When Fiscal consolidation meets private deleveragingADEMU_Project
This document summarizes a model that analyzes the interaction between public and private deleveraging in a small open economy. The model shows that larger and front-loaded fiscal consolidations entail larger output and welfare losses by postponing the end of the private deleveraging process. The model finds that deleveraging-friendly fiscal consolidations that are more gradual in nature minimize these losses.
When Fiscal consolidation meets private deleveragingADEMU_Project
This document summarizes a model that analyzes the interaction between public and private deleveraging in a small open economy. The model shows that larger and front-loaded fiscal consolidations entail larger output and welfare losses by postponing the end of the private deleveraging process. The model finds that deleveraging-friendly fiscal consolidations that are more gradual in nature minimize these losses.
This document discusses whether debt levels are too high in the Euro area, specifically looking at Greece and other high-debt countries like Italy. For Greece, the author argues debt is unsustainable and needs to be reduced through an official debt restructuring. For other countries, debt may be sustainable now but leaves them vulnerable to shocks that could trigger another crisis. Two approaches for reducing debt are discussed: gradual fiscal adjustment or conducting a debt swap operation where some national debts are exchanged for Euro area debt. However, both approaches face challenges in providing credible commitment to debt reduction.
"Debt Sustainability and the Terms of Official Support", by Giancarlo Corsett...ADEMU_Project
This document discusses how the terms of official lending can impact assessments of whether a country can sustain its debt levels. It presents a three-period model to illustrate how official lending with certain terms, such as long-term maturities at concessional rates, can restore debt sustainability by reducing the risk of default. The model is then used to analyze Portugal's debt crisis from 2011-2015, finding that official lending through the IMF and ESM helped lower borrowing costs and change the composition of Portugal's debt in a way that matches the data. Counterfactual analyses suggest debt sustainability thresholds are more sensitive to debt maturity terms than interest rate spreads.
James Costain: fiscal delegation in a monetary unionADEMU_Project
The document analyzes mechanisms to restrain deficit bias in a monetary union, including fiscal delegation. It compares several policy games to analyze the macroeconomic and political-economic implications of delegating fiscal instruments in a monetary union. The paper models an economy with output varying based on surprise inflation and taxes. It then analyzes scenarios including a monetary union with decentralized fiscal policy (benchmark), and fiscal delegation systems that centralize some fiscal instruments. It aims to study the dynamic implications of fiscal delegation and whether large steady state gains justify short-run costs or impacts on business cycle stabilization.
Ana Gouveia - Financial Policies, financial systems and productivity - Discus...Structuralpolicyanalysis
This document summarizes discussions from a conference on weak productivity and the role of financial factors and policies. It discusses four academic papers and their findings. The first paper finds that restricted credit availability due to the financial crisis led to increased business failure, especially for highly leveraged firms. The second paper finds that weak banks and high firm leverage reduced investment, and this effect was stronger for firms linked to weak banks with high rollover risk. The third paper finds that loose monetary policy increased productivity growth by alleviating credit constraints, while quantitative easing reduced productivity growth. The document then discusses insights from research on Portugal, including definitions of weak banks, mechanisms like the link between weak banks and zombie firms, non-linear effects of leverage on investment
1) The study examines whether high levels of corporate debt and short-term debt held back private corporate investment in Europe during the crisis.
2) The findings show that investment was linked to higher leverage, increased debt service costs, and relationships with weak banks. Firms with more long-term debt, which lowers rollover risk, increased investment more, especially if linked to weak banks.
3) Having a relationship with a weak bank negatively impacted investment, but this effect disappeared once demand shocks were controlled for. Debt overhang and rollover risk explained about 60% of the actual decline in aggregate corporate investment during the crisis period.
1) The document examines how government intervention in the banking sector during financial crises affects long-term productivity.
2) It finds that higher regulatory forbearance (allowing struggling banks to remain open) reduces short-term economic losses but is negatively associated with post-crisis productivity growth, as it allows inefficient firms to remain in operation.
3) In contrast, tougher policies like bank restructuring that force struggling banks to close are found to yield higher long-term job creation, wages, and economic growth, suggesting financial crises can "cleanse" economies of inefficient firms and banks when governments take a stricter approach.
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
The document discusses how global insurers are rethinking their investment strategies in response to divergent monetary policies and quantitative easing programs. It finds that while insurers see positive short-term effects of QE on asset prices and growth, many are concerned about potential long-term imbalances and market distortions. Insurers are seeking to increase yield by taking on more risk, but are struggling due to low liquidity in fixed income markets and the lack of quality opportunities. They are holding high cash levels as they look for the right investments. Insurers are diversifying into alternative assets like real estate and private credit that generate income. Overall monetary policy uncertainty is a challenge as insurers balance short-term benefits of QE against
1. The document analyzes the relationship between credit supply and productivity growth using a dataset of Italian firms and banks.
2. The authors find that a 1% increase in credit supply leads to a 0.1-0.13% increase in productivity growth, as measured by value added. They estimate that credit supply constraints can explain 12-30% of the observed drop in productivity during the financial crisis of 2007-2009 in Italy.
3. The effect is stronger for manufacturing firms, small firms, and firms with fewer lenders. The authors also find the effect persists over time and that negative credit supply shocks have a larger impact than positive shocks.
Leszek Balcerowicz. Euro: problems and solutionsEesti Pank
This document summarizes a presentation on problems and solutions related to the Euro. It discusses economic growth in the EU from 2008-2013, reasons for deep recessions in some Eurozone countries including financial and fiscal crises, policy responses and their impact on GDP growth, issues related to the Eurozone crisis, and necessary solutions. The presentation contains graphs and tables displaying economic indicators for various countries.
Costs of sovereign default: restructuring strategies, bank distress and the c...ADEMU_Project
This document discusses a research project analyzing how the costs of sovereign debt default, including impacts on economic growth, are affected by the restructuring strategy employed and whether the default triggers a bank crisis. The researchers aim to identify transmission channels through which defaults impact GDP, investment, bank credit, and capital flows, and whether these channels are influenced by the default strategy. They use a dataset of debt default and banking crisis events in 69 countries from 1970-2013. Local projections and augmented inverse probability weighting methods are employed to estimate effects on macroeconomic variables while addressing endogeneity concerns. Preliminary results suggest defaults negatively impact growth, investment, and credit by weakening the financial sector, and these effects depend on the restructuring strategy and whether a bank
This presentation provides key findings from the 2017 edition of the OECD Sovereign Borrowing Outlook. This includes gross borrowing requirements, net borrowing requirements, central government marketable debt, funding strategies and instruments and distribution channels.
Find out more information at http://www.oecd.org/finance/oecdsovereignborrowingoutlook.htm
Financial frictions likely contributed to the sharp and persistent productivity slowdown observed in advanced economies since the Global Financial Crisis (GFC).
The study finds that firms with higher pre-GFC debt vulnerabilities, such as larger amounts of debt maturing in 2008, experienced larger post-GFC declines in productivity growth compared to less vulnerable firms. This negative effect was stronger in countries where credit conditions tightened more severely after the collapse of Lehman Brothers.
The results suggest financial frictions hampered investment in intangible assets at vulnerable firms, reducing productivity. In contrast, such relationships were not observed following past recessions that did not involve banking crises, indicating the GFC had distinct and longer-lasting impacts
The document summarizes and discusses three papers on the relationship between financial frictions, capital misallocation, and productivity. All three papers find different and innovative empirical evidence on this relationship. The discussion focuses on reconciling the different results, addressing open questions, and identifying areas where more work is needed, such as understanding differences between countries and the roles of banks, firm financial constraints, and credit supply shocks.
The document summarizes discussions from three papers presented at a conference on weak productivity and the role of financial factors and policies.
The first two papers examine the real effects of credit constraints on firms during the global financial crisis. One finds that investment declined more for highly leveraged firms borrowing from weak banks. The other finds higher exit rates for firms borrowing from weak banks, especially highly leveraged and more productive firms. The document discusses potential drivers of these results and suggestions for further analysis.
The third paper analyzes how monetary policy shocks that flatten the yield curve can negatively impact productivity growth by reducing efficient reallocation of factors across sectors. The document questions the theoretical basis and interpretations of this finding, noting little interest rate variability
The document summarizes and comments on three papers related to the impact of financial constraints on productivity. The papers find both positive and negative impacts of financial constraints. At the firm level, constraints negatively impact incumbent firms' productivity but positively impact productivity through cleansing effects. At the industry level, constraints have an inverted U-shaped impact on productivity. At the country level, constraints primarily influence productivity through cleansing mechanisms, though the relationship is complex and circular between productivity, interest rates, and other factors.
The New Risk Management Framework after the 2008 Financial CrisisBarry Schachter
1) The document discusses lessons learned from the 2008 financial crisis and proposes a new framework for risk management that views markets as complex networks with interconnected risk-takers.
2) Key challenges discussed include the difficulty of attributing causes to complex problems, measuring rare events, and addressing issues like illiquidity, crowded trades, and hidden correlations from a network perspective.
3) A new approach to risk management is suggested that shifts the focus from improving old paradigms to rethinking risk management entirely through the lens of dynamic networked markets.
How Can We See It Coming - Kylie Mills - 440565732Kylie Mills
The document discusses the challenges of risk-based regulation and lessons that can be learned from the global financial crisis. It argues that regulators were not well-positioned to identify the risk factors leading up to the crisis because warning signs were ambiguous and interpreted differently due to the prevailing context and ideology at the time. Understanding risk is difficult as risk perception is subjective and influenced by many contextual factors. The best regulators can do is deepen their understanding of the contextual nature of risk analysis and interpretation.
This document discusses whether debt levels are too high in the Euro area, specifically looking at Greece and other high-debt countries like Italy. For Greece, the author argues debt is unsustainable and needs to be reduced through an official debt restructuring. For other countries, debt may be sustainable now but leaves them vulnerable to shocks that could trigger another crisis. Two approaches for reducing debt are discussed: gradual fiscal adjustment or conducting a debt swap operation where some national debts are exchanged for Euro area debt. However, both approaches face challenges in providing credible commitment to debt reduction.
"Debt Sustainability and the Terms of Official Support", by Giancarlo Corsett...ADEMU_Project
This document discusses how the terms of official lending can impact assessments of whether a country can sustain its debt levels. It presents a three-period model to illustrate how official lending with certain terms, such as long-term maturities at concessional rates, can restore debt sustainability by reducing the risk of default. The model is then used to analyze Portugal's debt crisis from 2011-2015, finding that official lending through the IMF and ESM helped lower borrowing costs and change the composition of Portugal's debt in a way that matches the data. Counterfactual analyses suggest debt sustainability thresholds are more sensitive to debt maturity terms than interest rate spreads.
James Costain: fiscal delegation in a monetary unionADEMU_Project
The document analyzes mechanisms to restrain deficit bias in a monetary union, including fiscal delegation. It compares several policy games to analyze the macroeconomic and political-economic implications of delegating fiscal instruments in a monetary union. The paper models an economy with output varying based on surprise inflation and taxes. It then analyzes scenarios including a monetary union with decentralized fiscal policy (benchmark), and fiscal delegation systems that centralize some fiscal instruments. It aims to study the dynamic implications of fiscal delegation and whether large steady state gains justify short-run costs or impacts on business cycle stabilization.
Ana Gouveia - Financial Policies, financial systems and productivity - Discus...Structuralpolicyanalysis
This document summarizes discussions from a conference on weak productivity and the role of financial factors and policies. It discusses four academic papers and their findings. The first paper finds that restricted credit availability due to the financial crisis led to increased business failure, especially for highly leveraged firms. The second paper finds that weak banks and high firm leverage reduced investment, and this effect was stronger for firms linked to weak banks with high rollover risk. The third paper finds that loose monetary policy increased productivity growth by alleviating credit constraints, while quantitative easing reduced productivity growth. The document then discusses insights from research on Portugal, including definitions of weak banks, mechanisms like the link between weak banks and zombie firms, non-linear effects of leverage on investment
1) The study examines whether high levels of corporate debt and short-term debt held back private corporate investment in Europe during the crisis.
2) The findings show that investment was linked to higher leverage, increased debt service costs, and relationships with weak banks. Firms with more long-term debt, which lowers rollover risk, increased investment more, especially if linked to weak banks.
3) Having a relationship with a weak bank negatively impacted investment, but this effect disappeared once demand shocks were controlled for. Debt overhang and rollover risk explained about 60% of the actual decline in aggregate corporate investment during the crisis period.
1) The document examines how government intervention in the banking sector during financial crises affects long-term productivity.
2) It finds that higher regulatory forbearance (allowing struggling banks to remain open) reduces short-term economic losses but is negatively associated with post-crisis productivity growth, as it allows inefficient firms to remain in operation.
3) In contrast, tougher policies like bank restructuring that force struggling banks to close are found to yield higher long-term job creation, wages, and economic growth, suggesting financial crises can "cleanse" economies of inefficient firms and banks when governments take a stricter approach.
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
The document discusses how global insurers are rethinking their investment strategies in response to divergent monetary policies and quantitative easing programs. It finds that while insurers see positive short-term effects of QE on asset prices and growth, many are concerned about potential long-term imbalances and market distortions. Insurers are seeking to increase yield by taking on more risk, but are struggling due to low liquidity in fixed income markets and the lack of quality opportunities. They are holding high cash levels as they look for the right investments. Insurers are diversifying into alternative assets like real estate and private credit that generate income. Overall monetary policy uncertainty is a challenge as insurers balance short-term benefits of QE against
1. The document analyzes the relationship between credit supply and productivity growth using a dataset of Italian firms and banks.
2. The authors find that a 1% increase in credit supply leads to a 0.1-0.13% increase in productivity growth, as measured by value added. They estimate that credit supply constraints can explain 12-30% of the observed drop in productivity during the financial crisis of 2007-2009 in Italy.
3. The effect is stronger for manufacturing firms, small firms, and firms with fewer lenders. The authors also find the effect persists over time and that negative credit supply shocks have a larger impact than positive shocks.
Leszek Balcerowicz. Euro: problems and solutionsEesti Pank
This document summarizes a presentation on problems and solutions related to the Euro. It discusses economic growth in the EU from 2008-2013, reasons for deep recessions in some Eurozone countries including financial and fiscal crises, policy responses and their impact on GDP growth, issues related to the Eurozone crisis, and necessary solutions. The presentation contains graphs and tables displaying economic indicators for various countries.
Costs of sovereign default: restructuring strategies, bank distress and the c...ADEMU_Project
This document discusses a research project analyzing how the costs of sovereign debt default, including impacts on economic growth, are affected by the restructuring strategy employed and whether the default triggers a bank crisis. The researchers aim to identify transmission channels through which defaults impact GDP, investment, bank credit, and capital flows, and whether these channels are influenced by the default strategy. They use a dataset of debt default and banking crisis events in 69 countries from 1970-2013. Local projections and augmented inverse probability weighting methods are employed to estimate effects on macroeconomic variables while addressing endogeneity concerns. Preliminary results suggest defaults negatively impact growth, investment, and credit by weakening the financial sector, and these effects depend on the restructuring strategy and whether a bank
This presentation provides key findings from the 2017 edition of the OECD Sovereign Borrowing Outlook. This includes gross borrowing requirements, net borrowing requirements, central government marketable debt, funding strategies and instruments and distribution channels.
Find out more information at http://www.oecd.org/finance/oecdsovereignborrowingoutlook.htm
Financial frictions likely contributed to the sharp and persistent productivity slowdown observed in advanced economies since the Global Financial Crisis (GFC).
The study finds that firms with higher pre-GFC debt vulnerabilities, such as larger amounts of debt maturing in 2008, experienced larger post-GFC declines in productivity growth compared to less vulnerable firms. This negative effect was stronger in countries where credit conditions tightened more severely after the collapse of Lehman Brothers.
The results suggest financial frictions hampered investment in intangible assets at vulnerable firms, reducing productivity. In contrast, such relationships were not observed following past recessions that did not involve banking crises, indicating the GFC had distinct and longer-lasting impacts
The document summarizes and discusses three papers on the relationship between financial frictions, capital misallocation, and productivity. All three papers find different and innovative empirical evidence on this relationship. The discussion focuses on reconciling the different results, addressing open questions, and identifying areas where more work is needed, such as understanding differences between countries and the roles of banks, firm financial constraints, and credit supply shocks.
The document summarizes discussions from three papers presented at a conference on weak productivity and the role of financial factors and policies.
The first two papers examine the real effects of credit constraints on firms during the global financial crisis. One finds that investment declined more for highly leveraged firms borrowing from weak banks. The other finds higher exit rates for firms borrowing from weak banks, especially highly leveraged and more productive firms. The document discusses potential drivers of these results and suggestions for further analysis.
The third paper analyzes how monetary policy shocks that flatten the yield curve can negatively impact productivity growth by reducing efficient reallocation of factors across sectors. The document questions the theoretical basis and interpretations of this finding, noting little interest rate variability
The document summarizes and comments on three papers related to the impact of financial constraints on productivity. The papers find both positive and negative impacts of financial constraints. At the firm level, constraints negatively impact incumbent firms' productivity but positively impact productivity through cleansing effects. At the industry level, constraints have an inverted U-shaped impact on productivity. At the country level, constraints primarily influence productivity through cleansing mechanisms, though the relationship is complex and circular between productivity, interest rates, and other factors.
The New Risk Management Framework after the 2008 Financial CrisisBarry Schachter
1) The document discusses lessons learned from the 2008 financial crisis and proposes a new framework for risk management that views markets as complex networks with interconnected risk-takers.
2) Key challenges discussed include the difficulty of attributing causes to complex problems, measuring rare events, and addressing issues like illiquidity, crowded trades, and hidden correlations from a network perspective.
3) A new approach to risk management is suggested that shifts the focus from improving old paradigms to rethinking risk management entirely through the lens of dynamic networked markets.
How Can We See It Coming - Kylie Mills - 440565732Kylie Mills
The document discusses the challenges of risk-based regulation and lessons that can be learned from the global financial crisis. It argues that regulators were not well-positioned to identify the risk factors leading up to the crisis because warning signs were ambiguous and interpreted differently due to the prevailing context and ideology at the time. Understanding risk is difficult as risk perception is subjective and influenced by many contextual factors. The best regulators can do is deepen their understanding of the contextual nature of risk analysis and interpretation.
Tracking Variation in Systemic Risk-2 8-3edward kane
This paper proposes a new measure of systemic risk for US banks from 1974-2013 based on Merton's model of credit risk. The measure treats deposit insurance as an implicit option where taxpayers cover bank losses. Each bank's systemic risk is its contribution to the value of this sector-wide option. The model estimates show systemic risk peaked in 2008-2009 during the financial crisis, and bank size, leverage, and risk-taking were key drivers of systemic risk over time.
Combined Credit And Political Risk Paperathula_alwis
This document proposes two methods for modeling combined credit and political risk in emerging markets:
1. A diffusion process that sums individual credit and political risk default rates, subtracting any overlap estimated via a copula function. This provides a conservative starting point but does not fully capture the coverage.
2. A jump diffusion process that allows for sudden increases in default rates during crisis periods. This approach more accurately reflects the coverage provided by combined credit and political risk insurance.
The paper recommends the jump diffusion method and outlines using historical data on default rates, losses, and correlations to develop a stochastic model quantifying the risk-reward profile to support underwriting this line of business.
This thesis examines how policymakers should respond during times of financial sector distress. It outlines that policymakers face two critical tasks: 1) identifying and addressing the issues critical to the crisis, and 2) ensuring the financial sector reaches a new equilibrium. The importance and nature of these tasks will be illustrated using evidence from the Asian Financial Crisis and the U.S. Savings and Loans Crisis. Frameworks will also be proposed to guide policymakers in accomplishing each task.
This document summarizes the Global Risks 2007 report published by the World Economic Forum. It provides an assessment of 23 core global risks in terms of their likelihood and potential economic and human impacts over the next 10 years. It finds that while some tactical gains have been made in risk mitigation, the levels of most global risks are rising faster than mechanisms to manage them. It highlights climate change as one of the defining challenges of the 21st century and calls for more active engagement from all parts of the international community to address increasing global interdependencies and vulnerabilities.
This whitepaper discusses next generation financial risk monitoring using a framework called Datashop Alchemy. It summarizes an approach to measuring systemic risk using interconnectedness between financial institutions and their credit ratings. The framework evaluates daily systemic risk scores using this methodology and visualizes the results. It is intended to help central banks, financial institutions, and other industries monitor systemic risk in their networks to identify risks and support decision making.
Mefmi presentation on Macroprudental supervision and financial stability asse...Tinashe Bvirindi
This document discusses developing a framework for macroprudential policy in MEFMI member countries. It begins by outlining challenges to effective macroprudential policy implementation, such as a lack of consensus on defining financial stability. It then reviews current regional practices in selected countries. The objectives of the study are described as exploring the relationship between the financial system and macroeconomy, measuring systemic risks, and measuring feedback effects. A dynamic stochastic general equilibrium model is proposed for the analysis, along with acknowledgement of some weaknesses of the model.
Discussion of “Systemic and Systematic risk” by Billio et al. and “CDS based ...SYRTO Project
Discussion of “Systemic and Systematic risk” by Billio et al. and “CDS based indicators for systemic risk of Euro area sovereigns and for Euro area financial firms” by Lucas et al. - Carsten Detken.
SYRTO Code Workshop
Workshop on Systemic Risk Policy Issues for SYRTO (Bundesbank-ECB-ESRB)
Head Office of Deustche Bundesbank, Guest House
Frankfurt am Main - July, 2 2014
OECD, 35th Meeting of Senior Budget Officials - George KopitsOECD Governance
This presentation by George Kopits was made at the 35th Meeting of Senior Budget Officials held in Berlin on 12-13 June 2014. Find more information at http://www.oecd.org/gov/budgeting/35thannualmeetingofoecdseniorbudgetofficialssboberlingermany12-13june2014.htm
This document discusses different types of fiscal risk that governments face. It identifies three main types - economic, technical, and political risks. Economic risks relate to forecast errors in macroeconomic variables, while technical risks arise from errors in revenue and spending forecasts. The document further classifies risks as specific, general, or systemic. Specific risks include contingent liabilities from government guarantees. General risks stem from errors in macroeconomic and demographic forecasts. Systemic risks threaten the stability of the entire fiscal system. The document reviews country practices for estimating and managing fiscal risks, and identifies lessons for improving transparency, risk assessment, and mitigation.
The current financial turmoil stems from the mispricing of risk in recent years. While some warnings were issued, the precise trigger event was not predicted. The crisis has highlighted systemic financial risk as a major global concern. The transformation of the financial system over the past 20 years through deregulation, innovation, and integration has increased complexity and interconnectedness, complicating the management of systemic risk. As the crisis continues to unfold, questions remain around the stability and resilience of the financial system in the face of severe stress.
This document summarizes initial lessons from the financial crisis in three areas: regulation, macroeconomic policy, and the global financial system. Key failures included fragmented regulation that allowed regulatory arbitrage, a lack of coordination between macro and financial stability policies, and an inability within the global system to identify vulnerabilities. Lessons indicate regulation needs broader oversight of all systemically important financial activities, macro policies should consider financial stability risks, and greater international cooperation is required.
This document provides an overview of a research study measuring the vulnerability of financial systems in ASEAN countries like Thailand and Indonesia. The study uses a qualitative case study methodology, collecting data from documentation, archival records, and interviews via email questionnaires. The analysis will explore systemic risks faced by Thailand and Indonesia from factors like the Federal Reserve, capital market speculators, and money markets. It will measure risks like counterparty risk, exchange rate risk, and liquidity risk using tools like the Balance Sheet Approach. The conclusion will provide policy recommendations based on how each country responded differently based on their respective competencies in facing risks.
Speculations on the Role of the Risk Manager Post CrisisBarry Schachter
Thoughts on how financial risk management and the demands on risk managers may change based on lessons learned from and actions taken as a result of the crisis.
RISK & RETURN UNDER SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT IS DESCRIBED, ALL THE DETAILED EXPLANATION OF TOPIC IS GIVEN UNDER THIS DOCUMENT.
CAN ALSO REFERRED FOR FINANCIAL MANAGEMENT, INSURANCE.
This document provides an overview of insurance markets in Latin America and the Caribbean. It discusses how insurance facilitates economic activity by allowing individuals and businesses to manage risks. The survey presented analyzes perceptions of the insurance industry in the region to identify factors affecting its development. Key findings include that insurance penetration and availability remain low compared to other regions. The document concludes by calling for further research to inform policies to strengthen insurance markets.
Public debt and risk premium: An analysis from an emerging economyFarhad Hafez
This powerpoint presentation summarizes a document analyzing the relationship between public debt, risk premium, and fiscal policies in emerging economies. It finds that higher public debt to GDP ratios are associated with higher risk premiums on government bonds. Primary budget surpluses and managing debt maturity levels were found to help reduce risk premiums. The results supported the idea that domestic economic factors mainly drive risk premiums in emerging markets, unlike some previous studies that found international variables were key drivers. The presentation concludes that maintaining primary budget surpluses is an effective mechanism for emerging economies to stabilize their economies and reduce bond risk premiums.
The document discusses client over-indebtedness (OID) in microfinance. It defines OID as the inability to repay all debts fully and on time. While multiple indebtedness and OID are often confused, OID only occurs when the situation is chronic and against the borrower's will. The two biggest concerns in microfinance globally related to OID are credit risk and reputation risk. The document also presents methods for constructing an early warning index to predict crises related to over-indebtedness by identifying historical crises, selecting leading indicators, and applying the index.
The document discusses client over-indebtedness (OID) in microfinance. It defines OID as the inability to repay all debts fully and on time. While multiple indebtedness and OID are often confused, OID only occurs when the situation is chronic and against the borrower's will. The two biggest concerns in microfinance globally related to OID are credit risk and reputation risk. The document also presents methods for constructing an early warning index to predict crises related to over-indebtedness by identifying historical crises, selecting leading indicators, and applying the index.
Similar to Converging to a comprehensive risk-adjusted fiscal sustainability analysis (20)
Discussion of fiscal policies in the euro area: revisiting the size of spillo...ADEMU_Project
1) The document discusses a study that estimates fiscal multipliers and spillover effects within and between major euro area countries.
2) The study uses a quarterly fiscal dataset and local projections to estimate multipliers for different types of government spending, finding domestic multipliers around 1 and larger multipliers for public investment.
3) The study also finds predominantly positive spillover effects between countries, though effects are largely insignificant and smaller for Germany as the origin country despite it having the largest domestic multipliers. Trade channels are found to be important for explaining spillover effects.
Fiscal rules and independent fiscal councilsADEMU_Project
This document discusses improving fiscal rules and independent fiscal councils. It proposes:
1. Making fiscal rules more symmetric by compensating for past deviations from targets and updating recommendations based on economic changes.
2. Strengthening enforcement of fiscal rules by expanding conditionality of EU funds to all member states.
3. Encouraging economic resilience by linking fiscal and macroeconomic policies.
4. Simplifying complex fiscal rules through independent judgment, with escape clauses triggered by independent institutions based on economic circumstances.
The document also reviews the proliferation of independent fiscal councils and rules globally and their empirical impact on fiscal outcomes. Design features are important to councils' effectiveness.
Discussion paper: The welfare and distributional effects of fiscal volatility...ADEMU_Project
The document summarizes a research paper that evaluates the welfare and distributional effects of fiscal volatility using a quantitative model. The paper uses a standard Krusell-Smith model with government spending and tax shocks, calibrated to match wealth inequality. It finds that eliminating government spending shocks increases welfare by 0.029%, with effects increasing for wealthier households. The key transmission is volatility in marginal tax rates affecting returns for wealthy agents. The summarized paper is praised for its clear execution and potential for further research on portfolio choice and longer-term fiscal shocks.
A minimal moral hazard central stabilization capacity for the EMU based on wo...ADEMU_Project
This document proposes an "export-based stabilisation capacity" (ESC) for the Eurozone that allows for cross-border transfers in response to changes in world trade across different sectors. The ESC would provide transfers from countries less affected by a decline in world trade in a given sector to countries more dependent on that sector. This is intended to cushion economic shocks while avoiding moral hazard concerns since the transfers are based on exogenous world trade factors. A simulation using historical export data finds the transfers would be countercyclical and stabilize over time, suggesting the risk of permanent transfers is low. However, timely availability of sectoral trade data could pose practical challenges to implementation.
Fiscal multipliers and foreign holdings of public debt - working paperADEMU_Project
This paper explores the relationship between fiscal multipliers and foreign holdings of public debt. Using data from the US postwar period and a panel of 17 advanced economies, the paper finds that fiscal multipliers are larger when a higher share of public debt is held by foreign residents rather than domestic residents. This is because when debt is held by foreigners, fiscal expansions face weaker crowding-out effects on domestic private consumption and investment. The paper develops a model to explain this relationship and employs various empirical methods to estimate fiscal multipliers conditioned on the foreign share of public debt.
Sovereign risk and fiscal information: a look at the US state of default in t...ADEMU_Project
This document summarizes a paper that examines how fiscal information affects sovereign bond yields using historical fiscal data from U.S. states in the 1830s-1840s. It finds fiscal information indexes constructed for each state affected bond prices only during the crisis period after 1839. The paper rationalizes this using a costly information model. The document provides comments on identifying the direction of causality between fiscal information and bond prices, and measuring fiscal information and bond prices. It suggests exploring exogenous information components and using bond yields rather than prices in the analysis.
Hanging off a cliff: fiscal consolidations and default riskADEMU_Project
Fiscal consolidations through tax increases may have a limited effect on reducing default risk. While tax increases improve the budget balance, they also induce economic distortions by lowering returns in the formal sector and increasing tax evasion. This impacts the government's future ability to raise revenues, which investors incorporate into debt prices. The model shows fiscal consolidations may only marginally reduce default risk when revenue raising ability is imperfect.
Fiscal rules and the sovereign default premiumADEMU_Project
This document summarizes a research paper on using fiscal rules and sovereign bond spreads to anchor fiscal policy expectations. It finds that a fiscal rule targeting a ceiling on sovereign bond spreads, or "spread brake", outperforms a rule targeting a ceiling on debt levels, or "debt brake". A spread brake provides a more robust policy anchor that is better suited for heterogeneous economies. It allows borrowing levels to vary appropriately with debt intolerance. A common spread brake threshold maximizes welfare gains compared to a common debt ceiling. Future work is needed to determine optimal spread thresholds and implementation of spread brakes.
Limited participation and local currency sovereign debtADEMU_Project
This document summarizes a paper that builds economic models to explain the large increase in foreign holdings of local currency emerging market sovereign debt. The paper develops models with limited market participation and different investor types to show how foreign investor entry into local currency bond markets can increase when risk aversion is low. Simulation of the models using interest rate data suggests foreign holdings of local currency debt rose strongly after the Great Recession when developed country rates fell. The paper aims to understand the implications of changing currency composition and investor composition of emerging market government debt.
This document discusses optimal debt maturity management. It presents a model where a sovereign can issue a continuum of bonds with arbitrary cash flows to examine debt dynamics. The model highlights the role of liquidity costs in shaping issuance and maturity choices. It shows that income and interest rate shocks can lead to cycles in issuance as the sovereign balances liquidity smoothing versus consumption smoothing. Longer maturity horizons and interest rate shocks emphasize consumption smoothing over liquidity smoothing in transitions following shocks.
The document discusses sovereign default in a monetary union. It presents three motivating facts: (1) key interest rates falling to zero, (2) rising sovereign default risk and government borrowing costs, and (3) simultaneous increases in interest rates across euro area countries. The research questions examine how monetary policy and sovereign default influence each other. Key results show strong spillover effects between monetary policy and default. Default induces expansionary monetary policy and more default occurs in a monetary union. The zero lower bound prevents expansionary monetary policy and default causes large declines in demand.
Pre-emptive sovereign debt restructuring and holdout litigationADEMU_Project
This document discusses pre-emptive sovereign debt restructuring and holdout litigation. It presents two research questions: 1) How does holdout litigation influence pre-emptive sovereign debt restructuring? 2) How would a Sovereign Debt Resolution Mechanism (SDRM) influence sovereign debt restructuring? The document then outlines a model to address these questions involving a sovereign issuing bonds, a risky project with uncertain output, and the sovereign's choice to repay or restructure its debts, which can involve holdout litigation that imposes costs. Equilibrium outcomes will depend on factors like the bankruptcy framework and secondary market conditions.
1) The document analyzes how political factors influence sovereign debt markets and default decisions in emerging economies. It builds a database covering macroeconomic, debt market, and political data for 63 countries over 22 years.
2) Empirically, it finds that left-leaning governments have higher taxes and spending, pay higher interest rates that are more volatile, and face more countercyclical interest rates than right-leaning governments.
3) It then develops a model of sovereign default with endogenous political turnover between left and right parties to rationalize these findings. The model explores how fiscal policy, debt levels, and the probability of political replacement influence repayment and default decisions.
Sovereign risk and fiscal information: a look at the US state of default in t...ADEMU_Project
This document summarizes research on the impact of fiscal information on U.S. state bond prices during the 1840s sovereign debt crisis. Key findings:
- Researchers constructed fiscal information indices from newspapers between 1830-1848, finding they followed state legislative activities.
- During the crisis, higher indices lowered bond prices for defaulting states like Pennsylvania and Maryland. No such impact was found before the crisis.
- Before the crisis, more fiscal information raised prices for "new" states like Indiana, suggesting investors found such information valuable when states had less established credit histories.
- The varying impact of information over time and across states provides evidence that costly information processing affected bond pricing during the 1840s state defaults.
Debt seniority and self-fulfilling debt crisesADEMU_Project
This paper examines how tranching, or issuing different classes of debt at different levels of seniority, can affect government incentives to default on debt and vulnerability to debt crises. The paper develops a model where a government chooses optimal tax rates and haircuts on debt to maximize welfare. It finds that tranching is only effective at reducing default risk when the senior tranche is large enough to push the government into a "corner solution" where it fully defaults on the junior tranche. With an intermediate senior tranche size, tranching has no effect due to risk neutrality and convex tax distortions. However, making default on the senior tranche sufficiently costly can enable tranching to eliminate self-fulfilling debt crises even with an
Sovereign default and information frictionsADEMU_Project
This document summarizes a model of sovereign default and information frictions in bond markets. The model introduces information frictions between traders who buy sovereign bonds. There are two types of traders: informed traders who receive private signals about future income growth, and noise traders who buy bonds randomly. In equilibrium, the market-clearing bond price acts as an endogenous public signal that is influenced by both private signals and noise trader demand. This noisy information aggregation can increase sovereign bond spreads, debt levels, and default incidence compared to standard models, helping resolve puzzles in sovereign debt markets. The model provides a potential resolution to puzzles around high and volatile sovereign bond spreads by introducing information frictions between bond market participants.
Ademu at the European Parliament, 27 March 2018ADEMU_Project
ADEMU scientific co-ordinator Ramon Marimon joined Marco Buti, director general of DG-ECFIN, DG Economic and Financial Affairs, Roberto Gualtieri, MEP and chair of the Committee on Economic and Monetary Affairs at the European Parliament, Maria Kayamanidou, deputy head of DG Research and Innovation at the EC, and Vincenzo Grassi, secretary general of the European University Institute, to discuss ADEMU's proposals for the European Unemployment Insurance System (EUIS) and the European Stability Fund (ESF).
Revisiting tax on top income - discussion by Johannes FleckADEMU_Project
1. The document discusses a paper that models the effects of tax changes in response to the European debt crisis.
2. The paper uses an economic model with heterogeneous agents to examine four different tax policy experiments: increasing overall tax progressivity to maximize revenue or welfare, or increasing taxes only on the top 1% to maximize these objectives.
3. The model finds that increasing overall progressivity is best for maximizing welfare, while increasing taxes only on the top 1% is best for maximizing revenue.
Should robots be taxed? Discussion by Lukas MayrADEMU_Project
Discussion of the paper by Joao Guerreiro (Northwestern University) Sergio Rebelo (Northwestern University, NBER and CEPR), Pedro Teles (Católica-Lisbon School of Business & Economics, Banco de Portugal and CEPR)
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...Donc Test
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
The Impact of Generative AI and 4th Industrial RevolutionPaolo Maresca
This infographic explores the transformative power of Generative AI, a key driver of the 4th Industrial Revolution. Discover how Generative AI is revolutionizing industries, accelerating innovation, and shaping the future of work.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
Every business, big or small, deals with outgoing payments. Whether it’s to suppliers for inventory, to employees for salaries, or to vendors for services rendered, keeping track of these expenses is crucial. This is where payment vouchers come in – the unsung heroes of the accounting world.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdf
Converging to a comprehensive risk-adjusted fiscal sustainability analysis
1. Discussion of
Converging to a Comprehensive Risk-Adjusted
Fiscal Sustainability Analysis
by George Kopits
Martin Larch
EUROPEAN FISCAL BOARD (EFB)
ADEMU Conference on Fiscal Risk
University of Bonn
July 6-7, 2017
2. 2
Some issues for discussion
• Assessing risks versus hedging against risks
• Exogenous shocks versus endogenous risks (taking into
account important second, and higher, round effects)
• More information – transparency - accountability
• Volatility and growth
2
Outline
3. Assessing risk versus hedging against risk
3
“ … the right answer to crisis avoidance is controlling risk.
The appropriate conceptual framework is Value-at-Risk – a
model-driven estimate of the maximum risk for a particular
balance sheet situation over a specified [time] horizon.
There are genuine issues of modelling, but there is no issue
whatsoever in recognizing that this approach is the right
one. If authorities everywhere enforced a culture of risk-
oriented evaluation of balance sheets, extreme situations
such as those [during the financial crisis] in Asia in 1997
would disappear or, at the least, become a rare species. ”
Rudiger Dornbusch (1998, 2002)
4. 4
"How do you hedge against the assassination of Archduke
Ferdinand?"
Douglas Rediker (FT 2017) former IMF executive director for the
USA.
"Uncertainty must be taken in a sense radically distinct from
the familiar notion of Risk, from which it has never been
properly separated.... The essential fact is that 'risk' means in
some cases a quantity susceptible of measurement, while at
other times it is something distinctly not of this character."
Frank Knight (1921)
Risk versus uncertaintyAssessing risk versus hedging against risk
5. 5
• Forecasting is always a matter of grappling with
uncertainty.
• But then, do we have all the information we need
in order to set accurate odds in the first place?
• Extrapolation from past experience sound only if
we can assume that observations are generated by
a stationary process.
• And even if we assessed risks correctly, can or do
we want to do anything about it? Policy response?
Assessing risk versus hedging against risk
6. Exogenous shocks versus endogenous risk
6
Focusing on exogenous shocks is not enough. Exogenous
shocks trigger an amplifying spiral, via declines in asset
prices and reductions in credit expansion which give rise
to major second, and higher, round effects.
New methods of risk assessment (e.g. systemic CCA)
•put greater emphasis on interconnectedness;
•capture linkages between institutions and the extent to
which they precipitate or amplify general market
distress;
•can be used to simulate the mitigating or amplifying
effects of alternative macro-prudential arrangements.
7. 7
Exogenous shocks versus endogenous risk
• How are spill-overs from the financial sector to the
public sector modelled?
• Interconnectedness is already difficult to model for
financial sector: what are implications for
government sector? How to value implicit
guarantees? More than implicit guarantees?
• Are there differences in spill-over risks from and to
government sector in euro area countries versus
parts of complete monetary unions?
8. 8
More information-transparency-accountability
More information only necessary
condition for better policies
Budgetary risks of ageing well known
since at least mid-1980s; some EU
member states still ill prepared.
Accountability improves with more
information only in case of fiscal
illusion
Better information does not solve
political economy problem
9. 9
Countries that have experienced financial crises have, on
average, grown faster than countries with stable financial
conditions. Rancière, Tornell, Westermann (2008) Systemic
Crises and Growth, Q J Econ, 123 (1): 359-406.
[…] the “bright” and “dark” sides of financial innovation. We
find supportive evidence for both the innovation-growth and
the innovation-fragility views. Beck, Chen, Lin, Song(2016)
Financial innovation: The bright and the dark sides, J of
Banking&Finance, 72:28-51.
Are crises the price to pay for higher growth?
Volatility and Growth
10. Converging to a comprehensive risk assessment
10
Baseline
Adverse scenario
t
11. 11
Converging to a comprehensive risk assessment
t
Baseline
Adverse scenario
12. 12
Converging to a comprehensive risk assessment
t
Baseline
Adverse scenario