Introduction

NETNOMICS: Economic Research and Electronic Networking -     

Banks’ capital buffer,risk and performance in the Canadian banking system: Impact of business cycles and regulatory changes

Using quarterly financial statements and stock market data from 1982 to 2010 for the six largest Canadian chartered banks, this paper documents positive co-movement between Canadian banks’ capital buffer and business cycles. The adoption of Basel Accords and the balance sheet leverage cap imposed by Canadian banking regulations did not change this cyclical behavior of Canadian bank capital. We find Canadian banks to be well-capitalized and that they hold a larger capital buffer in expansion than in recession, which may explain how they weathered the recent subprime financial crisis so well. This evidence that Canadian banks ride the business and regulatory periods underscores the appropriateness of a both micro- and a macro-prudential “through-the-cycle” approach to capital adequacy as advocated in the proposed Basel III framework to strengthen the resilience of the banking sector.     

The impact of the Gramm-Leach-Bliley act on the financial services industry

This paper examines the impact of Gramm-Leach-Bliley Act across three main sectors of the financial services industry: commercial banks, insurance companies, and brokerage firms, taking account of the wealth effect associated with the announcement. We find that the law has a differential impact across the financial services industry. All three industries have gained due to this law with commercial banks benefiting most, followed by the insurance industry. Further, the results show that larger firms benefited more in both the banking and insurance industries and exposure to systematic risk was reduced for all sectors of the financial services industry after this regulation passed.     

Evaluating social protection programs in Tajikistan

At independence, Tajikistan inherited an extensive social protection system that included a range of cash and non-cash benefits. While the economy is well into its transition from a centrally planned to a market-oriented economy, its social welfare policies still adhere to the methods and approaches of the Soviet period. This is true for social protection, which has both social insurance and social assistance components, and for which benefits are effectively non-contributory in nature in that no contributions are collected from employees. In this paper, we examine the performance of the country's social protection system—essentially public transfers for the elderly and disabled—in terms of reducing poverty, with the aim of identifying its key problems. Since the government provides such public transfers mainly as pensions (i.e., old-age pension, disabled pension, and survivors pension), it merits an in-depth analysis of whether or not these transfer programs reach the intended beneficiaries; that is, how well do they target the intended beneficiaries? Using data from the Living Standards Measurement Survey conducted in 2007, we find that only 43% of poor households are receiving transfers from the government, while 33% of non-poor households receive transfers. This study argues for applying a targeted approach to public transfer programs, including non-contributory pension schemes aimed at the most vulnerable populations.     

An analysis of private loan guarantees

Loans guaranteed by private parties other than government agencies experienced an explosive growth in the early 1980s. Althoughprivate financial guarantees are widely used, models for valuing them are not well developed. Using option-pricing theory, in a discrete-time framework we obtain closed-form formulas for evaluating private loan guarantees. We conduct numerical simulations and derive comparative statics for vulnerable loan guarantees under different conditions of debt subordination in conjunction with government default-free guarantees.     

The Choice of an Optimal Exchange Rate System for a Small Country Under the three Good and three Country Model

The purpose of this paper is to analyze the problem of the choice of an optimal exchange rate system for a small country in terms of insulation from foreign real and monetary disturbances and in terms of minimizing the output variance around desired output. We employ a simple open macroeconomic model which can represent a small country's economy where the production of domestic output is dependent upon the intermediate goods from the rest of the world and where there are a variety of controls over foreign exchange and capital flows by a monetary authority. [420]     

A general class of distortion operators for pricing contingent claims with applications to CAT bonds

ABSTRACT

The current paper provides a general approach to construct distortion operators that can price financial and insurance risks. Our approach generalizes the (Wang 2000) transform and recovers multiple distortions proposed in the literature as particular cases. This approach enables designing distortions that are consistent with various pricing principles used in finance and insurance such as no-arbitrage models, equilibrium models and actuarial premium calculation principles. Such distortions allow for the incorporation of risk-aversion, distribution features (e.g. skewness and kurtosis) and other considerations that are relevant to price contingent claims. The pricing performance of multiple distortions obtained through our approach is assessed on CAT bonds data. The current paper is the first to provide evidence that jump-diffusion models are appropriate for CAT bonds pricing, and that natural disaster aversion impacts empirical prices. A simpler distortion based on a distribution mixture is finally proposed for CAT bonds pricing to facilitate the implementation.     

An empirical study of firm productivity growth based on the dynamic selection model: Effects on the recent decline in Korean exports

Export and productivity growth in the Korean manufacturing sector have both been slow since 2011. To understand this relationship, we examine the productivity distributions of manufacturing firms in Korea by applying the dynamic selection model developed by Sampson (2016). The fitness of the dynamic selection model suggests that a slowdown in the market selection mechanism may be a crucial contributor to the stagnant growth in the productivity. In addition, we find that the productivity difference between exporting firms and non-exporting firms has decreased and the low productivity growth of firms exporting to non-foreign affiliates has contributed to this trend.