Systemic risk in Europe: deciphering leading measures,common patterns and real effects

The paper studies salient features of systemic risk in a sample of 22 European (EU and non-EU) countries during January 2010–March 2016. Building on a novel dataset and conducting an empirical horse race, we determine pivotal systemic risk measures for the sample countries. SRISK and volatility indicator tend to lead other metrics, followed by leverage. In contrast to the conventional wisdom, composite systemic risk measures aggregated with the aid of principal and independent component analysis perform worse. The leading systemic risk measures exhibit a high degree of connectedness. The VIX index, TED spread, the Composite Index of Systemic Stress (CISS) and long-term interest rates underlie their dynamics. Two clusters within the sample are identified, with CISS and long-term interest rates being crucial to distinguish between them. There is only scarce evidence for causal linkages between systemic risk and industrial production in the sample countries, based on the concurring results of standard and nonparametric Granger causality tests.     

Competition in bureaucracy and corruption

This paper studies the consequences of introducing competition between bureaucrats. Firms are supposed to invest into eliminating negative externalities of production, while bureaucrats administer the process by issuing licences. Some bureaucrats are corrupt, that is, they issue a licence to any firm in exchange for a bribe. The competition regime is found to create more ex ante incentives for firms to invest, while the monopoly regime is better at implementing ex post allocation, that is, distributing the licences given the firms' investment decisions. Additional results on the effect of punishments and bureaucrats' rotation are provided.     

Evolutionary selection of expectations in positive and negative feedback markets

An economic environment is a feedback system, where the dynamics of aggregate variables depend on individual expectations and vice versa. The type of feedback mechanism is crucial for the aggregate outcome. Experiments with human subjects (Heemeijer et al., J Econ Dyn Control 33:1052–1072, 2009) have shown that price converges to the fundamental level in a negative feedback environment but fails to do so under positive feedback. We present an explanation of these experimental results by means of a model of evolutionary switching between heuristics. Active heuristics are chosen endogenously, on the basis of their past performance. Under negative feedback an adaptive heuristic dominates explaining fast price convergence, whereas under positive feedback a trend-following heuristic dominates resulting in persistent price deviations and oscillations.     

Monetary policy regimes and the term structure of interest rates

US monetary policy is investigated using a regime-switching no-arbitrage term structure model that relies on inflation, output, and the short interest rate as factors. The model is complemented with a set of assumptions that allow the dynamics of the private sector to be separated from monetary policy. The monetary policy regimes cannot be estimated if the yield curve is ignored during estimation. Counterfactual analysis evaluates importance of regimes in policy and shocks for the great moderation. The low-volatility regime of exogenous shocks plays an important role. Monetary policy contributes by trading off asymmetric responses of output and inflation under different regimes.     

Optimal forecasts in the presence of structural breaks

This paper considers the problem of forecasting under continuous and discrete structural breaks and proposes weighting observations to obtain optimal forecasts in the MSFE sense. We derive optimal weights for one step ahead forecasts. Under continuous breaks, our approach largely recovers exponential smoothing weights. Under discrete breaks, we provide analytical expressions for optimal weights in models with a single regressor, and asymptotically valid weights for models with more than one regressor. It is shown that in these cases the optimal weight is the same across observations within a given regime and differs only across regimes. In practice, where information on structural breaks is uncertain, a forecasting procedure based on robust optimal weights is proposed. The relative performance of our proposed approach is investigated using Monte Carlo experiments and an empirical application to forecasting real GDP using the yield curve across nine industrial economies.     

Recurrent trade agreements and the value of external enforcement

This paper presents a theory of dynamic trade agreements in which external institutions, such as the WTO, play a central role in supporting credible enforcement. In our model, countries engage in ongoing negotiations, and, as a consequence, cooperative agreements become unsustainable in the absence of external enforcement institutions. By using mechanisms such as delays in dispute resolution and direct penalties, enforcement institutions can restore incentives for cooperation, despite the lack of coercive power. The occurrence of costly trade disputes, and the feasibility of mechanisms such as escape clauses, depend on the degree to which enforcement institutions can verify, and condition on, events that may lead to trade disputes.     

The effects of economic development and the evolution of social institutions on the level of corruption: comparing the Asia-Pacific with other regional blocs

ABSTRACT

The variation in the level of economic development across countries has been proposed as an explanation for the disparity in the level of corruption that is observed. As a country evolves from one stage of economic development to another and its social institutions as a result become more refined and sophisticated, their capacity to tackle corruption and poor governance practices becomes increasingly better. Improvements in the overall quality of institutions, including better policing and justice systems, increase their capacity to detect and deter corruption. This evolution of institutional quality improves social and economic well-being of society, which in turn pressures regulators, legislators and politicians to continue in the fight against corruption. The objective of this paper is to examine how economic development mediated by improvements in the quality of social institutions impacts on the level of corruption. Lessons from worldwide trends, including the Asia-Pacific region, provide opportunities for countries to enact strategic measures that can accelerate the fight against corruption.     

Do strained bilateral relations affect tourists’ desire to visit a country that is a target of animosity?

ABSTRACT

This study examines the attractiveness of destination tourism offerings when the destination country and the source market country are engaged in ongoing political and economic conflict. The study is set in the Russia–United States (US) context, where Russia is the tourism-generating region and the US are the vacation destination. Specifically, the study investigates how the desire of Russian tourists to vacation in the US is affected by perceptions of the US as a country and as a vacation destination, animosity toward the US, and Russian tourists? level of national attachment and ethnocentric tendencies. The study found that country image, destination image, and general animosity have a direct effect on intention to visit. The effects of consumer ethnocentrism and national situational animosity on intention to visit are mediated by destination image and country image respectively.