FINANCIAL CONTAGION ON THE INTERNATIONAL TRADE NETWORK

We combine data on international trade linkages with a network approach to map the global trading system as an interdependent complex network. This enables us to obtain indicators of how well connected a country is into the global trading system. We use these network‐based measures of connectedness to explain stock market returns during recent episodes of financial crisis. We find that a crisis is amplified if the epicenter country is better integrated into the trade network. However, target countries affected by such a shock are in turn better able to dissipate the impact if they are well integrated into the network. A network approach can help explain why the Mexican, Asian, and Russian financial crises were highly contagious, while the crises that originated in Venezuela and Argentina did not have such a virulent effect. We suggest that a network approach incorporating the cascading and diffusion of interdependent ripples when a shock hits a specific part of the global trade network provides us with an improved explanation of financial contagion. (JEL F10, F36, F40, G15)     

SOVEREIGN DEBT CRISIS IN A MONETARY UNION: ACCOUNTING FOR EXCESSIVE DEBT,HOUSING BUBBLES,AND THE TRANSMISSION OF CRISES

Despite vast empirical documentation of the recent sovereign debt crisis in southern Europe, there is little research accounting for the following stylized facts in a single coherent framework: continuous borrowing, high growth, housing bubbles, and current account deficits since the beginning of the European Monetary Union ending with a sudden crisis and subsequent contagion of crisis. We fill this gap by proposing a model and fitting it to the data. Using a growth model with collateral constraints of small peripheral economies in the institution of a monetary union, we analyze the multilayer moral hazards underlying excessive borrowing. Since housing bubbles can support a constant loan‐to‐value (LTV) ratio lower than LTV limits, peripheral economies can lock into a steady‐state Ponzi growth equilibrium with high growth and current account deficits, but these economies become vulnerable to crises. We identify the “self‐fulfilling crisis region” (SFCR), in which the economy grows fast with a seemingly safe LTV ratio, but with a vulnerability to crises. Moreover, a crisis in one sector propagates to other sectors by endogenously expanding their SFCRs. We derive some policy implications on LTV regulations and market psychology. Finally, our calibration exercise presents how bubbles develop and burst along with contagion across sectors, accounting for the data. (JEL E44, F34, O16)     

International Transmission Effect of Volatility between the Financial Markets during the Asian Financial Crisis

In this paper I propose an analysis of interaction among global economies by focusing on the regional financial markets of Asian countries during and after the Asian financial crisis in 1997, in order to study the dynamic relationship between stock returns and exchange rate changes. In addition, the impact of the Asian financial crisis is also examined. For the methodology, the bivariate EGARCH (exponential generalized autoregressive conditional heteroskedasticity) and EGARCH-X models are used to examine the interrelationship of stock markets and foreign exchange markets. The empirical results show that a two-way feedback relationship exists between the volatility of stock returns and exchange rate changes during the recovery period of the Asian countries. This result is important because the effect of volatility transmission between global financial markets can still be observed today. Furthermore, when comparing the volatility transmission during the crisis period with that during the recovery period, it shows that the spillover effect has increased during the recovery period, indicating that the strength of the transmission mechanism has increased after the Asian financial crisis. This result also suggests that the interactions of the stock and foreign exchange markets of Asian countries were affected by the Asian financial crisis, and the impact is greater for Indonesia, Japan, the Philippines, and especially Thailand, which were more vulnerable during the financial crisis.     

FIRM SURVIVAL,UNCERTAINTY, AND FINANCIAL FRICTIONS: IS THERE A FINANCIAL UNCERTAINTY ACCELERATOR?

Using a large panel of unquoted UK firms over the period 2000–2009, we examine the impact of firm‐specific uncertainty on corporate failures. In this context we also distinguish between firms which are likely to be more or less dependent on bank finance as well as public and nonpublic companies. Our results document a significant effect of uncertainty on firm survival. This link is found to be more potent during the recent financial crisis compared with tranquil periods. We also uncover significant firm‐level heterogeneity because the survival chances of bank‐dependent and nonpublic firms are most affected by changes in uncertainty, especially during the recent global financial crisis. (JEL E44, F32, F34, G32)     

The Progress of Financial Market Integration in East Asia

The study investigates the progress of financial market integration in selected East Asian countries after the 1997 financial crisis. Adopting Johansen (Econometrica 59:1551–1580, 1991) multivariate cointegration on the region’s credit and stock markets, the study finds only partial cointegration in both markets which imply a low level of integration. However, for regional stock markets, the result suggests that the level of integration has been improving after the crisis.     

THE TRAVELS OF A BANK DEPOSIT IN TURBULENT TIMES: THE IMPORTANCE OF DEPOSIT INSURANCE DESIGN FOR CROSS-BORDER DEPOSITS

We examine the impact of the existence on an explicit deposit insurance (DI) scheme and its design features on bilateral cross-border deposits (CBD) in a gravity model setting. We find that both the absolute quality of a country's DI and its relative quality vis-à-vis other countries' DI generally affect depositor behavior. However, during systemic banking crises, cross-border depositors primarily seek countries with the best DI schemes. Similarly, during the 2008–2009 great financial crisis, the emergency actions taken by the governments, which supply and maintain these safe havens, have led to substantial relocations of CBD. (JEL F34, G18)     

FINANCIAL RESTRAINTS AND PRIVATE INVESTMENT: EVIDENCE FROM A NONSTATIONARY PANEL

We employ recently developed panel data methods to estimate a model of private investment under financial restraints for 20 developing countries using annual data for 1972–2000. We show that the qualitative nature of the results varies depending on whether we take into account cross‐country effects. When we allow for cross‐sectional dependence, investment displays more sensitivity to world capital market conditions and exchange rate uncertainty. A perhaps even more surprising result is the finding that countries that managed to suppress domestic real interest rates without generating high inflation enjoyed higher levels of private investment than those that would have been obtained under liberalized conditions. (JEL O16, G18, G28)     

CALIFORNIA'S EXPORTS AND THE 2004 OVERSEAS OFFICE CLOSURES

Estimating the impact of state import promotion programs on exports is difficult because of a simultaneity program. The 2003 California budget crisis provides a natural experiment allowing for an unbiased estimate. Due to the crisis, California closed all 12 overseas offices on 1 January 2004. Applying the differences‐in‐differences estimator to a sample of 44 countries over eight years yields an estimated 2%–3% increase in exports if the offices remained open. But this estimate is not statistically significant. Therefore, I find no statistical evidence that California's overseas offices increased exports. (JEL F13, H76, O24)     

THE TURKISH CURRENT ACCOUNT DEFICIT

During the 2011–2015 period, Turkey's current account deficit as a percentage of gross domestic product (GDP) was one of the largest among the Organization for Economic Co‐operation and Development countries. In this paper, we examine if this deficit can be considered optimal using the Engel and Rogers's approach. In this framework, the current account of a country is determined by the expected discounted present value of its future share of world GDP relative to its current share. A country whose income is anticipated to rise relative to the rest of the world is expected to borrow now and run a current account deficit. Our findings suggest that Turkey's current account deficit in 2015 may be considered optimal if the Turkish economy's share in the world economy could continue to grow at rates similar to the past or to the predictions from professional forecasts. The same approach, however, indicates that the current account deficit in 2011, at its peak, was unlikely to be optimal. (JEL F32, F41, F43)     

CURRENT ACCOUNT ADJUSTMENT IN DEVELOPING COUNTRIES: THE ROLE OF EXCHANGE RATE REGIMES

This article employs hazard models to investigate the role of exchange rate regimes in the timing of current account adjustment in developing countries. We identify high current account deficit spells and find that fixed exchange rate regimes increase the duration of high deficit spells and thus delay current account adjustment. The result is robust to a variety of model specifications and alternative classifications of exchange rate regimes. When distinguishing between hard pegs and soft pegs, we notice that the delay in the current account adjustment is primarily driven by hard pegs rather than soft pegs. (JEL F3, F4)     

后金融危机时代,中国金融机构“走出去”战略

后金融危机时代为中国金融机构"走出去"提供了难得的历史发展机遇。中国金融机构"走出去"不能盲目照搬发达国家的机制模式,必须根据我国的国情,在梳理和分析自身特点和约束条件,并在与发达国家进行综合比较的基础上,最终选择一种最适合自身的机制模式。中国金融机构应紧紧跟踪全球经济金融发展的新动向,在海外业务发展过程中力争在新金融领域实现突破。     

DURATION MODELS FOR CREDIT RATING MIGRATION: EVIDENCE FROM THE FINANCIAL CRISIS

We introduce a specific duration model to analyze the prediction of the credit rating migration. We consider hazard rate processes based on multi‐state autoregressive conditional duration models. To take account of the economic context, we model the conditional mean of the duration between two ratings by means of a latent process. To this purpose, a dynamic‐ordered probit model is developed to describe the directions taken by the ratings in the presence of multiple states. As an illustration, we study the migration of credit rating during periods before and after the financial crisis. (JEL C14, C41, G24)     

Finanzialisierung,Demokratie und Gesellschaft – zehn Jahre nach Beginn der Finanzkrise

This introduction to the special issue—ten years after the collapse of the investment bank Lehman Brothers and the beginning of a worldwide financial, economic, and debt crisis—reflects on the extent to which the economic crisis affected a turning point in society overall. The current state of research into the relationship between financialization, democracy, and social conditions strongly suggests that while the processes of financialization that favored the emergence of a crisis were influenced by the financial crisis, they were not completely reversed. In fact, the financial market regulation, which was changed in response to the crisis, did not exert any modifying pressure in terms of a restructuring of the financial system. An epochal shift in financial market regulation therefore cannot be identified from the steps taken in the reform process. Elseways there is clear evidence that the financial crisis has had a lasting impact on the European integration process, confidence in democracy, and political culture. The financial crisis is therefore likely to be perceived as a historical watershed, mainly due to its impact on societal areas beyond the financial system itself.     

FINANCIAL FRICTIONS AND THE CHOICE OF EXCHANGE RATE REGIMES

This article provides a quantitative assessment of the role of financial frictions in the choice of exchange rate regimes. I use a two‐country model with sticky prices to compare different exchange rate arrangements. I simulate the model without and with borrowing constraints on investment, under monetary policy and technology shocks. I find that the stabilization properties of floating exchange rate regimes in face of foreign shocks are enhanced relative to fixed exchange rate in presence of credit frictions. In presence of symmetric and correlated shock, fixed exchange rates regimes can perform better than floating. This analysis can have important policy implications for accession countries joining the European Exchange Rate Mechanism II system and with high degrees of credit frictions. (JEL E3, E42, E44, E52, F41)     

VOLATILITY AND IRISH EXPORTS

We analyze the impact of volatility per se on real exports for a small open economy concentrating on Irish trade with the United Kingdom and the United States. An important element is that we take account of the time lag between the trade decision and the actual trade or payments taking place by using a flexible lag approach. Rather than adopting a single measure of risk, we adopt a spectrum of risk measures and detail varied size characteristics and statistical properties. We find that the ambiguous results found to date may be due to not taking account of the timing effect, which varies substantially depending on which volatility measure is used. (JEL C32, C51, F14, F31)     

Recession and Migration: A New Era for Labor Migration?

The current recession, the worst in a half century, is likely to affect international migration differently than past recessions. In 1973–1974 and 1981–1982, rising oil prices led to recessions in oil‐importing countries and economic booms in oil‐exporting countries, enabling some migrants to shift from bust to boom areas, as from Europe to the Middle East. The 1997–1998 Asian financial crisis did not spread globally, and was followed by a relatively quick resumption of economic and job growth that attracted migrant workers. The 2008–2009 recession is most severe in countries that had the most severe debt excesses, including the U.S., Spain, and Eastern Europe, and in countries most dependent on trade, including many Asian countries. New deployments of migrants are likely to slow, but what is not yet clear is how many migrants who lose jobs will remain abroad.     

DOES THE LAUNCH OF THE EURO HINDER THE CURRENT ACCOUNT ADJUSTMENT OF THE EUROZONE?

This paper examines current account adjustments before and after the launch of the euro. Applying a dynamic panel model, we provide robust evidence to support that the adoption of the euro facilitates rather than hinders the adjustment of current accounts. This finding agrees with our results that the use of the euro assists real exchange rate and inflation rate adjustments. We also find that the independence of exchange rate regimes from current account, real exchange rate and inflation rate adjustments is observed when standard panel estimation methods are applied and when time‐varying smooth shifts in mean are not controlled. (JEL C33, F32, F41)     

THE PROTESTANT FISCAL ETHIC: RELIGIOUS CONFESSION AND EURO SKEPTICISM IN GERMANY

During the European sovereign debt crisis, most countries that ran into fiscal trouble had Catholic majorities, whereas countries with Protestant majorities were able to avoid fiscal problems. We find that Christian‐conservative members of the German parliament from constituencies with higher shares of Protestants were more likely to vote against a third bailout for Greece. Survey data show that views on the euro differ between German Protestants and non‐Protestants at the individual level, too. Among Protestants, concerns about the euro have, compared to non‐Protestants, increased during the crisis. We show that this increase in concern is linked to a reduction of Protestants' subjective well‐being. We use the timing of survey interviews and news events in 2011 to account for the endogeneity of euro concerns. Emphasis on moral hazard concerns in Protestant theology may, thus, still shape economic preferences. (JEL D72, E00, I31, Z12)     

“国际货币体系再思考——布雷顿森林体系会议70周年后”国际研讨会纪要

国际货币体系需要改革,改革的方向包括:对主要货币发行国施加国际约束,加强IMF的作用,设立货币锚,建立全球性或地区性的金融支持系统,解决全球流动性失衡,国际货币体系的过渡等。西方6国中央银行签署货币多边互换协议,是否成为未来国际货币体系的演变方向值得关注。中国要积极稳妥地加快资本账户开放,加快国内结构性调整,消除金融市场各种风险隐患,这是人民币国际化的治本之策。     

CLIMBING TO THE TOP? FOREIGN DIRECT INVESTMENT AND PROPERTY RIGHTS

This article operates at the interface of the literature on the impact of foreign direct investment (FDI) on host countries and the literature on the determinants of institutional quality. We argue that FDI contributes to economic development by improving institutional quality in the host country. This proposition is tested within a large panel data set of 70 developing countries for the period 1981–2005. We show that FDI inflows have a positive and highly significant impact on property rights. Results are very robust and not affected by model specification, different control variables, or estimation technique. To our knowledge this is the first article to empirically test the FDI—property rights linkage. (JEL F23, O43, P48)