Money Market Integration

We use transaction-level data and detailed modeling of the high-frequency behavior of federal funds–Eurodollar spreads to provide evidence of strong integration of the U.S. markets for federal funds and Eurodollars, the two core components of the dollar money market. Our evidence of negligible federal funds–Eurodollar premia contrasts with previous findings of large and predictable premia, which have been interpreted as evidence of segmentation between the markets for federal funds and Eurodollars. Our results, however, are consistent with possible persistent segmentation within the global Eurodollar market. We document several patterns in the behavior of federal funds–Eurodollar spreads, including liquidity effects from trading volume to yield spreads' volatility.     

LEGAL INSTITUTIONS,INNOVATION, AND GROWTH

We analyze the relationship between legal institutions, innovation, and growth. We compare a rigid legal system (the law is set before the technological innovation) and a flexible one (the law is set after observing the new technology). The flexible system dominates in terms of welfare, amount of innovation, and output growth at intermediate stages of technological development—periods when legal change is needed. The rigid system is preferable at early stages of technological development, when commitment problems are severe. For mature technologies, the two legal systems are equivalent. We find that rigid legal systems may induce excessive R&D investment.     

Credit Rationing and Credit View: Empirical Evidence from an Ethical Bank in Italy

Attempts have been made in the empirical literature to identify credit rationing and its determinants using balance sheet data or evidence from corporate surveys. However, observational equivalence, identification problems, and interview biases are serious problems in these studies. We analyze directly the determinants of credit rationing in credit files by examining the difference between the amounts demanded by and supplied to each borrower, as shown by official bank records. Our findings provide microeconomic evidence that supports the credit view hypothesis by showing that the European Central Bank refinancing rate is significantly and positively related to partial (but not total) credit rationing. This finding is consistent with the hypothesis that this variable affects the total volume of bank loans.     

THE CAPITAL INFLOWS PROBLEM: CONCEPTS AND ISSUES

Since 1990, capital has flowed from industrial countries to developing regions like Latin America and parts of Asia. Most countries welcome reentry into international capital markets. However, capital inflows often are associated with inflationary pressures, a real exchange rate appreciation, a deterioration in the current account, and a boom in bank lending. This paper briefly examines how these inflows have altered the macroeconomic environment in a number of Asian and Latin American countries, and discusses the pros and cons of the policy options .     

INTERTEMPORAL COMPETITION AND AID

We study donor–recipient relationships in which the donor finances aid programs from which recipients want to divert funds in order to meet their own objectives. We analyze two economies. In the first one, the donor commits to a program budget for each period. In the second economy, the donor commits to a program budget for two periods. This introduces intertemporal competition among recipient officials. We show that intertemporal competition may weaken recipients' incentives to divert funds from aid programs. Furthermore, we show that this may occur even in the presence of regional competition among recipients.     

The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross‐Country Analysis

This paper assesses the macroeconomic effects of unconventional monetary policies by estimating a panel vector autoregression (VAR) with monthly data from eight advanced economies over a sample spanning the period since the onset of the global financial crisis. It finds that an exogenous increase in central bank balance sheets at the zero lower bound leads to a temporary rise in economic activity and consumer prices. The estimated output effects turn out to be qualitatively similar to the ones found in the literature on the effects of conventional monetary policy, while the impact on the price level is weaker and less persistent. Individual country results suggest that there are no major differences in the macroeconomic effects of unconventional monetary policies across countries, despite the heterogeneity of the measures that were taken.     

New Public Spheres in Brazil: Local Democracy and Deliberative Politics

Brazilian cities have been the sites of significant experiments in participatory and deliberative governance. Participatory budgeting has to be singled out as one of the most important of these. After the landmark experience in Porto Alegre, participatory budgeting has been expanded to 170 Brazilian cities. Is the expansion of participatory budgeting equivalent to the expansion of the deliberative and distributive characteristics of the Porto Alegre experience? This article argues that the conditions that account for the emergence of participatory budgeting in Porto Alegre are unique to that city’s social or political characteristics. It focuses on the role of existing civil society associations in the emergence of participatory budgeting, as well as in its institutional format. It also shows that the presence of civic associations is linked to the deliberative and distributive results of participatory budgeting and that these conditions may not be present in other participatory budgeting experiences.     

Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned since Lehman Brothers?

A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank‐specific characteristics affect the functioning of the credit market in an economy‐wide crisis. We investigate how bank and bank–firm relationship characteristics have influenced interest rate setting since the collapse of Lehman Brothers. We find that interest rate spreads increased by less for those borrowers having closer lending relationships. Furthermore, firms borrowing from banks endowed with large capital and liquidity buffers and from banks engaged mainly in traditional lending were kept more insulated from the financial crisis.