Liquidity-saving mechanisms

This paper studies the incentives of participants in a real-time gross settlement system with and without the addition of a liquidity-saving mechanism (LSM). Participants in the model face a liquidity shock and different costs for delaying payments. They trade off the cost of delaying a payment against the cost of borrowing liquidity from the central bank. The main contribution of the paper is to show that the design of an LSM has important implications for welfare. In particular, parameters determine whether the addition of an LSM increases or decreases welfare.     

The dynamics of leveraged ETFs returns: a panel data study

Leveraged exchange-traded funds (LETFs) are limited liability securities that allow investors to take daily constant leverage bets on a reference index. This work proposes a new empirical design to investigate the dynamics of quarterly LETFs returns. Rather than relying on fund-by-fund overlapping regressions, as in existing literature, the paper exploits a large panel of non-overlapping data covering the whole universe of Proshares, the US primary LETFs provider. Overall, it is found that the variables prescribed by theory broadly explain cross-sectional variability. It is also found that inverse LETFs and more generally, leveraged funds operating in asset classes like international equity, bonds and commodities underperform theoretical predictions. This underperformance is mainly attributed to frictions in the process of implementing the required daily leverage.     

THE RISK OF FIRE SALES IN THE TRI‐PARTY REPO MARKET

This paper studies the risk of “fire sales” in the tri‐party repo market, a large and important market where securities dealers find short‐term funding for a substantial portion of their own and their clients' assets. We distinguish between fire sales of assets by a dealer who, facing a run that could lead to default, sells securities to generate liquidity, and fire sales of assets by repo investors after a dealer's default has occurred. While fire sales do cause damage no matter how they arise, the tools available to lessen the harm from the two types of fire sales are different. We find that limited tools are available to mitigate the risk of predefault fire sales and that no established tools currently exist to mitigate the risk of postdefault sales. (JEL G01, G18)     

Banks, markets, and efficiency

A competitive financial system can help reduce banks’ monopoly power and the associated inefficiencies. However, according to Diamond (J Polit Econ 105: 928–956, 1997) and Fecht (J Eur Econ Assoc 6(2), 2004) competition with the financial sector may also constrain the amount of liquidity insurance that banks can provide to households affected by unobservable idiosyncratic liquidity shocks. To study this trade-off, we model competition between banks and between banks and financial markets. Our analysis shows that competition between banks and financial markets can constrain the risk-sharing offered by deposit contracts. This effect is the same if competition between banks mainly affects the reallocation of deposits. However, if banking competition primarily affects new deposits, then such competition only limits inefficient monopoly rents without restraining risk-sharing. We would like to thank Diemo Dietrich, Phil Dybvig, Hans Peter Grüner, Martin Hellwig, Elu von Thadden, Uwe Vollmer, Wolf Wagner as well as seminar participants at the Bundesbank, at the University of Mannheim, at the University of Tilburg, at the 3rd Workshop on Monetary and Financial Economics in Halle, at the University of Lausanne, at the First ProBanker Symposium in Maastricht, at the Global Finance Conference 2005 in Dublin, at the European Economic Association Meeting 2005 in Amsterdam, at the International Finance Conference 2005 in Copenhagen, and at the German Economic Association Meeting 2005 in Bonn. We thank Mike Demott for editorial assistance. The views expressed here are those of the authors and not necessarily those of the Deutsche Bundesbank, the Federal Reserve Bank of New York, or the Federal Reserve System.     

The biological hypothesis in cliometrics of growth: a methodological critique of Fogel (post 1982) and Ashraf & Galor (2013)

The resort to biological “analogies”, “metaphors” and “concepts” is an important aspect of the history of the relationships between economics and biology and has long been greatly controversial. This controversy continues today in the most recent work of three cliometricians, i.e. Fogel (post 1982) and Ashraf and Galor (2013). We focus on the theories of historical growth relying on biological explanations which have been formulated by these economists, from the specific angle of biological reductionism. We propose a methodological critique of their use of biological variables as determinants of the historical dynamics of economic growth. Based upon the transposition to the field of economics of Ernst Mayr’s distinction between functional and evolutionary biology and his definitions of reductionism, we argue that despite some similarities, the questions raised by Fogel’s and Ashraf & Galor’s theories are of distinct nature. Nonetheless, we stress the need for a careful examination of the biological mechanisms supporting these researches.     

Optimal monetary policy and economic growth

A question at the center of many analyses of optimal monetary policy is, why do central banks never implement the Friedman rule? To the list of answers to this question, we add neoclassical production (specifically, the Tobin effect) as one possible explanation. To that end, we study an overlapping generations economy with capital where limited communication and stochastic relocation create an endogenous transactions role for fiat money. We assume a production function with a knowledge externality (Romer style) that nests economies with endogenous growth (AK form) and those with no long-run growth (the Diamond model). The Tobin effect is shown to be always operative. Under CRRA preferences, a mild degree of social increasing returns is sufficient (but not necessary) for some positive inflation to dominate zero inflation and for the Friedman rule to be sub-optimal, irrespective of the degree of risk aversion.     

我们俩

中国与欧盟在政治、经济、文化诸方面的深度合作无需多言,作为欧盟派驻在华的工作人员,我们衷心希望,中欧海关合作能够“更上层楼”。     

A dynamic theory of the declining aggregated labor income share: Intangible capital vs. tangible capital

Reports of the literature documenting the declining labor share of income have increased greatly in the past few years, which is opposed to one of the famous “Kaldor's stylized facts” of growth. The declining labor income share has been observed since the 1980s in a number of countries, and especially in the United States. Recent studies have revealed the following five major driving forces of the declining labor share: (i) supercycles and boom-busts, (ii) rising and faster depreciation, (iii) superstar effects and consolidation, (iv) capital substitution and automation, and (v) globalization and labor bargaining power. We set up a two-sector optimal growth model with the R&D intermediate sectors producing intangible capital. By integrating driving factors (ii) through (iv) above into the model, we demonstrate the long-run decline of the aggregated labor income share.     

Equilibrium Tariff Schedules In Commercial Policy Games Under Uncertainty

Abstract A partial two country equilibrium model is built in which two different exogenous random shocks may occur. the governments simultaneously choose tariff functions relating their specific tariff to the level of an observable variable (volume of trade or international price). In the case of a “volume of trade shock” the Nash equilibria of this game are more protectionist the larger the possible trade swings and autarky is always an equilibrium outcome. In the case of a “terms of trade shock”, constant tariffs, at their Nash equilibrium in specific tariff levels are the only sensible equilibrium outcome.     

On the reliability of unitizing textual continua: Further developments

This paper builds on an agreement coefficient proposed by Krippendorff (Content analysis: an introduction to its methodology, 2013) for measuring the reliability of unitizing and coding continuous phenomena, for example, of texts, videos, or sound recordings. It serves three purposes: It modifies Krippendorff’s definition which turned out to behave not as expected when applied to more than two observers, coders, or annotators. It extends this reliability measure to a family of four coefficients able to assess the reliabilities of diverse properties of unitized continua. It adds a way to obtain the confidence intervals of these coefficients as well as the probability of failing to reach targeted reliability levels. And it describes and provides access to free software that calculates all values of this family of reliability coefficients.