Mortgage timing

We study how the term structure of interest rates relates to mortgage choice at both household and aggregate levels. A simple utility framework of mortgage choice points to the long-term bond risk premium as distinct from the yield spread and the long yield as a theoretical determinant of mortgage choice: when the bond risk premium is high, fixed-rate mortgage payments are high, making adjustable-rate mortgages more attractive. We confirm empirically that the bulk of the time variation in both aggregate and loan-level mortgage choice can be explained by time variation in the bond risk premium, whether bond risk premia are measured using forecasters’ data, a vector autoregressive (VAR) term structure model, or a simple household decision rule based on adaptive expectations. The household decision rule moves in lock-step with mortgage choice, lending credibility to a theory of strategic mortgage timing by households.     

Political fragmentation and projected tax revenues: evidence from Flemish municipalities

The level of revenues pocketed by a government during the fiscal year often deviates from that projected by this government in its budget. Despite a flourishing literature on, for example, the technical or procedural determinants of such forecast errors, little is yet known about how political stratagems may affect forecast errors. In the present paper, we analyse whether differences in the level of government fragmentation are useful in explaining local government tax revenue forecast errors—controlling for various other factors. Using data on 242 Flemish municipalities for the period 1992–2002, we find that two-party governments are more optimistic than single-party governments. In contrast to our initial expectations, governments with at least three parties are significantly more careful (or less optimistic) in their revenue projections than single- or two-party governments.      

The effects of workplace learning in higher education on employment and match quality: is there an early-career trade-off?

We investigate whether the choice for a higher education program with a substantial workplace learning component entails an early-career trade-off between on the one hand higher employment chances and better initial matches (when opting for a program with workplace learning) and on the other hand a lower risk of bad match persistence (when opting for a program without workplace learning). To this end, we rely on longitudinal data of Belgian graduates that track their careers up until the age of 29. We model the program choice, the transition to a good match and the preceding transition to a bad match simultaneously. To account for non-random selection into programs and into bad matches, the Timing of Events method is combined with an exclusion restriction. After accounting for observed and unobserved heterogeneity, we do not find evidence for a trade-off. This result contributes to the debate about the efficiency of vocationalizing tertiary education programs through the implementation of workplace learning.     

The real impact of a one-off fiscal restriction: empirical evidence of a flypaper effect in Flemish municipalities

This paper analyses the effects of a one-off fiscal restriction on Flemish local government spending. The authors provide evidence of a ‘flypaper effect’: fiscal restriction stimulated the sensitivity of local spending to grants. This means that higher-level governments (regional/national/supranational) need to take a flypaper effect into account when considering one-off fiscal restrictions on lower-level governments.     

The Optimal Currency Composition of External Debt: Theory and Applications to Mexico and Brazil

The changes in exchange rates, interest rates, and commodityprices during the past decades have had large impacts on developingcountries. Many developing countries have limited access toalready incomplete international long-term hedging markets.Thus the question arises whether the currency composition ofexternal debt can be used to minimize exposure to external pricerisk. Using a utility-maximizing framework, this article showsthat, by choosing the optimal currency composition, a countrycan indeed manage its external exposure. The optimal, risk-minimizingcurrency composition depends on the relation between exportreceipts and the costs of borrowings in each currency and onthe relations among the costs of borrowings in different currencies.A simple methodology can be used to derive the optimal sharesof individual currencies and is applied to Mexico and Brazil.The results show that Mexico and Brazil could have lowered theirexternal exposure to a limited degree by continuously alteringthe currency composition of their debts. The low correlationsbetween the costs of borrowings and export and import pricesmake the currency composition of debt a very imperfect hedgingtool, and it is likely that hedging instruments directly linkedto prices are preferable.     

Curbing domestic violence: instantiating C–K theory with formal concept analysis and emergent self-organizing maps

We propose a human-centred process for knowledge discovery from unstructured text that makes use of formal concept analysis and emergent self-organizing maps. The knowledge discovery process is conceptualized and interpreted as successive iterations through the concept–knowledge (C–K) theory design square. To illustrate its effectiveness, we report on a real-life case study of using the process at the Amsterdam–Amstelland police in the Netherlands aimed at distilling concepts to identify domestic violence from the unstructured text in actual police reports. The case study allows us to show how the process was not only able to uncover the nature of a phenomenon such as domestic violence, but also enabled analysts to identify many types of anomaly in the practice of policing. We will illustrate how the insights obtained from this exercise resulted in major improvements in the management of domestic violence cases. Copyright © 2010 John Wiley & Sons, Ltd.     

What happens during recessions, crunches and busts?

We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles, for 21 OECD countries over the period 1960–2007. In particular, we analyse the implications of 122 recessions, 113 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 245 (61) episodes of equity price declines (busts), and their various overlaps in these countries, over the sample period. Our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions.
— Stijn Claessens, M. Ayhan Kose and Marco E. Terrones