Some regulatory lessons to be drawn from the financial crisis

The article briefly outlines how the two major structural causes of the financial crisis have been a massive underestimation of the negative externalities potentially arising from malfunctioning of financial markets, and the policy decision to assign the production of an eminently public good, financial stability, to private parties. Both ideas have been a tenet of the so-called Greenspan doctrine. The crisis also shows that all regulators tend to be captured in the end, and thus any new legislation should contain bright-line rules, that might look inefficient when assessed with reference to the market they regulate, but are socially efficient, because it would be politically costly to alter them. Criminal sanctions, which after all are a social form of regulation, should also be strengthened.

Monetary policy in a financial crisis

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under what conditions will a cut have the opposite effects? We answer these questions in a general class of open economy models, where a financial crisis is modelled as a time when collateral constraints are suddenly binding. We find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy, then a cut in the interest rate is most likely to result in a welfare-reducing fall in output and employment. When these frictions are absent, a cut in the interest rate improves asset positions and promotes a welfare-increasing economic expansion.     

Zero lower bound,ECB interest rate policy and the financial crisis

We explore whether the ECB’s interest rate setting behaviour changed during the financial crisis by estimating reaction functions over the period 1999–2010, allowing for a smooth transition from one set of parameters to another. The estimates show a swift change in the months following the collapse of Lehman brothers. The ECB appears to have cut rates more aggressively than expected solely on the basis of the worsening of macroeconomic conditions, consistent with the theoretical literature on optimal monetary policy in the vicinity of the zero bound.     

辽宁省应对金融危机财政政策效果的实证分析

本文重点定量探讨了辽宁省财政政策实施效果.利用协整关系检验表明,辽宁省的财政支出、货币供给、税收以及实际GDP之间存在显著的协整关系,财政支出对辽宁省经济增长具有促进作用.通过定量分析结果看出,辽宁省为应对全球金融危机而实行的扩张性财政政策,对拉动投资、促进经济增长、调整产业结构和解决内需不足等问题能够得到相关数据和统计检验的支持.     

The eurozone financial crisis: debt,credit ratings and monetary and fiscal policy

This paper discusses the eurozone financial crisis. It argues that it was largely the result of a common monetary policy not being suitable for individual countries which led to excessive private and public borrowing and a debt crisis. Neither borrowing rates nor credit ratings anticipated the crisis. Fundamental changes to eurozone governance are being proposed. The paper examines whether instead there might be a market solution if financial markets priced risk better. Accordingly, a more timely way of obtaining credit ratings is shown.     

Designing environmental policy: lessons from the regulation of mercury emissions

In its waning days, the Clinton administration decided that it was appropriate to regulate mercury emissions from power plants. The incoming Bush administration had to decide how best to regulate these emissions. The Bush administration offered two approaches for regulating mercury emissions from power plants. The first was to establish uniform emission rates across utilities, as mandated by the 1990 Amendments. The second was to establish a cap on mercury emissions while allowing emissions trading in order to reduce the cost of achieving the goal. This paper presents the first cost-benefit analysis of this issue that takes account of IQ benefits. We find that the benefits of the mercury regulation are likely to fall short of the cost. This assessment is based on a number of assumptions that are highly uncertain. The finding of negative net benefits is robust to many, though not all, reasonable variations in the model assumptions. We also find that the emissions trading proposal is roughly $15 billion less expensive than the command-and-control proposal. Mr. Gayer is associate professor of public policy at Georgetown University and a visiting scholar at the American Enterprise Institute. Mr. Hahn is co-founder and executive director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies and a scholar at AEI. We would like to thank Mary Jo Krolewski, Leonard Levin, Joel Schwartz, Anne Smith, Nik Wada, and Chris Whipple for helpful comments and Jordan Connors, Laura Goodman and Molly Wells for valuable research assistance. The views expressed in this paper represent those of the authors and do not necessarily represent the views of the institutions with which they are affiliated.     

The solvency of financial institutions in Spain: lessons from securitization

On analysing a sample of Spanish banks, we find that securitization has a slightly negative impact on the soundness of the issuing entity. An unbalanced dynamic panel model was estimated using the forward orthogonal deviations GMM method and used to analyse 537 traditional securitizations issued by 61 banks between 1998 and 2012. The analysis revealed that the entities’ soundness became weaker immediately prior to the crisis, but this effect became insignificant after 2007. Securitization has facilitated a process of regulatory capital arbitrage leading to lower capital requirements while, at the same time, giving rise to a slight worsening of the quality of the originators’ portfolios. It was found that profitability, liquidity and inflation positively affect solvency, while changes in short-term interest rates affect it negatively.     

The regulated firm and the DCF model: Some lessons from financial theory

This paper explores lessons from established financial theory for allowed rate of return calculations within the constant-growth dividend (DCF) framework. Analysts using this model have been wedded to the conventional cost-of-equity formula. We set forth equivalent alternatives which make the analysts' task easier, more precise, and more confident. What is even more important, we derive a set of consistency conditions that must be observed for the appropriate use of the model. We also use a basic capital-market principle to determine an alternative, flotation-cost adjusted, rate of return, an expression which provides useful insights for regulatory participants.     

Catastrophe theory and the financial crisis

This paper develops and estimates catastrophe‐augmented models of the financial crisis. We employ catastrophe theory to explain discontinuous jumps in state variables of dynamic systems. We estimate an augmented bank failure model showing that the buildup of risk and an increase in the Federal Funds rate combined with low reserves (negative insurance effect) have been the main drivers of the financial crisis. Therefore, macroprudential policy and rating agencies play a key role in preventing the buildup of (systemic) risk and preventing the economy from entering a bifurcation area.     

European financial crisis and bank productivity: evidence from Eastern European Countries

The paper examines the productivity levels of the largest banks operating in the Eastern European countries over the period of the ongoing European financial crisis. Specifically, the analysis covers the periods of U.S. subprime crisis, the global financial crisis and the sovereign debt crisis. By adopting a fully nonparametric framework, it provides a probabilistic version of a directional input-oriented Malmquist productivity index alongside with its main decomposition. The results from the analysis suggest that banks have faced a deterioration of their productivity levels between the examined periods. It is evident that during the initiation of European sovereign debt crisis, the banks have weakened their ability to utilize efficiently their inputs of production and their ability to realize scale economies.     

Economic policy in Sweden: are there lessons from the Swedish model?

This article reviews Swedish economic policy since 1960 in the light of the trade union's Rehn-Meidner model. The arguments of economists who blame the crisis of the Swedish economy in the 1970s on that model are critically reviewed. The maintenance of full employment is analysed. The policies of the Social Democratic government since 1982 are found to be significantly at variance with the Rehn-Meidner model leading to a high risk of wage-push inflation. It is suggested that the British labour movement has lessons to learn from Swedish experience and the Rehn-Meidner model in particular.     

财务危机预测模型的构建

基于Logistic回归模型,选取中国制造业上市公司作为样本对财务危机预测进行研究。从企业的盈利能力、营运能力、偿债能力、成长能力、现金流量等方面出发,选取了10个财务预警指标,经过回归分析得出,总资产收益率、总资产周转率、资产负债率、主营业务增长率、经营活动现金净流量对负债的比率五项财务指标对上市公司发生财务危机有重要影响。从而提出要从提高盈利能力、提升营运能力、增强偿债能力、提高成长能力、保障现金流的充足几方面来应对财务危机。     

Economic reforms and labour markets: policy issues and lessons from Chile

Over the last twenty years sweeping reforms have deeply transformed the labour market in Chile. A visible outcome has been the reduction of Chile's rate of unemployment from 'European' to 'US' levels. Even though the political context makes this experiment special, are there economic lessons to be learnt? This paper concentrates on reforms to job security, on the decentralization of the wage bargaining process, and on the reduction in payroll taxes. It concludes that the reduction of payroll taxes (within the context of the social security reform), and the decentralization of bargaining increased labour market flexibility and contributed to the reduction of unemployment. On the other side, the analysis suggests that the reform on job security had no significant effect on the aggregate rate of unemployment.     

从金融危机看宏观型对冲基金的本质

国际资本自由流动是宏观型对冲基金的温床。尽管国际上受美金融危机发生的具体原因千差万别,但共同的特点是有意、无意地扩大宏观经济基本面的失衡,然后借助金融市场的瞬间强制调整,获取巨额利润。宏观型对冲基金作为盈利组织无可厚非,关键是要避免宏观经济的严重失衡。     

Investing against the wind: contagion during the recent financial crisis

This article examines the effect of Warren Buffett’s investment in Goldman Sachs on 24 September 2008, during the subprime mortgage crisis. Although this event is arguably perceived to be the biggest expression of confidence in the financial market during the crisis, by conducting event studies, we do not find the major counterparties of Goldman Sachs displayed positive abnormal returns. Moreover, the abnormal return is not significantly related to the counterparty connection. We have similar findings on these financial institutions’ default probabilities using credit default swap.     

Competition in the economic crisis: Analysis of procurement auctions

We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.     

Antimerger policy in the United States: History and lessons

This paper reviews the history of US antimerger policy. This history is divided into three periods: a period in which there was almost no effective antimerger policy at all from 1890 up to 1959, a period of vigorous antimerger policy from 1950 up through 1973, and a period of lax enforcement from 1974 to the present. The paper accounts for these shifts in antimerger policy and discusses their effects. After reviewing the logic and consequences of US antimerger policy, a critique of its permises is offered, particularly as these premises apply to the recent era of lax enforcement. The paper closes with suggestions for an alternative approach to antimerger policy that is consistent with the empirical evidence on why mergers occur and their effects.     

Understanding spread in the electronic futures markets: financial crisis perspective

This article analyses bid–ask spreads in U.S. electronic futures markets around the recent financial crisis. We decompose the bid–ask spread into three components – order processing, inventory holding and adverse selection costs – and show that adverse selection costs increased the most during the crisis while order processing costs are the largest cost component. Volume significantly affects inventory holding and order processing costs, whereas volatility only influences inventory holding costs. The crisis period had a significant effect on these relations. This study extends the existing literature on liquidity in equity to futures markets.