A switching ARCH (SWARCH) model of stock market volatility: some evidence from Latin America

We use the Markov regime-switching ARCH (SWARCH) model of Hamilton and Susmel (J Econometrics 64:307–333, 1994) to document the presence of high volatility regimes in six Latin American countries (Argentina, Brazil, Chile, Mexico, Peru, and Venezuela). We found four high volatility episodes, each associated to either a local (the Mexican crisis of 1994, the Brazilian crisis of 1998–1999, the Argentinean crisis of 2001–2002) or a worldwide financial crisis (the Asian financial crisis of 1997). However, we found that the effects of each financial crisis are short-lived and that between 2 and 4 months after each crisis, all markets return to low volatility regimes.

Great depression no. 2: finance and the real world

The current crisis is triggering off a number of overdue reflections and interventions. The need for closer regulation of the financial system is widely perceived to be necessary. That is no doubt necessary, but probably insufficient. A careful overhaul of the functions of the banking and financial system is also needed. Our forefathers, at the time of the Great Depression, were perhaps less demurring to trim a bloated financial system.

Sovereign-Wealth Funds: the institutional dimension

In the recent past, the operations of the capital-rich Sovereign-Wealth Funds (SWFs) went on increasing in the global capital markets. As the global economic crisis that started in 2007 deepened, SWF operations dramatically spurted, leading to further progressive increase in their significance for the global capital markets. For all appearances they are going to be important financial players in the foreseeable future. This article focuses on the basic concept of SWFs, their structure and operations. It attempts to analyze and elucidate on them. Notwithstanding the fact that SWFs are an instrument of enhancing liquidity and financial resource allocation in the international capital market, they managed to become a source of controversies. Consequently they became a source of escalation in financial protectionism in several advanced industrial economies, in particular the USA. The article concludes that this was unwarranted. Recently SWFs have attempted to device an array of best practices to improve the transparency of their global financial operations. These measures are expected to enhance the acceptance of SWFs as well as global recognition of their operations. They would also help in dispelling the negative image that SWFs have held in several advanced industrial economies.

The role of controls in the international financial crisis

The impact of the great financial crisis that started in the United States with the implosion of “subprime” loans has drawn the public’s attention on one of the most innovative branches of financial market, the famous derivatives. The financial crisis and the involvement of major banking institutions thus call for some thinking about the concept of control in Italy and in a globalized world. In Italy, even though the scale of the risks connected with transactions in derivatives is limited, some banks may have damaged their reputations by pushing complex derivative products onto unwitting clients. Apart from reassurance and all kinds of justifications, and without arguing whether this was deliberate or not, the monetary authorities, Consob, and ABI have clearly reported the risk of a world financial crisis too late.

International crises,instability periods and contagion: the case of the ERM

In this article we propose a two step procedure for modeling the propagation of financial shocks. The first step consists in the estimation, by means of SWARCH models, of the conditional probability of being in a period of high volatility, while in the second step such indicators are included in a structural simultaneous equations models for interdependences among different countries. The results show that episodes of financial crisis effectively happened during periods of high volatility and that such measures of instability are important in explaining the propagation of devaluation expectations between six European Countries during the ERM period.

Financial Development and Income in North Africa

We explore the short-run dynamics and long-run relationship between income and financial development in Algeria, Egypt, and Morocco. We use co-integration and VECM models and four indicators of financial development. The empirical results indicate that there is a long-run relationship between income and each financial development indicator, except credit to the private sector in Algeria. On the other hand, Granger-causality test results indicate that the evidence on the direction of causality is mixed.

The role of the financial sector in economic development: the Malaysian case

In this paper, we empirically examine the finance-economic development relations for the case of Malaysia. Using a battery of time series econometric techniques, we document robust evidence suggesting favorable output effects of financial market development. Likewise, there are consistent results showing the adverse real effects of financial volatility. The results of the development of financial intermediaries, however, are fragile. Moreover, the development of the financial markets hinges crucially on macro-economic performance and financial stability of the country. However, the process of financial market development is likely to be accompanied by financial volatility, leaving Malaysia with the trade-off between financial development and financial volatility. Lastly, we obtain limited evidence indicating the complementarity between financial market and banking sector developments.

On Laidler regarding the Austrian business cycle theory

The authors welcome criticisms emanating from neoclassical critics of Austrian economics. We congratulate Laidler for transcending the usual modes of macroeconomic analysis to take on praxeological considerations. This paper should be interpreted as a welcome for his efforts in the hope that they will be widely emulated within the profession.

Financial intermediation and growth: causality and causes without outliers

In a seminal paper, Levine et al. (J Monet Econ 46:31–77, 2000) provide cross-sectional evidence showing that financial development has positive average impact on long-run growth, using a sample of 71 countries. We argue that the evidence is sensitive to the presence of outliers.

The dynamics of the growth of firms: evidence from the services sector

Using a dynamic panel data model with serial correlation in the error term, the purpose of this paper is to examine if Gibrat’s Law can be rejected for the services sector as it has been for manufacturing. The aim of this paper is also to improve the understanding of the empirical determinants of firm growth by extending the literature to include a new variable related to foreign participation. In addition, and based on recent developments in the growth of firms, our analysis also includes the role of the financial structure. The sample used is an unbalanced panel data set that includes all size classes, including the smallest surviving firms, from the Portuguese service sector over the period from 1995 to 2001. Applying the GMM-system estimator our findings suggest that Gibrat’s Law is rejected for the services firms. In addition, the results also indicate that firm growth is mainly explained by firm size and age. These results have significant policy implications.

Primitive and Modern Economics: Derivatives,Liquidity, Value,Panic and Crises,A Uniformitarian View

This paper investigates aspects of economics in the context of complex society and the nature of investment devices in cross-cultural comparison, placing special attention on the new global issues of money, hedge fund contracts, derivatives and other risk-spreading concepts and practices. The function of these are compared to the behavior of the inventors and practitioners in other cultures. Similarities are noted with religious formulators and the process of conversion and the operation of the market and credit paralleled with the concept of Mana. This work provides a context for understanding contemporary human economic behavior. Novel structures of symbolic worth are associated with individual presentation and performance. Clearly concepts of value and credit have been changing in modern financial culture. Indeed, they have been expressing forms that have traditionally been associated with primitive economics. An understanding of the current financial and social losses resulting from the subprime collapse is presented along with a means to counter it.

Small firms in Portugal: a selective survey of stylized facts,economic analysis,and policy implications

I survey a number of stylized facts pertaining to the dynamics of firm entry, growth, and exit in competitive industries. I focus particularly on data for Portugal, although I also consider, for comparison purposes, data from other countries. I then present a series of theoretical models that attempt to explain the stylized facts and evaluate the welfare impact of market distortions. Finally, I derive a number of policy implications, all centered around the notion of economic mobility.

Inflation persistence during periods of structural change: an assessment using Greek data

The paper estimates inflation persistence in Greece from 1975 to 2003, a period of high variation in inflation and changes in policy regimes. Two empirical methodologies, univariate autoregressive (AR) modelling and second-generation random coefficient (RC) modelling, are employed to estimate inflation persistence. The empirical results from all the procedures suggest that inflation persistence was high till 1996, while it started to decline after 1997, when inflationary expectations seem to have been stabilised, and thus, monetary policy was effective at reducing inflation. Empirical findings also detect a sluggish response of inflation to changes in monetary policy. This observed delay seems to have changed little over time.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Localized innovation, localized diffusion and the environment: an analysis of reductions of CO2 emissions by passenger cars

We investigate technological change with regard to CO₂ emissions by passenger cars, using a Free Disposal Hull methodology to estimate technological frontiers. We have a sample of cars available in the UK market in the period 2000–2007. Our results show that the rates of technological change (frontier movement) and diffusion (distance to frontier at the car brand level) differ substantially between segments of the car market. We conclude that successful policies should be aimed at the diffusion of best-practice technology, and take account of the different potential for further progress between different segments of the market (e.g. diesel vs. gasoline engines and small vs. large engines).

Rigidities,Living Conditions,and Institutions in the Far North

The remoteness and geography of Alaska create service access rigidities that are difficult to overcome. The delivery of basic services like healthcare, police protection, and justice are often inadequate in rural places. The continued employment of neoclassical assumptions in policy making is a primary reason policies fail to overcome the barriers. A broader scope of analysis can inform the issues faced by rural residents and provide insight into alternate solutions.

Information Disclosure Policies: When Do They Bring Environmental Improvements?

There has been a growing interest among policy makers on the use of information disclosure policies for pollution control. This paper theoretically assesses the consequences of information disclosure policies and identifies the conditions under which such policies are likely to bring environmental improvements. Based on a dynamic game framework, the paper shows that both eco-labeling and more general full information disclosure policies may not always result in pollution reduction. Full information disclosure policies are likely to be effective if the product is not heavily polluting and if the minimum quality standard is set quite low. The paper also identifies the conditions under which all consumers are strictly better off with information disclosure policies.

What is specific about evolutionary economics?

Ever since an “evolutionary” perspective on the economy has been suggested, there have been differing, and partly incommensurable, views on what specifically this means. By working out where the differences lie and what motivates them, this paper identifies four major approaches to evolutionary economics. The differences between them can be traced back to opposite positions regarding the basic assumptions about reality and the proper conceptualization of evolution. The same differences can also be found in evolutionary game theory. Achievements of the major approaches to evolutionary economics and their prospects for future research are assessed by means of a peer survey.

Global impact of a shift in foreign reserves to euros

This paper uses QUEST III, a multi-region DSGE model, to study the macroeconomic effects of a gradual equalization of official foreign reserves between dollars and euros. We simulate a scenario of a shift in the composition of foreign reserves holdings from the present ratio of 65% dollars and 25% euros to equal 45% shares over a 10 years period. We assume imperfect substitutability between financial assets to allow this shift to have real effects. Our simulations point towards small real effects due to the reduction in real interest rates resulting from this shift in official holdings.

Financial markets and the post-crisis scenario

Starting from August 2007, the FED intervened by injecting liquidity in the inter-banking market and reducing interest rates. Day after day, the financial markets register negative trends and rallies. This is not due to events which are particularly related to the market itself. This appeared in the days when there were government interventions, when everybody expected a positive sign in the financial market but a negative sign occurred. Sometimes, this is due to the intensity of actions taken by the governments. The markets always expect appropriate interventions (in terms of intensity). Looking at these market reactions (in unexpected signs) after each government action, we can suppose that policy makers underestimate the intensity of this crisis. The capacity of making enforcement on the system should avoid underlining the side of governance rules which will never be precise. Being able to count on an active control of the market dealers, broadly speaking is a way of giving active confidence to individual/institutional agents who decide the allocations of saving in the financial market. There is no such confidence at the moment, if one focuses only on the definitions of new rules. If one starts from existing rules and does continuous monitoring so that they are applied adequately at crucial moments, then one could reduce the possibility of facing new exceeding volatilities of banking securities in the stock market. This work is focused on understanding how governance as well as central banks’ policy impact on the crisis, as well as possible future scenarios.