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

the allocation of credit and financial collapse this paper examines the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders it illustrates that 1 the allocation of credit is inefficient and at times can be improved by government intervention and 2 small changes in the exogenous risk free interest rate can cause large discontinuous changes in the allocation of credit and the efficiency of the market equilibrium these conclusions suggests a role for government as the lender of last resort

optimal welfare to work programs a welfare to work wtw program is a mix of government expenditures on various labour market policies targeted to the unemployed e g unemployment insurance m job search monitoring m social assistance sa wage subsidies this paper provides a dynamic principal agent framework suitable for analysing chief features of an optimal wtw program such as the sequence and duration of the different policies the dynamic pattern of payments along the unemployment spell and the emergence of taxes subsidies upon re employment the optimal program endogenously generates an absorbing policy of last resort social assistance characterized by a constant lifetime payment and no active participation by the agent human capital depreciation is a necessary condition for policy transitions to be part of an optimal wtw program the typical sequence of policies is quite simple the program starts with standard ui then switches into monitored search and finally into sa the optimal benefits are decreasing during unemployment insurance and constant during both jm and sa whereas taxes subsidies can be either increasing or decreasing with duration during ui they must decrease increase during a phase of jm in a calibration exercise we use our model to analyse quantitatively the features of the optimal program for the u s economy with respect to the existing u s system the optimal wtw scheme delivers sizeable welfare gains to unskilled workers because the incentives to search for a job can be retained even while delivering more insurance and using costly monitoring less intensively

unemployment dynamics and duration dependence in france the netherlands and the united kingdom this paper analyzes unemployment dynamics in the french dutch and u k labor market it presents a method to distinguish between the effects of duration dependence and unobserved heterogeneity on the exit rate out of unemployment it turns out that for british male unemployed there is strong genuine negative duration dependence for french unemployed there is no strong duration dependence during the first year of unemployment while for dutch unemployed there is nonmonotonic duration dependence for all groups of french and dutch individuals significant unobserved heterogeneity is found for u k male unemployed heterogeneity seems to be empirically unimportant copyright 1994 by royal economic society

the effects of changes of the job offer arrival rate on the duration of unemployment generally it is acknowledged that changing the job offer arrival rate has two opposite effects on unemployment duration for a basic job search model sufficient conditions on the wage offer distribution have been derived ensuring that one of the effects dominates however these are not satisfied for the popular families of wage offer distributions here i show that the conditions can be weakened at virtually no cost the set of distributions satisfying the new conditions is considerably larger than the set previously established in particular it includes all wage offer distribution families that are popular in structural empirical research

what happens during recessions crunches and busts we provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 oecd countries over the period 1960 2007 in particular we analyse the implications of 122 recessions 113 28 credit contraction crunch episodes 114 28 episodes of house price declines busts 245 61 episodes of equity price declines busts and their various overlaps in these countries over the sample period our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession specifically we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions stijn claessens m ayhan kose and marco e terrones

does unemployment cause unemployment micro evidence from norway the way that unemployment duration affects employment prospects is investigated using norwegian micro transition data encompassing detailed accounts of 14 807 unemployed adults a generalized non proportional weibull model is estimated with two possible exits from the unemployment pool a job or a labour force exit on average the probability of obtaining a job is fairly constant at the individual level while the probability of exiting the labour force increases significantly as unemployment duration is prolonged for some particular groups of unemployed there is also a marked negative duration dependence in the probability of obtaining a job

social employment of welfare recipients in belgium an evaluation in belgium welfare agencies receive a subsidy to employ welfare recipients for a period sufficiently long to entitle them to unemployment benefits we investigate the effect of this programme on the exit rate from welfare we propose a grouping iv estimator of the programme effect that eliminates selection bias the estimator is consistent even if the selection into the programme depends on the average unobserved characteristics of welfare recipients in a region and in a welfare duration interval without correction for selectivity we find that the programme reduces welfare dependence but after correction this conclusion is reversed

a model of a systemic bank run abstract this paper provides a model of the view that the 2008 financial crisis is reminiscent of a bank run focussing on six stylized key features in particular core financial institutions have invested their funds in asset backed securities rather than committed to long term projects in distress these can potentially be sold to a large pool of outside investors at steep discounts i consider two different motives for outside investors and their interaction with banks trading asset backed securities uncertainty aversion versus adverse selection i shall argue that the version with uncertainty averse investors is more consistent with the stylized facts than the adverse selection perspective in the former the crisis deepens the larger the market share of distressed core banks while a run becomes less likely instead as a result in the adverse selection version therefore the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the financial crises as well as provide tax payers with returns above those for safe securities

wages work and unemployment this paper provides new evidence on unemployment durations for individuals in great britain using a three state markov framework in a competing risk setting and a nationally representative data set the analysis is based on the premise that an individual s movements between labour market states can be represented by a markov process the modelling procedure combines the dynamic properties of the search approach to unemployment while using the labour supply decision at each moment in time in response to the expected wage to include participation decisions using this framework we are able to determine the effect of individual characteristics including the expected wage on labour market behaviour the model is estimated separately for men and women and for young and mature workers to investigate whether labour market behaviour differs for these groups the validity of the markov assumptions are tested using different model specifications and changes in the model over calendar time are also presented

job search stigma effect and escape rate from unemployment this article formulates job search models incorporating certain types of the stigma effect of unemployment it is assumed that the probability of getting a job offer given the unemployment individual contacts the firm is influenced by the duration of unemployment and is justified in a signaling context the optimal search is analyzed for one sector as well as across several independent labor market segments it is shown that there are reasonably general conditions on the search environments for which both the individual reservation wage and escape rate are negative duration dependent a fact observed in empirical studies

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

quantitative implications of a debt deflation theory of sudden stops and asset prices abstract this paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with key features of the sudden stop phenomenon foreign traders incur costs in trading assets with domestic agents and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings when this constraint does not bind standard productivity shocks cause typical real business cycle effects when it binds the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity with high leverage and a liquid market the shocks force fire sales of assets and fisher s debt deflation mechanism amplifies the responses of asset prices consumption and the current account precautionary saving makes these sudden stops infrequent in the long run

unemployment dynamics in britain we examine the inter related dynamics of the unemployment flows and stock our model allows them to be linked through the standard accounting identity but also through behavioural relationships we find that for the uk the bulk of the correlation between duration and the unemployment stock arises from the dependence of duration on unemployment taking careful account of the inter temporal identity outflow shocks have contributed little to the evolution of unemployment since the late 1960s given that the correlation of duration and unemployment arises from the behavioural relationship we show that unemployment dynamics arise mostly from shocks to the inflow unemployment remains one of europe s more pressing economic and social problems as highlighted in the eu s lisbon declaration of 2000 a dynamic approach to unemployment starts from the recognition that unemployment is a stock and changes through shocks to the outflow and inflow the research and policy focus has generally been on the outflow process or equivalently unemployment duration a glance at figure 1 shows why this might be so it reveals a very strong co movement of the unemployment rate and the proportion of the unemployed out of work for a year or more analysts have used data like this to argue that the source of unemployment fluctuations has been changes in the outflow process 1 possibly as a consequence of this most policies directed at reducing unemployment focus on improving the search effectiveness and employability of the currently unemployed the unemployment flows and stock are related in quite complex ways and in this paper we focus on these inter related dynamics the model we use allows them to be linked in two ways first there is the simple accounting relationship whereby shocks to the flows accumulate in the stock second search and matching models suggest behavioural relationships of the flows depending on unemployment the presence of the nonlinear accounting identity in the model makes the analysis of the joint system problematic so we proceed sequentially investigating first one link and then the other we find that for the uk the bulk of the correlation between duration and the unemployment stock displayed in figure 1 arises from the dependence of the former on the latter we find a strong dependence of the outflow rate on unemployment taking careful account of the inter temporal identity on the other hand outflow shocks have contributed little to the evolution of unem

does unemployment compensation affect unemployment duration abstract we use a flexible hazard rate model with unrestricted spell duration and calendar timeeffects to analyse a dataset including all norwegian unemployment spells during the1990 s the dataset provides a unique access to conditionally independent variation inunemployment compensation we find that a marginal increase in compensation re duces the escape rate from unemployment significantly irrespective of business cycleconditions and spell duration the escape rate rises sharply in the months just prior tobenefit exhaustion while men are more responsive than women with respect to mar ginal changes in compensation women are most responsive with respect to benefitexhaustion keywords unemployment spells business cycles unemployment compensation non parametric duration analysis jel classification c41 j64 the ragnar frisch centre for economic research oslo we wish to thank the re search council of norway for financial support and christian brinck harald goldstein costas meghir espen moen steinar strom rolf aaberge and three anonomyous referees for helpful comments cor respondence to knut roed the ragnar frisch centre for economic research gaustadalleen 21 0349oslo norway e mail knut roed frisch uio no

dynamics of pro market institutions and firm performance we analyze how pro market institutions affect firm performance in emerging markets integrating transaction costs and signaling theory we advance three arguments first we separate four dynamic components of pro market institutions intensifying and fading pro market reforms and intensifying and fading pro market reversals second we propose an asymmetric dynamic view whereby not only intensifying reforms but also fading reversals improve firm performance while not only fading reforms but also intensifying reversals reduce performance finally we argue that more efficient firms perform better under each of the dynamics we test these arguments on a sample of 1092 firms from 34 emerging markets during 1998 2011

optimal dynamic capital requirements we characterize welfare maximizing capital requirement policies in a macroeconomic model with household firm and bank defaults calibrated to euro area data we optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default risk we find that getting the level right so that bank failure risk remains small is of foremost importance while the optimal sensitivity to default risk is positive but typically smaller than under basel irb formulas when starting from low levels initially both savers and borrowers benefit from higher capital requirements at higher levels only savers are in favour of tighter and more time varying capital charges

can skill decay increase search effort abstract we consider the search behaviour of a worker whose expected matching gains are assumed to be decreasing over the spell of unemployment the search effort is linked positively to future earnings and negatively to the reservation wage this may give rise to non monotonous hazard rates

non core bank liabilities and financial vulnerability a lending boom is reflected in the composition of bank liabilities when traditional retail deposits core liabilities cannot keep pace with asset growth and banks turn to other funding sources non core liabilities to finance their lending we formulate a model of credit supply as the flip side of a credit risk model where a large stock of non core liabilities serves as an indicator of the erosion of risk premiums and hence of vulnerability to a crisis we find supporting empirical evidence in a panel probit study of emerging and developing economies

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

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

booms and banking crises banking crises are rare events that break out in the midst of credit intensive booms and bring about deep and long lasting recessions this paper presents a textbook dynamic stochastic general equilibrium model to explain these phenomena the model features a nontrivial banking sector where bank heterogeneity gives rise to an interbank market moral hazard and asymmetric information in this market may lead to sudden market freezes banking crises credit crunches and severe financial recessions those recessions follow credit booms and are not necessarily triggered by large exogenous adverse shocks

on the effects of ranking by unemployment duration abstract we propose a theory based on the firm s hiring behavior that rationalizes the observed significant decline of callback rates for an interview and exit rates from unemployment and the mild decline of reemployment wages over unemployment duration we build a directed search model with symmetric incomplete information on worker types and non sequential search by firms sorting due to firms testing of applicants in the past makes expected productivity fall with duration which induces firms to rank applicants by duration in equilibrium callback and exit rates both fall with unemployment duration in our numerical exercise using u s data we show that our model can replicate quite well the observed falling patterns with the firm s ranking decision accounting for a sizable part

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

a model of capital and crises we develop a model in which the capital of the intermediary sector plays a critical role in determining asset prices the model is cast within a dynamic general equilibrium economy and the role for intermediation is derived endogenously based on optimal contracting considerations low intermediary capital reduces the risk bearing capacity of the marginal investor we show how this force helps to explain patterns during financial crises the model replicates the observed rise during crises in sharpe ratios conditional volatility correlation in price movements of assets held by the intermediary sector and fall in riskless interest rates

heterogeneity and unemployment dynamics many previous articles have studied the contribution of inflows and outflows to the cyclical variation in unemployment but ignored the critical role of unobserved heterogeneity across workers thi

business cycles and compositional variation in u s unemployment in this article we study u s unemployment dynamics using grouped unemployment data from the current population survey over the period 1968 1992 we estimate a model that traces variation in these unemployment data both over time and between demographic groups back to the underlying variation in the inflow and the outflow in turn we model the outflow as a transition process in which we allow the exit probabilities to depend on calendar time duration and demographic group we use the estimation results to provide a decomposition of aggregate u s unemployment dynamics in various incidence and duration components

the effects of age and unemployment percentage on the duration of unemployment evidence from aggregate data abstract in this paper models for the duration of unemployment are estimated using aggregate data on incomplete unemployment spells in particular the elasticities of the probability of leaving unemployment with respect to age and unemployment percentage are estimated special attention is paid to the time dependence of the re employment probability and to the effect of omitted regressors because models are fitted for male and female unemployed separately these groups can be compared we find that their position on the labour market is different

unemployment duration and economic incentives a quasi random assignment approach abstract we investigate how economic incentives and spell duration affect hazard rates out of insured unemployment we take into account that insured unemployment not always ends in employment but also in disability training programs or benefit sanctions our empirical basis is norwegian register data containing variation in economic incentives and spell duration similar to that of random assignment experiments we find that the employment and benefit sanction hazards are negatively affected by the unemployment insurance replacement ratio but that the effects vary considerably among individuals there is negative duration dependence in the employment hazard and positive duration dependence in the disability hazard

synchronizing export orientation with import substitution creating competitive indigenous high tech companies in china summary this paper examines how the synergy between china s domestic and the international market has affected its most competitive indigenous companies through case study in china s ict sectors in the 1990s the paper shows that when export upgrades and domestic market growth intersect in timing and sectors that is when they synchronize chinese companies found conditions most favorable to compete with foreign companies within the domestic market the synchronization has significant impact on sectors for both mature products and technologically advanced products it is thus necessary to reexamine the role of import substitution practices under the new context of globalization and in conjunction with exports

the anatomy of unemployment dynamics abstract this paper examines the relation between individual unemployment durations and incidence inflow size on the one hand and the time varying macroeconomic conditions in the economy on the other we develop a model for the analysis of aggregate unemployment incidence and duration data and estimate this model on quarterly french data over the period 1982 1994 stratified by sex we find upward trends in both incidence and durations the former is relatively important for females the latter for males male incidence and durations are countercyclical with only a minor role for cohort effects on durations in contrast female cohorts entering at the top of the cycle have relatively short unemployment spells and the female incidence is if anything procyclical there is strong seasonal variation in particular in the incidence finally we find relatively small non monotonic individual duration dependence in the first six quarters of unemployment unobserved heterogeneity explains the observed negative duration dependence at these durations we provide some evidence that negative individual duration dependence and not heterogeneity is important at higher durations

duration dependence in the exit rate out of unemployment in belgium is it true or spurious on the basis of aggregate data for the early 1990s we analyse the determinants of unemployment duration for laid off male workers in wallonia belgium our results indicate that if ranking in recruitment occurs the standard mixed proportional hazard specification can be too restrictive leading to an overstatement of the extent of true negative duration dependence we conclude that negative duration dependence is largely spurious we also decompose the time variation of the hazard in unobserved compositional and direct cyclical and seasonal effects we find counter cyclical variation in the quality of young workers but none for the prime aged copyright c 2004 john wiley sons ltd

economic liberalization and the computer industry comparing outcomes in brazil and mexico abstract market liberalization has been carried out by many developing countries in the hopes of stimulating trade investment and technology transfer in order to analyze the impacts of liberalization on a specific industry sector this paper compares the experiences of brazil and mexico in liberalizing the computer industry in the 1990s the authors conclude that liberalization leads to lower prices and more rapid diffusion of computer use throughout the economy but at a cost to domestic computer firms who were harmed by foreign competition both countries saw an increase in computer production but mexico s production was mainly for export to the united states while brazil was producing for the domestic market the differences between outcomes in the two countries have been determined more by environmental factors than by the nature and pace of liberalization

does long term unemployment reduce a person s chance of a job a time series test long term unemployed are less likely to leave unemployment than short term unemployed to what extent is this due to an effect of duration and to what extent to heterogeneity on reasonable assumptions heterogeneity on its own with no duration dependence would imply that if over time the exit rate of new entrants fell by a given multiple the overall exit rate from unemployment should fall by the same multiple however over the last twenty years in the uk the overall exit rate has fallen by 60 per cent more than the fall in the exit rate of new entrants another test of pure heterogeneity based on more general assumptions also fails hence we explain the overall fall in exit rates from unemployment by the combined effect of 1 a fall in the ratio of vacancies to unemployed and 2 a higher proportion of the unemployed being long term unemployed and hence demoralized and stigmatized in the eyes of employers

nonemployment stigma as rational herding a field experiment abstract long spells of unemployment are known to reduce the likelihood of re employment but it is difficult to discern the reasons for this observation using an experimental method that controls for search intensity and possible discouragement of job applicants i document that job market opportunities for the nonemployed diminish rapidly over time in this experiment duration dependence is solely due to firm perceptions why do firms view long spells of nonemployment as negative signals rational herding is one important factor managers believe that unemployed applicants were previously interviewed and if the applicants were productive they would have been hired

unemployment duration and individual heterogeneity a regional study this paper investigates the impact of individual heterogeneity and regional influences on unemployment duration utilizing cross section microeconomic data drawn from a representative random survey of individual job seekers for the english county of kent these individual level data are unique in that they provide information concerning the personal characteristics of job seekers alongside direct observations of both their reservation wages and job search behaviour such data are rare and to the authors knowledge have never before been utilized in a regional context thus the paper contributes to the empirical literature by analysing the extent to which individual heterogeneity and intra regional variation in labour market opportunities impact upon the observed distribution of unemployment duration s in particular the paper analyses the extent to which the duration of unemployment is determined by individual choice this is an important issue for the formation and evaluation of policy these result

attrition in longitudinal panel data and the empirical analysis of dynamic labour market behaviour in the empirical analysis of unemployment durations and job durations it is generally assumed that the stochastic processes underlying labour market behaviour and the behaviour concerning participation in a panel survey are independent however there are reasons to believe that the probability of dropping out of the panel is related to the rate at which a different job is found if there is such a relation and if it is ignored then the estimator of the rate at which individuals become employed or change jobs will generally be inconsistent in this paper we analyse the relation between the duration spent in a particular labour market state and the duration of panel survey participation by explicitly modelling and estimating the joint distribution of both durations the emphasis will be on models allowing for stochastically related unobserved determinants of both types of duration we estimate models both for unemployment durations and for job durations copyright 1994 john wiley sons ltd

unemployment dynamics and duration dependence a major issue in the analysis of unemployment durations concerns distinguishing genuine duration dependence of the exit rate out of unemployment from unobserved heterogeneity we present a method for the nonparametric estimation of both phenomena designed to be applicable to time series data on aggregate outflows from different duration classes the model explicitly takes into account that individual exit rates are affected by the business cycle and by seasonal effects the method is applied to u s data we find diverging duration effects among black and white individuals however except for white males duration dependence is dominated by unobserved heterogeneity

the effects of unemployment and underemployment on employment opportunities results from a correspondence audit of the labor market for college graduates the authors use data from a resume audit to estimate the impact of unemployment and underemployment on the employment prospects of recent college graduates they find no statistical evidence linking unemployment spells of different durations to employment opportunities by contrast college graduates who are underemployed have callback rates that are 30 lower than those of applicants who are adequately employed the null effects associated with unemployment and the adverse effects associated with underemployment are robust across cities with relatively tight and loose labor market conditions internship experience obtained while completing one s degree substantially reduces the negative effects of underemployment the data support the proposition that employers view underemployment as a strong signal of lower expected productivity

capital regulation and monetary policy with fragile banks optimizing banks subject to runs are introduced in a macro model to study the transmission of monetary policy and its interplay with bank capital regulation when banks are risky a monetary expansion and a positive productivity shock increase bank leverage and risk risk based capital requirements amplify the cycle and are welfare detrimental within a class of simple policy rules the best combination includes mildly anticyclical capital ratios as in basel iii and a response of monetary policy to asset prices or bank leverage

securitisation and financial stability a widespread opinion before the credit crisis of 2007 8 was that securitisation enhances financial stability by dispersing credit risk after the credit crisis securitisation was blamed for allowing the hot potato of bad loans to be passed to unsuspecting investors both views miss the endogeneity of credit supply securitisation enables credit expansion through higher leverage of the financial system as a whole securitisation by itself may not enhance financial stability if the imperative to expand assets drives down lending standards the hot potato of bad loans sits in the financial system on the balance sheets of large banks rather than being sold on to final investors since the aim of financial intermediaries is to expand lending in order to utilise slack in balance sheet capacity