nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

the impact of sunday shopping on employment and hours of work in the retail industry evidence from canada abstract between 1980 and 1998 every canadian province passed legislation that in some way relaxed restrictions on sunday shopping this study exploits the variation in deregulation dates between provinces to identify how retail employers adjust employment and hours of work when deciding to open on sundays a major complication of this analysis is to first determine for which provinces the deregulation dates are useful indicators of increases in sunday store openings this paper uses a unique trading day regression approach to identify these provinces and then uses aggregate data from the selected provinces to estimate a simple dynamic labour demand model that allows employment and hours to be imperfect substitutes in production the results suggest that retailers needs for sunday labour were disproportionately satisfied through increases in employment levels comparison of the estimates at three levels of the retail industry suggests that the employment and hours gains were larger among general merchandise stores than among more specialized retail establishments and relatively modest at the aggregate retail industry level in addition despite evidence of an immediate shortfall in the employment level below the long run optimal level the results suggest that firms were unable to compensate by temporarily increasing the hours of their existing employees

unemployment institutions and reform complementarities re assessing the aggregate evidence for oecd countries there is no or limited consensus on the quantitative impact of institutions on unemployment which has led some to question the case for structural reforms recent studies suggest also that institutions interact with each other and cannot be analysed in isolation in this paper we estimate a standard reduced form model to explore the institutional determinants of unemployment and assess its robustness using a large battery of robustness checks we show that although the impact of each individual policy varies across countries due to policy interactions the simple linear model can be used to draw inferences for countries with an average mix of institutions the model is then extended to encompass systemic interactions in which individual policies interact with the overall institutional framework we find relatively robust evidence of broad reform complementarities

the perverse effects of partial employment protection reform the case of french older workers abstract french firms laying off workers aged 50 and above have to pay a tax to the unemployment insurance system known as the delalande tax we evaluate the impact of this tax on layoffs as well as on hiring taking advantage of several changes in the measure since its introduction in 1987 a legislative change in 1992 exempted firms from the tax for workers who were hired after age 50 following this change the transition rate from unemployment to employment increased significantly for workers over 50 compared to workers under 50 the difference is sizeable between one third and one half of the initial transition rate evidence on the effect on layoffs is less clear cut the impact is sizeable only for the most stringent tax schedule after 1998

market discipline and deposit insurance reform in japan abstract on april 1 2002 the japanese government lifted a blanket guarantee of all deposits and began limiting the coverage of time deposits this paper uses this deposit insurance reform as a natural experiment to investigate the relationship between deposit insurance coverage and market discipline i find that the reform raised the sensitivity of interest rates on deposits and that of deposit quantity to default risk in addition the interest rate differentials between partially insured large time deposits and fully insured ordinary deposits increased for risky banks these results suggest that the deposit insurance reform enhanced market discipline in japan i also find however that too big to fail tbtf policy became a more important determinant of interest rates and deposit allocation after the reform thereby partially offsetting the positive effects of the deposit insurance reform on overall market discipline

who pays for bank insolvency this paper discusses proposals for handling bank failures in a manner that is rapid enough to allow the business to continue respects the ranking of claims makes none of the parties worse off than under traditional insolvency and does not require taxpayer funds except to guarantee the new organization until recapitalization it considers the relationship between the regime for bank exit and the rest of the framework for regulation and supervision the role of market discipline in enabling solutions before the point of insolvency is reached the problems in assessing the costs of different exit regimes and public intervention

deposit insurance regulation and moral hazard in the thrift industry evidence from the 1930 s this paper compares risk taking of insured and uninsured thrifts operating under strict and less strict regulatory regimes during the 1930 s analysis of balance sheet data indicates that while newly insured thrifts undertook less risk than their uninsured counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively permissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively premissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts given the current system of deposit insurance the results suggest that effective regulation and supervision will play a key role in maintaining thrift stability in the 1990s copyright 1992 by american economic association

financial development and pathways of growth state branching and deposit insurance laws in the united states 1900 1940 abstract this paper studies the effect of state level banking regulation on financial development and on components of state level growth in the united states from 1900 to 1940 we use these banking laws to assess the findings of a large recent literature that has argued that financial development contributes to economic growth we contend that the institutional mechanism leading to financial development is important in determining its consequences and that some types of financial development can even retard economic growth for the united states from 1900 to 1940 we argue that the financial expansion induced by expanded bank branching accelerated the mechanization of agriculture and spurred growth in manufacturing in contrast financial expansions induced by state deposit insurance had negative consequences for both the agricultural and manufacturing sectors

explaining the spread of temporary jobs and its impact on labor turnover this article provides a simple model that explains the choice between permanent and temporary jobs this model which incorporates important features of actual employment protection legislations neglected by the economic literature so far reproduces the main stylized facts about entries into permanent and temporary jobs observed in continental european countries we find that job protection has very small effects on total employment but induces large substitution of temporary jobs for permanent jobs which significantly reduces aggregate production

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

education market rigidities and growth the paper exploits macro panel data for oecd countries close to the technological frontier the education level product market rigidities and employment protection legislation would be significantly related to tfp growth with a substantial contribution of the interaction between market rigidities

regulation and investment use newly assembled data on regulation in several sectors of many oecd countries to provide evidence that regulatory reform of product markets is associated with an increase in investment a component of reform that plays a very important role is entry liberalization but privatization also has a substantial effect on investment sensitivity analysis suggests that our results are robust jel e22 l5

which banks choose deposit insurance evidence of adverse selection and moral hazard in a voluntary insurance system this article investigates adverse selection and moral hazard in the voluntary deposit insurance system of kansas which operated from 1909 to 1929 regulations were imposed to limit risk taking and membership was made voluntary to assuage objections that insurance forces conservative banks to protect depositors of high risk institutions the authors find however that risk prone banks were the most likely to join the system at its inception using a simultaneous equations model they also detect both adverse selection and moral hazard behavior throughout the system s first ten years copyright 1995 by ohio state university press

the effect of bank failures on economic activity evidence from u s states in the early 20th century this paper provides evidence documenting the existence of a bank failure channel the magnifying effect of bank failures on economic distress using state level quarterly time series from 1900q1 to 1929q4 we estimate a vector autoregression model of bank failures for each state the forecast error variance decompositions are used to construct a categorical measure of the bank failure channel we examine the influence of regulatory variables economic conditions and banking conditions on the degree to which bank failures propagate distress state sponsored deposit insurance and minimum capital requirements are important for explaining the likelihood of having a bank failure channel

dismissal costs and innovation empirical evidence suggests that dismissal costs are negatively associated with r d intensity across countries but positively within countries over time this evidence can be rationalized theoretically with a negative entry effect and a positive innovation effect for incumbent firms

deposit insurance and subsidized recapitalizations the 2007 2009 financial crisis saw a vast expansion in deposit insurance guarantees around the world and yet our understanding of the design and consequences of deposit insurance schemes is in its infancy we provide a new rationale for the provision of deposit insurance in our model the banking sector exhibits both adverse selection and moral hazard which implies that the social benefits of bank monitoring must for incentive reasons be shared between depositors and banks consequently socially too few deposits are made in equilibrium deposit insurance or equivalently bank recapitalization corrects this market failure we find that deposit insurance should be funded not by banks or depositors but out of general taxation the optimal level of deposit insurance varies inversely with the quality of the banking system hence when the soundness of the financial sector is uncertain governments should consider supporting deposit insurance schemes and undertaking subsidized recapitalizations

before it gets better the short term employment costs of regulatory reforms the article exploits long time series of industry level data in a group of oecd countries to analyze the short term labor market effects of reforms that lower barriers to entry and dismissal costs estimates show that both policies induce non negligible transitory employment losses the strength of these effects varies depending on the underlying industry and labor market structure and on cyclical conditions the employment cost of deregulation is higher in economic downturns and negligible in good times these findings prove robust to a set of specification and sensitivity checks and are confirmed after standard reverse causality and falsification tests

is economic recovery a myth robust estimation of impulse responses we estimate the impulse response function irf of gdp to a banking crisis using an extension of the local projections method we demonstrate that though robust to misspecifications of the data generating process this method suffers from a hitherto unnoticed bias which increases with the forecast horizon we propose a correction to this bias and show through simulations that it works well applying our corrected local projections estimator to the data from a panel of 99 countries observed between 1974 and 2001 we find that an average banking crisis yields a gdp loss of just under 10 in 10 years with little sign of recovery like the original local projections method our extension of it is widely applicable

valuation and systemic risk consequences of bank opacity abstract we examine the effects of opacity on bank valuation and synchronicity in bank equity returns over the years 2000 2006 prior to the 2007 financial crisis as expected investments in opaque assets are more profitable than investments in transparent assets and taking profitability into account have larger valuation discounts relative to transparent assets the valuation discounts on opaque asset investments decline over the 2000 2006 period only to be followed by a sharp reversal in 2007 the decline is coincident with a rise in bank equity share prices decrease in transparent asset holdings by banks and greater return synchronicity evidence consistent with a feedback effect

the failed africanization of commerce and industry in kenya abstract in the 1970s a number of authors challenged the dependency perspective with respect to kenya they maintained that a viable domestic capital class nurtured by state sponsorship had emerged since independence this article questions the revisionist interpretation of state business relations in kenya kenya does possess a dynamic entrepreneurial sector led mainly by kenyan indians government efforts to aid african entrepreneurs or to establish a vigorous state capitalist sector have been ineffective this is evident from surveys of the state enterprise sector private manufacturing and commerce revisionist authors tended to overestimate the capacity of kenyan state agencies to implement policy goals and they neglected the political context of africanization as an instrument of ethnic patronage for state leaders

crossing the river a comparative perspective on italian employment dynamics crossing the river a comparative perspective on italian employment dynamics this paper studies the unprecedented job destruction which occurred throughout europe during the recession of the early 1990s it raises the question whether changes in the institutional structure of various countries labour markets may have deepened the normal effects of the recession institutional legal and sociopolitical safety nets were used to protect many european employees from technological and demand shocks throughout the 1970s and early 1980s important steps have since been taken to deregulate industrial relations european labour markets may currently be in the middle of the river they already experience the negative employment aspects of an american labour market without yet enjoying its benefits based on a study of several countries the article concludes that the social costs of deregulation will be smallest if the intended destination of the transition is reached credibly and without hesitation policy makers must point decisively towards a well defined riverbank rather than leaving the labour market in the middle of the stream giuseppe bertola and andrea ichino

deposit insurance and bank failures new evidence from the 1920s this paper examines the contribution of deposit insurance to bank failures during the 1920s using individual bank data from kansas where membership in the state insurance system was voluntary i find that the balance sheets of insured banks reflected greater risk taking and probit model estimates indicate that insured banks were more likely to fail than non insured banks insurance had an especially strong impact the closer a bank was to failure because regulation was comparatively strict in kansas the findings suggest that deposit insurance had an even greater impact in other states and in the recent u s experience

capital regulation and bank risk taking a note abstract this paper examines theoretically the effects of more stringent capital regulation on bank asset portfolio risk the analysis shows that for a value maximizing bank incentives to increase asset risk decline as its capital increases thus as long as regulatory efforts to contain asset risk and size are not reduced more stringent capital regulation unambiguously reduces the expected liability of the deposit insurance system

do federal home loan bank membership and advances increase bank risk taking since the early 1990s commercial banks have turned to federal home loan bank fhlbank advances to plug the gap between loan and deposit growth is this trend worrisome on the one hand advances implicitly encourage risk by insulating borrowers from market discipline on the other advances give borrowers greater flexibility to managing interest rate and liquidity risk and access to fhlbank funding encourages members to reshape their balance sheets in ways that could lower credit risk using quarterly financial and supervisory data for banks from 1992 to 2005 we assess the effect of fhlbank membership and advances on risk the evidence suggests liquidity and leverage risks rose modestly but interest rate risk declined somewhat credit risk and overall failure risk were largely unaffected although the evidence suggest fhlbank membership and advances have had at best only a modest impact on bank risk we caution that our sample period constitutes one observation and that moral hazard could be pronounced if leverage ratios revert to historical norms