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The Rise and Fall of the ABS Market
Get PDFThe nancial crisis has raised some concern about the quality of information
available on some traded assets on the securities markets to market participants and
regulators. Asset-backed securitization in general got partial blame for the paucity
of liquidity on bank balance sheets and the consequent credit crunch. After the
Asset-Backed Security (ABS) market fell to near inactivity in 2009, the US federal
government's Term Asset-Backed Securities Loan Facility (TALF) provided backing
and a boost to the issuance of asset-backed securitization. In this market condition,
given the nature of ABS, it is di¢ cult for them not to be relatively illiquid, and this
has resulted in unacceptable levels of market risk for most investors. Their liquidity before the crisis was driven by a market in continuous expansion, fed by Special Purpose Vehicle (SPV), Conduits, and other low capitalized term-transformation
vehicles. Nowadays, the industry is concerned with the ongoing ABS reforms and
how these will be implemented. This article reviews the ABS market in the last
decade and the possible consequences of the recent regulatory proposals. It proposes
a retention policy and the institution of a new nancial body to supervise the quality
of the security in an ABS pool, its liquidity, and the model risk implied by the issuer's valuation model
Revisiting the Dollar-Euro Permanent Equilibrium Exchange Rate: Evidence from Multivariate Unobserved Components Models
Get PDFWe propose an alternative approach to obtaining a permanent equilibrium exchange rate (PEER), based on an unobserved components (UC) model. This approach offers a number of advantages over the conventional cointegration-based PEER. Firstly, we do not rely on the prerequisite that cointegration has to be found between the real exchange rate and macroeconomic fundamentals to
obtain non-spurious long-run relationships and the PEER. Secondly, the impact that the permanent and transitory components of the macroeconomic fundamentals have on the real exchange rate can be modelled separately in the UC model. This is important for variables where the long and short-run
effects may drive the real exchange rate in opposite directions, such as the relative government expenditure ratio. We also demonstrate that our proposed exchange rate models have good out-of sample
forecasting properties. Our approach would be a useful technique for central banks to estimate the equilibrium exchange rate and to forecast the long-run movements of the exchange rate
Nominal Interest Rates and Stationarity
Get PDFThis paper investigates the (break) stationarity null hypothesis using data for 25 interest rates with different maturities and risk characteristics in Canada and the
US. In contrast to a large part of the literature, this paper reports strong empirical evidence in favour of the null hypothesis of stationarity for the interest rate series
The Role of Institutions in Cross-Section Income and Panel Data Growth Models: A Deeper Investigation on the Weakness and Proliferation of Instruments
Get PDFThis paper investigates the role of institutions in determining per capita income levels and growth. It
contributes to the empirical literature by using different variables as proxies for institutions and by developing a deeper analysis of the issues arising from the use of weak and too many instruments in per
capita income and growth regressions. The cross-section estimation suggests that institutions seem to matter, regardless if they are the only explanatory variable or are combined with geographical and
integration variables, although most models suffer from the issue of weak instruments. The results from the growth models provides some interesting results: there is mixed evidence on the role of institutions and
such evidence is more likely to be associated with law and order and investment profile; government spending is an important policy variable; collapsing the number of instruments results in fewer significant
coefficients for institutions
The Expenditure Impacts of Individual Higher Education Institutions (HEIs) and their Students on the Scottish Economy under Devolution: Homogeneity or Heterogeneity?
Get PDFComparing each of the twenty Higher Education Institutions (HEIs) in Scotland as
separate sectors in an Input-Output table suggests their expenditure patterns are
homogenous and that the apparent heterogeneity of their impacts is primarily driven
by scale. However, a disaggregation of their income by source reveals a disparity in
their dependence upon funding from the devolved Scottish Government and their
ability to draw in income/funding from external sources. Acknowledging the binding
budget constraint of the Scottish Government and deriving balanced expenditure
multipliers reveals large differences in the net-expenditure impact of HEIs upon the
Scottish economy, with the source of variation being the origin of income. Applying a
novel treatment of student expenditure impacts, identifying the amount of exogenous
spending per student, modifies the heterogeneity of the overall expenditure impacts.
On balance this suggests that the impacts of impending budget cut-backs will be quite
different by institution depending on their sensitivity to public funding. However,
predicting the outcome of budget cutbacks at the margin is problematic as we do not
know whether public and external incomes are complements or substitutions (and
indeed this may vary between individual HEIs)
Institutions and Economic Development. New tests and new doubts.
Get PDFIs institutional quality a major driver of economic development?
This paper tackles the question by focusing on the within-country variation of growth rates of GDP per capita. While previous attempts using this methodology have controlled for many of the standard de-
terminants of the empirical growth literature, we argue that such ap-
proach is not adequate if good institutions are the main reason behind
decisions to invest in human or physical capital accumulation or to
engage in international trade. Our regressions exclude the proximate
causes of growth in order to estimate the overall e¤ect of institutional
quality. Perhaps surprisingly, we nd no support for the thesis that institutional quality improves economic growth. These results encourage a reconsideration of the evidence provided elsewhere in the literature
Inflation Uncertainty, Exchange Rate Depreciation and Volatility: Evidence from Ghana, Mozambique and Tanzania
Get PDFWhile flexible exchange rates facilitate stabilisation, exchange rate fluctuations can cause real volatility. This gives policy importance to the causal relationship between exchange rate depreciation and its volatility. An exchange rate may be expected to become more volatile when the
underlying currency loses value. We conjecture that a reverse causation, which further weakens the currency, may be mitigated by price stability. Data from Ghana, Mozambique and Tanzania support
this: depreciation makes exchange rate more volatile for all but volatility does not causes depreciation in Tanzania which has enjoyed a more stable inflation despite all countries adopting similar macro-policies since early 1990s
Adaptation and anticipation effects to life events in the United Kingdom
Get PDFWe analyze how individual happiness is affected over time by nine major life events using a panel of British individuals. Our aim is to test for the existence of adaptation and anticipation effects. Adaptation effects are found for all the life events considered with the possible
exception of unemployment. Anticipation effects precede events that
are easily predicted such as marriage, separation and the birth of a child
Adaptation or Social Comparison? The effects of income on happiness.
Get PDFTwo mechanisms have attracted considerable attention from researchers studying the effects of income on happiness: adaptation and social comparison. In this paper we study both mechanisms using a panel of British households. Besides dealing with the UK case in detail, the paper contributes to the literature by considering the two mecha-
nisms together and testing for them both separately and jointly. Our
results strongly support the existence of adaptation effects but find only weak evidence in favour of social comparison
Moody choice
Get PDFIf choices depend on the decision maker's mood, is the attempt to derive any
consistency in choice doomed? In this paper we argue that, even with full unpredictability of mood, the way choices from a menu relate to choices from another
menu exhibits some structure. We present two alternative models of 'moody choice'
and show that, in either of them, not all choice patterns are possible. Indeed, we
characterise both models in terms of consistency requirements of the observed choice data