The Macroeconomic Effects of Shocks to Large Banks’ Capital

We propose a simple approach to quantifying the macroeconomic effects of shocks to large banks’ leverage. We first estimate a standard dynamic model of leverage targeting at the bank level and use it to derive an aggregate measure of the economic capital buffer of large US bank holding corporations. We then evaluate the response of key macro variables to a shock to this aggregate bank capital buffer using standard monetary VAR models. We find that shocks to the capital of large US banks explain a substantial share of the variance of credit to firms and real activity.     

An empirical test of the Balassa-Samuelson hypothesis: Evidence from eight middle-income countries in Africa

The paper tests the validity of the Balassa-Samuelson hypothesis (BSH) using the within-effects and the dynamic panel generalised methods of moment (GMM) techniques for a panel of eight middle-income African countries over the period 1960–2009. We selected these countries because they exhibited a mixture of relative productivity growth and real exchange rate misalignment that fits the characterization of the BSH well. The results strongly support the BSH for this group of countries. The results are valid even after we controlled for potentially omitted variables and endogeneity. The implication is that as these countries become more productive, their currencies appreciate in real terms.     

Learning by fund-raising

From experience, fund-raisers become more efficient solicitors. This paper offers a full characterization of the optimal solicitation strategy when there are learning economies. The characterization is recursive, and does not require equilibrium computations. Our main results are that (1) the fund-raiser may now solicit a “ net free-rider”—a donor whose contribution falls below the marginal solicitation cost; (2) the number of solicitations is non-monotonic in the learning rate; and (3) a solicitation technology with high overhead but low marginal costs is likely to be optimal if income distribution in the population is relatively homogenous. The complementary case with a decreasing returns to scale technology is also considered.     

An iterative computational scheme for solving the coupled Hamilton–Jacobi–Isaacs equations in nonzero-sum differential games of affine nonlinear systems

In this paper, we present iterative or successive approximation methods for solving the coupled Hamilton–Jacobi–Isaacs equations (HJIEs) arising in nonzero-sum differential game for affine nonlinear systems. We particularly consider the ones arising in mixed \({\mathcal H}_{2}/{\mathcal H}_{\infty }\) control. However, the approach is perfectly general and can be applied to any others including those arising in the N-player case. The convergence of the method is established under fairly mild assumptions, and examples are solved to demonstrate the utility of the method. The results are also specialized to the coupled algebraic Riccati equations arising typically in mixed \({\mathcal H}_{2}/{\mathcal H}_{\infty }\) linear control. In this case, a bound within which the optimal solution lies is established. Finally, based on the iterative approach developed, a local existence result for the solution of the coupled-HJIEs is also established.     

Raising the bar (5)

Raising the bar (5). Spatial Economic Analysis. This editorial summarizes and comments on the papers published in this issue 12(1) so as to raise the bar in applied spatial economic research and highlight new trends. The first paper examines the impact of the level of education on the decision to migrate and finds that it is approximately twice as large if both variables are modelled simultaneously. The second paper is one of the first papers to introduce a spatial component to models of international environmental agreements and to develop an exciting overlap with New Economic Geography. The third paper provides a tool, applied to Beijing, with which urban economic planners can investigate the role of variation and selection mechanisms in cluster development and identify possible paths of growth. The fourth paper contributes to the existing literature on retail geography by examining the role of consumption possibilities as an urban amenity. The fifth paper develops a Bayesian estimator of a linear regression model with spatial lags among the dependent variable, the explanatory variables and the disturbances. Finally, the sixth paper develops a semi-parametric generalized method of moments (GMM) estimator for a spatial autoregressive model with space-varying coefficients of the explanatory variables and a spatial autoregressive coefficient common to all units.     

How much does a single graduation cohort from further education colleges contribute to an open regional economy?

How much does a single graduation cohort from further education colleges contribute to an open regional economy? Spatial Economic Analysis. This paper combines elements of growth accounting and numerical general equilibrium analysis to produce an alternative micro-to-macro modelling approach. This is used to evaluate the macroeconomic impact on the Scottish economy of the human capital generated by a single graduation cohort from further education colleges. The macroeconomic impact is found to be significant and larger than growth accounting would suggest due to the associated endogenous investment, employment and competitiveness effects. From a policy perspective this identifies the importance of the conventional teaching role of education institutions and the key function played by further education colleges in this process.