Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies

This paper explores the direct effects and spillovers of unconventional monetary and exchange rate policies. We find that official purchases of foreign assets have a large positive effect on a country’s current account that diminishes considerably as capital mobility rises. There is an important additional effect through the lagged stock of official assets. Official purchases of domestic assets, or quantitative easing (QE), appear to have no significant effect on a country’s current account when capital mobility is high, but there is a modest positive impact when capital mobility is low. The effects of purchases of foreign assets spill over to other countries in proportion to their degree of international financial integration. We also find that increases in US bond yields are associated with increases in foreign bond yields and in stock prices, as well as with depreciations of foreign currencies, but that all of these effects are smaller on days of US unconventional monetary policy announcements. We develop a theoretical model that is broadly consistent with our empirical results and that highlights the potential usefulness of domestic unconventional policies as responses to the effects of foreign policies of a similar type.     

Supply Disruptions and Regional Price Effects in a Spatial Oligopoly—An Application to the Global Gas Market

Supply shocks in the global gas market may affect countries differently, as the market is regionally interlinked but not perfectly integrated. Additionally, high supply‐side concentration may expose countries to market power in different ways. To evaluate the strategic position of importing countries with regard to gas supplies, we disentangle the import price into different components and characterize each component as price increasing or price decreasing. Because of the complexity of the interrelations in the global gas market, we use an equilibrium model programmed as a mixed complementarity problem (MCP) and simulate the blockage of liquefied natural gas (LNG) flows through the Strait of Hormuz. This enables us to account for the oligopolistic nature and the asymmetry of the gas supply. We find that Japan faces the most severe price increases, as the Japanese gas demand completely relies on LNG supply. In contrast, European countries such as the UK benefit from good interconnection to the continental pipeline system and domestic price taking production, both of which help to mitigate an increase in physical costs of supply as well as in the exercise of market power.     

The effect of capital requirement regulation on the transmission of monetary policy: evidence from Austria

This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capitalization, i.e. low capitalized banks react more restrictively to a monetary tightening than their highly capitalized peers.

Risk and risk management of spillover effects: Evidence from the literature

In this article, we provide a comprehensive review of the existing theoretical and empirical literature regarding spillover effects (effects of a crisis event in an announcing firm on other firms). In particular, we focus on the mechanism behind spillover effects and investigate factors that drive spillover effects. The results of our literature analysis show that spillover effects are most often significantly negative, that is, lead to losses in nonannouncing firms and depend on certain events and firm characteristics. On this basis, we derive implications for the risk management of spillover effects. Taking previous work on certain individual risk‐management measures into account, we are the first to provide a holistic spillover risk‐management process.     

Interest rates,distribution and capital accumulation – A post-Kaleckian perspective on the US and Germany

We analyse the effects of interest rate variations on the rates of capacity utilisation, capital accumulation and profit in a simple post-Kaleckian distribution and growth model. This model gives rise to different potential accumulation regimes depending on the values of the parameters in the investment, saving and distribution function. Estimating these core behavioural equations for the US and Germany in the period 1960–2007, we find significant and robust effects of interest payments with the expected sign in each of the equations. Our estimation results imply, both for the US and for Germany, that the effects of changes in the real long-term rate of interest on the equilibrium rates of capacity utilisation, capital accumulation and profits, are characterised by the ‘normal regime’: rising long-term real rates of interest cause falling rates of capacity utilisation, capital accumulation and profits, as well as redistribution at the expense of labour income and hence an increasing profit share in both countries.     

The formation and evolution of childhood skill acquisition: Evidence from India

Building on recent advances in the literature and using a rich data set for two cohorts of children aged between one and twelve for Andhra Pradesh, India, we investigate the determinants of children's cognitive as well as non-cognitive skills. We find evidence of self-productivity for cognitive skills and cross-productivity effects from cognitive on non-cognitive skills. Moreover, we demonstrate that parental investment has contemporaneously positive effects on skill levels for all age groups. Investigating other determinants of these skills, we find child health at age one to influence cognitive abilities at age five, whilst child health at age one is influenced by parental care already during pregnancy and earliest childhood. Understanding the determinants which account explicitly for the effect of a large number of child, caregiver and household characteristics provides insights with regard to possible policy interventions to improve the chances of children in poor environments of developing cognitive and non-cognitive skills crucial for success in many spheres of life.     

Can contracts solve the hold-up problem? Experimental evidence

In the contract-theoretic literature, there is a vital debate about whether contracts can mitigate the hold-up problem, in particular when renegotiation cannot be prevented. Ultimately, this question has to be answered empirically. As a first step, we have conducted a laboratory experiment with 960 participants. We consider investments that directly benefit the non-investing party. While according to standard theory, contracting would be useless if renegotiation cannot be ruled out, we find that option contracts significantly improve investment incentives compared to a no-contract treatment. This finding might be attributed to Hart and Moore?s (2008) recent idea that contracts can serve as reference points.