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EU financial integration : is there a 'Core Europe'? ; evidence from a cluster-based approach
(2005)
Numerous recent studies, e.g. EU Commission (2004a), Baele et al. (2004), Adam et al.(2002), and the research pooled in ECB-CFS (2005), Gaspar, Hartmann, and Sleijpen(2003), have documented progress in EU financial integration from a micro-level view.This paper contributes to this research by identifying groups of financially integratedcountries from a holistic, macro-level view. It calculates cross-sectional dispersions, andinnovates by applying an inter-temporal cluster analysis to eight euro area countries for the period 1995-2002. The indicators employed represent the money, government bond and credit markets. Our results show that euro countries were divided into two stable groups of financially more closely integrated countries in the pre-EMU period. Back then, geographic proximity and country size might have played a role. This situation has changed remarkably with the euro's introduction. EMU has led to a shake-up both in the number and composition of groups. The evidence puts a question mark behin d using Germany as a benchmark in the post-EMU period. The ¯ndings suggest as well that ¯nancial integration takes place in waves. Stable periods and periods of intense transition alternate. Based on the notion of 'maximum similarity', the results suggest that there exist 'maximum similarity barriers'. It takes extraordinary events, such as EMU, to push the degree of ¯nancial integration beyond these barriers. The research encourages policymakers to move forward courageously in the post-FSAP era, and provides comfort that the substantial di®erences between the current and potentially new euro states can be overcome. The analysis could be extended to the new EU member countries, to the global level, and to additional indicators.
This study provides a graphic overview on core legislation in the area of economic and financial services. The presentation essentially covers the areas within the responsibility of the Economic and Monetary Affairs Committee (ECON); hence it starts with core ECON areas but also displays neighbouring areas of other Committees' competences which are closely connected to and impacting on ECON's work. It shows legislation in force, proposals and other relevant provisions on banking, securities markets and investment firms, market infrastructure, insurance and occupational pensions, payment services, consumer protection in financial services, the European System of Financial Supervision, European Monetary Union, euro bills and coins and statistics, competition, taxation, commerce and company law, accounting and auditing. Moreover, it notes selected provisions that might become relevant in the upcoming Article 50 TEU negotiations.
In this study prepared for the ECON Committee of the European Parliament, Gellings, Jungbluth and Langenbucher present a graphic overview on core legislation in the area of economic and financial services in Europe. The mapping overview can serve as background for further deliberations. The study covers legislation in force, proposals and other relevant provisions in fourteen policy areas, i.e. banking, securities markets and investment firms, market infrastructure, insurance and occupational pensions, payment services, consumer protection in financial services, the European System of Financial Supervision, European Monetary Union, Euro bills and Coins and statistics, competition, taxation, commerce and company law, accounting and auditing.
The global financial crisis (as well as the European sovereign debt crisis) has led to a substantial redesign of rules and institutions – aiming in particular at underwriting financial stability. At the same time, the crisis generated a renewed interest in properly appraising systemic financial vulnerabilities. Employing most recent data and applying a variety of largely only recently developed methods we provide an assessment of indicators of financial stability within the Euro Area. Taking a “functional” approach, we analyze comprehensively all financial intermediary activities, regardless of the institutional roof – banks or non-bank (shadow) banks – under which they are conducted. Our results reveal a declining role of banks (and a commensurate increase in non-bank banking). These structural shifts (between institutions) are coincident with regulatory and supervisory reforms (implemented or firmly anticipated) as well as a non-standard monetary policy environment. They might, unintendedly, actually imply a rise in systemic risk. Overall, however, our analyses suggest that financial imbalances have been reduced over the course of recent years. Hence, the financial intermediation sector has become more resilient. Nonetheless, existing (equity) buffers would probably not suffice to face substantial volatility shocks.
Euro area shadow banking activities in a low-interest-rate environment: a flow-of-funds perspective
(2016)
Very low policy rates as well as the substantial redesign of rules and supervisory institutions have changed background conditions for the Euro Area’s financial intermediary sector substantially. Both policy initiatives have been targeted at improving societal welfare. And their potential side effects (or costs) have been discussed intensively, in academic as well as policy circles. Very low policy rates (and correspondingly low market rates) are likely to whet investors’ risk taking incentives. Concurrently, the tightened regulatory framework, in particular for banks, increases the comparative attractiveness of the less regulated, so-called shadow banking sector. Employing flow-of-funds data for the Euro Area’s non-bank banking sector we take stock of recent developments in this part of the financial sector. In addition, we examine to which extent low interest rates have had an impact on investment behavior. Our results reveal a declining role of banks (and, simultaneously, an increase in non-bank banking). Overall intermediation activity, hence, has remained roughly at the same level. Moreover, our findings also suggest that non-bank banks have tended to take positions in riskier assets (particularly in equities). In line with this observation, balance-sheet based risk measures indicate a rise in sector-specific risks in the non-bank banking sector (when narrowly defined).
Euro crash risk
(2015)
Using fiscal reaction functions for 3a panel of actual euro-area countries the paper investigates whether euro membership has reduced the responsiveness of countries to increases in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, as for example an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from pre-existing debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply.
The paper uses fiscal reaction functions for a panel of euro-area countries to investigate whether euro membership has reduced the responsiveness of countries to shocks in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, such as an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from preexisting debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply.
Euro nicht gefährdet
(2017)
Europa - wohin?
(2011)
Gemäß der Krönungstheorie der europäischen Währungsunion wurde der Euro eingeführt, um die Notwendigkeit gemeinsamen Regierens in der Europäischen Union allen vor Augen zu führen und so ein geordnetes Vorrücken zur europäischen Integration zu ermöglichen. In der gegenwärtigen Phase scheint indes politischer Opportunismus die Integration zu bestimmen.
Ein Freibrief für die Notenbank bedeutet, genau genommen, die Bankrotterklärung des demokratischen Verfassungsstaates vor technokratischen Beliebigkeiten, schreibt Helmut Siekmann in diesem Namensbeitrag. Er betont, dass die Europäische Union eine unverzichtbare Einrichtung ist und ein echter Bundesstaat sein sollte. Sie sei aber im Wesentlichen (nur) ein Rechtskonstrukt, weshalb es umso wichtiger sei, dass die rechtlichen Regeln, auf denen sie beruht, genauestens beachtet werden.
In dieser Notiz wird ein neues Konzept für eine europäische Einlagensicherung vorgeschlagen, welches den starken politischen Vorbehalten Rechnung trägt, die gegen eine Vergemeinschaftung der Haftung für Bankeinlagen bestehen. Das skizzierte drei-stufige Einlagensicherungsmodell führt existierende nationale Einlagensicherungseinrichtungen weiter, bietet einen europäischen Verlustausgleich und verhindert eine exzessive Risikoübernahme zu Lasten der internationalen Gemeinschaft.
This chapter discusses whether and how 'new quantitative trade models' (NQTMs) can be fruitfully applied to quantify the welfare effects of trade liberalization, thus shedding light on the trade-related effects of further European integration. On the one hand, it argues that NQTMs have indeed the potential of being used to supplement traditional 'computable general equilibrium' (CGE) analysis thanks to their tight connection between theory and data, appealing micro-theoretical foundations, and enhanced attention to the estimation of structural parameters. On the other hand, further work is still needed in order to fully exploit such potential.
The SVB case is a wake-up call for Europe’s regulators as it demonstrates the destructive power of a bank-run: it undermines the role of loss absorbing capital, elbowing governments to bailout affected banks. Many types of bank management weaknesses, like excessive duration risk, may raise concerns of bank losses – but to serve as a run-trigger, there needs to be a large enough group of bank depositors that fails to be fully covered by a deposit insurance scheme. Latent run-risk is the root cause of inefficient liquidations, and we argue that a run on SVB assets could have been avoided altogether by a more thoughtful deposit insurance scheme, sharply distinguishing between loss absorbing capital (equity plus bail-in debt) and other liabilities which are deemed not to be bail-inable, namely demand deposits. These evidence-based insights have direct implications for Europe’s banking regulation, suggesting a minimum and a maximum for a banks’ loss absorption capacity.
Asset-backed securitisation (ABS) is an asset funding technique that involves the issuance of structured claims on the cash flow performance of a designated pool of underlying receivables. Efficient risk management and asset allocation in this growing segment of fixed income markets requires both investors and issuers to thoroughly understand the longitudinal properties of spread prices. We present a multi-factor GARCH process in order to model the heteroskedasticity of secondary market spreads for valuation and forecasting purposes. In particular, accounting for the variance of errors is instrumental in deriving more accurate estimators of time-varying forecast confidence intervals. On the basis of CDO, MBS and Pfandbrief transactions as the most important asset classes of off-balance sheet and on-balance sheet securitisation in Europe we find that expected spread changes for these asset classes tends to be level stationary with model estimates indicating asymmetric mean reversion. Furthermore, spread volatility (conditional variance) is found to follow an asymmetric stochastic process contingent on the value of past residuals. This ABS spread behaviour implies negative investor sentiment during cyclical downturns, which is likely to escape stationary approximation the longer this market situation lasts.
Evaluating the quality of credit portfolio risk models is an important issue for both banks and regulators. Lopez and Saidenberg (2000) suggest cross-sectional resampling techniques in order to make efficient use of available data. We show that their proposal disregards cross-sectional dependence in resampled portfolios, which renders standard statistical inference invalid. We proceed by suggesting the Berkowitz (1999) procedure, which relies on standard likelihood ratio tests performed on transformed default data. We simulate the power of this approach in various settings including one in which the test is extended to incorporate cross-sectional information. To compare the predictive ability of alternative models, we propose to use either Bonferroni bounds or the likelihood-ratio of the two models. Monte Carlo simulations show that a default history of ten years can be sufficient to resolve uncertainties currently present in credit risk modeling.
Evaluating the quality of credit portfolio risk models is an important question for both banks and regulators. Lopez and Saidenberg (2000) suggest cross-sectional resampling techniques in order to make efficient use of available data and to produce measures of forecast accuracy. We first show that their proposal disregards crosssectional dependence in simulated subportfolios, which renders standard statistical inference invalid. We proceed by suggesting another evaluation methodology which draws on the concept of likelihood ratio tests. Specifically, we compare the predictive quality of alternative models by comparing the probabilities that observed data have been generated by these models. The distribution of the test statistic can be derived through Monte Carlo simulation. To exploit differences in cross-sectional predictions of alternative models, the test can be based on a linear combination of subportfolio statistics. In the construction of the test, the weight of a subportfolio depends on the difference in the loss distributions which alternative models predict for this particular portfolio. This makes efficient use of the data, and reduces computational burden. Monte Carlo simulations suggest that the power of the tests is satisfactory.
JEL classification: G2; G28; C52
We compare the cost effectiveness of two pronatalist policies:
(a) child allowances; and
(b) daycare subsidies.
We pay special attention to estimating how intended fertility (fertility before children are born) responds to these policies. We use two evaluation tools:
(i) a dynamic model on fertility, labor supply, outsourced childcare time, parental time, asset accumulation and consumption; and
(ii) randomized vignette-survey policy experiments.
We implement both tools in the United States and Germany, finding consistent evidence that daycare subsidies are more cost effective. Nevertheless, the required public expenditure to increase fertility to the replacement level might be viewed as prohibitively high.
Under a new Basel capital accord, bank regulators might use quantitative measures when evaluating the eligibility of internal credit rating systems for the internal ratings based approach. Based on data from Deutsche Bundesbank and using a simulation approach, we find that it is possible to identify strongly inferior rating systems out-of time based on statistics that measure either the quality of ranking borrowers from good to bad, or the quality of individual default probability forecasts. Banks do not significantly improve system quality if they use credit scores instead of ratings, or logistic regression default probability estimates instead of historical data. Banks that are not able to discriminate between high- and low-risk borrowers increase their average capital requirements due to the concavity of the capital requirements function.
This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts.
This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts.
This paper investigates the accuracy of forecasts from four DSGE models for inflation, output growth and the federal funds rate using a real-time dataset synchronized with the Fed’s Greenbook projections. Conditioning the model forecasts on the Greenbook nowcasts leads to forecasts that are as accurate as the Greenbook projections for output growth and the federal funds rate. Only for inflation the model forecasts are dominated by the Greenbook projections. A comparison with forecasts from Bayesian VARs shows that the economic structure of the DSGE models which is useful for the interpretation of forecasts does not lower the accuracy of forecasts. Combining forecasts of several DSGE models increases precision in comparison to individual model forecasts. Comparing density forecasts with the actual distribution of observations shows that DSGE models overestimate uncertainty around point forecasts.
This paper evaluates the effects of Public Sponsored Training in East Germany in the context of reiterated treatments. Selection bias based on observed characteristics is corrected for by applying kernel matching based on the propensity score. We control for further selection and the presence of Ashenfelter's Dip before the program with conditional difference-in-differences estimators. Training as a first treatment shows insignificant effects on the transition rates. The effect of program sequences and the incremental effect of a second program on the reemployment probability are insignificant. However, the incremental effect on the probability to remain employed is slightly positive. JEL - Klassifikation: H43 , C23 , J6 , J64 , C14
We develop a novel empirical approach to identify the effectiveness of policies against a pandemic. The essence of our approach is the insight that epidemic dynamics are best tracked over stages, rather than over time. We use a normalization procedure that makes the pre-policy paths of the epidemic identical across regions. The procedure uncovers regional variation in the stage of the epidemic at the time of policy implementation. This variation delivers clean identification of the policy effect based on the epidemic path of a leading region that serves as a counterfactual for other regions. We apply our method to evaluate the effectiveness of the nationwide stay-home policy enacted in Spain against the Covid-19 pandemic. We find that the policy saved 15.9% of lives relative to the number of deaths that would have occurred had it not been for the policy intervention. Its effectiveness evolves with the epidemic and is larger when implemented at earlier stages.
Innovations are a key factor to ensure the competitiveness of establishments as well as to enhance the growth and wealth of nations. But more than any other economic activity, decisions about innovations are plagued by failures of the market mechanism. As a response, public instruments have been implemented to stimulate private innovation activities. The effectiveness of these measures, however, is ambiguous and calls for an empirical evaluation. In this paper we make use of the IAB Establishment Panel and apply various microeconometric methods to estimate the effect of public measures on innovation activities of German establishments. We find that neglecting sample selection due to observable as well as to unobservable characteristics leads to an overestimation of the treatment effect and that there are considerable differences with regard to size class and betweenWest and East German establishments.
In dieser Studie werden die Wirkungen von Arbeitsbeschaffungsmaßnahmen (ABM) in Deutschland auf die individuellen Eingliederungswahrscheinlichkeiten der Teilnehmer in reguläre Beschäftigung evaluiert. Für die Untersuchung wird ein umfangreicher und informativer Datensatz aus den Datenquellen der Bundesagentur für Arbeit (BA) verwendet, der es ermöglicht, die Wirkungen der Programme differenziert nach individuellen Unterschieden der Teilnehmer und mit Berücksichtigung der heterogenen Arbeitsmarktstruktur zu untersuchen. Der Datensatz enthält Informationen zu allen Teilnehmern in ABM, die ihre Maßnahmen im Februar 2000 begonnen haben, und zu einer Kontrollgruppe von Nichtteilnehmern, die im Januar 2000 arbeitslos waren und im Februar 2000 nicht in die Programme eingetreten sind. Mit Hilfe der Informationen der Beschäftigtenstatistik ist es hierbei erstmals möglich, den Abgang in reguläre Beschäftigung auf Grundlage administrativer Daten zu untersuchen. Der vorliegende Verbleibszeitraum reicht bis Dezember 2002. Unter Verwendung von Matching-Methoden auf dem Ansatz potenzieller Ergebnisse werden die Effekte von ABM mit regionaler Unterscheidung und für besondere Problem- und Zielgruppen des Arbeitsmarktes geschätzt. Die Ergebnisse zeigen zwar deutliche Unterschiede in den Effekten für Subgruppen, insgesamt weisen die empirischen Befunde jedoch darauf hin, dass das Ziel der Eingliederung in reguläre ungeförderte Beschäftigung durch ABM weitgehend nicht realisiert werden konnte. JEL: C40 , C13 , J64 , H43 , J68
In dieser Studie werden die Wirkungen von Arbeitsbeschaffungsmaßnahmen (ABM) in Deutschland auf die individuellen Eingliederungswahrscheinlichkeiten der Teilnehmer in reguläre Beschäftigung evaluiert. Für die Untersuchung wird ein umfangreicher und informativer Datensatz aus den Datenquellen der Bundesagentur für Arbeit (BA) verwendet, der es ermöglicht, die Wirkungen der Programme differenziert nach individuellen Unterschieden der Teilnehmer und mit Berücksichtigung der heterogenen Arbeitsmarktstruktur zu untersuchen. Der Datensatz enthält Informationen zu allen Teilnehmern in ABM, die ihre Maßnahmen im Februar 2000 begonnen haben, und zu einer Kontrollgruppe von Nichtteilnehmern, die im Januar 2000 arbeitslos waren und im Februar 2000 nicht in die Programme eingetreten sind. Mit Hilfe der Informationen der Beschäftigtenstatistik ist es hierbei erstmals möglich, den Abgang in reguläre Beschäftigung auf Grundlage administrativer Daten zu untersuchen. Der vorliegende Verbleibszeitraum reicht bis Dezember 2002. Unter Verwendung von Matching-Methoden auf dem Ansatz potenzieller Ergebnisse werden die Effekte von ABM mit regionaler Unterscheidung und für besondere Problem- und Zielgruppen des Arbeitsmarktes geschätzt. Die Ergebnisse zeigen zwar deutliche Unterschiede in den Effekten für Subgruppen, insgesamt weisen die empirischen Befunde jedoch darauf hin, dass das Ziel der Eingliederung in reguläre ungeförderte Beschäftigung durch ABM weitgehend nicht realisiert werden konnte. JEL: C40 , C13 , J64 , H43 , J68
Persistently high unemployment, tight government budgets and the growing scepticism regarding the effects of active labour market policies (ALMP) are the basis for a growing interest in evaluating these measures. This paper intends to explain the need for evaluation on the micro- and macroeconomic level, introduce the fundamental evaluation problem and solutions to it, give an overview of the newer developments in evaluation literature and finally take a look on empirical estimations of ALMP effects. JEL Classification: C14, C33, H43, J64, J68
We develop a methodology to identify and rank “systemically important financial institutions” (SIFIs). Our approach is consistent with that followed by the Financial Stability Board (FSB) but, unlike the latter, it is free of judgment and it is based entirely on publicly available data, thus filling the gap between the official views of the regulator and those that market participants can form with their own information set. We apply the methodology to annual data on three samples of banks (global, EU and euro area) for the years 2007-2012. We examine the evolution of the SIFIs over time and document the shifs in the relative weights of the major geographic areas. We also discuss the implication of the 2013 update of the identification methodology proposed by the FSB.
Prior studies indicate the protective role of Ultraviolet-B (UVB) radiation in human health, mediated by vitamin D synthesis. In this observational study, we empirically outline a negative association of UVB radiation as measured by ultraviolet index (UVI) with the number of COVID-19 deaths. We apply a fixed-effect log-linear regression model to a panel dataset of 152 countries over 108 days (n = 6524). We use the cumulative number of COVID-19 deaths and case-fatality rate (CFR) as the main dependent variables and isolate the UVI effect from potential confounding factors. After controlling for time-constant and time-varying factors, we find that a permanent unit increase in UVI is associated with a 1.2 percentage points decline in daily growth rates of cumulative COVID-19 deaths [p < 0.01] and a 1.0 percentage points decline in the CFR daily growth rate [p < 0.05]. These results represent a significant percentage reduction in terms of daily growth rates of cumulative COVID-19 deaths (− 12%) and CFR (− 38%). We find a significant negative association between UVI and COVID-19 deaths, indicating evidence of the protective role of UVB in mitigating COVID-19 deaths. If confirmed via clinical studies, then the possibility of mitigating COVID-19 deaths via sensible sunlight exposure or vitamin D intervention would be very attractive.
The use of evidence and economic analysis in policymaking is on the rise, and accounting standard setting and financial regulation are no exception. This article discusses the promise of evidence-based policymaking in accounting and financial markets as well as the challenges and opportunities for research supporting this endeavor. In principle, using sound theory and robust empirical evidence should lead to better policies and regulations. But despite its obvious appeal and substantial promise, evidence-based policymaking is easier demanded than done. It faces many challenges related to the difficulty of providing relevant causal evidence, lack of data, the reliability of published research, and the transmission of research findings. Overcoming these challenges requires substantial infrastructure investments for generating and disseminating relevant research. To illustrate this point, I draw parallels to the rise of evidence-based medicine. The article provides several concrete suggestions for the research process and the aggregation of research findings if scientific evidence is to inform policymaking. I discuss how policymakers can foster and support policy-relevant research, chiefly by providing and generating data. The article also points to potential pitfalls when research becomes increasingly policy-oriented.
Die Quantenspieltheorie stellt eine mathematische und konzeptuelle Erweiterung der klassischen Spieltheorie dar. Der Raum aller denkbaren Entscheidungswege der Spieler wird vom rein reellen, messbaren Raum in den Raum der komplexen Zahlen (reelle und imaginäre Zahlen) ausgedehnt. Durch das Konzept der möglichen quantentheoretischen Verschränkung der Entscheidungswege im imaginären Raum aller denkbaren Quantenstrategien können gemeinsame, durch kulturelle oder moralische Normen entstandene Denkrichtungen mit einbezogen werden. Ist die Strategienverschränkung der Spieler im imaginären Raum der denkbaren Entscheidungswege nur genügend groß, so können zusätzliche Nash-Gleichgewichte auftreten und zuvor existente dominante Strategien sich auflösen. Die der evolutionären Entwicklung zugrundeliegende Replikatordynamik besitzt in der evolutionären Quantenspieltheorie eine komplexere Struktur und die jeweiligen evolutionär stabilen Strategien können sich, abhängig vom Maß der Verschränkung, abändern. Neben einer detaillierten Darstellung der evolutionären Quantenspieltheorie werden in dieser Dissertation mehrere Anwendungsbeispiele besprochen. So wird durch eine quantentheoretische Erweiterung die aktuelle Finanzkrise mittels eines Anti-Koordinationsspiels beleuchtet, das unterschiedliche Publikationsverhalten von Wissenschaftlern erklärt und erste Ansätze einer experimentellen Bestätigung der Theorie dargestellt.
For the academic audience, this paper presents the outcome of a well-identified, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal effects of ignoring basic macroeconomics. The Turkish monetary policy experiment of the past decade, stemming from a belief of the government that higher interest rates cause higher inflation, provides an unfortunately clean exogenous variance in the policy rule. The mandate to keep rates low, and the frequent policymaker turnover orchestrated by the government to enforce this, led to the Taylor principle not being satisfied and eventually a negative coeffcient on inflation in the policy rule. In such an environment, was the exchange rate still a random walk? Was inflation anchored? Does the “standard model”” suffice to explain the broad contours of macroeconomic outcomes in an emerging economy with large identifying variance in the policy rule? There are no surprises for students of open-economy macroeconomics; the answers are no, no, and yes.
We investigate the suggested substitutive relation between executive compensation and the disciplinary threat of takeover imposed by the market for corporate control. We complement other empirical studies on managerial compensation and corporate control mechanisms in three distinct ways. First, we concentrate on firms in the oil industry for which agency problems were especially severe in the 1980s. Due to the extensive generation of excess cash flow, product and factor market discipline was ineffective. Second, we obtain a unique data set drawn directly from proxy statements which accounts not only for salary and bonus but for the value of all stock-market based compensation held in the portfolio of a CEO. Our data set consists of 51 firms in the U.S. oil industry from 1977 to 1994. Third, we employ ex ante measures of the threat of takeover at the individual firm level which are superior to ex post measures like actual takeover occurrence or past incidence of takeovers in an industry. Results show that annual compensation and, to a much higher degree, stock-based managerial compensation increase after a firm becomes protected from a hostile takeover. However, clear-cut evidence that CEOs of protected firms receive higher compensation than those of firms considered susceptible to a takeover cannot be found.
We develop a model of managerial compensation structure and asset risk choice. The model provides predictions about how inside debt features affect the relation between credit spreads and compensation components. First, inside debt reduces credit spreads only if it is unsecured. Second, inside debt exerts important indirect effects on the role of equity incentives: When inside debt is large and unsecured, equity incentives increase credit spreads; When inside debt is small or secured, this effect is weakened or reversed. We test our model on a sample of U.S. public firms with traded CDS contracts, finding evidence supportive of our predictions. To alleviate endogeneity concerns, we also show that our results are robust to using an instrumental variable approach.
Exit strategies
(2014)
We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using a macromodel where banks choose their capital structure and are subject to runs. Under a Taylor rule, the post-crisis interest rate hits the zero lower bound (ZLB) and remains there for several years. In that condition, pre-announced and fast fiscal consolidations dominate - based on output and inflation performance and bank stability - alternative strategies incorporating various degrees of gradualism and surprise. We also examine an alternative monetary strategy in which the interest rate does not reach the ZLB; the benefits from fiscal consolidation persist, but are more nuanced.
Expectations on others
(2017)
This paper explores the interplay of feature-based explainable AI (XAI) tech- niques, information processing, and human beliefs. Using a novel experimental protocol, we study the impact of providing users with explanations about how an AI system weighs inputted information to produce individual predictions (LIME) on users’ weighting of information and beliefs about the task-relevance of information. On the one hand, we find that feature-based explanations cause users to alter their mental weighting of available information according to observed explanations. On the other hand, explanations lead to asymmetric belief adjustments that we inter- pret as a manifestation of the confirmation bias. Trust in the prediction accuracy plays an important moderating role for XAI-enabled belief adjustments. Our results show that feature-based XAI does not only superficially influence decisions but re- ally change internal cognitive processes, bearing the potential to manipulate human beliefs and reinforce stereotypes. Hence, the current regulatory efforts that aim at enhancing algorithmic transparency may benefit from going hand in hand with measures ensuring the exclusion of sensitive personal information in XAI systems. Overall, our findings put assertions that XAI is the silver bullet solving all of AI systems’ (black box) problems into perspective.
When requesting a web-based service, users often fail in setting the website’s privacy settings according to their self privacy preferences. Being overwhelmed by the choice of preferences, a lack of knowledge of related technologies or unawareness of the own privacy preferences are just some reasons why users tend to struggle. To address all these problems, privacy setting prediction tools are particularly well-suited. Such tools aim to lower the burden to set privacy preferences according to owners’ privacy preferences. To be in line with the increased demand for explainability and interpretability by regulatory obligations – such as the General Data Protection Regulation (GDPR) in Europe – in this paper an explainable model for default privacy setting prediction is introduced. Compared to the previous work we present an improved feature selection, increased interpretability of each step in model design and enhanced evaluation metrics to better identify weaknesses in the model’s design before it goes into production. As a result, we aim to provide an explainable and transparent tool for default privacy setting prediction which users easily understand and are therefore more likely to use.