endogenous information flows and the clustering of announcements we consider the strategic timing of information releases in a dynamic disclosure model because investors don t know whether or when the firm is informed the firm will not necessarily disclose immediately we show that bad market news can trigger the immediate release of information by firms conversely good market news slows the release of information by firms thus our model generates clustering of negative announcements surprisingly this result holds only when firms can preemptively disclose their own information prior to the arrival of external information these results have implications for conditional variance and skewness of stock returns jel d21 d83 g12 g14 l11

the real effects of liquidity during the financial crisis evidence from automobiles illiquidity in short term credit markets during the financial crisis might have severely curtailed the supply of nonbank consumer credit using a new data set linking every car sold in the united states to the credit supplier involved in each transaction we find that the collapse of the asset backed commercial paper market reduced the financing capacity of such nonbank lenders as captive leasing companies in the automobile industry as a result car sales in counties that traditionally depended on nonbank lenders declined sharply although other lenders increased their supply of credit the net aggregate effect of illiquidity on car sales is large and negative we conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market these results also imply that interventions aimed at arresting illiquidity in short term credit markets might have helped contain the real effects of the crisis

high tech firms and credit rationing abstract informational frictions between borrowers and lenders differ across classes of borrowers innovative firms undertake high risk high return projects which are likely to be little understood by financial intermediaries as a consequence they may end up allocating too large a share of funds to traditional low risk low return projects this proposition finds some support in a cross section of italian manufacturing firms using several proxies to classify firms into high tech and low tech groups and direct information on each firm s access to bank credit high tech firms are found to be more likely to be credit constrained than low tech firms the results suggest that the responsiveness of r d expenditure to cash flow found in the literature is likely due to pervasive credit constraints on innovative firms rather than to cash flow proxying for future expectations the paper also sheds light on the main factors affecting the probability of a firm being rationed in the credit market

econometric analysis of bank lending and business cycles in south africa this article examines econometric relationships between bank lending and business cycle in south africa two long run economic relationships are hypothesized between total credit and the variables namely coincidental indicators spread between lending and borrowing rates money supply stock price index inflation and banking sector specific factors included in the model of these variables only coincident indicators changes in money supply as well as capital and reserve are found to exert some influence on short run total credit availability

last bank standing what do i gain if you fail banks are highly leveraged institutions potentially attracted to speculative lending even without deposit insurance a counterbalancing incentive to lend prudently is the risk of loss of charter value which depends on future rents we show in a dynamic model that current concentration does not reduce speculative lending and may in fact increase it in contrast a policy of temporary increases in market concentration after a bank failure by promoting a takeover of failed banks by a solvent institution is very effective by making speculative lending decisions strategic substitutes it grants bankers an incentive to remain solvent subsequent entry policy fine tunes the trade off between the social costs of reduced competition and the gain in stability

the liability insurance market t his paper offers an overview of the u s liability insurance market and the link between its performance and developments in tort law over the last few decades the dominant feature of the insurance market has been the intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage the insurance cycle appears to be increasing in amplitude and since the 1960s has been concentrated increasingly in liability lines an episode of rising premiums in the late 1960s was followed by a six year period of declining and eventually negative growth rates in total liability insurance premiums over the 1975 1977 period the annual growth rate jumped to 30 percent then followed another period of declining real premiums until premiums nearly tripled in 1984 1986 accompanied by cancellations of policies and massive withdrawal of insurers from some lines this crisis had an economic impact beyond the insurance market leading to the withdrawal of many goods and services from u s markets in mid 1987 the market began to turn again with premiums falling by as much as 40 percent for some commercial policies since then aggregate revenue from premiums has been relatively stable the liability insurance market is intertwined with the tort system in addition to providing incentives to avoid accidents the tort system allocates the risks of accident costs in providing compensation for accident victims the modern expansion of liability in tort law as described by priest in this issue represents a shift in the burden of supplying insurance from first party insurance markets to liability or third party insurance markets clearly this shift will

why do firms default on their foreign currency loans the case of hungary abstract i isolate the effect of the choice of foreign currency on the loan performance of firms borrowing in different currencies in crisis times i use a novel micro level dataset from hungary to decompose the factors contributing to the worse loan performance of foreign currency borrowers compared to local currency debtors i find that foreign currency denomination can worsen loan performance considerably while selection also contributes significantly to the default differences on the one hand per se less creditworthy firms borrowed in foreign currency and during the crisis the foreign currency shocks further weakened their loan performances on the other hand more creditworthy firms that were also well prepared for the currency risks also borrowed in foreign currency my results suggest that not the institution of foreign currency lending per se that should be blamed for the bad loan performance of foreign currency borrowers instead one should consider the characteristics of the borrowers

does eu enlargement increase agro food export duration this paper examines the impact of eu enlargement on agro food export performance across 12 new eu member states and five newly independent states in the eu markets covering the period 1999 to 2007 the performance is examined by duration of export and hazard model we find larger duration for the agro food exports from the new eu member states the results confirm gains from the eastward eu enlargement and governance on export increases and longer duration for exporting higher value added specialized consumer ready food and more competitive niche agro food products

lending terms and aggregate productivity abstract several empirical studies suggest that lending terms are eased in expansions and tightened in recessions thereby influencing the mix of financed entrepreneurs we study a model of adverse selection in competitive financial markets and show that lending terms deteriorate with the aggregate state under two general conditions if exogenous increments to entrepreneurs productivity raise returns to investment and or tighten the credit line needed to screen out a given entrepreneur type competition results in contracts with less screening two endogenous effects on productivity emerge production scales grow closer to optimal but lower productivity entrepreneurs enter the mix of producers the positive negative effect dominates at low high aggregate states

financial development financial fragility and growth the authors study the apparent contradiction between two strands of the literature on the effects of financial intermediation on economic activity on the one hand the empirical growth literature finds a positive effect of financial depth as measured by for instance private domestic credit and liquid liabilities for example levine loayza and beck 2000 on the other hand the banking and currency crisis literature finds that monetary aggregates such as domestic credit are among the best predictors of crises and their related economic downturns for example kaminski and reinhart 1999 the authors account for these contrasting effects based on the distinction between the short and long run impacts of financial intermediation working with a panel of cross country and time series observations they estimate an encompassing model of short and long run effects using the pooled mean group estimator developed by pesaran shin and smith 1999 their conclusion from this analysis is that a positive long run relationship between financial intermediation and output growth coexists with a mostly negative short run relationship the authors further develop an explanation for these contrasting effects by relating them to recent theoretical models by linking the estimated short run effects to measures of financial fragility namely banking crises and financial volatility and by jointly analyzing the effects of financial depth and fragility in classic panel growth regressions

competition and increasing returns to scale a model of bank size this study examines the causal effects of bank size on banks survival asset quality and leverage two forces drive these effects increasing returns to scale derived from banks expertise and competition the first enables bigger banks to survive competition better have higher asset quality and be more leveraged it drives banks into a race for expansion this race toughens competition between banks which edges out small banks and may worsen all banks asset quality consequently the banking industry will be dominated by a small number of highly leveraged banks in this study financial intermediation arises endogenously and co exists with direct finance

monetary policy and bank lending in the euro area is there a stock market channel or an interest rate channel abstract in this paper i compare a traditional demand oriented model of bank lending with its focus on short term interest rates in the money market to a non traditional capital budgeting model of bank lending based on movements in share valuations for the euro area using non nested hypothesis tests omitted variables tests and granger causality tests i reject the traditional demand oriented model of bank lending and fail to reject the capital budgeting model of bank lending for monetary financial institutions mfi s in the euro area even though europe is a bank based financial system it appears the stock market plays a key role in the lending decisions and allocation of resources in europe one possible policy implication of this research is that the central bank should try and stabilize stock prices in order to achieve their goal of stabilizing bank lending and the economy

alternative hypotheses and the volume of trade the gravity equation and the extent of specialization we examine why the gravity equation works and the implications for its use first we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs second we analyse the predominance of zero bilateral trade values as a puzzle broadly inconsistent with the complete specialization models typically used to derive the gravity equation but consistent with the alternative hypothesis of incomplete specialization third we demonstrate that the explanation for why the gravity equation works has considerable relevance for how the gravity equation is interpreted and used and how we view bilateral trade diverses hypotheses et le volume du commerce l equation de gravite et le degre de specialisation les auteurs examinent comment fonctionne l equation de gravite et les implications de son usage on propose trois contributions d abord on montre que l equation de gravite en tant que relation statistique et non pas en tant que prediction specifique de commerce bilateral peut etre produite a partir d un modele avec specialisation incomplete et couts de transaction ensuite on analyse la predominance de valeurs zero dans les commerces bilateraux en tant qu enigme generalement incompatible avec les modeles de specialisation complete utilises habituellement pour deriver l equation de gravite mais compatible avec l hypothese de rechange de specialisation incomplete enfin on montre que les raisons pour lesquelles l equation de gravite fonctionne ont un impact sur la facon de l interpreter et de l utiliser et sur notre facon de concevoir le commerce bilateral

rational herding in financial economics abstract this paper briefly describes recent papers on the economics of rational herding in financial markets some models can predict perfect herding in which rational agents all act alike without any countervailing force such herding typically arises either from direct payoff externalities negative externalities in bank runs positive externalities in the generation of trading liquidity or in information acquisition principal agent problems based on managerial desire to protect or signal reputation or informational learning cascades the paper also provides a few pointers to related literature and suggests issues to be addressed in future research

bank competition and credit standards this article offers an explanation for the substantial variation of credit standards and price competition among banks over the business cycle as the economic outlook improves the average default probabilities of borrowers decline this affects the profitability of screening and causes bank screening intensity to display an inverse u shape as a function of economic prospects low screening activity in expansions creates intense price competition among lenders and loans are extended to lower quality borrowers as the economic outlook worsens price competition diminishes and credit standards tighten significantly deposit insurance may contribute to the countercyclical variation of credit standards copyright 2004 oxford university press

drivers of vertical intra industry trade the case of the hungarian agri food sector this article investigates the drivers of vertical intra industry trade viit in hungarian agri food trade with the european union eu it identifies three possible ways to measure intra industry trade iit flows ghm ff and n methods and defines six hypotheses to test for the drivers of viit with three panel data models static dynamic and fevd the results suggest that factor endowments are negatively while economic size is positively and significantly related to viit distance and viit were found to be negatively related as is commonly the case in the standard gravity model it was also found that viit is greater if a new member state nms is exporting agri food produce to an nms while eu accession has ambiguously influenced the share of viit in general it seems that our results are independent from model estimations and interestingly they do not differ considerably as we a priori expected moreover our results seem surprisingly robust across various measurements of itt

cross country determinants of bank income smoothing by managing loan loss provisions abstract this paper studies the determinants of income smoothing by management of loan loss provisions in banks around the world using a panel database of 3221 bank year observations from 40 countries and controlling for unobservable bank effects and for the endogeneity of explanatory variables we find that bank income smoothing depends on investor protection disclosure regulation and supervision financial structure and financial development results suggest there is less bank income smoothing not only with the strength of investor protection but also with the extent of accounting disclosure restrictions on bank activities and official and private supervision while there is more income smoothing with market orientation and development of a country s financial system

career concerns inaction and market inefficiency evidence from utility regulation we study how incentive conflicts known as career concerns can generate inefficiencies not only within firms but also in market outcomes career concerns may lead agents to avoid actions that while valueincreasing in expectation could potentially be associated with a bad outcome we apply this theory to natural gas procurement by regulated public utilities and show that career concerns may lead to a reduction in surplus increasing market transactions during periods when the benefits of trade are likely to be greatest we show that data from natural gas markets are consistent with this prediction and difficult to explain using alternative theories

insecurity and the pattern of trade an empirical investigation corruption and imperfect contract enforcement dramatically reduce international trade this paper estimates the reduction using a structural model of import demand in which insecurity acts as a hidden tax on trade we find that inadequate institutions constrain trade as much as tariffs do we also find that omission of indices of institutional quality biases the estimates of typical gravity models obscuring a negative relationship between per capita income and the share of total expenditure devoted to traded goods finally we argue that cross country variation in the effectiveness of institutions and the consequent variation in the prices of traded goods offer a simple explanation for the stylized fact that high income capital abundant countries trade disproportionately with each other

dueling policies why systemic risk taxation can fail abstract two policy instruments for the banking sector are investigated namely systemic risk taxation and constructive ambiguity about bailout policy bailout expectations can induce moral hazard in the form of excessive risk taking by banks systemic risk taxation induces banks to prefer uncorrelated investments leading to lower systemic risk formation constructive ambiguity generates uncertainty about bailout prospects however systemic risk taxation also may inform banks about the regulator s concern for financial stability and thereby its bailout policy this result leads to a trade off between systemic risk taxation and constructive ambiguity and highlights the need to consider interdependence across policies when evaluating their effectiveness

the importance of eu 15 borders for ceecs agri food exports the role of tariffs and non tariff measures in the pre accession period abstract this paper assesses the evolution of the eu 15 market access for the agri food products originating from ceecs a gravity model technique has been used to assess the overall trade resistance border effect and to weight its various components such as tariff and non tariff measures sanitary and phytosanitary standards other quality measures in the pre accession period 1999 2004 the findings reveal despite the undertaken integration and trade liberalisation processes a persisting and significant trade resistance for the ceecs agri food exports to the eu market even just prior their accession in 2004 still present difficulties in market access at the time are partially explained by tariff and non tariff measures while a large part of border effect remains in the domain of other presumably non trade policy related factors home bias consumer preferences etc these results indicate that despite the accession process customs union and adoption of the eu standards the trade integration of the enlarged eu market was not yet completed in 2004

information contagion and bank herding we show that the likelihood of information contagion induces profit maximizing bank owners to herd with other banks when bank loan returns have a common systematic factor the cost of borrowing for a bank increases when there is adverse news on other banks since such news conveys adverse information about the common factor the increase in a bank s cost of borrowing relative to the situation of good news about other banks is greater when bank loan returns have less commonality in addition to the systematic risk factor hence banks herd and undertake correlated investments so as to minimize the impact of such information contagion on the expected cost of borrowing competitive effects such as superior margins from lending in different industries mitigate herding incentives

trade liberalisation economic development and poverty alleviation in a distinguished career spanning more than four decades jagdish bhagwati has made numerous contributions to both trade theory and trade policy analysis the current paper focuses on bhagwati s major contribution to the ongoing debate surrounding the influence of trade liberalisation upon economic development and its potential to alleviate poverty in the world s poorest economies in order to highlight bhagwati s contributions in these fields we focus on the arguments developed in two of his numerous landmark publications first his seminal 1964 paper on the pure theory of international trade and second his 2004 book entitled in defense of globalization although separated in time by some four decades we argue that these two publications despite their very different characters each demonstrate beyond doubt the significance of bhagwati s work in improving our understanding of the true nature of international trade and its potential to address questions of global poverty

capital requirements monetary policy and aggregate bank lending theory and empirical evidence capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending the model predicts that the bank s decision to lend will cause an abnormal runup in the borrower s stock price and that this reaction will be greater the more capital constrained the bank i provide empirical support for this prediction the model explains the recent inability of the federal reserve to stimulate bank lending by increasing the money supply i show that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk the motivation of this article is first to examine the impact of risk based capital requirements namely those that link mandatory capital to asset ratios for banks to their loans on aggregate bank lending these requirements called the basle capital rules or bis guidelines went into effect in march 1989 for banks in the leading industrialized nations these rules initially required banks to maintain capital equal to 7 25 percent of business and most consumer loans with the requirement increasing to 8 percent by the end of 1992 secondly i wish to understand the link between monetary policy and aggregate bank credit in the presence of risk based capital requirements my curiosity is sparked in part by two recent phenomena one is the experience of the u s economy which displayed sluggish growth during 1989 93 despite a monetary policy that attempted to spur bank lending and economic activity and the other is the striking decline in loans relative to security holdings mostly government bonds in the asset portfolios of u s

from search to match when loan contracts are too long a model of lending is presented where loans are established in matches between banks lenders and entrepreneurs borrowers who meet in a search process projects turn out randomly a quick payoff or a long term payoff that requires a rollover of the loan the model generates under proper parameter conditions two steady states without or with rollover and rollover is socially inefficient under imperfect information the standard debt contract is privately efficient however it extends the domains of equilibria with socially inefficient rollover the global dynamics displays a continuum of equilibrium paths that each exhibits sudden discontinuities crises in which the mass of outstanding loans is reduced by a quantum amount of terminations crises have a cleansing effect

does bank ownership affect lending behavior evidence from the euro area abstract we analyze the differences in lending policies across banks characterized by different types of ownership using micro level data on euro area banks during the period 1999 2011 to detect possible variations in bank lending supply responses to changes in monetary policy our results identify a general difference between stakeholder and shareholder banks following a monetary policy contraction stakeholder banks decrease their loan supply to a lesser extent than shareholder banks a detailed analysis of the effect among stakeholder banks reveals that cooperative banks continued to smooth the impact of tighter monetary policy on their lending during the crisis period 2008 2011 whereas savings banks did not stakeholder banks propensity to smooth their lending cycles suggests that their presence in the economy has the potential to reduce credit supply volatility

business fluctuations in a behavioral switching model gridlock effects and credit crunch phenomena in financial networks abstract in this paper we characterize the evolution over time of a credit network in the most general terms as a system of interacting banks and firms operating in a three sector economy with goods credit and interbank market credit connections change over time via an evolving fitness measure depending from lenders supply of liquidity and borrowers demand of credit moreover an endogenous learning mechanism allows agents to switch between a loyal or a shopping around strategy according to their degree of satisfaction the crucial question we investigate is how financial bubbles and credit crunch phenomena emerge from the implemented mechanism

inequality credit and financial crises in the three decades leading up to the financial crisis of 2008 09 income inequality rose across much of the developed world this has led to a vigorous debate as to whether widening inequality was somehow to blame for the crisis by driving private sector credit booms despite growing interest empirical evidence on an inequality fragility relationship is limited based on a panel analysis of 18 oecd organisation for economic co operation and development countries for the years 1970 2007 this study provides evidence of a positive relationship between income concentration and private sector indebtedness once other traditional drivers are controlled for if confirmed the implications of this result are as follows i the view that the distribution of income is irrelevant to macroeconomic stability as implicit in mainstream approaches needs further investigation and ii in order to make the financial system more robust policy makers should cast the net wider than monetary policy and regulatory reforms and consider the effects of changes to distributive patterns

risk averse bank managers exogenous shocks portfolio reallocations and market spillovers abstract this paper develops a model of the banking market in which individual banks make decisions concerning both the size and risk characteristics of their portfolios and in which actions of one bank spill over to affect actions of other banks various observed banking market behaviors such as herding credit crunches bank reaction to policy changes etc are explained as optimal bank responses to idiosyncratic or systemic shocks

the cyclical behaviour of european bank capital buffers using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk we find capital buffers of the banks in the eu15 have a significant negative co movement with the cycle for banks in the accession countries there is significant positive co movement capital buffers of commercial and savings banks and of large banks exhibit negative co movement those of co operative and smaller banks exhibit positive co movement speeds of adjustment are fairly slow we interpret these results and discuss policy implications noting that negative co movement of capital buffers will exacerbate the pro cyclical impact of basel ii

when arm s length is too far relationship banking over the credit cycle we conduct face to face interviews with bank ceos to classify 397 banks across 21 countries as either relationship or transaction lenders we then use the geographic coordinates of these banks branches and of 14 100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle we find that while relationship lending is not associated with credit constraints during a credit boom it alleviates such constraints during a downturn this positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn moreover our evidence suggests thatrelationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans

the penn square bank failure effect on commercial bank security returns a note abstract in this paper we apply standard event methodology to test the effect of the penn square bank failure on the daily returns of three groups of bank holding companies during the 75 day event period upstream banks which had penn square loan participations faced nearly continual declines in daily returns banks in the same economic region followed a pattern of less severe but continuously declining returns while returns for banks outside the region were not significantly affected we conclude that the market viewed the penn square failure as an isolated event which did not significantly affect banks away from regional economic influences

anxious periods and bank lending we examine the lending behavior of banks during anxious periods the main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession we identify distinct periods of anxiety for consumers ceos firms and analysts subsequently we study the lending behavior of us banks during the anxious quarters from 1985 to 2010 using bank level data the results show that banks lending falls when consumers and analysts are anxious and this effect is more pronounced when banks hold a higher level of credit risk these effects are more pronounced in anxious periods that were followed by recessions and in these periods loan growth also responds negatively to the anxiety of ceos yet these effects are quite less prevalent in the period after 2001

why trade liberalisation is good for growth there are three titles that might have been assigned for this paper 1 why is growth so rapid with outer oriented trade strategies 2 do countries with outer oriented trade strategies grow faster and 3 the one actually assigned they are not the same of the three the first is probably the most difficult to answer the second is a factual question and the empirical demonstration is straightforward sachs and warner 1995 the third by focussing on trade liberalisation implies that developing countries have highly restrictive trade regimes and thus asks if a move away from those regimes is good for growth it is far easier to show why especially over time liberalising a restrictive trade regime is conducive to more rapid growth than it is to show why outer oriented trade strategies have been so highly successful trade strategies and development strategies are closely related and it is useful to start by defining a few terms an import substitution is industrialisation strategy was adopted by most developing countries in the years following the second world war in most cases those countries were then predominantly agricultural and exporters of primary commodities the belief then was that rapid industrialisation was the essential if not the sole feature of economic growth and that only by domestically producing goods then imported could developing countries industrialise 1 under is it was intended to provide protection to new industries during their developmental period until they could compete with their counterparts in industrialised countries in practice the is strategy pulled most new resources into import competing activites with a number of negative consequences discussed later and one result was that export earnings grew less rapidly than the demand for foreign exchange and usually less rapidly even than real gdp an almost universal policy response was then to impose restrictive import licensing in response to foreign exchange shortage the stated reasons for this were the need to conserve scarce foreign exchange for essential developmental needs the outcome was of course a restrictive trade regime for reasons to be discussed below as is strategies continued trade regimes increased in restrictiveness and growth slowed hence to discuss trade liberalisation is to address the removal or at least reduction of incentives for is industrialisation and because again to be discussed below growth spurred under an is industrialisation strategy slows

reputation risk taking and macroprudential policy abstract this paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities in our model unprofitable banks have strong incentives to invest in risky assets when macroeconomic fundamentals are good in order to avoid the stigma of being assessed as low ability by the market we show that across the system countercyclical capital requirements that deter such gambling are constrained optimal when fundamentals are neither extremely weak nor extremely strong

institutions infrastructure and trade we work with a panel of bilateral trade flows from 1988 to 2002 exploring the influence of infrastructure institutional quality colonial and geographic context and trade preferences on the pattern of bilateral trade we are interested in threshold effects and so emphasize those cases where bilateral country pairs do not actually trade we depart from the institutions and infrastructure literature in this respect using selection based gravity modeling of trade flows we also depart from this literature by mixing principal components to condense our institutional and infrastructure measures with a focus on deviations from expected values for given income cohorts to control for multicollinearity infrastructure and institutional quality are significant determinants not only of export levels but also of the likelihood exports will take place at all our results support the notion that export performance and the propensity to take part in the trading system at all depends on institutional quality and access to well developed transport and communications infrastructure indeed this dependence is far more important empirically than variations in tariffs in explaining sample variations in north south trade this implies that policy emphasis on developing country market access instead of support for trade facilitation may be misplaced

institutional quality and international trade institutions quality of contract enforcement property rights shareholder protection and the like have received a great deal of attention in recent years yet trade theory has not considered the implications of institutional differences beyond treating them simply as different technologies or taxes the purpose of this paper is twofold first we propose a simple model of international trade in which institutional differences are modeled within the framework of incomplete contracts we show that doing so reverses many of the conclusions obtained by equating institutions with productivity institutional differences as a source of comparative advantage imply among other things that the less developed country may not gain from trade and factor prices may actually diverge as a result of trade second we test empirically whether institutions act as a source of trade using data on us imports disaggregated by country and industry the empirical results provide evidence of institutional content of trade institutional differences are an important determinant of trade flows

do investors herd in emerging stock markets evidence from the taiwanese market abstract this paper has three main contributions to the literature on investor herds first it extends investor herding studies to an emerging yet relatively sophisticated taiwanese stock market at the sector level by using firm level data second it employs different methodologies designed to test the existence of investor herds to better understand the sources of herd behavior third it discusses the implications of different herding measures for investors exposed to systematic and unsystematic risks we find that the linear model based on the cross sectional standard deviation cssd testing methodology yields no significant evidence of herding however the non linear model proposed by chang et al 2000 and the state space based models of hwang and salmon 2004 lead to consistent results indicating strong evidence of herd formation in all sectors we also find that the herding effect is more prominent during periods of market losses our results suggest limited diversification opportunities for investors in this market especially during periods of market losses when diversification is most needed further research is necessary to see whether similar findings hold for other emerging markets

capital adequacy ratio regulations and accounting choices in commercial banks abstract this study examines a commercial bank manager s incentives to reduce regulatory costs imposed when the bank s capital adequacy ratio falls below its regulatory minimum it also tests the general political sensitivity hypothesis that a manager seeks to reduce political costs incurred when revenue is unusually large tests of adjustments to the loan loss provision loan charge offs and securities gains and losses attempt to control for exogenous economic conditions and previous investing decisions results are consistent with hypotheses associating accounting adjustments with capital adequacy ratio guidelines but fail to support the political sensitivity hypothesis

extreme screening policies abstract we show that a lender often experiences increasing marginal returns to screening in a standard setting where the lender decides how intensively to screen the projects of prospective borrowers the increasing marginal returns imply that even small changes in industry parameters can produce large changes in equilibrium screening intensity in particular a small reduction in the expected return from borrowers projects can produce a pronounced increase in the screening of prospective borrowers with substantial corresponding welfare effects

cash flows and credit cycles aggregate productivity falls in recessions and rises in expansions several empirical studies suggest that the systematic behavior of lending standards with laxer tighter standards applied during expansions recessions is responsible for reverting trends in aggregate productivity we build a dynamic model that rationalizes these findings adverse selection in credit markets emerges as a potential source of macroeconomic instability the key idea modeled is that in order to effectively signal their type to financiers productive entrepreneurs must suffer a cost the effective cost of signaling rises with higher cash flow brought about by stronger economic fundamentals because higher cash flow makes it easier for the unproductive type to mimic the productive type competition among the financiers then results in suboptimally lax lending standards low productivity entrepreneurs obtain financing the producer composition effect inducing a recession this in turn creates conditions weak economic fundamentals and low cash flow conducive to the emergence of tighter lending terms the strong composition effect leading to an economic recovery

credit booms and lending standards evidence from the subprime mortgage market this paper links the u s subprime mortgage crisis to demand side factors that contributed to the rapid expansion of the u s mortgage market we show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high growth areas attached less weight to applicants loan to income ratios the results are robust to controlling for supply side factors including house price appreciation mortgage securitization and other economic fundamentals and to several robustness tests controlling for endogeneity the results are consistent with the notion that a relaxation of lending standards triggered by an increased demand for loans contributed to the boom and the ensuing crisis together with other supply side explanations these findings shed new light on the relationship between credit booms and financial instability

credit crises money and contractions an historical view abstract the relatively infrequent nature of major credit distress events makes an historical approach particularly useful using a combination of historical narrative and econometric techniques we identify major periods of credit distress from 1875 to 2007 examine the extent to which credit distress arises as part of the transmission of monetary policy and document the subsequent effect on output using turning points defined by the harding pagan algorithm we identify and compare the timing duration amplitude and co movement of cycles in money credit and output regressions show that financial distress events exacerbate business cycle downturns both in the 19th and 20th centuries and that a confluence of such events makes recessions even worse

revealed comparative advantage and competitiveness in hungarian agri food sectors we examine the competitiveness of hungarian agriculture and food processing in relation to that of the eu based on four indices of revealed comparative advantage using highly disaggregate data for the period 1992 to 1998 consistency tests suggest that the indices are less satisfactory as cardinal measures but are useful in identifying the demarcation between comparative advantage and comparative disadvantage hungary is shown to have a comparative advantage in a range of agri food products including animals and meat this complements the findings of those studies that have used price and cost based approaches in identifying competitiveness in cereals and crops results indicate that the rca indices when interpreted as a binary measure have remained surprisingly stable during the period of transition although there is evidence of a weakening in the level of comparative advantage as revealed in the balassa index

financial globalization and the governance of domestic financial intermediaries we model a small open economy in which both domestic financial intermediaries and entrepreneurs face incentive constraints as in holmstrom and tirole 1997 to study the general equilibrium impact of various types of capital inflows on the efficiency and governance of domestic banks banks have an advantage in monitoring firms but the latter can collude with banks and offer side payments to reduce the intensity of monitoring opening up to international capital flows makes domestic banks capital scarcer relative to uninformed capital thus increasing the relative cost of monitoring we show that capital account liberalization has ambiguous effects on the governance of the domestic financial system by sometimes increasing firms incentives to collude with banks we characterize the conditions under which governance is more likely to deteriorate after opening up the capital account and discuss the effects on investment productivity and output we also analyze the effects of foreign direct investment in the corporate and banking sectors stylized facts are consistent with the predictions of the model

contractual externalities and systemic risk we study effort and risk taking behaviour in an economy with a continuum of principal agent pairs where each agent exerts costly hidden effort principals write contracts based on both absolute and relative performance evaluations ape and rpe respectively to make individually optimal risk return trade offs but do not take into account their impact on endogenously determined aggregate variables this results in contractual externalities when these aggregate variables are used as benchmarks in contracts contractual externalities have welfare changing effects when principals put too much weight on ape or rpe due to information frictions relative to the second best if the expected productivity is high risk averse principals over incentivize their own agents triggering a rat race in effort exertion resulting in over investment in effort and excessive exposure to industry risks the opposite occurs when the expected productivity is low inducing pro cyclical investment and risk taking behaviours

do loan commitments cause overlending i begin with a model that generates quantity credit rationing by banks in the spot credit market when the real interest rate is high and there is an economic downturn then i rationalize a bank loan commitment as partial insurance against such future rationing incorporating uncertainty about both the creditworthiness of borrowers and the abilities of banks to screen borrowers i extend the bank contracting literature wherein i examine banks decisions of whether to lend under the commitments sold earlier i show that this discretion of whether to honor borrowing requests under commitments generates reputational concerns on the part of banks and can lead to an equilibrium in which loan commitments serve their role in increasing credit supply relative to the spot credit market but produce the inefficiency of excessive credit supply when the real interest rate is low and the economy is doing well despite this welfare is higher with loan commitments than with spot credit numerous empirical predictions and policy implications are drawn out

dynamic provisioning a buffer rather than a countercyclical tool this paper analyzes whether dynamic provisioning systems act as a dampener as intended or as a buffer after briefly reviewing the literature we explain the rationale for dynamic provisions and analyze the experience of three of the few countries that adopted them spain colombia and peru we conclude that in the case of spain which is the only one where dynamic provisions worked over a complete cycle the fact that market discipline only operated in the downturn implied that the system acted more as a buffer than as a dampener we also observe that even rule based systems tend to be applied in a discretionary way since they require a very reliable calibration of the cycle ex ante an assumption that has proven unrealistic the comparison of the spanish system versus the peruvian and colombian raises interesting policy conclusions on whether dynamic provisioning should be applied differently to industrial versus emerging countries

putting things in order trade dynamics and product cycles we develop a procedure to rank order objects using censored panel data sets we illustrate this by ranking countries and commodities using disaggregated american import data and find evidence that

the impact of liquidity constraints on bank lending policy this paper examines banks provision of liquidity to depositors and provision of loans the problem identified is that banks may not be able to provide new funds for borrowers who are short of cash because either the return on investments is poor or because depositors withdraw more funds than expected banks subject to liquidity shortages may ration loans to good borrowers this problem is shown to depend upon the nature of the deposit contract and banks inability to issue subordinated deposits state contingent renegotiation of loans and matching of the duration of project returns and investment needs mitigates the problem

games the states don t play welfare benefits and the theory of fiscal federalism fiscal federalism theory predicts that states will behave strategically in welfare programs because voter demand for welfare is sensitive to tax price while the tax price itself changes because of welfare induced migration this paper tests these propositions on afdc in the united states for a panel from 1982 88 using new models for the determination of the recipiency ratio the tax price and composite neighbors the data do not support any substantial tax price elasticity of demand for welfare estimates of migration effects on tax price are found to be sensitive to specification copyright 1995 by mit press

sequential sales learning and cascades when ipo shares are sold sequentially later potential investors can learn from the purchasing decisions of earlier investors this can lead rapidly to cascades in which subsequent investors optimally ignore their private information and imitate earlier investors although rationing in this situation gives rise to a winner s curse it is irrelevant the model predicts that 1 offerings succeed or fail rapidly 2 demand can be so elastic that even risk neutral issuers underprice to completely avoid failure 3 issuers with good inside information can price their shares so high that they sometimes fail 4 an underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market consider a scenario in which an issuer is selling a new security of uncertain value for example an ipo initial public offering of stock or high yield debt through an underwriter the s e c has banned variable price sales while the value of this new security is highly uncertain to individual market participants investors hold perfectly accurate information when aggregated moreover there are many potential investors and a small number of these investors can jointly determine the value of the firm or its project with high precision it would seem that in this scenario underpriced offerings would succeed and overpriced offerings would fail nevertheless this paper shows that if the distribution channels of invest ment banks are limited underpriced offerings can fail and overpriced offer ings can succeed with limited distribution channels it takes the under writer time to approach interested investors therefore later investors can observe how well an offering has sold to date or at least how successful it has sold relative to offerings previously undertaken by this underwriter

banking on the boom tripped by the bust banks and the world war i agricultural price shock bank lending booms and asset price booms are often intertwined although a fundamental shock might trigger an asset boom aggressive lending can push asset prices higher leading to more lending and so on such a dynamic seems to have characterized the agricultural land boom surrounding world war i this paper examines i how banks responded to the asset price boom and how they were affected by the bust ii how various banking regulations and policies influenced those effects and iii how bank lending contributed to rising farm land values in the boom and how bank closures contributed to falling prices in the bust we find that rising crop prices encouraged bank entry and balance sheet expansion in agriculture counties state deposit insurance systems amplified the impact of rising crop prices on the size and risk of bank portfolios while higher minimum capital requirements dampened the effects further increases in county farm land values and mortgage debt were correlated with the number of local banks ex ante and increases in bank loans during the boom when farm land prices collapsed banks that had responded most aggressively to the asset boom had a higher probability of closing while counties with more bank closures experienced larger declines in land prices than can be explained by falling crop prices alone

loan growth and riskiness of banks we investigate whether loan growth affects the riskiness of individual banks in 16 major countries using bankscope data from more than 16 000 individual banks during 1997 2007 we test three hypotheses on the relation between abnormal loan growth and asset risk bank profitability and bank solvency we find that loan growth leads to an increase in loan loss provisions during the subsequent three years to a decrease in relative interest income and to lower capital ratios further analyses show that loan growth also has a negative impact on the risk adjusted interest income these results suggest that loan growth represents an important driver of the riskiness of banks

why bank credit policies fluctuate a theory and some evidence in a rational profit maximizing world banks should msdntain a credit policy of lending if and only if borrowers have positive net present value projects why then are changes in credit policy seemingly correlated with changes in the condition of those demanding credit this paper argues that rational bank managers with short horizons will set credit policies that influence and are influenced by other banks and demand side conditions this leads to a theory of low frequency business cycles driven by bank credit policies evidence from the banking crisis in new england in the early 1990s is consistent with the assumptions and predictions of the theory

credit booms and macrofinancial stability this paper explores several questions about credit booms and busts when do credit booms occur when do they end up in busts and when do they not what are the implications for different policies if curbing credit growth and or mitigating the associated risks is an objective we find that credit booms are often associated with financial reform and economic growth they also tend to be more frequent in fixed exchange rate regimes only one in three credit boom episodes are followed by a financial crisis these booms tend to be larger and last longer macroprudential tools have at times proven effective in containing booms and more often in limiting the consequences of busts due to the buffers they helped to build