1,721,002 research outputs found
Uncertainty Shocks and Policymakers’ Behavior: Evidence from the Subprime Crisis Era
Full text linkPurpose - The purpose of this paper is to examine the effects of the 2007-2009 uncertainty shocks on policymakers' behavior.Design/methodology/approach - Uncertainty shocks in the US credit, financial and production markets are represented by extraordinary events. As in Bloom (2009), these events are associated with significant economic and political shocks (e.g. Lehman Brothers' collapse). Credit markets uncertainty shocks, which played a crucial role in the aftermath of the house prices collapse in the USA, are first analyzed in a bivariate VAR context, and then, embodied in a simple theoretical framework.Findings - The empirical evidence suggests that the US credit, financial and production markets have been affected by a relative large number of uncertainty shocks (i.e. rare events). In a Brainard's (1967) uncertainty scenario, it is shown that a bizarre money-liquidity relationship exacerbates the "policymakers' cautiousness-aggressiveness trade-off." In addition, the model suggests that a "double" dose of policy, in presence of a global credit crunch, might be useless.Originality/value - This paper improves the existing literature in two main directions. First, it provides novel empirical evidence on the unusual dynamics of the US credit market and its effects on the real economic activity during the crisis. Second, in a very simple theoretical framework accounting for parameter uncertainty, it addresses whether a bizarre money-credit relationship affects policymakers' behavior (i.e. cautiousness vs aggressiveness)
International diffusion of shocks under different degrees of cross-country shocks comovement and economic integration
Full text linkThis paper studies the international transmission of shocks under different degrees of cross-country shocks comovement and economic integration via a two
country-two good model with recursive preferences, frictionless markets, and correlated short- and long-run innovations. In contrast to recent studies, I show that
the inclusion of cross-country balance sheet linkages and borrowing constraints does
not represent a necessary condition to produce a strong international propagation
mechanism. The novel risk sharing mechanism embodied in the model produces
symmetric and synchronized movements in consumption and stock prices even if
there are uncorrelated shocks and segmented goods markets. Nevertheless, model's
results give rise to a "quantitative trade-off". On the one side, the presence of
correlated long-run growth prospect is needed to produce a relatively low risk-free
rate and a relatively high equity risk premium (consistent with asset pricing data),
a no-close to unity cross-country consumption growth correlation (consistent with
international consumption data), and the Backus-Smith correlation. On the other
side, a negative short-run shock is key to produce a large and synchronized drop
in real and financial
flows (consistently with the properties of the 2008-2009 global
demand collapse).This paper studies the international transmission of shocks under different degrees of cross-country shocks comovement and economic integration via a two
country-two good model with recursive preferences, frictionless markets, and correlated short- and long-run innovations. In contrast to recent studies, I show that
the inclusion of cross-country balance sheet linkages and borrowing constraints does
not represent a necessary condition to produce a strong international propagation
mechanism. The novel risk sharing mechanism embodied in the model produces
symmetric and synchronized movements in consumption and stock prices even if
there are uncorrelated shocks and segmented goods markets. Nevertheless, model's
results give rise to a "quantitative trade-off". On the one side, the presence of
correlated long-run growth prospect is needed to produce a relatively low risk-free
rate and a relatively high equity risk premium (consistent with asset pricing data),
a no-close to unity cross-country consumption growth correlation (consistent with
international consumption data), and the Backus-Smith correlation. On the other
side, a negative short-run shock is key to produce a large and synchronized drop
in real and financial
flows (consistently with the properties of the 2008-2009 global
demand collapse).LUISS PhD Thesi
Measuring financial integration: Evidence from ten industries in a "US-emerging world"
Full text linkThis chapter measures financial integration in 10 industries over 4 different periods. We use two robust measures of integration: (i) the Pukthuanthong and Roll (2009) 's multi-factor R-square and (ii) the Volosovych (2011)'s integration index. Both measures, based on PCA, indicate that the difference between the level of integration over the period 2009-2012 ("Post-Lehman" era) and the level of integration over the period 1994-1998 ("Post-Liberalizations" era) is relatively high. In addition, the level of financial integration across international equity markets decreased during the late 1990s. This suggests that de jure integration does not necessarily improve de facto integration. Overall, our findings give rise to a "diversification benefits-insurance benefits trade-off"
Understanding Emerging Market Equity Risk Premia: Industries, Governance and Macroeconomic Policy Uncertainty
Full text linkThe average equity risk premium (ERP) in emerging markets is well-known to be significantly higher than in developed markets. But, key reasons for this remain unclear, contributing to investment strategy uncertainty. Here, we use industry-level data for 19 emerging market countries across three regions of the world to first examine the contribution of each industrial stock market to the extra premium paid by emerging markets to international investors from 1995 to present, and then to explore the relative importance of country-level governance and macroeconomic policy uncertainty in explaining both national and regional industry-by-industry ERP behavior. We conduct separate analyses for the emerging market crises period of 1995-2002, and the post-crises period of 2003-2012. Based on both static and dynamic approaches, we find that some industries indeed perform consistently better than others. In particular: (i) the healthcare and basic materials industries mostly contributed to the extra premium paid by the Asian stock market; and (ii) the East European and Latin American stock markets' extra performances were largely driven by the utilities and consumer services industries, respectively. However, our cross-sectional analyses suggest that country-level governance indicators are not strongly correlated with either national or industry-level returns, with the exception of the consumer goods industry. Lastly, using both rolling-window and DCC-GARCH frameworks, we find that correlations between industrial stock market excess returns and a measure of global economic policy uncertainty are consistently negative, and follow similar patterns. Our empirical evidence as a whole suggests that industrial stock markets are more highly related both within and across countries and regions than has been suggested previously. Contrary to much existing empirical work, our results therefore suggest there is currently little space in emerging markets to exploit cross-industry portfolio diversification benefits. © 2013 Elsevier B.V
Emerging Stock Premia: Do Industries Matter?
Full text linkThis paper studies the dynamics of emerging excess returns in a industry-by-industry context. Differently from the recent financial literature, which mainly focuses on “total market indexes”, we perform a standard ex-post empirical analysis aimed at capturing the industries’ contribution to country stock performances. We obtain three key empirical findings. First, at industry level, we confirm the “high performance-high volatile nature” as well as the timevarying component of emerging excess returns. Second, at country level and in a dynamic context, we detect those industries that mainly contribute to the presence of emerging stock
premia. Third, we show that some industries are much more exposed to global factors than others. We argue that these results display relevant implications for portfolio diversification
and reflect consumption smoothing motive
Labor Market Dynamics, Endogenous Growth, and Asset Prices
Full text linkWe extend the endogenous growth model of Kung and Schmid (2015) by adding endogenous labor dynamics and two variants of wage rigidities. This leads to an increase of 250-350 basis points in the risk premia, depending on the model specification. Additionally, it brings labor market quantities much closer to their empirical counterparts. In particular, wage rigidities generate an increase of around 60-250 basis points in labor growth volatility, which depends on how wage rigidities are modeled. (C) 2016 Elsevier B.V. All rights reserved
Understanding the global demand collapse: Empirical analysis and optimal policy response
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