democracy and human capital formation education spending in latin america 1980 to 1997 this article examines the relationship between democratic representation and spending on education in latin america the authors assess the impact that democracy has on the distribution of resources between different levels of schooling and on total spending on education specifically they test whether democratic governments allocate a greater share of resources to primary education the level that benefits the largest segment of the electorate and that is most critical for human capital formation in developing countries using time series cross sectional analysis the authors find that democracies devote a higher percentage of their educational resources to primary education and that they maintain higher absolute spending levels on education in the aggregate thereby enhancing the prospects of human capital formation

exchange rate effects of financial regulations abstract in this paper we analyze the effects of financial constraints on the exchange rate through the portfolio balance channel we use a sharp policy discontinuity within the colombian financial system to empirically test for the portfolio balance channel using high frequency data during the period of 2004 2015 our findings suggest that the effects on the exchange rate are short lived and significant only when banking constraints are binding to understand the mechanism behind this result we construct a tractable two period general equilibrium model in which banking limits on foreign holdings inhibit capital flows when these limits bind departures from the uncovered interest rate parity enable sterilized foreign exchange interventions to influence the exchange rate

using asset prices to measure the cost of business cycles we measure the cost of consumption fluctuations using an approach that does not require the specification of preferences and instead uses asset prices we measure the marginal cost of consumption fluctuations the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of lifetime consumption we find that the gains from eliminating all consumption uncertainty are very large however for consumption fluctuations corresponding to business cycle frequencies we estimate the marginal cost to be between 0 08 percent and 0 49 percent of lifetime consumption

financial globalization financial crises and contagion abstract two observations suggest that financial globalization played an important role in the recent financial crisis first more than half of the rise in net borrowing of the u s non financial sectors since the mid 1980s has been financed by foreign lending second the collapse of the u s housing and mortgage backed securities markets had worldwide effects on financial institutions and asset markets using an open economy model where financial intermediaries play a central role we show that financial integration leads to a sharp rise in net credit in the most financially developed country and to large asset price spillovers of country specific shocks to bank capital the impacts of these shocks on asset prices are amplified by bank capital requirements based on mark to market

a simple general equilibrium model of large excess reserves abstract in a general equilibrium macroeconomic model with a banking system that can hold large excess reserves and is subject to possibly binding capital constraints i study how the quantity of government provided monetary assets is related to the price level in steady state when the central bank does not pay interest on reserves the price level moves one for one with the monetary base if instead the central bank can pay interest on reserves at market rates the price level can decouple from the quantity of monetary assets in the economy a larger monetary base need not imply a higher price level however for large enough levels of reserves the capital constraint binds and the tight link between money and prices reemerges

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

on the firm level implications of the bank lending channel of monetary policy abstract standard models of the bank lending channel are unable to yield predictions on the differential impact of monetary policy shocks over heterogeneous borrowers this inability has made researchers doubt about the role played by bank credit as a transmission mechanism of monetary policy moreover it has made them reject those models in favor of the balance sheet channel as a transmission mechanism in this paper we show that an augmented version of the bank lending channel that allows for firm heterogeneity but without any role for firms balance sheets reproduces well the dynamics of firm level data our contribution is to show that it is not clear that the bank lending channel should be rejected in favor of alternative theories on the basis of its inability to reproduce firm level data thus there is additional room for econometric tests that can provide support to the bank lending channel

deposit insurance and money market freezes in the presence of deposit insurance a rise in counterparty risk may cause a freeze in interbank money markets we show this in a general equilibrium model with regionally segmented bank based retail financial markets in which money markets facilitate the reallocation of funds across banks from different regions counterparty risk creates an asymmetry between banks in savings rich regions which remain marginally financed by the abundant regional insured deposits and in savings poor regions which have to pay large spreads in money markets this asymmetry distorts the aggregate allocation of credit and in the presence of demand externalities can cause large output losses

bank capital and the macroeconomy policy considerations we develop a macroeconomic model in which the balance sheet liquidity condition of financial institutions plays an important role in the determination of asset prices and economic activity the financial intermediaries in our model are required to make investment commitments before a complete resolution of idiosyncratic funding risk that can be addressed only by costly refinancing forcing them to behave in a risk averse manner the model shows that the balance sheet condition of intermediaries can drive asset values away from their fundamentals causing aggregate investment and output to respond to shocks to intermediaries we use this model to evaluate several public policies designed to address balance sheet problems at financial institutions with regard to short run policies we find that capital injections conditioned upon voluntary recapitalization can be a more effective tool than direct lending asset purchases with regard to long run policies we demonstrate that higher capital requirements can have sizable short run effects on economic activity and that a long transition period helps avoid undesirable side effects finally we show that the mariginal effects of policies can be larger during crises because of the nonlinear interactions between some financial frictions and policy actions

money and growth an alternative approach this paper takes an alternative approach to the topic of money and growth by developing a model in which the effects of sustained capital accumulation on an evolving system of payments in addition to the conventional effects of sustained inflation on growth are examined while the effects of inflation on growth are small the effects of growth on the monetary system are substantial the results are consistent with ideas about money and growth contained in work that predates that of james tobin and miguel sidrauski as well as with evidence that money and asset demands vary systematically within economies as they develop copyright 1994 by american economic association

natural resources and income inequality the role of ethnic divisions we hypothesize that natural resources raise income inequality in ethnically polarized societies but reduce income inequality in ethnically homogenous societies and we present empirical evidence in support of this hypothesis

investment crowding out firm level evidence from northern germany michalek j ciaian p and kancs d a investment crowding out firm level evidence from northern germany regional studies the main objective of this paper is to estimate the extent to which firm investment is substituted crowded out by investment support policies granted under the european union rural development programme rdp the empirical analyses employed the difference in difference propensity score matching approach which allows several important sources of bias to be addressed such as selection bias simultaneity bias and functional form misspecification from which many previous studies suffer using panel data of 1333 firms from the schleswig holstein region in germany it is found that the crowding out effect of the rdp is close to 100 implying that firms use public support to substitute for private investments furthermore no evidence was found that due to the rdp programme support firms would have brought forward their investments planned originally for a later period rejecting t

the macroeconomics of modigliani miller abstract we examine the validity of a macroeconomic version of the modigliani miller theorem by this we mean that different capital structures can occur in equilibrium and that all of them are associated with the same allocation of commodities and the same welfare we develop a general equilibrium model with two production sectors risk averse households and financial intermediation by banks banks are funded by safe deposits and outside equity and monitor borrowers in lending two sets of equilibria emerge these sets differ with regard to the debt equity ratios of banks investment in risky technologies bank defaults and whether first best allocations are attained hence the macroeconomic version of the modigliani miller theorem fails to hold imposing minimum equity capital requirements however eliminates all inefficient equilibria and guarantees the validity of the macroeconomic version of the modigliani miller theorem

an incentive approach to banking regulation we examine the optimal design of a risk adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank s assets adverse selection and when the regulator is unable to monitor the extent to which bank resources are being directed away from normal operations toward activities that lower asset quality moral hazard under a socially optimal insurance scheme 1 asset quality is below the first best level 2 higher quality banks have larger asset bases and face lower capital adequacy requirements than lower quality banks and 3 the probability of failure is equated across banks perihaps t he most troubling aspect of the current deposit insurance system is the distortions caused by the pervasive use of an insurance premium that is independent of risk the undesirable incentives that result when such a system is employed in a world with imperfect information have long been recognized in the literature of particular concern is the incentive banks have to increase the risk of their portfolio in order to maximize the value of the deposit insurance provided in some respects this problem is similar to the incentives generated by corporate debt however the solution to this problem may be different in a banking context because the creditors include the deposit insurer who has the power to regulate the banks conceivably regulation may be able to mitigate the informational problem at hand in this paper we examine some of the tradeoffs that arise in the design of a regulatory system for banks

the welfare costs of self fulfilling bank runs we study the welfare implications of self fulfilling bank runs and liquidity require ments in a neoclassical growth model where banks facing long lasting possible runs can choose in any period a run proof asset portfolio in this framework runs distort banks insurance provision against idiosyncratic liquidity shocks and liquidity requirements re solve this distortion by forcing a credit tightening quantitatively the welfare costs of self fulfilling bank runs are equivalent to a constant consumption loss of up to 2 5 percent of u s gdp depending on fundamentals liquidity requirements might generate small welfare gains but also increase the welfare costs by up to 1 8 percent

the welfare cost of bank capital requirements abstract capital requirements are the cornerstone of modern bank regulation yet little is known about their welfare cost this paper measures this cost and finds that it is surprisingly large i present a simple framework which embeds the role of liquidity creating banks in an otherwise standard general equilibrium growth model a capital requirement limits the moral hazard on the part of banks that arises due to deposit insurance however this capital requirement is also costly because it reduces the ability of banks to create liquidity the key insight is that equilibrium asset returns reveal the strength of households preferences for liquidity and this allows for the derivation of a simple formula for the welfare cost of capital requirements that is a function of observable variables only using us data the welfare cost of current capital adequacy regulation is found to be equivalent to a permanent loss in consumption of between 0 1 and 1

is public r d a complement or substitute for private r d a review of the econometric evidence is public r d spending complementary and thus additional to private r d spending or does it substitute for and tend to crowd out private r d conflicting answers are given to this question we survey the body of available econometric evidence accumulated over the past 35 years a framework for analysis of the problem is developed to help organize and summarize the findings of econometric studies based on time series and cross section data from various levels of aggregation laboratory firm industry country the findings overall are ambivalent and the existing literature as a whole is subject to the criticism that the nature of the experiment s that the investigators envisage is not adequately specified we conclude by offering suggestions for improving future empirical research on this issue

microprudential regulation in a dynamic model of banking this paper studies the quantitative impact of microprudential bank regulations on bank lending and value metrics of efficiency and welfare in a dynamic model of banks that are financed by debt and equity undertake maturity transformation are exposed to credit and liquidity risks and face financing frictions we show that 1 there exists an inverted u shaped relationship between bank lending welfare and capital requirements 2 liquidity requirements unambiguously reduce lending efficiency and welfare and 3 resolution policies contingent on observed capital such as prompt corrective action dominate in efficiency and welfare terms noncontingent capital and liquidity requirements

a general equilibrium theory of banks capital structure abstract we develop a general equilibrium theory of the capital structures of banks and firms the liquidity services of bank deposits make deposits a cheaper source of funding than equity in equilibrium banks pass on part of this funding advantage in the form of lower interest rates to firms that borrow from them firms and banks choose their capital structures to balance the benefits of debt financing against the risk of costly default an increase in the equity of a firm makes its debt less risky and that in turn reduces the risk of the banks who lend to the firm hence there is some substitutability between firm and bank equity we find that firms have a comparative advantage in providing a buffer against systemic shocks whereas banks have a comparative advantage in providing a buffer against idiosyncratic shocks

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

global banks financial shocks and international business cycles evidence from an estimated model this paper estimates a two country model with a global bank using us and euro area ea data and bayesian methods the estimated model matches key us and ea business cycle statistics empirically a model version with a bank capital requirement outperforms a structure without such a constraint a loan loss originating in one country triggers a global output reduction banking shocks matter more for ea macro variables than for us real activity during the great recession 2007 09 banking shocks accounted for about 20 of the fall in us and ea gdp and for more than half of the fall in ea investment and employment

chained credit contracts and financial accelerators sufficiently high net worth of financial intermediaries fis is considered a necessary condition for financial and macroeconomic stability in this paper we explore why the net worth of fis is important as compared to that of nonfinancial firms using a dynamic general equilibrium model in which both fis and nonfinancial firms rely on costly external debt we find that an exogenous disruption of the fis net worth has a greater aggregate impact than does the same sized disruption of the nonfinancial firms net worth the key reason is that the net worth of the fis in the united states is small jel e22 e44 g21

financial regulation and securitization evidence from subprime mortgage loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities 2009 elsevier b v all rights reserved

bank assets liquidity and credit cycles abstract we study how bank collateral assets and their pledgeability affect the amplitude of credit cycles to this end we develop a tractable model where bankers intermediate funds between savers and borrowers if bankers default savers acquire the right to liquidate bankers assets however due to the vertically integrated structure of our credit economy savers anticipate that liquidating financial assets i e loans is conditional on borrowers being solvent on their debt obligations this friction limits the collateralization of bankers financial assets beyond that of real assets i e capital in this context increasing the pledgeability of financial assets eases more credit and reduces the spread between the loan and the deposit rate thus attenuating capital misallocation as it typically emerges in credit economies a la kiyotaki and moore 1997 we uncover a close connection between the collateralization of bank loans macroeconomic amplification and the degree of procyclicality of bank leverage

emerging problems with the basel capital accord regulatory capital arbitrage and related issues in recent years securitization and other financial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks a process termed regulatory capital arbitrage these methods are used routinely to lower the eaective risk based capital requirements against certain portfolios to levels well below the basel capital accord s nominal 8 total risk based capital standard this paper discusses the principal techniques used to undertake capital arbitrage and the diaculties faced by bank supervisors in attempting to deal with these activities under the current capital framework 2000 elsevier science b v all rights reserved

credit market competition and capital regulation market discipline for financial institutions can be imposed not only from the liability side as has often been stressed in the literature on the use of subordinated debt but also from the asset side this will be particularly true if good lending opportunities are in short supply so that banks have to compete for projects in such a setting borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending thus creating an asset market based incentive for banks to hold capital borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans which accrue only if the loans are in fact paid off since borrowers do not fully internalize the cost of raising capital to the banks the level of capital demanded by market participants may be above the one chosen by a regulator even when capital is a relatively costly source of funds this implies that capital requirements may not be binding as recent evidence seems to indicate

evaluating the impact of investment incentives the case of italy s law 488 1992 abstract italy s law 488 1992 allows firms willing to invest in lagging areas to receive a public subsidy by comparing subsidized firms with firms with rejected applications this paper evaluates whether the program made investments possible that otherwise would not have been made we find evidence that financed firms brought forward investment projects originally planned for the post intervention period to take advantage of the incentives we also find some support that subsidized firms may have taken some of the investment opportunities that unsubsidized firms would have exploited in the absence of incentives

asset pricing and the propagation of macroeconomic shocks this paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks in a model that is capable of matching asset pricing moments a short lived shock that destroys a small fraction of the economy s stock of pledgeable collateral generates a persistent recession a stock market crash and a flight to safety effect this novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks

short and long run credit constraints in french agriculture a directional distance function framework using expenditure constrained profit functions this empirical application investigates the eventual presence of credit constraints using a panel of french farmers the credit constrained profit maximization model proposed by fare grosskopf and lee is extended in three ways first we rephrase the model in terms of directional distance functions to allow duality with the profit function second we model credit constraints in the short run and investment constraints in the long run using short and long run profit functions third we lag the expenditure constraint one year to account for the separation between planning and production we find empirical evidence of credit and investment constraints financially unconstrained farmers are larger perform better and seem to benefit from a virtuous circle where access to financial markets allows better productive choices

the role of bank capital in the propagation of shocks abstract the recent financial turmoil has underlined the importance of analyzing the link between banks balance sheets and economic activity we develop a dynamic stochastic general equilibrium model in which bank capital mitigates an agency problem between banks and their creditors as a result the capital position of banks affects their ability to attract loanable funds and therefore influences the business cycle through a bank capital channel of transmission we find that the bank capital channel greatly amplifies and propagates the effects of technology shocks on output investment and inflation moreover bank capital shocks create sizeable declines in output and investment

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

financial regulation and securitization evidence from subprime loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities

real effects of bank capital regulations global evidence we examine the effect of the full set of bank capital regulations capital stringency on loan growth using bank level data for a maximum of 125 countries over the period 1998 2011 contrary to standard theoretical considerations we find that overall capital stringency only has a weak negative effect on loan growth in fact this effect is completely offset if banks hold moderately high levels of capital interestingly the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities in contrast compliance with basel guidelines in using basel and credit risk weights has a much less potent effect on loan growth

dynamic effects of permanent and temporary tax policies in a q model of investment abstract this paper incorporates the tax policy analysis of hall and jorgenson into a dynamic optimizing model with adjustment costs to develop a q model of investment this framework is particularly useful for analyzing the dynamic effects on investment of permanent and temporary changes in tax policy it is shown that contrary to the conventional intertemporal substitution argument a temporary investment tax credit need not be nore expansionary than a permanent investment tax credit the role of depreciation allowances in determining the dynamic response of investment to temporary changes in the tax rate is also investigated

bank capital requirements business cycle fluctuations and the basel accords a synthesis abstract in order to survey the mechanisms through which the introduction of basel ii bank capital requirements is likely to accentuate the procyclical tendencies of banking this paper brings together the theoretical literature on the bank capital channel of propagation of exogenous shocks and the literature on the regulatory framework of capital requirements under the basel accords we conclude that the theoretical models that revisit the bank capital channel under the new accord generally support the basel ii procyclicality hypothesis and that the magnitude of the procyclical effects essentially depends on i the composition of banks asset portfolios ii the approach adopted by banks to compute their minimum capital requirements iii the nature of the rating system used by banks iv the view adopted concerning how credit risk evolves through time v the capital buffers over the regulatory minimum held by the banking institutions vi the improvements in credit risk management and vii the supervisor and market intervention under basel ii the recent events and instability in financial markets all over the world have led the procyclicality issue to enter the agendas of several political international fora and some measures to mitigate procyclicality are being put forward the bank capital channel literature should now play an important role in evaluating their effectiveness

bank capital and credit market competition will competitive pressure lead to higher capital levels abstract this paper establishes a theoretical model to study the relationship between credit market competition and bank capital in the model bank capital can alleviate the debt overhang problem and the extent to which banks can enjoy the gain of holding capital is decreasing in the competitive pressure in the credit market it is shown that credit market competition reduces banks incentive to hold capital deposit insurance also induces banks to hold less capital in addition bank capital regulation is welfare improving and banks may voluntarily hold capital in excess of regulatory minimums

growth economies of scale and targeting in japan 1955 1990 this paper explores the usage of various industrial policy tools in japan contrary to the conventional wisdom the authors find that a disproportionate amount of japanese targeting occurred in low growth sectors and sectors with decreasing returns to scale in addition they find no evidence that productivity was enhanced as a result of industrial policy measures copyright 1996 by mit press

joseph schumpeter lecture the great moderation the great panic and the great contraction this lecture examines the causes of the recent financial crisis and subsequent recession on the macroeconomic side the great moderation encouraged an overly optimistic assessment of risk combined with low interest rates reflecting both loose monetary policy and relatively high asian savings rates that encouraged a build up of excessive leverage in the banking system on the microeconomic side distorted incentives led to a concentration and mispricing of risk informational complexities associated with new financial assets and the interconnectedness of financial institutions then resulted in the closure of funding markets and a flight to safety when loan defaults rose unexpectedly the episode indicates the need to focus on agency and information problems between banks and their funders in addition to those between the banks and their borrowers it also suggests that the process of financial intermediation should play a more prominent role in macroeconomic models jel e32 e44 e52 e58 f32 g01 g21

history lessons institutions factor endowments and paths of development in the new world the explanations offered for the contrasting records of long run growth and development among the societies of north and south america most often focus on institutions the traditional explanations for the sources of these differences in institutions typically highlight the significance of national heritage or religion we in contrast argue that a hemispheric perspective across the wide range of colonies established in the new world by the europeans suggests that although there were many influences factor endowments or initial conditions had profound and enduring effects on the long run paths of institutional and economic development followed by the respective economies

sensitivity to exogeneity assumptions in program evaluation in many empirical studies of the effect of social programs researchers assume that conditional on a set of observed covariates assignment to the treatment is exogenous or unconfounded aka selection on observables often this assumption is not realistic and researchers are concerned about the robustness of their results to departures from it one approach e g charles manski 1990 is to entirely drop the exogeneity assumption and investigate what can be learned about treatment effects without it with unbounded outcomes and in the absence of alternative identifying assumptions there are no restrictions on the set of possible values for average treatment effects this does not mean however that all evaluations are equally sensitive to departures from the exogeneity assumption in this paper i explore an alternative approach developed by paul rosenbaum and donald rubin 1983 where the assumption of exogeneity is explicitly relaxed by allowing for a limited amount of correlation between treatment and unobserved components of the outcomes the starting point of the sensitivity analysis is the assumption that the exogeneity assumption is satisfied only conditional on an additional unobserved covariate making assumptions about the effect of the unobserved covariate on the outcome and its correlation with the treatment i trace out the set of possible values for the treatment effect of interest by considering a sufficiently large set of possible correlations with outcomes and treatment one can recover the bounds on the treatment effect derived by manski 1990 the approach here in the spirit of rosenbaum and rubin 1983 and rosenbaum 1995 is to allow only a limited amount of correlation and to judge the sensitivity of average treatment effect estimates to such correlations there are two novel features of the proposed analysis first rather than formulate the sensitivity in terms of coefficients on the unobserved covariate the sensitivity results are presented in terms of partial r values which may be easier to interpret second the partial r values of the unobserved covariates are compared to those for the observed covariates in order to facilitate judgments regarding the plausibility of values necessary to substantially change results obtained under exogeneity the proposed sensitivity analysis is conceptually related to the practice of assessing sensitivity of estimates by comparisons with results obtained by discarding one or more observed covariates james heckman and v joseph hotz 1989 rajeev dehejia and sadek wahba 1999 jeffrey smith and petra todd 2001 the attraction of the sensitivity analysis is that it is more directly relevant one is not interested in what would have happened in the absence of covariates actually observed but in biases that are the result from not observing all relevant covariates

accounting for banks capital regulation and risk taking this paper examines risk taking incentives in banks under dierent accounting regimes with capital regulation in the model the bank s decisions of capital issuance and investment policy are jointly determined given exogenous minimum capital requirement the bank is more likely to issue equity capital in excess of the minimum required level and implement less risky investment policy under either lower of cost ormarket accounting or fair value accounting than under historical cost accounting but fair value accounting may induce more risk taking compared to lower of cost or market accounting due to short term interest in the part of the bank however the disciplining role of lower of cost or market accounting may discourage bank s incentive to exert project discovery eort

a nonparametric approach to expenditure constrained profit maximization a nonparametric approach to expenditure constrained profit maximization is developed a deterministic frontier profit function is constructed with and without expenditure constraints foregone profit is used as dual evidence for the existence of expenditure constraints individual evaluations on performance and expenditure constraints are produced empirical analysis is based on survey data for california rice farms seventeen of the eighty two surveyed farms experience profit loss as a result of expenditure constraints

monetary policy and asset prices with belief driven fluctuations abstract we present a heterogeneous agents new keynesian model subject to a cost channel of monetary policy transmission constant turnover between long time traders and newcomers in market activities combined with restricted trading opportunities introduces a feedback from the stock market to real activity making stock prices non redundant for the business cycle we show that strict inflation targeting can lead to equilibrium indeterminacy even if the policy rule satisfies the taylor principle a belief driven shock to stock price generates relative volatilities of key financial variables which are very close to what is observed in u s data this result hints to the possibility that the financial instability witnessed since the mid to late 1990s was the result of waves of rational exuberance and pessimism in financial markets our analysis suggests that a mild response to stock prices in the central bank s policy rule can restore equilibrium determinacy and therefore rule out non fundamental volatility

rising bank concentration abstract concentration of insured deposit funding among the top four commercial banks in the u s has risen from 15 in 1984 to 44 in 2018 a roughly three fold increase regulation has often been attributed as a factor in that increase the riegle neal interstate banking and branching efficiency act of 1994 removed many of the restrictions on opening bank branches across state lines we interpret the riegle neal act as lowering the cost of expanding a bank s funding base in this paper we build an industry equilibrium model in which banks endogenously climb a funding base ladder rising concentration occurs along a transition path between two steady states after branching costs decline

bank capital in the short and in the long run abstract how far should capital requirements be raised to ensure a resilient banking system without imposing undue costs on the real economy capital requirement increases make banks safer and are beneficial in the long run but entail transition costs because they reduce credit supply and aggregate demand on impact in the baseline scenario of a quantitative macro banking model 25 of the long run welfare gains are lost due to transitional costs the strength of monetary policy accommodation and bank riskiness are key determinants of the trade off between the short run costs and long run benefits from capital requirement changes

local labor market impacts of energy boom bust boom in western canada abstract the impacts of energy price boom and bust are analyzed through the differential growth in employment and earnings between local labor markets with and without energy resources in western canada the estimated differentials attributed to the boom induced labor demand shocks show significant direct and indirect impacts on the earnings and employment within the energy extraction and other non energy local sectors respectively the local job multipliers indicate that job creation within the energy extraction sector leads to modest job creation within the non energy local sectors during boom periods for every ten energy extraction jobs created during a boom period approximately three construction jobs two retail jobs and four and a half service jobs are created

risky bank lending and countercyclical capital buffers abstract we study the properties of a monetary economy with an essential role for risky bank lending banks issue deposits and lend to entrepreneurs because banks lending rate cannot be made contingent on aggregate shocks and because banks face capital adequacy regulations they require a capital buffer against loan losses capital adequacy regulations are modeled on the basel iii rules including a minimum capital adequacy ratio an endogenous capital conservation buffer and a countercyclical capital buffer we find that a countercyclical capital buffer leads to a significant increase in welfare it also reduces the need for countercyclical adjustments in policy interest rates

a prudential stable funding requirement and monetary policy in a small open economy abstract the basel iii net stable funding requirement introduced in january 2018 requires banks to use a minimum share of long term wholesale funding and deposits to fund their assets a similar regulation has been in place in new zealand since 2010 we introduce the stable funding requirement sfr into an open economy dsge model featuring a banking sector with richly specified liabilities and estimate the model for new zealand we then evaluate the impact of the new prudential instrument on monetary policy trade offs a higher steady state sfr level amplifies the effects of shocks to the spread on long term bond financing in the banking sector adding to macroeconomic volatility conditional on these shocks however the sfr plays a passive role in the transmission of all other shocks to the real economy hence in the overall picture the monetary policy trade off between inflation stabilisation and output stabilisation is only slightly worsened by the sfr we note that the trade off can be improved when monetary policy responds systematically to credit growth

does natural resource abundance increase latin american income inequality abstract why is income inequality higher in latin america than in east asia is this phenomenon related to the region s natural resource abundance is it a contributor to latin america s slow and narrowly focused human capital accumulation if so can anything be done to reverse the latin american trends or should we think of the region s fate as unalterable to help answer these questions this paper draws upon standard trade theory and cross sectional empirical analysis to demonstrate that natural resource intensive sectors particularly permanent agriculture absorb capital that might otherwise flow to manufacturing this depresses workers incentive to accumulate skill and delays industrialization

the procyclical effects of bank capital regulation we assess the procyclical effects of bank capital regulation in a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period banks anticipate that shocks to their earnings as well as the cyclical position of the economy can impair their capacity to lend in the future and as a precaution hold capital buffers we find that under cyclically varying risk based capital requirements e g basel ii banks hold larger buffers in expansions than in recessions yet these buffers are insufficient to prevent a significant contraction in the supply of credit at the arrival of a recession we show that cyclical adjustments in the confidence level underlying basel ii can reduce its procyclical effects on the supply of credit without compromising banks long run solvency targets

the recent boom bust cycle the relative contribution of capital flows credit supply and asset bubbles abstract we use an estimated open economy dsge model with financial frictions for the us and the rest of the world to evaluate various competing explanations about the recent boom bust cycle we find that the savings glut hypothesis is insufficient for explaining all aspects of the boom in the us relatively strong tfp growth and expansionary monetary policy are also not able to explain fully the volatility of corporate and in particular residential investment we identify bubbles in the stock and housing market as crucial concerning the downturn in 2008 2009 the fall in house prices and residential investment only plays a minor role mortgage defaults have more explanatory power especially in a specification of the model with a segregated equity market finally the bursting of the stock market bubble was at least as important in this recession as in 2001 because of various negative shocks hitting the economy at the same time in 2008 2009 and continued positive technology growth not only the real interest rate declined but inflation fell rapidly and left insufficient room for monetary policy to play a similar stabilising role as in previous recessions

collateralized borrowing and risk taking at low interest rates abstract empirical evidence suggests financial intermediaries increase risky investments when interest rates are low we develop a model consistent with this observation and ask whether the risks undertaken exceed the social optimum interest rate policy affects risk taking in the model through two opposing channels first low policy rates make riskier assets more attractive than safe bonds second low policy rates reduce the amount of safe bonds available for collateralized borrowing in interbank markets the calibrated model features excessive risk taking at the optimal policy however at low policy rates collateral constraints tighten and risk taking does not exceed the social optimum

crises and capital requirements in banking we analyze a general equilibrium model in which there is both adverse selection of and moral hazard by banks the regulator can screen banks prior to giving them a licence audit them ex post to learn the success probability of their projects and impose capital adequacy requirements capital requirements combat moral hazard when the regulator has a strong screening reputation and they otherwise substitute for screening ability crises of confidence can occur only in the latter case and contrary to conventional wisdom the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks

balladurette and juppette a discrete analysis of scrapping subsidies this paper studies the effects of subsidies on durable goods markets in particular we focus on a recent policy in france in which the governments of balladur and juppe subsidized the replacement of old cars with new ones to study this policy we construct a dynamic stochastic discrete choice model of car ownership at the household level the resulting decision rules and equilibrium conditions are used to estimate the underlying parameters of the model using aggregate data these policy functions are used to evaluate the short and long run effects of the french policies we find that these policies do stimulate the automobile sector in the short run but through the induced changes in the cross sectional distribution of car ages create the basis for subsequent low activity further while these policies increase government revenues in the short run revenues in the long run are lower relative to a baseline without intervention

investment tax incentives and frequent tax reforms despite the frequency of tax changes and their potential importance to investors almost all of the analysis of tax based investment incentives assumes investors never anticipate any tax changes we depart from this approach by analyzing the historical pattern of u s corporate investment incentives over the period 1953 86 incorporating the feature of investor awareness that the tax code may change our analysis incorporates a predictive equation for future tax variables into a model of optimal investment subject to adjustment costs and uncertainty we find that expectations of future tax changes significantly affect the incentive to invest only if adjustment costs are low in this case the incentive to invest in 1986 was strong as investors are estimated to have anticipated the coming reduction in investment incentives this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

public debt and growth heterogeneity and non linearity we study the long run relationship between public debt and growth in a large panel of countries our analysis builds on theoretical arguments and data considerations in modelling the debt growth relationship as heterogeneous across countries we investigate the debt growth nexus adopting linear and non linear specifications employing novel methods and diagnostics from the time series literature adapted for use in the panel we find some support for a negative relationship between public debt and long run growth across countries but no evidence for a similar let alone common debt threshold within countries

the resource curse and its potential reversal several recent papers suggest that the negative association between natural resource intensity and economic growth can be reversed if institutional quality is high enough we try to understand this result in more detail by decomposing the resource measure using alternative measures of both resources and institutions and by studying different time periods while an institutional reversal is present in many specifications only ores and metals interacted with the icrg measure of institutional quality consistently have a negative growth effect but a positive interaction that turns the curse around when institutions are good enough

macroeconomic impact of basel iii evidence from a meta analysis abstract we present a meta analysis of the impact of higher capital requirements imposed by regulatory reforms on the macroeconomic activity basel iii the empirical evidence derived from a unique dataset of 48 primary studies indicates that there is a negative albeit moderate gdp effect in response to a change in the target capital ratio meta regression results suggest that the estimates reported in the literature tend to be systematically influenced by a selected set of study characteristics such as econometric specifications the authors affiliations and the underlying financial system finally we discuss the publication bias

oil abundance and income inequality the paper empirically investigates the impact of natural resource abundance in particular oil on income disparities it employs common correlated effects pooled mean group methodology for estimation to account for the cross country heterogeneity and cross section dependence in the oil inequality nexus in a sample of developed and developing countries we find that oil abundance as well as oil dependence reduce income inequality this inequality reducing effect is highly likely to operate from better education attainments and improved health status due to oil booms

financial development convergence abstract we show that credit levels relative to gdp and other measures for financial development tend to converge across countries over time the results are obtained using a broad sample of countries over many years and controlling for the quality of country level institutions the efficiency of financial institutions and a range of macroeconomic variables while we find evidence for convergence in the broad sample we show that it levels off when countries reach a medium level of financial development at high levels of financial development convergence slows down even more and becomes negligible