A Bayesian Signals Approach for the Detection of Crises

In this paper, we consider the signals approach as an early-warning-system to detect crises. Crisis detection from a signals approach involves Type I and II errors which are handled through a utility function. We provide a Bayesian model and we test the effectiveness of the signals approach in three data sets: (1) Currency and banking crises for 76 currency and 26 banking crises in 15 developing and 5 industrial countries between 1970 and 1995, (2) costly asset price booms using quarterly data ranging from 1970 to 2007, and (3) public debt crises in Europe in 11 countries in the European Monetary Union from the introduction of the Euro until November 2011. The Bayesian model relies on a vector autoregression for indicator variables, and incorporates dynamic factors, time-varying weights in the latent composite indicator and special priors to avoid the proliferation of parameters. The Bayesian vector autoregressions are extended to a semi-parametric context to capture non-linearities. Our evidence reveals that our approach is successful as an early-warning mechanism after allowing for breaks and nonlinearities and, perhaps more importantly, the composite indicator is better represented as a flexible nonlinear function of the underlying indicators.

     

Quantitative Import Restrictions and Optimal Capital Taxes Under a System of Tax Credits

This paper examines the optimal capital tax policy under quantitative import constraints, and international capital tax credits. For a small capital-importing country, the optimal capital tax equals the foreign tax under a quota, and equals or exceeds the foreign tax under a VER. For a small capital-exporting country, the optimal policy towards capital is a zero tax under a quota, and a tax or a subsidy under a VER. Also examined are the welfare effects of capital taxes and trade liberalization, and the joint setting of the two policies, when both instruments are available to the government.     

World Energy Council’s Global Energy Scenarios to 2060

Since 1970, global energy consumption has more than doubled. Conventional resources, in particular oil, gas and coal, had a dominant share in supply and covered most of the growth in demand in the past. Even in 2015, these fossil fuels still accounted for more than 80% of global primary energy consumption. The contribution of renewable energies to the total electricity generation was 23% in 2015, the same share as in 1970. Developments in the coming decades will differ substantially, however. Total energy consumption will rise at a much more moderate pace than in the past, e.?g. by up to one third by 2060. Electricity consumption will double during this period. But even this is a considerable slowdown in growth compared with the five-fold increase seen between 1970 and 2015. And, unlike in the past, the emerging rise in consumption will essentially be covered by renewable energy sources. This is true especially for the electricity sector. This comparison with developments in the past shows the extent of the global energy transformation that may be expected in future. These developments are reflected in three global scenarios, which were published by the World Energy Council in October 2016. The results of this flagship study World Energy Scenarios to 2060 are mirrored with the main findings of the IEA’s World Energy Outlook and the U.S. EIA’s International Energy Outlook. The most important challenge indicated by the results of the mentioned studies is: the transformation, which is expected in the covered scenarios is not sufficient, in order to achieve the target of limiting the global temperature increase to less than 2 degrees Celsius compared to pre-industrial levels that was agreed by the international community of states in Paris at the end of 2015. It will be highlighted, which strategies could meet the requirement cost-efficiently—a prerequisite for its success.     

An Empirical Assessment of Sovereign Country Risk in the Black Sea Region

Country risk is recognized as a key factor considered prior to undertaking cross-border economic activity such as an investment or a financial transaction. When the level of country risk is deemed low, commercial and other risks play a more important role in the assessment of the advisability to undertake a cross-border activity. In other cases, country risk levels are significant and may play a decisive role in the assessment of the cross-border activity. By its nature, country risk depends upon perceptions, and as a result both objective measurable factors and subjective issues need to be considered. This study investigates the factors that determine country risk as signalled by a commonly used proxy, the sovereign credit ratings assigned by the major rating agencies. To this end, panel data analysis has been used and applied to three heterogeneous country sub-groups, the Black Sea Economic Cooperation (BSEC) countries, the EU-15, and the Central Europe and Baltic countries, for the period 2004–2013. The results generated suggest that three sets of variables: gross domestic product per capita, debt metrics, and institutional factors, play an instrumental role in explaining country risk across all the sub-groups. However, the individual results for each sub-group provide evidence that sovereign rating agencies focus on particular economic facets of each, and hence, take into account idiosyncratic aspects, structural as well as regional. Therefore, the study also examines those indicators that matter most or have a ‘specific gravity’ in determining sovereign ratings in each country-group, with a particular focus on the BSEC countries.