Global imbalances,cross-market linkages,and the financial crisis: A multivariate Markov-switching analysis

Based on multivariate Markov-switching models, this paper presents new results on the interactions between global imbalances, credit spreads, housing markets, macroeconomic variables, commodities and equities during Q1-1987/Q1-2011. We show that rising global imbalances and the uncontrolled development of the US mortgage and housing markets have been deeply destabilizing the economy, with various shocks impacting subsequently equity markets and macroeconomic variables. But we also uncover, surprisingly, that the cross-market linkages with the commodity markets are strong. Finally, we identify that the US housing market lies at the epicenter of the crisis through its multiple and highly significant interactions with the other variables in the system (including the global imbalances). Sub-samples and alternative time series estimates are provided to check the statistical congruency of the various models.     

Technology capabilities,marketing capabilities and innovation ambidexterity

Linking the literature of resource-based view (RBV) with ambidexterity, we construct an integrative framework of technology capabilities, marketing capabilities, innovation ambidexterity, and organisational performance. Using data from a sample of 190 Chinese hospitals, we find that both technology capabilities and marketing capabilities have an inverse U-shape relationship with innovation ambidexterity. And they can complementarily improve innovation ambidexterity, which further enhances organisational performance. This study deepens our understanding of RBV and ambidexterity by investigating the antecedent roles of technological and marketing capabilities on innovation ambidexterity. We also investigate their interactive role on improving innovation ambidexterity.     

Bilateral portfolio dynamics during the global financial crisis

There has been considerable bilateral variation in the pattern of portfolio capital flows during the global financial crisis: for a given destination, investors from different countries adjusted their holdings to different degrees. We show that the size of the initial bilateral holding, geographical distance, common language, the level of trade and common institutional linkages help to explain the pattern of adjustment. These bilateral factors are more important for equities than for bonds and for investors from developing countries than for investors from advanced countries.     

Intergenerational occupational dynamics before and during the recent crisis in Spain

The relationship between the socio-economic status of parents and children is referred to by the literature as intergenerational social mobility. Low mobility implies that human capital, skills and talent can be misallocated. As a consequence, the workers’ efforts, their motivation and productivity could be negatively affected, causing adverse effects on economy growth and competitiveness. This paper attempts to study the evolution of intergenerational social mobility before and during the recent economic crisis in Spain. The methodology applied consists in analysing the movements along the occupational scale of children with respect to their parents. This involves associating the National Classification of Occupations with the New International Socio-economic Index of Occupational Status. Statistic and econometric methods are used to assess these occupational transitions and to analyse the covariates’ effects on them. Data used corresponds to the 2005 and 2011 Living Condition Survey (INE 2005, 2011).     

Global financial crisis as a phenomenon of stock market overshooting

Inspired by Dornbusch’s model of exchange rate overshooting we develop a theory of stock market behaviour and its impact on the real economy. The idea is that stock market prices overshoot and undershoot their long-run equilibrium values which are determined by the development in the real economy. The overshooting is triggered primarily by a loose monetary policy. With our model we explain the genesis of the global financial crisis (GFC) 2008/2009 primarily as the result of a loose monetary policy in the USA. Following the overshooting and crash in the stock market the real economy dropped into a recession. After modelling the interaction of three markets with different speed of adjustment—money, stocks and goods—for a closed economy we expand it to an open economy and lastly study the spillovers of a financial market crisis between countries (from a large to a small country) by introducing the transmission channels of external trade or cross-border financial transactions. A long-lasting monetary easing as exhibiting by the Fed and the ECB since 2007 and 2008, respectively could—according to our model—generate another boom-bust cycle.     

Global equilibrium dynamics with stationary recursive preferences

We study the global dynamics of capital accumulation for a general two-sector model which is not necessarily convex and where preferences of an infinitely-lived agent are stationary but not additively separable. We obtain monotonicity and convergence results for capital under ‘normality’ assumptions on preferences and factor intensity assumptions on technology. We then derive results on oscillatory dynamics under alternative factor-intensity conditions or under the assumption of inferiority of ‘future utilities’. Finally, in an exchange model with two agents we show that utilities will be monotonic or oscillatory depending on the normality or inferiority of the preferences.     

Exports,capabilities, and industrial policy in India

An extensive literature argues that India’s manufacturing sector has underperformed, and that the country has failed to industrialize; in particular, it has failed to take advantage of its labor–abundant comparative advantage. India’s manufacturing sector is smaller as a share of GDP than that of East Asian countries, even after controlling for GDP per capita. Hence, its contribution to overall GDP growth is modest. Without greater participation of the secondary sector, the argument goes, the country will not be able to develop and become a modern economy. Standard arguments blame the “license-permit raj”, the small-scale industrial policy, and the labor laws. All these were part of the industrial policy regime instituted after independence. This regime favored the heavy-machinery subsector. We argue that despite its shortcomings and misallocations, the bias towards machinery, metals, chemicals, and other capital- and skilled labor-intensive products allowed Indian manufacturing to accumulate a wide range of capabilities. We show that India’s manufacturing sector is more diversified and sophisticated than one would expect given the country’s income per capita. This positions India well to continue expanding its exports of other sophisticated products. India’s failure, however, lies in not being able to diversify into labor-intensive sectors and generate the type of structural transformation seen in China.     

Debt crisis,accumulation crisis and economic restructuring in Latin America

The policy debate over the Latin American debt crisis has shifted from the issue of short-term adjustment to that of long-term restructuring. The history of import substituting industrialization (IS) is reviewed in order to establish a context for the current restructuring debates. We argue that the demise of the IS model was primarily due to narrow domestic markets, heavy imports of capital goods and excessive ties with foreign multinationals, not to inefficiencies inherent in market-constraining policies. From this perspective, free market, export-led growth policies are opposed as an appropriate restructuring strategy and policies of redistribution, regional integration and major debt concessions are supported.     

Global distribution and dynamics of economic freedom: Non-parametric approach

The paper exploits the distributional dynamics and structural changes in the endogenous distribution of economic freedom across countries over time by utilizing the Rosenblatt–Parzen Kernel density estimator compared to the original distribution based on the methodology proposed by the Heritage Foundation. We utilize the distribution of economic freedom as a tool to identify which policies enhanced the overall level of economic freedom. We develop the distribution of endogenous economic freedom by decomposing effects of economic freedom on the level of income per capita in IV–2SLS estimation framework for a panel of 134 countries to identify the effect of institutions of economic freedom on the level of per capita income. Structural estimates indicate that improvements in the monetary, fiscal, and labor freedom exert the strongest direct effect on the level of economic freedom and indirect effect on the level of real income per capita. Our study demonstrates considerable differences between the original and endogenous distributional dynamics of economic freedom over time. In exploiting the non-parametric setting of endogenous economic freedom, we identify a recent emergence of twin-peak distribution across countries where developing nations have improved the level of economic freedom considerably compared to the initial year.     

Location in scientific-technological parks,dynamic capabilities,and innovation

Determining the sources of business success in highly dynamic and turbulent environments is very complicated. A broad consensus exists in this respect about the need to contemplate the innovation as a key element for competitiveness. This reasoning stems from its positive effects on growth and on efficiency, of innovative firms in comparison with non-innovative ones. Geographical location provides a unique and different context and this paper aims to analyse the influence exerted by the territory on dynamic capabilities and, consequently, on business competitiveness. Using a sample of 610 high-technology companies drawn from the Technological Innovation Panel (2012), it is confirmed not only that firms located in scientific-technological parks are more innovative but also that dynamic capabilities play a mediating role in this relationship.     

Economics of the crisis and the crisis of economics

Abstract

The macroeconomic instability revealed in the recent deep recession steams from the condition of balance sheets. Generally high leverage and strained maturity mismatches build up slowly but generate a financial structure so brittle that the impulse that eventually sends it crashing is hard to identify. The US financial system had been rendered more vulnerable by the financial reforms that swept away the Glass-Steagall regulations. The crisis made the inadquancies of the ruling macroeconomic paradigm painfully obvious. DSGE models generally did not include a financial sector and did not take the possibility of dramatic instability seriously. Unanticipated violations of budget constraints do not fit easily into general equilibrium models.     

Indigenous technological capabilities,emerging market firms and the aerospace industry

While emerging market economies have developed significant technological capabilities and increased their share of global value-added in aerospace, they have done so largely through utilising foreign direct investment (FDI) and offset arrangements to enter supply chains that remain dominated by European and American firms. The paper examines whether emerging markets are developing indigenous technological capability in aerospace technologies. Drawing on patent data from the Thomson Innovation database, the study seeks to understand whether anchor tenant capability is indeed forming in emerging markets. A tech-mining method is applied. The study suggests that China, in particular, has dramatically increased its innovative capacity in the area. However, the data also demonstrate the significant advantages enjoyed by incumbent firms from Europe and the USA, suggesting that the complexity of aircraft R&D remains a formidable barrier that can only be surmounted by determined government policies and anchor firms equipped with substantial innovation capabilities.     

Matthew effect,capabilities and innovation policy: the Argentinean case

The purpose of this paper is to test the presence of Matthew effects in different types of public funding for innovation – non-refundable grants, subsidized loans and tax credits. According to the literature, Matthew effect refers to the impact of past accessing to public funds on reputation, which increases the probability of accessing in the present. The dataset is made of 966 firms that accessed the Technological Argentinean Fund (FONTAR), main instrument to foster innovation in Argentina, during 2007–2013 – 3300 observations. Results confirm the existence of Matthew effects: past accessing to FONTAR increases the probability of accessing in the present, but only when different instruments are taken altogether. Then, Matthew effect is positively associated with the diversification of access to promotional instruments rather than the repeated access to one type of funding tool. Additionally, results show that firm’s innovation investments, R&D activities, and human resources, explain the increase in probability of accessing, which provides evidence regarding the presence of capability effects. All of this suggests that once the firm enters the system of public funding, it remains with an active innovative behaviour, not just because of reputation effects, but because it has accumulated capabilities in the pursuit of a technological advantage.     

The recourse rule,regulatory arbitrage,and the financial crisis

In November 2001, regulators finalized the “Recourse Rule.” The rule lowered risk weights, and therefore commercial bank holding company capital requirements, to 0.2 for holdings of AAA- and AA-rated “private label” securitization tranches, created by investment banks and securitizing commercial bank holding company subsidiaries; risk weights for A-rated holdings equaled 0.5. The rule’s aim was to encourage securitization, but not risk-taking. Regulators indicated that the rule would apply to larger holding companies, without identifying them. Using bank holding companies with subsidiaries that commented on the proposed rule-makings as a treatment variable, average treatment effects from a fully flexible difference-in-differences model indicate that treated banks increased their holdings of the highly rated tranches relative to total assets, while other holding companies, on average, did not. Holding companies with greater highly rated tranche holdings also experienced greater increases in risk after Q1 2008, which suggests that poor performance may have been unanticipated.     

Expectations, the business cycle and the Mexican peso crisis

The 1994–95 ‘peso’ crisis did not displaycharacteristics which allow it to be easily captured by traditionalcrisis models. Models based on Minsky's financial fragilityhypothesis offer more persuasive accounts but have been supportedby relatively little direct empirical evidence. This paper providessuch evidence, with particular attention being paid to the roleof domestic financial liberalisation in the process. Minsky'shypotheses about the evolution of expectations over the businesscycle are tracked using business survey data. In addition, crisisindicators are constructed, reflecting the changing vulnerabilityof the economy to shocks. The findings support a Minskyian interpretationof the crisis.     

Global financial crisis and dependence risk analysis of sector portfolios: a vine copula approach

We use regular vine (r-vine), canonical vine (c-vine) and drawable vine (d-vine) copulas to examine the dependence risk characteristics of three 20-stock portfolios from the retail, manufacturing and gold-mining equity sectors of the Australian market in periods before, during and after the 2008–2009 global financial crisis (GFC). Our results indicate that the retail portfolio is less risky than the manufacturing counterpart in the crisis period, while the gold-mining portfolio is less risky than both the retail and manufacturing sector portfolios. Both the retail and gold stocks display a higher propensity to yield positively skewed returns in the crisis periods, contrary to the manufacturing stocks. The r-vine is found to best capture the multivariate dependence structure of the stocks in the retail and gold-mining portfolios, while the d-vine does it for the manufacturing stock portfolio. These findings could be used to develop dependence risk- and investment risk-adjusted strategies for investment, rebalancing and hedging which more adequately account for the downside risk in various market conditions.