DIFFERENCES IN PORTUGUESE CREDIT INSTITUTIONS' LENDING AND INVESTMENT BEHAVIOUR IN A TIME OF SLUMP

The purpose of this paper is to investigate the influence of the different property rights models of credit institutions (public, private, cooperative or mutual) in their credit policy and investment behaviour and in response to the current crisis and regulatory framework adjustments. Taking Portuguese credit institutions as the object, it concludes that overall banks’ business models are qualitatively identical and their lending and investment behaviours are similar, except for the saver profile of cooperative banks and the deeper focus on loans to customers to the detriment of financial investments of the mutual savings banks. Moreover, the reactions to the crisis were equivalent, except for the state‐owned banks, which presented the most favourable reaction, albeit not deep enough to be significant.     

Depositor Behavior under Macroeconomic Risk: Evidence from Bank Runs in Emerging Economies

Depositor behavior has been associated with bank‐specific characteristics, random runs, or contagion episodes. Using evidence on the 2000–02 bank runs in Argentina and Uruguay, this paper shows that macroeconomic risk is also important. Few macroeconomic shocks can quickly cause large runs. Macroeconomic risk affects deposits regardless of traditional bank‐specific characteristics. Furthermore, bank exposure to macroeconomic factors can explain differences in deposit withdrawals. During crises, the evolution of bank‐specific characteristics is mainly driven by macroeconomic factors, while the informational content of bank‐specific variables declines. Overall, depositors seem responsive to risk in a broader sense than that often considered by the literature.     

A VARMA Analysis of the Causal Relations Among Stock Returns,Real Output,and Nominal Interest Rates

Previous research has documented a negative relation between common stock returns and inflation. Recently, Fama 3 and Geske and Roll 6 have argued that this relation results from a more fundamental one between real activity and expected inflation. Stock returns, they argue, signal changes in real activity, which in turn affect expected inflation. However, unlike Fama, Geske and Roll argue that changes in real activity result in changes in money supply growth, which in turn affect expected inflation. Empirical tests have analyzed separately each link in the proposed causal chain. In this article, we investigate simultaneously the relations among stock returns, real activity, inflation, and money supply changes using a vector autoregressive moving average (VARMA) model. Our empirical results strongly support Geske and Roll's reversed causality model.     

News and Business Cycles in Open Economies

We study the effects of news about future total factor productivity (TFP) in a small open economy. We show that an open‐economy version of the neoclassical model produces a recession in response to good news about future TFP. We propose an open‐economy model that generates comovement in response to TFP news. The key elements of our model are a weak short‐run wealth effect on the labor supply and adjustment costs to labor and investment. We show that our model also generates comovement in response to news about future investment‐specific technical change and to “sudden stops.”     

Valuation Risk and Asset Pricing

Standard representative‐agent models fail to account for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing, which underlies virtually all modern asset pricing puzzles, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.