COLLUSION IN PROCUREMENT AUCTIONS: AN EXPERIMENTAL EXAMINATION

Experimental methods are used to examine the existence and detectability of collusion in environments that exhibit critical parallels to procurement auctions. We find that given the opportunity sellers often raise prices considerably. Moreover, noncollusive Nash equilibrium predictions are insufficient to dismiss "suspicious" behavior as innocuous: in an environment where identical prices are predicted in a noncollusive Nash equilibrium, common prices are observed only when sellers communicate. In a second environment designed to parallel construction procurement contracting, market rotations are observed both with and without collusion, but collusion can often be detected from the pattern of losing bids.     

FISCAL POLICY AND LENDING RELATIONSHIPS

This paper studies how fiscal policy affects loan market conditions in the United States. First, it conducts a structural vector‐autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results are mimicked by a dynamic stochastic general equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock. (JEL E44, E62)     

INTRODUCTION TO THE SYMPOSIUM ON CONTEMPORARY BANKING RESEARCH: THE USE OF FIXED EFFECTS TO DISENTANGLE LOAN DEMAND FROM LOAN SUPPLY

With the onset of the financial crisis, disentangling the effects of loan demand and supply in contemporary banking research has become vital for a proper assessment of supply-related banking shocks. These shocks may negatively affect the real economy through many channels, such as the lending channel of monetary policy transmission, the bank risk-taking channel or the evaluation of macroprudential policy efficiency. All these rely on separating the two lending components. Empirical identification has largely relied on the use of demand-related fixed effects, which has also been applied in several analyses within this symposium. (JEL G21)     

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.     

LENDING RELATIONSHIPS AND MONETARY POLICY

Financial intermediation and bank spreads are the important elements in the analysis of business cycle transmission and monetary policy. We present a simple framework that introduces lending relationships, a relevant feature of financial intermediation that has been so far neglected in the monetary economics literature, into a dynamic stochastic general equilibrium model with staggered prices and cost channels. Our main findings are (a) banking spreads move countercyclically generating amplified output responses, (b) spread movements are important for monetary policymaking even when a standard Taylor Rule is employed, (c) modifying the policy rule to include a banking spread adjustment improves stabilization of shocks and increases welfare when compared to rules that only respond to output gap and inflation, and finally (d) the presence of strong lending relationships in the banking sector can lead to indeterminacy of equilibrium forcing the Central Bank to react to spread movements. (JEL E44, E52, G21)     

Another ‘Lost Decade’? Crisis and Structural Adjustment in Europe and Latin America

With the recent economic crisis, conditional lending and mandatory structural reforms arrived in the European Union. Greece and a number of other crisis countries were subjected to a rigorous process of economic adjustment in exchange for emergency credits from the troika (European Commission, European Central Bank, and International Monetary Fund). Conditionality and structural adjustment were first tested in Latin America. This article compares the European adjustment programmes with the structural reforms introduced in Latin American countries several decades earlier. By doing so, the article reveals strong parallels in spite of the fact that the initial adjustment programmes are rarely considered a success story and that the neoliberal ideology which inspired the related reforms is widely made responsible for the recent crisis. The fact that there are differences in the adjustment programmes is not the result of a re-think of the neoliberal agenda, but of the specific dynamics of European integration and of pragmatic responses to financial threats. However, the article also shows parallels in the outcome of structural adjustment. Some European crisis countries face a ‘lost decade’ quite similar to the one experienced in Latin America in the 1980s.     

Stock Market and Aggregate Investment Behavior in Malaysia: An Empirical Analysis

The present paper analyzes the role of stock market, more specifically real stock prices and stock market uncertainty/volatility, on aggregate investment behavior for an emerging market, Malaysia. Employing the autoregressive distributed lags approach to cointegration test, the paper establishes a long run equilibrium that ties the aggregate investment to its determinants—real income, real stock prices, real lending rate and stock market volatility. In the long run, we document a positive relation between aggregate investment and real stock prices and a negative relation between aggregate investment and stock market volatility. These results are further supported by our analyses of their dynamic interactions based on Granger causality and impulse-response functions. Based on the results, the real stock market prices, which has yet reached the level recorded prior to the crisis, may have explained the low investment in Malaysia after the Asian crisis. Moreover, the stock market volatility can also post a threat to the investment performance.     

Does Overconfidence Bias Explain Volatility During the Global Financial Crisis?

This paper explores the problem of the current global financial crisis, using a behavioral perspective. Particularly, the main objective of this paper is to test whether overconfidence bias can explain excessive volatility witnessed during global financial crisis in developed and emerging equity markets. Empirical results of EGARCH estimated models show an asymmetric effect of volatility for all equity market indexes. The relation between excessive trading volume of overconfident investors and excessive prices volatility is then estimated. The results indicate that conditional volatility is positively related to trading volume caused by overconfidence bias. This finding provides strong statistical support to the presence of overconfidence bias among investors in developed and emerging stocks markets. This cognitive bias contributes to the exceptional financial instability that erupted in 2008. However, during the subprime financial crisis period overconfidence bias cannot explain volatility because of the loss of confidence by investors in financial markets.     

The World Bank,Organized Hypocrisy,and Women's Health: A Cross‐National Analysis of Maternal Mortality in Sub‐Saharan Africa

The theory of organized hypocrisy asserts that an organization depends upon its external environment for both financial support and conferred legitimacy, which can lead to conflicting policy agendas. We apply the theory of organized hypocrisy to World Bank structural adjustment and investment lending for reproductive health, hypothesizing these two lending policies should have differential effects on maternal mortality. We estimate a two‐way fixed effects regression model with robust standard errors clustered by country to examine the effect of World Bank reproductive health lending on maternal mortality within sub‐Saharan African nations over the period 1990–2010. We find that in every model the coefficients for World Bank structural adjustment lending in the health sector are positive and significant while the coefficients for World Bank investment lending in the reproductive health sector are negative and significant. The findings lend support to the theory that the World Bank is pursuing contradictory agendas, embodied by its lending policies, which can have differential effects on maternal mortality.     

Mastering ‘Lady Credit’

This article politicizes current understandings of financial crises. It is argued that financial discourse, and specifically the discourse that locates financial crises in the realm of madness and delusion, is founded upon a distinctively masculine conception of agency. This argument is made by looking at early eighteenth-century debates concerning the emergence of credit and paper money. The article examines Daniel Defoe's satirical personification, Lady Credit. Lady Credit embodies all the irrational, inconstant and effeminate aspects that had to be purged from financial discourse before it was able to gain respectability as a rational, disinterested and scientific sphere of action. Lady Credit is not unlike ancient goddess, Fortuna, who ruled capriciously over the affairs of men. The financial discourse under examination implies that it is in times of crisis that financial man loses self-control and is prevented from seeing economic reality by the delusions that Lady Credit generates in him. Through the virile mastering of Lady Credit, it is implied, the smooth and neutral workings of the financial sphere are guaranteed. The article contends that this inherently gendered manner of understanding financial crises informs debates on financial crisis today, as can be exemplified by the public discussion on the recent crisis in Asia.     

AN EXPERIMENT ON INNOVATION AND COLLUSION

This paper examines the relationship between product innovation and the success of price collusion using novel laboratory experiments. Average market prices in low innovation (LO) experiments are significantly higher than those in high innovation, but otherwise identical experiments. This price difference is attributed to LO experimental subjects' greater common market experience. The data illustrate how collusion can be perceived as the “only way to make it” in LO markets where product innovation is not a viable strategy for increasing profits. They suggest that product homogeneity can be a proximate cause, and product innovation an ultimate cause, of collusion. (JEL L41, L10, C92)     

The Real Origins of the Global Crisis

In this paper we present an interpretation of the economic and financial crisis that considers crucial the issue of income distribution (Krugman 2007; Piketty and Saez 2003; Reynolds 2008), a question that is instead ignored by more widespread interpretations. In fact, we ask what lies behind the disaster of the subprime loans and, if a more thorough view is taken, it seems clear that the true causes of the crisis lead back to income distribution, in other words the enormous increase in the gap between rich and poor. This consideration is fundamental. If the crisis were merely financial then (perhaps) the policies of financial adjustment that are currently in place might be sufficient. If instead the crisis is due to more serious causes, and nothing is more serious than distribution inequalities, then the cure must be much more profound (and difficult). In other words, the crisis will be long and severe until such inequalities are reduced, a difficult task when weighed against public intervention in aid of financial institutions.     

Consolidation in the Exchange Industry: What are Exchanges Actually Worth? Some Evidence from a Crises Environment

It is generally acknowledged that the exchange industry shares the typical features of network industries, forcing exchanges to merge across countries. This process was first urged by the need to keep up with technological developments and increased competition from peers and new competitors. Starting 2005 and up to 2007 we observed significant cross border mergers within the securities industry leading to the creation of a few large groups with a diversified business model. It was questioned whether such mergers leaded to a stable equilibrium. Now, in the aftermath of the crisis a new wave of consolidation is taking place. The financial turmoil dramatically affected the market functioning delivering severe strains to the financial sector and modified the way of conducting business. We address the implications of the crisis on exchange??s values, investigating if expectations lying behind values have somewhat changed or compressed or reflect new opportunities.     

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.     

MORE MORTGAGES,LOWER GROWTH?

In newly collected data on 46 economies over 1990–2011, we show that financial development since 1990 was mostly due to growth in credit to real estate and other asset markets, which has a negative growth coefficient. We also distinguish between growth effects of stocks and flows of credit. We find positive growth effects for credit flows to nonfinancial business but not for mortgage and other asset market credit flows. By accounting for the composition of credit stocks and for the effect of credit flows, we explain the insignificant or negative growth effects of financial development in recent times. What was true in the 1960s, 1970s, and 1980s when the field of empirical credit‐growth studies blossomed, is no longer true in the 1990s and 2000s. New bank lending is not primarily to nonfinancial business and financial development may no longer be good for growth. These trends predate the 2008 crisis. They prompt a rethink of the role of banks in the process of economic growth. (JEL E44, O16, O40, C33)     

The relationship between bankers and farmers: An analysis of Britain and Ireland

The financial sector is playing a more central role in agriculture. This article analyzes the external provision of finance for farmers in Britain and the Irish Republic, drawing principally on interviews with bankers and specialist providers of agricultural finance. The development of farm credit institutions in the two countries and their subsequent commercialization is discussed. Agriculture is commercially attractive to lenders as part of a balanced portfolio because of its stable, low risk character. Credit selectivity is confirmed as a feature of lender behaviour, although its consequences are likely to be more far reaching in Ireland. Lenders' perceptions of the financial sophistication of farmers is assessed, the more financially sophisticated farmer being more receptive to the logic of the financial sector and hence a more attractive customer. An emphasis on tax avoidance can lead farmers into irrational borrowing decisions. Larger farmers are better placed to take advantage of lending opportunities and new financial instruments.     

The restructuring of the U.K. financial services industry in the 1990s: a reversal of fortune?

Whereas for much of the 1980s the financial services industry was characterised by growth and expansion, the late 1980s and early 1990s was a period of redundancies and financial losses. This paper seeks to explain this reversal of fortune and the responses of the financial services industry. The restructuring of the financial System at a global level, through a process of disintermediation, and at a national level, in response to financial re-regulation, led to an intensification of competition between financial institutions and helped produce a developed countries debt crisis, founded in personal and corporate indebtedness. In the wake of this crisis, the financial services industry has been in transition. Bureaucratic labour market models have been overturned in favour of more flexible variants, while at the same time many financial services firms have engaged in the wholesale spatial reorganisation of their activities. One important consequence has been a process of ‘financial infrastructure withdrawal’, by which services and operations are withdrawn from certain social groups and certain localities. This process, which revolves around a rubric of risk reduction and a ‘flight to quality’, has introduced an element of exclusion and closure to the operation of financial Systems within developed countries. In this sense, the reaction of the financial services industry to the developed countries debt crisis mirrors that which followed the less developed countries debt crisis of the early 1980s; that is, abandonment and retreat to a more affluent client base. As was the case during the less developed countries debt crisis, the current process of financial infrastructure withdrawal has serious social and economic implications for those social groups and localities abandoned by the financial community.     

论经济危机

过去我们是从书本上认识经济危机,这次＂次贷危机＂让我们亲历了一次1929年＂大萧条＂以来最严重的经济危机。有的专家还认为这次经济金融危机超过了当年的＂大萧条＂。现在全世界都在应对经济危机,各国各有对策,孰是孰非,莫衷一是。要正确应对经济危机,必先正确认识经济危机及其产生的原因。     

TACIT COLLUSION IN AUCTIONS AND CONDITIONS FOR ITS FACILITATION AND PREVENTION: EQUILIBRIUM SELECTION IN LABORATORY EXPERIMENTAL MARKETS

The paper studies bidder behavior in simultaneous, continuous, ascending price auctions. We design and implement a "collusion incubator" environment based on a type of public, symmetrically "folded" and "item-aligned" preferences. Tacit collusion develops quickly and reliably within the environment. Once tacit collusion developed, it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game-theoretic model. The only successful remedy was a non-public change in the preference of participants that destroyed the symmetrically, "folded" and "item aligned" patterns of preferences, creating head-to-head competition between two agents reminiscent of the concept of a "maverick." ( JEL L50, L94, D43)     

Deposit Insurance,Institutions, and Bank Interest Rates

Many recent institutional reforms of the financial system have relied on the introduction of an explicit scheme of deposit insurance. This instrument aims at two main targets, contributing to systemic stability and protecting depositors. However, it may also affect the interest rate spread in the banking system, which can be viewed as an indicator of either inefficiency or market power in this financial segment. This paper provides an empirical investigation of the effect of deposit insurance and other institutional and economic variables on bank interest rates across countries. We find that deposit insurance increases the lending–deposit spread in banking. The main effect seems to arise not from the deposit side though, but from an increase in the lending rate. We interpret this result as evidence of the presence of moral hazard problems related to this instrument. We also find that higher quality of institutions is associated with lower spreads, thus contributing to eroding sources of market power in the banking sector.