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

bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

immigration policy with partisan parties this paper analyzes the political economy of immigration when the salient electoral issue is the level of immigrants and the relevant immigration policy is the expenditure in immigration control we consider that immigration affects voters welfare through economic and non economic factors we model political competition a la wittman with the ideology of parties endogenously determined at equilibrium numerical simulations provide the levels of immigration proposed by the two parties and the composition of parties constituencies at equilibrium parties propose different levels of immigration located to the left and to the right of the median voter s ideal point we find that improvements in the efficacy of immigration control increases the probability of victory of the party proposing a tighter immigration policy and decreases the disparity in parties policy proposals

who is against immigration a cross country investigation of individual attitudes toward immigrants abstract this paper empirically analyzes economic and noneconomic determinants of individual attitudes toward immigrants within and across countries the two survey data sets used covering a wide range of developed and developing countries make it possible to test for interactive effects between individual characteristics and country level attributes in particular theory predicts that the correlation between pro immigration attitudes and individual skill should be related to the skill composition of natives relative to immigrants in the destination country skilled individuals should favor immigration in countries where natives are more skilled than immigrants and oppose it otherwise results based on direct and indirect measures of the relative skill composition are consistent with these predictions noneconomic variables also are correlated with immigration attitudes but they don t alter significantly the labor market results

when credit bites back using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle relative to typical recessions financial crisis recessions are costlier and more credit intensive expansions tend to be followed by deeper recessions in financial crises or otherwise and slower recoveries we use local projection methods to condition on a broad set of macro economic controls to study how past credit accumulation impacts key macro economic variables such as output investment lending interest rates and inflation the facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle

money liquidity and monetary policy in a market based financial system banking and capital market developments are inseparable and funding conditions are closely tied to fluctuations in the leverage of market based financial intermediaries offering a window on liquidity the balance sheet growth of broker dealers provides a sense of the availability of credit contractions of broker dealer balance sheets have tended to precede declines in real economic growth even before the current turmoil for this reason balance sheet quantities of market based financial intermediaries are important macroeconomic state variables for the conduct of monetary policy

voting for voters a model of electoral evolution we model the decision problems faced by the members of societies whose new members are determined by vote we adopt a number of simplifying assumptions the founders and the candidates are fixed the society operates for k periods and holds elections at the beginning of each period one vote is sufficient for admission and voters can support as many candidates as they wish voters assess the value of the streams of agents with whom they share the society while they belong to it in spite of these simplifications we show that interesting strategic behavior is implied by the dynamic structure of the problem the vote for friends may be postponed and it may be advantageous to vote for enemies we discuss the existence of different types of equilibria in pure strategies and point out interesting equilibria in mixed strategies

implied interest rates one of the most important assumptions in financial economics models is the existence of a risk free rate available for borrowing and lending in any economy however the borrowing rate does not coincide with the lending rate even for the short run the difference between the rates is considered a compensation for intermediation that is necessary in the imperfect real world in a well functioning financial market this difference would be small and the smaller it is the better off is the economy the two short term rates that best approximate riskless lending and borrowing rates are the treasury bill rate and the brokers loan call rate respectively with the introduction of put and call options a new risk free instrument has been created using options alone or options combined with the underlying asset one could turn to these markets for his borrowing or lending needs thereby with the introduction of put and call options a new risk free asset has been created the objective of this study is to estimate the rate implied in option prices and compare it to other riskless instruments we have used transactions data on chicago board options exchange options taking into account the american feature of these options we find that options markets provide rates that are competitive with other short term rates these rates are closer to the borrowing rate than to the lending rate

options trading driven by volatility directional accuracy analysts have claimed over the last years that the volatility of an asset is caused solely by the random arrival of new information about the future returns from the underlying asset it is a common belief that volatility is of great importance in finance and it is one of the critical factors determining option prices and consequently driving option trading strategies this article discusses an empirical option trading methodology based on efficient volatility direction forecasts although in most cases accurate volatility forecasts are hard to obtain forecasting the direction is significantly easier increase in the directional accuracy leads to profitable investment strategies the net gain is depended on the size of the changes as well however successful volatility forecasts in terms of directional accuracy was found to be sufficient for positive results in order to evaluate the proposed methodology weekly data from cax40 dax and the greek ftse ase 20 stock indices were used

policy uncertainty lender of last resort and the real economy abstract a reduction in lender of last resort lolr policy uncertainty positively affects bank lending and propagates to investment and employment we exploit a unique policy that reduced uncertainty regarding the availability of future lolr funding for banks as a quasi natural experiment using micro level data on banks firms and loans in portugal we generate cross sectional variation in banks exposure to uncertainty and find that the size of the haircut subsidy the gap between private market and central bank security valuations plays a key role in the propagation of the shock to lending and the real economy

forecasting stock return variance toward an understanding of stochastic implied volatilities we examine the behavior of measured variances from the options market and the underlying stock market under the joint hypotheses that markets are informationally efficient and that option prices are explained by a particular asset pricing model forecasts from time series models of the stockreturn process should not have predictive content given the market forecast as embodied in option prices both in sample and out of sample tests suggest that this hypothesis can be rejected using simulations we show that biases inherent in the procedure we use to imply variances cannot explain this result thus we provide evidence inconsistent with the orthogonality restrictions of option pricing models that assume that variance risk is unpriced these results also have implicationsfor optimal variance forecast rules

informational frictions and the credit crunch in this paper i estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007 to 2009 financial crisis because lenders rely on private information when deciding which relationship to end borrowers looking for a new lender are adversely selected i show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships quantitatively these informational frictions appear to be too small to explain the credit crunch in the u s syndicated corporate loan market

options based forecasts of futures prices in the presence of limit moves the reported analysis examines a simultaneous estimation option based approach to forecast futures prices in the presence of daily price limit moves the procedure explicitly allows for changing implied volatilities by estimating the implied futures price and the implied volatility simultaneously using futures and futures options data for three agricultural commodities it is found that the simultaneous estimation approach accounts for the abrupt changes in implied volatility associated with limit moves and generates more accurate price forecasts than conventional methods that rely on only one implied variable

implied spot rates as predictors of currency returns a note currency call option transactions data and the black scholes option pricing model as modified by merton for continuous dividends and as adapted to currency options by biger and hull and by garman and kohlhagen are used to imply spot foreign exchange rates the proportional deviation between implied and simultaneously observed spot rates is found to be a direct and statistically significant determinant of subsequent returns on foreign currency holdings after controlling for interest rate differentials further an ex ante trading rule reveals that the additional information contained in implied rates often is sufficient to generate significant economic profits manaster and rendleman 18 in a recent study of the informational efficiency of the u s stock market investigate the ability of call option prices to predict through implied stock prices the equilibrium values of their underlying common stocks in an ex post test manaster and rendleman find that closing option prices contain information beyond that reflected in closing stock prices due to data synchronization problems however these authors are unable to distinguish whether these results reflect superior or simply more recent information in an ex ante test manaster and rendleman are unable to reject the null hypothesis of no additional information content in implied stock prices bhattacharya 1 employing synchronized transactions data finds that option prices possess information not contained in contemporaneous stock prices although it is not clear whether the value of this information exceeds associated trading costs jennings and starks 15 provide evidence supporting the stock options market s role in determining equilibrium stock prices specifically jennings and starks examine stock price adjustments to quarterly earnings announcements using samples of firms with and without listed options and find that nonoption firms require substantially more time to adjust similar to stock options the possibility exists that foreign currency options contain information beyond that represented in their underlying market spot exchange rates this study extends the manaster and rendleman methodology to call options on foreign exchange to investigate empirically this possibility specifically this is accomplished by testing whether daily exchange rates that are implied from currency option prices and a version of the black and scholes 3 option pricing model opm contain information that may be employed to signal profitable trading strategies in foreign exchange currency option transactions data are supplied by the philadelphia stock exchange phlx results

searching for the effect of immigration on the labor market we compare two approaches to analyzing the effects of immigration on the labor market and find that the estimated effect of immigration on u s native labor outcomes depends critically on the empirical experiment used area analyses contrast the level or change in immigration by area with the level or change in the outcomes of non immigrant workers factor proportions analyses treat immigrants as a source of increased national supply of workers of the relevant skill the different effects of immigration on native outcomes in the area and factor proportions methodologies appear to result from the diluting effect of native migration flows across regions and failure to take adequate account of other regional labor market conditions in area comparisons excerpt

capturing all the information in foreign currency option prices solving for one versus two implied variables the information content of option prices has traditionally been expressed in an implied volatility parameter which is characterized as capturing the markets expectations about future volatility of the underlying asset researchers normally solve for an implied volatility alone a more recent trend has been to solve for both an implied interest rate and standard deviation simultaneously this study compares the proficiency of these two techniques in capturing the information in the market prices of foreign currency options the results show that solving for two implied variables consistently yields less information than solving for an implied volatility alone this raises the implication that by trying to reduce one source of bias by solving for two variables simultaneously researchers may be introducing a more serious source of error resulting in a dilution of the available information

a note on market expectations of risk free rates and volatilities before and after october 1987 abstract this paper examines the role of interest rates expectations in contributing to the stock market crash of october 1987 given prices of a pair of options of equal maturity on the s p100 a dividend modified black scholes option pricing model is solved for the combination of volatility and interest rate which prices both options using data for the three year period spanning the crash of october 1987 there appears to be no discernible difference between implied interest rates before and after october 1987 there is no indication in the implied rates that the market anticipated the crash the volatility of implied interest rates in our experiment is considerable we also find a marked increase in market volatility only after the crash whereas the implied volatility for the period preceding the crash is remarkably stable there appears to be a negative correlation between implied interest rates and implied market volatilities but this correlation is driven by prices observed on dates immediately following october 19 1987

the real effects of the bank lending channel abstract this paper studies credit booms exploiting the spanish matched credit register over 2001 2009 we extend khwaja and mian 2008 s loan level estimator by incorporating firm level general equilibrium adjustments higher ex ante bank real estate exposure increases credit supply to non real estate firms but effects are neutralized by firm level adjustments for firms with existing banking relationships however higher bank real estate exposure increases risk taking by relaxing standards of existing borrowers cheaper longer term and less collateralized credit and by expanding credit on the extensive margin to first time borrowers that default substantially more results suggest that the mechanism at work is greater liquidity via securitization of real estate assets

standard deviations implied in option prices as predictors of future stock price variability abstract standard deviations implied in option prices have recently been introduced as being better than average predictors of future stock price variability this article specifically studies the predictive ability of implicit standard deviations taking into account the dividend problem and the problem of optimal weighting schemes of the standard deviations when there are several options on the same stock transaction data information was used to study the importance of non simultaneities in observing stock and option prices

foreign exchange option prices as predictors of equilibrium forward exchange rates abstract this study investigates empirically the efficiency of the forward foreign exchange market by using exchange rates implied from currency option prices to signal trading strategies in 30 day forward contracts the proportional deviation between implied and simultaneously observed exchange rates is found to be a direct and statistically significant determinant of subsequent returns on forward contract holdings however an ex ante trading rule test reveals that the additional information impounded in currency option prices is insufficient to generate statistically economic profits