The rise of risk-based pricing of mortgage interest rates in Italy

This paper assesses how much mortgage interest rates in Italy are priced on credit risk as proxied by the probability of household mortgage delinquency estimated using the EU-Silc database. Owing to data availability, we restrict the analysis of mortgage pricing to Italian households. Consistent with the more widespread use of credit scoring, estimates indicate that Italian lenders have increasingly priced mortgage interest rates on household credit risk. For mortgages granted between 2000 and 2007, we find that a 1% point increase in the probability of default is associated with a 21 basis point rise in mortgage interest rates, lower than the 38 basis point premium Edelberg (2006) estimated for the US at the end of the 1990s.     

BUILDING THE MANAGERIAL CAPITAL OF AGRICULTURAL COOPERATIVES IN AFRICA

Agricultural cooperatives in Africa tend to be community‐based organizations defined by principles of inclusion, voluntarism, democracy, equity, autonomy, mutuality and solidarity. This means that they generally operate in accordance with the principles endorsed by the International Cooperative Alliance (ICA). However, only a few of these organizations are successful in commercializing the agricultural produce of their members. In this study, we argue that growth‐problems leading to commercial failure and organizational degeneration in these cooperatives can be attributed to a lack of managerial capital. Drawing on the literature and evidence from the field we set out key management solutions for counterbalancing cooperative principles in the context of rural Africa. These solutions were taught to the leaders and managers of 362 cooperatives at four training events held in Madagascar, Malawi and twice in Uganda. Using a production function for cognitive achievement and key informant interviews, we find that our training contributed to the adoption of the proposed solutions by some of the cooperatives. Using the Ugandan sub‐ sample, we estimate an OLS regression and a PSM model to show that the training translated into higher revenues per member generated through collective commercialization.     

The term structure of CD rates and monetary policy transmission

The paper investigates the term structure of CD rates and its relationship with the federal funds rate or monetary policy. The term structure derived in this paper is governed primarily by the federal funds rate and secondarily by banks’ income smoothing behavior. It is consistent with the estimation results and differs significantly from the standard term structure of interest rates. The downturn phase of business cycles appears to be accompanied by more aggressive income smoothing by banks (compared with the upturn phase) due to their pessimistic expectations of future profits. The compositional shift in banks’ liabilities during the downturn phase away from CDs toward transaction deposits may pose a greater withdrawal risk for banks.     

Does the Stock Market Compensate Banks for Diversifying into the Insurance Business?

This paper explores a wide range of corporate restructurings, all available deals from wire services, in the banking and insurance sectors that led to bancassurance ventures. An event study methodology is employed to calculate excess returns on and around the deals’ announcement date. Using both univariate and multivariate analysis the paper finds bank driven mergers, deal's size and regional categorization all triggering positive and significant market reactions. Unlike the univariate framework, multivariate analysis shows that geographic focus and language are not significant factors. The results also indicate that markets are indifferent with respect to bank withdrawals from the bank‐insurance operations. Finally, Canadian, U.S. and European bank‐insurance deals produce positive results, while Australasian bidders offer statistically insignificant equity returns.     

Economies in Transition: How Important Is Trade Openness for Growth?*

We investigate the effect of trade openness on economic growth in transition countries using a transparent statistical methodology that leads to data‐driven case studies. In particular, we employ synthetic control methods in a panel of transition economies and compare GDP growth in treated (that is, open) countries with growth in a convex combination of similar but untreated (that is, closed) countries. We find that trade liberalization tends to have a positive effect on the pattern of real GDP per capita. One of our most robust results shows that making the transition without opening up to trade considerably hampers growth.     

EXPORT AND HEDGING DECISIONS UNDER CORRELATED REVENUE AND EXCHANGE RATE RISK

This paper examines the behaviour of a competitive exporting firm under joint revenue and exchange rate risk. The firm can trade unbiased currency futures contracts for hedging purposes. We show that neither the separation theorem nor the full‐hedging theorem holds when the revenue shock prevails. If the correlation between the revenue shock and the random spot exchange rate is non‐positive, the firm optimally produces less than the benchmark level when the revenue shock is absent. If, in addition, the firm is prudent, the optimal futures position is an under‐hedge. Finally, we derive sufficient conditions under which the firm's optimal output level is higher in the presence than in the absence of the revenue shock. Operational hedging and financial hedging as such interact in a complicated way to better cope with the multiple sources of uncertainty faced by the firm.     

The effects of bank relationships on firm private debt restructuring: Evidence from an emerging market

Our paper seeks to examine the direct benefit of bank relationships for a distressed borrower by assessing its influence on the success of firm private debt restructuring. We find that a distressed firm with a stronger bank relationship has a greater probability to successfully restructure its debt through private renegotiation. Accordingly, an analysis of credit rating recovery provides complementary evidence on the factors of successful debt restructuring. A duration analysis of the length of time needed for a debt restructuring to be completed is fully consistent with our documented results. We conclude that in a bank dominated financial system like Taiwan's where firms are heavily bank-dependent, the bank-firm relationship is of crucial importance to the success of financially distressed firms in private debt restructuring.     

Corporate Cash Holding in Asia

In this paper, we analyze the determinants of corporate saving in the form of changes in cash holdings for 11 Asian economies using firm‐level data from the Oriana Database for the 2002–2011 period. We find some evidence that cash flow has a positive impact on the change in cash holdings (i.e. that the cash flow sensitivity of cash is positive) and that the positive impact of cash flow on the change in cash holdings is larger and more significant in the case of smaller and presumably more constrained firms than in the case of larger and presumably less constrained firms in both developed and developing economies. Both of these findings corroborate the importance of financial constraints in Asian firms. In addition, we find that the cash flow sensitivity of cash declined after the global financial crisis and that Tobin's q has a positive impact on the change in cash holdings, especially in the case of larger and presumably unconstrained firms.     

Job Polarization and Task‐Biased Technological Change: Evidence from Sweden, 1975–2005

In this paper, we show that between 1975 and 2005, Sweden exhibited a pattern of job polarization with expansions of the highest‐ and lowest‐paid jobs compared to middle‐wage jobs. The most popular explanation for such a pattern is the hypothesis of task‐biased technological change, where technological progress reduces the demand for routine middle‐wage jobs but increases the demand for non‐routine jobs located at the tails of the job–wage distribution. However, our estimates do not support this explanation for the 1970s and 1980s. Stronger evidence for task‐biased technological change, albeit not conclusive, is found for the 1990s and 2000s. In particular, there is both a statistically and economically significant growth of non‐routine jobs and a decline of routine jobs. However, results for wages are mixed; while task‐biased technological change cannot explain changes in between‐occupation wage differentials, it does have considerable explanatory power for changes in within‐occupation wage differentials.     

Remittance,Institutions and Investment Volatility Interactions: An Intercontinental Analysis

Generating massive investment for growth and development has been one of the main policy goals of most economies around the globe. Countries, most especially developing ones, are highly susceptible to investment volatility owing largely to the fragile nature of their economies as well as weaknesses in terms of dysfunctional institutions. Therefore, sound economic management suggests the need to better understand possible sources for mitigating the adverse effects of investment volatility. Remittances have been identified as important capital flows which do a good job of dousing macroeconomic volatilities. It is on this basis that the study sought to uncover the causal relationship between remittances and investment volatility via the intermediating role of institutions. Using a panel of 70 countries and the system Generalized Method of Moments (GMM) estimator, three insightful outcomes come to the fore. First, remittances played countercyclical roles across the estimated regressions. Second, institutional quality had no significant role in mitigating investment volatility and lastly, the interactive terms of both remittances and institutions significantly mitigated the negative impacts of investment volatility with the exception of the political component of the institutional architecture. Policy suggestions are drawn based on our results.