economically significant effect on labor supply the respective impact on the consumption of polluting goods is also negative but less robust in terms of statistical significance our results highlight the importance of understanding the foundations of household behavior related to environmental quality indeed environmentally aware households are willing to tradeoff work hours with improved environmental quality and less so to change their consumption habits

corporate hedging and speculative incentives implications for swap market default risk this paper demonstrates a tradeoff between the risk shifting and hedging incentives of firms and identifies conditions under which each dominates a firm may have the incentive to hedge in a multi period context even if no such incentive exists in a single period one unrestricted access to swaps in the presence of asymmetric information about firm type and the swapping motive would lead to unbounded speculation resulting in breakdowns in swap and debt markets price based methods are unable to control this and market makers have to rely upon additional exposure information or credit enhancement devices to preserve equilibrium

what factors drive systemic risk during international financial crises abstract we analyze the determinants of the contribution of international banks to both global and local systemic risk during prominent financial crises we find no empirical evidence supporting conjectures that bank size leverage non interest income or the quality of the bank s credit portfolio are persistent determinants of systemic risk across financial crises in contrast our results show that global systemic risk in particular is predominantly driven by characteristics of the regulatory regime we also confirm for the subprime crisis that the banks contribution to moderately bad tail events in the past predicts the financial sector s crash risk

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

energy landscape in mauritius abstract located in the indian ocean mauritius is among the small island developing states sids entirely reliant on coal petroleum and some locally available renewable energy sources to satisfy energy needs 22 7 of the electricity is generated by biomass solar landfill gas and hydro and the remaining by fossil fuels even with continual oil price volatilities and specific economic social and environmental vulnerabilities compared to continental areas mauritius has successfully provided 100 electricity to all its residents however with a growth in population and economy mauritius faces a crucial challenge to supply more electrical power to all requiring sectors renewable energy appears to be the most effective solution to cater for the increase in electricity demand but there are still huge challenges to overcome for massive deployment of more renewable energy in this context this paper reviews the current electricity industry and fuel sources for electricity production in mauritius it also describes future energy policies for more renewable energy integration within the energy mix by 2025

uninsured deposits as a monitoring device their impact on bond yields of banks abstract we empirically analyze the impact of uninsured deposits on a bank s cost of public debt uninsured depositors can exert market discipline over a bank and potentially reduce its agency cost of debt through informed monitoring we use a sample of public bond issues by u s bank holding companies from 1994 to 2013 and find statistically strong evidence that banks with more uninsured deposits relative to their assets issue bonds with a lower interest rate findings suggest a one standard deviation increase in uninsured deposits is associated with a 46 64 basis point decrease in bond yield in addition we find that bonds issued by banks with higher default risk or lower reputation benefit more from uninsured savers our paper contributes to the literature that explores market discipline and provides evidence that banks can benefit from it through a lower borrowing cost

demandable debts as a means of payment banknotes versus checks we examine whether transactable forms of privately issued demandable debt are better used as banknotes or checks the distinction between the two is that a check must be redeemed by the issuing bank with each use whereas a banknote can circulate we find that the answer to the question depends on the cost of early redemption if this cost is small banknotes will not circulate so the question is moot if this cost is large incentive problems may prevent the circulation of banknotes for intermediate values of the early redemption cost banknotes will be preferred over checks

delegated monitors large and small germany s banking system 1800 1914 banks play a greater role in the german financial system than in those of the united states or britain germany s large universal banks are admired by those who advocate bank deregulation in the united states others admire the universal banks for their supposed role in corporate governance and industrial finance many discussions distort the german banking system by overstressing one of several types of banks and ignore the competition and cooperation between the famous universal banks and other banking groups tracing the historical development of the german banking system from the early nineteenth century places the large universal banks in context

the role of demandable debt in structuring optimal banking arrangements demandable debt finance by banks warrants explanation because it entails costs of bank suspension liquidation and idle reserve holdings an explanation is developed in which demandable debt provides incentive compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors demandable debt attracts funds by giving depositors an option to force liquidation its usefulness in transacting follows from information sharing between monitors and nonmonitors copyright 1991 by american economic association

a multi criteria evaluation of policy instruments for climate change mitigation in the power generation sector of trinidad and tobago even as small island developing states sids like trinidad and tobago t t increase industrialization and grapple with the challenges of increased pollution few studies provide guidance to policy makers of such countries on appropriate policy measures and instruments that can be implemented to mitigate greenhouse gas emissions here we apply a multi criteria evaluation methodology to ascertain preferences for policy measures and instruments in the power generation sector four broad policy measures and twelve policy instruments are assessed on criteria of environmental performance feasibility of implementation and political acceptability this method proves useful in t t since typical to many sids the intensive data required by other policy assessment methods is unavailable results indicate little difference in preference among the four policy measures thereby indicating that a multi pronged approach on several policy fronts is required the most preferred policy instruments to operationalize measures included provision of subsidies for energy saving technologies creating an industry wide carbon trading scheme and implementing a feed in tariff to increase the use of renewable energy sources this study therefore provides specific insights for policy makers in trinidad and tobago while also providing power generation sector specific guidance to other rapidly industrializing small island developing states

energy requirements of household consumption a case study of the netherlands this article describes the results of several research programmes that together aim at the development and application of methodologies that enable the study of long term environmental effects mainly related to the total household energy demand of household consumption in relation to other economic sectors this is usually described as the household metabolism approach in this article we use energy consumption and co2 emissions as proxies for long term impacts on the environment the major long term environmental effects of several hundred dutch household consumption categories have been determined by means of the hybrid energy analysis methodology total energy consumption and related co2 emission data have been calculated as a function of household income and family type past trends have been studied by a time series 1950 1990 analysis technical reduction potentials have been calculated for mid and long term scenarios it is concluded that the set of methodologies described form a useful tool for the analysis of unsustainable trends in household consumption patterns and associated energy requirements in the past and the present the results indicate that present trends lead towards unsustainability however reversal of these trends is feasible if this starts in the immediate future and if it is maintained for decades c 1999 elsevier science b v all rights reserved

the shadow costs of repos and bank liability structure making use of a structural model that allows for optimal liquidity management we study the role that repos play in a bank s financing structure in our model the bank s assets consist of illiquid loans and liquid reserves and are financed by a combination of repos long term debt deposits and equity repos are a cheap source of funding but they are subject to an exogenous rollover risk we show that the use of repos inflicts two types of indirect shadow costs on the bank s shareholders first it induces the bank to maintain higher liquid reserves in order to alleviate the additional default risk second it adds to the cost of long term debt financing these shadow costs limit the bank s appetite for cheap but unstable repo funding this effect is however weakened under poor returns on risky assets access to deposit funding and the depositor preference rule we also analyze the impact of a liquidity coverage ratio payout restrictions and a leverage ratio on the bank s financing choices and show that all these tools are able to curb the bank s reliance on repos

accounting for banks capital regulation and risk taking this paper examines risk taking incentives in banks under dierent accounting regimes with capital regulation in the model the bank s decisions of capital issuance and investment policy are jointly determined given exogenous minimum capital requirement the bank is more likely to issue equity capital in excess of the minimum required level and implement less risky investment policy under either lower of cost ormarket accounting or fair value accounting than under historical cost accounting but fair value accounting may induce more risk taking compared to lower of cost or market accounting due to short term interest in the part of the bank however the disciplining role of lower of cost or market accounting may discourage bank s incentive to exert project discovery eort

intertemporal diversification in financial intermediation abstract this paper examines the incentive problem between a bank and depositors or deposit insurer limited liability makes risk shifting lucrative we show how intertemporal diversification of lending decisions i e bank s loan portfolio consists of overlapping long term loans and is thus gradually renewed may solve the incentive problem of risk shifting a new or expanding bank sets a high equity level and acquires depositors confidence subsequently it can allow its equity to depreciate to a permanently lower level depositors can control the bank by monitoring equity and realized credit losses ex post they do not have to monitor bank s lending choices ex ante maturity mismatch illiquidity of long term loans and liquidity of deposits is optimal the analysis can be extended more generally to the borrower lender relationship

the hazards of debt rollover freezes incentives and bailouts we investigate the trade o between incentive provision an di ne ient rollover freezes for a firm financed with short term debt first debt maturity that is too short term is ine cient even with incentive provision th eo ptimal maturity is an interior solution that avoids excessive rollover risk whil ep roviding su ient incentives for the manager to avoid risk shifting when the firm is in good health second allowing the manager to risk shift during a freeze actually increase sc reditor conf idence debt policy should not prevent the manager from holding what may appear to be otherwise low mean strategies that have option value during a freeze third a limited but not perfectly reliable form of emergency financing during a freeze a bailout may improve the terms of the trade o and increase total ex ante va lue by instilling confidence in the creditor markets our conclusions highlight the endogenous interaction between risk from the asset and liability sides of the balance sheet

the role of risk and trust attitudes in explaining residential energy demand evidence from the united kingdom recent research into the determinants of household energy consumption has aimed to incorporate findings from economics sociology and psychology in order to obtain a more comprehensive understanding of the factors determining energy demand the current paper contributes to this nascent stream of literature by studying the relationship between risk attitudes trust propensity and energy consumption at the household level drawing on the british household panel survey a well known data set in the context of energy studies i show that trust is negatively correlated with household energy demand while higher risk tolerance leads to increases in residential energy use potential explanations for these findings are investigated suggesting that risk preferences may be related with overall appliance stock and the size of the rebound effect

interactions in swiss households energy demand a holistic approach abstract this article analyzes the interactions and possible trade offs between direct energy consumption and embodied energy requirement of households in switzerland in order to assess the net impacts of standard energy policies focusing exclusively on direct energy use direct and embodied energy demand of swiss households are estimated by combining consumption data of a national expenditure survey with data on energy intensity from life cycle analysis using a system of equations and an instrumental variable approach we find that both domains are driven by same determinants but that there is no evidence for significant substitution between them we also find an increasing effect of income on both domains with particularly important effects on embodied energy from a policy perspective our findings highlight a concern that economic growth could bring about an increasing global energy demand through energy requirement for non energy commodities however the wide spread policies targeting direct energy are unlikely to cause a substantial shift in household consumption to embodied energy

environmental regulation of households an empirical review of economic and psychological factors abstract the literature on sustainable consumption and environmental regulation of household behavior is dominated by conceptual and normative approaches as a result many suggestions lack a firm empirical basis to overcome this deficiency econometric studies in three areas of environmentally relevant activities of households are reviewed residential use of energy generation of solid waste and recycling and residential use of water next to price and income elasticities attention is devoted to individual socio economic features and psychological factors such as attitudes knowledge perceptions and values potential psychological determinants and related insights are further examined by discussing a range of representative and illustrative statistical psychological studies of environmental behavior one important general finding is that there are very few empirical studies that systematically combine socio economic and psychological determinants a range of insights for environmental policy is derived and research recommendations are offered

policy measures to promote the widespread utilization of renewable energy technologies for electricity generation in the maldives abstract this study adopts a stakeholder based approach to understand the size and nature of the market and financial barriers to the widespread utilization of renewable energy technologies rets in the maldives in light of these barriers and the interests of relevant stakeholders this study evaluates different policy options in terms of their suitability to develop a domestic market for rets in the maldives evaluating the different policy instruments it was found that pricing laws that regulate market access are more suitable than quota systems provided that the current subsidies for conventional energy are removed or shifted towards rets as for the other financial incentives rebates on investments and low interest loans should be provided to ret project developers to overcome the high initial project costs in addition to these measures the limited institutional capacity suggests that policy support should also focus on enabling the steady development of regional institutions rather than on supporting individual ret projects these institutions should enable islands in each atoll to take advantage of efficient management and access to financial capital this will allow the development of sustained renewable energy projects that in turn will result in increased renewable capacity and decreased costs

filling the gaps policy supports and interventions for scaling up renewable energy development in small island developing states abstract sids have both opportunities and challenges economic social and environmental vulnerability for low carbon development economically they are highly dependent on international trade they have limited domestic markets too small to provide significant scale economies their exports are constraint by their isolation and remote location we provide an overview of current energy situation in sids their goals to adopt low carbon economic development paths policies already in place or required to achieve the goals and challenges to implement their plans and strategies the focus is on energy policy landscape that needs to be addressed in order to scale up renewable energy technologies needed to stimulate low carbon economic growth we find that sids face four key barriers to renewable energy development information to improve the energy information network by strengthening existing information systems and building awareness of renewable energy financing mechanisms for renewable energy projects including regional loan structures and technical assistance to banks policy supports to implement regulatory frameworks that enable renewable energy development and building technical capacity among players in the renewable energy field we recommend policy enablers that underlie what could positively impact on renewable energy goals and more broadly energy efficiency and climate change

free banking and information asymmetry a traditional argument against free banking is that it will collapse because of information externalities it is impossible for depositors to tell whether a high deposit rate offered by a bank is due to its high efficiency or risky lending strategy this paper shows that in a separating equilibrium a higher quality bank offers a lower deposit rate and holds a smaller proportion of risky loans than a lower quality bank to signal its underlying quality hence free banking is not inherently unstable the empirical results for the hong kong banking system during 1964 65 are consistent with the hypothesis of a separating equilibrium

is financial inclusion good for bank stability international evidence abstract financial inclusion has become an important public policy priority following the recent global financial crisis yet we know very little of how it impacts soundness of the providers of financial services using an international sample of 2635 banks in 86 countries over the period 2004 12 we find that higher level of financial inclusion contributes to greater bank stability the positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of providing banking services and also with those that operate in countries with stronger institutional quality the results are robust to instrumental variables analysis controlling for bank fixed effects alternative measures of financial inclusion among several other robustness tests our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritised by banks as such a policy drive is good for their stability

procedures and criteria to develop and evaluate household sustainable consumption indicators abstract communication about very complex problems like household sustainable consumption in simple terms is still a major challenge despite the diversity of tools to measure household consumption clearer indicators are needed to more effectively communicate with the general public the main objective of this research was to develop an approach to define the main procedures and criteria to built household sustainable consumption assessment tools based on indicator sets a review of available household sustainable consumption assessment metrics and related initiatives was conducted this included a comparative analysis of the different approaches the review revealed that the majority of these initiatives are focused upon specific domains e g energy or waste but none used an integrated approach in the sustainable consumption domains furthermore it was found that few methods used indicators to measure and assess household sustainable consumption principal components and a checklist of key good practice factors that a household sustainable consumption indicator system should include were developed due to the need to communicate effectively to engage stakeholders and to address the complexity involved in the measurement and assessment of household sustainable consumption the proposed integrated approach was designed to evaluate household sustainable consumption

permanent income current income and consumption evidence from two panel data sets in this article i estimate euler equations that is the first order conditions of the consumers maximization problem using data from two data sets consumption data are taken from the consumer expenditure survey income data are taken from the panel study of income dynamics because the data for the estimation come from two samples i use a generalization of the instrumental variables estimator the two sample instrumental variables estimator i find evidence that consumption is excessively sensitive to predictable income growth the estimates of the coefficient of excess sensitivity for three consumption measures range from 2 to 5

the evolution of preferences why sovereign preferences may not lead to sustainable policies and what to do about it abstract the conventional economic paradigm assumes that tastes and preferences are exogenous to the economic system and that the economic problem consists of optimally satisfying those preferences tastes and preferences usually do not change rapidly and in the short term this assumption makes sense sustainability is an inherently long term problem and in the long run it does not make sense to assume tastes and preferences are fixed and given if preferences are expected to change over time and under the influence of education advertising changing cultural assumptions etc the old assumption of consumer sovereignty is not adequate different criteria of optimality are needed how preferences change how they relate to the goal of sustainability and how they can or should be actively influenced to satisfy the new criteria needs to be determined ecological economics has emphasized the three rank ordered goals of ecological sustainability fair distribution and allocative efficiency this paper examines how preferences evolve and change over time and the implications of this for developing policies that meet these three goals in democratic societies

building an incentive compatible safety net abstract bank safety nets originally proposed as a means of stabilizing financial systems have become an important destabilizing influence government protection of bank debts encourages banks to undertake excessive risk particularly in response to adverse shocks to asset values reforms that would remove the destabilizing moral hazard consequences of government protection are considered both from the perspective of economic desirability and political feasibility requiring banks to maintain a minimal proportion of subordinated debt finance and restricting the means by which government recapitalization of insolvent banks occurs are the central features of promising reforms to the safety net

the role of interbank markets in monetary policy a model with rationing the empirical research on monetary transmission has reported a number of puzzles challenging extant theoretical models of the transmission mechanism in this paper we argue that asymmetric information in the interbank market may be important to have a better understanding of the mechanisms at work in the transmission process we show that asymmetric information may induce an equilibrium with rationing this in turn has two major implications first it reconciles the apparent irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy magnitude puzzle and second it shows that this impact will not be limited to short term credit supply but will also affect long term lending even if the corresponding interest rate is unaffected composition puzzle

optimal bank transparency increasing transparency is recurrently offered as a centerpiece of bank regulation we study a competitive banking sector whose illiquid assets are funded by short term debt that must be refinanced we show that welfare is a nonmonotonic function of the level of transparency increasing transparency fosters efficient liquidation but has an adverse effect on rollover risk given the level of risk banks may compensate this adverse effect by taking more risk these offsetting effects render an intermediate level of transparency optimal moreover the existence of negative social externalities of bank failures calls for making banks more opaque rather than more transparent

risk management strategies for banks abstract we analyze optimal risk management strategies of a bank financed with deposits and equity in a one period model the bank s motivation for risk management comes from deposits which can lead to bank runs in the event of such a run liquidation costs arise the hedging strategy that maximizes the value of equity is derived we identify conditions under which well known results such as complete hedging maximal speculation or irrelevance of the hedging decision are obtained the initial debt ratio the size of the liquidation costs regulatory restrictions the volatility of the risky asset and the spread between the riskless interest rate and the deposit rate are shown to be the important parameters that drive the bank s hedging decision we further extend this basic model to include counterparty risk constraints on the forward contract used for hedging

the life cycle of a microfinance institution the irish loan funds abstract ireland s loan funds were a long lived self sustaining large scale microfinance organization that made millions of loans without collateral to the poor during the first 100 years of their life cycle a period of growth ending in the 1840s they adapted constantly and obtained improvements to their legal structure because they were complementary to the banking system and seen as effective in relieving poverty in their 2nd century they became ossified in part because of competition with commercial banks the loan funds provide an example of sustainable microfinance under harsh economic conditions and illustrate how organizations change incrementally and when successful alter their institutional framework

bank runs deposit insurance and capital requirements diamond and dybvig provide a model of intermediation in which deposit insurance can avoid socially undesirable bank runs we extend the diamond dybvig model to evaluate the costs and benefits of deposit insurance in the presence of moral hazard by banks and monitoring by depositors we find that complete deposit insurance alone will not support the first best outcome depositors will not have adequate incentives for monitoring and banks will invest in excessively risky projects however an additional capital requirement for banks can restore the first best allocation

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

what do we learn about consumer demand patterns from micro data the aim of this paper is to assess the importance of using micro level data in the econometric analysis of consumer demand to do this we utilize a time series of repeated cross sections covering some 4 000 households in each of 15 years employing a number of different aggregation procedures we conclude that aggregate data alone are unlikely to produce reliable estimates of structural price and income coefficients however once certain aggregation factors as well as trend and seasonal components are included an aggregate model is not necessarily outperformed across all demand equations in terms of forecasting ability jel d12 c52 c31 the purpose of this paper is to develop a complete consumer demand system based on a time series of individual household data and to use it to measure the biases introduced into the study of consumer de mand behavior when aggregate data are used in place of the appropriate microeco nomic data we assess the suitability of ag gregate data through the impact on income and price elasticities and by evaluating the ability of both micro and aggregate based models to forecast aggregate consumer de mand the biases introduced by the use of aggregate data depend upon the way that household characteristics interact with in come and price effects and on departures of demand systems from linearity we explore the structure of microeconomic demand sys tems and the role of household characteris tics in the behavior of consumer demand both for the light this may shed on the pattern of future demands and for the im plications this behavior has for issues of aggregation consumer demand patterns typically found in micro data sets vary considerably across households with different household characteristics and with different levels of income we model this variability by making intercept and slope parameters in the budget share equations of our demand sys tem depend on household characteristics and by allowing for nonlinear total log expenditure terms in fact in theory consistent demand systems it is total ex penditure rather than disposable income that is allocated across goods we find that this general framework leads to a well specified data coherent demand system which is a quadratic extension of the popu lar almost ideal model of angus s deaton and john muellbauer 1980 the micro level estimates are shown to be sensitive to the treatment of endogeneity of total expen diture and to the specification of interaction terms with household characteristics in ad dition this specification is also shown to possess many attractive features for the evaluation of aggregate models

strategic loan defaults and coordination an experimental analysis this paper experimentally studies the impact of bank and borrower fundamentals on loan repayment we find that solvent borrowers are more likely to default strategically when the bank s expected strength is low although loan repayment is a pareto dominant nash equilibrium borrowers are also less likely to repay when other borrowers expected repayment capacity is low regardless of banks fundamentals we show that changes in expectations about bank and borrower fundamentals change the risk dominance properties of the borrowers coordination problem and that these changes subsequently explain strategic defaults for the individual borrower loss aversion and negative past experiences reduce repayment suggesting that bank failure can be contagious in times of distress

interbank contagion at work evidence from a natural experiment this article tests financial contagion due to interbank linkages for identification we exploit an idiosyncratic sudden shock caused by a large bank failure in conjunction with detailed data on interbank exposures first we find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals second the magnitude of contagion is higher for banks with weaker fundamentals third interbank linkages among surviving banks further propagate the shock finally we find results suggesting that there are real economic effects these results suggest that interbank linkages act as an important channel of contagion and hold important policy implications jel g01 g21 g28 e58 since the onset of the financial turmoil increased uncertainty reflected particularly in counterparty risk has led banks to hoard liquidity this has resulted in a significant decline of trading in the interbank money markets jean claude trichet president of the european central bank december 2008

debt financing in asset markets short term debt such as overnight repurchase agreements and commercial paper was heavily used by financial institutions to fund their investment positions during the asset market boom preceding the financial crisis of 2007 2008 and later played a major role in leading to the distress of these institutions during the crisis what explains the popularity of short term debt in financing asset market investments geanakoplos 2010 presents a dynamic model of the joint equilibrium of asset markets and credit markets in which optimistic buyers of a risky asset use the asset as collateral to raise debt financing from less optimistic creditors the asset s collateral value depends on the marginal creditor s asset valuation and determines the buyers purchasing capacity to bid up the asset price geanakoplos posits that short term debt allows the asset buyers to maximize riskless leverage 1 short term debt however exposes the asset buyers to rollover risk e g acharya gale and yorulmaker 2011 and he and xiong 2012 forthcoming which is reflected in the fact that the asset buyers in geanakoplos model may not be able to obtain refinancing after a negative fundamental shock as a result they are forced to transfer their asset holdings to the

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

limits to substitution and irreversibility in production and consumption a neoclassical interpretation of ecological economics abstract there are many methodological approaches within ecological economics one of the principal modes of analysis is a modified version of the standard neoclassical model this paper examines the parallels which emerge between the ideas of some ecological economists concerning production and the ideas of others concerning consumption when these ideas are interpreted in the neoclassical paradigm it is well known that ecological economics is characterized by arguments concerning limits to substitution between inputs energy natural capital etc vs manufactured capital labor etc in production and the implications these have for sustainability however various authors have also expressed concerns regarding limits to substitution in consumption either between environmental assets and other goods or between basic needs commodities and other goods though the specific reasons for non substitution are different in the production and consumption cases the underlying theme is that individual commodities and other inputs have unique physical or other properties which make them poor substitutes ideas about irreversibility in production and economic development are also prominent in ecological economics likewise many authors have argued for similar irreversibilities in consumption behavior in analogy to the term technological change i coin the term preferential change to describe these phenomena the linking themes in this case are that the economy environment system is evolutionary in character and that external effects intended and unintended consequences of actions or processes imposed on other parties or resources are all pervasive