eldercare hours work hours and perceived filial obligations in this paper we take a fresh look at the magnitude of the trade off between caring informally for a parent and paid work we adopt a simultaneous approach with a primary focus on how hours of car

too many to fail evidence of regulatory forbearance when the banking sector is weak this paper studies bank failures in 21 emerging market countries in the 1990s by using a competing risk hazard model for bank survival we show that a government is less likely to take over or close a failing bank if the banking system is weak this too many to fail effect is robust to controlling for macroeconomic factors financial crises the too big to fail effect domestic financial development and concerns due to systemic risk and information spillovers the paper also shows that the too many to fail effect is stronger for larger banks and when there is a large government budget deficit

the turnover of teachers a competing risks explanation in this paper we analyze the decision by teachers to leave the profession in a dependent competing risks framework the econometric model allows for a flexible semiparametric specification of the duration dependence structure and of the unobserved heterogeneity distribution in each exit specific hazard function our results obtained for a large sample of uk teachers affirm the importance of teacher salaries and opportunity wages in the turnover decision of teachers and illustrate the insight gained from differentiating between multiple destinations or exit types

computational economics and economic theory substitutes or complements abstract this essay examines the idea and potential of a computational approach to theory discusses methodological issues raised by such computational methods and outlines the problems associated with the dissemination of computational methods and the exposition of computational results we argue that the study of a theory need not be confined to proving theorems that current and future computer technologies create new possibilities for theoretical analysis and that by resolving these issues we will create an intellectual atmosphere in which computational methods can make substantial contributions to economic analysis

non linear target adjustment in corporate liquidity management an endogenous thresholds approach we provide new empirical evidence on nonlinear liquidity management in dutch firms our results reveal that liquidity adjustment from below the target is significantly faster than from above we find no evidence for bands of inaction around the target

married women s allocation of time to employment and care of elderly parents married women who have been shown in past research to exhibit relatively elastic labor supply constitute a group of particular interest with respect to decisions concerning time spent in parental care and time spent in market work this paper presents estimates of a simultaneousequations model of employment hours of work and the provision of care to an older parent the results provide no evidence of reduced propensities to be employed or of reduced conditional hours of work due to the provision of parent care these findings are consistent with other research on women s allocation of time to competing productive uses

exchange rate variability and asset trade in popular discussion about the merits of different international monetary arrangements it is often maintained that increased exchange rate variability has a negative influence on international tra

international financial intermediation and aggregate fluctuations under alternative exchange rate regimes this paper presents a two country overlapping generations model in which financial intermediation arises endogenously as an incentive compatible means of economizing on monitoring costs because of the existence of transactions costs money markets in the two countries are segmented and investors have differential access to international credit markets the model is used to generate predictions about the role of international intermediation in determining the nature of business cycle phenomena across alternative exchange rate regimes disturbances are propagated by a credit allocation mechanism which also lends a novel flavor to the model s long run properties

do depositors punish banks for bad behavior market discipline deposit insurance and banking crises this paper empirically investigates two issues largely unexplored by the literature on market discipline we evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline we focus on the experiences of argentina chile and mexico during the 1980s and 1990s we find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates deposit insurance does not appear to diminish the extent of market discipline aggregate shocks affect deposits and interest rates during crises regardless of bank fundamentals and investors responsiveness to bank risk taking increases in the aftermath of crises

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

privatization in eastern europe irreversibility and critical mass effects abstract this paper proposes a model to shed light on two important policy features of privatization in central and eastern europe the idea of a necessary critical mass of privatization on one hand and the great difficulties encountered in the actual privatization process on the other the model incorporates a positive externality related to the size of the private sector multiple equilibria may arise for political and economic reasons policies of free distribution are analysed with the model they may eliminate the danger of policy reversals due to excess unemployment but may at the same time increase the relative cost of restructuring leading in some cases to pareto inferior outcomes

intergenerational household formation female labor supply and informal caregiving a bargaining approach children s provision of in kind services to their elderly parents informal caregiving represents an important form of economic transfers to the elderly in this paper we develop and estimate a joint model of informal caregiving and labor force participation decisions of adult daughters who have a frail elderly parent in a broader framework of intergenerational household formation parent and daughter agree to a nash bargaining rule as the solution to the household formation and intrahousehold decision making process however rather than severed relationships the threat point is given by a noncooperative equilibrium defined in terms of voluntary contributions toward a public good the parental well being maximum likelihood parameter estimates derived from the simultaneous multiequation endogenous switching model are generally consistent with expectations our results indicate that competing demands on daughters time reduce both coresidence and informal caregiving we also find that intergenerational coresidence is an important mode of assistance to elderly persons a simulation based on the estimated parameters suggests that public programs designed to meet the long term care needs of elderly persons by subsidizing formal home care services may have substantial effects on intergenerational living and care arrangement decisions

fundamentals panics and bank distress during the depression we assemble bank level and other data for fed member banks to model determinants of bank failure fundamentals explain bank failure risk well the first two friedman schwartz crises are not associated with positive unexplained residual failure risk or increased importance of bank illiquidity for forecasting failure the third friedman schwartz crisis is more ambiguous but increased residual failure risk is small in the aggregate the final crisis early 1933 saw a large unexplained increase in bank failure risk local contagion and illiquidity may have played a role in pre 1933 bank failures even though those effects were not large in their aggregate impact

the effect of informal care on work and wages cross sectional evidence in the united states finds that informal caregivers have less attachment to the labor force the causal mechanism is unclear do children who work less become informal caregivers or are children who become caregivers working less using longitudinal data from the health and retirement study we identify the relationship between informal care and work in the united states both on the intensive and extensive margins and examine wage effects we control for time invariant individual heterogeneity rule out or control for endogeneity examine effects for men and women separately and analyze heterogeneous effects by task and intensity we find modest decreases 2 4 percentage points in the likelihood of working for male caregivers providing personal care female chore caregivers meanwhile are more likely to be retired for female care providers who remain working we find evidence that they decrease work by 3 10hours per week and face a 3 percent lower wage than non caregivers we find little effect of caregiving on working men s hours or wages these estimates suggest that the opportunity costs to informal care providers are important to consider when making policy recommendations about the design and funding of public long term care programs

caregiving to elderly parents and employment status of european mature women abstract we study the prevalence of informal caregiving to elderly parents by their mature daughters in europe and the links between parental health intense daily caregiving and the employment status of daughters we group data from share into three country pools north central and south which differ in the availability of public formal care services and female labor market attachment there is a strong north south gradient in the positive effect of parental ill health on the probability of daily caregiving the loss of employment ascribable to daily informal caregiving seems negligible except in southern countries we use a time allocation model to provide a link to an empirical iv treatment effects framework and to interpret our findings

the s l debacle public policy lessons for bank and thrift regulation this book describes the period of failures of savings and loan associations and sets out a program of policies to prevent future debacles it explains the regulatory actions and inactions that created the incentives for large numbers of thrifts to make excessively risky and ill conceived and in some cases fraudulent and criminal investments it describes the failure of the accounting system to provide adequate information to regulators and in many cases even to the managers of the thrifts themselves concerning the health and riskiness of individual thrifts it also discusses how the regulatory system that had been conceived in an earlier and highly regulated era was overwhelmed in the deregulated environment of the early 1980s it shows how the reforms that were made in response to the growing crisis were too little and too late and finally it offers a set of policy reforms that could prevent future crises in the savings and loan industry this work should be of interest to political and financial economists

the state dependent impact of bank exposure on sovereign risk abstract the theoretical literature remains inconclusive on whether changes in bank exposure to the domestic sovereign have an adverse effect on the sovereign risk position through a diabolic loop in the sovereign bank nexus or reduce perceived default risk by acting as a disciplinary device for the sovereign in this paper we empirically analyze the impact of exogenous changes in bank exposure on the risk position of the sovereign within a markov switching structural vector autoregressive in heteroscedasticity msh svar framework for a set of emu countries we add to the methodological literature by allowing for regime dependent shock transmissions according to the volatility state of the financial system finding support for both a stabilizing and a destabilizing effect we document a clear clustering among the country sample rising bank exposure increased default risk for the emu periphery but decreased credit risk for the core emu countries during times of financial stress

opaque bank assets and optimal equity capital abstract banks assets are opaque and therefore we model their true accounting asset values as partially observed variables we derive a stochastic control model to optimize banks dividend and recapitalization policies in this situation and calibrate that to a sample of u s banks by the calibrated model the noise in reported accounting asset values hides about one third of the true asset return volatility and raises the banks market equity value by 7 8 particularly those banks with a high level of loan loss provisions nonperforming assets and real estate loans and with a low volatility of reported total assets have noisy accounting asset values because of the substantial shock on the true asset values the banks assets were more opaque during the recent financial crisis

mortgage terminations heterogeneity and the exercise of mortgage options as applied to the behavior of homeowners with mortgages option theoiy predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount our analysis tests the extent to which the option approach can explain default and prepayment behavior evaluates the practical importance of modeling both options simultaneouisly and models the unobserved heterogeneity of borrowers in the home mortgage market the paper presents a uinified model of the competing risks of mortgage termination by prepayment and default considering the two hazards as dependent competing risks that are estimated jointly it also accounts for the unobserved heterogeneity among borrowers and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions our results show that the option model in its most straightfolward version does a good job of explaininig default and prepayment but it is not enouigh by itself the simultaneity of the options is very important empirically in explaining behavior the results also show that there exists significant heterogeneity among mortgage borrowers ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

how does the stock market view bank regulatory capital forbearance policies during the subprime crisis the fdic has shown once again laxity in resolving and closing insolvent institutions ronn and verma 1986 call the tolerance level below which a bank closure is triggered the regulatory policy parameter we derive a model in which we make this parameter stochastic and bank specific to infer the stock market view of the regulatory capital forbearance value for 565 u s listed banks during 1990 to 2012 the countercyclical forbearance fraction in capital most substantial in recessions could represent 17 on average of the market valuation of bank equity and could go as high as 100

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

fire sale fdi or business as usual motivated by a set of stylized facts we develop a model of cross border mergers and acquisitions ma 2 the proportion of foreign acquisitions in the same industry is lower 3 the average size of ownership stakes is lower and 4 the duration of acquisitions is lower i e acquisition stakes are more likely to be flipped we find support for 1 but not for the other three predictions the results thus suggest that foreign acquisitions in emerging markets do not differ in these important ways between crisis and normal periods

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

state dependence serial correlation and heterogeneity in intertemporal labor force participation of married women a dynamic search framework is developed to analyze the intertemporal labor force participation behavior of married women using longitudinal data to allow for a rich dynamic structure the sensitivity to alternative distributional assumptions is evaluated using linear probability and probit models the dynamic probit models are estimated using maximum simulated likelihood msl estimation to overcome the computational difficulties inherent in maximum likelihood estimation of models with nontrivial error structures the results find that participation decisions are characterized by significant state dependence unobserved heterogeneity and negative serial correlation in the error component the hypothesis that fertility decisions are exogenous to women s participation decisions is rejected when dynamics are ignored however there is no evidence against this hypothesis in dynamic model specifications women s participation response is stronger to permanent than current nonlabor income reflecting unobserved taste factors

inertial credit and opportunistic arrears in transition in a transition economy enterprise restructuring may exhibit a laffer curve response to tighter credit as a result of rational collective inertia in the presence of a rigid production structure unenforceable contracts and high adjustment costs a contraction in credit finance subtracts more liquidity than enterprises can generate internally because unrestructured firms are forced to extend trade credit to illiquid buyers an increase in their number increases the availability of forced supplier credit in turn increasing the attractiveness of inertial behavior as trade credit cannot be enforced a critical mass of trade and wage arrears causes pressure for a collective bailout thus validating inertial behavior even by reformable firms

domestic or global imbalances rising income risk and the fall in the us current account when default leads to exclusion from financial markets the implied loss of consumption smoothing opportunities is more costly when income volatility is high a rise in income risk thus makes default less attractive allowing creditors to relax borrowing limits i show how in an open economy this endogenous financial deepening may reduce aggregate foreign assets in response to a rise in individual income risk against the precautionary savings intuition conditions for this depend on whether default constrains complete or uncontingent contracts the post 1980 rise in us household income risk strongly reduces foreign assets when domestic markets are complete or world interest rates low

systemic risks and the too big to fail problem the financial crisis of 2007 9 resulted in state intervention in financial markets around the world and the state became a major shareholder in many banks while state bailouts were politically sensitive policy makers had little alternative but to supply funds to financial institutions that were viewed as too big to fail or tbtf in this paper i review the history of and the rationale for the tbtf policy i argue that from a policy perspective the most important costs of the tbtf problem are incurred ex ante in the form of distorted incentives that arise as a consequence of distortions to the capital markets and to the choice of banks scale and scope i argue that it is impossible credibly to withdraw the tbtf policy and hence that it should be managed so as to minimize the costs of these distortions in this context i discuss the role of policy in institutional design in the restriction of bank scope and in designing appropriate capital regulations

bank valuation and accounting discretion during a financial crisis this paper shows that banks overstate the value of distressed assets and their regulatory capital during the us mortgage crisis real estate related assets are overvalued in banks balance sheets especially those of bigger banks compared to the market value of these assets banks with large exposure to mortgage backed securities also provision less for bad loans furthermore distressed banks use discretion over the classification of mortgage backed securities to inflate their books our results indicate that banks balance sheets offer a distorted view of the financial health of the banks and provide suggestive evidence of regulatory forbearance and noncompliance with accounting rules

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

flexible parametric estimation of duration and competing risk models in this paper we specify and estimate a flexible parametric proportional hazards model the model specification is flexibly parametric in the sense that the baseline hazard is non parametric while the effect of the covariates takes a particular functional form we also add parametric heterogeneity to the underlying hazard model specification we specify a flexible parametric proportional competing risks model which permits unrestricted correlation among the risks unemployment duration data are then analysed using the flexible parametric duration and competing risks specifications we find an important effect arising from the exhaustion of unemployment insurance and significantly different hazards for the two types of risks new jobs and recalls

dynamic labour force participation of married women and endogenous work experience this paper presents and estimates a dynamic model of married women s labour force participation and fertility in which the effect of work experience on wages is explicitly taken into account because current participation alters future potential earnings the investment return to work will be an important factor in the current work decision in any forward looking behavioural model the model is estimated using the national longitudinal surveys mature women s cohort we use the estimates of our model to predict changes in the lifecycle patterns of employment due to changes in schooling fertility husband s income and the magnitude of the experience effect on wages we find that although work experience increases the disutility of further work the effect is overwhelmed by the positive effect of experience on wages leading to persistence in the employment patterns of these women in addition we find that an increase in young children and in husband s income substantially reduces participation while increased schooling has a powerful positive impact on participation this paper presents an estimable structural dynamic model of married women s labour force participation and fertility in which wages are stochastic and work experience or cumulative participation is endogeneous the model is structural in the sense that the parameters which are estimated are contained in the fundamental relationships governing behaviour namely the utility function and the constraints the model is contained in the class of models which describe the life cycle capital accumulation process with endogeneous labour supply such as weiss 1972 and heckman 1976 it is closest in spirit to that of weiss and gronau 1981 1 the basic feature of their model and ours is that labour market participation affects future wages which then affects future participation the investment return to current work will necessarily be taken into account in any forward looking optimizing model as weiss and gronau note estimates of labour supply models have ignored the inherent behavioural dynamics associated with a positive wageexperience profile there is no adequate empirical treatment of the human capital investment dimension of the labour force participation decision in the literature heckman and willis 1977 have studied a sequential discrete choice model of the labour force participation of married women in a reduced form framework their work

do lenders favor politically connected firms rent provision in an emerging financial market corruption by the politically connected is often blamed for economic ills particularly in less developed economies using a loan level data set of more than 90 000 rms that represents the universe of corporate lending in pakistan between 1996 and 2002 we investigate rents to politically connected rms in banking classifying a rm as political if its director participates in an election we examine the extent nature and economic costs of political rent provision we nd that political rms borrow 45 percent more and have 50 percent higher default rates such preferential treatment occurs exclusively in government banks private banks provide no

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

your next of kin or your own career caring and working among the 50 of europe an increasing demand for both formal and informal care is likely to result from the ongoing demographic transition at the same time as there is a further move away from the traditional domestic division of labour public policy making that aims at increasing the supply of informal care necessitates knowledge about the relative importance of various incentives for individual care providers this paper takes as a point of departure that the willingness to supply informal care is partly explained by the extent to which it adversely affects labour market outcomes and analyses the effect on labour market outcomes of providing informal care to one s elderly parent s among the 50 of europe data from share survey of health ageing and retirement in europe was used to examine the association between on the one hand hours of informal care provided and on the other 1 the probability of employment 2 hours worked and 3 wages respectively the results suggest that giving informal care to one s elderly parents is associated with significant costs in terms of foregone labour market opportunities and that these adverse effects vary between countries

investment cash flow sensitivities are useful a comment on kaplan and zingales arecent paper in this journal by kaplan and zingales reexamines a subset of erms from work of fazzari hubbard and petersen and criticizes the usefulness of investment cash eow sensitivities for detecting enancing constraints we show that the kaplan and zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique moreover we describe why their empirical classiecation system is eawed in identifying both whether erms are constrained and the relative degree of constraints across erm groups we conclude that their results do not support their conclusions about the usefulness of investment cash eow sensitivities in a recent paper in this journal kaplan and zingales 1997 hereinafter kz argue that investment cash eow sensitivities do not provide useful evidence about the presence of enancing constraints because kz use a subset of the same erms and the same regressions as fazzari hubbard and petersen 1988 hereinafter fhp and claim page 176 that fhp can legitimately be considered the parent of all papers in this literature it is appropriate that we respond based on a simple theoretical model kz reach the provocative conclusion page 211 that the investment cash eow sensitivity criterion as a measure of enancial constraints is not well grounded in theory in section i we show that the kz model does not capture the theoretical approach employed in fhp and many subsequent studies most of the kz paper attempts to show that empirical investment cash eow sensitivities do not increase monotonically with the degree of enancing constraints within the 49 low dividend erms from the fhp sample in section ii we explain why the kz classiecation of the degree of constraints is eawed in identifying both whether or not erms are constrained absolute constraints as well as the relative degree of constraints across erms as a result we argue in section iii that there is no expected ex ante pattern for the

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

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

dynamic wage and employment effects of elder parent care this article formulates and estimates a dynamic discrete choice model of elder parent care and work to analyze how caregiving affects a woman s current and future labor force participation and wages the model incorporates parental health changes human capital accumulation and job offer availability the estimates indicate that women face low probabilities of returning to work or increasing work hours after a caregiving spell i use the estimated model to simulate the caregiving employment and welfare effects of a longer unpaid work leave than currently available under the family and medical leave act a paid leave and a caregiver allowance

what drives long term capital flows a theoretical and empirical investigation abstract what drives capital inflows in the long run this paper illustrates how capital movements conform surprisingly well to the predictions of a neoclassical model with credit constraints the most intriguing prediction of this class of models is that contrary to a pure neoclassical model domestic saving should act as a complement rather than a substitute to capital inflows nevertheless this class of models keeps the neoclassical prediction that capital should flow to countries where it is most scarce using foreign debt data from 1970 to 1998 i find qualitative and quantitative evidence that supports these predictions

bank bailouts and moral hazard evidence from germany we use a structural econometric model to provide empirical evidence that safety nets in the banking industry lead to additional risk taking to identify the moral hazard effect of bailout expectations on bank risk we exploit the fact that regional political factors explain bank bailouts but not bank risk the sample includes all observed capital preservation measures and distressed exits in the german banking industry during 1995 2006 a change of bailout expectations by two standard deviations increases the probability of official distress from 6 6 to 9 4 which is economically significant

unemployment insurance rules joblessness and part time work developed and under general conditions an increase in the disregard is shown to increase both the part time and overall re employment hazards data from the current population survey s displaced worker supplements are used to test these predictions estimates from a competing risks model with correlated risks and time varying coefficients shows that increasing the disregard significantly increases the conditional probability of part time re employment during the first three months of joblessness

the great divide and beyond financial architecture in transition a growing and deepening divide has opened up between transition countries where economic development has taken off and those caught in a vicious cycle of institutional backwardness and macroeconomic instability this great divide is visible in almost every measure of economic performance gdp growth investment government finances growth in inequality general institutional infrastructure and increasingly in measures of financial development strategies for financial development have differed dramatically across countries and over time offering interesting opportunities to study the links between real and financial sector development

strategic play among family members when making long term care decisions this paper describes a strategic model of bargaining within a family to determine how to care for an elderly parent we estimate the parameters of the model using data from the national long term care survey we find that the parameter estimates generally make sense and that the model is consistent with the data the results have strong implications for using less structural empirical models for policy analysis

could good intentions backfire an empirical analysis of the bank deposit insurance the recent financial crisis led to the expansion of deposit insurance coverage in many countries we develop a structural model of the banking market in which banks act as financial intermediaries between consumers who have funds and businesses that seek loans and explore the implications of such policies for banks and depositors our results indicate the policy could erode market discipline and increase banks moral hazard as a result banks extend their lending to riskier loans than they would have in the absence of the policy we find this policy may even harm consumers moreover market competition magnifies the lack of market discipline and induces additional moral hazard for excessive risk taking counterfactuals indicate banks may reduce their deposit interest rates by 2 7 in a duopoly market and almost triple their risk caps under the new policy the estimated losses of depositors welfare are equivalent to at least a 3 27 drop in deposit interest rates data are available at https doi org 1

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

strategic models of sovereign debt renegotiations the sovereign debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter this paper explores that assumption by analyzing three game theoretic models of debt renegotiations in two of the models both of which are built on the traditional one sector growth model all the subgame perfect equilibria have an extreme form in which the game s surplus is captured by the creditor the third game has many subgame perfect equilibria that do not have this feature however the roles of various assumptions in all three games are examined

how good is the market at assessing bank fragility a horse race between different indicators abstract we explore for individual banks active in the east asian countries during the years 1996 1998 the performance of three sets of indicators of bank fragility that can be computed from publicly available information accounting data stock market prices and credit ratings we find significantly different patterns among the three groups of indicators in their ability of forecasting financial distress at a specific point in time and over time more specifically in the east asia crisis episode the information based on stock prices or on judgmental assessments of credit rating agencies did not outpace backward looking information contained in balance sheet data stock market based information though has responded more quickly to changing financial conditions than ratings of credit risk agencies overall the evidence supports the policy conclusion that where the information processing is quite costly as in most developing countries it is important to use simultaneously a plurality of indicators to assess bank fragility

the politics of bank failures evidence from emerging markets this paper studies large private banks in 21 major emerging markets in the 1990s it first demonstrates that bank failures are very common in these countries about 25 percent of these banks failed during the seven year sample period the paper also shows that political concerns play a significant role in delaying government interventions to failing banks failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after this result is robust to controlling for macroeconomic and bank specific factors a new party in power early elections outstanding loans from the imf as well as country specific time independent factors this finding implies that much of the within country clustering in emerging market bank failures is directly due to political concerns

deposit insurance a reconsideration abstract this paper undertakes a simple general equilibrium analysis of the consequences of deposit insurance programs the way in which they are priced and the way in which they fund revenue shortfalls in our economy the central issue in analyzing deposit insurance is how the government will make up any fdic losses deposit insurance premia matter only in so far as they affect the level of implied fdic revenue shortfalls moreover local variations in the magnitude of fdic losses will generically be irrelevant for the determination of any equilibrium quantities that affect agent welfare however large enough changes in these losses can matter there is no presumption that keeping these shortfalls low is a good idea finally we show that multiple pareto ranked equilibria can be observed the potential for multiplicity of equilibria may depend on components of fdic policy our analysis provides counterexamples to the following propositions 1 actuarially fair pricing of deposit insurance is always desirable 2 implicit fdic subsidization of banks through deposit insurance is always undesirable 3 large fdic losses are necessarily symptomatic of a poorly designed deposit insurance system 4 risk based deposit insurance premia can easily be used to reduce moral hazard problems associated with deposit insurance provision

liquidity shortages and banking crises we show in this article that bank failures can be contagious unlike earlier work where contagion stems from depositor panics or contractual links between banks we argue that bank failures can shrink the common pool of liquidity creating or exacerbating aggregate liquidity shortages this could lead to a contagion of failures and a total meltdown of the system given the costs of a meltdown there is a possible role for government intervention unfortunately liquidity and solvency problems interact and can cause each other making it hard to determine the cause of a crisis we propose a robust sequence of intervention banks are often found at the center of systemic financial crises the causes of these crises have long been debated do they stem from depositor panics or do they arise because bank balance sheets are exposed to common factors if it is the latter then is there any sense in which bank failures can be contagious can anything be done to prevent these crises or stop them from propagating once they begin our purpose in this paper is to reexamine whether bank failures can start and propagate systemic crises even if we assume that depositors do not panic that is even if depositors actions are coordinated and they do not run simply because they fear others will run our focus is not because we think that panics are empirically unimportant the jury is still out on that instead we show that contagion can stem from an underlying real general equilibrium problem rather than just from lack of coordination among depositors from a policy perspective attempts to reassure investors through confidence building measures will not work if panic and lack of coordination are not the reasons for a crisis we begin in this paper with a model of a bank that we developed in diamond and rajan 2001 assets in this model are illiquid they cannot be borrowed against or sold for the full value of resources they will generate in their best use because the human capital necessary to generate that full value cannot

a computational approach to liquidity constrained firms over an infinite horizon abstract this paper examines the behavior of liquidity constrained firms in a time series it illustrates that cash shortage expectations induce a firm to hold liquid assets which reveal a nonlinear relationship with the degree of financing constraints this paper also argues that financial constraints could create serial correlation in a firm s internal funds even if exogenous shocks last for a single period of time

the dynamic effects of firm level borrowing constraints in this paper i develop a detailed dynamic model of firm behavior in order to see whether financial constraints and endogenous exit are important propagation mechanisms to do this i construct an economy where firms face financial constraints fixed costs and persistent idiosyncratic shocks using numerical methods i analyzehowa large collection of these firmsresponds to aggregate productivity shocks a common result is that financial constraints tend to dampen the economy s initial response to aggregate productivity shocks but equity accumulation and exit dynamics amplify the longer term response the relative sizes of these two effects however are sensitive to firms environments

informal care and long term labor market outcomes in this paper we estimate long run effects of informal care provision on female caregivers labor market outcomes up to eight years after care provision we compare a static version where average effects of care provision in a certain year on later labor market outcomes are estimated to a partly dynamic version where the effects of up to three consecutive years of care provision are analyzed our results suggest that there are significant initial negative effects of informal care provision on the probability to work full time the reduction in the probability to work full time by 4 percentage points or 2 4 5 0 if we move from point to partial identification is persistent over time short run effects on hourly wages are zero but we find considerable long run wage penalties

bank recapitalization regulatory intervention and repayment we use prudential supervisory data for all german banks during 1994 2010 to test if regulatory interventions affect the likelihood that bailed out banks repay capital support accounting for the selection bias inherent in nonrandom bank bailouts by insurance schemes and the endogenous administration of regulatory interventions we show that regulators can increase the likelihood of repayment substantially an increase in intervention frequencies by one standard deviation increases the annual probability of capital support repayment by 7 sturdy interventions like restructuring orders are effective whereas weak measures reduce repayment probabilities intervention effects last up to 5 years

politicians and banks political influences on government owned banks in emerging markets abstract government ownership of banks is very common in countries other than the united states this paper provides cross country bank level empirical evidence about political influences on these banks it shows that government owned banks increase their lending in election years relative to private banks this effect is robust to controlling for country specific macroeconomic and institutional factors as well as bank specific factors the increase in lending is about 11 of a government owned bank s total loan portfolio or about 0 5 of the median country s gdp per election per government owned bank

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

contagion and bank failures during the great depression the june 1932 chicago banking panic the authors examine the social costs of asymmetric information induced bank panics in an environment without government deposit insurance their case study is the chicago bank panic of june 1932 the authors compare the ex ante characteristics of panic failures and panic survivors despite temporary confusion about bank asset quality on the part of depositors during the panic which was associated with widespread depositor runs and bank stock price declines the panic did not produce significant social costs in terms of failures among solvent banks copyright 1997 by american economic association

the recall and new job search of laid off workers a bivariate proportional hazard model with unobserved heterogeneity workers who lose their jobs can become re employed either by being recalled to their previous employers or by finding new jobs workers chances for recall should influence their job search strategies so the rates of exit from unemployment by these two routes should be directly related we solve a job search model to establish in theory a negative relationship between the recall and new job hazard rates we look for evidence in the psid by estimating a semi parametric competing risks model with explicitly related hazards we find only a small negative behavioral relationship between recall and new job hazard rates

competition policy in banking this paper summarizes some of the arguments relating competition and banking instability draws connections between regulation and competition policy and surveys and analyses the role of competition policy in the banking sector in a financial crisis it is argued that a trade off between competition and stability is bound to persist despite improvements in regulation that the banking sector specificity should be recognized by competition policy and that competition policy and regulation need close coordination copyright 2011 oxford university press

international lending with moral hazard and risk of repudiation in this paper i examine the constrained optimal pattern of capital flows between a lender and a borrower in an environment in which there are two impediments to forming contracts the first impediment to contracting arises from the assumption that lenders cannot observe whether borrowers invest or consume borrowed funds this assumption leads to a moral hazard problem in investment the second impediment arises from the assumption that the borrower as a sovereign nation may choose to repudiate his debts the optimal contract is shown to specify that the borrowing country experience a capital outflow when the worst realizations of national output occur this seemingly perverse capital outflow forms a necessary part of the optimal solution to the moral hazard problem in investment

elections political competition and bank failure abstract we exploit exogenous variation in the scheduling of gubernatorial elections to study the timing of bank failure in the us using hazard analysis we show that bank failure is about 45 less likely in the year leading up to an election political control i e lack of competition can explain all of this average election year fall in the hazard rate in particular we show that the reduction in hazard rate doubles in magnitude for banks operating in states where the governor has simultaneous control of the upper and lower houses of the state legislature i e complete control heading into an election

natural natural experiments in economics the recent literature exploiting natural events as natural experiment instruments is reviewed to assess to what extent it has advanced empirical knowledge a weakness of the studies that adopt this approach is that the necessary set of behavioral market and technological assumptions made by the authors in justifying their interpretations of the estimates is often absent the methodology and findings from twenty studies are summarized and simple economic models are used to elucidate the implicit assumptions made by the authors and to demonstrate the sensitivity of the interpretations of the findings to the relaxation of some of these assumptions

regulatory incentives and the thrift crisis dividends mutual to stock conversions and financial distress during the 1980s insolvency of individual thrifts and the thrift deposit insurer created severe incentive problems lacking cash to close insolvent thrifts regulators induced nearly 10 billion of private capital to flow into the industry through mutual to stock conversions we test a theory of how regulators encouraged capitalimpaired mutual thrifts to convert by permitting them to pay dividends rather than rebuild capital we estimate the costs of this policy and interpret the 1991 federal deposit insurance corporation improvement act as requiring regulators to impose restraints on depository institutions parallel to debt covenants that prevent capital distributions by nonfinancial firms experiencing distress