DYNAMIC DEFAULTABLE TERM STRUCTURE MODELING BEYOND THE INTENSITY PARADIGM

The two main approaches in credit risk are the structural approach pioneered by Merton and the reduced‐form framework proposed by Jarrow and Turnbull and by Artzner and Delbaen. The goal of this paper is to provide a unified view on both approaches. This is achieved by studying reduced‐form approaches under weak assumptions. In particular, we do not assume the global existence of a default intensity and allow default at fixed or predictable times, such as coupon payment dates, with positive probability. In this generalized framework, we study dynamic term structures prone to default risk following the forward‐rate approach proposed by Heath, Jarrow, and Morton. It turns out that previously considered models lead to arbitrage possibilities when default can happen at a predictable time. A suitable generalization of the forward‐rate approach contains an additional stochastic integral with atoms at predictable times and necessary and sufficient conditions for an appropriate no‐arbitrage condition are given. For efficient implementations, we develop a new class of affine models that do not satisfy the standard assumption of stochastic continuity. The chosen approach is intimately related to the theory of enlargement of filtrations, for which we provide an example by means of filtering theory where the Azéma supermartingale contains upward and downward jumps, both at predictable and totally inaccessible stopping times.     

The role of startups for local labor markets

There are substantial differences in startup activity across US local labor markets. We study the causes and consequences of these differences. Startup productivity shocks are found to drive much of these cross-city differences in startup activity. Examples of such shocks include breakthroughs in biotech that spurred startup formation in San Diego and Philadelphia. Overall, these shocks explain half of the forecast error variance of startup job creation, accounting for 40% of population growth and long-run changes in employment. Shocks to barriers to firm entry have economy-wide effects similar to those of startup productivity shocks but operate largely through the number of startups, rather than their size. We use a novel spatial panel vector autoregression, identifying shocks using shift–share external instruments.     

Islamic vs. conventional banking: Business model,efficiency and stability

How different are Islamic banks from conventional banks? Does the recent crisis justify a closer look at the Sharia-compliant business model for banking? When comparing conventional and Islamic banks, controlling for time-variant country-fixed effects, we find few significant differences in business orientation. There is evidence however, that Islamic banks are less cost-effective, but have a higher intermediation ratio, higher asset quality and are better capitalized. We also find large cross-country variation in the differences between conventional and Islamic banks as well as across Islamic banks of different sizes. Furthermore, we find that Islamic banks are better capitalized, have higher asset quality and are less likely to disintermediate during crises. The better stock performance of listed Islamic banks during the recent crisis is also due to their higher capitalization and better asset quality.     

Managing technology development teams – exploring the case of microsytems and nanosystems

New sensor and actuator concepts based on microelectromechanical systems (MEMS) and nanoelectromechanical systems (NEMS) are increasingly being developed from lab status toward commercialization. The associated technology development for the provision of improved functionalities and cost reduction often requires highly interdisciplinary development teams where scientists and engineers from different disciplines closely work together. Managing these teams is a key challenge for MEMS/NEMS organizations. This research examined eight technology developments in MEMS/NEMS in international companies. Based on in‐depth interviews with innovators, we explored the managerial aspects of development teams. We identified and discuss (1) leadership, (2) market, (3) team structure and culture, (4) innovation motivation, (5) innovation driver, (6) experience and know‐how, and (7) product vision and innovation strategy as key influences on teams in the early development phases of MEMS/NEMS. Our study reveals that integrative and manufacturing know‐how and capabilities are the most critical capacities to be developed by the team from the idea to the concept phase. The team's lived experience during long development times from 5 to 10 years or more may allow a fast response to changes from market and technology (e.g. materials and nanotechnology). The results indicate that the process of how know‐how and capabilities are created by the team is more important than the mere existence of specific expertise.     

Wage Cyclicality Under Different Regimes of Industrial Relations

We analyze the effect of collective wage agreements and of works councils on the cyclicality of real wages. Using employer–employee data for western Germany (1995–2004), we find that wage adjustments to positive and negative shocks are generally not symmetric. Wage growth increases in all industrial relations regimes when unemployment is falling, but this inverse relationship is weaker when unemployment is rising. Moreover, in plants with individual‐level bargaining, wages do not adjust at all to rising unemployment. Works councils increase wage growth only in firms covered by sectoral agreements, but they do not affect the cyclicality of wages.     

Urban shrinkage in Germany and the USA: a comparison of transformation patterns and local strategies

Many American and European cities have to deal with demographic and economic trajectories leading to urban shrinkage. According to official data, 13% of urban regions in the US and 54% of those in the EU have lost population in recent years. However, the extent and spatial distribution of declining populations differ significantly between Europe and the US. In Germany, the situation is driven by falling birth rates and the effects of German reunification. In the US, shrinkage is basically related to long-term industrial transformation. But the challenges of shrinking cities seldom appeared on the agendas of politicians and urban planners until recently. This article provides a critical overview of the development paths and local strategies of four shrinking cities: Schwedt and Dresden in eastern Germany; Youngstown and Pittsburgh in the US. A typology of urban growth and shrinkage, from economic and demographic perspectives, enables four types of city to be differentiated and the differences between the US and eastern Germany to be discussed. The article suggests that a new transatlantic debate on policy and planning strategies for restructuring shrinking cities is needed to overcome the dominant growth orientation that in most cases intensifies the negative consequences of shrinkage.     

The impact of monetary policy on stock market bubbles and trading behavior: Evidence from the lab

We investigate the effect of monetary policy on stock market bubbles and trading behavior in experimental asset markets. We introduce the possibility of investing in interest bearing bonds to the widely used laboratory asset market design of Smith et al. (1988). Treatment groups face a variable interest rate policy which depends on asset prices, while control groups are subjected to a constant interest rate. We observe a strong impact of our interest rate policy on liquidity in the stock market but only a small impact on bubbles. However, we find that announcing the possibility of reserve requirements significantly reduces bubbles.     

Do foreign workers reduce trade barriers? Microeconomic evidence

This paper provides evidence that foreign workers reduce firms’ trade costs and thus increase the probability that firms export. This informs both the literature on trade costs and the microeconomic literature on firms’ export behaviour. We identify the nationality of each worker in a large sample of German establishments and relate this to the exporting behaviour of these establishments. We allow for the possible endogeneity of an establishment's workforce by instrumenting the share of foreign workers with the regional distribution of foreign workers in the wider labour market. We find a significant effect of worker nationality on exporting which is not driven by the industrial, occupational or locational concentration of migrants. The effect is much stronger for senior occupations, who are more likely to have a role in exporting decisions by the establishment. The relationship is also stronger when we consider exports to particular regions and workers from these regions, consistent with a gravity model in which trade flows from country i to j are a function of migrants from j in i.