Refine
Year of publication
Document Type
- Working Paper (1457)
- Report (77)
- Part of Periodical (58)
- Article (9)
- Conference Proceeding (3)
- Periodical (3)
- Book (1)
- Doctoral Thesis (1)
Is part of the Bibliography
- no (1609) (remove)
Keywords
- Deutschland (54)
- Geldpolitik (54)
- USA (45)
- monetary policy (41)
- Europäische Union (30)
- Monetary Policy (26)
- Schätzung (24)
- Währungsunion (22)
- Bank (21)
- Venture Capital (21)
Institute
- Center for Financial Studies (CFS) (1609) (remove)
The experience in the period during and after the Asian crisis of 1997-98 has provoked an extensive debate about the credit rating agencies' evaluation of sovereign risk in emerging markets lending. This study analyzes the role of credit rating agencies in international finan-cial markets, particularly whether sovereign credit ratings have an impact on the financial stability in emerging market economies. The event study and panel regression results indicate that credit rating agencies have substantial influence on the size and volatility of emerging markets lending. The empirical results are significantly stronger in the case of government's downgrades and negative imminent sovereign credit rating actions such as credit watches and rating outlooks than positive adjustments by the credit rating agencies while by the market participants' anticipated sovereign credit rating changes have a smaller impact on financial markets in emerging economies.
Conference Reader zur gemeinsam von Athansios Orphanides (Federal Reserve Board, Washington D.C.), John C. Williams (Federal Reserve Bank of San Francisco), Heinz Hermann (Deutsche Bundesbank), und Volker Wieland (Center for Financial Studies and Goethe University Frankfurt) organisierten Konferenz, die vom 30. - 31. August, 2003 in Eltville stattgefunden hat. Inhaltsverzeichnis: * Volker Wieland (Director Center for Financial Studies): Foreword * Hans Georg Fabritius (Member of the Executive Board of the Deutsche Bundesbank): Opening Remarks * Charles Goodhart (Norman Sosnow Professor of Banking and Finance at the London School of Economics and External Member of the Bank of England's Monetary Policy Commitee): After Dinner Speech * Paper Abstracts * List of Participants
We assess the relationship between finance and growth over the period 1980-2014. We estimate a cross-country growth regression for 48 countries during 20 periods of 15 years starting in 1980 (to 1995) and ending in 1999 (to 2014). We use OLS and IV estimations and we find that: 1) overall financial development had a positive effect on economic growth during all periods of our sample, i.e., we confirm that from 1980 to 2014 financial services provided by the various financial systems were significant (to various degrees) for firm creation, industrial expansion and economic growth; but that, 2) the structure of financial markets was particularly relevant for economic growth until the financial crisis; while 3) the structure of the banking sector played a major role since; and finally that, 4) the legal system is the primary determinant of the effectiveness of the overall financial system in facilitating innovation and growth in (almost) all of our sample period. Hence, overall our results suggest that the relationship between finance and growth matters but also that it varies over time in strength and in sector origination.
JEL Classification: O16, G16, G20.
This note discusses the basic economics of central clearing for derivatives and the need for a proper regulation, supervision and resolution of central counterparty clearing houses (CCPs). New regulation in the U.S. and in Europe renders the involvement of a central counterparty mandatory for standardized OTC derivatives’ trading and sets higher capital and collateral requirements for non-centrally cleared derivatives.
From a macrofinance perspective, CCPs provide a trade-off between reduced contagion risk in the financial industry and the creation of a significant systemic risk. However, so far, regulation and supervision of CCPs is very fragmented, limited and ignores two important aspects: the risk of consolidation of CCPs on the one side and the competition among CCPs on the other side. i) As the economies of scale of CCP operations in risk and cost reduction can be large, they provide an argument in favor of consolidation, leading at the extreme to a monopoly CCP that poses the ultimate default risk – a systemic risk for the entire financial sector. As a systemic risk event requires a government bailout, there is a public policy issue here. ii) As long as no monopoly CCP exists, there is competition for market share among existing CCPs. Such competition may undermine the stability of the entire financial system because it induces “predatory margining”: a reduction of margin requirements to increase market share.
The policy lesson from our consideration emphasizes the importance of a single authority supervising all competing CCPs as well as of a specific regulation and resolution framework for CCPs. Our general recommendations can be applied to the current situation in Europe, and the proposed merger between Deutsche Börse and London Stock Exchange.
n this paper we analyze an economy with two heterogeneous investors who both exhibit misspecified filtering models for the unobservable expected growth rate of the aggregated dividend. A key result of our analysis with respect to long-run investor survival is that there are degrees of model misspecification on the part of one investor for which there is no compensation by the other investor's deficiency. The main finding with respect to the asset pricing properties of our model is that the two dimensions of asset pricing and survival are basically independent. In scenarios when the investors are more similar with respect to their expected consumption shares, return volatilities can nevertheless be higher than in cases when they are very different.
This paper examines thoroughly the Chilean Pension Reform, giving first an overview of the mandatory saving plan, the relevant institutions, and the rules for transition from the old to the new system. The main part of the paper contains a critical evaluation of the reform, in particular the macroeconomic performance with respect to capital formation and growth, and the effects on the savings rate as well as on the rates of return and labor market are discussed. Furthermore, the development of capital markets is reviewed. A short critique is presented with respect to intergenerational distribution and risk sharing as well as with respect to the social consequences. This paper is the result of a CFS sponsored research project. A preliminary version was presented at the meeting of the committee of Social Policy of the Verein fuer Socialpolitik, May 1999 and at the 55th Congress of IIPF, 23-26 August 1999, in Moskow.
The term structure of interest rates is crucial for the transmission of monetary policy to financial markets and the macroeconomy. Disentangling the impact of monetary policy on the components of interest rates, expected short rates and term premia, is essential to understanding this channel. To accomplish this, we provide a quantitative structural model with endogenous, time-varying term premia that are consistent with empirical findings. News about future policy, in contrast to unexpected policy shocks, has quantitatively significant effects on term premia along the entire term structure. This provides a plausible explanation for partly contradictory estimates in the empirical literature.
We collect data on the size distribution of all U.S. corporate businesses for 100 years. We document that corporate concentration (e.g., asset share or sales share of the top 1%) has increased persistently over the past century. Rising concentration was stronger in manufacturing and mining before the 1970s, and stronger in services, retail, and wholesale after the 1970s. Furthermore, rising concentration in an industry aligns closely with investment intensity in research and development and information technology. Industries with higher increases in concentration also exhibit higher output growth. The long-run trends of rising corporate concentration indicate increasingly stronger economies of scale.
This policy letter provides an overview of the strengths, weaknesses, risks and opportunities of the upcoming comprehensive risk assessment, a euro area-wide evaluation of bank balance sheets and business models. If carried out properly, the 2014 comprehensive assessment will lead the euro area into a new era of banking supervision. Policy makers in euro area countries are now under severe pressure to define a credible backstop framework for banks. This framework, as the author argues, needs to be a broad, quasi-European system of mutually reinforcing backstops.
We introduce a regularization and blocking estimator for well-conditioned high-dimensional daily covariances using high-frequency data. Using the Barndorff-Nielsen, Hansen, Lunde, and Shephard (2008a) kernel estimator, we estimate the covariance matrix block-wise and regularize it. A data-driven grouping of assets of similar trading frequency ensures the reduction of data loss due to refresh time sampling. In an extensive simulation study mimicking the empirical features of the S&P 1500 universe we show that the ’RnB’ estimator yields efficiency gains and outperforms competing kernel estimators for varying liquidity settings, noise-to-signal ratios, and dimensions. An empirical application of forecasting daily covariances of the S&P 500 index confirms the simulation results.
Consumers purchase energy in many forms. Sometimes energy goods are consumed directly, for instance, in the form of gasoline used to operate a vehicle, electricity to light a home, or natural gas to heat a home. At other times, the cost of energy is embodied in the prices of goods and services that consumers buy, say when purchasing an airline ticket or when buying online garden furniture made from plastic to be delivered by mail. Previous research has focused on quantifying the pass-through of the price of crude oil or the price of motor gasoline to U.S. inflation. Neither approach accounts for the fact that percent changes in refined product prices need not be proportionate to the percent change in the price of oil, that not all energy is derived from oil, and that the correlation of price shocks across energy markets is far from one. This paper develops a vector autoregressive model that quantifies the joint impact of shocks to several energy prices on headline and core CPI inflation. Our analysis confirms that focusing on gasoline price shocks alone will underestimate the inflationary pressures emanating from the energy sector, but not enough to overturn the conclusion that much of the observed increase in headline inflation in 2021 and 2022 reflected non-energy price shocks.
I present a new business cycle model in which decision making follows a simple mental process motivated by neuroeconomics. Decision makers first compute the value of two different options and then choose the option that offers the highest value, but with errors. The resulting model is highly tractable and intuitive. A demand function in level replaces the traditional Euler equation. As a result, even liquid consumers can have a large marginal propensity to consume. The interest rate affects consumption through the cost of borrowing and not through intertemporal substitution. I discuss the implications for stimulus policies.
A call on art investments
(2010)
The art market has seen boom and bust during the last years and, despite the downturn, has received more attention from investors given the low interest environment following the financial crisis. However, participation has been reserved for a few investors and the hedging of exposures remains dificult. This paper proposes to overcome these problems by introducing a call option on an art index, derived from one of the most comprehensive data sets of art market transactions. The option allows investors to optimize their exposure to art. For pricing purposes, non-tradability of the art index is acknowledged and option prices are derived in an equilibrium setting as well as by replication arguments. In the former, option prices depend on the attractiveness of gaining exposure to a previously non-traded risk. This setting further overcomes the problem of art market exposures being dificult to hedge. Results in the replication case are primarily driven by the ability to reduce residual hedging risk. Even if this is not entirely possible, the replication approach serves as pricing benchmark for investors who are significantly exposed to art and try to hedge their art exposure by selling a derivative. JEL Classification: G11, G13, Z11
Extending the data set used in Beyer (2009) to 2017, we estimate I(1) and I(2) money demand models for euro area M3. After including two broken trends and a few dummies to account for shifts in the variables following the global financial crisis and the ECB's non-standard monetary policy measures, we find that the money demand and the real wealth relations identified in Beyer (2009) have remained remarkably stable throughout the extended sample period. Testing for price homogeneity in the I(2) model we find that the nominal-to-real transformation is not rejected for the money relation whereas the wealth relation cannot be expressed in real terms.
This paper examines optimal enviromental policy when external financing is costly for firms. We introduce emission externalities and industry equilibrium in the Holmström and Tirole (1997) model of corporate finance. While a cap-and- trading system optimally governs both firms` abatement activities (internal emission margin) and industry size (external emission margin) when firms have sufficient internal funds, external financing constraints introduce a wedge between these two objectives. When a sector is financially constrained in the aggregate, the optimal cap is strictly above the Pigouvian benchmark and emission allowances should be allocated below market prices. When a sector is not financially constrained in the aggregate, a cap that is below the Pigiouvian benchmark optimally shifts market share to less polluting firms and, moreover, there should be no "grandfathering" of emission allowances. With financial constraints and heterogeneity across firms or sectors, a uniform policy, such as a single cap-and-trade system, is typically not optimal.
This paper deals with the proposed use of sovereign credit ratings in the "Basel Accord on Capital Adequacy" (Basel II) and considers its potential effect on emerging markets financing. It investigates in a first attempt the consequences of the planned revisions on the two central aspects of international bank credit flows: the impact on capital costs and the volatility of credit supply across the risk spectrum of borrowers. The empirical findings cast doubt on the usefulness of credit ratings in determining commercial banks' capital adequacy ratios since the standardized approach to credit risk would lead to more divergence rather than convergence between investment-grade and speculative-grade borrowers. This conclusion is based on the lateness and cyclical determination of credit rating agencies' sovereign risk assessments and the continuing incentives for short-term rather than long-term interbank lending ingrained in the proposed Basel II framework.
n the EU there are longstanding and ongoing pressures towards a tax that is levied on the EU level to substitute for national contributions. We discuss conditions under which such a transition can make sense, starting from what we call a "decentralization theorem of taxation" that is analogous to Oates (1972) famous result that in the absence of spill-over effects and economies of scale decentralized public good provision weakly dominates central provision. We then drop assumptions that turn out to be unnecessary for this results. While spill-over effects of taxation may call for central rules for taxation, as long as spill-over effects do not depend on the intra-regional distribution of the tax burden, decentralized taxation plus tax coordination is found superior to a union-wide tax.