Credit rationing and the adjustment of the loan rate: An empirical investigation

In this paper, models of credit rationing are analyzed using quarterly data on domestic bank loans of four countries. First, models of temporary (dynamic) credit rationing are considered. The price (interest rate) equation proposed by Bowden is estimated assuming equal and unequal adjustment speeds under excess demand and supply conditions. Second, the stability of the interest-rate equation is tested. We motivate this test by the fact that permanent (supply-side equilibrium) credit rationing implies instability of this regression relationship. Statistically significant credit-rationing effects are found for the countries considered, with the exception of the U.S.     

The link between the federal funds rate and banking system distress: An empirical investigation

We investigate the association between deviations of the monetary policy rate from its benchmark, and systemic risk between 2001 and 2017. We adopt an impulse response function framework that uses the local projections method model proposed by Jorda (2005). We find that paying interest on reserves by the Fed beginning in 2008 introduced a monetary policy regime shift between the period that the Fed did not pay interest on reserves and the period that it did. Consequently, while we identify a positive and significant link between deviations of the policy rate from its benchmark and systemic risk in the former period, this link was broken in the latter period. During the former period, upsurges in the fed funds rate raised bank costs and increased bank distress. In contrast, during the latter period, interest payment on reserves exceeded the policy rate, except for 2009Q1, and as a result, banks did not expand lending in response to the Fed's reserve injections, instead, holding large amounts of excess reserves. This practice produced greater bank profitability and reduced bank liquidity risk and credit risk, without increasing systemic risk.     

Central banking,free banking,and financial crises

A Summary View In the Keynesian view, the central bank is a part of an extramarket remedy to a market malady. Investment markets are inherently unstable; government control of the economy's money supply is an important element in macroeconomic stabilization policy. The case against central banking—and for free banking—reverses the characterization of both remedy and malady. Free banking is a part of a market remedy to an extramarket malady. Even this stark reversal understates the case for free banking. It would remain valid even if we take the dramatic and chronic fiscal irresponsibility of the Treasury as given. Periodic crises that will inevitably occur in such a debt-ridden economic environment would be more ably countered by the market forces of free banking than by the policy moves of a central bank. But the extent of the Treasury's fiscal irresponsibility is itself dependent upon whether the Treasury can count on an accommodating central bank. Free banking limits the scope of this potential source of instability while at the same time enhancing the market's ability to deal with whatever instabilities that may persist.     

Creditor concentration: An empirical investigation

Most of the literature on multiple banking assumes equal financing shares. However, unequal, asymmetric or concentrated bank borrowing is widespread, and creditor concentration is only weakly correlated with the number of bank relationships. This paper therefore investigates the determinants of creditor concentration for German firms using a comprehensive firm-bank level dataset for the time period between 1993 and 2003. We document that corporate borrowing from banks is very often concentrated, even for the largest firms in our sample. Leveraged firms and firms with more redeployable assets concentrate their borrowing from banks, as are firms dealing with a relationship lender that is profitable, that has lower monitoring costs, or that operates in a concentrated regional lending market.     

Commodity prices and growth: An empirical investigation

Whereas empirical evidence on the effect of higher commodity prices on the long-run growth of commodity exporters is ambiguous, time series analyses using vector autoregressive (VAR) models have found that commodity booms raise income in the short run. In this paper we adopt panel error correction methodology to analyze global data for 1963 to 2008 to disentangle the short and long run effects of international commodity prices on output per capita. Our results show that commodity booms have unconditional positive short-term effects on output, but non-agricultural booms in countries with poor governance have adverse long-term effects which dominate the short-run gains. Our findings have important implications for non-agricultural commodity exporters with poor governance, especially in light of the recent wave of resource discoveries in low-income countries.     

Offshoring and skill overlap: An empirical investigation

Conventional international trade theory predicts that bilateral offshoring flows will be highest when two countries have very different relative factor endowments. In contrast, the new trade theory contends that offshoring is more likely to exist when countries’ relative factor endowments are similar. This paper empirically tests the relationship between offshoring and relative factor endowments, measured by the skill overlap index between two countries and finds evidence that there is an inverted U‐shape relationship. Our empirical results predict that the rise in educational attainment in China will motivate U.S. multinationals to send their tasks to China in the short run; over the long run, however, U.S. multinationals will have fewer incentives to send their tasks to China. This finding sheds new light on the current trade tensions between the United States and China and has implications for trade policy.     

Real estate prices and systemic banking crises

The collapse of real estate prices has historically jeopardized banking stability and triggered systemic banking crises. This paper studies risk contagion in a banking system in real estate price shock by adopting complex network theory. Modelling the real estate-related asset as a common exposure of banks to the real estate market, we propose a model that incorporates two main risk contagion channels, i.e., the financial network and asset fire sales, and reveal how the real estate price shock is transmitted and propagated across banks. We demonstrate that banking stability is highly sensitive to the real estate price shock. Moreover, due to the particularly low liquidity of the real estate market, the asset fire-sales of real estate assets overwhelms the financial network, playing the dominant role in risk contagion. Our model can be adopted by regulators to conduct stress testing and to forge effective risk management strategies.     

Culture and labour productivity: An empirical investigation

Culture is considered as one of the most powerful forces that shape human behaviour and thereby economic activity. This paper investigates the effects of culture on labour productivity and examines the cultural traits driving this relationship. Using panel data analysis, empirical evidence is provided covering a sample of 34 OECD countries over a wide period of three decades. Our empirical results suggest a significant positive relationship between the cultural background and labour productivity. The main channels of this positive impact are control and work ethic environment, while obedience has a negative impact on productivity. These findings are robust to a series of robustness checks, including alternative cultural measures, additional control variables, various country samples, and alternative specifications.     

Aspiration level effects: An empirical investigation

Theories of aspiration level effects predict that decisions under uncertainty will depend on whether performance is above or below some target level of performance. A sample of 5000 quarterly earnings announcements by publicity held companies listed on the COMPUSTAT and CRSP data bases is examined to test this hypothesis. Four models from the current accounting literature are used as alternative estimates of the target level of earnings for these firms. When earnings are announced the difference between actual and forecast earnings, here called a forecast error, can be computed. The data indicate that the relationship between valuation and forecast error differs conditional on the sign of the forecast error.     

Information sharing for consumption tax purposes: An empirical analysis

The paper studies the determinants of information sharing between Swedish tax authorities and 14 EU tax authorities for value-added tax (VAT) purposes. It is shown that trade-related variables (such as the partner country’s net trade position and population size), reciprocity, and legal arrangements are significant determinants of Sweden’s trade in tax information. Countries that are net exporters of goods to Sweden appear to be net importers of information from Sweden, reflecting their need for information to combat export-related VAT fraud. Reciprocity plays a more important role in Sweden’s export of information upon official request than in its spontaneous export of information.     

Relative prices and international competitiveness: An empirical investigation

This paper examines the relationship between competitive shares and relative prices for the exports of Japan, Korea and India over the past fifteen years. For Japan the results are consistent with neotechnological theories, and may be explained by a recently explicated model which applies the logic of Hicks' induced innovation mechanism to trade analysis. For the developing countries the results are found to be systematically associated with foreign trade regimes pursued as a part of overall development strategies. Thus the applicability of typical results derivable from standard static trade theories are found to be bound or restricted to special cases defined by stages of economic development, and by policy choices.     

Firm heterogeneity and trade-induced layoffs: An empirical investigation

We use a novel data set with verified observations of trade-induced layoffs by U.S. firms to study the interaction between firm productivity and trade liberalization as key determinants of firm-level job destruction due to trade. We find that patterns of trade-induced layoffs are broadly consistent with the predictions for firm-level employment generated by the Melitz (2003) heterogeneous firms theory – the number of trade-induced layoffs increases with firm productivity for non-exporting firms but decreases with firm productivity for exporting firms. The fact that exporting firms incur trade-induced layoffs at all invites a refined interpretation of the theory. Our findings suggest that exporting firms may lay off some workers who work in production for their shrinking domestic segments, while also engaging in some within-firm reallocation of workers. We also find that, even after controlling for productivity and export status, larger firms lay off more workers due to trade competition.     

Testing for unit roots: An empirical investigation

This paper compares some recent tests for unit roots in observed time series data. The results indicate some sensitivity to lag truncation and the alternative maintained hypothesis. A procedure is recommended for using the Dickey–Fuller tests.     

Strategic monetary and fiscal policy interactions: An empirical investigation

This paper identifies leadership regimes in monetary-fiscal policy interactions in three countries, the UK, the US and Sweden. We specify a small-scale, structural general equilibrium model of an open economy and estimate it using Bayesian methods. We assume that the authorities can act strategically in a non-cooperative policy game, and compare different leadership regimes. We find that the model of fiscal leadership gives the best fit for the UK and Sweden, while in the US the Nash or non-strategic regime dominates. We assess the extent to which policy maker preferences reflect microfounded social preferences.