detecting shift contagion in currency and bond markets abstract this paper investigates why financial market crises often increase the interdependence between assets associated with different countries two sources of increased co movement in asset returns are considered i larger common shocks operating through standard cross country linkages and ii changes in the structural transmission of shocks across countries referred to as shift contagion to examine this issue we develop a method for detecting shift contagion with three notable features first parameters corresponding to the structural transmission of shocks across countries are identified in the presence of changing volatility regimes for the shocks second the timing of changes in volatility is endogenously estimated instead of being exogenously assigned third the countries in which crises originate need not be known or even included in the analysis we apply the method to currency returns for developed countries and bond returns for emerging market countries

contagion during the greek sovereign debt crisis abstract we examine the impact of news about greece and news about a greek bailout on bank stock prices in 2010 using data for 48 european banks we identify the twenty days with extreme returns on greek sovereign bonds and categorise the news events during those days into news about greece and news about the prospects of a greek bailout we find that except for greek banks news about greece does not lead to abnormal returns while news about a bailout does even for banks without any exposure to greece or other highly indebted euro countries this finding suggests that markets consider news about the bailout to be a signal of european governments willingness in general to use public funds to combat the financial crisis sovereign bond prices of portugal ireland and spain respond to both news about greece and news about a greek bailout

tail dependence analysis of stock markets using extreme value theory abstractfinancial risk modelling frequently uses the assumption of a normal distribution when considering the return series which is inefficient if the data is not normally distributed or if it exh

imperfect competition information heterogeneity and financial contagion this study examines how heterogeneity of private information may induce financial contagion using a model of multi asset trading in which the three main channels of contagion through financial linkages in the literature correlated information correlated liquidity and portfolio rebalancing are ruled out by construction i show that financial contagion can still be an equilibrium outcome when speculators receive heterogeneous fundamental information risk neutral speculators trade strategically across many assets to mask their information advantage about one asset asymmetric sharing of information among them prevents rational market makers from learning about their individual signals and trades with sufficient accuracy incorrect cross inference about terminal payoffs and contagion ensue when used to analyze the transmission of shocks across countries my model suggests that the process of generation and disclosure of information in emerging markets may explain their vulnerability to financial contagion jel d82 g14 g15

climate damages in the fund model a disaggregated analysis abstract we examine the treatment of climate damages in the fund model by inserting software switches to turn individual features on and off we obtain fund s estimates for 15 categories of damages and for components of the agricultural category fund as used by the u s government to estimate the social cost of carbon projects a net benefit of climate change in agriculture offset by a slightly larger estimate of all other damages within agriculture there is a large benefit from co 2 fertilization a moderate cost from the effect of temperature on yields and a much smaller impact of the rate of change in fund s agricultural modeling the temperature yield equation comes close to dividing by zero for high probability values of a monte carlo parameter the range of variation of the optimal temperature exceeds physically plausible limits with 95 confidence intervals extending to 17 c above and below current temperatures moreover fund s agricultural estimates are calibrated to research published in 1996 or earlier use of estimates from such models is arguably inappropriate for setting public policy but as long as such models are being used in the policymaking process an update to reflect newer research and correct modeling errors is needed before fund s damage estimates can be relied on

a critical review of contagion risk in banking the recent financial crisis has focused the attention of scholars and policymakers on how to improve financial stability through better macro prudential regulation and supervision in this paper we compare the existing theoretical and empirical literature on contagion through the banking system it is argued that the structure of the interbank market the size of banks the linkages among them the level of correlation of their investments and the transparency of the regulator are key factors in determining the possibility of contagion we discuss the different findings and present avenues for future research

decoupling and recoupling we develop a stylized model that captures the phenomena of decoupling and recoupling in an environment where heterogeneous entrepreneurial sectors face financial constraints in their relationship with a common set of lenders in response to adverse shocks a financially constrained sector must reduce its borrowing and cut down on production in particular as the constrained sector absorbs less and less capital the real interest rate in the economy declines other sectors that compete for the same inputs including capital thus experience lower costs which boosts investment output and profits reflecting the phenomenon of decoupling as long as the shock is small the entrepreneurial sector repays what is owed and the lenders ability to supply funds is unaffected for large shocks however the constrained sector is no longer able to honor its debts in full and lenders experience losses that erode their lending base this induces them to cut their supply of credit to the rest of the economy which reduces output and profit for all other entrepreneurial sectors capturing the phenomenon of recoupling or contagion this abstract was borrowed from another version of this item

climate damages in the fund model a comment in a recent paper published in this journal ackerman and munitz 2012 ackerman and munitz am present a sectoral decomposition of the impacts of climate change as represented in fund an integrated assessmentmodel and contrast the resultswith andwithout uncertainty we welcome outside scrutiny of our work even if in this case it adds little to what we knew already anthoff and tol 2011 anthoff et al 2011 am also take issue with the range of uncertainty about the impacts of climate change reported in the peer reviewed literature an issue that is outside our control am further claim that the equation describing the impacts of climate change on agriculture comes dangerously close to dividing by zero and that the fund estimate of the social cost of carbon is significantly affected by these runs this claim is incorrect based on inconclusive diagnostic tests used by am am report two tests for dividing by zero in both tests am change the statistical properties of the monte carlo analysis and compare the expectation of the social cost of carbon from their modified version of fund with estimates from the original model in the original model there are 16 composite distributions that are normal normal normal and 16 that are normal normal in one test am replace these probability density functions with normal distributions in the other test they replace 16 probability density functions with normal distributions and 16 others with normal normal distributions although they preserve the modes of the distributions at least in the first test am change the means all higher moments and all cross moments

unions and monopoly profits using cross sectional data for u s manufacturing the author identifies a negative effect of unions on the profits of highly concentrated industries and virtually no effect on the profits of unconcentrated industries the results for concentrated industries are explained in terms of the monopoly model which predicts a negative effect of unions on profits equivalent to the change in employer s surplus the monopoly model also suggests that previous profit studies which omitted the union variable were likely to significantly underestimate the relationship between concentration and profits this prediction is also supported by empirical evidence m sany studies have demonstrated the ability of unions to raise wages above the level of nonunion workers higher union wages in turn may affect the level of prices employment capital intensity productivity and profits recent studies by clark 1982 and freeman 1983 have found significant negative effects of unions on profit rates in the united states using line of business data from 1970 to 1980 for 900 firms clark found a negative effect of unions on the rate of return to capital more specifically the union effects were found to be significantly negative when market shares were low and insignificant when market shares were high according to clark the absence of a union effect in the latter case can be explained by the ability of firms with market power to pass on higher union wages into higher prices 1982 p 47 on the other hand freeman 1983 using data from the survey of manufactures from 1958 to 1976 and the internal revenue service from 1965 to 1976 also found a negative effect of unions on profits contrary to clark s results however the union profit effect was negative only in concentrated industries the point of contention appears to be the role of concentration in determining the union profit effect rather than the overall negative impact of unions the results of clark and freeman are important because previous industrial organization research on profit rates generally ignored unions for instance of the forty six profit studies surveyed by weiss 1974 none included a union variable more recently a profit study in this review by ravenscraft 1983 using high quality line of business data from the federal trade commission also ignored unionization as will be demonstrated the omission of the union variable leads to an understatement of the effect of industrial concentration on profits this means that concentrated industries generate much greater profits than indicated by previous research in order to measure the size of the understatement a new concept employer s surplus is developed which illustrates the theoretical impact of a union wage increase on monopoly profits the empirical estimates of employer s surplus in this paper indicate how monopoly profits are divided between firms and unions most of the data used in this study were obtained from james medoff and charles brown 2 unlike the previous two studies each observation corresponds to a state by two digit sic industry for manufacturing in 1972 because of the large variations in unionization across states this data set offers a useful test of the union profit effect i employer s surplus according to accepted theory the profit maximizing monopolist will employ labor up to the point where the market wage equals the marginal revenue product mrp 3 if for simplicity we assume that all other factors are variable then the mrp curve represents the monopolist s long run demand for labor in the absence of unions employment is determined by the intersection of the mrp curve and nonunion wage wn as pictured in figure 1 if unions raise wages to wa employment will decrease from ln to l with the reducreceived for publication november 28 1983 revision accepted for publication july 6 1984 eastern washington university i am very grateful to dave bunting lisa brown bill dickens claire brown and george strauss for their valuable suggestions on this research this paper is a revised version of chapter 3 from the author s ph d thesis the union impact on profits productivity and prices university of california berkeley 1 see parseley 1980 for a recent review of this literature 2 i would like to thank brown and medoff for making these data available to me 3 marginal revenue product is equal to marginal revenue multiplied by marginal physical product see rees 1979

help wanted economists crime and public policy beginning with gary w becker s 1968 article on crime and punishment economists have contributed important theoretical insights and empirical findings to the study of criminal behavior but the influence of economists on crime relevant research and over policy debates remains negligible this essay summarizes some basic data on the causes of crime the social costs and benefits of incarceration and replenishing social capital work on crime by economists should become influential in setting research agendas and shaping policy debates but economists will have to roll up their sleeves complexify their models and confront a real world prisoner s dilemma or two

the role of portfolio constraints in the international propagation of shocks we study the comovement among stock prices and exchange rates in a three good three country centre periphery dynamic equilibrium model in which the centre s agents face portfolio constraints we characterize equilibrium in closed form for a broad class of portfolio constraints solving for stock prices terms of trade and portfolio holdings we show that portfolio constraints generate wealth transfers between the periphery countries and the centre which increase the comovement of the stock prices across the periphery we associate this excess comovement caused by portfolio constraints with the phenomenon known as contagion the model generates predictions consistent with other important empirical results such as amplification and flight to quality effects copyright 2008 wiley blackwell

contagion effect on sovereign interest rate spreads abstract this paper analyzes the extent to which sovereign default risk in contagious that is contagion tests are conducted to determine whether news regarding the creditworthiness of a sovereign borrower affect the spreads charged to others the empirical results support the view that a systematic risk element enters into the default risk perceptions of lenders implying the existence of significant contagion effects in international lending

monetary valuation of the social cost of co2 emissions a critical survey an expanding branch of research has estimated the potential costs of climate change which are often expressed as the social cost of carbon scc or the costs of an additional ton of co2 emissions estimates of the scc can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost benefit analyses cbas such analyses are complicated by the wide range of scc values that have been reported in the literature and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change this study presents a critical review of the reported scc estimates by examining some neglected consequences of climate change uncertain and extreme scenarios of climate change the discounting of future climate change effects the treatment of individual risk aversion and assumptions about social welfare in view of the many uncertainties and omissions in conventional cost benefit analyses of climate impacts and the scc alternative approaches to decision making should be considered for climate policy

the state dependent impact of bank exposure on sovereign risk abstract the theoretical literature remains inconclusive on whether changes in bank exposure to the domestic sovereign have an adverse effect on the sovereign risk position through a diabolic loop in the sovereign bank nexus or reduce perceived default risk by acting as a disciplinary device for the sovereign in this paper we empirically analyze the impact of exogenous changes in bank exposure on the risk position of the sovereign within a markov switching structural vector autoregressive in heteroscedasticity msh svar framework for a set of emu countries we add to the methodological literature by allowing for regime dependent shock transmissions according to the volatility state of the financial system finding support for both a stabilizing and a destabilizing effect we document a clear clustering among the country sample rising bank exposure increased default risk for the emu periphery but decreased credit risk for the core emu countries during times of financial stress

international r d rivalry and export market shares of unionized industries some evidence from the us manufacturing sector abstract this paper investigates how union activity that captures r d rents alters the strategic investment behavior of internationally competitive firms the effect of union activity in the spencer b j brander j a 1983 international r d rivalry and industrial strategy review of economic studies 50 707 722 framework is to reduce the firm s strategic investment in r d and its export market share the empirical investigation at the industry level indicates that union activity has a significant and negative impact on r d investment decisions in the us manufacturing sector an important contribution of this work is its attempt to empirically distinguish between strategic and non strategic r d the strategic effect of r d on export market share in an imperfectly competitive product market is a decreasing function of the level of union activity

rent shifting and rent sharing a re examination of the strategic industrial policy problem this paper reexamines the market structure problem in the strategic trade policy literature it is shown that rent sharing between the home union and the home firms raises total home industry rents regardless of whether the international duopoly is cournot or bertrand furthermore home welfare also rises with cooperation if the international industry consists of more than two firms if the industry is faced with entry and if there is domestic consumption this paper shows that rent sharing can be a robust strategic industrial policy and can be interpreted as a solution to the market structure dilemma

the empirical merit of structural explanations of commodity price volatility review and perspectives this paper presents both the history of and state of the art in empirical modeling approaches to the world commodity price volatility the analysis builds on the storage model and key milestones in its development specifically it is intended to offer a reader unfamiliar with the relevant literature an insight into the modeling issues at stake from both a historical and speculative viewpoint the review considers primarily the empirical techniques designed to assess the merits of the storage theory it does not address purely statistical approaches that do not rely on storage theory and that have been studied in depth in other streams of the commodity price literature the paper concludes with some suggestions for future research to try to resolve some of the existing empirical flaws and hopefully to increase the explanatory power of the storage model

on crises contagion and confusion abstract since the tequila crisis of 1994 1995 the asian flu of 1997 and the russian virus of 1998 economists have been busy producing research on the subject of contagion yet few studies have examined empirically through which channels the disturbances are transmitted if there are indeed fundamental reasons for the spillovers we observe we attempt to fill this gap by analyzing how both trade links and the largely ignored financial sector links influence the pattern of fundamentals based contagion we examine the role of international bank lending the potential for cross market hedging and bilateral and third party trade in the propagation of crises

asset prices and exchange rates in this paper we study the implications of introducing demand shocks and trade in goods into an otherwise standard international asset pricing model trade in goods gives rise to an additional channel of international propagation through the terms of trade absent in traditional single good asset pricing models the inclusion of demand shocks helps overturn many unrealistic implications of existing international flnance models in which productivity shocks are the sole source of uncertainty our model generates a rich set of implications on how stock bond and foreign exchange markets co move we solve the model in closed form which yields a system of equations that can be readily estimated empirically our estimation validates the main predictions of the theory

ethics and the economist what climate change demands of us abstract climate change is changing not only our physical world but also our intellectual social and moral worlds we are realizing that our situation is profoundly unsafe interdependent and uncertain what then does climate change demand of economists as human beings and as professionals a discipline of economics based on enlightenment notions of mechanism and disembodied rationality is not suited to present problems this essay suggests three major requirements first that we take action second that we work together and third that we focus on avoiding the worst rather than obtaining the optimal the essay concludes with suggestions of specific steps that economists should take as researchers teachers and in our other roles

the structure of economic modeling of the potential impacts of climate change grafting gross underestimation of risk onto already narrow science models scientists describe the scale of the risks from unmanaged climate change as potentially immense however the scientific models because they omit key factors that are hard to capture precisely appear to substantially underestimate these risks many economic models add further gross underassessment of risk because the assumptions built into the economic modeling on growth damages and risks come close to assuming directly that the impacts and costs will be modest and close to excluding the possibility of catastrophic outcomes a new generation of models is needed in all three of climate science impact and economics with a still stronger focus on lives and livelihoods including the risks of large scale migration and conflicts

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

learning from the behavior of others conformity fads and informational cascades learning by observing the past decisions of others can help explain some otherwise puzzling phenomena about human behavior for example why do people tend to converge on similar behavior why is mass behavior prone to error and fads the authors argue that the theory of observational learning and particularly of informational cascades has much to offer economics business strategy political science and the study of criminal behavior

optimal contracting with moral hazard and cascading in this article i identify optimal incentive contracts for managers of firms competing in the product market such firms often confront similar decisions and uncertainties managers can improve decision quality by generating private signals through costly effort however since signals are likely to be correlated firms that decide later get additional information from the actions of earlier firms this impacts effort choice decision quality is also affected if later managers disregard their own signals and blindly imitate preceding decisions in a competitive environment such cascading hurts profits contracts that solve both moral hazard and cascading problems typically put more weight on firm profits making them expensive contacts with more weight on decision quality are less expensive but result in cascades shareholders choose contracts that maximize their net surplus this results in testable implications about which industries may have more convergence in investment choices greater pay for profit sensitivity larger differences in observed contracts more innovation larger size firms and potential for overcompensation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

international financial shocks in emerging markets abstract the present paper investigates how an emerging market economy is affected when it suddenly faces a higher risk premium on international capital markets we study this question empirically for five latin american economies over the period 1994 2007 within a structural panel vector autoregression and analyze theoretically the transmission mechanism using a dynamic stochastic general equilibrium model dsge of a small open economy the financial shock is modeled by an unexpected increase in the risk premium of firms foreign currency debt in response the adverse shock is amplified by a feedback mechanism between currency depreciation adverse balance sheet and risk premium effects the theoretical model is used to study different monetary policy responses we find that an exchange rate targeting rule that strikes a balance between exchange rate and inflation targeting allows the monetary authority to stabilize inflation and output more effectively than under a pure inflation targeting rule

managers investors and crises mutual fund strategies in emerging markets the authors address the trading strategies of mutual funds in emerging markets the data set they develop permits analyses of these strategies at the level of individual portfolios a methodologically novel feature of their analysis they disentangle the behavior of fund managers from that of investors for both managers and investors they strongly reject the null hypothesis of no momentum trading funds momentum trading is positive they systematically buy winners and sell losers contemporaneous momentum trading buying current winners and selling current losers is stronger during crises and stronger for fund investors than for fund managers lagged momentum trading buying past winners and selling past losers is stronger during noncrises and stronger for fund managers investors also engage in contagion trading selling assets from one country when asset prices fall in another these findings are based on data about mutual funds that represent only 10 percent of the market capitalization in the countries considered were it a larger share of the market finding counterparties for their trades the investors who buy when they sell and sell when they buy would be difficult and the premise that funds respond to contemporaneous returns rather than causing them would become tenuous

global banking global crises the role of the bank balance sheet channel for the transmission of financial crises abstract we examine whether shocks to leveraged creditors with cross border holdings have an incidence on debtor countries risk of suffering financial turmoil we construct a new proxy of shocks to international banks balance sheets using credit ratings and the structure of their international assets this allows us investigating the effect of foreign bank balance sheet shocks on domestic financial turmoil in a large sample of 146 developed and emerging economies from 1984 to 2011 our proxies of shocks towards bank balance sheets are strong predictors of systemic banking crises in their debtor countries confirming these results bilateral bank flows significantly decrease when creditor banks assets are hit by negative shocks as measured by credit rating downgrades from third party countries short term liabilities towards global banks appear to increase roll over and funding risks thereby amplifying the impact of shocks to foreign lenders balance sheets domestic banking sectors vulnerabilities such as illiquid assets and a low deposit asset ratio are found to increase crisis contagion risk in contrast a high level of global liquidity attenuates the transmission of shocks to international banks assets to debtor countries

informational channels of financial contagion two main classes of channels are studied as informational sources of financial contagion one is a fundamental channel that is based on real and financial links between economies and the second is a social learning channel that arises when agents base their decisions on noisy observations about the actions of others in foreign markets using global games i present a two country model of financial contagion in which both channels can operate and i test its predictions experimentally the experimental results show that subjects do not extract information optimally which leads to two systematic biases that affect these channels directly base rate neglect leads subjects to underweight their prior and thus weakens the fundamental channel an overreaction bias strengthens the social learning channel since subjects rely on information about the behavior of others even when this information is irrelevant these results have significant welfare effects rooted in the specific way in which these biases alter behavior

unconventional monetary and fiscal policies in interconnected economies do policy rules matter abstract this paper examines the effects of adopting unconventional policies in a crisis environment characterised by the international transmission of negative financial intermediation and real capital quality shocks using a two country model with financial frictions we compare adjustments in both countries we condition one country to adopt a credit easing rule as the monetary regime regardless of the source of the crisis we consider results when the other country does nothing or implements a fiscal tax rate policy rule our results show that when both countries experience massive asymmetric shocks the adoption of optimal policy rules can be used effectively to mitigate negative consequences for both economies however if the crisis events are due to similar shocks unconventional monetary policy or fiscal policy can improve conditions in own country whilst worsening economic conditions in the other country generating beggar thy neighbor growth outcomes

rational contagion and the globalization of securities markets this paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios in the presence of short selling constraints the gain of gathering information at a fixed cost may diminish as markets grow moreover if a portfolio manager s marginal cost for yielding below market returns exceeds the marginal gain for above market returns there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets

union rent seeking intangible capital and market value of the firm abstract this study considers the effect of unions on intangi ble capital investment and profitability within the context of a market value rather than a more traditional accounting based approach theory is provided suggesting unions are able to affect profitability by sharing in the economic returns to firm specific intangible capital in support of this hypothesis we find unionization reduces the returns to r d and produces a corresponding limiting influence on r d investment at the firm level i introduction a n extensive literature in economics has ex amined the determinants of profitability with much of the focus centering on the role of market structure only recently however have the effects of labor unions on profitability been analyzed ths is surprising since labor economists long have emphasized union influences on wages and productivity that in turn may affect profitabil ity in recent studies freeman 1983 and karier 1985 report a significant limiting influence of unions on price cost margins in high concentra tion manufacturing industries using firm level data and the market based tobin s

the years of emerging market crises a review of feldstein early 1997 was a time of great optimism in the developing world the mexican crisis that had erupted in late 1994 was regarded as a hiccup that had been overcome with a v shaped recovery not many people knew or if they knew they didn t seem to care that mexican wages were still some 20 percent below their pre crisis level the flow of capital to emerging markets was hitting new highs the east asian miracle was regarded as a permanent part of the scenery see the enthusiastic report asian development bank 1997 which china and even india were in the process of emulating or bettering latin america had put the debt crisis behind it some of the transition economies had emerged from their years of purgatory and in most of the others there seemed at least to be light at the end of the tunnel only africa and perhaps the middle east spoiled the picture of a developing world that really was developing this dream started to implode on july 2 1997 when the thai baht was set free to float following strong speculative pressures and promptly lost about 17 percent of its value the crisis was not initially assumed to be unduly serious after all it had an obvious cause the thai baht had long looked overvalued and thailand had been running dangerously large current account deficits for years 3 i recall rudi dornbusch returning from thailand and reporting that thailand s public debt was so low it was 9 3 percent of gdp at the end of 1996 that they would have no trouble recapitalizing the financial system and i know that when my thai secretary went off for her summer vacation i told her not to worry that it would all have been sorted out long before she got back i was of course tragically wrong my optimism failed to allow for two factors the dollar denomination of so much of the debt in thailand and the panic in financial markets as contagion took hold the dollar denomination meant that devaluation of the baht resulted in the liabilities of many firms and banks increasing spectacularly relative to the value of their assets so that many others besides the finance companies that were known to be a problem became insolvent before long currency mismatches had been elevated to a third theory of currency crises 1 martin feldstein ed economic and financial crises in emerging market economies chicago university of chicago press for the national bureau of economic research 2003 pp x 530 isbn 0 226 24102 2 2 senior fellow institute for international economics the author is indebted to nancy birdsall william cline morris goldstein howard pack and edwin truman for comments on a previous draft and to fabrizio lacobellis for competent research assistance 3 i had forgotten the incident but a friend reminded me that when he asked me soon after the mexican crisis which country was next i had named thailand as the most likely candidate

the unholy trinity of financial contagion over the last 20 years some financial events such as devaluations or defaults have triggered an immediate adverse chain reaction in other countries which we call fast and furious contagion yet on other occasions similar events have failed to trigger any immediate international reaction we argue that fast and furious contagion episodes are characterized by the unholy trinity i they follow a large surge in capital flows ii they come as a surprise and iii they involve a leveraged common creditor in contrast when similar events have elicited little international reaction they were widely anticipated and took place at a time when capital flows had already subsided

a cheap lunch for emerging markets removing international financial market imperfections with modern financial instruments summary this paper develops a market based procedure to significantly reduce the indebtedness of emerging markets by applying an asset backed security approach to a pool of emerging market bonds in an extensive simulation study based on historical data the cumulated interest savings over a horizon of 10 years amount to about 20 of the credit sum on average with a standard deviation of 8 and up to 44 for individual countries dependent on the internal distribution of the surplus the theoretical structure of the transaction is explicitly derived in cooperation with professionals from major commercial banks and it implies only negligible implementation cost the implementation requires neither institutional reforms nor debt forgiveness but can supplement or substitute previous measures

fiscal policy and the duration of financial crises financial systems across the world have all come under pressure due to the on going financial crisis one of the most often asked questions during a collapse is how long and how deep will the decline be as well as what policy initiatives can be employed to shorten the recession this study estimates a model of the duration of financial crises in an attempt to identify whether fiscal policy can reduce the time to recovery the results suggest that fiscal shocks which could provoke an overreaction on the part of markets tend to lengthen crisis duration significant nonlinear effects of government spending are also reported in relation to trade openness and financial openness

contagion and trade why are currency crises regional abstract currency crises tend to be regional they affect countries in geographic proximity this suggests that patterns of international trade are important in understanding how currency crises spread above and beyond any macroeconomic phenomena we provide empirical support for this hypothesis using data for five different currency crises in 1971 1973 1992 1994 and 1997 we show that currency crises affect clusters of countries tied together by international trade by way of contrast macroeconomic and financial influences are not closely associated with the cross country incidence of speculative attacks

when in peril retrench testing the portfolio channel of contagion abstract the impact of past gains and losses on international investors risk aversion is an important factor in the propagation of financial shocks across countries we first present a stylized model illustrating how changes in investors risk aversion affect portfolio decisions and stock prices we then examine empirically the behavior of international mutual funds when funds returns are below average they reduce their exposure to countries in which they were overweight and vice versa an index of financial interdependence that reflects the extent to which countries share overexposed funds helps explain the pattern of stock market comovement across countries and the pattern of contagion during crises

global banks and crisis transmission abstract we study the effect of financial integration through banks on the transmission of international business cycles in a sample of 18 20 developed countries between 1978 and 2009 we find that in periods without financial crises increases in bilateral banking linkages are associated with more divergent output cycles this relation is significantly weaker during financial turmoil periods suggesting that financial crises induce co movement among more financially integrated countries we also show that countries with stronger direct and indirect financial ties to the u s experienced more synchronized cycles with the u s during the recent 2007 2009 crisis we then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity the model suggests that the relation between integration and synchronization depends on the type of shocks hitting the world economy and that shocks to global banks played an important role in triggering and spreading the 2007 2009 crisis

are emerging market indicators of vulnerability to financial crises decoupling from global factors abstract this paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies emes and whether this link is changing over time we use a bayesian dynamic common factor model to estimate their common component in a sample of up to 41 countries including both developed as well as emerging economies this permits us to interpret the component in common to both of them as a global factor we introduce time variation into the model to investigate whether indicators are decoupling from global factors over time while decoupling can be observed in a few cases the exposure to global factors in most countries tends to fluctuate around the mean broadly speaking then the answer is no

targets for global climate policy an overview a survey of the economic impact of climate change and the marginal damage costs shows that carbon dioxide emissions are a negative externality the estimated pigou tax and its growth rate are too low to justify the climate policy targets set by political leaders a lower discount rate or greater concern for the global distribution of income would justify more stringent climate policy but would imply an overhaul of other public policies catastrophic risk justifies more stringent climate policy but only to a limited extent

business as usual market crashes and wisdom after the fact the authors present a three stage model of market dynamics in the first stage routine behavior tends to keep information of common interest trapped in private hands in the second stage private information reaches a threshold that triggers some agents to alter their behavior these actions release information to the market the final stage involves the market s response to this news as other participants react to the initial departure from routine behavior the authors present an application to industry investment they also outline applications to the international debt crisis to bank runs and to political upheavals copyright 1994 by american economic association

global carbon reduction and economic growth under autonomous economies abstract the ecological and environmental issues caused by climate change have affected human health and social development accordingly scientists have focused on addressing climate change iams integrated assessment models have been widely used to assess the effect of global climate governance since the us withdrew from the paris agreement and the uk broke away from the european union global economic development takes on an uncertain path the worldwide trade war triggered by the us has shown that international trade may be weakened in the future the deglobalization in global economic progress forces individual innovation within countries therefore we constructed a new iam under autonomous economies emrices e expanded multi regional integrated model of climate and economy system equilibrium which contains a layered structure of national computable general equilibrium cge model to describe an individual country s development and analyzes the effects of global reductions in cooperation based on the new global situation considering that technical progress is a significant factor in carbon reduction we introduced endogenous technical progress in cge simulation results show that developing countries regions have large carbon emissions under the baseline scenario with their economic status increasing at the same time climate change would lead to economic recession if there are no carbon reductions for countries regions and the industrial structure of developing countries changes noticeably compared with developed countries

asymmetric information information externalities and efficiency the case of oil exploration in this article we examine the efect of private information and information externalities on the ex post eficiency of investment in oil exploration we show that too much drilling tends to occur ifjirms believe that the area is likely to contain a sizeable pool of oil and too little drilling occurs if the opposite is true bargaining with well defined property rights to the information externality can eliminate underinvestment but overinvestment remains a problem because firms have an incentive not to disclose their private information

strategic delay and the onset of investment cascades i study the phenomenon of herd behavior in a framework where agents can endogenously choose both the actions and the timing of their actions i assume that agents may have privately known quality and content of information a unique symmetric equilibrium in pure strategies is proved to exist and characterized in its closed form an investment cascade always occurs in the equilibrium and a strategic delay is shown to exist before the sudden onset of the investment cascade i also examine the loss of welfare from delay and information cascade

information revelation and strategic delay in a model of investment we model investment as an n player game with a pure informational externality each player s payoff depends only on his own action and the state of nature however because a player s action reveals his private information players wait to see what other players will do equilibrium is inefficient because delay is costly and information is imperfectly revealed we characterize the unique symmetric perfect bayesian equilibrium and study the robustness of delay which turns out to be sensitive to the reaction speed and the number of players we establish the following results i when the period length is very short the game ends very quickly and there is a form of herding or informational cascade which results in a collapse of investment ii as the period length increases the possibility of herding disappears iii as the number of players increases the rate of investment and the information flow are eventually independent of the number of players adding more players simply increases the number who delay iv in the limit the time profile of investment is extreme a period of low investment followed either by an investment surge or a collapse

macro finance linkages in this survey i review the academic and policy oriented literature on the linkages between financial markets and the rest of the economy first i summarize the leading economic theories for why the financial sector can influence the macroeconomy second i consider empirical research on spillovers from the financial sector to the rest of the economy as well as across financial markets in different countries third i discuss key monetary policy debates regarding the appropriate response of central banks to financial conditions finally i conclude with an overview of the major gaps in the existing literature

spite and development in a wide variety of settings spiteful preferences would constitute an obstacle to cooperation trade and thus economic development this paper shows that spiteful preferences the desire to reduce another s material payoff for the mere purpose of increasing one s relative payoff are surprisingly widespread in experiments conducted in one of the least developed regions in india uttar pradesh in a one shot trust game the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects in experiments to study coordination and to measure social preferences the findings reveal empirical patterns suggesting that the willingness to reduce another s material payoff either for the sake of achieving more equality or for the sake of being ahead is stronger among individuals belonging to high castes than among those belonging to low castes because extreme social hierarchies are typically accompanied by a culture that stresses status seeking it is plausible that the observed social preference patterns are at least partly shaped by this culture thus an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development

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

do unions capture monopoly profits this paper challenges the conclusion reached in recent studies that unions reduce profits exclusively in highly concentrated industries from their review of previous studies and their analysis of 1977 data on 367 fortune 500 firms the authors conclude that there is no convincing evidence that concentration produces monopoly profits for unions to capture moreover they find that the union wage effect is not greater in concentrated industries as suggested by the hypothesis that unions capture concentration related profits evidence is found suggesting that a firm s market share its expenditures on research and development and its protection from foreign competition provide more likely sources for union rents than does industry concentration several recent studies have found that unions reduce profits significantly and some have concluded that this profit reduction is restricted to highly concentrated industries both conclusions are important the finding that unions reduce profitability indicates that in general the cost increasing effects of unions outweigh any positive productivity effects they may bring to the workplace such a

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

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

sectoral shifts and interindustry wage differentials the observed differences in wages across industries may arise from a lack of worker mobility particularly among experienced workers allowing the effects of industry shocks to persist for some time although young workers arbitrage wage shocks they will have little effect on the dispersion of experienced workers wages if young and old workers are poor substitutes in production this explanation is investigated using the five censuses of population between 1940 and 1980 the evidence strongly suggests that differences in pay are not temporary phenomena the data provide some support for the role of human capital and ability

news spillovers from the greek debt crisis impact on the eurozone financial sector abstract we examine the impact of changes in greek sovereign yield spreads on abnormal returns of financial sector stocks for a sample of eurozone countries during the greek debt crisis we find that increases in yield spreads are associated with negative abnormal returns on financial stocks in the portugal spain and netherlands these abnormal returns are driven in part by ratings downgrades and other unfavorable news announcements about greece we isolate the effects of known transmission channels impairment of financial firms asset base due to cross holdings of greek bonds from increases in domestic interest rates and higher funding costs our analysis indicates that news events lead to spillovers in excess of what can be explained by these channels of transmission