The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR approach

A growing literature considers the impact of uncertainty using SVAR models that include proxies for uncertainty shocks as endogenous variables. In this paper we consider the impact of measurement error in these proxies on the estimated impulse responses. We show via a Monte-Carlo experiment that measurement error can result in attenuation bias in impulse responses. In contrast, the proxy SVAR that uses the uncertainty shock proxy as an instrument does not su¤er from this bias. Applying this latter method to the Bloom (2009) data-set results in impulse responses to uncertainty shocks that are larger in magnitude and more persistent than those obtained from a recursive SVAR.

Do financial distress and liquidity crises affect value and size premiums?

This study investigates the impact of liquidity crises on the relationship between stock (value and size) premiums and default risk in the US market. It first examines whether financial distress can explain value and size premiums, and then, subsequently, aims to determine whether liquidity crises increase the risk of value and size premium investment strategies. The study employs a time-varying approach and a sample of US stock returns for the period between January 1982 and March 2011, a period which includes the current liquidity crisis, so as to examine the relationship between default risk, liquidity crises and value and size premiums. The findings indicate that the default premium has explanatory power for value and size and premiums, which affect firms with different characteristics. We also find that liquidity crises may actually increase the risks related to size and value premium strategies.

Presidential power and congressional acquiescence in the "war" on terrorism: a new constitutional equilibrium?

US presidents have expanded executive power in times of war and emergency,sometimes aggressively so. This article builds on the application of punctuated equilibria theory by Burnham (1999 and Ackerman (1999). Underpinning this theory is the notion that rapid changes in - or external shocks to - domestic and international society impose new and insistent demands on the state. In so doing, they produce important and decisive moments of institutional mobilization and creativity, disrupt a pre-existing, relatively stable, equilibrium between the Congress and the president, and precipitate decisions or nondecisions by the electorate and political leaders that define the contours for action when the next crisis or external shock occurs. The article suggests that the combination of President George W. Bush's presidentialist doctrine, 9/11 and the 'war' on terror has consolidated a new, constitutional equilibrium. While some members of Congress contest the new order, the Congress collectively has acquiesced in its own marginalization. The article surveys a wide range of executive power assertions and legislative retreats. It argues that power assertions generally draw on precedent: on, for example, a tradition of wartime presidential extraconstitutional leadership extending to presidents, such as John Adams and Abraham Lincoln,as well as to Cold War and post-Cold War presidentialism.

Rethinking crises and the accretion of executive power: the “War on Terror” and conditionality evidence from seven political systems

External shocks to democratic systems are likely to threaten the stability of relations between the executive and the representative assembly. This article investigates the impact of the so-called “war on terror” on executive-assembly relations in comparative perspective. We analyze data from seven countries, which varied in terms of form of government, level of democracy, culture, social structure, and geographic location, to evaluate its effects. We find that whereas in some systems the “war on terror” altered the balance of power between the executive and the assembly, in other cases the extant balance of power was preserved. We postulate various conditions under which the constitutionally sanctioned balance of power is most likely to be preserved in times of crisis.

Reforms, incentives, welfare and productivity growth in Chinese wheat production

Following the 1978 rural reform, a series of agricultural reforms were introduced in China with an aim to create incentives for the farmers to produce more. However, the nineties’ reforms towards liberalization eventually resulted in a huge drop in agricultural production, which apparently motivated the grain self-sufficiency program in 1998. For a dataset that covers wheat production during these reforms, we examine how and to what extent these reforms affected the Total Factor Productivity (TFP) and the welfare of wheat farmers in China, both at the national and at the regional level. We find that although the nineties' price reforms led to a relatively faster growth of the incentivized TFP of wheat production, they failed to improve profits vis a vis welfare for the farmers. A series of weather shocks in the early nineties resulted in a scarcity of cultivable land and a shortage of agricultural labour, which eventually led to a sharp increase in their relative prices. The introduction of grain self-sufficiency program stabilized these agricultural prices but destroyed the growth in TFP for most regions. However, this reform resulted in some improvement in farmers’ welfare. Wheat farmers in China therefore experienced a trade off between productivity and welfare; competition boosted their productivity and regulation improved their welfare. Not only these findings add a completely new set of results to the existing literature, they can also form a strong basis for future agricultural reforms in China.

Monetary policy, exchange rates and stock prices in the Middle East region

A structural vector autoregressive model is employed to investigate the impact of monetary policy and real exchange rate shocks on the stock market performance of Kuwait, Oman, Saudi Arabia, Egypt and Jordan. In order to identify the structural shocks both short run and long run restrictions are applied. Unlike previous literature the contemporaneous interdependence between the financial variables are left unrestricted to give a more accurate depiction of the relationships. The heterogeneity of the results reflect the different monetary policy frameworks and stock market characteristics of these countries. Mainly, monetary policy and the real exchange rate shocks have a significant short run impact on the stock prices of the countries that apply a relatively more independent monetary policy and flexible exchange rates.