budget processes and commitment to fiscal discipline abstract we present a framework of investigation into the political economy of the budget process our model suggests that institutional rules governing the budget process can be found to limit the importance of fiscal illusion empirical evidence supports that proposition the choice of rules depends on the political environment as well as the dominant source of uncertainty in the budget process

time use and food consumption people are getting fat the rise in obesity rate has been particularly pronounced in the united states since the middle of the 1970s but has by now extended into many other areas of the world several sources of technological change have been singled out as potential explanations for why people have been gaining so much weight increased productivity in agriculture has lowered the relative price of food darius lakdwalla tomas philipson and jayanta bhattacharya 2005 while innovations in food processing have reduced the time cost of preparing food david m cutler edward l glaeser and jesse m shapiro 2003 technological change has also affected how people spend their time in a way that may systematically have reduced calories expended first physically less demanding jobs in the service sector have replaced physically more demanding jobs in agriculture and manu facturing second the allocation of time across different activities has changed dramatically over the last few decades people are spending less time working decline in labor market work for men decline in home production work for women and more time in mainly sedentary forms of leisure such as watching tv mark aguiar and erik hurst 2007 while the focus so far has been on the rela tionship between how people spend their time and how many calories they expend we argue in this piece that there might also be an inter esting relationship between how people spend their time and how many calories they consume motivating this question is a at first glance rather counterintuitive finding from the time use surveys the fact that people in the united states

independent central banks low inflation at no costs a widely held view suggests that politically independent central banks bring about relatively low and stable inflation rates a more debated question is whether one has to pay for this good outcome with more real instability in his seminal contribution kenneth rogoff 1985 suggests that an independent and inflation averse central bank reduces average inflation but as a result increases output variability the conservative central banker reduces the inflation bias due to the time inconsistency problem but stabilizes less however alesina and summers 1993 do not find that at least within the oecd countries more independent central banks are associated with more variability of growth or unemployment thus they conclude that independent central banks bring about low inflation at no apparent real costs the point of this paper is to provide theoretical underpinnings to this finding which is in contrast to rogoff 1985 2 the basic idea is that one can isolate two sources of output variability one is the economic variability induced by standard exogenous shocks that monetary policy is supposed to stabilize for instance money demand shocks or supply shocks the second source of variability is political or more generally policy induced this is the variability introduced in the system by the uncertainty about the future course of policy for instance alesina 1987 studies the effect of uncertain electoral outcomes in a model where the two contending parties have different preferences over inflation and unemployment an inflation averse independent central banker does not stabilize as much the economic variability in order to keep inflation low and stable this is rogoff s point however by insulating monetary policy from political pressures an independent central bank can reduce the political variability the overall effect of independence on output variability is thus ambiguous this result is consistent at least prima facie with the evidence in alesina and summers 1993 on the lack of correlation between centralbank independence and output variability in fact it is possible that when the politically induced output variability is predominant a more independent central bank reduces average inflation and the variance of output

legislative organization of fiscal policy in the voluminous literature on fiscal policy there is little evidence about the impact of legislative organization on shaping fiscal decisions by comparing different organizations of committee structure to control tax and spending policies this article presents such evidence regarding spending we test whether the dispersion of spending authority among multiple committees creates a problem similar to that of the common pool using american state data we find that when only one committee has the authority to spend spending is restrained relative to when spending authority is balkanized regarding taxation we hypothesize that if a single committee controls not only all spending authority but also all taxation authority that committee will have more incentive to tax than a committee that does not control spending it can obtain the benefits of increased taxation more directly again this proposition is supported by evidence at the state level

monetary union in west africa who might gain who might lose and why we develop a model in which governments financing needs exceed the socially optimal level because public resources are diverted to serve the narrow interests of the group in power from a social welfare perspective this results in undue pressure on the central bank to extract seigniorage monetary policy also suffers from an expansive bias owing to the authorities inability to precommit to price stability such a conjecture about the fiscal monetary policy mix appears quite relevant in africa with deep implications for the incentives of fiscally heterogeneous countries to form a currency union we calibrate the model to data for west africa and use it to assess proposed ecowas monetary unions fiscal heterogeneity indeed appears crit ical in shaping regional currency blocs that would be mutually beneficial for all their members in particular nigeria s membership in the configurations currently envisaged would not be in the interests of other ecowas countries unless it were accompanied by effective containment on nigeria s financing needs jel classification e58 e61 e62 f33 union monetaire en afrique de l ouest qui pourrait gagner qui pourrait perdre et pourquoi les auteurs developpent un modele dans lequel les besoins financiers des gouvernements depassent le niveau socialement optimal parce que des ressources pub liques sont detournees de maniere aservir les interets etroits du groupe au pouvoir dans une perspective de bien etre social cela entraine des pressions indues sur la banque centrale pour qu elle extraie du seigneuriage la politique monetaire souffre

optimal planning design and synthesis of symbiotic bioenergy parks abstract in this paper a systematic approach for synthesising and optimising a symbiotic bioenergy park is presented a novel stability analysis criterion of the symbiotic bioenergy park is developed based on the concept of incremental investment return analysis the synthesised symbiotic bioenergy park is stable as long as no partner bears a disproportionate share of additional investment costs relative to benefits gained from cooperation in case the symbiotic bioenergy park is not stable re evaluation e g additional incentives from government subsidies from high profit companies etc can be conducted amongst all participants in this work fuzzy optimisation is adapted to trade off individual economic interest and stability of each processing plant the optimised network configuration which achieves the targets with minimum biomass value losses can be determined prior to detailed design a palm based symbiotic bioenergy park case study is solved to illustrate the proposed approach

current account imbalances and financial integration in the euro area abstract while the current account of the euro area as a whole has remained almost balanced in the past two decades several member countries have sizeable deficits or surpluses in this paper we interpret these imbalances as indicators of net capital flows among the euro area countries we distinguish between balances against the euro zone and the rest of the world and examine these for the eu 15 countries we find that for euro members the net flows follow differences in per capita incomes even before the introduction of the euro our results show further that with the introduction of the common currency the elasticity with respect to per capita incomes of net capital flows within the euro area has increased for the members of the euro zone this increase can neither be observed for the flows between the euro members and the rest of the world nor for the flows between the countries that stayed outside the monetary union and the euro zone we interpret this as evidence for increasing financial integration in the euro area there is also some evidence suggesting that the introduction of the euro has led to some financial diversion

fiscal institutions fiscal policy and sovereign risk premia in emu we investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest rate spreads of eurozone countries deficits significantly increase risk premia measured by relative swap spreads the effect of deficits is significantly lower under emu this effect partly results from neglecting the role of fiscal institutions after controlling for institutional changes fiscal policy remains a significant determinant of risk premia in emu better institutions are connected with lower risk premia furthermore deficits matter less for risk premia in countries with better institutions markets acknowledge that better institutions reduce fiscal difficulties rendering the monitoring of annual developments less important

determinants of sovereign bond yield spreads in the emu an optimal currency area perspective in the light of the recent financial crisis we take a panel cointegration approach that allows for structural breaks to the analysis of the determinants of sovereign bond yield spreads in nine economies of the european monetary union we find evidence for a level break in the cointegrating relationship moreover results show that i fiscal imbalances namely expected government debt to gdp differentials are the main long run drivers of sovereign spreads ii liquidity risks and cumulated inflation differentials have non negligible weights but iii all conclusions are ultimately connected to whether or not the sample of countries is composed of members of an optimal currency area oca in particular we establish i that results are overall driven by those countries not passing the oca test and ii that investors closely monitor and severely punish the deterioration of expected debt positions of those economies exhibiting significant gaps in competitiveness

a note on the empirical effectiveness of formal fiscal restraints abstract an important agrument in the current debate over european monetary integration is that a monetary union requires formal fiscal restraints limiting individual member states budgetary powers to reduce the common monetary authority s risk of having to bail out insolvent member governments this note presents empirical evidence on the effectiveness of fiscal restraints on state budgets in the united states nonparametric tests reveal that fiscal restraints significantly affect the probability of fiscal choices and performance without however preventing extreme outcomes fiscal restraints induce substitution of nonrestricted for restricted debt instruments

trust me i am a european central banker in the aftermath of the financial crisis the ecb has experienced an unprecedented deterioration in the level of trust this raises the question as to what factors determine trust in central banking we use a unique cross country dataset which includes a rich set of socioeconomic characteristics and supplement it with variables meant to reflect a country s macroeconomic condition we find that besides individual socio economic characteristics macroeconomic conditions play a crucial role in the trust building process our results suggest that agents are boundedly rational in the trust building process and that current ecb market operations may even be beneficial for trust in the ecb in the long run

sovereign bond yield spreads and sustainability an empirical analysis of oecd countries abstract we study whether and how a country s environmental social and governance esg performance relates to its sovereign borrowing costs in international capital markets we hypothesize that good esg performance plays an economic role it signals a country s commitment to sustainability and long term orientation and is a buffer against negative shocks leading to lower sovereign bond yield spreads using a sample of 20 oecd countries over the period 1996 2012 we show that countries with good esg performance are associated with lower default risk and lower sovereign bond yield spreads moreover we show that the social and governance dimensions have a significant negative association with sovereign bond yield spreads whereas the environmental dimension does not

optimal inflation contracts and inflation targets with uncertain central bank preferences accountability through independence this paper examines some problems which arise when monetary policy is delegated to an independent central bank and where the central bank s preferences are unknown two key conclusions emerge from the paper first even with optimal targets or contracts central bank independence may not always be desirable because central banks may have distorted preferences relative to society second if the delegation solution is preferable and the independent central bank responds to information about supply shocks the central bank may be made more accountable by allowing it to set its own inflation targets i e by making it goal independent

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

fiscal news state budget rules and tax exempt bond yields abstract this paper investigates how state fiscal institutions such as balanced budget rules and restrictions on state debt issuance mediate the bond market reaction to state fiscal news we analyze data on the yields of bonds issued by different states as reported in the chubb relative value survey along with data on state budget forecasts for the period 1988 1998 we find that unexpected deficits are correlated with higher state bond yields this effect is smaller for states with tight antideficit rules than for states without these fiscal rules unexpected deficits have a particularly large effect in raising bond yields of states with tax limits these results suggest that bond market participants view fiscal institutions as relevant in assessing the risk characteristics of tax exempt bonds and that the economic significance of these institutions depends on the state s economic and fiscal circumstances

fragmented government effects on fiscal policy new evidence most industrialized countries entered the 1980s with their public finances in disarray at the time persistent deficits pushed up public debt to gdpratios despite such similarities deficit spending varies substantially between countries and within countries over time recent theoretical and empirical research has considered how differences in political arrangements affecting national policy formation might explain variation in fiscal policies pursued using a panel of 22 oecd countries over the 1971 1996 period this paper extends previous literature on the effects of fragmented government on fiscal policy outcomes in various directions first we focus on data relating to central government instead of general government as all theories refer to central government second not only do we analyze the effect of size fragmentation of government we also examine government s position vis a vis parliament and government s political fragmentation we find evidence that more fragmented government defined in terms of the number of political parties in a coalition or the number of spending ministers have higher deficits there is also some evidence that governments that dispose of excess seats in parliament have lower deficits right wing governments appear to have been fiscally more responsible in the seventies political fragmentation does not affect government s budget deficit

the price of the euro evidence from sovereign debt markets abstractthe objective of this article is to ascertain how the economic and monetary union emu in europe has affected its members long term government bond yields in order to estimate the effect this article utilizes a synthetic control approach the main finding is that the majority of the member countries did not receive economic gains from the emu in sovereign debt markets synthetic counterfactual analysis finds strong evidence that austria belgium finland france and the netherlands have paid a positive and substantial euro premium in their 10 year government bonds since the adoption of the single currency after the most recent financial crisis government bond yields have been higher in all member countries compared to the situation that would have occurred without the monetary unification this article concludes that from the viewpoint of sovereign borrowing it would be beneficial for a country to maintain its own currency and monetary policy

size matters for liquidity evidence from emu sovereign yield spreads abstract the objective is to study the relative importance of domestic components of emu sovereign yield spreads since the start of monetary integration the results indicate a change in the market value of liquidity as measured by market size after emu

what drives spreads in the euro area government bond market spreads between euro area government bond yields are related to short term interest rates which are in turn related to market liquidity to cyclical conditions and to investors incentives to take risk in theory lower interest rates are associated with lower degrees of risk aversion and smaller government bond spreads empirically the eurosystem s short term interest rates are positively related to those spreads which our econometric model finds to include significant and policy relevant default risk and liquidity risk components simone manganelli and guido wolswijk

importing credibility through exchange rate pegging this paper employs an optimal taxation framework in order to study the credibility of monetary policy making in an open economy since inflation is in part uncontrollable due to stochastic disturbances the authority s actions cannot be monitored perfectly when the exchange rate floats thus implying that reputational forces may become ineffective in contrast pegging the nominal exchange rate to a low inflation currency allows perfect monitoring because the exchange rate is in principle controllable for this reason exchange rate pegging may import credibility and result in the best reputational equilibrium even though the authority retains the discretion to devalue unexpectedly

the european bond markets under emu in this paper we document how in the wake of monetary unification the markets for euro area sovereign and private sector bonds have become increasingly integrated issuers and investors alike have come to regard the euro area bond market as a single one primary and secondary bond markets have become increasingly integrated on a pan european scale issuance of corporate bonds has taken off on an unprecedented scale in continental europe in the process both investors and issuers have reaped the considerable benefits afforded by greater competition in the underwriting of private bonds and auctioning of public ones and by the greater liquidity of secondary markets bond yields have converged dramatically in the transition to emu the persistence of small and variable yield differentials for sovereign debt under emu indicates that euro area bonds are still not perfect substitutes however to a large extent this does not reflect persistent market segmentation but rather small differentials in fundamental risk liquidity differences play at most a minor role and this role appears to arise partly from their interaction with fundamental risk the challenges still lying ahead are numerous they include the imbalance between the german dominated futures and the underlying cash market the vulnerability of the cash markets prices to free riding and manipulation by large financial institutions the possibility of joint bond issuance by euro area countries the integration of clearing and settlement systems in the euro area bond market and the participation of new accession countries issuers in this market copyright 2004 oxford university press

some evidence on policy makers motives macroeconomic preferences and output inflation trade offs this paper presents the results of an empirical study of the relationship between macroeconomic performance and policy makers preferences for real output growth and inflation based on quarterly data from 16 countries the empirical results indicate that a lower priority to inflation and a higher real output growth target lead to higher inflation and a less favourable real output inflation trade off without affecting real output growth

do asymmetries matter for european monetary policy in this paper we analyze the impact of economic and institutional ecb decision rules asymmetries on the effectiveness of monetary policy in euroland we consider a model where asymmetric shocks and divergent propagation of shocks in output and inflation are potential causes of tensions within the ecb concerning the conduct of common monetary interest rate policy welfare implications of the alternative decision procedures are discussed

sovereign risk premia the link between fiscal rules and stability culture abstract there is a growing empirical literature studying whether permanent constraints on fiscal policy such as fiscal rules reduce sovereign risk premia nevertheless it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and voters in our analysis of european bond spreads before the financial crisis we shed light on this issue by employing several types of stability preference related proxies these proxies refer to a country s past stability performance government characteristics and survey results related to general trust we find evidence that these preference indicators affect sovereign bond spreads and dampen the measurable impact of fiscal rules yet the interaction of stability preferences and rules points to a particular potential of fiscal rules to restore market confidence in countries with a historical lack of stability culture

good bad or ugly on the effects of fiscal rules with creative accounting abstract do fiscal rules lead to fiscal adjustment or do they encourage the use of creative accounting this question is studied with a model in which fiscal rules are imposed on measured fiscal variables which can differ from true variables because there is a margin for creative accounting the probability of detecting creative accounting depends on its size and the transparency of the budget the model studies the effects on fiscal policy of a budget rule separating structural from cyclical effects and examines how these effects depend on the underlying fiscal distortion and on the degree of transparency of the budget

emu and european government bond market integration in this study we adopt the capm based model of bekaert and harvey 1995 to compare the differences in the relative importance of two sources of systemic risk world and eurozone on government bond returns in two groups of countries in eu 15 results show that euro markets are less vulnerable to the influence of world risk factors and more vulnerable to emu risk factors however they are only partially integrated for their part the markets of the countries that decided to stay out of the monetary union present a higher vulnerability to external risk factors

food for thought the effects of school accountability plans on school nutrition abstract with the passage of the no child left behind act of 2001 school accountability is now federal law continuing the recent trend of states implementing significant accountability systems for schools this paper studies an unusual yet powerful school response to accountability systems using disaggregated school lunch menus from a random sample of school districts in virginia we find that schools threatened with accountability sanctions increase the caloric content of their lunches on testing days in an apparent attempt to boost short term student cognitive performance moreover we find that the schools that responded the most along these dimensions experienced the greatest improvements in standardized test scores

sovereign spreads in the eurozone which prospects for a eurobond in this paper we provide new evidence on the determinants of sovereign yield spreads and market sentiment effects in the eurozone in order to evaluate the rationale for a common eurobond jointly guaranteed by eurozone member states we find that default risk is the main driver of yield spreads suggesting small gains from greater liquidity fiscal fundamentals matter in the pricing of default risk but only as they interact with other countries yield spreads that is with the global risk that the market perceives more importantly the impact of this global risk variable is not constant over time a clear sign of contagion driven by shifts in market sentiment this evidence points to a discontinuity in the disciplinary role of financial markets if markets can stay irrational longer than a country can stay solvent then the role of yield spreads on national bonds as a fiscal discipline device is considerably weakened and issuing eurobonds can be economically justified carlo favero and alessandro missale

debts and deficits with fragmented fiscal policymaking abstract this paper develops a political economic model of fiscal policy one in which government resources are a common property out of which interest groups can finance expenditures on their preferred items this setup has striking macroeconomic implications transfers are higher than a benevolent planner would choose them to be fiscal deficits emerge even when there are no reasons for intertemporal smoothing and in the long run government debt tends to be excessively high peculiar time profiles for transfers can emerge with high net transfers early on giving rise to high taxes later on

financial development and corporate growth in the eu single market the establishment of the eu 15 single market in 1993 brought about a high degree of similarity in firms growth opportunities across countries while substantial diversity existed in the development of national financial markets we compare within industry growth rates of similar single market firms facing financial systems of different depth and institutional quality as of 1993 moving from the least to the most developed financial market within the eu 15 boosts firms annual value added growth by about three percentage points our results also suggest that the growth gap due to initially underdeveloped financial systems was closed by 2003

high yields the spread on german interest rates this paper is a first attempt at evaluating the determinants of the interest rate differentials on government bonds between high yielders namely italy spain and sweden and germany in particular we concentrate on daily frequencies where the relevance of economic fundamentals is rather limited and address the question of the relative importance of local and global factors in the determination of such spread we identify and measure three components of total yield differentials one due to expectations of exchange rate depreciation which we call the exchange rate factor another which reflects the market assessment of default risk and a last one due to the different taxation treatment of long term yields

yield spreads on emu government bonds government bond spreads we provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors as measured by banking and corporate risk premiums in the united states are more pronounced for bonds issued by italy and spain liquidity factors play a smaller role so policies meant to increase financial market efficiency do not appear sufficient to deliver a seamless bond market in the euro area the risk of default is a small but important component of yield differentials movements which signal market perceptions of fiscal vulnerability impose market discipline on national fiscal policies and may be reduced only by further convergence in debt ratios lorenzo codogno carlo favero and alessandro missale

benefits from mutual restraint in a multilateral monetary union summary we show that monetary union can enhance price stability for its member countries even if none of them has a long history of stable prices and independent monetary policy as is the case in a number of monetary union initiatives among developing countries the positive effect obtains because the opportunistic objectives of one country s policy makers are kept in check at the union level by other members with disparate objectives we calibrate the model to evaluate the proposed monetary union in the east african community the empirical results show that the mutual restraint on monetary policy is an important determinant of the expected benefit from an eac monetary union

do the personal characteristics of finance ministers affect changes in public debt using a unique dataset of the personal characteristics of national finance ministers in western europe 1980 2010 i show that a finance minister s experience affects the national debt to gdp ratio the increase in the debt to gdp ratio is smaller if the finance minister stays in office for an additional year this result is robust to the inclusion of the personal characteristics of prime ministers and a measure of political stability however the magnitude of the effect is sensitive to how finance ministers are selected in the econometric model when more than one minister holds office during a particular year the estimation of interaction terms further reveals that experience particularly matters in election years or in times of negative gdp growth because an experienced finance minister has the power to restrict the usual increase in the debt to gdp ratio in contrast a finance minister s educational background and ideological leaning have no significant impact on the debt to gdp ratio

sovereign risk premiums in the european government bond market this paper provides a study of bond yield differentials among eu government bonds issued between 1993 and 2005 on the basis of a unique dataset of issue spreads in the us and dm euro bond market interest differentials between bonds issued by eu countries and germany or the usa contain risk premiums which increase with fiscal imbalances and depend negatively on the issuer s relative bond market size the start of the european monetary union has shifted market attention to debt service payments as the key measure of indebtedness and eliminated liquidity premiums in the euro area

an optimization based negotiation framework for energy systems in an eco industrial park abstract this work presents an optimization based negotiation framework for plants in an eco industrial park eip the framework combines the principles of rational allocation of benefits with the consideration of stability and robustness of the coalition to changes in cost assumptions by analyzing its stability threshold the stability threshold allows stakeholders to make informed managerial decisions concerning the current or future plant interactions in an eip the proposed framework is presented via a palm oil eco industrial park peip case study consisting of a biomass tri generation system bts palm based biorefinery pbb and palm oil mill pom the results of the case study indicate that the deserving annual cost savings allocation for bts pbb and pom are 38 usd 2 100 000 14 usd 800 000 and 48 usd 2 600 000 of the total annual cost savings respectively based on these allocations the stability analysis determined that the peip coalition will stable as long as the symbiosis costs of bts pbb and pom fall within 37 46 10 30 and 20 25 of their respective raw material costs otherwise the stability of the peip coalition is compromised and further action can be taken as stipulated in the proposed framework

the southern african development community suitable for a monetary union abstract this paper investigates whether a monetary union is desirable among the countries of the southern african development community sadc we employ a generalised auto regressive conditional heteroscedasticity garch model to consider the share of the variation in real exchange rates rers vis a vis south africa that can be explained by the divergence in monetary and fiscal policies the results show that monetary integration would substantially eliminate real exchange rate variation due to different monetary policies for some members the study concludes that a monetary union that embraces all sadc members would amass large costs relative to the benefits and hence would not be desirable

macroeconomic stability and the preferences of the fed a formal analysis 1961 98 the rate of inflation in the u s has declined from an average of 4 5 in the period 1960 79 to an average of 3 6 in 1980 98 between those two periods the standard deviations of inflation and the output gap have also declined these facts can be attributed to the interaction of three possible factors a shift in central bank preferences a reduction in the variability of aggregate supply shocks and a more efficient conduct of monetary policy in this paper we identify the relative roles of these factors our framework is based on the estimation of a small structural macro model for the u s economy jointly with the first order conditions which solve the intertemporal optimization problem faced by the fed overall our results indicate that the policy preferences of the fed and in particular the implicit inflation target have changed drastically with the advent of the volcker greenspan era in addition we find that the variance of supply shocks has been lower and monetary policy has been conducted more efficiently during this period

financial restraints and private investment evidence from a nonstationary panel we employ recently developed panel data methods to estimate a model of private investment under nancial restraints for 20 developing countries using annual data for 1972 2000 we show that the qualitative nature of the results varies depending on whether we take into account cross country eects when we allow for cross sectional dependence investment displays more sensitivity to world capital market conditions and exchange rate uncertainty a perhaps even more surprising result is the nding that countries that managed to suppress domestic real interest rates without generating high in ation enjoyed higher levels of private investment than those that would have been obtained under liberalised conditions

central bank credibility why do we care how do we build it central bank credibility plays a pivotal role in much of the modern literature on monetary policy yet it is difficult to measure or even assess objectively a survey of central bankers was conducted to determine their attitudes on two important issues why credibility matters and how credibility can be built the central bankers answers are compared with the responses of nber affiliated macro and monetary economists the two groups agree much more than they disagree they are particularly united in their evaluations of ways to make a central bank credible assigning high ratings to the central bank s track record and low ratings to theoretical ideas like precommitment and incentive compatible contracts this abstract was borrowed from another version of this item

room to move international financial markets and national welfare states a central research question in international political economy concerns the influence of financial markets on government policy outcomes to what extent does international capital mobility limit government policy choices i evaluate the relationship between international financial markets and government policy outcomes with a focus on the government bond market in developed democracies evidence includes interviews with financial market participants and a cross sectional time series analysis of the determinants of interest rates this evaluation suggests that governments of developed democracies face strong but narrowly defined financial market pressures financial market participants are concerned with a few macroeconomic policy indicators including inflation rates and government deficit gdp ratios but not with micropolicy indicators such as the distribution of government spending across functional categories in these areas governments retain policymaking autonomy i conclude by exploring the role of financial market influences within domestic politics and offering suggestions for further research

a macro financial analysis of the euro area sovereign bond market abstract we estimate the fundamental component of euro area sovereign bond yield spreads i e the part of bond spreads that can be justified by country specific economic factors euro area economic fundamentals and international influences the yield spread decomposition is achieved using a multi market no arbitrage affine term structure model with a unique pricing kernel more specifically we use the canonical representation proposed by joslin et al 2011 and introduce next to standard spanned factors a set of unspanned macro factors as in joslin et al forthcoming the model is applied to yield curve data from belgium france germany italy and spain over the period 2005 2013 overall our results show that economic fundamentals are the dominant drivers behind sovereign bond spreads nevertheless shocks unrelated to the fundamental component of the spread have played an important role in the dynamics of bond spreads since the intensification of the sovereign debt crisis in the summer of 2011

economic stabilization in the post crisis world are fiscal rules the answer abstract we investigate whether fiscal rules help to reduce the extent of policy procyclicality how government expenditure policy responds to gdp in a dynamic panel framework with 81 advanced emerging and developing countries over 1985 2012 we construct two new fiscal rule indices and investigate whether rules help to dampen procyclical policies we condition our empirical specifications on the degree to which governments appear able to manage and enforce fiscal rules we find that fiscal rules are very effective in reducing procyclicality of policy once a minimum threshold of government efficiency quality has been reached government efficiency alone is not enough to reduce procyclicality of fiscal policy however high government efficiency combined with strong fiscal rules is a potent combination facilitating counter cyclical policy responses to gdp movements

how does liquidity affect government bond yields the paper explores the determinants of yield differentials between sovereign bonds using euro area data there is a common trend in yield differentials which is correlated with a measure of aggregate risk in contrast liquidity differentials display sizeable heterogeneity and no common factor we propose a simple model with endogenous liquidity demand where a bond s liquidity premium depends both on its transaction cost and on investment opportunities the model predicts that yield differentials should increase in both liquidity and risk with an interaction term of the opposite sign testing these predictions on daily data we find that the aggregate risk factor is consistently priced liquidity differentials are priced for a subset of countries and their interaction with the risk factor is in line with the model s prediction and crucial to detect their effect

do prices and attributes explain international differences in food purchases food purchases differ substantially across countries we use detailed household level data from the united states france and the united kingdom to i document these differences ii estimate a demand system for food and nutrients and iii simulate counterfactual choices if households faced prices and nutritional characteristics from other countries we find that differences in prices and characteristics are important and can explain some difference e g united states france difference in caloric intake but generally cannot explain many of the compositional patterns by themselves instead it seems an interaction between the economic environment and differences in preferences is needed to explain cross country differences jel d12 i12 l11 l66 q11 food purchases differ across countries within countries over time and across demographic groups these differences seem to be correlated with rates of excess weight gain and diet related illness economists tend to attribute the difference in food purchases across markets to differences in prices an alternative explanation is that they are due to inherent differences in preferences and eating habits in this article we study the differences in food purchases and nutritional outcomes across countries focusing on the united states united kingdom and france we start by systematically documenting the differences in food purchases for consumption at home between the united states united kingdom and france we show that us households purchase different foods from french and uk households for example us households purchase more calories per person a greater percentage of those calories comes in the form of carbohydrates and a lower share in the form of proteins a higher share of expenditure is on drinks and prepared foods and

constitutions politics and economics a review essay on persson and tabellini s the economic effects of constitutions in this essay i review the new book by torsten persson and guido tabellini the economic effects of constitutions which investigates the policy and economic consequences of different forms of government and electoral rules i also take advantage of this opportunity to discuss the advantages and disadvantages of a number of popular empirical strategies in the newly emerging field of comparative political economy

emu and trade revisited long run evidence using gravity equations in this paper we present evidence of the long run effect of the euro on trade for the twelve initial emu countries for the period 1967 2008 from a double perspective first we pool all the bilateral combinations of trade flows among the emu countries in a panel cointegration gravity specification second we estimate a gravity equation for each of the emu members vis a vis the other eleven partners we apply panel cointegration techniques based on factor models that account for cross dependence and structural breaks whereas the joint gravity equation provides evidence on the aggregate effect of the euro on intra european trade by isolating the individual countries we assess which of the member countries have obtained a larger benefit from the euro the results show that the euro has had a positive though small effect on trade belgium and luxembourg france and italy are the countries more benefited from the introduction of the euro the effects for exports to third countries are in general more moderate and with the exception of greece there is no evidence of diversion effects

fiscal policy and interest rates in europe the appetite for fiscal discipline has been steadily declining among most industrial countries in the past fiscal profligacy would have been punished by markets with higher interest rates and in some cases also exchange rate depreciation however in post emu europe exchange rate markets no longer discipline the fiscal behaviour of national governments perhaps more crucially even the interest rate punishment to fiscal indiscipline is highly uncertain with academic opinions being quite divided on this issue this paper takes a close look at the link between fiscal policy and interest rates in the european context the key finding is that an expansionary fiscal policy in one emu member will have an effect both on its spreads and on the overall level of interest rates for the currency union as a whole with the second effect however being quantitatively much more significant this suggests that there are indeed substantial spillovers through the interest rate channel among fiscal policies of member countries to limit countries incentive to run expansionary fiscal policies a set of rules like those embedded in the stability and growth pact is then needed some weak evidence is also found that after emu interest rate spillovers seem to be more significant for high debt countries with unsustainable fiscal policies reflecting perhaps market concerns about a possible sovereign bail out or the impact of financial distress there may be a case then for imposing tighter rules on high debt countries riccardo faini

government debt and corporate leverage international evidence abstract we empirically investigate the impact of government debt on corporate financing decisions in an international setting we show a negative relation between government debt and corporate leverage using data on 40 countries between 1990 2014 this negative relation is stronger for government debt that is financed domestically for firms that are larger and more profitable and in countries with more developed equity markets to address potential endogeneity concerns we use an instrumental variable approach based on military spending and a quasi natural experiment based on the introduction of the euro currency our findings suggest that government debt crowds out corporate debt

taxes cigarette consumption and smoking intensity this paper analyses the compensatory behavior of smokers exploiting data on cotinine concentration a metabolite of nicotine measured in a large population of smokers over time we show that smokers compensate for tax hikes by extracting more nicotine per cigarette our study makes two important contributions first as smoking a given cigarette more intensively is detrimental to health our results question the usefulness of tax increases second we develop a model of rational addiction where agents can also adjust their intensity of smoking and we show that the previous empirical results suffer from estimation biases

economic effects of currency unions we develop a new instrumental variable iv approach to estimate the effects of different exchange rate regimes on bilateral outcomes the basic idea is that the characteristics of the exchange rate between two countries are partially related to the independent decisions of these countries to peg explicitly or de facto to a third currency notably that of a main anchor this component of the exchange rate regime can be used as an iv in regressions of bilateral outcomes we apply the methodology to study the economic effects of currency unions the likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share a common currency we find that sharing a common currency enhances trade increases price comovements and decreases the comovement of real gross domestic product shocks

market standards in financial contracting the euro s effect on debt securities abstract the introduction of the euro ushered in a rise to dominance of english contract law in european debt securities corporate issuers in the euro zone chose english law significantly more often than a control group from other european countries the euro effect on choice of law is particularly strong for debt securities in local markets that arguably were most affected by the euro the euro effect is not explained by differences in the suitability of english law compared to other laws a change in issuer composition or debt securities types and the greater market share of british and american underwriters we argue that increased standardization benefits network effects from a boost in cross border investment provide the best account of why english law conquered the european debt securities market

public accounting fudges towards emu a first empirical survey and some public choice considerations this paper analyses some one off measures and other accounting tricks that eu member states have been using to qualify for emu membership moving from empirical evidence to strategic goals this investigation brings to the fore three crucial issues the weakness of the methodological rules of the european system of accounts used to assess budgetary convergence in line with the maastricht treaty the open ended definition of the required budgetary discipline the shortcomings of the excessive deficit procedure enforced through the stability pact the conclusion urges a return to a strict annual balance requirement for governments current accounts to impede strategic adjustments of budgetary positions that are in fact creative accounting operations

sovereign bond yield spreads a time varying coefficient approach abstract we study the determinants of sovereign bond yield spreads across 10 emu countries between q1 1999 and q1 2010 we apply a semiparametric time varying coefficient model to identify to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing we find that at the beginning of emu the government debt level and the general investors risk aversion had a significant impact on interest differentials in the subsequent years however financial markets paid less attention to the fiscal position of a country and the safe haven status of germany diminished in importance by the end of 2006 two years before the fall of lehman brothers financial markets began to grant germany safe haven status again one year later when financial turmoil began the market reaction to fiscal loosening increased considerably the altering in risk pricing over time period confirms the need of time varying coefficient models in this context

fiscal discipline and the budget process the critical economic policy issue for many oecd countries developing countries and transition economies currently is fiscal consolidation and the maintenance of long run fiscal balance two related components underlie this general goal first several countries face the issue of deficit reduction particularly those countries with high debt gdp ratios second it is becoming increasingly apparent that major reforms of the welfare system and specifically of social security systems are critical ingredients of a long lasting fiscal consolidation see alesina and perotti 1995a in the case of monetary policy a constructive discussion has generated a widespread consensus about the benefits of different monetary institutions relatively few economists dispute the benefits of a certain amount of central bank independence even though different commentators and policymakers may disagree on the optimal degree of independence also a contracting approach has highlighted the benefit of inflation targeting and of certain institutional relationships contracts between the executive and the central bank a similar theoretical and empirical discussion on the role of budget procedures and budget institutions is just beginning in this paper we ask the following two questions i do budget procedures matter for the determination of the budget balance and its composition ii are there certain institutional reforms that one should feel comfortable in recommending based on the relatively scarce empirical evidence available we tentatively answer yes to the first question budget procedures matter on the second question we suggest that the two critical areas of reform are first more transparency second a strengthening of the roles of the executive branch vis a vis the legislature and of the treasury minister vis a vis the rest of the executive branch in order to achieve a centralized and top bottom approach to the budget process

the greek financial crisis growing imbalances and sovereign spreads abstract we discuss the origins of the greek financial crisis as manifested in the growing fiscal and current account deficits since euro area entry in 2001 we then extend a model typically used to explain risk premia to assess the extent to which credit ratings captured these premia next we estimate a cointegrating relationship between spreads and their long term fundamental determinants and compare the spreads predicted by this estimated relationship with actual spreads we find that spreads were significantly below what would be predicted by fundamentals from end 2004 up to the middle of 2005 by contrast since may 2010 actual spreads have exceeded predicted spreads by some 400 basis points

improving policy credibility is there a case for african monetary unions abstract this paper analyzes experience with monetary policy in africa focusing on countries that have participated in rule based regional monetary agreements cfa zone east african currency board and rand monetary area we show that african countries have generally lacked the political institutions necessary for governments to commit credibly on an individual basis to financial stability we argue that monetary unions can provide an alternative means of credible commitment to sound macroeconomic policies but only under certain conditions first exit from a union must be made costly by the existence of parallel regional agreements and or links to the financial and technical assistance of industrial countries second governance structures of monetary unions must be designed so as to maximize chances for enforcement of monetary rules and third if a state seeks to break the rules of a union other member governments must actively oppose such attempts

oil price shocks and emu sovereign yield spreads abstract this study examines for the first time the relationship among the oil price shocks and the sovereign yield spreads in the emu which is collectively the largest oil importer of the world in a time varying environment in particular we examine the time varying correlation between oil price shocks and the 10 year sovereign yield spread of core and periphery countries in the emu by employing a scalar bekk framework the main findings reveal that the correlations between sovereign yield spreads and oil price shocks are indeed time varying and are influenced by specific economic and geopolitical events that took place during the study period furthermore even though the correlation patterns are constantly low or zero prior to the great recession a change is revealed in the post 2008 period when correlations become moderate and more volatile finally we do not observe noteworthy differences in the correlation behaviour between core and periphery countries to different oil price shocks the findings of this study are particularly useful and provide valuable information to marketplace participants

using incentives to encourage healthy eating in children there is growing interest in the situations in which incentives have a significant effect on positive behaviors particularly in children using a randomized field experiment we find that incentives increase the fraction of children eating a serving of fruits or vegetables during lunch by 80 percent and reduce the amount of waste by 33 percent at schools with a larger fraction of low income children the increase in the fraction of children who eat a serving of fruits or vegetables is even larger indicating that incentives successfully target the children who are likely to benefit the most from the increased consumption

the effects of soft drink taxes on child and adolescent consumption and weight outcomes abstract childhood and adolescent obesity is associated with serious adverse lifetime health consequences and its prevalence has increased rapidly soft drink consumption has also expanded rapidly so much so that soft drinks are currently the largest single contributors to energy intake in this paper we investigate the potential for soft drink taxes to combat rising levels of child and adolescent obesity through a reduction in consumption our results based on state soft drink sales and excise tax information between 1989 and 2006 and the national health examination and nutrition survey suggest that soft drink taxation as currently practiced in the united states leads to a moderate reduction in soft drink consumption by children and adolescents however we show that this reduction in soda consumption is completely offset by increases in consumption of other high calorie drinks

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

monetary financial and fiscal stability in the east african community ready for a monetary union we examine prospects for a monetary union in the east african community eac by developing a stylised model of policymakers decision problem that allows for uncertain benefits derived from monetary financial and fiscal stability and then calibrating the model for the eac for the period 2003 10 when policymakers properly allow for uncertainty none of the countries wants to pursue a monetary union based on either monetary or financial stability grounds and only rwanda might favour it on fiscal stability grounds we argue that robust institutional arrangements assuring substantial improvements in monetary financial and fiscal stability are needed to compensate

what do deficits tell us about debt empirical evidence on creative accounting with fiscal rules in the eu fiscal rules such as the excessive deficit procedure and the stability and growth pact sgp aim at constraining government behavior milesi ferretti 2003 develops a model in which governments circumvent such rules by reverting to creative accounting the amount of this depends on the reputation cost for the government and the economic cost of sticking to the rule we provide empirical evidence of creative accounting in the european union we find that the sgp rules have induced governments to use stock flow adjustments a form of creative accounting to hide deficits the tendency to substitute stock flow adjustments for budget deficits is especially strong for the cyclical component of the deficit as in times of recession the cost of reducing the deficit is particularly large

fiscal rules and twin deficits the link between fiscal and external balances this paper investigates the relationship between countries fiscal balances and current accounts with an emphasis on the role of fiscal rules the direct effect of fiscal policy on the current account via aggregate import demand is potentially amplified by indirect effects materializing through interest rate effects and inter generational transfers that reduce savings on the other hand the implied positive relation between fiscal and external balances is potentially attenuated by offsetting changes in savings through ricardian equivalence considerations we expect this attenuation effect to be stronger in countries with more stringent fiscal rules and test this hypothesis using a panel of 73 countries over the period 1985 2012 as previous studies we find a positive effect of fiscal balances on the current account supporting the twin deficit hypothesis however the effect of fiscal balances on the current account depends on the stringency of fiscal budget balance or debt rules in place it is reduced by one third on average and virtually eliminated for countries with the most stringent fiscal rules authors abstract

on the adequacy of monetary arrangements in sub saharan africa we examine the economic rationale for monetary union s in sub saharan africa through the use of cluster analysis on a sample of 17 countries the variables used stem from the theory of optimum currency areas and from the fear of floating literature it is found that the existing cfa franc zone cannot be viewed as an optimum currency area cemac and uemoa countries do not belong to the same clusters and a core of the uemoa can be defined on economic grounds the results support the inclusion of the gambia ghana and sierra leone in an extended uemoa arrangement or the creation of a separate monetary union with the core of the uemoa and the gambia rather than the creation of a monetary union around nigeria finally the creation of the west african monetary zone wamz around nigeria is not supported by the data

stochastic design of biorefinery supply chains considering economic and environmental objectives abstract biomass is a renewable resource that has attractive characteristics for energy production but the corresponding supply chain could be subject of several uncertain factors that can affect drastically the optimal configuration and those have not been properly accounted in previous publications therefore this work presents a new approach for the optimal planning under uncertainty for a biomass conversion system involving simultaneously economic and environmental issues the environmental impact was measured via the eco indicator99 method and the economic aspect was determined through the net annual profit the proposed method considered the uncertainty involved in the raw material price by the stochastic generation of scenarios using the latin hypercube method followed by the implementation of the monte carlo method where a deterministic optimization problem was solved for each single scenario to select the structure of the more robust supply chain relying on statistical data the proposed approach was applied to a case study for a distributed biorefinery system in mexico the results showed that the behavior of the profit values for the stochastic case is not associated to the behavior of the raw material price also it is possible to observe that the supply chain topology could be affected for the uncertainty in the raw material price however the environmental and economic objectives did not present significant changes

welfare enhancing technological change and the growth of obesity the theory explores how technological change can produce obesity as an unintended consequence of economic development which reduces food prices and the strenuousness of work the empirical analysis presents a specific example of how food price declines can improve health and well being even in a developed country

heterogeneity of the determinants of euro area sovereign bond spreads what does it tell us about financial stability abstract in this paper we assess the movements of euro area sovereign bond yield spreads vis a vis the german bund as processes specified across different levels of volatility and subject to movements in asset prices and economic conditions the determinants we use are grouped into domestic and euro area aggregates thus allowing us to derive results on their relative explanatory power and compare them across time and the spectrum of countries we find that volatility influences the deterministic processes of the euro area sovereign spreads and that identical determinants have effects on spreads that vary considerably across countries furthermore we find that variables reflecting investment confidence conditions and perceptions for the upcoming economic activity are significant determinants and their significance remains to a large extent even when controlling for fiscal variables

a literature survey on proposed african monetary unions this study provides a survey of recent advances in the literature on proposed african monetary unions the survey comprises about 60 empirical papers published during the past fifteen years four main strands are discussed individually and collectively notably the proposed west african monetary zone wamz east african monetary union eamu southern african monetary union samu and african monetary union amu we observe a number of issues with establishing the feasibility and or desirability of potential monetary unions inter alia variations in choice of variables empirical strategies sampled countries and considered periodicities we address this ambiguity by reviewing studies with scenarios that are consistent with hegelian dialectics and establish selective expansion as the predominant mode of monetary integration some proponents make cases for strong pegs and institutions as viable alternatives to currency unions using cluster analysis disaggregating panels into sub samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications we caution that for inquiries using the same theoretical underpinnings variables and methods just by modifying the scope context and periodicity may only contribute to increasing the number of conflicting findings authors should place more emphasis on new perspectives and approaches based on caveats of and lessons from the european monetary union emu and cfa zones

sovereign risk and the bank lending channel in europe abstract the main purpose of this article is to analyze how sovereign risk influences the loan supply reaction of banks to monetary policy through the bank lending channel additionally we aim to test whether this reaction differs in easy and tight monetary regimes using a sample of 3125 banks from the euro zone between 1999 and 2012 we find that sovereign risk plays an important role in determining loan supply from banks during tight monetary regimes banks in higher sovereign risk countries reduce lending more during tight regimes however we find little evidence to support any relationship between sovereign risk and loan supply reaction to monetary policy expansions these results are very interesting for the way monetary policy is conducted in europe banking union banking system strength and the budget control of governments would be necessary measures to reduce the heterogeneous transmission of the monetary policy in the euro zone

environmental and economic gains of industrial symbiosis for chinese iron steel industry kawasaki s experience and practice in liuzhou and jinan with material and energy flow features iron steel industry has unique advantage in the industrial symbiosis is formation to realize environmental and economic benefit simultaneously the quantification of the scale and significance of is benefits is valuable for is promotion while there is much few attention to it especially in china under this circumstance this paper evaluates and compares the number scale and the related environmental economic gains of is activities in iron steel centered industrial areas in liuzhou and jinan in china and kawasaki in japan results show that in liuzhou there are three symbiosis activities between industries the annual by product waste exchange is more than 2 million ton y gaining economic revenue more than 36 55 million usd for the iron steel company in jinan seven symbiotic links are between industries and two are between urban community and iron steel plant the total by product waste exchange is over 8 million ton y and the economic gains account to 158 million usd in kawasaki iron steel industry relates to four symbiotic links the total by product waste exchange amount is about 500 kton y with the economic gains over 54 million usd the form and the complexity of the is network are different in the three cases is in liuzhou and jinan are with the features of large number and scale but single types while in kawasaki is includes not only traditional exchanges between iron steel plant and the other industries but also the innovative utilization of urban refuse by industrial area finally from the perspective of technology legislative framework and support policy circular technology inventory integrated waste management system information platform and national subsidies are needed to support the ever improvement of is promotion in china s iron steel industry c 2013 elsevier ltd all rights reserved

does banning carbonated beverages in schools decrease student consumption abstract i evaluate the effectiveness of carbonated beverage bans in schools by investigating their impact on household soda consumption i match households in nielsen homescan data to their school district s carbonated beverage policies over an eight year period 2002 2009 i find that when high schools ban the sale of carbonated beverages to students households with a high school student experiencing the ban increase their consumption of non diet soda by roughly the equivalent of 3 4 cans per month i present evidence that this is a substantial offsetting 67 75 of the average non diet carbonated beverage consumption in high schools when these are available to students thus demonstrating the persistence of preferences when attempting to alter unhealthy habits

is the proposed east african monetary union an optimal currency area a structural vector autoregression analysis summary this paper empirically assesses the suitability of the east african ea countries for a regional monetary union by testing for symmetry of the underlying structural shocks the results indicate that supply and demand shocks are generally asymmetric which does not lend strong support for forming a currency union in the ea region at the moment however the speed and magnitude of adjustment to shocks is similar across the countries therefore further integration of the economies might lead to more favorable conditions for a monetary union although evidence in favor of linking an ea currency to an external anchor is weak such support seems to favor the euro

the timing of elections in federations a disciplining device against soft budget constraints we introduce political economics into the soft budget constraint problem by asking if the timing of elections has the potential to harden budget constraints specifically we ask under which circumstances the soft budget constraint problem is worse with synchronized elections i e simultaneous central and regional office terms or with staggered elections i e terms of office that do not coincide we find that staggered elections clearly improve fiscal discipline at the local level as well as welfare

capital mobility and global factor shocks this paper focuses on the effects of global factors on the saving investment relationship we prove that if investments and savings are affected by idiosyncratic and global components they must be cointegrated to obtain reliable estimates of the saving retention coefficient when global shocks are taken into account through common factors we find that the estimated saving retention coefficient is close to zero for a panel of 21 oecd countries

the eurozone crisis how banks and sovereigns came to be joined at the hip the eurozone sovereign and banking crisis evolved in three phases following the onset of the subprime tremors in july 2007 the risk premia spreads on bonds issued by eurozone sovereigns rose from historically low levels but they rose largely in tandem across the eurozone membership along with global banking stresses the rescue of the us investment bank bear stearns in march 2008 oddly enough marked the start of a distinctively european banking crisis accompanied by increased differentiation of countries within the eurozone with the greater expectation of public support for distressed banks the spreads that a sovereign paid tended to rise following evidence of stress in its domestic financial sector this was especially so in countries with lower growth prospects and higher debt burdens but there was as yet no feedback from banks to sovereigns finally as the limits of fiscal support for domestic banks became clearer and coinciding with the nationalization of anglo irish in january 2009 but gathering steam with evidence of the greek sovereign s distress in may 2010 sovereign weaknesses also came to be quickly transmitted to a more pessimistic assessment of the financial sector s prospects creating the potential of mutual destabilization ashoka mody and damiano sandri