transmission of the financial and sovereign debt crises to the emu stock prices cds spreads and exchange rates abstract this paper tests for the transmission of the 2007 2010 financial and sovereign debt crises to fifteen emu countries we use daily data from 2003 to 2010 on country financial and non financial stock market indexes to analyze the stock market returns for three country groups within emu north south and small the following results hold for both the north and south european countries while the smallest countries seem to be relatively isolated from international events first we find strong evidence of crisis transmission to european non financials from us non financials but not for financials second in order to test how the sovereign debt crisis affects stock market developments we split the crisis in pre and post lehman sub periods results show that financials become significantly more dependent on changes in the difference between the greek and german cds spreads after lehman s collapse compared to the pre lehman sub period however this increase is much smaller for non financials third before the crisis euro appreciations coincide with european stock market decreases whereas this relationship reverses during the crisis finally this reversal seems to be triggered by lehman s collapse

contagion during the greek sovereign debt crisis abstract we examine the impact of news about greece and news about a greek bailout on bank stock prices in 2010 using data for 48 european banks we identify the twenty days with extreme returns on greek sovereign bonds and categorise the news events during those days into news about greece and news about the prospects of a greek bailout we find that except for greek banks news about greece does not lead to abnormal returns while news about a bailout does even for banks without any exposure to greece or other highly indebted euro countries this finding suggests that markets consider news about the bailout to be a signal of european governments willingness in general to use public funds to combat the financial crisis sovereign bond prices of portugal ireland and spain respond to both news about greece and news about a greek bailout

pitfalls in the use of systemic risk measures we examine pitfalls in the use of return based measures of systemic risk contributions srcs for both linear and nonlinear return frameworks assuming normal and heavy tailed distributions we identify nonexotic cases in which a change in a bank s systematic risk idiosyncratic risk size or contagiousness increases the risk of the system but lowers the measured src of the bank assessments based on estimated srcs could thus produce false interpretations and incentives we also identify potentially adverse side effects a change in a bank s risk structure can make the measured src of its competitors increase more strongly than its own

measuring the subprime crisis contagion evidence of change point analysis of copula functions in this paper we first determine the existence of structural changes in the dependence between time series of equity index returns of two markets using the change point testing method the method is based on archimedean copula functions which are able to comprehensively describe dependence characteristics of random variables the degree of financial contagion between markets is subsequently estimated using the tail dependence coefficient of copula functions before and after the change point we empirically test our method by investigating financial contagion during the subprime crisis between the us s p 500 index and five asian markets namely china japan korea hong kong and taiwan our results show that a statistically significant change point exists in the dependence between the us market and all asian stock markets except taiwan the upper tail dependence is larger after the time of change implying the existence of contagion during the banking crisis between the us and the asian economies the degree of financial contagion is also estimated and found to be consistent with market events and media reports during that period

punitive sanctions and the transition rate from welfare to work in the netherlands the average exit rate out of welfare is dramatically low most welfare recipients have to comply with guidelines on job search effort that are imposed by the welfare agency if they do not then a sanction in the form of a temporary benefit reduction can be imposed this article investigates the effect of such sanctions on the transition rate from welfare to work using a unique set of rich register data on welfare recipients we find that the imposition of sanctions substantially increases the individual transition rate from welfare to work

credit default swaps has the gfc influenced perceptions of their utility for banks credit default swaps cdss are considered as one of the most versatile financial innovations of the 21st century since its inception the credit derivatives market has grown to a peak of 64 trillion in 2008 in terms of gross notional values cont 2010 however after the onset of the gfc this market has decreased to a large extent while there is evidence that promotes the risk reduction properties of cdss there is a growing body of research post gfc that identifies destabilising effects of these instruments in this paper i review the relevant scholarly literature and provide evidence of how the views on cdss have changed post gfc due a deeper investigation of issues such as systemic risk regulatory arbitrage information asymmetry and risk taking among others in the banking industry this paper provides a survey of the literature of views for and against the use of cdss during pre and post gfc periods and finally concludes that in comparison to the pre gfc period post gfc there is a significant increase in the literature that highlights the detrimental nature of cdss

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

the structure and degree of dependence a quantile regression approach abstract the copula function defines the degree of dependence and the structure of dependence this paper proposes an alternative framework to decompose the dependence using quantile regression we demonstrate that the methodology provides a detailed picture of dependence including asymmetric and non linear relationships in addition changes in the degree or structure of dependence can be modeled and tested for each quantile of the distribution the empirical part applies the framework to three different sets of financial time series and demonstrates substantial differences in dependence patterns among asset classes and through time the analysis of 54 global equity markets shows that detailed information about the structure of dependence is crucial to adequately assess the benefits of diversification in normal times and crisis times

econometric issues in the analysis of contagion this paper presents a canonical econometric model of contagion and investigates the conditions under which contagion can be distinguished from inter dependence in a two country market set up it is shown that for a range of fundamentals the solution is not unique and for sufficiently large values of the contagion coefficients it has interesting bifurcation properties with bimodal density functions the extension of the model to herding behaviour is also briefly discussed to identify contagion effects in the presence of inter dependencies the equations for the individual markets or countries must contain country market specific forcing variables this sheds doubt on the general validity of the correlation based tests of contagions recently proposed in the literature which do not involve any country market specific fundamentals finally we show that ignoring inter dependence can introduce an upward bias in the estimate of the contagion coefficient and using monte carlo experiments we further show that this bias could be substantial

the role of copulas in the housing crisis abstract due to its simplicity and familiarity the gaussian copula is popular in calculating risk in collaterized debt obligations but it imposes asymptotic independence such that extreme events appear to be unrelated this restriction might be innocuous in normal times but during extreme events such as the housing crisis the gaussian copula might be inappropriate this paper explores various copula specifications and finds that the degree to which housing prices are related based on the gaussian copula is too small compared with real housing price data

the ems and the dollar the ems and the dollar francesco giavazzi and alberto giovannini this paper examines the behaviour of exchange rates prior to and since the inception of the european monetary system ems movements in bilateral european exchange rates tend to be associated with fluctuations in the dollar in particular the mark tends to appreciate against other european currencies when the dollar depreciates further most realignments of currencies in the ems have generally occurred after sharp movements in the dollar conventional explanations relying on portfolio diversification by investors do not seem to explain the facts fully a more satisfactory explanation is provided by the existence of capital controls these limit the mobility of assets and ensure an asymmetric response by european currencies to movements in the dollar these capital controls are in the absence of coordinated monetary policy essential to the smooth working of the ems however at the same time they limit the scope for the further integration of european capital markets thus the ems is not a step on the road to greater financial integration indeed it is a cul de sac

unemployment insurance and male unemployment duration in canada a model of unemployment duration is estimated with weekly micro data on canadian men entitlement provisions in the unemployment insurance program and demand conditions are found to have a significant effect on the probability of leaving unemployment the probability of a worker leaving unemployment declines with the duration of unemployment holding unemployment insurance entitlement constant when entitlement is allowed to vary the probability of leaving first falls and then generally rises with unemployment duration these results are robust with respect to allowing for person specific unobserved heterogeneity and alternative specifications of duration dependence

currency crises sunspots and markov switching regimes abstract this paper investigates the theoretical properties of a class of escape clause models of currency crises as well as their applicability to empirical work we show that under some conditions these models give rise to an arbitrarily large number of equilibria as well as cyclic or chaotic dynamics for the devaluation expectations we then propose an econometric technique based on the markov switching regimes framework by which these models can be brought to the data we illustrate this empirical approach by studying the experience of the french franc between 1987 and 1993 and find that the model performs significantly better when it allows the devaluation expectations to be influenced by sunspots

the impact of the potential duration of unemployment benefits on the duration of unemployment abstract this paper examines the impact of the potential duration of unemployment insurance ui benefits on unemployment in the united states first we use a large sample of household heads to examine differences in the unemployment spell distributions of ui recipients and nonrecipients sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for ui recipients around the time of benefits exhaustion such increases are not apparent at similar points of spell duration for nonrecipients second our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of ui recipients by 0 16 to 0 20 weeks

capital and credit market integration and real economic contagion during the global financial crisis abstract this study investigates the role of financial integration in the spread of global financial crisis in particular this study shows how the effect of the crisis on real business cycle co movement varied for capital and credit market integration using a sample of 58 countries in 2001 2013 during the global financial crisis the united states the epicenter of the crisis experienced a severe downturn in the real economy and other countries followed suit we find that during the global financial crisis the business cycle co movements between the united states and the rest of the world were stronger when the level of capital market integration between them was higher however the co movements were weaker when the level of credit market integration was higher these findings are robust even when including investment channels local fundamental factors endogenous policy responses across countries and alternative measures for financial integration and business cycle co movements

the role of the banking system in the international transmission of shocks paper analyzes the role of the banking system in the international transmission of financial shocks a channel of transmission is defined as a mechanism through which a financial crisis in one country induces a financial crisis in another country channe ls involving banks operate through changes in the capital adequacy ratios of a common lender and in the value of collateral of domestic borrowers through bank runs and bank panics and through moral hazard recent empirical evidence points to the significant effects of the common lchannel on the probability of a financial crisis while mitigating the role of bank runs and remaining inconclusive about moral hazard thus we introduce a series of indices of vulnerability to the common lender channel that improve existing measures by taking into account both the borrower s dependence on foreign loans and the lender s exposure to a single country by comparing the degree of vulnerabil ity to the common lender channel during the 1990s major crises we find that vulnerability was higher in the asia pacific region in 1997 and especially in the five countries most involved in the crisis than in latin america and east europe vulnerability was significantly lower in 2000 for almost all the countries in our sample due to both a more even distribution of liabilities on the part of developing countries and a higher degree of diversification of bank investments from the three main lending countries united states japan germany

the 2007 2009 financial crisis changing market dynamics and the impact of credit supply and aggregate demand sensitivity this article singles out the determinants of changes in us firms systematic risk and idiosyncratic return induced by the 2007 2009 financial crisis after establishing that systematic risk changes during the crisis the results show that higher operational and financial leverage coincide with an increase in systematic risk while high cash availability is associated with a decrease in systematic risk the crisis induced idiosyncratic return worsens with increasing financial leverage higher sensitivity to aggregate demand shocks and banking sector problems and lower operational leverage additional results show that the aforementioned variables have economically large effects on firm performance during the crisis

big elephants in small ponds do large traders make financial markets more aggressive abstract market participants often suspect that large traders have a disproportionate effect on financial markets increasing the aggressiveness of market responses prior studies have shown that the impact of a large trader on a currency crisis depends positively on his size and informational position by contrast this article highlights the role that market sentiment has on the impact of a large trader if the market believes that fundamentals are weak then the probability of a crisis depends positively on the trader s size but negatively on the precision of his information with these effects reversed in a generally optimistic market a large player therefore need not make market responses more aggressive

unravelling financial market linkages during crises an empirical model of multiple asset classes across countries is formulated in a latent factor framework a special feature of the model is that financial market linkages during periods of financial crises including spillover and contagion effects are formally specified the model also captures a range of common factors including global shocks country and market shocks and idiosyncratic shocks the framework is applied to modelling linkages between currency and equity markets during the east asian financial crisis of 1997 98 the results provide strong evidence that cross market links are important spillovers have a relatively larger effect on volatility than contagion but both are statistically significant

correlations in price changes and volatility across international stock markets the short run interdependence of prices and price volatility across three major international stock markets is studied daily opening and closing prices of major stock indexes for the tokyo london and new york stock markets are examined the analysis utilizes the autoregressive conditionally heteroskedastic arch family of statistical models to explore these pricing relationships evidence of price volatility spillovers from new york to tokyo london to tokyo and new york to london is observed but no price volatility spillover effects in other directions are found for the pre october 1987 period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

what do we learn from recall consumption data in this paper we use two complementary italian data sources the 1995 istat and bank of italy household surveys to generate householdspecific nondurable expenditure in the bank of italy sample that contains relatively high quality income data we show that food expenditure data are of comparable quality and informational content across the two surveys once we properly account for heaping rounding and time averaging we therefore depart from standard practice and rely on the estimation of an inverse engel curve on istat data to impute nondurable expenditure to bank of italy observations and show how we can use these estimates to analyze consumption age profiles conditional on demographics our key result is that predictions based on a standard set of demographic and socioeconomic indicators are quite different from predictions that also condition on simulated food consumption in the sense that their age profile is less in line with the implications of the standard consumer intertemporal optimization problem

are currency crises self fulfilling abstract this paper studies the respective roles of the fundamentals and self fulfilling speculation in currency crises we first present a model of a fixed exchange rate system in which self fulfilling speculation can arise following a bifurcation in the fundamentals we then estimate the model in the case of the 1992 3 crisis of the french franc and find some evidence that self fulfilling speculation was at work

volatility spillovers and the effect of news announcements we examine the effect of us and european news announcements on the spillover of volatility across us and european stock markets using synchronously observed international implied volatility indices at a daily frequency we find significant spillovers of implied volatility between us and european markets as well as within european markets we observe a stark contrast in the effect of scheduled versus unscheduled news releases scheduled unscheduled news releases resolve create information uncertainty leading to a decrease increase in implied volatility nevertheless news announcements do not fully explain the volatility spillovers although they do affect the magnitude of volatility spillovers our results are robust to extreme market events such as the recent financial crisis and provide evidence of volatility contagion across markets

transmission of government default risk in the eurozone abstract this paper analyzes the reasons behind the rising ten year government bond spreads in the eurozone during the recent euro debt crisis we develop a structural vector autoregressive model that allows us to test whether the upsurges in the spreads reflect breaks in the instantaneous shock propagation mechanisms between the spreads contagion changing dynamical effects or changing country specific risk factors especially a new approach to test the stability of the instantaneous shock propagation mechanisms is introduced our results show that although contagion appears as the single most important reason for the increasing spreads there are notable differences between the countries for example and ireland spain and italy see statistically significant increases in their country specific risk factors

renewables diffusion and contagion effect in italian regional electricity markets assessment and policy implications abstract in the electricity market sudden price jumps occur more frequently than in other markets due to the peculiarity of electricity furthermore the structural spot characteristics of the electricity market determine high price variability all these characteristics have been accentuated by the dramatic increase of renewable energy supply in italy starting in 2010 these features suggest the possibility of contagion effects across italian regional electricity markets considering contagion such as a sudden and significant increase in cross market links arising from a shock to a specific market in this paper we investigate whether such a renewable energy increase has affected the contagion behavior in the italian electricity spot market taking into account both the difference between interdependence and contagion and the direction of the shock we find empirical evidence with significant tests that no changes have occurred in interdependence mechanism nor in contagion effects due to renewable energy sources development in italy

characteristics of west german demand for international tourism in the northern mediterranean region the purpose of this paper is to establish the economic determinants of west germany s demand for international tourism in six northern mediterranean nations the methodology makes use of the translog utility function homotheticity and additivity restrictions of the utility theory are tested as hypotheses expenditure income own and cross price elasticities are claculated for each of the twenty years from 1966 to 1985

contagion as a domino effect in global stock markets this paper shows that stock market contagion occurs as a domino effect where confined local crashes evolve into more widespread crashes using a novel framework based on ordered logit regressions we model the occurrence of local regional and global crashes as a function of their past occurrences and financial variables we find significant evidence that global crashes do not occur abruptly but are preceded by local and regional crashes besides this form of contagion interdependence shows up by the effect of interest rates bond returns and stock market volatility on crash probabilities when it comes to forecasting global crashes our model outperforms a binomial model for global crashes only

spread the news the impact of news on the european sovereign bond markets during the crisis we investigate how news affected domestic interest spreads vis a vis germany and how it propagated to other countries during the recent crisis period thereby distinguishing between the so called giips countries and other european countries we make original use of the eurointelligence newsflash to construct news variables based on the amount of news that is released on a country on a given date we find that more news on average raises the domestic interest spread of giips countries since september 2009 in addition we find that it leads to an increase in the interest spreads of other giips countries the magnitude of this effect is related to cross border bank holdings a split of news into bad and good news shows that the upward pressure on domestic and foreign interest spreads is driven by bad news we also find spillovers of bad news from giips countries onto non giips countries however the magnitude of these spillovers is substantially smaller than that to other giips countries

gaining and losing erm credibility the case of the united kingdom the model of this paper highlights two aspects of credibility signaling the type of government which is assumed not to be known and for any type the likelihood that if circumstances are sufficiently unfavorable a devaluation will be impossible to avoid since not to do so would go against the government s interests these two factors have opposite implications for the link between unemployment and interest differentials high unemployment signals a tough government but also makes it less likely that even a tough government will maintain an existing parity copyright 1995 by royal economic society

market sentiment and macroeconomic fluctuations under pegged exchange rates this paper models changes in market sentiment as a temporary increase in the premium faced by domestic private borrowers on world capital markets the effects of this shock are studied in an intertemporal optimizing framework of a fixed exchange rate economy where firms demand for working capital is financed by bank credit depending on the perceived length of this shock the model is capable of predicting a rise in domestic interest rates capital outflows and a drop in official reserves a reduction in bank deposits and the supply of credit a fall in private consumption a contraction in output and an increase in unemployment these predictions are consistent with observed facts associated with several recent episodes of turbulence on international financial markets

business cycle transmission from the us to germany a structural factor approach abstract this paper investigates the transmission of us macroeconomic shocks to germany using a large dimensional structural dynamic factor model this framework allows us to investigate many transmission channels simultaneously including new channels such as stock markets foreign direct investment bank lending and the confidence channel we find that us shocks affect the us and germany largely symmetrically trade seems to be the most relevant transmission channel monetary policy reactions to strong price movements seem to play a role as well no clear conclusion can be drawn yet on the role of financial markets and the confidence channel negative domestic influences apparently more than offset positive us influences in the german economy between 1995 and 2000 but the us recession in 2001 appeared to be the main culprit in the german slump

analyzing the length of welfare spells abstract this paper studies the determinants of the length of individual spells of welfare focusing on how the length of a spell affects the probability of its termination the analysis utilizes six years of monthly data on time spent in the afdc program among female household heads a variety of duration dependence models are estimated monthly afdc participation does not show strong evidence of duration dependence two distinct groups appear to utilize welfare one with a very low and constant probability of leaving welfare and a second group which is more affected by time on the program

welfare benefits and the duration of welfare spells evidence from a natural experiment in canada abstract this paper uses a major reform of the welfare program implemented in the province of quebec canada in 1989 to analyze the impact of benefits on the length of welfare spells an important feature of this reform was the abolishment of discrimination based on age that applied to benefits as a result the monthly benefits of single individuals aged less than 30 increased from 173 to 425 1986 an increase of over 145 to assess the impact of the reform we estimate a series of semi parametric hazard models analogous to the regression approach to difference in differences estimation the estimated duration elasticities with respect to benefits for single men and women aged 22 29 are 0 25 and 0 28 respectively

relative risk aversion and the transmission of financial crises we study how investor behavior affects the transmission of financial crises if investors exhibit decreasing relative risk aversion then negative wealth shocks increase the risk premium required to hold risky assets we integrate this into a second generation model of currency crises which allows for contagion through changes in fundamentals investor behavior can be a transmission channel of financial crises as changes in risk premia increase the coverage ratio and makes the defense of a peg less attractive for the policy maker the feedback effect of the risk premia on the probability of devaluation also makes multiple equilibria more likely the possible stabilization effects of capital controls and a tobin tax on the international transmission of financial crises are also studied

the demand for international tourism in the mediterranean region the paper studies the demand for international tourism in the mediterranean region first a review of the most important attempts to model econometrically the demand for international tourism in the past is given followed by a formal presentation of the proposed theoretical model in particular a version of the almost ideal demand system aids is adopted and a description of the variables involved and their sources together with the estimation procedure are provided the diagrammatic analysis performed contributes to a better understanding of the evolution of the dependent variable over time the results with respect to the expenditure as well as to the own and cross price elasticities may be regarded as econometrically satisfactory and a reasonable economic explanation is given

a ricardian excursion to bermuda an estimation of mixed strategy equilibrium while there is a rich theoretical literature on mixed strategy equilibria there has long been doubt with regard to the actual prevalence of scuh equilibria the objective of this paper is to empirically demonstrate a mixed strategy equilibrum in a model of ricardian rent generation the oligopolistic resort hotel industry in bermuda is used as the illustrative case

are stock market crises contagious the role of crisis definitions abstract financial contagion studies generally examine whether co movement between markets increases during a crisis we use a flexible co movement measure to examine how conclusions of such analyses depend on the sample chosen as the crisis to this end we analyse stock market co movement during the 1997 asian crisis and the 2007 global financial crisis for all possible source countries and for all possible time periods or extreme return quantiles this way we account for the main crisis dating approaches adopted in the literature our results suggest there is no clear relationship between excess co movement and commonly used crisis samples

rational contagion and the globalization of securities markets this paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios in the presence of short selling constraints the gain of gathering information at a fixed cost may diminish as markets grow moreover if a portfolio manager s marginal cost for yielding below market returns exceeds the marginal gain for above market returns there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets

external public debt trade linkages and contagion during the eurozone crisis against the backdrop of the contagion literature the paper analyses the impact of financial and trade linkages on sovereign bond spreads in the eurozone crisis using quarterly data for a sample of emu countries during the period 2000 13 we estimate fixed effect panel models with driscoll and kraay standard errors that are robust to general forms of spatial and temporal dependence our main results can be summarised as follows first we suggest that the sudden stop of capital inflow towards the peripheral sovereign debt triggered a re segmentation of financial markets and economic systems along national borders with negative implications for risk sharing and the efficient allocation of capital the home bias effect that is the increase in the share of sovereign debt held by domestic banks worsened the country specific risk because the twin crisis sovereign and banking began to be conceived as more closely intertwined within countries than before second the structure of international trade helps to account for the geographic scope of contagion even after controlling for macroeconomic and fiscal vulnerabilities finally the substitution effect of public debt securities of stand alone emerging countries has affected more the sovereign spreads in the core than in the periphery

an applied analysis of brand demand structure the demand literature is concerned with the optimal allocation of expenditure at varied but usually high levels of commodity aggregation much less aggregation however is required for business applications in applied business settings interest centres upon the different brands of the same commodity because policy formulation takes place at the level of the individual brand this paper considers application of formal demand analysis to brand demand data a theoretically plausible demand system is invoked to describe inter brand allocation of expenditure test restrictions imposed by economic theory and yield empirically determined insights into brand demand structure

an untold story the characteristics of welfare use in british columbia the dynamics of welfare participation are analyzed using a unique longitudinal data set derived from provincial administrative records over the period 1980 92 the principal findings are that the majority of welfare spells are experienced by single men and women without children and that while most welfare spells are short there is a high incidence of recidivism although continuous long term use and dependence on welfare is not characteristic of most recipients experiences the program does not provide an effective route to financial independence since most users periodically return to the program

evaluation of contagion or interdependence in the financial crises of asia and latin america considering the macroeconomic fundamentals this article investigates the existence of contagion between countries on the basis of an analysis of returns for stock indices over the period 1994 to 2003 the econometrics methodology used is that of multivariate generalized autoregressive conditional heteroscedasticity garch family volatility models particularly the dynamic conditional correlation dcc models in the form proposed by engle and sheppard 2001 the returns were duly corrected for a series of country specific fundamentals the relevance of this procedure is highlighted in the literature by the work of pesaran and pick 2003 the results obtained in this article provide evidence favourable for the hypothesis of regional contagion in both latin america and asia as a rule contagion spread from the asian crisis to latin america but not in the opposite direction

competitive devaluations toward a welfare based approach abstract this paper revisits the international transmission of exchange rate shocks in a multicountry economy providing a choice theoretic framework for the policy analysis of competitive devaluations as opposed to the traditional view a devaluation by one country does not necessarily have an adverse beggar thy neighbor effect on its trading partners because they can benefit from an improvement in their terms of trade furthermore a retaliatory devaluation need not be the optimal strategy for the neighbor countries as the induced terms of trade deterioration can be large enough to offset the gains from defending their export market share the concern over competitive devaluations reflected in the fund s charter and the system wide implications of changes in exchange rates still motivate fund policy recommendations a major fund concern in the asian crisis has been the fear that asian currencies would become so undervalued and current account surpluses so large as to damage the economies of other countries developing countries included this is one reason the fund has stressed the need first to stabilize and then to strengthen exchange rates in the asian countries now in crisis and for this purpose not to cut interest rates until the currency stabilizes and begins to appreciate

a primer on financial contagion abstract this paper presents a theoretical framework to highlight possible channels for the international transmission of financial shocks we first review the different definitions and measures of contagion adopted by the literature we then use a simple multi country asset pricing model to classify the main elements of the current debate on contagion and provide a stylized account of how a crisis in one country can spread to the world economy in particular the model shows how crises can be transmitted across countries without assuming ad hoc portfolio management rules or market imperfections finally tracking our classification we survey the results of the empirical literature on contagion

assessing the impact of a wage subsidy for single parents on social assistance this paper studies the impact of a wage subsidy program aimed at long term social assistance recipients in quebec the program closely mimics the self sufficiency project and was implemented for a trial period of one year in 2002 we focus on the labour market transitions of the targeted population starting one year before the implementation of the program and up until the end of 2005 our results show that the duration of spells off social assistance increased while the duration of social assistance spells decreased slightly the response to the program varies considerably both with observed and unobserved characteristics

a system of equations model of uk tourism demand in neighbouring countries this paper uses a system of equations model to examine tourism demand during periods of destination country transition and integration into the wider international community the almost ideal demand system model is applied to the uk demand for tourism in the neighbouring destinations france spain and portugal spain and portugal are interesting cases as during the period under consideration they experienced a process of transition from economies with characteristics typical of developing countries only entering the world bank s industrialized countries classification in the 1980s the paper examines the evolution of tourism demand during these countries transition from developing to developed status consideration of france as a neighbouring destination also allows the behaviour of tourism demand to be compared between relatively rich and poor countries the results show the extent to which the cross country behaviour of demand becomes more or less similar over time with respect to changes in ex

regionality revisited an examination of the direction of spread of currency crises abstract what determines the direction of spread of currency crises we examine data on waves of currency crises in 1992 1994 1997 and 1998 to evaluate several hypotheses on the determinants of contagion we simultaneously consider trade competition financial links and institutional similarity to the ground zero country as potential drivers of contagion to overcome data limitations and account for model uncertainty we utilize bayesian methodologies hitherto unused in the empirical literature on contagion in particular we use the bayesian averaging of binary models that allows us to take into account the uncertainty regarding the appropriate set of regressors we find that institutional similarity to the ground zero country plays an important role in determining the direction of contagion in all the emerging market currency crises in our dataset we thus provide persuasive evidence in favour of the wake up call hypothesis for financial contagion trade and financial links may also play a role in determining the direction of contagion but their importance varies amongst the crisis periods

short and long term unemployment abstract this paper estimates a semi parametric hazard model for unemployment duration that accommodates time varying covariate effects for both baseline hazard functions selected some dramatic changes are detected in the regression coefficients the results are robust to the incorporation of unobserved heterogeneity

meteor showers or heat waves heteroskedastic intra daily volatility in the foreign exchange market this paper seeks to explain the causes of volatility clustering in exchange rates careful examination of intra daily exchange rates provides a test of two hypotheses heat waves and meteor showers the heat wave hypothesis is that the volatility has only country specific autocorrelation alternatively the meteor shower is a phenomenon of intra daily volatility spillovers from one market to the next using the garch model to specify the heteroskedasticity across intra daily market segments we find that the empirical evidence is generally against the null hypothesis of the heat wave using a volatility type of vector autoregression we examine the impact of news in one market on the time path of per hour volatility in other markets

modelling us tourism demand for european destinations abstract an almost ideal demand system model is used to examine us demand for tourism in european destinations the model provides policy makers with useful information concerning the sensitivity of tourism demand to changes in relative prices exchange rates and expenditure the results show that price competitiveness is important for us demand for france italy and spain but is relatively unimportant for the uk france and italy are regarded as substitutes by us tourists as are spain and italy as us expenditure rises the market shares of spain and the uk decline while france and italy benefit the demand modelling and forecasting indicate that in the absence of a tourism price index the choice between alternative price indices does not have a significant effect on the results

the duration of welfare spells probability distributions for the duration of welfare spells are estimated the principle guiding the work is that a recipient will not exit from welfare if the expected utility on welfare exceeds the expected utility of welfare the analysis indicates that while the majority of welfare spells are of short duration a nontrivial minority of spells are quite long those recipients with long spells are found to differ in predictable ways from those experiencing brief spells this suggests that strategies to move women off welfare are unnecessary in many cases and should be targeted on those most likely to be long term recipients copyright 1987 by mit press

reconsidering the effect of welfare stigma on unemployment abstract stigma has been modeled in the literature as a cost of welfare participation providing a disincentive to welfare entry hence traditional models predict that stigma leads to higher search effort and higher employment we develop a more comprehensive model that accounts for the fact that welfare stigma may elicit psychological effects and foster negative attitudes towards welfare recipients affecting their employment prospects we find two contrasting effects the first reinforces the standard prediction rational individuals foreseeing the reduction in employability defer welfare entry deterrence effect the second goes in the opposite direction once assisted individuals experience less welfare to employment transitions both because of reduced search effectiveness and of reduced search effort entrapment effect when stigma is not too high the latter effect prevails more stigma yields to less employment and more welfare participation the result is stronger if individuals are not able to foresee their loss of employability

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

why is the rate of single parenthood lower in canada than in the u s a dynamic equilibrium analysis of welfare policies a critical question in the design of welfare policies is whether to target aid according to household composition as was done in the u s under the aid to families with dependent children afdc program or to rely exclusively on means testing as in canada restricting aid to single mothers for instance has the potential to distort behavior along three demographic margins marriage fertility and divorce we contrast the canadian and the u s policies within an equilibrium model of household formation and human capital investment on children policy differences we consider are eligibility dependence of transfers on the number of children and generosity of transfers our simulations indicate that the policy differences can account for the higher rate of single parenthood in the u s they also show that canadian welfare policy is more effective for fostering human capital accumulation among children from poor families interestingly a majority of agents in our benchmark economy prefers a welfare system that targets single mothers as the u s system does yet does not unlike the u s system make transfers dependent on the number of children

the effect of educational attainment on welfare dependence evidence from canada abstract the impact of educational attainment on the duration of welfare spells is analysed using a unique data set derived from the administration of the social assistance program in canada over the period 1986 1993 the empirical analysis includes controls for demographic characteristics program parameters labour market conditions and unobserved individual characteristics it is found that that educational attainment has a much greater impact on the welfare exit rate for women than for men additionally the welfare exit rate for women is more sensitive to family status and program benefits but less sensitive to the unemployment rate relative to that for men

predicting currency crises abstract in recent years a number of researchers have claimed success in systematically predicting which countries are more likely to suffer currency crises most notably kaminsky lizondo and reinhart 1998 this paper evaluates the klr approach to anticipating currency crises and develops and tests an alternative first we try to answer the question if we had been using the klr model in late 1996 how well armed would we have been to predict the asia crisis second we analyze a more general probit based model of predicting currency crises in the process we test several basic assumptions underlying the indicators approach

volatility spillovers in east asian financial markets a mem based approach abstract we model the interrelations of equity market volatility in eight east asian countries before during and after the asian currency crisis using a new class of asymmetric volatility multiplicative error models based on the daily range we find that dynamic propagation of volatility shocks occurs through a network of interdependencies and shocks originating in hong kong may be amplified in their transmission throughout the system posing greater risks to the region than shocks originating elsewhere although this partly explains the severity of the currency crisis we also find evidence that parameters shifted making the system more unstable during the crisis

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

measuring bilateral spillover and testing contagion on sovereign bond markets in europe abstract the global financial crisis rapidly spread across borders and financial markets and also distressed eu bond markets the crisis did not hit all markets in the same way we measure the strength and direction of linkages between 16 eu sovereign bond markets using a factor augmented version of the var model in diebold and yilmaz 2009 we then provide a novel test for contagion by applying the multivariate structural break test of qu and perron 2007 on this favar detecting significant sudden changes in shock transmission results indicate substantial spillover especially between emu countries with belgium italy and spain being key markets during the financial crisis contagion has been a rather rare phenomenon limited to a few well defined moments of uncertainty on financial assistance packages for greece ireland and portugal most of the frequent surges in market co movement are driven by larger shocks rather than by contagion

some contagion some interdependence more pitfalls in tests of financial contagion this paper develops a test of contagion in financial markets based on bivariate correlation analysis which generalizes existing tests and applies it to the international effects of the hong kong stock market crisis of october 1997 contagion is defined as a structural break in the international transmission of financial shocks for plausible values of the variance of country specific shocks in hong kong our test finds evidence of contagion for 5 countries out of a sample of 17 this is in sharp contrast with the findings of recent literature according to which there is no contagion only interdependence we show that this strong result in the literature is due to arbitrary and unrealistic restrictions on the variance of country specific shocks

war terror and the tourism market in israel a supply and demand model of the israeli hotel industry is developed distinguishing between its domestic and foreign sectors model simulations are employed to examine the impacts of war and terrorist incidents on tourist activity and hotel revenues foreign demand for israeli hotel stays is highly price elastic and income inelastic and moderately sensitive to terrorist events domestic demand is price inelastic income elastic and terror insensitive in the wake of terror attacks hotels supply or minimum prices to israeli tourists shift downward reducing local market prices and encouraging more local tourism however the magnitude of these shifts is minor and the local market thus provides little buffer for dropoffs in foreign tourism by permitting excess capacity in such fashion hotels respond rationally to the price inelasticity of local demand

bank sovereign risk spillovers in the european debt crisis this paper investigates contagion between bank risk and sovereign risk in europe over the period 2006 2011 since this period covers various stages of the banking and sovereign crisis it oers a fertile ground to analyze bank sovereign risk spillovers we de ne contagion as excess correlation i e correlation between banks and sovereigns over and above what is explained by common factors using cds spreads at the bank and at the sovereign level moreover we investigate the determinants of contagion by analyzing bank speci c as well as country speci c variables and their interaction we provide empirical evidence that various contagion channels are at work including a strong home bias in bank bond portfolios using the eba s disclosure of sovereign exposures of banks we nd that banks with a weak capital and or funding position are particularly vulnerable to risk spillovers at the country level the debt ratio is the most important driver of contagion

estimating labor supply responses and welfare participation using a natural experiment to validate a structural labor supply model in this paper we formulate and estimate an economic model of labor supply and welfare participation the model is estimated on data on single men from quebec drawn from the 1986 canadian census budget sets for each work welfare combination accounting for income taxes tax credits and welfare benefit rules are derived using a microsimulation model we validate our model by comparing reactions to a welfare reform that implied a dramatic increase in welfare benefits predicted by our model to those obtained by using a regression discontinuity approach the results show that our model is capable of recovering actual changes in labor supply and welfare participation we also show the advantage of having estimated a structural model by illustrating how labor supply and welfare participation change when benefit levels change

a new class of tests of contagion with applications a new class of tests of contagion is proposed identifying transmission channels of financial market crises through changes in higher order moments of the distribution of returns such as coskewness applying the framework to test for contagion in real estate and equity markets following the hong kong crisis in 1997 1998 and the u s subprime crisis in 2007 shows that the coskewness based tests of contagion detect additional channels not identified by the correlation based tests implications of contagion in pricing exchange options where there is a change in higher order comoments of returns on the underlying assets are also investigated

an econometric study of tourism demand the aids model of us and european tourism in mediterranean countries the almost ideal demand system aids model was used to estimate tourism expenditure allocation by us and west european countries among a range of mediterranean destinations the approach has the advantage of an explicit basis in consumer expenditure theory and by modelling the changes in the budget shares of expenditure among destinations provides new information relative to that provided by the traditional single equation approach the estimated model was econometrically satisfactory although symmetry and homogeneity were rejected in line with the findings of past studies of consumer demand the expenditure elasticities demonstrated considerable differences in tourism demand preferences between origin countries and between traditional and newly developing destinations the own and cross price elasticities indicated the importance of effective prices in determining the allocation of expenditure among destinations

extreme interdependence and extreme contagion between emerging markets abstract this paper uses seemingly unrelated probit techniques to separate the transmission of a crisis due to broadly defined macroeconomic interdependence from contagion due to herding avoiding some of the caveats of the more traditional cross correlation approach we find that pure contagion occurred in a limited number of country pairs generally belonging to the same region a reduction in speculative pressure can also be identified between countries in different regional blocks this seems to suggest that after an initial crisis episode investors tend to discriminate on the basis of location and common macroeconomic weakness or perceived similarity

contagion across us and european financial markets evidence from the cds markets abstract this study investigates whether contagion occurred during the recent global financial crisis across european and us financial markets the methodologies used to test for contagion are based on changes in correlation coskewness cokurtosis and covolatility these tests are applied to a set of bank sector cds insurance sector cds sovereign bonds equity and volatility indices the findings indicate significant evidence of contagion especially through the channels of higher order moments

second generation models of currency crises until the beginning of the 1990s currency crises were typically analyzed within the framework of a generation of models that assumed that the foreign exchange reserves of a country that was running a fixed exchange rate policy were falling because the government was running a deficit on its budget that was financed by printing money when the foreign exchange reserves reached a lower bound a speculative attack on the fixed exchange rate was launched today this theory is no longer the benchmark when explaining the occurrence of a currency crisis actually a new generation of models that seeks to take explicitly into account the costs and benefits associated with the maintenance of a fixed exchange rate has emerged this paper surveys these second generation models of currency crises this generation of models emphasizes that it is an endogenous decision if a government chooses to abandon a policy of fixed exchange rates the survey pays special attention to the fact that the second generation of currency crises models often generates multiple equilibria for the rate of devaluation given one state of the economic fundamentals a currency crisis can thus occur even if no secular trend in economic fundamentals can be identified as in recent currency crises

adjustment cost and incentives to work evidence from a disability insurance program abstract how important is adjustment cost for individuals who face a change in work incentives induced by a policy change i provide the first estimate of adjustment cost in the context of a disability insurance di program by exploiting a policy change that increased work incentives by increasing the exemption threshold i use bunching at the thresholds to estimate adjustment cost and earnings elasticity the estimates of adjustment cost are quite sizeable and heterogeneous the estimates of earnings elasticity from both static and dynamic models are larger than the elasticity estimated with no adjustment cost suggesting that adjustment cost attenuates the responses to work incentives policies designed to increase labor supply will work if the work incentives are large enough to offset the adjustment cost accounting for adjustment cost then might explain the disparate findings on the effects of an increase in work incentives on the labor supply of beneficiaries of di programs