distressed debt restructuring in the presence of credit default swaps the availability of credit insurance via credit default swaps has been closely associated with the emergence of empty creditors we empirically investigate this issue by looking at the debt restructurings distressed exchanges and bankruptcy filings of rated nonfinancial u s companies over the period january 2007 june 2011 using different proxies for the existence of insured creditors we do not find evidence that the access to credit insurance favors bankruptcy over a debt workout however we document higher recovery prices following a distressed exchange in firms where empty creditors are more likely to emerge

credit default swaps has the gfc influenced perceptions of their utility for banks credit default swaps cdss are considered as one of the most versatile financial innovations of the 21st century since its inception the credit derivatives market has grown to a peak of 64 trillion in 2008 in terms of gross notional values cont 2010 however after the onset of the gfc this market has decreased to a large extent while there is evidence that promotes the risk reduction properties of cdss there is a growing body of research post gfc that identifies destabilising effects of these instruments in this paper i review the relevant scholarly literature and provide evidence of how the views on cdss have changed post gfc due a deeper investigation of issues such as systemic risk regulatory arbitrage information asymmetry and risk taking among others in the banking industry this paper provides a survey of the literature of views for and against the use of cdss during pre and post gfc periods and finally concludes that in comparison to the pre gfc period post gfc there is a significant increase in the literature that highlights the detrimental nature of cdss

has energy efficiency performance improved in china non energy sectors evidence from sequenced hybrid energy use tables we conduct a comparative analysis of two energy efficiency indicators for china heating value energy intensity hei and economic value energy intensity mei we formulate 1997 2002 2007 2012 hybrid energy comparable sequence use tables in an input output accounting framework and compare the two indicators using a randomized block anova the results show that meis and heis have significantly different variability patterns among sectors and are evolutionarily divergent over time the directional changes in mei and hei are found to be inconsistent at both the sectoral and national levels a further analysis with a lmdi index decomposition model shows that the difference between hei lmdi and hei lmdi is principally caused by energy prices based on the evidence from the two indicators and their relationship to energy prices we are unconvinced about china s purported improvements in energy efficiency in recent years

credit derivatives in banking useful tools for managing risk abstract we model the effects on banks of the introduction of a market for credit derivatives in particular credit default swaps a bank can use such swaps to temporarily transfer credit risks of their loans to others reducing the likelihood that defaulting loans trigger the bank s financial distress because credit derivatives are more flexible at transferring risks than are other more established tools such as loan sales without recourse these instruments make it easier for banks to circumvent the lemons problem caused by banks superior information about the credit quality of their loans however we find that the introduction of a credit derivatives market is not necessarily desirable because it can cause other markets for loan risk sharing to break down

has the cds market lowered the cost of corporate debt abstract many have claimed that credit default swaps cdss have lowered the cost of debt financing to firms by creating new hedging opportunities and information for investors this paper evaluates the impact that the onset of cds trading has on the spreads that underlying firms pay to raise funding in the corporate bond and syndicated loan markets employing a range of methodologies we fail to find evidence that the onset of cds trading lowers the cost of debt financing for the average borrower further we uncover economically significant adverse effects on risky and informationally opaque firms

application of the structural decomposition analysis to assess the indirect energy consumption and air emission changes related to italian households consumption abstract the design of sustainable production and consumption strategies and the assessment of implemented actions require to identify the driving forces that influence the trend of energy consumption and environmental impacts for this purpose the structural decomposition analysis sda was developed as a suitable methodology to analyse the driving forces of the changes in economic energy and environmental indicators the paper presents one of the first italian studies that apply an energy and environmental extended input output model opportunely shaped to the examined context combined with sda in detail it aims at 1 investigating the energy use and the air emissions arisen from the productive sectors to meet the household final demand in the period 1999 2006 2 identifying the sources of variations in energy and environmental indicators and 3 identifying which economic sectors are the most relevant sources of variation and must to be taken into account in the definition of sustainable production and consumption strategies as sources of changes the authors investigate energy and emission intensity effects leontief effect and final demand effect outcomes point out that the increase of the final consumptions often nullifies the energy and environmental benefits due to the improvement of the eco efficiency and to the introduction of innovative technologies of production the sector level analysis shows that tertiary and electricity gas and vapour result the highest italian consuming sectors of energy thus they should be focused for energy saving strategies agriculture hunting and sylviculture and road transports that are primarily sectors affecting air emissions should be taken into account for the reduction of environmental impacts results highlight that the current dichotomy of final demand growth and improvement of eco efficiency represents a key problem that needs to be addressed therefore the presented study can aid to define suitable oriented strategies for the energy and environmental impact reduction

consumption during retirement the missing link in the life cycle this study presents the first evidence on the relation of consumption to lifetime wealth based on data from the 1973 and 1975 retirement history survey that have been linked to social security earnings records nearly 500 white married fully retired couples ages 62 69 form the basis of the analysis on average their consumption early in retirement exceeds by 14 percent the income that their financial pension and social security wealth can generate this implies that their saving both private and through social security is insufficient to sustain consumption throughout the rest of their lives additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement these two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate coupled with either a bequest motive or uncertainty about the length of life they also imply that even when combined with private pensions and savings social security in the united states today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired this abstract was borrowed from another version of this item

synthetic or real the equilibrium effects of credit default swaps on bond markets we provide a model of nonredundant credit default swaps cdss building on the observation that cdss have lower trading costs than bonds cds introduction involves a trade off it crowds out existing demand for the bond but improves the bond allocation by allowing long term investors to become levered basis traders and absorb more of the bond supply we characterize conditions under which cds introduction raises bond prices the model predicts a negative cds bond basis as well as turnover and price impact patterns that are consistent with empirical evidence we also show that a ban on naked cdss can raise borrowing costs

how capital regulation and other factors drive the role of shadow banking in funding short term business credit abstract this paper empirically analyzes how capital regulation risk and other factors altered the relative use of shadow banking funded short term business debt since the early 1960s results indicate that the share was affected over the long run not only by changing information and reserve requirement costs but also by shifts in relative regulation of bank versus nonbank credit sources such as basel i in 1990 and reregulation in 2010 in the short run the shadow bank share rose when deposit interest rate ceilings were binding on traditional banks the economic outlook improved or risk premia declined and fell when event risks arose

the conditional stock market response to banks distressed asset sales on cds availability this paper analyzes the stock market feedback on bank announcements of non performing loan npl sales conditional on whether credit default swaps cds are traded on the vendor bank s debt or not

on the contribution of economics to the evaluation and formation of social insurance policy if one had to choose a single policy that best characterizes the postwar behavior of governments it might well be their expansion of social insurance today s citizen of a typical developed country is insured through government programs against unemployment disability medical expenses impoverishment in youth and middle age through welfare systems impoverishment in old age through old age pensions loss of spousal support due to divorce through social security dependent benefits fluctuating earnings through progressive tax systems early death of a spouse via survivor s insurance and late death via annuity insurance the remarkable growth of social insurance has occurred against a backdrop of increased geographic mobility dramatic changes in demographics and at least in the united states a dissolution of the family the extent to which social insurance has been the cause of family decline and demographic change or its result is one of many complex questions that economics or any other social science is unlikely to ever fully answer economic analysis while not being able to discover the precise recipe leading to our social insurance institutions has at least been able to taste many of the key ingredients economics has and can provide real insight into a the need for social insurance programs b the appropriate size of such programs and c how social insurance programs affect the economy this paper seeks to illustrate each of these three kinds of economic contributions to the evaluation and formation of social insurance policy section i drawing on my 1987 article presents an efficiency argument for compulsory saving through a progressive social security system section ii drawing on my paper with avia spivak and laurence summers 1982 and on alan auerbach s and my 1987b paper illustrates an analysis of the appropriate size of social insurance programs examining in turn the questions of whether households save enough and buy enough life insurance or whether more government intervention in these matters is appropriate section iii drawing on my 1989 book illustrates how social insurance programs can affect the economy by discussing potential savings effects of health insurance particularly an asset tested medicaid scheme section iv concludes the paper with suggestions for future research and policy options as indicated the paper draws on my own and coauthored research and it provides only limited references for no better reason than easing my task and saving space in so doing i do not pretend to suggest that this is more than a very small subset of a huge volume of research sparked in the 1970s in large part by martin feldstein

what induced china s energy intensity to fluctuate 1997 2006 abstract china is the second largest energy consumer in the world during 1997 2002 china s energy intensity declined by 33 however it rose by 10 7 over 2003 2005 and declined by 1 2 in 2006 what induced china s energy intensity to fluctuate so drastically industry accounts for approximately 70 of the total energy consumption in china in this paper we decompose china s industrial energy intensity changes between 1997 and 2002 into sectoral structural effects and efficiency effects measured by sectoral energy intensities at two digit level and including the shifts of product mix in the sub sector or firm level using tornqvist and sato vartia index methods the results show that in this period efficiency effects possibly contributed to a majority of the decline while the contribution from structural effects was less during 2003 2005 the excessive expansion of high energy consuming sub sectors and the high investment ratio were foremost sources of the increasing energy intensity attributed to the government efforts the energy intensity has started to decline slightly since july 2006 in future to save more energy in addition to technical progress china should attach more importance to optimizing its sectoral structure and lowering its investment ratio

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

credit default swaps in general equilibrium endogenous default and credit spread spillovers this paper shows that credit default swaps cds can affect the type of debt firms issue firms face a trade off between investment scale and the cost of capital measured by the credit spread small scale investment is safe fully collateralized but earns modest profits in all states large scale investment is risky requires a positive credit spread but yields high profits only in good states and default in bad states cds only affect risky credit spreads which in turn affects the opportunity cost of issuing collateralized safe debt covered naked cds lower raise credit spreads and raise lower the likelihood of issuing risky debt finally we show that cds generate credit spread and investment spillovers for non cds referenced firms

sovereign debt renegotiation and credit default swaps abstract a credit default swap cds contract provides insurance against default this paper incorporates the contract into a sovereign default model and demonstrates that the existence of a cds market results in lower default probability higher debt levels and lower financing costs for the country uncertainty over the insurance payout when the debt is renegotiated explains why in the data as the output declines the cds spread becomes lower than the bond spread finally my results show that the 2012 cds naked ban that decreased the levels of cds for european countries is a welfare reducing policy

the value of creditor control in corporate bonds this paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control we estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swap cds contracts we find empirically that this premium increases as firm credit quality decreases and around important credit events such as defaults bankruptcies and covenant violations the increase is greatest for bonds most pivotal to changes in control changes in bond and cds liquidity do not appear to drive increases in the premium

optimal debt structure and the number of creditors within an optimal contracting framework we analyze the optimal number of creditors a company borrows from we also analyze the optimal allocation of security interests among creditors and intercreditor voting rules that govern renegotiation of debt contracts the key to our analysis is the idea that these aspects of the debt structure affect the outcome of debt renegotiation following a default debt structures that lead to inefficient renegotiation are beneficial in that they deter default but they are also costly if default is beyond a manager s control the optimal debt structure balances these effects we characterize how the optimal debt structure depends on firm characteristics such as its technology its credit rating and the market for its assets

credit default swaps and the credit crisis many observers have argued that credit default swaps contributed significantly to the credit crisis of particular concern to these observers are that credit default swaps trade in the largely unregulated over the counter market as bilateral contracts involving counterparty risk and that they facilitate speculation involving negative views of a firm s financial strength some observers have suggested that credit default swaps would not have made the crisis worse had they traded on exchanges i conclude that credit default swaps did not cause the dramatic events of the credit crisis that the over the counter credit default swaps market worked well during much of the crisis and that exchange trading has both advantages and costs compared to over the counter trading though i argue that eliminating over the counter trading of credit default swaps could reduce social welfare i also recognize that much research is needed to understand better and to quantify the social gains and costs of derivatives in general and credit default swaps in particular

will the aggregation approach affect energy efficiency performance assessment abstract aggregate energy is usually measured in the linear weighted summation of various energy types based on thermal dynamics laws this measurement is scientific and acceptable in the physics or energy engineering world however it implicitly assumes that all energy types are perfectly substitutable and thus may result in distorted conclusions in energy economy research in economics world production factors are usually non linearly aggregated using divisia approach which is derived from microeconomic theory and considers the heterogeneity and imperfect substitutability among various energies using which ruler to measure the aggregate energy the linear one or the others will certainly affect the conclusions and energy saving incentives of the economic agents inequitable energy aggregations may bring out speculations or discouraged behaviors according to china s current provincial energy efficiency performance assessment policy the central government assigned the target of reducing the national aggregate energy intensity by 20 in 2006 2010 to provincial authorities in 2006 and in july 2011 the central government formally released the provincial assessment results based on conventional linear aggregation approach coal equivalent our re examination review this policy and show that the official results are quite different to that based on divisia approach from the perspective of economics some local performances are overestimated and others are underestimated to raise the equity and incentive compatibility of the assessment we suggest the central take the imperfect substitutability or energy structure changes into consideration we also discuss the difficulties and deficiencies when using divisia aggregate approach

what accounts for the variation in retirement wealth among u s households even among households with similar socioeconomic characteristics saving and wealth vary considerably life cycle models attribute this variation to differences in time preference rates risk tolerance exposure to uncertainty relative tastes for work and leisure at advanced ages and income replacement rates these factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile using the panel study of income dynamics and the consumer expenditure survey we find little support for these implications the data are instead consistent with rule of thumb mental accounting or hyperbolic discounting theories of wealth accumulation jel di d91 e21

loan sales and relationship banking firms raise money from banks and the bond market banks sell loans in a secondary market to recycle their funds or to trade on private information liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms optimal financial structure the endogenous degree of liquidity is not always socially optimal there is excessive trade in highly rated names and insufficient liquidity in riskier bonds we provide testable implications for prices and quantities in primary and secondary loan markets and bond markets further we posit that risk based capital requirements may be socially desirable the term collateralized loan obligations clos was coined in 1989 when corporate loans were first used as collateral in collateralized debt obligations cdos 1 since then the growth in loan sales has been enormous according to lucas et al 2006 1 1 trillion of cdos were outstanding as of 2005 and 50 of their collateral was comprised of loans in addition to pooled securities banks also trade first loss positions on single names through direct sales of individual loans in the united states loan sales have grown from 8 billion in 1991 to 154 8 billion by 2004 2 if a bank securitizes or sells a loan that it originated it is buying insurance on credit events over which it has either more control or more information than the buyer in the face of this informational friction why did the secondary market for corporate loans develop in the 1990s what effect has this had on relationship banking in this paper we characterize when a liquid secondary market for loans arises when a liquid secondary loan market is socially desirable and we provide testable predictions on the effect of the emergence of this market on prices and quantities in bond and primary loan markets our predictions are based on both changes in the parameters that lead to higher loan liquidity and changes in the contracts that are written between banks and firms given this higher liquidity

a theory of multiperiod debt structure we develop a theory of multiperiod debt structure a simple trade off between the termination threat required to make debt repayments incentive compatible and the desire to avoid early liquidation determines the number of repayments their timing and amounts as firms increase their borrowing they add periodic risky repayments from the back of the maturity structure with the time between repayments increasing in cash flow risk cash flow growth or a significant risk free cash flow component limits the number of risky repayments firms with a significant risk free cash flow component choose dispersed maturity profiles with smaller relatively safe repayments every period rather than riskier periodic repayments

too interconnected to fail financial network of us cds market topological fragility and systemic risk a small segment of credit default swaps cds on residential mortgage backed securities rmbs stand implicated in the 2007 financial crisis the dominance of a few big players in the chains of insurance and reinsurance for cds credit risk mitigation for banks assets has led to the idea of too interconnected to fail titf resulting as in the case of aig of a tax payer bailout we provide an empirical reconstruction of the us cds network based on the fdic call reports for off balance sheet bank data for the 4th quarter in 2007 and 2008 the propagation of financial contagion in networks with dense clustering which reflects high concentration or localization of exposures between few participants will be identified as one that is titf those that dominate in terms of network centrality and connectivity are called super spreaders management of systemic risk from bank failure in uncorrelated random networks is different to those with clustering as systemic risk of highly connected financial firms in the cds or any other financial markets is not priced into their holding of capital and collateral we design a super spreader tax based on eigenvector centrality of the banks which can mitigate potential socialized losses

credit default swaps and the empty creditor problem the empty creditor problem arises when a debtholder has obtained insurance against default but otherwise retains control rights in and outside bankruptcy we analyze this problem from an ex ante and ex post perspective in a formal model of debt with limited commitment by comparing contracting outcomes with and without insurance through credit default swaps cds we show that cds and the empty creditors they give rise to have important ex ante commitment benefits by strengthening creditors bargaining power they raise the debtor s pledgeable income and help reduce the incidence of strategic default however we also show that lenders will over insure in equilibrium giving rise to an inefficiently high incidence of costly bankruptcy we discuss a number of remedies that have been proposed to overcome the inefficiency resulting from excess insurance jel g30 g32 g33 one of the most significant changes in the debtor creditor relationship in the

the adequacy of savings this paper uses newly available data from the social security administration s retirement history survey to examine the adequacy of saving this data source is particularly rich survey data for respondents covering the ydars 1969 197 1 and 1953 have been matched with social security earnings records covering the years dating back to 1951 in addition to information on the path of lifetime earnhngs the survey contains extensive data on individual asset holdings the evidence indicates that surprisingly few couples currantly suffer significant reductions in their standard of living in their old age this appears due in large part to our compulsory savings institutions the social security and private pension systems these institutions have succeeded in redistributing the lifetime consumption of private individuals from their youth to their old age this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this i this abstract was borrowed from another version of this item

credit risk transfer and contagion some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk others have suggested that they may be undesirable if they increase the risk of financial crises using a model with banking and insurance sectors we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity however when they face idiosyncratic liquidity risk and hedge this risk in an interbank market credit risk transfer can be detrimental to welfare it can lead to contagion between the two sectors and increase the risk of crises

investment risk cds insurance and firm financing abstract we develop a model in which investment risk drives the demand for cds insurance the model shows the efficiency of cds contracting over the state of the economy it shows that cds overinsurance insurance in excess of renegotiation surpluses is procyclical allowing for greater financing when the probability of default is lower our theory predicts that the incidence of so called empty creditors is largely constrained to firms that are safer face lower bankruptcy costs have more severe management creditor agency problems and whose assets are costlier to verify our analysis generates a number of empirical predictions and provides new insights into the regulation of cds markets

the costs of bankruptcy chapter 7 liquidation versus chapter 11 reorganization our paper explores a comprehensive sample of small and large corporate bankruptcies in arizona and new york from 1995 to 2001 bankruptcy costs are very heterogeneous and sensitive to the measurement method used we find that chapter 7 liquidations appear to be no faster or cheaper in terms of direct expense than chapter 11 reorganizations however chapter 11 seems to preserve assets better thereby allowing creditors to recover relatively more our paper also provides a large number of further empirical regularities our paper analyzes the largest sample of corporate bankruptcies to date we research approximately 300 cases from the arizona and new york federal bankruptcy courts from 1995 to 2001 these cases consist of 1 both publicly traded and privately held corporations and 2 both chapter 7 liquidations and chapter 11 reorganizations this sample is practically the entire population of unique corporate bankruptcies in these courts our paper s primary objective is to measure how the two available bankruptcy procedures differ especially but not only in terms of cost we explore four variables namely the change in the estate s value during bankruptcy a measure of indirect costs the time spent in bankruptcy another and more common measure of indirect costs the expenses submitted to and approved by the bankruptcy court a measure of direct costs and the recovery rates for creditors and apr violations our most important findings are that chapter 7 liquidations are not cheaper than chapter 11 reorganizations particularly after we control for endogenous self selection of firms into bankruptcy procedure bankruptcy professionals attorneys accountants trustees regularly end up with most of the post bankruptcy firm s value in chapter 7 arturo bris is at imd yale school of management and ecgi ivo welch is at brown uni

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these

credit default swaps and risk shifting credit default swaps cdss are thought to ease borrowing by protecting lenders against default this paper develops a model of the demand for cds when borrowers choose the riskiness of investment and verification is imperfect the model shows that cdss may lead to risk shifting increasing the probability of default our model provides new insights into the role of cds during the recent financial crisis