boom and bust cycles external imbalances and the real exchange rate when the current account balance and net capital outflows do not exactly offset each other international payment flows arise payment flows into a country push the real exchange rate up payment outflows push it down this article uses a model of optimal consumption and portfolio choice to determine the factors that drive international payment flows during boom and bust cycles it shows that during such episodes capital inflows first exceed the deficit on current account strengthening the currency later on when the return on domestic capital reverts to its normal level the current account recovers yet the overall decline of the net foreign asset position provokes a fall of the real exchange rate even below its initial level case studies of countries experiencing rapid economic expansions followed by economic and financial meltdowns confirm the article s theoretical predictions

what drives capital flows to emerging markets a survey of the empirical literature this paper reviews the rapidly growing empirical literature on the drivers of capital flows to emerging markets the empirical evidence is structured based on the recognition that the drivers of capital flows vary over time and across different types of capital flows the drivers are classified using the traditional push vs pull framework which is augmented by a distinction between cyclical and structural factors push factors are found to matter most for portfolio flows somewhat less for banking flows and least for fdi pull factors matter for all three components but most for banking flows a historical perspective suggests that the recent literature may have overemphasized the importance of cyclical factors at the expense of longer term structural trends

heterogeneous effects of competitiveness shocks on macroeconomic performance across euro area countries this paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries var models are estimated for the individual countries using quarterly data from 1995q4 to 2013q4 besides unit labour costs as a competitiveness measure the models include gdp the current account balance and domestic credit the empirical analyses show that changes in unit labour costs help explain gdp dynamics in the short and medium term in most countries whereas they have little explanatory power for the current account balance or domestic credit for most countries overall the effects of the unit labour costs vary substantially across the countries in the euro area the heterogeneity suggests that policy measures aiming to improve economic growth correct current account imbalances and ensure financial stability need to take country specific features into account

securitized markets international capital flows and global welfare we study the effect of collateralized lending and securitization on the global supply of securitized assets welfare and international net and gross capital flows in a two country general equilibrium model with idiosyncratic investment risk the financial sectors in the two countries home and foreign differ by the collateral requirement for investment loans with home requiring lower margins in autarky home endogenously supplies more assets and enables more risk sharing upon financial integration capital flows from foreign to home leading to lower interest rates and an increase in the global supply of assets foreign enjoys substantial welfare gains through better risk sharing and portfolio reallocation while the welfare experience for home is ambiguous gross capital flows arise when agents face aggregate shocks to the expected payoff to investment projects but can collapse when shocks concern the variance of returns

a prelaunch diffusion model for evaluating market defense strategies this paper describes the development and application of a marketing model to help set an incumbent s defensive marketing strategy prior to a new competitor s launch the management problem addressed is to assess the market share impact of a new entrant in the residential australian long distance telephone call market and determine the factors that would influence its dynamics and ultimate market appeal the paper uses probability flow models to provide a framework to generate forecasts and assess the determinants of share loss we develop models at two levels of complexity to give both simple robust forecasts and more detailed diagnostic analysis of the effect of marketing actions the models are calibrated prior to the new entrant s launch enabling preemptive marketing strategies to be put in place by the defending company the equilibrium level of consideration of the new entrant was driven by respondents strength of relationship with the defender and inertia while trial was more price based continued use of the defender depends on both service factors and price the rate at which share loss eventuates is negatively related to the defender s perceived responsiveness saving money being the only reason to switch and risk aversion prelaunch model forecasts validated six months after launch using both aggregate monthly sales data and detailed tracking surveys are shown to closely follow the actual evolution of the market the paper provides a closed form multistate model of the new entrant s diffusion a methodology for the prelaunch calibration of dynamic models in practice and insights into defensive strategies for existing companies facing new entrants

the global credit boom challenges for macroeconomics and policy the recent financial crisis has put the spotlight on the rapid rise in credit which preceded it in this paper we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed we find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place we show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that while the global savings glut may account for the cycle s initial phase other factors such as the conduct of monetary policy and perceptions of declining macroeconomic risk were more important from the mid 2000s onwards we conclude by identifying some of the challenges now facing macroeconomics and policy

hoarding of international reserves in china mercantilism domestic consumption and us monetary policy abstract we develop a two country two period model able to reproduce the key qualitative aspects of the us china co dependency and imbalances as the result of the chinese and american authorities pursuing different but complementary objectives we show that a mercantilist reserve hoarding has served well the chinese policy goals fast gdp expansion and labor mobilization and has been compatible with the us ones high households consumption if the us authorities keep monetary policy sufficiently loose thus reducing the real value of the us liabilities held by china this latter finds less tempting to stop financing the us external deficit appreciate the currency and increase consumption on the contrary if the policy goals in china change from the maximization of gdp growth to higher households standards of living a rebalancing process may be ignited we then discuss the model and its theoretical predictions also in light of the five year plans approved by the chinese ruling party

a choice model for packaged goods dealing with discrete quantities and quantity discounts utility maximizing solutions to economic models of choice for goods with either discrete quantities or non linear prices cannot always be obtained using standard first order conditions such as kuhn tucker and roy s identity when quantities are discrete there is no guarantee that derivatives of the utility function are equal to derivatives of the budget constraint moreover when prices are nonlinear as in the case of quantity discounts first order conditions can be associated with the minimum rather than the maximum value of utility in these cases the utility function must be directly evaluated to determine its maximum this evaluation can be computationally challenging when there exist many offerings and when stochastic elements are introduced into the utility function in this paper we provide an economic model of demand for substitute brands that is flexible parsimonious and easy to implement the methodology is demonstrated with a scanner panel data set of light beer purchases the model is used to explore the effects of price promotions on primary and secondary demand and the utility of product assortment

is 75 of the sales promotion bump due to brand switching no only 33 is abstract several researchers have decomposed sales promotion elasticities based on household scanner panel data a key result is that the majority of the sales promotion elasticity approximately 74 on average is attributed to secondary demand effects brand switching and the remainder is attributed to primary demand effects timing acceleration and quantity increases the authors demonstrate that this result does not imply that if a brand gains 100 units in sales during a promotion the other brands in the category lose 74 units the authors offer a complementary decomposition measure based on unit sales the measure shows the ratio of the current cross brand unit sales loss to the current own brand unit sales gain during promotion the authors report empirical results for this measure they also derive analytical expressions that transform the elasticity decomposition into a decomposition of unit sales effects these expressions show the nature of the difference between the two decompositions to ga

bank integration and co movements across housing markets this paper investigates whether bank integration measured by cross border bank flows can capture the co movements across housing markets in developed countries by using a spatial dynamic panel model the transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks changes in financial conditions are passed across borders through the banks balance sheet exposure to credit currency maturity and funding risks resulting in house price spillovers while controlling for country level and global factors we find significant co movement across housing markets of countries with proportionally high bank integration bank integration can better capture house price co movements than other measures of economic integration once we account for bank exposure other spatial linkages traditionally used to account for return co movements across region such as trade foreign direct investment portfolio investment geographic proximity etc become insignificant moreover we find that the co movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts low limits of loan to value ratios and no mortgage equity withdrawal

fickle capital flows and retrenchment evidence from bilateral banking data abstract we empirically examine the response of cross border capital flows to economic uncertainty using bilateral banking flow data we show that while banks reduce their exposure to a foreign country when it becomes more risky they tend to increase their exposure to their home country in bad times a retrenchment to further understand this puzzle we examine how the differential response to foreign and domestic uncertainty is affected by country specific characteristics bilateral characteristics and crises our analysis suggests that most of the current theories based on either information asymmetries between foreign and domestic investors or institutional risk cannot explain bilateral data well on the other hand our results show that global crises have an asymmetric impact on the risk attitudes of banking institutions towards country specific uncertainty global crises make investors more risk averse towards foreign uncertainty but have no effect on the responsiveness to domestic uncertainty

market roll out and retailer adoption for new brands this paper proposes a descriptive model of the spatial and temporal evolution of retail distribution for new packaged goods the distribution model postulates separate processes for local market entry by manufacturers and adoption by retailers given entry of special interest is whether retail adoption occurs along a competitive network with retailers as nodes and overlapping trade areas of these retailers as links the model is calibrated on data covering the introduction of two very successful new brands in the frozen pizza category for these brands manufacturers sequentially enter markets based on spatial proximity to markets already entered spatial evolution and on whether chains in these markets adopted previously elsewhere market selection a retail chain adopts new brands based on the adoption timing of competing chains within its trade territory competitive contagion and on the fraction of its trade area in which the new brand is available trade area coverage the effects of market selection and of trade area coverage create dependencies between market entry and retail adoption because of these dependencies the attraction of a particular market as a lead market depends on its location in the geographic structure of the u s retail trade

securitization and moral hazard evidence from credit score cutoff rules abstract a growing literature exploits credit score cutoff rules as a natural experiment to estimate the moral hazard effect of securitization on lender screening however these cutoff rules can be traced to underwriting guidelines for originators not for securitizers moreover loan level data reveal that lenders change their screening at credit score cutoffs in the absence of changes in the probability of securitization credit score cutoff rules thus cannot be used to learn about the moral hazard effect of securitization on underwriting by showing that this evidence has been misinterpreted our analysis should move beliefs away from the conclusion that securitization led to lax screening

debt deleveraging and the exchange rate abstract deleveraging from high debt can provoke deep recession with significant international side effects swings in the nominal exchange rate and large variations in consumption output and terms of trade can happen during the adjustment all these movements are inefficient and interesting trade offs emerge from the perspective of global welfare the optimal adjustment to global imbalances should not necessarily require large movements in the nominal exchange rate a global liquidity trap can be desirable when countries are more open to trade

financial integration and growth in a risky world abstract we revisit the debate on the benefits of financial integration in a two country neoclassical growth model with aggregate uncertainty the framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing together with their interaction global numerical methods allow for meaningful welfare comparisons gains from integration are quantitatively small even for riskier and capital scarce emerging economies these countries import capital for efficiency reasons before exporting it for self insurance leading to capital flows and growth reversals along the transition this opens the door to richer empirical implications than previously considered in the literature

financial flows financial crises and global imbalances abstract in this lecture i document the proliferation of gross international asset and liability positions and discuss some consequences for individual countries external adjustment processes and for global financial stability in light of the rapid growth of gross global financial flows and the serious risks associated with them one might wonder about the continuing relevance of the net financial flow measured by the current account balance i argue that global current account imbalances remain an essential target for policy scrutiny for financial as well as macroeconomic reasons nonetheless it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities

uncertainty and cross border banking flows abstract while global uncertainty measured by the vix has proven to be a robust global push factor of international capital flows there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows this paper examines the effects of higher country specific uncertainty on cross border banking flows using data from the bank for international settlements locational banking statistics the bilateral structure of this data allows disentangling supply factors from demand factors thereby helping identify the effect of higher uncertainty on cross border banking flows from other confounding factors the results of this analysis suggest that i uncertainty in a source country domestic economy is both a lender specific push and pull factor that robustly predicts a decrease in outflows cross border lending and inflows cross border borrowing ii the decline in cross border borrowing is larger than the decline in cross border lending that is the net cross border position of the banking sector increases iii despite a decline in cross border bank lending in the absolute sense the share of cross border bank lending in total bank lending increases suggesting a portfolio rebalancing iv this rebalancing occurs only when banks are lending to borrowers in advanced economies but not to those in emerging market economies

on the centrality of the current account in international economics abstract the current account occupies a central position in international economics and policy debates indeed in g20 policy debates the term global imbalances is treated as almost synonymous with current account imbalances current account imbalances do matter and they can be a problem but this speech argues that this centrality is not that helpful in understanding how the global economy works especially in a world of free and huge capital flows and it may even lead to the wrong policy prescriptions including not paying sufficient attention to potentially more disruptive financial imbalances a key reason is that analytically the current account is asked to shed light on issues for which it is ill suited such as the amount of financing a country gets from or provides to others the direction of that financing who lends to whom financial instability and the determination of equilibrium interest rates through the familiar saving investment approach

wheels within wheels within wheels the importance of capital inflows in the origin of the spanish financial crisis with the creation of the euro the spanish economy established an exchange rate regime similar to that adopted by many emerging economies during the 1990s at the same time the eurozone as a whole adopted a currency system with features similar to the us currency regime in emerging economies as in the us economy the adoption of these models was accompanied by strong growth in capital inflows as well as severe financial mostly banking and or macroeconomic mostly trade imbalances several authors have linked capital inflows with imbalances as cause and effect this work uses some of those arguments along with statistical data on the characteristics and evolution of capital inflows registered by the spanish economy and by the eurozone as a whole in order to propose a causal link between post euro exchange rate regimes adopted in spain capital inflows and the imbalances that preceded the financial crisis of 2008

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

logit demand estimation under competitive pricing behavior an equilibrium framework discrete choice models of demand have typically been estimated assuming that prices are exogenous since unobservable to the researcher product attributes such as coupon availability may impact consumer utility as well as price setting by firms we treat prices as endogenous specifically prices are assumed to be the equilibrium outcomes of nash competition among manufacturers and retailers to empirically validate the assumptions we estimate logit demand systems jointly with equilibrium pricing equations for two product categories using retail scanner data and cost data on factor prices in each category we find statistical evidence of price endogeneity we also find that the estimates of the price response parameter and the brand specific constants are generally biased downward when the endogeneity of prices is ignored our framework provides explicit estimates of the value created by a brand i e the difference between consumers willingness to pay for a brand and its cost of production we develop theoretical propositions about the relationship between value creation and competitive advantage for logit demand systems and use our empirical results to illustrate how firms use alternative value creation strategies to accomplish competitive advantage

nominal revaluation of cross border assets terms of trade changes international portfolio diversification and international risk sharing 1 introduction all nominal assets are subject to nominal risks the real value of nominal debt decreases under inflation in open economies nominal cross border assets are subject to nominal risks such as inflation risks and exchange rate risks that is when the price level and exchange rates fluctuate unexpectedly the real value and real interest income of nominal cross border assets change and wealth is redistributed internationally this is called the nominal revaluation of cross border assets 1 this international wealth redistribution or international wealth transfer is enormous when substantial nominal cross border assets are held in major industrial countries foreign assets and liabilities have reached their gdp levels holdings of foreign assets by the united states were 73 of its gdp and its foreign liabilities were 95 in 2000 the ratios for the united kingdom were even larger 260 and 276 respectively in 1999 2 in these circumstances substantial wealth is transferred internationally through the nominal revaluation of cross border assets in the united kingdom the annual average of this wealth redistribution was more than 5 of its annual gdp during the period 1987 2000 3 this nominal revaluation of cross border assets can work as international risk sharing under some restrictive conditions when income and the price level move inversely the real value and real return on nominal assets are proportional to income thus by cross owning or trading nominal assets internationally countries can share some country specific risks in his simple twoperiod model where the only sources of uncertainty are endowment shocks svensson 1989 showed that even a perfect pooling equilibrium can result by trading only nominally risk free bonds under a monetary policy that generates negative correlation between endowment and the price level however he did not emphasize the role of the mechanism in overall international risk sharing and possibly for this reason the result is not well known in this paper i apply the idea to the aggregate level of international risk sharing by considering all types of nominal cross border assets as opposed to limiting the study to only nominal bonds themselves the mechanism can be thought of as a nominal analogy to cole and obstfeld 1991 in cole and obstfeld s 1991 model changes in the terms of trade can automatically transfer wealth to insure country specific risks in the nominal revaluation the relative nominal price nominal exchange rate changes between countries instead of relative real price terms of trade changes make international risk sharing possible 4 cole and obstfeld 1991 further suggested that the welfare gains from international portfolio diversification may be small and the home bias in international portfolio investments may be justified since changes in the terms of trade can insure some country specific risks 5 similarly if the nominal revaluation works as international risk sharing it may serve as another justification for home bias in equities since equities are only parts of total cross border nominal assets and the nominal revaluation of other cross border assets such as bonds direct investments currencies loans and so on can provide risk sharing 6 on the other hand the nominal revaluation has some interesting implications on the comparison between the flexible and the fixed exchange rate regimes if it works as or against international risk sharing it provides another merit or drawback of the flexible exchange rate regime since the changes in the nominal exchange rate can provide international risk sharing or increase the country specific risks this paper empirically examines three international risk sharing channels the nominal revaluation of cross border assets the terms of trade channel suggested by cole and obstfeld 1991 and cross border security ownership or international portfolio diversification that is thought of as a natural way of sharing country specific risks

determinants of store level price elasticity using weekly scanner data representing 18 product categories the authors estimated store specific price elasticities for a chain of 83 supermarkets they related these price sensitivities to a com

practice prize article chan4cast a multichannel multiregion sales forecasting model and decision support system for consumer packaged goods we discuss the development and implementation of chan4cast a sales forecasting model by pack size category channel region customer account and a web based decision support system dss for consumer packaged goods in addition to capturing the effects of such variables as past sales trend own and competitor prices and promotional variables and seasonality the model accounts for the effects of temperature significant holidays new product introductions trading day corrections and adjustments to the wholesale level in general the model forecasts sales volume satisfactorily for a leading consumer packaged goods company the dss enables top and mid level executives in sales marketing strategic planning and finance to develop accurate forecasts of sales volume plan prices and promotional activities over a long time horizon to track sales response to marketing actions over time and to simulate forecast scenarios based on possible marketing decisions and other variables chan4cast is being rolled out for more users and more divisions in the company the key take aways are that successful development and implementation of a rigorous marketing science model require a strong internal champion a careful balance between modeling sophistication and practical relevance good diagnostic features regular validations and greater attention to the development of a fast and responsive dss

bank business models as a driver of cross border activities abstract much of the post crisis moderation in international banking has been shown to be attributable to euro area banks using a confidential bank level dataset on euro area resident banks this paper sheds light on the type of banks responsible for the decline in cross border lending overall globally systemically important banks g sibs were markedly different from other bank types resident in the euro area as they not only increased their extra euro area positions but also contributed to maintaining cross border flows within the euro area over the past decade in addition we also highlight that banks with initially higher capitalisation more deposit funding and lower non performing loan rates exhibit less cross border retrenchment these findings have clear policy implications for the design of bank regulations appropriate for a deepening european banking union

macrofinancial imbalances in historical perspective a global crisis index abstract global crisis episodes are rare events that can be properly studied by adopting the long run view of macroeconomic history in this study we explore the strength of the relationship between current account imbalances credit growth and equity returns at global level and document new evidence of a recurring sequencing pattern ahead of global crisis periods where credit booms are preceded by growing external imbalances and crisis episodes occur at the low end of the contraction phase of equity returns we use this information to construct a single aggregate measure with the aim of signaling periods of increasing risk of macroeconomic and financial instability at global level three major crisis episodes are identified with our global crisis index the 1929 crisis the breakdown of the bretton woods system and the recent financial crisis since past global crisis episodes at international level culminated with the collapse of existing international monetary systems the ongoing debate on the reforms needed to enhance the stability of international financial markets indicates the recent global financial crisis as a major turning point in the evolution of the international financial and monetary system

house prices capital inflows and macroprudential policy this paper evaluates the monetary and macroprudential policies that mitigate the procyclicality arising from the interlinkages between current account deficits and financial vulnerabilities we develop a two country dynamic stochastic general equilibrium dsge model with heterogeneous households and collateralised debt the model predicts that external shocks are important in driving current account deficits that are coupled with run ups in house prices and household debt in this context optimal policy features an interest rate response to credit and a ltv ratio that countercyclically responds to house price dynamics by allowing an interest rate response to changes in financial variables the monetary policy authority improves social welfare because of the large welfare gains accrued to the savers the additional use of a countercyclical ltv ratio that responds to house prices increases the ability of borrowers to smooth consumption over the cycle and is pareto improving domestic and foreign shocks account for a similar fraction of the welfare gains delivered by such a policy

the decomposition of promotional response an empirical generalization price promotions are used extensively in marketing for one simple reason consumers respond the sales increase for a brand on promotion could be due to consumers accelerating their purchases i e buying earlier than usual and or buying more than usual and or consumers switching their choice from other brands purchase acceleration and brand switching relate to the primary demand and secondary demand effects of a promotion gupta 1988 captures these effects in a single model and decomposes a brand s total price elasticity into these components he reports for the coffee product category that the main impact of a price promotion is on brand choice 84 and that there is a smaller impact on purchase incidence 14 and stockpiling 2 in other words the majority of the effect of a promotion is at the secondary level 84 and there is a relatively small primary demand effect 16 this paper reports the decomposition of total price elasticity for 173 brands across 13 different product categories on average we find that 25 of the elasticity is due to primary demand expansion i e purchase acceleration and 75 to secondary demand effects or brand switching thus while gupta s finding that the majority of promotional response stems from brand switching is supported the average magnitude of the effect appears to be smaller than first thought more important there is ample evidence that promotions have a significant primary demand effect the relative emphasis on purchase acceleration and brand switching varies systematically across categories and the second goal of the paper is to explain this variation as a function of exogeneous covariates in doing this we recognize that promotional response is the consumer s reaction to a price promotion and therefore develop a framework for understanding variability in promotional response that is based on the consumer s perspective of the benefits from a price promotion these benefits are posited to be a function of i category specific factors ii brand specific factors and iii consumer characteristics the framework is formalized as a generalized least squares meta analysis in which the brand s price elasticity is the dependent variable several interesting results emerge from this analysis category specific factors brand specific factors and consumer demographics explain a significant amount of the variance in promotional response for a brand at both the primary and secondary demand levels category specific factors have greater influence on variability in promotional response and its decomposition than do brand specific factors there are several instances where exogenous variables do not affect total elasticities yet significantly affect individual components of total elasticity in fact the lack of a significant relationship between the variables and total elasticity is often due to offsetting effects within two or more of the three behavioral components of elasticity this is particularly true for brand specific factors which typically have no effect on total elasticity yet have important effects on the individual behaviors there is some evidence to suggest that not all promotion related increases in primary demand are due to forward buying in some cases promotions appear to increase consumption we use these results to illustrate how category and brand specific factors work to drive primary and secondary demand elasticities in different directions in short this paper offers an empirical generalization of a key finding on promotional response how elasticities decompose across brand choice purchase incidence and stockpiling and new insights into factors that explain variance in promotional response these findings are likely to be of interest to researchers who are concerned with theory development and the generalizability of marketing phenomena and to managers who plan promotion campaigns