Modelling the dependence structures of Australian iTraxx CDS index

In contrast to market expectations, the correlation between credit default swap (CDS) spreads and their respective stock prices in Australia was found to be positive. The global financial crisis (GFC) affected the nonlinear association between the two asset classes with firms experiencing financial distress and stock prices plummeting. CDSs issuers reacted to such exogenous shocks by increasing their risk premiums on their spreads, reflecting the increased inherent risk. By splitting the data into pre- and post-GFC contexts and by employing the use of Archimedean copulas, we observe a negative co-movement in the post-GFC period. This finding is robust to several equity indices. Overall, such result is critical for investors engaging in arbitrageur activities.     

THE EFFECTS OF DISCRETIONARY FISCAL POLICY ON MACROECONOMIC AGGREGATES: A REAPPRAISAL

Abstract Fiscal stimuli to recover? A cascade of academic and layman articles debate the effectiveness of fiscal policy in stimulating the economy backed up by different economic models and empirical support. This paper surveys the theoretical predictions and recent empirical vector autoregression evidence on the short‐run effects of discretionary fiscal policy on macroeconomic aggregates.     

A journey from a corruption port to a tax haven

We sketch a model according to which tax havens attract corporate income generated in corrupted countries. We consider the choice of optimal bribes by corrupt officials and the share of the proceeds of corruption that will be concealed in tax havens. Our framework provides novel welfare implications of tax havens. First, tax havens’ services have a positive effect on welfare through encouraging investment by firms fearing expropriation and bribes in corrupt countries. Second, by supporting corruption and the concealment of officials’ bribes, tax havens discourage the provision of public goods and hence have also a negative effect on welfare. The net welfare effect depends on the specified preferences and parameters. One source of this ambiguity is that the presence of multinational firms in corrupted countries is positively associated with demanding tax havens’ operations. Using firm-level data, we provide new empirical results supporting this hypothesis.     

Debt financing and sharp currency depreciations: wholly versus partially-owned multinational affiliates

This paper provides empirical evidence on two potential costs of shared ownership of German affiliates abroad. First, in periods of currency crises, wholly-owned affiliates, in contrast to partially-owned affiliates, seem to circumvent financial constraints by accessing capital from their parent companies. In terms of differences in performance regarding sales of both types of firms, wholly-owned affiliates have a significantly better sales performance than partially-owned affiliates in periods of crises. This finding contributes to the evidence that FDI helps in mitigating the negative consequences of sharp currency depreciation, and stresses that this effect works especially through capital inflows to wholly-owned affiliates. Second, the debt financing of partially-owned affiliates is less sensitive to the tax rate suggesting that partially-owned affiliates rely less on international debt shifting than wholly-owned affiliates. This indicates that partially-owned affiliates are less flexible to exploit tax efficient strategies.