Found 495 article(s) in category 'Financial Services'

Prices or Quantities Can Dominate Banking and Borrowing

Prices or Quantities Can Dominate Banking and Borrowing. Martin Weitzman, March 10, 2019, Paper, “The possibility of intertemporal banking and borrowing of tradeable permits is often viewed as tilting the various policy debates about optimal pollution control instruments toward favoring such time‐flexible quantities. The present paper shows that this view can be misleading, at least for the simplest dynamic extension of the original “prices vs. quantities” information structure. The model of this paper allows the firms to know and act upon the realization of uncertain future costs two full periods ahead of the regulators. For any given circumstance, the paper shows that either a fixed price or a fixed quantity is superior in expected welfare to time‐flexible banking and borrowing. Furthermore, the standard original formula for the comparative advantage of prices over quantities contains sufficient information to completely characterize the regulatory role of intertemporal banking and borrowing. The logic and implications of these results are analyzed and discussed.” Link

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Risky Retirement Business

Risky Retirement Business. Carmen Reinhart, February 26, 2019, Opinion, “Regardless of whether yields in advanced economies rise, fall, or stay the same, core demographic trends are unlikely to change in the coming years, implying that pension costs will continue to balloon. Is there an asset class that can provide yield-hungry pension-fund managers what they’re looking for?Link

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The SEC’s Misguided Attack on Shareholder Arbitration

The SEC’s Misguided Attack on Shareholder Arbitration. Hal Scott, February 22, 2019, Opinion, “Jay Clayton, chairman of the Securities and Exchange Commission, announced earlier this month that the staff of his agency would allow Johnson & Johnson to block its shareholders from voting on an amendment to its own bylaws. I submitted that amendment as trustee of a trust that owns J&J shares.Link

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Dollar Dominance in Trade: Facts and Implications

Dollar Dominance in Trade: Facts and Implications. Gita Gopinath, 2019, Opinion, “It is an honor to give the EXIM Bank of India’s 33rd Commencement Day Lecture. I would like to especially thank the Managing Director, Mr. David Rasquinha, for inviting me to speak at this special event.  Given that this is the EXIM Bank lecture it feels appropriate to talk about international trade. The remarkable growth in international trade and finance over the last four decades has changed economics and politics. The global financial crisis over the last decade has challenged several of the existing paradigms in economics. In my lecture today I will speak about one such long-standing paradigm in international economics, the so-called “Mundell-Fleming paradigm,”and the recent evidence that questions the general validity of this framework. This new evidence arises from work I have done over the last decade with co-authors that has led us to push for a new paradigm that we call the “Dominant Currency Paradigm.”Link

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The next financial crisis may come soon – are we all that safe?

The next financial crisis may come soon – are we all that safe? Kenneth Rogoff, February 5, 2019, Opinion, “A decade on from the 2008 global financial crisis, policymakers constantly assure us that the system is much safer today. The giant banks at the core of the meltdown have scaled back their risky bets, and everyone – investors, consumers, and central bankers – is still on high alert. Regulators have worked hard to ensure greater transparency and accountability in the banking industry. But are we really all that safe?Link

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Communicating Resource Scarcity

Communicating Resource Scarcity. Ashley Whillans, Michael Norton, 2019, Paper, “The development and maintenance of interpersonal relationships require investments of both money and time—resources that are often limited in supply, but in great demand. Indeed, consumers are regularly asked to dedicate their money and time to social engagements, and need to manage these resources efficiently. Therefore, consumers often choose to cite insufficient time or money as an excuse for rejecting social invitations. But how does using the excuse of financial versus time scarcity influence interpersonal relationships? Across eight experiments, we demonstrate that using financial scarcity as an excuse (e.g., “I don’t have money”) increases perceptions of interpersonal closeness and helping behavior compared to using time scarcity as an excuse (e.g., “I don’t have time”). This effect is explained by the fact that time is perceived as a more personally controllable resource than money, resulting in consumers who cite financial (vs. temporal) constraints as being perceived as more trustworthy.Link

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Corporate Debt, Firm Size and Financial Fragility in Emerging Markets

Corporate Debt, Firm Size and Financial Fragility in Emerging Markets. Laura Alfaro, January 2019, Paper, “The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman’s Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and exchange rate movements in emerging markets. While the relationship between firm-leverage and distress scores varies over time, the relationship between firm size and corporate vulnerability is relatively time-invariant. All else equal, large firms in emerging markets are more financially vulnerable and also systemically important. Consistent with the granular origins of aggregate fluctuations in Gabaix (2011), idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with GDP growth in our emerging markets sample. Relatedly, the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms.Link

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Negative Nominal Interest Rates and the Bank Lending Channel

Negative Nominal Interest Rates and the Bank Lending Channel. Lawrence Summers, January 2019, Paper, “Following the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased rather than decreased in response to policy rate cuts. Based on the empirical evidence, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rate turns negative, the usual transmission mechanism of monetary policy through the bank sector breaks down. Moreover, because a negative policy rate reduces bank profits, the total effect on aggregate output can be contractionary. A calibration which matches Swedish bank level data suggests that a policy rate of -0.50 percent increases borrowing rates by 15 basis points and reduces output by 7 basis points.Link

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Risks to the Global Economy in 2019

Risks to the Global Economy in 2019. Kenneth Rogoff, January 11, 2019, Opinion, “Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies.Link

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Diagnostic Bubbles

Diagnostic Bubbles, Andrei Shleifer, December 2018, Paper, “We introduce diagnostic expectations into a standard setting of price formation in which investors learn about the fundamental value of an asset and trade it. We study the interaction of diagnostic expectations with two well-known mechanisms: learning from prices and speculation (buying for resale). With diagnostic (but not with rational) expectations, these mechanisms lead to price paths exhibiting three phases: initial underreaction, followed by overshooting (the bubble), and finally a crash. With learning from prices, the model generates price extrapolation as a byproduct of fast moving beliefs about fundamentals, which lasts only as the bubble builds up. When investors speculate, even mild diagnostic distortions generate substantial bubbles.Link

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