sovereign default risk and the u s equity market i develop a two country general equilibrium model with firms governments and endogenous default decisions this paper shows that the risk of sovereign default abroad is important in the explanation of the level and the volatility of u s equity returns the intuition is that negative economic shocks deteriorate the fiscal situation of foreign governments thereby increasing the risk of a sovereign default that would trigger a local contraction in economic growth the rise in the risk of an economic slowdown abroad amplifies the direct eect of these shocks on the level and the volatility of equity returns in the u s through i a decrease in the present value of future firm earnings due to the unfavorable adjustment of the real exchange rate for u s exporters and ii a fall in u s equity prices that originates from the investors incentive to rebalance their portfolio towards risk free securities the amplification eect is strongest during periods of financial distress when the risk of corporate default is high in the u s a structural estimation of the model provides strong support for this prediction using monthly data for brazil and the u s over the period 1994 2008

us monetary policy and sectoral commodity prices abstract using a structural var svar model we examine the effects of the monetary policy of the united states on sectoral commodity prices including the non fuel commodity prices food prices beverage prices prices of agricultural raw materials prices of metals and prices of fuel energy commodities and macroeconomic activity the empirical evidence suggests that a u s monetary contraction leads to an immediate rise in the broad commodity price index which possibly reflects an aggregation bias greater expected inflation and speculation high production costs or some overshooting due to overreactions then the response erodes after six quarters as the positive interest rate shock vanishes and higher interest rates and liquidity drainage take traction despite this the aggregate price response masks the existence of significant heterogeneity in the price responses of the different types of commodity sectors more specifically a positive interest rate shock leads to i an initial pop in the price returns of the non fuel commodities which later reverses path and becomes negative as in the case of the prices of agricultural raw materials ii a positive and persistent rise in the volatile food prices iii a fall in the beverage prices and iv a persistent reduction in the prices of metals and the prices of energy prices our results also remain globally intact with respect to alternative specifications and identification schemes as well as to unconventional monetary policy effects similar results are also found when commodity futures prices are used we conclude that policymakers should recognize the source of sector inflation before embarking on contractionary monetary policy the design of core inflation targeting is also preferable to headline inflation targeting

an empirical investigation of rationing constraints in rural credit markets in india abstract the literature on rural credit markets has generally assumed that households are rationed in their access to subsidized formal credit the validity of this assumption depends on the level of effective demand for formal credit in turn a function of the demand for credit and its availability from informal sources this paper estimates the demand and the sector specific costs of credit and hence the extent of formal sector rationing through an analysis of household participation in both the formal and the informal credit sectors the results show that the extent of rationing is considerably less than what is conventionally assumed

central bank announcements of asset purchases and the impact on global financial and commodity markets abstract we present evidence on the effects of large scale asset purchases by the federal reserve and the bank of england since 2008 we show that announcements about these purchases led to lower long term interest rates and depreciations of the u s dollar and the british pound on announcement days while commodity prices generally declined despite this more stimulative financial environment we suggest that lsap announcements likely involved signaling effects about future growth that led investors to downgrade their u s growth forecasts lowering long term us yields depreciating the value of the u s dollar and triggering a decline in commodity prices moreover our analysis illustrates the importance of controlling for market expectations when assessing these effects we find that positive u s monetary surprises led to declines in commodity prices even as long term interest rates fell and the u s dollar depreciated in contrast on days of negative u s monetary surprises i e when markets evidently believed that monetary policy was less stimulatory than expected long term yields the value of the dollar and commodity prices all tended to increase

modelling sovereign credit spreads with international macro factors the case of brazil 1998 2009 abstract this paper develops a macro finance model of the brazilian economy and its sovereign debt markets that allows for domestic and international macroeconomic influences as well as swings in investor confidence it finds significant evidence of common trends in the us and brazilian economies and bond markets as well as spillover effects from us inflation and business cycles to the brazilian economy the us fed funds rate influences brazilian sovereign spreads as do brazilian inflation and policy rates the brazilian confidence factor dominates the behavior of the spreads during periods of crisis and we find that it also has a powerful effect on the level and volatility of macroeconomic variables these results suggest that the macro finance approach could throw light upon the behavior of other economies that are troubled by sovereign risk

liquidity and the dynamic pattern of asset price adjustment a global view abstract global liquidity expansion has been very dynamic since 2001 contrary to conventional wisdom high money growth rates have not coincided with a concurrent rise in goods prices at the same time however asset prices have increased sharply significantly outpacing the subdued development in consumer prices we investigate the interactions between money and goods and asset prices at the global level using aggregated data for major oecd countries our var results support the view that different price elasticities on asset and goods markets explain the observed relative price change between asset classes and consumer goods

spillovers from the oil sector to the housing market cycle we assess the spillovers from the oil sector to the housing market cycle using quarterly data for 20 net oil exporting and importing industrial countries and employing continuous and discrete time duration models we do not uncover a statistically significant difference in the average duration of booms and normal times in the housing markets of those net oil importers and net oil exporters similarly the degree of exposure to commodity price fluctuations does not seem to significantly affect the housing market cycle however we find that housing booms are shorter when oil prices increase than housing busts when oil prices decrease we also show that the net oil importers are more vulnerable to protracted housing slump episodes than the net oil exporters

formal microlending and adverse or nonexistent selection a case study of shrimp farmers in bangladesh microcredit schemes have become a popular means of improving smallholders access to credit and making long term investment possible however it remains to be explored whether the current microcre

strategic interaction in undeveloped credit markets abstract this paper studies the strategic interaction between informal and formal lenders in undeveloped credit markets in a model with adverse selection loan seniority market power and differences in the cost of lending it is shown that under general conditions a co funding equilibrium will be a nash outcome of the game we demonstrate that a collateral requirement in connection with formal loans always generates a new co funding equilibrium in which both lenders earn higher profits a government subsidy to the formal lender may have the opposite effect we relate our results to existing empirical evidence and the emerging discussion of how to best ensure financial viability and outreach of microfinance institutions

why are crude oil prices high when global activity is weak abstract there have been substantial increases in liquidity in recent years and real oil prices have almost returned to the high levels achieved before the global financial crisis unanticipated increases in global real m2 led to statistically significant increases in real oil prices the historical impact of global real m2 on the real price of crude oil is important in the recovery of oil prices over 2009 to 2011

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

formal credit corruption and the informal credit market in agriculture a theoretical analysis the paper presents a theory of interest rate determination on informal credit in backward agriculture when there is a market for formal credit the farmer has to bribe the official of the formal credit agency in order to get formal credit the official and the moneylender play a non cooperative game in choosing the amount of formal credit and the informal interest rate respectively the informal sector interest rate and the effective formal sector interest rate incorporating the bribe are equal in equilibrium a reduction in the formal interest rate and or an increase in the price of the product may lead to an increase in the equilibrium bribing rate and the informal interest rate when the formal credit and the informal credit are complementary to each other

informal credit markets in india informal financial markets those which are not regulated or monitored by the banking authorities account for much of business credit in developing countries these unregulated informal credit markets icm are important both in their own right as part of each country s financial system and because of their reciprocal relations with growing enterprises and the regulated financial sector in order to study the operations of some of these markets in detail in urban commercial settings we conducted an extended survey of some of the informal credit markets of india 2 based in some cases on centuries of operation these markets proved to be important in the functioning of the contemporary economy indigenous style bankers belonging to particular ethnic communities and castes formerly provided the full range of banking services to their clients 3 with the rise of modern western style banking the indigenous bankers either have transformed themselves to serve sectors such as wholesale trade not well served by the modern sector or provide services which the modern bankers cannot provide though any estimate is very approximate it seems that informal credit markets account for as much as 20 of commercial credit outstanding in the various markets surveyed we began by surveying the gujeratis some of whom still practice their traditional form of full service banking in their homeland of gujerat and adjoining bombay the shikarpuris or multanis originally full service bankers in sind who now provide commercial credit in various other centers the chettiars in south india the rastogis in uttar pradesh and the marwaris especially in eastern india 4 but our surveys revealed that a wide range of ethnic groups were now involved in informal credit markets and the more meaningful differentiations

is it punishment sovereign defaults and the decline in trade sovereign defaults are associated with declines in defaulting countries trade are these declines the result of trade sanctions as the trade sanctions argument of sovereign borrowing would suggest we devise an empirical strategy to evaluate this issue based on the idea that if trade sanctions are causing the declines bilateral trade with creditor countries should fall more than trade with other countries we find that this is not the case the analysis does not yield much evidence of broader punishment strategies including a league of major creditors either these results contradict the predictions of the trade sanctions theory of sovereign borrowing

do village funds improve access to finance evidence from thailand summary this paper examines whether recently introduced village funds one of the largest microfinance programs ever implemented improve access to finance village funds are analyzed in a cross sectional approach in comparison to competing financial institutions we find first that they reach the target group of lower income households better than formal financial institutions second village funds provide loans to those kinds of borrowers who tend to be customers of informal financial institutions third village funds help to reduce credit constraints thus village funds provide services in the intended direction albeit to a seemingly limited degree

oil prices and global factor macroeconomic variables abstract this paper investigates the relationship between oil prices global industrial production prices central bank policy interest rate and monetary aggregate with a global factor augmented error correction model we confirm the following stylized relationships i at global level money industrial production and prices are cointegrated ii positive innovation in global oil price is connected with global interest rate tightening iii positive innovation in global money price level and industrial production is connected with an increase in oil prices iv positive innovations in global interest rate are associated with a decline in oil prices and v the u s euro area and china are the main drivers of global macroeconomic factors

joint liability versus individual liability in credit contracts abstract i offer an explanation for the coexistence of joint liability and individual liability microcredit contracts i show that both contracts maximize welfare when credit is rationed due to limited liability but for different borrowers borrowers monitor each other when liability is joint while the lender monitors individual loans joint liability offers poorer borrowers larger loans with less monitoring effort than would have to be exerted by the lender individual liability offers the wealthier among credit constrained borrowers larger loans even without monitoring the theory explains why individual loans serve the wealthier among poor borrowers and are larger and why businesses funded with individual loans grow more

expanding credit access using randomized supply decisions to estimate the impacts expanding access to commercial credit is a key ingredient of financial development strategies there is less consensus on whether expanding access to consumer credit helps borrowers particularly when loans are extended at high interest rates popular skepticism about unproductive usurious lending is fueled by research highlighting behavioral biases that may induce overborrowing we estimate the impacts of expanding access to consumer credit at a 200 annual percentage rate apr using a field experiment and follow up data collection the randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes there is also some evidence that the loans were profitable the author 2009 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

the role of foreign currency debt in financial crises 1880 1913 versus 1972 1997 abstract we show that exposure to foreign currency debt does not necessarily increase the risk of having a financial crisis some countries do not suffer from financial fragility despite original sin before 1913 british offshoots and scandinavia afflicted with it avoided financial meltdowns today many advanced countries have original sin but few have had crises in both periods aggregate balance sheet mismatches are associated with a greater likelihood of a crisis the evidence suggests that foreign currency debt is dangerous when mis managed this is part of the difference between developed countries and emerging markets both of which borrow in foreign currency

why don t lenders finance high return technological change in developing country agriculture most of the literature attributes credit constraints in small farm developing country agriculture to the variability of returns to investment in this sector but the literature does not fully explain lenders reluctance to finance investments in technologies that provide both higher average and less variable returns this article develops an information theoretic credit market model with endogenous technology choice the model demonstrates that lenders may refuse to finance any investment in a riskless high return technology regardless of the interest rate they are offered when they are imperfectly informed about loan applicants time preferences and therefore about their propensities to default intentionally in order to finance current consumption copyright 2001 oxford university press

the use of village agents in rural credit delivery using a simple principal agent model this article examines the incentive problems that arise when a formal financial institution such as a rural bank utilises a member of the rural community to act as an agent in screening potential borrowers and collecting repayment optimal compensation schemes are derived for the agent and their implications are discussed in addition i show that the norms and rules that govern village life may aid the financial institution by helping to constrain possible strategic behaviour by the agent

sovereign defaults by currency denomination abstract this paper explores the drivers of sovereign default in 100 countries over the period 1996 2012 we build a new data set of sovereign defaults and find that default events for local and foreign currency bonds are equally likely however governments default under different economic and financial conditions depending on the currency in which bonds are issued the explained variation in default probability rises from 43 to 62 when we account for differences in currency denomination we also provide evidence that global factors and market sentiment which are known to drive sovereign spreads do not help explain the probability of sovereign default hence these factors appear to affect the price of sovereign credit risk although not the risk itself

fiscal space and sovereign risk pricing in a currency union abstract we examine how membership in a currency union affects public debt sustainability and market assessments of default risk in eurozone countries we argue that there exist offsetting effects expectations of bailouts tend to make a given level of debt more sustainable lowering bond yields and cds rates but constraints on the use of monetary policy would tend to have the opposite effect pushing rates up especially as room for fiscal maneuver gets exhausted we develop a formal concept of fiscal space which takes account of the notion of fiscal fatigue under which there are limits to the government s ability to raise the primary surplus in response to higher debt and apply it to the eurozone countries investigating in particular how currency union membership affects cds and bond rates during both quiet and turbulent times for a given amount of fiscal space we find that in quiet times cds and bond rates for eurozone members were below what would be expected given their fiscal space a bonus from currency union membership but when the crisis erupted cds and bond yields rose more sharply for eurozone members than would be predicted based on their available fiscal space our interpretation is that sovereign bailouts did not occur with the hoped for alacrity in euro crisis countries generating sharper penalties for sovereigns that belong to a currency union

microfinance and moneylender interest rate evidence from bangladesh summary the linkage between the formal and informal credit markets in developing countries has largely been unexplored this paper addresses one important aspect of the linkage by empirically investigating the impact of the intervention of microfinance programs on the moneylender interest rates in northern bangladesh and finds that moneylender interest rates increase with microfinance program coverage higher microfinance program coverage increases moneylender interest rates in the villages in which more loans are invested in productive economic activities than consumption borrowers resort to moneylenders for additional funds probably because of inadequate supply unavailability of seasonal working capital from mfis and tight repayment schedules which in turn increase demand for moneylender loans

does sovereign risk in local and foreign currency differ abstract sovereign debt in local currency has been considered safer than in foreign currency the literature offers scant guidance as to why such a gap existed or why it has slowly and steadily diminished over the past two decades we suggest and empirically test five hypotheses we find fx reserves and original sin greater financing in local currency to consistently be robust determinants of the gaps in local and foreign currency ratings as for why the gap has declined we identify as important factors the surge in global reserves and to a lesser extent the decline of original sin

why institutional credit agencies are reluctant to lend to the rural poor a theoretical analysis of the indian rural credit market abstract this paper examines why institutional credit facilities remain unable to extend credit to the rural poor analysis indicates that poor peasants at best can offer an entitlement set as a mortgage comprised only of future shares of their harvest which itself is subject to risk consequently lenders can not advance loans without risking extensive loss of loanable funds as the landlords income is subject to the same risk as that of peasants they advance loans to ensure that their own income is not affected by the peasants financial situation an extension of institutional credit to peasants results only in subsidization of landlords

imperfect substitutes the local political economy of informal finance and microfinance in rural china and india abstract banking authorities in both china and india have attempted to limit most forms of informal finance by regulating them banning them and allowing certain types of microfinance institutions the latter policy aims to increase the availability of credit to low income entrepreneurs and eliminate their reliance on usurious financing nonetheless the intended clients of microfinance continue to draw on informal finance in both rural china and india this article argues that the persistence of informal finance may be traced to four complementary reasons the limited supply of formal credit limits in state capacity to implement its policies the political and economic segmentation of local markets and the institutional weaknesses of many microfinance programs

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

rotating saving and credit associations in rural east africa abstract theoretical arguments suggest that rotating savings and credit associations roscas improve welfare by reducing the utility cost of saving for a consumer durable data from two communities in east africa reveal major differences in the incidence of roscas participation arising conjecturally from differences in the relative depths of market penetration and perceptions about the efficacy of alternative strategies for compensating for failures in the financial markets participation in roscas in these communities is partly driven by the need to raise school fees meet medical expenses and buy food roscas funds are also used to start or promote small businesses and acquire assets including livestock households owning smaller landholdings and those enjoying higher expenditures are more likely to participate in roscas the number of schemes in which a household participates is closely related to the main uses of roscas funds while contributions and value of receipts are determined by total expenditures and frequency of turns respectively

determinants of sovereign yield spreads in the eurozone a bayesian approach abstract we analyze the determinants of sovereign yields spreads of emu member states applying bayesian model averaging bma to annual panel data from 1999 to 2009 bma is well suited in cases of small samples and high model uncertainty this seems to be the case in modeling sovereign yield spreads in the eurozone since the literature reports heterogeneous results with respect to significant explanatory variables we are testing a number of variables reported to be significant in the literature and find that the most likely country specific drivers of yield spreads are fiscal variables such as budget balance and government debt as well as external sector variables such as terms of trade trade balance and openness global financing conditions indicated by the us interest rate and market sentiments indicated by corporate bond spreads are likely to influence sovereign yield spreads

social networks and factor markets panel data evidence from ethiopia we investigate the role of an indigenous social network in ethiopia the iddir in facilitating factor market transactions among smallholder farmers we use detailed longitudinal household survey data and employ fixed effects estimation approaches to identify the effect of iddir membership on factor market transactions among farmers we find that joining an iddir network improves households access to land labour and credit transactions our findings also hint that iddir networks may crowd out borrowing from local moneylenders locally referred as arata abedari a relatively expensive credit source these results suggest that non market institutions can play crucial roles in facilitating market transactions

empirical measurement of credit rationing in agriculture a methodological survey empirical analysis of rural credit market failure has been of key scientific and political interest in recent years the aim of this article is to give an overview of the various methods for measuring credit rationing that are employed in the literature furthermore the methods are subjected to a comparative evaluation of their specific strengths or shortcomings six approaches are distinguished measurement of loan transaction costs analysis of qualitative information collected in interviews analysis of quantitative information collected in interviews using the credit limit concept analysis of spill over effects with regard to secondary credit sources econometric household modeling and the econometric analysis of dynamic investment decisions an explicit comparison with a first best solution is impossible in the first three approaches since they essentially rely on a subjective assessment of borrowers access to credit based on qualitative or quantitative indicators the fifth and sixth approaches allow a rigorous interpretation in the framework of neoclassical equilibrium theory the fourth approach takes an intermediate position since spill over on segmented loan markets reveals a willingness to pay with regard to the supposedly less expensive but rationed primary source the approaches are fairly data demanding in general usually requiring specific data on loan transactions even so most approaches are applicable to cross sectional household data with the exception of the first all methods surveyed might plausibly be used to empirically detect credit rationing

microfinance spillovers a model of competition in informal credit markets with an application to indian villages despite widespread interest in the development of microfinance spillover effects on the non using population and redistributive issues remain largely unexplored i study a competition game between microfinance institutions mfis offering joint liability loans and moneylenders offering individual loans in presence of adverse selection i show that one unintended consequence of the entry of a microfinance sector in local credit markets can be to trigger an increase in the equilibrium informal interest rate because mfis tend to attract a disproportionately safe share of the borrower pool away from incumbent moneylenders the existence of such composition externality depends crucially on the size of the microfinance sector and the risk composition of the borrower pool the model predicts a non linearly increasing relationship between informal interest rates and mfis capacity in relatively safe credit markets and no relationship in risky villages i show evidence supporting these predictions using a first hand panel database that records all credit transactions over 8 years for a sample of about 1000 households living in indian villages with extensive space and time variation in the size of their microfinance sector

access to capital in rural thailand an estimated model of formal versus informal credit the aim of this paper is to understand the mechanism underlying access to credit the author focuses on two important aspects of rural credit markets in thailand first moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks and more recently micro lending institutions second potential borrowers presumably face sizable transaction costs obtaining external credit the author develops and estimates a model based on limited enforcement and transaction costs that provides a unified view of those facts the results show that the limited ability of banks to enforce contracts more than transaction costs is crucial in understanding the observed diversity of lenders

delayed formal credit bribing and the informal credit market in agriculture a theoretical analysis abstract the paper presents a theory of interest rate determination in the informal credit market in backward agriculture the market for informal credit is created by the delay in disbursement of formal credit the delay is controlled by the official of the formal credit agency and he is bribed by the farmer to reduce the delay the official and the moneylender play a non cooperative game in choosing the bribing rate and the informal interest rate respectively the informal sector interest rate and the effective formal sector interest rate incorporating the bribe are equal in equilibrium agricultural price and credit subsidy policies may raise the interest rate in the informal credit market

household sectoral choice and effective demand for rural credit in india an analysis of the icrisat data from three indian villages raises concern about the extent of rationing mechanism inhibiting the spread of formal credit in rural india where a significant proportion of households do not have any outstanding loan or borrow from the informal sector only a limited dependent econometric analysis of the factors jointly determining household sectoral choice and effective demand for informal loan conditional on whether a formal loan is available suggests that compared to formal loan easy and adequate access and prompt recovery are significant determinants of the popularity and viability of informal rural credit among sample households also some households substitute labour income to ease the extent of credit thus rationing of the formal credit is not the only factor inhibiting the spread of formal credit in the study villages

sovereign debt in emerging market countries not all of them are serial defaulters avoiding to assign emerging market countries a typical behaviour this article considers the heterogeneity across them and through time to predict their sovereign default episodes moreover it f

not all sectors are alike differential impacts of shocks in oil prices on the sectors of the colombian economy abstract in this paper an estimation of differential impacts of shocks in oil prices on the economic sectors in the oil exporting colombia is made using data from the world economy and adopting the model of structural autoregressive vectors var employed by kilian et al 2009 oil prices shocks are estimated according to three types of origin oil supply oil demand and aggregate demand subsequently using data from the colombian economy the effects that these shocks have on sectoral production in colombia are estimated through the use of var models which allow direct impacts to be separated from those that are transmitted through the interrelations between sectors the results obtained show that only the specific demand for oil and aggregate demand shocks affect significantly the total production in colombia although not in all sectors only manufacturing industry and electricity gas and water sectors are directly and significantly affected by both types of demand shocks however when considering the indirect effects transmitted through the interrelations between sectors it was found that the total impacts of these two types of shocks affect the construction transport and trade restaurants and hotels sectors as the effect is positive the colombian economy benefits from increases in oil prices due to demand factors but responds negatively when the opposite situation occurs

interest rates collateral and de interlinkage a micro study of rural credit in west bengal this study based on a primary field survey in rural west bengal analyses the terms and conditions of the differentiated structure of rural credit with the advent of capitalist agriculture within the interventionist state the sample households are classified according to the economic classes of patnaik as well as the standard acreage criterion the possibility of interlinkage between credit and all other structures is remote the average rate of interest is inversely related to ascending class status there is a systematic association between rate of interest and the value of collateral on the one hand and marketability of collateral and interest rates on the other

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

credit layering in informal financial markets abstract informal lenders with access to markets or capital often find it attractive to delegate loan provision to downstream lenders who have an information or enforcement advantage in dealing with particular borrowers in this paper we examine the conditions under which such an arrangement is preferred by two informal lenders a landlord and a merchant who compete in loan provision to tenant farmers differentiated by wealth we show that credit layering is preferred only when tenants are sufficiently poor in this case the trader lends to tenant farmers via a contract with their landlord otherwise only the trader lends as a consequence a pattern of borrowing emerges in which relatively wealthy tenants borrow from merchants while poor tenants borrow mainly from their landlords interlinkage between land and credit thus arises only for a subset of tenants and purely as a consequence of credit layering this pattern is shown to be supported empirically

financial liquidity geopolitics and oil prices abstract this paper aims simultaneously to study the global dynamic relationship of oil prices financial liquidity and geopolitical risk on the one hand and the economic performance of oil exports dependent economies on the other global and country specific dynamics are studied together in a global vector autoregression gvar model that allows different lag structures for different variables in different countries global impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely despite the likely continuation of high global financial liquidity and heightened geopolitical risk which had driven earlier episodes of very high oil prices with oil remaining at modest to low prices by recent historical standards we study the prospects for economic growth in oil export dependent economies through dramatic increases in domestic investment as planned under visions 2030 of some arab countries and conclude that unfortunately success is unlikely

optimal collective contract without peer information or peer monitoring if entrepreneurs have private information about factors influencing the outcome of an investment individual lending is inefficient the literature typically offers solutions based on the assumption of full peer information to solve adverse selection problems and peer monitoring to solve moral hazard problems in contrast i show that it is possible to construct a simple budget balanced mechanism that implements the efficient outcome even if each borrower knows only own type and effort and has neither privileged knowledge about others nor monitoring ability the mechanism satisfies participation incentives for all types and is immune to the rothschild stiglitz cream skimming problem despite using transfers from better types to worse types the presence of some local information implies that the mechanism cannot be successfully used by formal lenders thus a local credit institution can emerge as an optimal response to the informational environment even without peer information or monitoring finally i investigate the role of monitoring in this setting and show how costly monitoring can increase the scope of the mechanism

modeling sovereign yield spreads a case study of russian debt we construct a model for pricing sovereign debt that accounts for the risks of both default and restructuring and allows for compensation for illiquidity using a new and relatively efficient method we estimate the model using russian dollar denominated bonds we consider the determinants of the russian yield spread the yield differential across different russian bonds and the implications for market integration relative liquidity relative expected recovery rates and implied expectations of different default scenarios this paper develops a model of the termstructure of credit spreads on sovereign bonds that accommodates i default or repudiation the sovereign announces that it will stop making payments on its debt ii restructuring or renegotiation the sovereign and the lenders agree to reduce or postpone the remaining payments and iii a regime switch such as a change of government or the default of another sovereign bond that changes the perceived risk of future defaults we build on the framework of duffie and singleton 1999 showing that cash flows promised by a sovereign bond can be discounted using a default adjusted short termdiscount rate that reflects the m ean arrival rate and associated losses in market value upon arrival of each of the aforementioned types of credit events since a sovereign credit event is often not a liquidation event the model allows for continued trading and pricing of a sovereign instrument through credit events possibly after writedowns in face value or cash distributions to creditors on credit event dates additionally we accommodate the possibility that bonds issued by the same sovereign of exactly the same type but possibly of different maturities may be priced in the market using different discount factors reasons for this may include i bond covenants may not include cross default clauses that would force upon the default of one bond the simultaneous default of other bonds of the same type but of a different maturity for various strategic reasons related to internal

do sovereign credit default swaps represent a clean measure of sovereign default risk a factor model approach abstract in this study we use a factor model in order to decompose sovereign credit default swaps cds spreads into default liquidity systematic liquidity and correlation components by calibrating the model to sovereign cdss and bonds we are able to present a better decomposition and a more accurate measure of spread components our analysis reveals that sovereign cds spreads are highly driven by liquidity 55 6 of default risk and 44 32 of liquidity and that sovereign bond spreads are less subject to liquidity frictions and therefore could represent a better proxy for sovereign default risk 73 of default risk and 26 86 of liquidity furthermore our model enables us to directly study the effect of systematic liquidity and flight to liquidity risks on bond and cds spreads through the factor sensitivity matrix we find that these risks do have an influence on the default intensity and they contribute significantly to spread movements finally our empirical results advance the idea that the increase in the cds spreads observed during the crisis period was mainly due to a surge in liquidity rather than to an increase in the default intensity

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

debt levels debt composition and sovereign spreads in emerging and advanced economies this paper studies the relationship between sovereign spreads and the interaction between debt composition and debt levels in advanced and emerging market countries it finds that in emerging market countries there is a significant correlation between spreads and debt levels this correlation however is not statistically significant in countries where most public debt is denominated in local currency in advanced economies the magnitude of the correlation between debt levels and spreads is about one fifth of the corresponding correlation for emerging market economies in eurozone countries however the correlation between spreads and debt ratios is similar to that of emerging market countries the paper also shows that the financial crisis amplified the relationship between spreads and debt levels within the eurozone but had no effect on the relationship between spreads and debt in stand alone countries finally the paper shows that the relationship between debt levels and spreads is amplified by the presence of large net foreign liabilities this amplifying effect of net foreign liabilities is larger in the eurozone than in stand alone advanced economies the paper concludes that debt composition matters and corroborates the original sin hypothesis that rather than being a mere reflection of institutional weakness the presence of foreign currency debt increases financial fragility and leads to suboptimal macroeconomic policies copyright 2013 oxford university press

sovereign bond yield spreads a time varying coefficient approach abstract we study the determinants of sovereign bond yield spreads across 10 emu countries between q1 1999 and q1 2010 we apply a semiparametric time varying coefficient model to identify to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing we find that at the beginning of emu the government debt level and the general investors risk aversion had a significant impact on interest differentials in the subsequent years however financial markets paid less attention to the fiscal position of a country and the safe haven status of germany diminished in importance by the end of 2006 two years before the fall of lehman brothers financial markets began to grant germany safe haven status again one year later when financial turmoil began the market reaction to fiscal loosening increased considerably the altering in risk pricing over time period confirms the need of time varying coefficient models in this context

formal informal sector interaction in rural credit markets abstract the majority of small cultivators in the less developed countries are not regarded as credit worthy by the formal sector financial institutions and are forced to borrow from the moneylenders in the informal credit market this paper shows that when such borrowers differ in their likelihood of default and the moneylenders are asymmetrically informed about the client specific degree of risk the policy of providing cheap credit through the formal sector can generate adverse composition effects which worsen the terms of credit and the availability of loans in the informal sector

signaling in credit markets in this paper we show that under a variety of alternative assumptions about the private information of loan applicants a competitive market for loans is characterized by screening banks separate out loan risks by offering higher loans at higher interest rates depending on the nature of the informational asymmetry it may be that applicants with less risky projects select larger rather than smaller loans comparative statics implications are also examined in particular we explore the effects of an increase in banks cost of funds on average loan quality

moneylenders and bankers price increasing subsidies in a monopolistically competitive market abstract in many areas of the world a significant part of the cost of obtaining a good or service is the cost of enforcing the contracts entailed in its provision we present models of markets with endogenous enforcement costs motivated by studies of rural credit markets we show that subsidies may have perverse effects under monopolistic competition increasing prices or inducing exit higher prices interest rates result from the loss of scale economies or from negative externalities among suppliers the models are consistent with the puzzling evidence that infusions of government subsidized formal credit have not improved the terms offered by moneylenders

sovereign credit spreads under good bad governance abstract this paper explores how sovereign credit spreads vary with the level of governance an analysis of 74 countries over the 2001 2016 period shows that sovereign credit default swap cds spreads decrease with government effectiveness particularly in countries exhibiting severe default risk high indebtedness and poor economic conditions we formulate a theoretical explanation for these findings using a structural model in which governments adjust default and debt policies based on their abilities to collect and use fiscal revenues the theory posits that more effective governments have less incentive to default and thus benefit from narrower credit spreads although they may choose higher indebtedness levels

sovereign risk and secondary markets conventional wisdom says that in the absence of default penalties sovereign risk destroys all foreign asset trade we show that this conventional wisdom rests on one implicit assumption that assets cannot be retraded in secondary markets without this assumption foreign asset trade is possible even in the absence of default penalties this result suggests a broader perspective regarding the origins of sovereign risk and its remedies sovereign risk affects foreign asset trade only if default penalties are insufficient and secondary markets work imperfectly to reduce its effects one can either increase default penalties or improve the working of secondary markets jel f34 g12 g15

long duration bonds and sovereign defaults abstract this paper extends the baseline framework used in recent quantitative studies of sovereign default by assuming that the government can borrow using long duration bonds this contrasts with previous studies which assume the government can borrow using bonds that mature after one quarter we show that when we assume that the government issues bonds with a duration similar to the average duration of sovereign bonds in emerging economies the model generates an interest rate that is substantially higher and more volatile than the one obtained assuming one quarter bonds this narrows the gap between the predictions of the model and the data which indicates that the introduction of long duration bonds may be a useful tool for future research about emerging economies our analysis is also relevant for the study of other credit markets

multi agent simulations to explore rules for rural credit in a highland farming community of northern thailand thanks to recent advances in the field of distributed artificial intelligence agentbased models abm can now be used to run simulations of social phenomena based on their computerized representations and to apply experimental methods in social sciences axelrod 1997 gilbert and troitzsch 1999 jager 2000 in the field of renewable resource management and environmental sciences several abm simulation platforms offer the possibility to explore interactions between social and ecological dynamics costanza and ruth 1998 bousquet et al 1998 lansing 2002 in these complex systems the social and economic dynamics can be viewed as a set of interactions among heterogeneous agents generating aggregate phenomena that are different from the behaviour of groups of average individuals considered in classical economic thinking rouchier and bousquet 1998 such a view was adopted in the research presented here

inflation linked public debt in emerging economies abstract this study reports a set of stylized facts about inflation linked il public debt in emerging economies on average emerging economies issue 23 of their local currency lc public debt linked to inflation il debt issuance is countercyclical increases in periods of nominal exchange rate depreciations and substitutes foreign currency fc and non indexed local currency debt a two sector small open economy model of public debt composition can deliver the business cycle properties of il debt and shows that during crises amid nominal exchange rate depreciations il debt becomes cheaper to issue the study finds evidence of il rates decreasing in about half of the most recent crises in emerging economies finally the study compares il rates to fc and lc rates and concludes that for some countries il rates are below lc rates even after accounting for expected inflation

do rural banks matter evidence from the indian social banking experiment lack of access to finance is often cited as a key reason why poor people remain poor this paper uses data on the indian rural branch expansion program to provide empirial evidence on this issue between 1977 and 1990 the indian central bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches we show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in indian states with lower initial financial development the reverse is true outside this period we exploit this fact to identify the impact of opening a rural bank on poverty and output our estimates suggest that the indian rural branch expansion program significantly lowered rural poverty and increased non agricultural output

heterogeneity of the determinants of euro area sovereign bond spreads what does it tell us about financial stability abstract in this paper we assess the movements of euro area sovereign bond yield spreads vis a vis the german bund as processes specified across different levels of volatility and subject to movements in asset prices and economic conditions the determinants we use are grouped into domestic and euro area aggregates thus allowing us to derive results on their relative explanatory power and compare them across time and the spectrum of countries we find that volatility influences the deterministic processes of the euro area sovereign spreads and that identical determinants have effects on spreads that vary considerably across countries furthermore we find that variables reflecting investment confidence conditions and perceptions for the upcoming economic activity are significant determinants and their significance remains to a large extent even when controlling for fiscal variables

interactions between institutional and informal credit agencies in rural india in an attempt to expand rural credit and displace the village moneylender india created a system of rural cooperatives in the 1950s and expanded branch banking into rural areas in the 1970s this article examines how these measures affected the rural market it begins with the question of how large the expansion of institutional credit has been and the extent to which it has dislodged the village and nonresident moneylenders a detailed comparison of three major surveys of the indian rural credit market suggests that in various guises the moneylender is still a major source of loans the article also examines the weak evidence on intermediation between the formal and informal sectors a formal model of the interaction between the informal moneylender and institutional lender is constructed under a variety of assumptions about the exclusivity of loan contracts and the competitive structure of the informal sector the conclusions are drawn together in the form of five proposals for public policy

commodity prices and bric and g3 liquidity a sfavec approach this paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices liquidity is taken to be m2 a novel finding is that unanticipated increases in the bric countries liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in g3 liquidity and the difference increases over time over 1999 2012 bric liquidity is strongly linked with global energy prices and global real activity whereas g3 liquidity is not the impact of bric liquidity on mineral and metal prices is twice as large as that of g3 liquidity granger casualty goes from liquidity to commodity prices bric and g3 liquidity and commodity prices are cointegrated bric and g3 liquidity and global output and global prices are cointegrated we construct a structural factor augmented error correction sfavec model

foreign currency debt and the global financial architecture abstract this paper discusses some problems posed by foreign currency debt for emerging economies in the context of the ongoing debate on the reform of the global financial architecture we present a model in which the currency composition of corporate debt is endogenous and discuss the optimality of measures aimed at coping with the risks posed by foreign currency debt while removing these risks is not necessarily efficient in the presence of moral hazard some forms of public intervention such as a tax on foreign currency debt or international bailouts may be optimal