CFS working paper series
https://gfk-cfs.de/working-papers/
Refine
Year of publication
- 2014 (50) (remove)
Document Type
- Working Paper (50)
Language
- English (50)
Has Fulltext
- yes (50)
Is part of the Bibliography
- no (50)
Keywords
- financial crisis (4)
- monetary policy (3)
- Alternative investments (2)
- G-SIFIs (2)
- Household finance (2)
- OTC markets (2)
- Progressive Taxation (2)
- asset pricing (2)
- limited attention (2)
- simulated method of moments (2)
- systemic risk (2)
- transparency (2)
- Art market (1)
- Art price index (1)
- Asset pricing (1)
- Asymmetry (1)
- Banker's pay (1)
- Banking crisis (1)
- Bayesian inference (1)
- Capital requirements (1)
- College dropout risk (1)
- College premium (1)
- Conditional response (1)
- Consumption (1)
- Copula (1)
- Corporate Financing (1)
- Crisis contracts (1)
- DSGE (1)
- Debt Securities (1)
- Distribution (1)
- Dynamic Representative Consumer (1)
- EMU (1)
- Education (1)
- Epstein-Zin-Weil recursive preferences (1)
- Equivalent Incomes (1)
- Euro Area (1)
- European Union (1)
- European integration (1)
- Excessive risk taking (1)
- Expenditure Survey (1)
- Explosive behavior (1)
- Financial Industry (1)
- Financial market (1)
- Fiscal Policy (1)
- Framing effects (1)
- Gains from trade (1)
- Government Debt (1)
- Gravity equations (1)
- Great Recession (1)
- Health Insurance (1)
- Hedging (1)
- Household Finance (1)
- Household-Size Economies (1)
- Human capital (1)
- Income Inequality (1)
- Inequality (1)
- Inflation Rate (1)
- Investor behavior (1)
- Kalman filter (1)
- Labor Market Deregulation (1)
- Laffer Curve (1)
- Linear Aggregation (1)
- Loan to income ratio (1)
- Loan to value ratio (1)
- MMFs (1)
- Market discipline (1)
- Maximum likelihood estimation (1)
- Medicare (1)
- Monte Carlo integration (1)
- Mortgage affordability (1)
- Mortgage premia (1)
- Multi-Step estimation (1)
- Multivariate time series (1)
- National Accounting (1)
- Negative home equity (1)
- News media sentiment (1)
- Nonlinearity (1)
- Optimal Asset Allocation (1)
- Panel Data (1)
- Portfolio allocation (1)
- Prediction (1)
- Pricing bubbles (1)
- Product Market Deregulation (1)
- Quantitative trade models (1)
- Real GDP (1)
- Regression Discontinuity (1)
- SEC (1)
- Selection (1)
- Social Insurance (1)
- Sovereign guarantees (1)
- Sparse estimation (1)
- Speculative bubbles (1)
- Stockholding (1)
- Structural Change (1)
- Structural estimation (1)
- Survey Method (1)
- Survey Methods (1)
- Systemic risk (1)
- TRACE (1)
- Time variation (1)
- Too-big-to-fail (1)
- Top 1% (1)
- Trust (1)
- Trustworthiness (1)
- U.S. oil independence (1)
- Unemployment (1)
- VAR (1)
- Value premium (1)
- Value-at-Risk (1)
- Wealth Shocks (1)
- accounting data (1)
- advertising (1)
- affect heuristic (1)
- asymmetric information (1)
- bank balance-sheet channel (1)
- bank capital requirements (1)
- bank regulation (1)
- bank resolution (1)
- banking regulation (1)
- bootstrap (1)
- business equity (1)
- capacity constraints (1)
- collateral (1)
- competitive insurance market (1)
- contract addition (1)
- cooperation (1)
- credit constraints (1)
- credit ratings (1)
- cross-subsidy (1)
- density forecasting (1)
- disclosure (1)
- egulation of financial markets (1)
- emotions (1)
- equity premium (1)
- euro (1)
- experiment (1)
- experiments (1)
- export ban (1)
- financial literacy (1)
- financial regulation (1)
- forbearance (1)
- forecast (1)
- foreign currency lending (1)
- futures (1)
- heterogeneous firms (1)
- household-portfolio shares (1)
- imperfect labor market competition (1)
- impulse response (1)
- incentive compensation (1)
- infrastructure (1)
- intertemporal trade (1)
- intraday (co-)variation risk (1)
- limit order book (1)
- limits to arbitrage (1)
- liquidity (1)
- liquidity externalities (1)
- local method of moments (1)
- long-run risk (1)
- long-term real interest rates (1)
- market expectation (1)
- missing data (1)
- model uncertainty (1)
- money market funds (1)
- mutual funds (1)
- net asset value (1)
- network topology (1)
- nonstandard asymptotics (1)
- oil price (1)
- oil sands (1)
- oil trade (1)
- option prices (1)
- order flow (1)
- panel VAR (1)
- performance pricing (1)
- performance-sensitive debt (1)
- politics (1)
- predictive likelihood (1)
- price discovery (1)
- productivity (1)
- public policy analysis (1)
- rare disaster risk (1)
- reactive equilibrium (1)
- refining (1)
- risk perception (1)
- risk premium (1)
- risk taking (1)
- robust inference (1)
- screening (1)
- securities (1)
- securities law and regulation (1)
- shadow banking (1)
- shale oil (1)
- smoothing (1)
- social dilemmas (1)
- social norm (1)
- sovereign exposures (1)
- sovereignbank linkages (1)
- spot covariance (1)
- structural estimation (1)
- structured products (1)
- subsistence consumption (1)
- systemic risk contribution (1)
- tail dependence (1)
- tight oil (1)
- too-big-to-fail (1)
- trade (1)
- trade signaling (1)
- unconventional oil (1)
- underinvestment (1)
- vertical differentiation (1)
- weak identification (1)
- wealth inequality (1)
- welfare (1)
Institute
- Center for Financial Studies (CFS) (50) (remove)
459
Efforts to control bank risk address the wrong problem in the wrong way. They presume that the financial crisis was caused by CEOs who failed to supervise risk-taking employees. The responses focus on executive pay, believing that executives will bring non-executives into line—using incentives to manage risk-taking—once their own pay is regulated. What they overlook is the effect on non-executive pay of the competition for talent. Even if executive pay is regulated, and executives act in the bank’s best interests, they will still be trapped into providing incentives that encourage risk-taking by non-executives due to the negative externality that arises from that competition. Greater risk-taking can increase short-term profits and, in turn, the amount a non-executive receives, potentially at the expense of long-term bank value. Non-executives, therefore, have an incentive to incur significant risk upfront so long as they can depart for a new employer before any losses materialize. The result is an upward spiral in compensation—reducing an executive’s ability to set non-executive pay and the ability of any one bank to adjust compensation to reflect risk-taking and long-term outcomes. New regulation must address the tension between compensation and competition. Regulators should take account of the effect of competition on market-wide levels of pay, including by non-banks who compete for talent. The ability of non-executives to jump from a bank employer to another financial firm should also be limited. In addition, banks should be required to include a long-term equity component in non-executive pay, with subsequent employers being restricted from compensating a new employee for any losses she incurs related to her prior work.
458
We examine trust and trustworthiness of individuals with varying professional preferences and experiences. Our subjects study business and economics in Frankfurt, the financial center of Germany and continental Europe. In the trust game, subjects with a high interest in working in the financial industry return 25 percent less than subjects with a low interest. We find no evidence that the extent of professional experience in the financial industry has a negative impact on trustworthiness. We also do not find any evidence that the financial industry screens out less trustworthy individuals in the hiring process. In a prediction game that is strategically equivalent to the trust game, the amount sent by first-movers was significantly smaller when the second-mover indicated a high interest in working in finance. These results suggest that the financial industry attracts less trustworthy individuals, which may contribute to the current lack of trust in its employees.
457
This paper investigates the role of monetary policy in the collapse in the long-term real interest rates in the decade before the onset of the financial crisis using a sample of five advanced economies (United States, United Kingdom, the euro area, Sweden and Canada). The results from an estimated panel VAR with monthly data show that, while monetary policy shocks had negligible effects on long-term real interest rates, shocks to the long-term real interest rates had a one-to-one effect on the short nominal rate.
456
This paper empirically tests the role of bank lending tightening on non-financial corporate (NFC) bond issuance in the eurozone. By utilizing a unique data set provided by the ECB Bank Lending Survey, we capture the "pure" credit supply effect on corporate external financing. We find that tightened credit standards positively affect the NFC bond issuance: A 1pp increase in banks reporting considerable tightening on loans leads to around a 7% increase in firms' bond issuance in the eurozone. Focusing on a spectrum of aspects contributing to bank credit tightening, we document that banks' balance sheet constraints, as well as the perception of risk lead to significantly higher NFC bond issuance. In addition, we show that stricter lending conditions, such as wider margins, higher collateral requirements and covenants significantly increase NFC bond issuance volumes too. Furthermore, the impact of bank credit tightening on firms' bond issuance is particularly observable in core eurozone countries and not in peripheral countries. This is partially due to the underdeveloped of debt capital markets in the peripheral countries.
455
This paper investigates the determinants of value and growth investing in a large administrative panel of Swedish residents over the 1999-2007 period. We document strong relationships between a household’s portfolio tilt and the household’s financial and demographic characteristics. Value investors have higher financial and real estate wealth, lower leverage, lower income risk, lower human capital, and are more likely to be female than the average growth investor. Households actively migrate to value stocks over the life-cycle and, at higher frequencies, dynamically offset the passive variations in the value tilt induced by market movements. We verify that these results are not driven by cohort effects, financial sophistication, biases toward popular or professionally close stocks, or unobserved heterogeneity in preferences. We relate these household-level results to some of the leading explanations of the value premium.
454
We analyze the risk premium on bank bonds at origination with a special focus on the role of implicit and explicit public guarantees and the systemic relevance of the issuing institutions. By looking at the asset swap spread on 5,500 bonds, we find that explicit guarantees and sovereign creditworthiness have a substantial effect on the risk premium. In addition, while large institutions still enjoy lower issuance costs linked to the TBTF framework, we find evidence of enhanced market disciple for systemically important banks which face, since the onset of the financial crisis, an increased premium on bond placements.
453
We examine the impact of so-called "Crisis Contracts" on bank managers' risk-taking incentives and on the probability of banking crises. Under a Crisis Contract, managers are required to contribute a pre-specified share of their past earnings to finance public rescue funds when a crisis occurs. This can be viewed as a retroactive tax that is levied only when a crisis occurs and that leads to a form of collective liability for bank managers. We develop a game-theoretic model of a banking sector whose shareholders have limited liability, so that society at large will suffer losses if a crisis occurs. Without Crisis Contracts, the managers' and shareholders' interests are aligned, and managers take more than the socially optimal level of risk. We investigate how the introduction of Crisis Contracts changes the equilibrium level of risk-taking and the remuneration of bank managers. We establish conditions under which the introduction of Crisis Contracts will reduce the probability of a banking crisis and improve social welfare. We explore how Crisis Contracts and capital requirements can supplement each other and we show that the efficacy of Crisis Contracts is not undermined by attempts to hedge.
452
This paper solves a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. It uses a zero-profit condition for mortgage lenders to solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable vs. fixed mortgage rates, loan-to-value ratios, and mortgage affordability measures on mortgage premia and default. Heterogeneity in borrowers' labor income risk is important for explaining the higher default rates on adjustable-rate mortgages during the recent US housing downturn, and the variation in mortgage premia with the level of interest rates.
451
Inflation differentials in the euro area have been persistent since the adoption of the single currency. This paper analyzes the impact of product and labor market regulation on inflation in a sample of 11 countries. The results show that, after the adoption of the euro, product market deregulation has a relevant and significant effect on the level of inflation, while higher labor market regulation increases the responsiveness of inflation to the output gap.
450
We propose an iterative procedure to efficiently estimate models with complex log-likelihood functions and the number of parameters relative to the observations being potentially high. Given consistent but inefficient estimates of sub-vectors of the parameter vector, the procedure yields computationally tractable, consistent and asymptotic efficient estimates of all parameters. We show the asymptotic normality and derive the estimator's asymptotic covariance in dependence of the number of iteration steps. To mitigate the curse of dimensionality in high-parameterized models, we combine the procedure with a penalization approach yielding sparsity and reducing model complexity. Small sample properties of the estimator are illustrated for two time series models in a simulation study. In an empirical application, we use the proposed method to estimate the connectedness between companies by extending the approach by Diebold and Yilmaz (2014) to a high-dimensional non-Gaussian setting.