Re-Examining the Consumption–Wealth Relationship: The Role of Model Uncertainty

This paper discusses the consumption–wealth relationship. We use data on consumption, assets, and labor income and a vector error correction framework. This framework defines a set of models that differ in the number of co-integrating vectors, the form of deterministic components and lag length. Further models can be defined through parametric restrictions and, in particular, interest centers on a weak exogeneity restriction that says that the co-integrating residuals do not affect consumption and income directly. Key results in previous work relate to the roles of permanent and transitory shocks in driving wealth and how consumption responds to these shocks. We investigate the robustness of these results to model uncertainty and argue for the use of Bayesian model averaging. We find that there is a large degree of model uncertainty. Whether this uncertainty has important empirical implications depends on the researcher's attitude toward the theory used to motivate a co-integrating relationship between consumption, assets and income. If we work with models consistent with this theory and impose the weak exogeneity restriction, we find precisely estimated results that show that permanent shocks have only a small role in driving assets and that the predominant transitory shocks have little effect on consumption. These findings are consistent with the previous literature. However, if we work with a broader set of models and let the data speak, we find that the exact magnitude of the role of permanent shocks is hard to estimate precisely. Thus, although some support exists for the view that their role is small, we cannot rule out the possibility that they have a substantive role to play.     

Financial crises,bank risk exposure and government financial policy

A macroeconomic model with financial intermediation is developed in which the intermediaries (banks) can issue outside equity as well as short term debt. This makes bank risk exposure an endogenous choice. The goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk, but can also account for why banks adopt such a risky balance sheet in the first place. We use the model to assess quantitatively how perceptions of fundamental risk and of government credit policy in a crisis affect the vulnerability of the financial system ex ante. We also study the effects of macro-prudential policies designed to offset the incentives for risk-taking.     

A note on portfolio choice for sovereign wealth funds

The current vast account surpluses of commodity-rich nations, combined with record account deficits in developed markets (the United States, Britain) have created a new type of investor. Sovereign wealth funds (SWF) are instrumental in deciding how these surpluses will be invested. We need to better understand the investment problem for an SWF in order to project future investment flows. Extending Gintschel and Scherer (J. Asset Manag. 9(3):215–238, 2008), we apply the portfolio choice problem for a sovereign wealth fund in a Campbell and Viceira (Strategic Asset Allocation, 2002) strategic asset allocation framework. Changing the analysis from a one to a multi-period framework allows us to establish a three-fund separation. We split the optimal portfolio for an SWF into speculative demand as well as hedge demand against oil price shocks and shocks to the short-term risk-free rate. In addition, all terms now depend on the investor’s time horizon. We show that oil-rich countries should hold bonds and that the optimal investment policy for an SWF as a long-term investor is determined by long-run covariance matrices that differ from the correlation inputs that one-period (myopic) investors use.

Monetary and Fiscal Policy Switching

A growing body of evidence finds that policy reaction functions vary substantially over different periods in the United States. This paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a Markov process can change the impacts of policy shocks. In one regime monetary policy follows the Taylor principle and taxes rise strongly with debt; in another regime the Taylor principle fails to hold and taxes are exogenous. An example shows that a unique bounded non-Ricardian equilibrium exists in this environment. A computational model illustrates that because agents' decision rules embed the probability that policies will change in the future, monetary and tax shocks always produce wealth effects. When it is possible that fiscal policy will be unresponsive to debt at times, active monetary policy (like a Taylor rule) in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks. The paper also considers the implications of policy switching for two empirical issues.     

“双支柱”调控、政策协调搭配与宏观稳定效应

本文通过构建包含金融部门和“双支柱”调控政策的DSGE模型,系统考察了货币政策和宏观审慎政策的组合在不同经济金融冲击下的宏观经济和金融稳定效应。相关分析得出了三个基本结论:一是纳入宏观审慎政策的“双支柱”调控框架确实比单一使用货币政策具有相对更好的经济和金融稳定效应;二是“双支柱”调控框架在应对金融冲击时的稳定效应表现得更加明显,这说明宏观审慎政策确实是通过金融稳定渠道发挥作用的,从而与货币政策侧重实体经济(产出和通胀)的稳定效应形成了有效互补;三是不论是在价格型的货币政策工具下,还是在数量型的货币政策工具下,“双支柱”调控框架都较单一使用货币政策具有更好的经济金融稳定效应,这说明“双支柱”调控框架的有效性不依赖于货币政策工具的改变而改变,在具体的政策工具组合方面具有较为普遍的适用性。     

“双支柱”调控、政策协调搭配与宏观稳定效应

本文通过构建包含金融部门和“双支柱”调控政策的DSGE模型,系统考察了货币政策和宏观审慎政策的组合在不同经济金融冲击下的宏观经济和金融稳定效应。相关分析得出了三个基本结论:一是纳入宏观审慎政策的“双支柱”调控框架确实比单一使用货币政策具有相对更好的经济和金融稳定效应;二是“双支柱”调控框架在应对金融冲击时的稳定效应表现得更加明显,这说明宏观审慎政策确实是通过金融稳定渠道发挥作用的,从而与货币政策侧重实体经济(产出和通胀)的稳定效应形成了有效互补;三是不论是在价格型的货币政策工具下,还是在数量型的货币政策工具下,“双支柱”调控框架都较单一使用货币政策具有更好的经济金融稳定效应,这说明“双支柱”调控框架的有效性不依赖于货币政策工具的改变而改变,在具体的政策工具组合方面具有较为普遍的适用性。     

Financial instability contagion: a dynamical systems approach

We build a multi-agent dynamical system for the global economy to investigate and analyse financial crises. The agents are large aggregates of a subeconomy, and the global economy is a collection of subeconomies. We use well-known theories of dynamical systems to represent a financial crisis as propagation of a negative shock on wealth due the breakage of a financial equilibrium. We first extend the framework of the market instability indicator, an early warning signal defined for a single economy as the spectral radius of the Jacobian matrix of the wealth dynamical system. Then, we formulate a quantitative definition of instability contagion in terms thereof. Finally, we analyse the mechanism of instability contagion for both single and multiple economies. Our contribution is to provide a methodology to quantify and monitor the level of instability in sectors and stages of a structured global economic model and how it may propagate through its components.     

Financial fragility of euro area households

Until recently, the lack of appropriate harmonized micro data covering both income and wealth has been the major obstacle in analyzing financial vulnerability of the household sector in the euro area. This data problem has been partially circumvented by the dissemination of the Household Finance and Consumption Survey (HFCS). Based on this unique data set, we put forward a stress testing method of household balance sheets in a consistent manner across euro area countries. To this end, we put forward a metric of distress which takes into account both the solvency and liquidity position of the household and demonstrate that this metric outperforms the most common metrics used in the literature, which do not take into account the households’ asset holdings. We calibrate this metric using the country level data on non-performing loan ratios and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro-area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Finally, we demonstrate that our framework could be used to assess some measures mitigating losses to the banks, such as engaging in the restructurings of loans that are at risk of defaulting.     

Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash

Using the dispersion in stock returns during the financial crisis as a source of exogenous variation in the wealth of Norwegian entrepreneurs who held listed stocks, I show that adverse shocks to the wealth of business owners had large effects on their firms' financing, employment, and investment. The effects on investment and employment are driven by young firms, that obtain differentially less bank financing following an owner wealth shock. The effects on employment operate primarily through reduced hiring. My findings highlight that equity-financing frictions and the procyclicality of entrepreneurial wealth are important channels that can amplify economic shocks.     

Collateral Framework: Liquidity Premia and Multiple Equilibria

Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external assessments of the creditworthiness of its member states, such as credit ratings, to determine eligibility and the haircut it imposes on such debt. We show how such features in a central bank's collateral framework can give rise to cliff effects and multiple equilibria in bond yields and increase the vulnerability of governments to external shocks. This policy can potentially induce sovereign debt crises and defaults that would not otherwise occur. The success of the ECB's temporary suspension of these features of its collateral framework during the pandemic illustrates the practical relevance of this mechanism.     

Distance still matters. The hard reality of global expansion

Companies routinely overestimate the attractiveness of foreign markets. Dazzled by the sheer size of untapped markets, they lose sight of the difficulties of pioneering new, often very different territories. The problem is rooted in the analytic tools (the most prominent being country portfolio analysis, or CPA) that managers use to judge international investments. By focusing on national wealth, consumer income, and people's propensity to consume, CPA emphasizes potential sales, ignoring the costs and risks of doing business in a new market. Most of these costs and risks result from the barriers created by distance. "Distance," however, does not refer only to geography; its other dimensions can make foreign markets considerably more or less attractive. The CAGE framework of distance presented here considers four attributes: cultural distance (religious beliefs, race, social norms, and language that are different for the target country and the country of the company considering expansion); administrative or political distance (colony-colonizer links, common currency, and trade arrangements); geographic distance (the physical distance between the two countries, the size of the target country, access to waterways and the ocean, internal topography, and transportation and communications infrastructures); and economic distance (disparities in the two countries' wealth or consumer income and variations in the cost and quality of financial and other resources). This framework can help to identify the ways in which potential markets may be distant from existing ones. The article explores how (and by how much) various types of distance can affect different types of industries and shows how dramatically an explicit consideration of distance can change a company's picture of its strategic options.     

Debt and Financial Vulnerability on the Verge of Retirement

We analyze older individuals’ debt and financial vulnerability using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS). In the HRS, we compare three groups of people age 56–61 in 1992, 2004, and 2010, to assess cross-cohort changes in debt over time. Two waves of the NFCS (2012 and 2015) provide additional insights into debt management and older individuals’ capacity to shield themselves against shocks. We conclude that recent cohorts hold more debt and face more financial insecurity than in the past. This will render them particularly vulnerable to forecasted interest rate increases.     

Temperature shocks and the cost of equity capital: Implications for climate change perceptions

Financial market information can provide an objective assessment of losses anticipated from temperature changes. In an APT model in which temperature shocks are a systematic risk factor, the risk premium is significantly negative, loadings for most assets are negative, and asset portfolios in more vulnerable industries have stronger negative loadings on a temperature shock factor. Weighted average increases in the cost of equity capital attributed to uncertainty about temperature changes are 0.22 percent, implying a present value loss of 7.92 percent of wealth. These costs represent a new channel that may contribute to cost of climate change assessment.     

Scenarios based on sustainability discourses: Constructing alternative consumption and consumer perspectives

This paper describes a research based scenario project on sustainable consumption in Belgium. In the Consentsus project a scenario method was developed and tested by the research team to assess scenarios both as learning and participation tools for sustainable consumption. By using a decomposition analysis a solid ground was laid to adequately summarize three guiding principles on how to reach a (more) sustainable consumption: eco-efficiency, de-commodification and sufficiency. These ‘pure’ strategies – showing significant similarities with concrete discourses – were then translated into a participative process: two expert-driven workshops and interim research yielded three future images of food consumption as well as indications on their boundary conditions. These three images reflect significantly diverging approaches on how to organize practices related to food consumption. This structural diversity allowed us to address an archetypical consumer, i.e. a generalized consumer based on the specificities of the scenarios. These consumer perspectives do not aim at indicating real (even potential) groups, but aim at illustrating how the environment of interactions around the consumer fundamentally changes throughout the three sustainability discourses. It is argued that thinking through alternative modes of consumption is of importance to support and elucidate debate in governance arenas that address transitions towards a more sustainable consumption.     

The Credibility of Hong Kong's Link from the Perspective of Modern Financial Theory

Hong Kong's linked exchange rate system (LERS) has been in operation since 1983, during which time many other fixed exchange rate systems have succumbed to shocks and/or speculative attacks. This paper investigates how market participants assessed changes made to the LERS by using the tools of modern finance to extract information from financial asset prices about market expectations. These changes have been characterized as making the system less discretionary over time. We find that decreasing the discretionary element of the LERS led to an increase in credibility of the arrangement.     

A scenario discovery study of the impact of uncertainties in the global container transport system on European ports

The global container transport system is changing quickly. Ports can be severely affected by these changes; therefore, ports need insight into how the system might change and what the impact of this will be on their competitive position. Given the intrinsic complexity of the container transport system and the presence of a wide range of deeply uncertain factors affecting the system, we use an exploratory modeling approach to study future scenarios for the global container network. Using scenario discovery and worst-case discovery, we assess the implications of various uncertain factors on the competitive position of the port of Rotterdam. It is found that overall the competitive position of Rotterdam is quite robust with respect to the various uncertain factors. The main vulnerability is the quality of the hinterland connections. A modest deterioration of the quality of the hinterland connections, resulting in increased travel time, will result in a loss of throughput for Rotterdam.     

Is that a future we want?: An ecofeminist exploration of images of the future in contemporary film

Contemporary film images of the future are usually made within the hegemonic world of the Hollywood¹ film industry. This paper will argue that these films, with their global reach, are contributing to the dominant single view of the future. A view that limits the future to a Western high-tech, white, heterosexual, patriarchal, militaristic, dark blandness where a small number of the rich and powerful men are in control; it is a view that misses out on the lushness of human and biological diversity and the joyful messiness of plurality and truly democratic systems of shared power. Using Causal Layered Analysis as a methodological framework, and ecofeminism to ask questions, this paper explores images of the future in a small number of contemporary films, with specific attention to images of the ecological future in depictions of landscape, food, and animals as well as women's roles in society as an indicator of social justice and equality.Ecofeminism provides a theoretical base from which to identify areas of domination of women, human Others, non-human Others, and the Earth. Ecofeminism combined with Futures Studies provides direction on alternative ways to envision futures—futures that celebrate and protect local human and biological diversity as well as a recognition of common values based on requirements for peace, shelter, food, water, basic material well-being, and cultural expression.     

A New Cluster-Based Financial Vulnerability Indicator and Its Application to Household Stress Testing in Croatia

In this paper, we propose a new approach to household financial vulnerability analysis employing cluster technique in the identification of potentially vulnerable households. The cluster-based vulnerability indicator is applied to stress testing with the specific aim of assessing the extent to which the prolonged economic downturn following the Great Recession of 2008–9 hurt indebted households in Croatia. We compare the results based on the new approach with those based on traditional methods. Interest rate shocks have a stronger effect on household vulnerability in the traditional approach, whereas decrease in employment is found to be more disruptive in the cluster-based approach.     

新农合、灾难性医疗支出与贫困脆弱性

新农合制度在不同贫困标准下都能有效缓解农村居民贫困脆弱性,发生灾难性医疗支出时,该缓解作用随着贫困标准的提高而增强.新农合对不同收入居民的影响都很显著,灾难性医疗支出冲击下新农合对较高收入居民的影响系数大于低收入居民,存在逆向再分配.因此,我国应继续拓展新农合等医疗保障制度的可及性,减轻农村居民贫困脆弱性;加强医保对农...     

我国城市低保家庭脆弱性的比较分析

城市居民最低生活保障制度在中国的实施已经10多年,在对这一领域的诸多讨论中,有一个问题仍未得到令人满意的回答：城市低保家庭的总体特征是什么？影响因素是什么？城市居民家庭潜在风险是什么？本文试图引进脆弱性作为贫困分析的总体框架,通过一个全国性调查样本的分析,来定量考察城市低保家庭整体性的贫困。实证调查结果显示,城市低保家庭脆弱性表现在：从业上的不利;由于收入和支出上的劣势导致的生存脆弱性;教育投入和子女营养的双重不足的发展脆弱性;城市低保家庭存在多种潜在风险;低保家庭父辈和子辈在收入、就业、职业和社会资本方面有很强的传递性。为此,本文还探讨了城市低保家庭长期贫困的内在机理,提出了加强低保家庭的分类管理和个案管理,开展长期性和临时救助计划,提供全面救助服务的政策建议。