Possible effects of EMU on German long-term interest rates

It is often argued that long-term German bonds suffer from an inflation premium caused by EMU. A decomposition of long rates shows that factors besides inflationary expectations and conversion risk affect the long bond yield. The following paper therefore discusses a more complete set of channels through which currency union affects interest rates and argues that they do not all point in the direction of rising rates. Data generating processes for long-term bonds are specified and tested for structural breaks. Absence of a structural break is interpreted as evidence against a premium caused by EMU. The authors would like to thank the participants of the German American Academic Council (GAAC) workshop “The Political Economy of European Integration” in Bremen, August 1996, and especially Paul Bergin for their helpful comments. Financial support from the GAAC is gratefully acknowledged.     

Evaluating early warning indicators of banking crises: Satisfying policy requirements

Ideally, early warning indicators (EWI) of banking crises should be evaluated on the basis of their performance relative to the macroprudential policy maker’s decision problem. We translate several practical aspects of this problem — such as difficulties in assessing the costs and benefits of various policy measures, as well as requirements for the timing and stability of EWIs — into statistical evaluation criteria. Applying the criteria to a set of potential EWIs, we find that the credit-to-GDP gap and a new indicator, the debt service ratio (DSR), consistently outperform other measures. The credit-to-GDP gap is the best indicator at longer horizons, whereas the DSR dominates at shorter horizons.     

Robust risk aggregation with neural networks

We consider settings in which the distribution of a multivariate random variable is partly ambiguous. We assume the ambiguity lies on the level of the dependence structure, and that the marginal distributions are known. Furthermore, a current best guess for the distribution, called reference measure, is available. We work with the set of distributions that are both close to the given reference measure in a transportation distance (e.g., the Wasserstein distance), and additionally have the correct marginal structure. The goal is to find upper and lower bounds for integrals of interest with respect to distributions in this set. The described problem appears naturally in the context of risk aggregation. When aggregating different risks, the marginal distributions of these risks are known and the task is to quantify their joint effect on a given system. This is typically done by applying a meaningful risk measure to the sum of the individual risks. For this purpose, the stochastic interdependencies between the risks need to be specified. In practice, the models of this dependence structure are however subject to relatively high model ambiguity. The contribution of this paper is twofold: First, we derive a dual representation of the considered problem and prove that strong duality holds. Second, we propose a generally applicable and computationally feasible method, which relies on neural networks, in order to numerically solve the derived dual problem. The latter method is tested on a number of toy examples, before it is finally applied to perform robust risk aggregation in a real‐world instance.     

A Sustainable Pathway to Consumer Wellbeing. The Role of Anticonsumption and Consumer Empowerment

This study investigates the effect of different anticonsumption constructs on consumer wellbeing. The study assumes that people will only lower their level of consumption if doing so does not also lower personal wellbeing. More precisely, this research investigates how specific subtypes of sustainable anticonsumption (e.g., voluntary simplicity, collaborative consumption, and debt-free living) relate to different states of consumer's wellbeing (e.g., financial, psychosocial, and subjective wellbeing). This work also examines whether consumer empowerment can improve personal wellbeing and strengthen the anticonsumption wellbeing relationship. The results show that voluntarily foregoing consumption does not reduce wellbeing and consumer empowerment plays a significant role in supporting sustainable pathways to consumer wellbeing. This study reasons that empowerment improves consumer sovereignty, but may be detrimental for consumers heavily concerned about debt-free living. The present investigation concludes by proposing implications for public and consumer policymakers wishing to promote appropriate sustainable (anticonsumption) pathways to consumer wellbeing.     

Corporate-level influences on internal capital allocation: The role of financial analyst performance projections

Research contends that internal capital should be allocated in proportion to divisional performance, but scholars are often puzzled to find that managers do not adhere to this winner-picking approach. We argue this is because scholarship has not incorporated corporate-level factors that influence how corporate managers structure holistic capital allocation strategies. In this study, we build on the behavioral theory of the firm to focus on analyst performance projections for multidivisional corporations and how they inform corporate managers' allocation strategies. Specifically, we theorize corporate managers deviate from the winner-picking allocation approach owing to search-related behaviors stemming from projected performance below or above expectations. We further theorize about conditions that offer corporate managers opportunities to deviate from winner-picking, focusing particularly on multidivisional relatedness and asset durability.     

International macroeconomic fluctuations and the current account

Abstract.  Intertemporal models of the current account generally assume that global shocks do not affect the current account. We use this assumption to identify global and country‐specific shocks in a bivariate VAR of output and the current account. Cross‐country evidence from the G7 economies suggests that this identification works surprisingly well. We then employ our method to collect stylized facts on international macroeconomic fluctuations. We find that long‐term output growth is driven mainly by global factors in most G7 countries and that country‐specific shocks are less persistent and generally less volatile than global shocks. JEL Classification: F41, F43, C32
Fluctuations macroéconomiques internationales et compte courant.  Les modèles inter‐temporels du compte courant postulent généralement que les chocs globaux n'affectent pas le compte courant. On utilise ce postulat pour identifier les chocs globaux et ceux qui sont spécifiques à des pays donnés dans un modèle VAR du produit global et du compte courant. Les résultats transversaux pour les pays du G7 suggèrent que cette forme d'identification donne de très bons résultats. On emploie cette méthode pour examiner des faits stylisés des fluctuations macro‐économiques internationales.Il appert que la croissance à long terme du produit dépend de facteurs globaux dans la plupart des pays du G7 et que les chocs particuliers aux pays ont un impact moins permanent et moins volatile que les chocs globaux.