Firm credit risk in normal times and during the crisis: are banks less risky?

Bank solvency was a major issue during the financial crisis of 2007–2009, but bank credit default swap (CDS) spreads were almost always below nonbank CDS spreads. What is the reason for this gap? Are banks perceived to be less risky? This study empirically decomposes CDS premia for 45 major banks and 167 large industrial firms from Europe and the US. It turns out that expected losses are usually somewhat lower for banks than for nonbanks, but expected losses contribute relatively little to the observed CDS premia. CDS spreads for banks and nonbanks differ mainly because market participants require a lower compensation for bearing bank credit risk. The quite persistent difference in the credit risk premia for banks and nonbanks disappears only temporarily during the crisis.     

A Conceptual Model of Determinants of Trust between Partners in the Green Supply Chain

Managing supply chain partnerships for competitive advantage is receiving considerable recognition among both academic researchers and industry executives. Trust is an essential factor for a company to collaborate with its partner through supply chain （SC）. In this paper we analyze the factors of trust relationship in green supply chain （GSC）. A conceptual model of determinants of trust in GSC is presented. Finally, research propositions are discussed.     

Analysis of the volatility’s dependency structure during the subprime crisis

In this article, we test the hypothesis of contagion amongst sectors within the United States’ economy during the subprime crisis. The econometric methodology applied here is based on the dynamic conditional correlation model proposed by Engle (2002). Further, we applied several Lagrange multiplier (LM)-robust tests to test whether there were structural breaks in series’ dependency structures during the period of interest. Events theoretically classified as relevant to the crisis upshots as well as the interactions between the moments of the series were used as indicator functions to the referred structural breaks. The main conclusion of this study is that one can indeed observe contagion within almost all pairs of sectors’ indices. Thus, we conclude that the dependency structure of the sectors of interest has faced structural changes during the years of 2007 and 2008. Hence, diversification strategies as well as the risk analysis inherent to the portfolios’ management may have been drastically affected.     

Worldwide impact of IMF policies during the Asian crisis: who does the IMF help,creditors or crisis countries?

This paper examines the effects of International Monetary Fund (IMF) policy announcements on financial markets worldwide. We investigate reactions from stock, bond, foreign exchange and futures markets and banking and financial companies during the Asian crisis. We explore the impact of IMF bailouts not only on crisis countries, but also on main creditor countries. We study the impact of local governments’ and public responses in crisis countries to account for interaction between the IMF and local parties. We show IMF involvement and local governments’ co-operation actually helps crisis countries but not creditors. We show that in crisis countries, financial markets generally react unfavourably to their governments’ initial demands for IMF assistance, while compliance of the crisis countries with the IMF policy action is commonly perceived as good news. Financial markets in crisis countries react negatively to prolonged negotiations and government actions against IMF policy. Creditor countries’ financial markets are not responsive to IMF actions in crisis countries. We discuss policy implications of findings.     

Credit unions during the crisis: did they provide liquidity?

We use the consumer finance monthly national survey to demonstrate that credit unions (CUs) in the United States did little to help consumers obtain a home equity line of credit (HELOC) during the recent financial crisis. Our results hold after including a two-stage regression structure using the availability of CUs as the identifying instrument, as well as employing a Heckman correction procedure to adjust for sample selection bias. We find that during the financial crisis, CUs were no more likely than other depositary institutions to extend HELOCs either in areas experiencing housing price declines or to lower income households. Our results provide an empirical counterpoint to those who have lauded CUs for providing liquidity during times of crisis or for serving consumers who would otherwise be challenged to obtain funds.     

A tale of two Ginis in the US, 1921–2012

Following a methodology by Jantzen and Volpert (2012), we use IRS Adjusted Gross Income data for the US (1921–2012) to estimate two Gini indices representing inequality at the bottom and the top of the income distribution, and to calculate the overall Gini as a function of the parameters underlying the two indices. A steady increase in the overall Gini since the Second World War actually hides two different periods of distributional changes. First, the increase in inequality from the mid 1940s to the late 1970s is driven by rising inequality at the bottom of the income distribution that more than offsets a decrease in inequality at the top. The implication is that middle-income earners gained relative to high-incomes, and especially relative to low-income earners. Second, the rise in the Gini after 1981 is driven by rising inequality at the top. Third, top-driven inequality follows a U-shaped trajectory consistent with Piketty and Saez (2003, 2006). Fourth, the welfare effects of the different distributional changes behind increasing inequality can be evaluated in light of the Lorenz-dominance criterion by Atkinson (1970): we argue that the rise in inequality since 1981 is much more likely to be associated with a social welfare loss net of compensating growth.     

Turning the page? EU fiscal consolidation in the wake of the crisis

The fiscal cost of the financial and economic crisis in Europe is huge. The paper provides provisional estimates of this cost and looks at its implications for the sustainability of public finances, taking into account also the impact of aging populations. The historical experience suggests that economic growth is persistently lowered in the aftermath of financial crisis, making fiscal consolidation more difficult yet all the more essential. Meanwhile the timing of the exit from fiscal stimulus and subsequent fiscal consolidation must reconcile sustainability and stabilisation goals—a delicate balancing act. The paper will argue in favour of structural reform to boost the economic growth potential alongside fiscal consolidation. The fiscal coordination framework in the EU, together with the Europe 2020 strategy, is seen to underpin this approach.     

Momentum in global equity markets in times of troubles: Does the economic state matter?

This paper investigates the profitability of momentum-based trading strategies pursued during the most recent economic downturns in global equity markets. In contrast to previous studies, it reveals that such strategies generated statistically significant negative returns during the most recent recessions. These “momentum crashes” happen during market reversals following exceptionally large market declines, as occurred in March and April 2009.     

Migrants’ well-being during the global financial crisis: Economic and social predictors

This paper investigates the economic and social predictors affecting the well-being of temporary migrants before, during and after the financial crisis. Exploiting unique panel data which cover migration spells from Tajikistan to Russia between 2001 and 2011, we find that migrants earn less but stay longer in the destination during the crisis; at the same time, they become more exposed to illegal work relations, harassment and deportation through the Russian authorities. The overall income loss can be attributed to wage cuts and to rising illegal employment that is generally poorly paid. Despite the similarities in the demographics and jobs of migrant workers, we find substantial heterogeneity in how the financial crisis affects their well-being. Migrants who experience wage losses during the crisis rationally stop migrating.     

Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

Empirical Economics - This paper analyses the determinants of net interest margin, focusing on the impact of interest rates and the slope of the yield curve, using a broad panel of data from 32...     

Transmission of the 2007–2008 financial crisis in advanced countries of the European Union

The aim of this paper is to identify the main factors responsible for the 2007–2008 crisis development and transmission across the 10 developed European Union (EU) countries. In order to achieve this objective, trade and financial linkages, crisis contagion from the United States and EU countries and countries' internal and external economic vulnerabilities are examined. The results of logistic regression model covering the period from 2002 to 2012 presented in this paper indicate that the transmission of the crisis occurred through contagion from the United States but also from other EU countries. Additionally, the empirical results confirm that high inflation, a decrease in the exchange rate, and a decrease in the US long-term interest rates increased the probability of the 2007–2008 financial crisis.     

Does the law of one price hold in a high-inflation environment? A tale of two cities in Turkey

This study addresses the price convergence in two cities in Turkey (Istanbul and Ankara) using annual data over the three-quarters of the twentieth century (1922–1998), characterized by prevailing high inflation rates for most of the period. In contrast to the rest of the literature addressing convergence in price levels with a typical result of extremely slow convergence rates at best, we argue that convergence is much easier detected in growth rates rather than levels of prices. We suggest using the bounds testing procedure of Pesaran et al. (2001) for this purpose. We find a clear-cut evidence on the existence of a common driving force behind inflation dynamics in Istanbul and Ankara – a finding that is in contrast with the results typically reported in related literature.     

The transition of people’s preferences for the intervention of the government in the economy of re-unified Germany

Covering the first fifteen years immediately after German reunification, this paper analyzes the people??s support to the transition. The focus is on individuals?? preferences for the intervention of the government in the economy and on the opinion about competition per se. Eastern German data are compared with Western German data. Using suitable data that allow for interpersonal comparisons, the paper shows that Eastern Germans have always preferred an intervention of the public hand in the economy deeper than Western Germans; these different positions have hardly converged during the examined period of time. However there are no significant differences with respect to how Germans perceive competition per se: it is considered as a good by the people living in both parts of the country.     

The impact of monetary policy on financial markets in small open economies: More or less effective during the global financial crisis?

This paper estimates the impact of monetary policy on exchange rates and stock prices of eight small open economies: Australia, Canada, the Republic of Korea, New Zealand, the United Kingdom, Indonesia, Malaysia, and Thailand. On average across these countries in the full sample, a one percentage point surprise rise in official interest rates leads to a 1% appreciation of the exchange rate and a 0.5–1% fall in stock prices, with somewhat stronger effects in OECD countries than non-OECD countries (though differences are sometimes not significant). We find little robust evidence of a change in the effect of monetary policy surprises during the recent financial crisis.     

On the level of persistence in government size: time–series evidence and implications for the US

For most developed countries, the study of the long–term trend of government size has become a major issue. This study employs advanced time–series techniques to investigate the long–run properties of the government size series for the US. By applying the persistence measures developed by Campbell and Mankiw (Quarterly Journal of Economics, 102, 857–80, 1987) and Cochrane (Journal of Political Economy, 96, 893–920, 1988), this study finds big long–term persistence in government size at all levels of the US government. The finding, indeed, explains the fact that the US has gradually taken steps to control the size of government in the 1990s.     

Reconsidering Wagner’s law: evidence from the functions of the government

We revisit Wagner’s law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure–income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner’s law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.     

A stylized model of home buyers’ and bankers’ behaviours during the 2007-2009 US subprime mortgage crisis: a predatory perspective

We examine the behaviour of market agents during the years leading to the 2008 US subprime mortgage crisis using a stylized capital asset pricing model model. In our study, an average investor eager to make money by flipping houses meets a banker who offers him subprime mortgage deals. We refer to recent research that shows the mechanics of the psychological and behavioural components of these two market agents. In particular, much in line with the famous Stanford experiment, it is assumed that investors adopt a predator or a prey position. Our analysis shows that, given a historical tendency towards financial predatory acts on the part of market agents (including buyers), government regulations should be adapted and strengthened to face this dooming reality.     

“Modeling the impact of wars and terrorism on tourism demand in Kurdistan region of Iraq”

Portuguese Economic Journal - Recent political instabilities in the Middle East have led to strong negative impacts on the tourism sector. The aim of this study is to investigate the extent and the...     

Rating agencies’ signals during the European sovereign debt crisis: Market impact and spillovers

The ongoing financial crisis has drawn considerable attention to the role of credit rating agencies in the financial system. We examine how the foreign exchange market reacts to sovereign credit events prior to (2000–2006) and during the crisis (2006–2010). The sample includes a broad set of countries in Europe and Central Asia in order to investigate spillover effects. We find that rating agencies’ signals do affect the own-country exchange rate and we identify strong spillover effects to other countries’ exchange rates in the region. In both cases, the impact of outlook and watch signals is stronger than the impact of actual rating changes. Market reactions and spillovers are far stronger during the financial crisis period than pre-crisis. Negative news from all three major agencies has an impact, whereas only Moody's positive news produces a reaction. Negative news from Fitch tends to have the strongest effect. The findings are important in enhancing understanding of the role of rating agencies and the market response to their signals.