taming macroeconomic instability monetary and macro prudential policy interactions in an agent based model abstract we develop an agent based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules the aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability simulation results show that a triple mandate taylor rule focused on output gap inflation and credit growth and a basel iii prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations moreover we consider the different levers of basel iii and their combinations we find that minimum capital requirements and counter cyclical capital buffers allow to achieve results close to the basel iii first best with a much more simplified regulatory framework finally the components of basel iii are non additive the inclusion of an additional lever does not always improve the performance of the macro prudential regulation

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

herd behavior and investment reply in our 1990 paper we showed that managers concerned with their reputations might choose to mimic the behavior of other managers and ignore their own information we presented a model in which smart managers receive correlated informative signals whereas dumb managers receive independent uninformative signals managers have an incentive to follow the herd to indicate to the labor market that they have received the same signal as others and hence are likely to be smart this model of reputational herding has subsequently found empirical support in a number of recent papers including judith a chevalier and glenn d ellison s 1999 study of mutual fund managers and harrison g hong et al s 2000 study of equity analysts we argued in our 1990 paper that reputational herding requires smart managers prediction errors to be at least partially correlated with each other page 468 in their comment marco ottaviani and peter sorensen hereafter os take issue with this claim they write correlation is not necessary for herding other than in degenerate cases it turns out that the apparent disagreement hinges on how strict a definition of herding one adopts in particular we had defined a herding equilibrium as one in which agent b always ignores his own information and follows agent a see e g our propositions 1 and 2 in contrast os say that there is herding when agent b sometimes ignores his own information and follows agent a the os conclusion is clearly correct given their weaker definition of herding at the same time however it also seems that for the stricter definition that we adopted in our original paper correlated errors on the part of smart managers are indeed necessary for a herding outcome even when one considers the expanded parameter space that os do we will try to give some intuition for why the different definitions of herding lead to different conclusions about the necessity of correlated prediction errors along the way we hope to convince the reader that our stricter definition is more appropriate for isolating the economic effects at work in the reputational herding model an example is helpful in illustrating what is going on consider a simple case where the parameter values are as follows p 5 3 4 q 5 1 4 z 5 1 2 and u 5 1 2 in our 1990 paper we also imposed the constraint that z 5 ap 1 1 2 a q which further implies that a 5 1 2 the heart of the os comment is the idea that this constraint should be disposed of i e we should look at other values of a without loss of generality we will consider values of a above 1 2 and distinguish two cases

multimarket contact imperfect monitoring and implicit collusion abstract this paper presents a theoretical foundation to the possibility that multimarket contact enhances firms ability to sustain implicit collusion when firms operate in a single market and cannot perfectly monitor their opponents choices it is impossible to achieve efficiency even if these firms have a long term strategic relationship we show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large efficiency can be approximately sustained by a perfect equilibrium this efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring journal of economic literature classification numbers c70 c72 c73 d43 l11 l22 l41

laboratory evidence on the effectiveness of corporate leniency programs the number of cartels detected in the united states and in europe has increased considerably since the introduction of corporate leniency programs in antitrust legislation it cannot however be ruled out that this apparent success results in part from increased cartel activity we explore the effects of corporate leniency programs on pricing and cartel activity by use of an experiment we find that in the lab i fewer cartels are established when a leniency program is in place and ii cartels that do exist are less successful in charging prices above the static nash equilibrium price and have lower survival rates

consequences of bank distress during the great depression the consequences of bank distress for the economy during the depression remain an area of unresolved controversy since john m keynes 1931 and irving fisher 1933 macroeconomists have argued that bank distress magnified the extent of the economic decline during the depression as the intermediaries controlling money and credit banks were in a special position to transmit their distress to other sectors but the mechanism through which banking distress mattered for the economy has been hotly contested milton friedman and anna j schwartz 1963 saw the contraction in the money multiplier driven in their view by panicked depositors withdrawals of deposits as the primary mechanism through which banking distress affected the real economy they described the mechanism transmitting banking distress to the real sector as operating at the national level through changes in the aggregate supply of money and interest rates bank distress reduced the money supply available to the public either through the closure of banks and the consequent freezing of bank deposits or the withdrawals of deposits by depositors that feared bank failure ben s bernanke 1983 building on fisher 1933 emphasized the transmission of monetary shocks via their effects on the balance sheets of borrowers and on the supply of credit by banks borrowers balance sheets were worsened by debt deflation as the result of fixed dollar debt obligations borrowers net worth and cash flow declined with the rising value of debt service costs relative to income borrowers with positive net present value projects but weak balance sheets had less internally generated retained earnings to invest and could not qualify for credit furthermore bernanke argued that the contraction of the money supply produced contraction of nominal income and prices relative to fixed debt service which weakened borrowers balance sheets and in turn weakened banks not only did firms financial distress reduce the number of qualified borrowers the contraction in banks net worth forced a reduction in the supply of bank loans to qualified borrowers many firms and individuals relied on banks for credit and as those banks suffered losses of capital due to asset value declines and contractions in deposits as depositors reacted to bank weakness by withdrawing their funds even borrowers with viable projects and strong balance sheets experienced a decrease in the effective supply of loanable funds bernanke termed the combined weakening of borrowers balance sheets and the contraction in bank credit supply a rise in the cost of credit intermediation the scarcity of perfect substitutes for the positive net present value investments of firms with weak balance sheets and for the credit supplied by existing banks implies that the weakening of firms and banks balance sheets the disappearance of banks and the contraction in surviving banks lending made it more difficult for the economy to channel funds to their best use thus what began as a contraction in aggregate demand became a contraction in aggregate supply which magnified adverse economic shocks and prolonged and deepened the depression the financial distress of firms and banks and the decline in bank lending were not only symptoms of the depression but means for magnifying the shocks that caused the depression bernanke s statistical evidence in support of this story is derived from time series analysis at the national level in calomiris graduate school of business 601 uris hall columbia university 3022 broadway new york ny 10027 and national bureau of economic research e mail cc374 columbia edu mason department of finance drexel university 3141 chestnut street philadelphia pa 19104 e mail joe mason drexel edu we thank valerie ramey david wheelock charles himmelberg steve zeldes gary gorton two referees and seminar participants at columbia university wharton northwestern university and the 2001 economic history association meetings for helpful comments on an earlier draft we gratefully acknowledge support from the national science foundation the university of illinois and the federal reserve bank of st louis

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

macroprudential policies capital flows and the structure of the banking sector abstract using a large sample of advanced and emerging market economies over the period 1999 2012 we examine the effectiveness of macroprudential policies mpps in managing cross border bank flows conditioning on the structure of the banking sector in the mpp implementing country we find that higher regulatory quality and a higher credit to deposit ratio increase the effectiveness of mpps while a higher cost to income ratio has the opposite effect if all three financial variables are evaluated at the median the marginal effect of our preferred mpp measure leads to a reduction of international bank inflows in percent of gdp by around half a percentage point and is only marginally significant however when the more enhanced 25th 10th percentiles of their respective distributions are considered we observe as a response to the same mpp measure a reduction of bank inflows by 3 44 5 39 percentage points that is highly statistically and economically significant additionally we find that the structure of the domestic banking sector determines spillovers from mpps across asset classes while spillovers from mpps across countries are a function of banking sector conditions both at home and abroad

analyst forecasts and herding behavior the use of analyst forecasts as proxies for investors earnings expectations is commonplace in empirical research an implicit assumption behind their use is that they reflect analysts private information in an unbiased manner as demonstrated here this assumption is not necessarily valid there is shown to be a tendency for analysts to release forecasts closer to prior earnings expectations than is appropriate given their information further analysts exhibit herding behavior whereby they release forecasts similar to those previously announced by other analysts even when this is not justified by their information these results are shown to have interesting empirical implications article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

international monetary relations taking finance seriously in our book global capital markets integration crisis and growth we traced out the evolution of the international monetary system using the framework of the international monetary trilemma countries can enjoy at most two from the set exchange rate stability open capital markets and domestic monetary autonomy the events of the past decade or more highlight the further complications for this framework posed by financial stability issues here we update and qualify our prior analysis drawing on recent experience and research under the classical gold standard scant attention was paid to macro management either to stabilize output and employment or to ensure financial stability the interwar years highlighted the changing demands for modern central bank interventions in the economy financial instability followed by wwii left a world with sharply constricted financial markets and little private cross border capital mobility due to this historical accident the bretton woods system agreed in 1944 focused not at all on financial stability and focused on issues like adjustment exchange rate misalignment and international liquidity defined in terms of official not private capital account transactions post 1970s floating rates permitted but did not require liberalization of the capital account but the political equilibrium had shifted in favor of financial interests signaled by the push toward european integration and the later reform process in emerging markets starting in the 1990s this development however opened the door once again to domestic financial crises and their international transmission countries now become more susceptible to a new species of capital account crises fueled by bank and bond lending and its sudden withdrawal these developments in fact made evident a different financial trilemma countries can pick at most two from financial stability open capital markets and autonomy over domestic financial policy we distill the main lessons as to the interactions between the monetary and financial trilemmas and policies that could best address the resulting weaknesses

international antitrust enforcement and multimarket contact this article analyzes cartel formation and international antitrust enforcement when multinational firms operate in several jurisdictions with local antitrust authorities we are concerned with how the sustainability of collusion in one local market is affected by the existence of collusion in other markets when they are linked by a negative demand relationship the interdependence of cartel stability across markets leads to potential externalities in antitrust enforcement across jurisdictions local antitrust enforcement equilibrium enforcement may exhibit a nonmonotonicity in the degree of market integration we compare it with globally optimal antitrust enforcement policy and discuss the role of international antitrust coordination

what do we know about the effects of macroprudential policy the literature on the effectiveness of macroprudential policy tools is still in its infancy and has so far provided only limited guidance for policy decisions in recent years however increasing efforts have been made to fill this gap progress has been made in embedding macroprudential policy in theoretical models there is increasing empirical work on the effect of some macroprudential tools on a range of target variables such as quantities and prices of credit asset prices and on the amplitude of the financial cycle and financial stability in this paper we provide a critical review of recent progress in theoretical and empirical research on the effectiveness of macroprudential instruments

first impressions matter signalling as a source of policy dynamics we provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model first all policymaker types should become less tough on inflation over time and secondly types that weigh output more should have a more pronounced shift voting data from the bank of england s monetary policy committee strongly support both predictions counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle and improves the committee designer s welfare implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes

anti herding and strategic consultation in this paper i analyze how careerist decision makers aggregate and use information provided by others i find that decision makers who are motivated by reputation concerns tend to anti herding i e they excessively contradict public information such as the prior or others recommendations i also find that some decision makers may deliberately act unilaterally and not consult advisers although advice is costless moreover advisers to the decision maker may not report their information truthfully even if the advisers care only about the outcome they bias their recommendation since they anticipate inefficient anti herding behavior by the decision maker

herd behavior and investment comment in an influential paper david s scharfstein and jeremy c stein 1990 modeled sequential investment by agents concerned about their reputation as good forecasters consider an agent who acts after observing the behavior of another ex ante identical agent scharfstein and stein argue that reputational herding requires that better agents have more correlated signals conditionally on the state of the world they claim that without correlation the second agent would have no incentive to attempt to manipulate the market inference about ability by imitating the behavior of the first agent in this note we show that in their model correlation is not necessary for herding other than in degenerate cases our clarification exploits a parallel with statistical herding introduced by abhijit v banerjee 1992 and sushil bikhchandani et al 1992 henceforth bhw bhw feature investors who maximize expected profits in a common value environment and have access to conditionally independent private signals of bounded precision while still observing the behavior of others eventually the evidence accumulated from observing earlier decisions is sufficiently strong to swamp the private information of a single decision maker thereafter everyone rationally copies the prevailing behavior we notice that payoffs have a common value nature in both the statistical and the reputational model the observed behavior of other agents possibly affects the probability belief attached to different states of the world as well as the payoff conditional on each state herding arises from the interaction of these two channels affecting the expected payoff be it physical or reputational positive differential conditional correlation of signals in the reputational model is tantamount to the introduction of positive payoff externalities in the statistical model this reinforces the tendency to herd already present with independence the fact that differential conditional correlation is not needed for herding is a clear strength of the reputational herding model it is not necessary to assume common unpredictable components of returns at the individual level in order to rationalize the empirical findings that individual prediction errors of security analysts are correlated after setting up scharfstein and stein s model in section i we summarize their findings in section ii and provide a unified definition of herd behavior in section iii section iv contains our critique of their line of argument and clarifies the role of differential conditional correlation in section v we propose alternative robust scenarios where herding would indeed be driven by correlation section vi concludes

effects of monetary and macroprudential policies evidence from four inflation targeting economies we examine the effects of monetary and macroprudential policies in the asia pacific region where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability using structural panel vector autoregressions that identify both monetary and macroprudential policy actions we show that tighter macroprudential policies used to contain credit growth also have a significant negative impact on macroeconomic aggregates such as real gdp and the price level the similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times however they could also create challenges for policymakers especially during times when low inflation coincides with buoyant credit growth

does macro prudential regulation leak evidence from a uk policy experiment the regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro prudential regimes internationally for such regulation to be effective in controlling the aggregate supply of credit it must be the case that i changes in capital requirements affect loan supply by regulated banks and ii unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks this paper examines micro evidence lacking to date on both questions using a unique data set in the uk regulators have imposed time varying bank specific minimum capital requirements since basel i it is found that regulated banks uk owned banks and resident foreign subsidiaries reduce lending in response to tighter capital requirements but unregulated banks resident foreign branches increase lending in response to tighter capital requirements on a relevant reference group of regulated banks this leakage is substantial amounting to about one third of the initial impulse from the regulatory change

cross country spillovers from macroprudential regulation reciprocity and leakage abstract in a globally interconnected banking system there can be spillovers from domestic macroprudential policies to foreign banks and vice versa for example through the presence of foreign branches in the domestic economy the lack of reciprocity of some macroprudential instruments may result in an increase in bank flows to those banks with lower regulatory levels a phenomenon known as leakage this may decrease the effectiveness of macroprudential policies in the pursuit of financial stability to explore this topic i consider a two country dsge model with housing and credit constraints borrowers can choose whether to borrow from domestic or foreign banks macroprudential policies are conducted at a national level and are represented by a countercyclical rule on the loan to value ratio results show that when there are some sort of reciprocity agreements on macroprudential policies across countries financial stability and welfare gains are larger than in a situation of non reciprocity an optimal policy analysis shows that in order to enhance the effectiveness of macroprudential policies reciprocity mechanisms are desirable although the foreign macroprudential rule does not need to be as aggressive as the domestic one

corporate leniency programs when firms have private information the push of prosecution and the pull of pre emption a corporate leniency program provides relief from government penalties to the first member of a cartel to come forward and cooperate with the authorities this study explores the incentives to apply for leniency when each cartel member has private information as to the likelihood that the competition authority will be able to convict them without a cooperating firm a firm may apply for leniency because it fears being convicted prosecution effect or because it fears another firm will apply pre emption effect policies by the competition authority to magnify concerns about pre emption and thereby induce greater use of the leniency program are also explored

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

the international transmission of bank capital requirements evidence from the uk abstract we use data on uk banks minimum capital requirements to study the impact of changes to bank specific capital requirements on cross border bank loan supply from 1999q1 to 2006q4 by examining a sample in which each recipient country has multiple relationships with uk resident banks we are able to control for demand effects we find a negative and statistically significant effect of changes to banks capital requirements on cross border lending a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross border credit of 5 5 percentage points we also find that banks tend to favor their most important country relationships so that the negative cross border credit supply response in core countries is significantly less than in others banks tend to cut back cross border credit to other banks including foreign affiliates more than to firms and households consistent with shorter maturity wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships

the capital crunch neither a borrower nor a lender be the dramatic reduction in the growth rate of bank lending associated with the 1990 91 recession particularly in new england has evoked claims by many observers of a credit crunch however because of the difficulty in determining whether the observed slow credit growth is a demand or supply phenomenon convincing evidence of the practical importance of credit crunches for economic activity remains elusive we overcome this obstacle by examining a cross section of banks in new england that have experienced the same economic downturn effectively controlling for changes in demand we find empirical support for a capital crunch whereby poorly capitalized institutions shrink to satisfy capital requirements this alone is not a sufficient condition for a credit crunch however we find s6me additional evidence that the ca ital crunch may have limited credit availability in new england

global cartels leniency programs and international antitrust cooperation in this paper we analyze cartel formation and self reporting incentives when firms operate in several geographical markets and face antitrust enforcement in different jurisdictions we are concerned with the effectiveness of leniency programs and the benefits of international antitrust cooperation between agencies when international antitrust prosecution is uncoordinated multi market contact allows firms to reduce the amount of self reporting in equilibrium and sustain cartels more effectively we then discuss the effects of information sharing among antitrust authorities as a function of how much and which type of information is exchanged we show that extensive information sharing might have an adverse effect on self reporting by cartel members

comment on the spillovers interactions and un intended consequences of monetary and regulatory policies by kristin forbes dennis reinhardt and tomasz wieladek journal of monetary economics

multi market collusion with demand linkages and antitrust enforcement this paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand related markets we show that cartel prosecution can have a knock on effect bringing down a cartel in one market reduces profits and cartel stability and leads to the break up of the cartel in the adjacent market cartel prosecution can also have a waterbed effect disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets we discuss the impact of dynamic cartel formation on consumer surplus explore antitrust spillovers the optimal scope of antitrust interventions and cartel formation with local firms

liquidity management of u s global banks internal capital markets in the great recession abstract the recent crisis highlighted the importance of globally active banks in linking markets one channel for this linkage is through how these banks manage liquidity across their entire banking organization we document that funds regularly flow between parent banks and their affiliates in diverse foreign markets we show that parent banks when hit by a funding shock reallocate liquidity in the organization according to a locational pecking order affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

effective macroprudential policy cross sector substitution from price and quantity measures macroprudential policy is increasingly being implemented worldwide key questions are its effectiveness in influencing bank credit and substitution effects beyond banking our results confirm the expected effects of macroprudential policies on bank credit both for advanced economies and emerging market economies but results also confirm substitution effects towards non bank credit especially in advanced economies reducing the policies effect on total credit quantity restrictions are particularly potent in constraining bank credit but also cause the strongest substitution effects policy implications indicate a need to extend macroprudential policy beyond banking especially in advanced economies

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

bank regulation and the credit crunch abstract this study investigates the direct link between regulatory enforcement actions and the shrinkage of bank loans to sectors likely to be bank dependent we partition the shrinkage due to loan supply into the component due to explicit regulatory enforcement actions and that due to a voluntary response by bank management to low capital to asset ratios we find that banks with formal actions shrink at a significantly faster rate than those without even after controlling for differences in capital to asset ratios furthermore much of the reduced lending has been in categories containing primarily loans to bank dependent borrowers

price fixing the probability of getting caught the authors estimate the probability that a price fixing conspiracy will be indicated by federal authorities to be at most between 0 13 and 0 17 in a given year the authors estimate is based on conspiracy durations calculated from data reported for a large sample of department of justice cases and a statistical birth and death process model describing the onset and duration of conspiracies copyright 1991 by mit press

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

information aggregation in debate who should speak first abstract privately informed individuals speak openly in front of other members of a committee about the desirability of a public decision each individual wishes to appear well informed for any given order of speech committee members may herd by suppressing their true information with individuals of heterogeneous expertise optimizing over the order of speech can improve the extraction of information but not perfectly so it is not always optimal to use the common anti seniority rule whereby experts speak in order of increasing expertise a committee with more able experts may be afflicted by greater herding problems yielding a worse outcome

distance and private information in lending we study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets using a unique data set of all loan applications by small firms to a large bank we show that borrower proximity facilitates the collection of soft information leading to a trade off in the availability and pricing of credit which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus analyzing loan rates and firms decision to switch lenders provides further evidence for banks strategic use of private information however distance erodes our lender s ability to collect proprietary intelligence and to carve out local captive markets suggesting that the requisite soft information is primarily local the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

optimal monetary and macroprudential policy in a currency union abstract the financial crisis proved strikingly that financial frictions play a crucial role for system risk and policymakers have overlooked financial stability the obvious candidate for addressing financial stability is macroprudential policy in this paper we study the optimal ramsey monetary and macroprudential policy mix in a currency union in the case of different kinds of aggregate and idiosyncratic shocks the monetary and macroprudential instruments are modeled as independent tools with a union wide macroprudential tool full stabilization on the aggregate level is possible but welfare losses due to fluctuations in relative variables prevail with country specific macroprudential tools full stabilization of shocks is always possible but as a rule not optimal evaluating the performance of different policy regimes shows that the additional welfare gains from having country specific macroprudential tools are small and vanish as the ability of the central bank to commit decreases

the strategy of professional forecasting we develop and compare two theories of professional forecasters strategic behavior the first theory reputational cheap talk posits that forecasters endeavor to convince the market that they are well informed the market evaluates their forecasting talent on the basis of the forecasts and the realized state if the market expects forecasters to report their posterior expectations honestly then forecasts are shaded toward the prior mean with correct market expectations equilibrium forecasts are imprecise but not shaded the second theory posits that forecasters compete in a forecasting contest with pre specified rules in a winner take all contest equilibrium forecasts are excessively differentiated

do contractionary monetary policy shocks expand shadow banking summary using var models for the usa we find that a contractionary monetary policy shock has a persistent negative impact on the level of commercial bank assets but increases the assets of shadow banks and securitization activity to explain this waterbed effect we propose a standard new keynesian model featuring both commercial and shadow banks and we show that the model comes close to explaining the empirical results our findings cast doubt on the idea that monetary policy can usefully get in all the cracks of the financial sector in a uniform way

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

capital requirements and bank behavior in the uk are there lessons for international capital standards abstract the financial crisis prompted widespread interest in developing a better understanding of how capital regulation drives bank behavior this paper uses a unique comprehensive database of regulatory capital requirements on all uk banks to examine their effects on capital lending and balance sheet management behavior we find that capital requirements that include firm specific time varying add ons set by supervisors affect banks desired capital ratios and that resulting adjustments to capital and lending depend on the gap between actual and target ratios we use these results to measure the effects of a capital regime that includes features similar to those embedded in the uk framework our results suggest that countercyclical capital requirements may be less effective in slowing credit activity when banks can readily satisfy them with lower quality lower costing capital elements versus higher quality common equity given the size of the uk banking sector and the global nature of many of the largest institutions in the uk banking sector the results have implications for the ongoing debate surrounding the design and calibration of international capital standards

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

borrowing relationships intermediation and the cost of issuing public securities abstract this paper investigates how an established borrowing relationship affects the costs associated with initial public offerings of equity our model illustrates how the existence of a borrowing relationship reduces the ex ante uncertainty about the value of the issuing firm s equity in the secondary market if underpricing is related to uncertainty a borrowing relationship can reduce underpricing empirically we find that other things equal ipos of firms with previously established borrowing relationships are underpriced substantially less than other ipos

on interdependent supergames multimarket contact concavity and collusion abstract following bernheim and whinston 1990 this paper addresses the effects of multimarket contact on firms ability to collude real world imperfections tend to make firms objective function strictly concave and market supergames interdependent firms payoffs in each market depend on how they are doing in others then multimarket contact always facilitates collusion it may even make collusion sustainable in all markets when otherwise it would not be sustainable in any the effects of conglomeration are discussed multigame contact is shown to facilitate cooperation in supergames other than oligopolies as long as agents objective function is submodular in material payoffs journal of economic literature classification numbers c72 d43 l13 l21

the synchronization of credit cycles abstract this paper proposes a simple econometric procedure to test for the synchronization of credit cycles using a century of data for 14 advanced economies we find that credit cycle synchronization dropped in the early 1920s from initially relatively high levels between the 1920s and the 1970s synchronization was overall low and concentrated within five predominantly regional clusters however synchronization has significantly increased in the post bretton woods era and has become less associated with geographic proximity australia denmark france italy japan norway spain switzerland the uk and the us form a single major credit cycle cluster since the 1970s a smaller cluster is formed by canada the netherlands and sweden while the german credit cycle follows a distinct path using logistic regressions we find that the synchronization of credit and business cycles go hand in hand our findings are especially relevant for the international coordination of macroprudential policy as well as to spur and inform further analysis on credit cycle dynamics

policy mandates and institutional architecture abstract the model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability highlighting the role of shocks and policy instruments the paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important instead when society values financial stability internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model s parameter values

security analysts career concerns and herding of earnings forecasts several theories of reputation and herding see e g scharfstein and stein 1990 suggest that herding among agents should vary with career concerns our goal in this paper is to document whether such a link exists in the labor market for security analysts specifically we look at the relationship between an analyst s job tenure a proxy for career concerns and various measures of stock earnings forecast performance we establish the following key results 1 older analysts are more likely to produce earnings forecasts of firms before younger ones 2 their forecasts also deviate more from the consensus forecast than their younger counterparts we argue that these results are consistent with some reputational models of herding we also establish a number of auxiliary findings regarding the relationship between forecast accuracy and frequency of forecast revisions with job tenure

macroprudential policies and housing prices a new database and empirical evidence for central eastern and southeastern europe several countries in central eastern and southeastern europe used a rich set of prudential instruments during the recent credit and housing boom and bust cycles we construct a comprehensive database of these policy measures covering 16 countries at a quarterly frequency we use this database to investigate whether the policy measures had an impact on housing price inflation the measures that appeared to be effective were capital measures minimum capital adequacy ratio maximum ratio of lending to households to share capital and nonstandard liquidity measures marginal reserve requirements mrrs on foreign funding mrrs linked to credit growth

from financial crisis to great recession the role of globalized banks this paper provides evidence of the role of globalized banks in transmitting financial stresses to the real economy during the global financial crisis a novel dataset is constructed from quarterly balance sheet reports provided by all uk resident banks to the bank of england i find that the shock to bank funding from non resident creditors was transmitted domestically through a significant reduction in bank credit supply resident subsidiaries and branches of foreign owned banks reduced lending by a larger amount than domestically owned banks while the latter calibrated the reduction in domestic lending more closely to the size of the funding shock

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony