The Use of Collateral in Gross and Net Payment Systems

Abstract

The purpose of this paper is to make a comparative analysis of modern gross and net payment systems, emphasizing the implications of the availability of intraday liquidity in the former, and of collateral requirements in the latter. In contrast to previous models, an economy with two assets is described: eligible as collateral and not eligible, with the aim of being able to determine the implications of the requirement of these guarantees on banks' portfolio decisions—which affects their return—and on the probability and the consequences of a systemic crisis. This allows for comparison of the effects on social welfare of each of the two systems for different sets of parameters that characterize social risk aversion, opportunity set of banks, and the functioning of each settlement model. In a calibration exercise, it is shown how it would be legitimate for a benevolent authority to have a preference for a gross system, like TARGET, over a net system, like EURO1, for relatively high values, although plausible, of risk aversion.     

The impact of governance reform on performance and transparency

This study examines the influence of Mexico’s efforts to improve corporate governance on firm performance and transparency. We utilize compliance data from the Code of ‘Best’ Corporate Practices, disclosed annually by public firms in Mexico, as a measure of corporate governance strength. We document a significant increase in compliance over 2000–2004 indicating Mexican companies view non-compliance as costly. However, we find no association between the governance index and firm performance, nor is there a relation with transparency. Instead, we find firms with greater compliance resort to the more costly mechanism of making dividend payments (higher propensity to pay and greater yield) to reduce agency conflicts. We conclude these associations are the direct result of the institutional features of the Mexican business environment, which is characterized by concentrated ownership of insiders, interlocked boards of directors, a lack of insider trading enforcement, and generally poor protection of minority investors. Our results show that monitoring mechanisms alone are not enough to fundamentally change economic behavior.     

Is there a signalling role for public wages? Evidence for the euro area based on macro data

Do public sector wages have an influence in the determination of private sector wages? This article tries to isolate the pure signalling effect that one sector might exert on the other by controlling for other determinants of wages (prices, productivity, institutions) for the main euro area economies (Germany, France, Italy and Spain) and the periods 1980–2007 and 1991–2007. It exploits available quarterly information not yet used in the literature, and combines different data sources in the framework of mixed-frequencies time series models. The quarterly frequency of our data allows us to decompose the casual effects into purely intra-annual effects and across-years effects. Our conclusions establish the existence of purely intra-annual links between public and private sector wages (signalling effect). There is strong evidence of public wages’ leadership, either in conjunction with bi-directional links from the private sector (Spain, Italy) or pure public sector leadership (Germany and France in the sample 1991–2007). Our empirical approach allows us to also unveil a complex and rich structure of indirect links of wages with other variables (prices, productivity and institutional factors).     

Variations in SME Characteristics and the Use of Service Intermediaries for R&D

Large companies increasingly look externally for opportunities to enhance innovation, which has resulted in closer study of innovation systems. We examined the role of service intermediaries (universities, technology centers, and consultants) within these systems using a sample of predominately small‐ and medium‐sized enterprises located in Valencia, Spain. As with studies of large companies, absorptive capacity (e.g., research and development expenditures) was positively related to the likelihood that a firm would engage in service collaborations. However, the rate of collaboration was higher relative to studies dominated by larger companies. Also, there were differences in the pattern of firm characteristics associated with the use of specific services. For example, the level of SME export activity related positively to the use of technology centers, but negatively to university collaborations. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

The relationship between investment and large exchange rate depreciations in dollarized economies

We use a simple financial friction in an economy with high degree of liability dollarization - and currency mismatch - to show that the negative balance-sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough. This result justifies the difficulty to find strong empirical evidence for balance-sheet effects and suggests the convenience of including a “large depreciation” term in empirical analyses. We review some of the related empirical literature and provide some new evidence of this large depreciation effect.     

FACTOR ANALYSIS OF A LARGE DSGE MODEL

We study the workings of the factor analysis of high‐dimensional data using artificial series generated from a large, multi‐sector dynamic stochastic general equilibrium (DSGE) model. The objective is to use the DSGE model as a laboratory that allows us to shed some light on the practical benefits and limitations of using factor analysis techniques on economic data. We explain in what sense the artificial data can be thought of having a factor structure, study the theoretical properties of the principal components estimates of the factor space, investigate the substantive reason(s) for the good performance of diffusion index forecasts, and assess the quality of the factor analysis of highly disaggregated data. In all our exercises, we explain the precise relationship between the factors and the basic macroeconomic shocks postulated by the model. Copyright © 2012 John Wiley & Sons, Ltd.     

Entrepreneurship policy and targets: the case of a low absorptive capacity region

Despite the existence of a positive relationship between new firm creation and economic growth, a certain controversy still exists regarding the need for the public promotion of entrepreneurship. The recent surge of entrepreneurship policies encompasses a wide variety of instruments and goals that are mainly designed and implemented at a regional or local level, which allows for a more efficient use of public resources. Case studies are therefore a useful approach to assessing “good practices” in entrepreneurship policies. We adopt this approach to empirically analyse whether policies are targeting specific entrepreneurial projects or not in the region of Valencia. We identify the features (in relation to the entrepreneur, the sector and the characteristics of the project itself) that may influence greater access to public funding and are principally related to standard requirements for this means of financing. These variables do not address specific entrepreneurial profiles, sectors or applicant projects, thereby revealing a substantial degree of horizontal policy design. Other features, such as almost all entrepreneurial characteristics (previous experience, age, etc.), do not seem relevant in terms of receiving public funds.     

Altruism,fertility, and the value of children: Health policy evaluation and intergenerational welfare

This paper accounts for the value of children and future generations in the evaluation of health policies. This is achieved through the incorporation of altruism and fertility in a “value of life” type of framework. We are able to express adults' willingness to pay for changes in child mortality and also to incorporate the welfare of future generations in the evaluation of current policies. Our model clarifies a series of puzzles from the literature on the “value of life” and on intergenerational welfare comparisons. We show that, by incorporating altruism and fertility into the analysis of the recent U.S. experience, the estimated welfare gain of a young adult from reductions in mortality easily doubles.     

Scale and the origins of structural change

We consider broad patterns of structural change: (i) sectoral reallocations, (ii) rich movements of productive activities between home and market, and (iii) an increase in establishment size, especially in manufacturing. We extend these facts and develop a unified model explaining them. The crucial distinction across manufacturing, services and home production is the scale of the productive unit. In manufacturing, scale technologies lead to industrialization and marketization. In services, they lead to marketization and later demarketization of services. A later increase in the scale of services could yield a decline in industry and a rise in services, consistent with the data.