peer group formation in an adverse selection model this paper develops an adverse selection model where peer group systems are shown to trigger lower interest rates and remove credit rationing in the case where borrowers are uninformed about their potential partners and ex post state verification or auditing by banks is costly peer group formation reduces interest rates due to a collateral effect namely cross subsidisation amongst borrowers acts as collateral behind a loan by uncovering such a collateral effect this paper shows that peer group systems can be viewed as an effective risk pooling mechanism and thus enhance efficiency notjust in the full information set up a well known family of adverse selection models in the stiglitz and weiss 1981 tradition demonstrates that when banks are imperfectly informed about the riskiness of borrowers projects and therefore cannot discriminate against risky borrowers interest rates become inefficiently high and worthy borrowers are driven out of the credit market the extent of this problem is substantially magnified when borrowers do not have adequate collateral to secure a loan typically adverse selection combined with lack of collateral leads to prohibitively high interest rates poorly endowed individuals e g students immigrants the unemployed and a vast majority of poor individuals in developing countries often face such high rates and therefore cannot take advantage of profitable investment opportunities a peer group formation system represents a possible solution to the above problem under this system a bank lends to borrowers without collateral on condition that the borrowers organise themselves into groups and that participant borrowers within each group accept to take joint responsibility for a loan thus in addition to repaying their own share of the loan each group member must accept to repay the obligations of their defaulting peers otherwise the entire group is denied access to future refinancing systems of this kind have been very successful in practice they have generated lower interest rates for the rural poor in for example bangladesh the philippines bolivia and the state of arkansas in the united states moreover group lending has also been successfully implemented in large urban areas such in the cities of dhaka and chicago 1

group lending with endogenous group size this paper focuses on the size of the borrower group in group lending we show that when social ties in a community enhance borrowers incentives to exert eort a pro t maximizing nancier chooses a group of limited size borrowers that would be fundable under moral hazard but have insu cient social ties do not receive funding the result arises because there is a trade obetween raising pro ts through increased group size and providing incentives for borrowers with less social ties the result may explain why many micro lending institutions and rural credit cooperatives lend to groups of small size

group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

capital flows in the euro area and target2 balances abstract this paper explores how the uneven recourse by national banking systems in the euro area to the ecb s unconventional refinancing operations that led to the accumulation of large target2 balances at the ncbs has contributed to the evolution of aggregate economic activity in important member states of the euro area for the period between 2008 and 2014 we estimate a panel var model and identify the structural shocks by means of sign restrictions our results suggest that the build up of target2 balances was driven mainly by capital flow shocks while being barely responsive to other aggregate shocks furthermore on the basis of counterfactual experiments we find that the ability to build up sizeable target2 liabilities has contributed substantially to avoiding deeper recessions in the distressed euro area member countries like spain italy ireland and portugal while to a smaller extent depressing aggregate economic activity in core member states such as germany the netherlands and finland

how debt markets have malfunctioned in the crisis the financial crisis that began in 2007 is especially a crisis in debt markets a full understanding of what happened in the financial crisis requires investigation into the plumbing of debt markets during a financial crisis when funds often cannot be raised easily or quickly the fundamental values for certain assets can become separated for a time from market prices with consequences that can echo into the real economy this article will explain in concrete ways how debt markets can malfunction with deleterious consequences for the real economy after a quick overview of debt markets i discuss three areas that are crucial in all debt markets decisions risk capital and risk aversion repo financing and haircuts and counterparty risk in each of these areas feedback effects can arise so that less liquidity and a higher cost for finance can reinforce each other in a contagious spiral i will document the remarkable rise in the premium that investors placed on liquidity during the crisis next i will show how these issues caused debt markets to break down indeed fundamental values and market values seemed to diverge across several markets and products that were far removed from the toxic subprime mortgage assets at the root of the crisis finally i will discuss briefly four steps that the federal reserve took to ease the crisis and how each was geared to a specific systemic fault that arose during the crisis

detecting imbalances in house prices what goes up must come down i suggest a toolkit of four bubble detection methods that can be used to monitor developments in house prices these methods are applied to us finnish and norwegian data for the united states all measures unanimously suggest a bubble in the early to mid 2000s whereas current us house prices are found to be aligned with economic fundamentals one of the measures indicates imbalances in finland while there are no signs of a bubble in norway i find that large parts of the us house price bubble can be explained by the sharp increase in capital inflows and the extension of loans to the subprime mortgage market

global imbalances and financial fragility the united states is currently engulfed in the most severe financial crisis since the great depression the crisis was triggered by the crash in the real estate bubble and amplified by the extreme concentration of risk in a highly leveraged financial sector conventional wisdom is that both the bubble and the risk concentration were the result of mistakes in regulatory policy an expansionary monetary policy during the boom period of the bubble and failure to reign in the practices of unscrupulous lenders in this paper we argue that while correct in some dimensions this story misses two key structural factors behind the securitization process that supported the real estate boom and the corresponding lever age first over the last decade the us has experienced large and sustained capital inflows from foreigners seeking us assets to store value caballero emmanuel farhi and pierre olivier gourinchas 2008 second especially after the nasdaq tech bubble and bust excess world savings have looked predominantly for safe debt investments this should not be surprising because a large amount of the capital flow into the us has been from foreign central banks and governments that are not expert investors and are merely looking for a store of value krishnamurthy and annette vissing jorgenson 2008 in this paper we develop a stylized model that captures the essence of this environment the model accounts for three facts observed during the boom and bust phases of the current crisis first during a period of good shocks which we interpret as the period up to the end

external balances trade and financial conditions abstract i present a new model for the u s external position that accounts for the accumulation of international debt over the past 60 years the model is based on the present value restriction that links a country s external position to future trade flows and financial conditions in the absence of arbitrage opportunities and ponzi schemes it features the role played by the stochastic discount factor the trade and valuation adjustment channels and provides a decomposition of the u s external position into secular and cyclical components the model shows that shocks operating via the valuation channel are the dominant drivers of cyclical dynamics accounting for approximately 80 of the variance over the 60 year sample this channel works primarily via capital gains and losses on u s foreign assets and is closely tied to the international value of the u s dollar in contrast there is no evidence that valuation channel adjustments contribute to the secular dynamics but differences between the average returns on foreign assets and liabilities raise the steady state debt to gdp ratio from approximately 12 to 15 the long term deterioration in the u s position represents a move towards the steady state before the early 1990s and a move away from the steady state thereafter i quantify the expected improvement in future u s trade balances needed to justify this as a sustainable path and show that they are very different from its actual behavior during the last 60 years i also study the behavior of the u s position during the 2007 2008 financial crisis

a public good approach to credit ratings from concept to reality abstract from the onset of the 2008 2009 financial crisis to the subsequent european sovereign debt crisis credit rating agencies have been assigned considerable blame reforming the credit rating industry has hence become an important policy issue in addition to the regulatory efforts in the context of accepting the for profit business model of ratings there is a growing realization that credit ratings bear the characteristics of a public good financial market participants need reliable transparent and independent assessment of credit risks credit ratings are therefore better viewed as an infrastructure matter however the proposed regulations seem to have missed this point this paper introduces a new approach to credit ratings undertaken by the risk management institute at the national university of singapore that is predicated on the provision of credit ratings as a public good with a public good alternative in place the currently predominant for profit business model may be counterbalanced

time to build and aggregate fluctuations some new evidence this paper presents maximum likelihood estimates and tests of a model similar to one kydland and prescott 1982 suggested for this purpose it derives equilibrium laws of motion for a set of aggregate variables as functions of the model s parameters and the innovation to the technology shock the paper shows that a single unobservable index can explain the variability in the observed series but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained it also shows that time separable preferences with respect to leisure are consistent with the data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

current account balance and dollar standard exploring the linkages abstract this paper examines whether the international role of the dollar as main global reserve currency has contributed to persistent current account imbalances to this end we analyse how central banks accumulation of reserve assets affects the current account balance of both reserve accumulating and reserve providing countries based on a simple portfolio balance model we show theoretically that the global demand for reserve assets by central banks may lower the current account balance of the reserve issuing country our panel data analysis over the period 1970 2009 confirms this hypothesis any dollar of provided reserve assets decreases the us current account by more than one dollar on average the demand for dollar reserves has lowered the us current account by 1 2 percentage points relative to gdp the flip side of this effect is a higher current account balance in reserve accumulating countries these novel findings show that the worldwide demand for international reserves has contributed to the buildup of global imbalances

on the prevalence of trends in primary commodity prices abstract this paper applies new time series procedures to examine the prebisch singer hypothesis of a secular deterioration in relative primary commodity prices specifically we allow for up to two structural breaks in 24 price series covering the 1900 98 period for the majority of commodities it is shown that the trend is not well represented by a single downward slope but instead by a shifting trend that often changes sign over the sample period unlike some recent work that has also allowed for structural breaks these results provide much less support for the prebisch singer hypothesis

group credit a means to improve information transfer and loan repayment performance information asymmetries plague credit markets in developing countries leading to selective rationing and market segmentation with adverse income distributional consequences for small borrowers data collected from the finca group credit programme in costa rica were used to study the viability and cost effectiveness of group credit as a means to transmit information on borrower creditworthiness groups that screened members and used local information had lower delinquency rates than those that did not however less than half the groups had positive rates of economic return suggesting that group lending may improve information flow but is a cost sensitive institutional design

the contribution of wealth concentration to the subprime crisis a quantitative estimation the crisis that broke out in mid 2007 was caused by the fact that the cdo market had grown to a size sufficient to wreak general havoc when it suddenly collapsed several authors have argued that economic inequality was important to the growth of this market this paper attempts to strengthen this argument by concentrating attention on global wealth concentration after summarising recent evidence on the negative impact of investor demand on us bond yields in the pre crisis period new evidence regarding the specific contribution of high net worth individuals to this negative impact is presented the paper then goes on to show how after having helped to caused a yield problem in the major us debt markets high net worth individuals via hedge funds continued to be a major source of the pressure on us banks to resolve this yield problem through the mass production of cdos

natural gas overview for world economy from primary supply to final demand via global supply chains abstract as the world is smoothing the transition towards a low carbon energy structure natural gas has occupied a critical position in global energy supply also globalization has catalyzed ever increasing indirect energy flows in international trade in order to present a comprehensive overview of natural gas use in globalized economy this paper applies the systems multi regional input output mrio analysis to track natural gas use from primary suppliers to final consumers via the links by producers in the world economy supported by typical statistics for the year of 2011 natural gas embodied in international trade is revealed amounting to 2722 1 bcm in magnitude up to 90 of total gas extraction for energy use indicating the intensive relocation of gas use by trade 83 of traded embodied natural gas is associated with intermediate trade mainly from leading primary suppliers including russia usa and western asia to dominant final consumers like usa eu27 and east asia significant differences are found between direct and embodied natural gas flows consumption based resource efficiency can break the illusion of efficiency improvements and trade imbalance in terms of gas use can be opposite to the trade imbalance in conventional monetary terms this paper has constructed a comprehensive analytical framework to trace natural gas flows in globalized economy for the first time aiming to provide new insights for policy making

the commodity terms of trade unit roots and nonlinear alternatives a smooth transition approach market price dynamics for north american oriented strand board markets are examined specifically the role of transactions costs are examined vis a vis the law of one price weekly data for the january 3rd 1995 through april 14th 2006 period are used in the analysis nonlinearities induced by unobservable transactions costs are modeled by estimating smooth transition autoregressions stars results indicate that nonlinearity is an important feature of these markets and that the parity relationships implied by economic theory are generally supported by the star models implications for the efficiency of spatial market linkages are examined by estimating generalized impulse response functions

exchange rate regimes and asset prices abstract we study the implications of alternative exchange rate regimes for asset prices in a portfolio balance model motivated by the recent us china experience we establish that asset price responses to various shocks differ across a flexible regime and a unilateral peg but the differences for most shocks tend to be rather small moreover while both monetary and public debt expansions have inflationary effects on equity prices the latter s impact is stronger under a flexible exchange rate regime these two findings suggest that a flexible usd rimni rate would not have limited the recent asset price inflation in the us

identifying supply and demand elasticities of agricultural commodities implications for the us ethanol mandate we present a new framework to identify supply elasticities of storable commodities where past shocks are used as exogenous price shifters in the agricultural context past yield shocks change inventory levels and futures prices of agricultural commodities we use our estimated elasticities to evaluate the impact of the 2009 renewable fuel standard on commodity prices quantities and food consumers surplus for the four basic staples corn rice soybeans and wheat prices increase 20 per cent if one third of commodities used to produce ethanol are recycled as feedstock with a positively skewed 95 percent confidence interval that ranges from 14 to 35 per cent jel q11 q16 q42 q48

commodity storage and the market effects of biofuel policies the author 2016 legislation passed in 2007 by the u s congress increased by about 1 3 billion bushels the net amount of corn required to be processed annually into ethanol for motor fuel use we estimate that corn prices were about 30 higher from 2006 to 2014 than they would have been without this demand increase we develop a partially identified structural vector autoregression model our identification strategy is unique in the literature because it enables us to estimate the effects of transitory shocks such as weather separately from the effects of persistent shocks such as the increased ethanol mandate moreover by only partially identifying our model we show how to generate robust conclusions without strong identifying assumptions

understanding the mechanisms of economic development in this paper i advocate the investigation testing and modification of mechanisms as a progressive empirical research strategy for the field of economic development and other areas of applied economics i discuss three lines of work that have elucidated mechanisms that are relevant for development 1 connections between saving and growth 2 the determinants of commodity prices which are a key source of income for many developing countries and 3 some unexpected puzzles that arise in considering the linkages between income and food consumption in each case my discussion illustrates the positivist approach to the hypotheticodeductive method in this approach mechanisms are proposed key predictions derived and tested and if falsified the mechanisms are rejected or modified if the predictions of a mechanism are confirmed if they are sufficiently specific and if they are hard to explain in other ways we attach additional credence to the mechanism albeit provisionally since later evidence may undermine it sometimes the falsifications can be repaired by changing supplementary assumptions and sometimes they involve long steps backwards where the model is abandoned and often there is disagreement about which is the correct response but the end result is an accumulation of useful knowledge and understanding

bridging dsge models and the raw data abstract a method to estimate dsge models using the raw data is proposed the approach links the observables to the model counterparts via a flexible specification which does not require the model based component to be located solely at business cycle frequencies allows the non model based component to take various time series patterns and permits certain types of model misspecification applying standard data transformations induces biases in structural estimates and distortions in the policy conclusions the proposed approach recovers important model based features in selected experimental designs two widely discussed issues are used to illustrate its practical use

using usda forecasts to estimate the price flexibility of demand for agricultural commodities we estimate the general equilibrium price flexibility of demand for corn and soybeans using monthly changes in expected supply published by the usda our estimates reflect the demand response to a one year supply shock and thus correspond to the inverse demand elasticity we derive the conditions under which our estimates are consistent and we show how demand flexibility varies by season inventory time horizon and demand composition at average inventory and without accounting for corn ethanol use we obtain price flexibility estimates of 1 35 and 1 03 for corn and soybeans respectively current corn ethanol production levels are associated with much larger absolute flexibilities for both commodities copyright 2012 oxford university press

the us treasury floating rate note puzzle is there a premium for mark to market stability abstract we find that treasury floating rate notes frns trade at a significant premium relative to the prices of treasury bills and notes this premium is directly related to the near constant nature of frn prices and is correlated with measures reflecting investor demand for safe assets money market funds are often the primary investors in frns and the frn premium is related to flows into funds with fixed net asset values but not to flows into funds with variable net asset values these results provide strong evidence that the frn premium represents a convenience yield for the mark to market stability feature of frns

a reexamination of trends in primary commodity prices this paper conducts a reexamination of the prebisch singer hypothesis by employing the unit root test proposed by lee and strazicich 2003 and lee and strazicich 2004 that allow for up to two structural breaks given the higher power of these tests compared to the zivot and andrews 1992 and lumsdaine and papell 1997 tests rejection of the null can be considered as genuine evidence of stationarity the main findings of this paper are that eleven out of twenty four commodity prices are found to be difference stationary implying that shocks to these commodities tend to be permanent in nature the remaining thirteen prices are found to exhibit trend stationary behavior with either one or two structural breaks most of the commodities that do not exhibit difference stationary behavior seem to contain no significant trends there are fewer cases in relation to past studies of commodities that display negative trends thereby weakening the case for the prebisch singer hypothesis

detrending and business cycle facts a user s guide this note argues that it is hardly the case that the profession is fully aware that the application of di erent filters to the data leads to di erent outcomes and that we have enough evidence to claim that these di erences are unimportant to evaluate the fit models to the data 1998 elsevier science b v all rights reserved jel classification b41 e32

the empirical merit of structural explanations of commodity price volatility review and perspectives this paper presents both the history of and state of the art in empirical modeling approaches to the world commodity price volatility the analysis builds on the storage model and key milestones in its development specifically it is intended to offer a reader unfamiliar with the relevant literature an insight into the modeling issues at stake from both a historical and speculative viewpoint the review considers primarily the empirical techniques designed to assess the merits of the storage theory it does not address purely statistical approaches that do not rely on storage theory and that have been studied in depth in other streams of the commodity price literature the paper concludes with some suggestions for future research to try to resolve some of the existing empirical flaws and hopefully to increase the explanatory power of the storage model

interest rate co movements global factors and the long end of the term spread the decoupling of us short and long interest rates has been a distinctive feature of the 2000s we employ recent advances in panel econometrics to document this disconnect for industrial countries and link it to a global latent factor in long term rates we investigate whether international forces such as global inflation global output or the global savings glut may be behind this global latent factor the savings glut is the most likely contender suggesting that reserve accumulation and a search for yield from emerging markets has lowered long rates internationally driving a wedge between domestic short and long rates

capital flows consumption booms and asset bubbles a behavioural alternative to the savings glut hypothesis bernanke 2005 hypothesized that a global savings glut was causing large trade imbalances however we show that the global savings rates did not show a robust upward trend during the relevant period moreover if there had been a global savings glut there should have been a large investment boom in the countries that imported capital instead those countries experienced consumption booms national asset bubbles explain the international imbalances the bubbles raised consumption resulting in large trade deficits in a sample of 18 oecd countries plus china movements in home prices alone explain half of the variation in trade deficits

capital inflows and the u s housing boom we estimate an open economy vector autoregressive var model to study the effect of capital inflow shocks on the u s housing market we look at different external shocks that generate capital inflows to the u s in particular saving glut shocks and foreign monetary policy expansions the shocks are identified with theoretically robust sign restrictions derived from an open economy dynamic stochastic general equilibrium dsge model our findings suggest that capital inflows that result from saving glut shocks have a positive and persistent effect on real house prices and real residential investment

stocks to use ratios and prices as indicators of vulnerability to spikes in global cereal markets we identify critical stocks to use ratios surs for major grains and for an index of total calories from these grains the latter appears to be a promising indicator of vulnerability to large price spikes when the current price shows no cause for concern more generally our results suggest that stocks data though no doubt unreliable can be valuable complements to price data as indicators of vulnerability to shortages and price spikes

what makes us government bonds safe assets us government bonds are considered to be the world s safe store of value especially during periods of economic turmoil such as the events of 2008 but what makes us government bonds safe assets we highlight coordination among investors and build a model in which two countries with heterogeneous sizes issue bonds that may be chosen as safe asset our model illustrates the benefit of a large absolute debt size as safe asset investors have nowhere else to go in equilibrium and the large country s bonds are chosen as the safe asset moreover the effect becomes stronger in crisis periods

the prebisch singer hypothesis four centuries of evidence we employ a unique data set and new time series techniques to reexamine the existence of trends in relative primary commodity prices the data set comprises 25 commodities and provides a new historical perspective spanning the seventeenth to the twenty first centuries new tests for the trend function robust to the order of integration of the series are applied to the data results show that eleven price series present a significant and downward trend over all or some fraction of the sample period in the very long run a secular deteriorating trend is a relevant phenomenon for a significant proportion of primary commodities 2010 the president and fellows of harvard college and the massachusetts institute of technology

detrending stylized facts and the business cycle the stylized facts of macroeconomic time series can be presented by fitting structural time series models within this framework we analyse the consequences of the widely used detrending technique popularised by hodrick and prescott 1980 it is shown that mechanical detrending based on the hodrick prescott filter can lead investigators to report spurious cyclical behaviour and this point is illustrated with empirical examples structural time series models also allow investigators to deal explicitly with seasonal and irregular movements that may distort estimated cyclical components finally the structural framework provides a basis for exposing the limitations of arima methodology and models based on a deterministic trend with a single break

financial integration and liquidity crises this paper analyzes the effects of financial integration on the stability of the banking system financial integration allows banks in different regions to smooth local liquidity shocks by borrowing and lending on a world interbank market we show under which conditions financial integration induces banks to reduce their liquidity holdings and to shift their portfolios toward more profitable but less liquid investments integration helps reallocate liquidity when different banks are hit by uncorrelated shocks however when a correlated systemic shock hits the total liquid resources in the banking system are lower than in autarky therefore financial integration leads to more stable interbank interest rates in normal times but to larger interest rate spikes in crises these results hold in a setup in which financial integration is welfare improving from an ex ante point of view we also look at the model s implications for financial regulation and show that in a second best world financial integrati

social connections and group banking lending to the poor is expensive due to high screening monitoring and enforcement costs group lending advocates believe lenders overcome this by harnessing social connections using data from finca peru i exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint liability loans individuals with stronger social connections to their fellow group members i e either living closer or being of a similar culture have higher repayment and higher savings furthermore i observe direct evidence that relationships deteriorate after default and that through successful monitoring individuals know who to punish and who not to punish after default

testing the prebisch singer hypothesis since 1650 evidence from panel techniques that allow for multiple breaks abstract in this paper we re examine two important aspects of the dynamics of relative primary commodity prices namely the secular trend and the short run volatility to do so we employ 25 series some of them starting as far back as 1650 and powerful panel data stationarity tests that allow for endogenous multiple structural breaks results show that all the series are stationary after allowing for endogenous multiple breaks test results on the prebisch singer hypothesis which states that relative commodity prices follow a downward secular trend are mixed but with a majority of series showing negative trends we also make a first attempt at identifying the potential drivers of the structural breaks we end by investigating the dynamics of the volatility of the 25 relative primary commodity prices also allowing for endogenous multiple breaks we describe the often time varying volatility in commodity prices and show that it has increased in recent years

a model of the international monetary system we propose a simple model of the international monetary system we study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios a hegemon vs a multipolar world abundant vs scarce reserve assets a gold exchange standard vs a floating rate system we rationalize the triffin dilemma which posits the fundamental instability of the system as well as the common prediction regarding the natural and beneficial emergence of a multipolar world the nurkse warning that a multipolar world is more unstable than a hegemon world and the keynesian argument that a scarcity of reserve assets under a gold standard or at the zero lower bound is recessionary our analysis is both positive and normative

maximum likelihood estimation of the standard commodity storage model evidence from sugar prices we present a maximum likelihood estimator for the standard commodity storage model with stockouts based on prices only while it imposes no additional assumptions on the model the maximum likelihood estimator has small sample properties superior to those of the pseudo maximum likelihood approach we provide a proof that is crucial for applying our estimator to the model with normal harvests and possibly unbounded prices thereby eliminating an inconsistency in the empirical storage model literature applying our maximum likelihood estimator to a series of annual sugar prices from 1921 to 2009 provides new evidence for the empirical relevance of the standard storage model our results imply a cutoff price at which discretionary stocks go to zero which is higher than the price obtained by applying the pseudo maximum likelihood estimator to the same data the implied frequency of stockouts is lower and price correlations skewness and kurtosis implied by the model closely match those seen in the annual sugar price data we find the price of sugar to be highly responsive to small changes in consumption when inventories are not available to buffer the effects of negative supply shocks on consumption prices must increase sharply to induce the consumption changes needed to clear the market our results show why production shocks are not necessarily aligned with price spikes the same production shock can give rise to very different price responses depending on whether or not there are sufficient stocks to buffer its impact

demand effects and speculation in oil markets theory and evidence abstract we present evidence showing the existence of stable cointegrating vectors connecting four important variables in the u s and global oil markets oil production stocks of crude oil the real price of oil and broad measures of income our data are monthly and go back to the 1930s split into sub samples which correspond to periods before and after the 1973 crisis we further show that the cointegrating vectors found in the data accord well with an extended commodity storage model which allows for demand growth dynamics and for supply regimes specifically inventories and price move in opposite directions when supply is flexible but the relationship reverses so that they comove when supply is inflexible

estimating a nonlinear rational expectations commodity price model with unobservable state variables this paper is concerned with the estimation of a model in which a possibly serially correlated stochastic process the harvest of an agricultural commodity generates a competitive price in a market comprising both final consumers and risk neutral speculators who can store the commodity at a cost in the anticipation of profit because storage cannot be negative the relationship between prices and harvests is inherently nonlinear and is an unpromising candidate for a linear quadratic model or for linearization more generally instead we calculate numerically a policy function in which price is a function of two unobservable state variables the harvest and current availability and we use the result to fit the price data

the term structure of interest rates in a dsge model with recursive preferences abstract a dynamic stochastic general equilibrium dsge model in which households have epstein and zin recursive preferences is solved with perturbation the parameters governing preferences and technology are estimated by maximum likelihood using macroeconomic data and the term structure of interest rates the estimates imply a large risk aversion an elasticity of intertemporal substitution higher than one and substantial adjustment costs furthermore the paper identifies the tensions within the model by estimating it on subsets of these data the analysis concludes by pointing out potential extensions that may improve the model s fit

global primary energy use associated with production consumption and international trade presented in this study is a comprehensive analysis for energy use of different economic entities in global supply chains including the exploiter producer consumer intermediate trader and final trader the systems input output analysis method is adopted to trace the direct and indirect energy use associated with both intermediate production and final consumption activities in the economic system in the world economy 15 of the energy use embodied in trade turns out to be induced by final consumption and 85 is attributed to intermediate production different trading patterns for different economies are identified with the separation between energy trade for intermediate production and that for final consumption for japan with a production oriented trading pattern intermediate trade should be a top priority in local trade structure adjustment while final trade needs more attention for the government in the united states as the country is in a consumption oriented trade pattern this analysis aims to provide an in depth insight into energy sustainability as well as a sound scientific reference for policy making at the regional national and global scale

the economics of rotating savings and credit associations supported by the center for energy policy studies m i t and the japanese corporate associates program at the kennedy school of government

financial intermediation international risk sharing and reserve currencies abstract i model the equilibrium risk sharing between countries with varying financial development the most financially developed country takes greater risks because its financial intermediaries deal with funding problems better in good times the more financially developed country consumes more and runs a trade deficit financed by the higher financial income that it earns as compensation for taking greater risk during global crises it suffers heavier losses its currency emerges as the reserve currency because it appreciates during crises thus providing a good hedge i provide evidence that financial net worth plays a crucial role in understanding this asymmetric risk sharing jel e44 f14 f32 g01 g15 g21

reserve accumulation and financial crises from individual protection to systemic risk abstract this paper provides a new perspective on the relationship between countries international reserve holdings and financial crises while the local view holds that reserves may prevent domestic crises it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre which is transmitted globally according to this global view reserve accumulation might destabilize the international financial system since the crisis affects all countries alike the accumulation of reserves imposes a negative externality on non accumulating countries we integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality the consideration of systemic risk lowers the demand for reserves moreover if a supranational authority determines the optimal level of reserves it internalizes the negative externality and accumulates fewer reserves a macroprudential tax on reserve hoardings might implement the socially optimal solution our calibration analysis shows that these considerations are economically significant they lower the optimal amount of reserves in the benchmark case by 45

estimating the competitive storage model with trending commodity prices we present a method to estimate jointly the parameters of a standard commodity storage model and the parameters characterizing the trend in commodity prices this procedure allows the influence of a possible trend to be removed without restricting the model specification and allows model and trend selection based on statistical criteria the trend is modeled deterministically using linear or cubic spline functions of time the results show that storage models with trend are always preferred to models without trend they yield more plausible estimates of the structural parameters with storage costs and demand elasticities that are more consistent with the literature they imply occasional stockouts whereas without trend the estimated models predict no stockouts over the sample period for most commodities moreover accounting for a trend in the estimation imply price moments closer to those observed in commodity prices our results support the empirical relevance of the speculative storage model and show that storage model estimations should not neglect the possibility of long run price trends

asymmetric information in securitization an empirical assessment abstract asymmetric information in securitization deals is analyzed based on a unique dataset comprising a million mortgages both securitized and not and using a methodology previously applied to insurance data that looks at the correlation between risk transfer and default probability the main finding is that for given observable characteristics securitized mortgages have a lower default probability than non securitized ones we show that this finding is consistent with banks caring about their reputation for not selling lemons

the economic role of commodity storage one of the earliest and most successful exainples of economic policy is the oftquoted biblical account of joseph s interpretation of the pharoah s dream joseph foretold that seven years of abundant harvests would precede seven years of drought and recommended that the pharoah accumulate grain during the good years since that time the central role of storage in stabilising the economy in the face of exogenous disturbances has been obvious but our understanding of the nature of that role has not greatly advanced without divine assistance in forecasting stochastic production the storage decision is considerably more complex than the one joseph faced and the role of storage quite different in fact several commonly held impressions about the role of storage of commodities such as grains are incorrect rather than stabilising production storage actually accentuates its variability rather than causing a mean price preserving decrease or a mean output preserving decrease in the dispersion of price storage generally causes a more complex modification of the distribution of price rather than being most effective at eliminating short falls in consumption storage actually is more effective at eliminating the incidence of exceedingly high consumption in this paper we explore the role of storage in a model where production is stochastic and both production and storage are performed by competitive profitmaximisers who form rational expectations about the returns to their activities we derive the subtle but very important interactions among production price expectations and storage which simpler models cannot capture finally we make a comparative statics assessment of the distributional implications of storage these results while confirming the importance of the specification of the demand function and the supply elasticity identified in recent analytical studies e g wright i979 and newbery and stiglitz i979 are surprisingly favourable to consumers considering the asymmetric nature of the effects of storage on consumption and price storage is simply a productive activity one that transfers a commodity from one period to the next like other forms of production it is costly the total cost of storing an amount st from period t to period t i is as of period t i

why did the equity home bias fall during the financial panic of 2008 investors tend to put most of their wealth in local stocks theories of portfolio choice and uncertainty aversion jointly predict that this home bias should increase during a financial crisis yet using a sample of 45 countries i document that the equity home bias fell during the financial panic of 2008 exploiting bilateral stock holdings i find that investors actively increased their home bias but large valuation changes subsumed these trades across countries the change in home bias is consistent with partial portfolio rebalancing and increased information asymmetries during the crisis

group lending with adverse selection abstract we focus on adverse selection as a foundation of group lending in a simple static model we show that there is no collateral effect if borrowers do not know each other if the borrowers know each other group lending implements efficient lending however it is not robust to collusive behavior when transfers are allowed between colluding partners finally we characterize the optimal collusion proof group contract

financial stability energy consumption and environmental quality evidence from south asian economies abstract a few studies are found on the relationship between financial instability energy consumption and environmental quality in energy economics literature the current study is an endeavor to fill this gap by investigating the relationship between financial stability economic growth energy consumption and carbon dioxide co 2 emissions in south asian countries over the period 1980 2012 using a multivariate framework bounds test for cointegration and granger causality approach are employed for the empirical analysis estimated results suggest that all variables are non stationary and cointegrated the results show that financial stability improves environmental quality while the increase in economic growth energy consumption and population density are detrimental for environment quality in the long run the results also support the environmental kuznets curve ekc hypothesis which assumes an inverted u shaped path between income and environmental quality moreover the study found the evidence of unidirectional causality running from financial stability to co 2 emissions in two countries i e pakistan and sri lanka the findings of this study open up new insight for policy makers to design a comprehensive financial economic and energy supply policies to minimize the detrimental impact of environmental pollution

primary commodity prices manufactured goods prices and the terms of trade of developing countries what the long run shows the authors revisit in this article the empirical foundation of the alleged secular decline in the prices of primary commodities relative to those of manufactures they use a newly constructed index of commodity prices and two modified indexes of manufactured good prices and find that from 1900 to 1986 the relative prices of all primary commodities fell on trend by 0 5 percent a year and those of nonfuel primary commodities by 0 6 percent a year they thus confirm the sign but not the magnitude of the trend implicit in the work of prebisch but even the more limited secular decline shown by their relative price indexes may be magnified by an incomplete account of quality improvements in manufactures they then show that the evolution of terms of trade of nonfuel primary commodities is not the same as that of the net barter terms of trade of non oil exporting developing countries finally they find that despite the decline that has probably occurred during the current century in the terms of trade of nonfuel primary commodities the purchasing power of total exports of these products has increased considerably similarly the fall that may have occurred after world war ii in the net barter terms of trade of developing countries seems to have been more than compensated for by the steady improvement in their income terms of trade

public debt structure and liquidity provision abstract this study examines the optimal public debt structure when governments can issue multiple assets the state s fiscal capacity is uncertain public debt has a liquidity purpose for domestic investors and public debt markets are open to foreign investors the optimal policy is to tranch the risky fiscal capacity and then to issue state contingent assets that pay only when the need for aggregate liquidity in the economy is high in this way governments can minimize wasted liquidity of public assets unused returns on public assets not required by domestic investors this minimizes the cost of liquidity hoarding for the domestic private sector which increases investment and welfare in the economy this study also provides a framework to analyze relevant comparative statics regarding the ownership of state contingent public assets in particular the model assesses the effects of changes in the domestic liquidity needs the state s fiscal capacity and the foreign willingness to pay for public debt on the ownership of state contingent public assets

savings asset scarcity and monetary policy abstract this paper analyzes optimal monetary policy regarding asset markets in a model where money and savings are essential and asset markets matter the model is able to explain why different regimes for the correlation of real interest rates and stock price dividend ratios exist and offers two explanations why the correlation vanished after 2007 a decrease in inflation or changes in the supply of risky and safe assets the results on optimal policy show that away from the friedman rule fiscal policy can improve welfare by increasing the amount of outstanding government debt if the fiscal authority is not willing or able to increase debt the monetary authority can improve welfare of current generations by reacting procyclically to asset return shocks

a short note on updating the grilli and yang commodity price index the grilli and yang commodity price index is one of the most widely used commodity price series in the applied economics literature this note provides some practical advice on updating this data series by listing the base period index values identifying relevant data sources and describing a method for computing subindex weights in 1988 enzo grilli and maw cheng yang published their seminal article on the long run development of an index of 24 primary commodity prices gycpi deflated by an index of manufactured goods unit values the sample of average annual primary commodity prices covers about 54 percent of the primary commodity trade in the index reference period 1977 79 the deflators considered for manufacturing prices were the u s manufacturing price index usmpi and the manufacturing unit value index muv 1widely used and discussed the grilli and yang data set has been extended by a number of researchers the data have been employed in a variety of contexts in later studies thus the gycpi data continue to enjoy wide popularity in their own right and as a benchmark for new approaches to empirical studies

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

when grilli and yang meet prebisch and singer piecewise linear trends in primary commodity prices abstract in this study we test the prebisch singer hypothesis on the secular decline of relative primary commodity prices with the extended grilli and yang 1988 data set ending at 2010 rather than asking whether it holds for the whole sample period we examine if the hypothesis holds sometimes during the sample period by estimating the piecewise linear trends of primary commodity prices we employ the new l1 trend filtering proposed by kim et al 2009 to estimate the piecewise linear trends we find that the prebisch singer hypothesis holds sometimes but not always for many of the primary commodities in the grilli yang data the strength of the prebisch singer hypothesis has become substantially weaker recently as the relative prices of many primary commodities have increased sharply since around 2000

on the fit of new keynesian models this article provides new tools for the evaluation of dynamic stochastic general equilibrium dsge models and applies them to a large scale new keynesian model we approximate the dsge model by a vector autoregression and then systematically relax the implied cross equation restrictions and document how the model fit changes we also compare the dsge model s impulse responses to structural shocks with those obtained after relaxing its restrictions we find that the degree of misspecification in this large scale dsge model is no longer so large as to prevent its use in day to day policy analysis yet is not small enough to be ignored

commodity prices and growth in africa a frican economies export primary commodities and most export little else policymakers as well as economists and historians of african economic development have seen these exports as both a hope and a curse the following parable tells the story once upon a time a servant of the ruler discovered a miraculous plant which grew readily in that country and whose seeds could be woven into fine cloth so desirable was this fabric that it became prized all over the world and fetched a high price after two score years the plant accounted for most of the country s trade with the world the ruler ordered the peasants to grow the plant paid them only a fraction of its price and he and his nobles became fabulously wealthy because the ruler wished to be remembered as a great ruler and as the father of his country he used his wealth to build a great army and brought machines from foreign countries to make the fine goods that previously could only be obtained from foreign merchants but the machines often broke down and the goods that they made were of poor quality and after the ruler died they were left to rust under the ruler s successor there was a war in a foreign land where the plant also grew so that there was a great shortage and its price increased threefold in only three seasons the new ruler spent his newfound riches on fantastic extravagance while immense sums were expended on public works after the manner of the east and on productive works carried out in the wrong way or too soon not even the threefold increase in prices could support these expenditures and the country soon found itself deeply in debt when the war ended and the price fell the country could no longer pay the interest on its debt or borrow more money even after it had sold its only useful public work to a foreign power so that power sent a mission to the country the publication of whose report from which the above

screening by the company you keep joint liability lending and the peer selection effect we look at an economic environment where borrowers have some information about the nature of each other s projects that lenders do not we show that joint liability lending contracts similar to those used by credit cooperatives and group lending schemes will induce endogenous peer selection in the formation of groups in a way that the instrument of joint liability can be used as a screening device to exploit this local information this can improve welfare and repayment rates if standard screening instruments such as collateral are unavailable

time varying risk aversion abstract exploiting portfolio data and repeated surveys of an italian bank s clients we test whether investors risk aversion increases following the 2008 crisis we find that after the crisis both qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock we investigate four explanations changes in wealth expected income perceived probabilities and emotion based changes of the utility function our data are inconsistent with the first two channels while they suggest that fear is a potential mechanism underlying financial decisions whether by increasing the curvature of the utility function or the salience of negative outcomes

the shortage of safe assets in the us investment portfolio some international evidence this paper develops a bayesian global var gvar model to track the international transmission dynamics of two stylized shocks namely a supply and demand shock to us based safe assets our main findings can be summarized as follows first we find that positive supply sided shocks lead to pronounced increases in economic activity which spills over to foreign countries the impact of supply sided shocks can also be seen for other quantities of interest most notably equity prices and exchange rates in europe second a demand sided shock leads to an appreciation of the us dollar and generally lower yields on us securities forcing investors to shift their portfolios towards foreign fixed income securities this yields sizable positive effects on us output equity prices and a general decrease in financial market volatility

variable long term trends in mineral prices the ongoing tug of war between exploration depletion and technological change abstract this paper explores the use of low frequency band pass filters for describing long run trends in real mineral commodity prices this approach has the advantage of allowing long run trend rates to evolve gradually over time rather than assuming that they are constant perhaps with occasional structural breaks over time this is a flexible way of capturing the ongoing tug of war between exploration depletion and technological change over 100 mineral and commodities stretching back to the late 19th or early 20th century are considered the variety of lr trends is astonishing but very few increase monotonically contrary to the prediction of the basic hotelling model some decline monotonically as predicted by prebisch and singer some have the u shaped pattern predicted by pindyck 1978 heal 1981 and slade 1982 others have changed direction up to three times in the period since 1900 the tug of war continues with exhaustion nowhere in sight

the role of underground storage in the dynamics of the us natural gas market a threshold model analysis abstract natural gas is an important source of energy in the global economy hence understanding the drivers of its prices is of significant interest for the many economic agents this paper investigates the role of inventories for the dynamics of the u s natural gas market our contribution is twofold first within the threshold structural var framework we demonstrate that in a low inventory regime spot prices are more responsive to economic fundamentals in comparison to situation in which the inventories are high second we present evidence that the level of natural gas inventories have a significant effect on the relationship between spot and futures prices

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth

market news in commodity price theory application to the ethiopian grain market this paper examines the effect of news or advance information about future production on competitive storage behaviour and prices using a structural model of commodity markets in particular it generalizes the neoclassical storage model to incorporate information on future harvests while allowing for seasonal production two features important to african and other developing country grain markets the model is first developed to suit the case of the ethiopian grain markets and a general model is then stated the effects on welfare and price variability of the addition of news are discussed as well as changes in key demand and uncertainty parameters the model is shown to replicate some features of the data better than the model without news particularly the high autocorrelation in price and performs better in formal estimation however it appears that the incorporation of news still fails to explain the extreme seasonal price movements observed copyright 2004 wiley blackwell