The economic consequences of mortgage debt

Unsurprisingly, a great deal of attention has been paid to the economic consequences of the credit crunch. However, this paper shows that the credit crunch was preceded by a strong build-up of mortgage debt internationally, which, in the long run, could turn out to be more significant than the credit crunch itself. Indeed, the debt build-up suggests that the credit crunch is more likely to reoccur, because highly-indebted households have weaker buffers to withstand unexpected shocks to their incomes or to interest rates. The paper presents a model that can explain the debt build-up and changes to the distribution of debt between existing owners and first-time buyers, which hinders access to home-ownership for the latter, even amongst those households who would be considered as credit-worthy.

Globalisation and the evolution of international retailing: a comment on Alexander's 'British overseas retailing, 1900-1960'

Nicholas Alexander's (2011. British overseas retailing, 1900–60: International firm characteristics, market selections and entry modes. Business History, 53, 530–556) survey of British overseas retailers from 1900 to 1960 provides pathbreaking new evidence of international retailing activity during the first globalisation boom. The article surveys this and other recent evidence, and confirms that international retailing was far more significant up to 1929 than previously thought. This activity was overwhelmingly undertaken by non-retailers, however, and hence by multinationals whose advantages in retailing were fundamentally unsustainable over the long run. Even the department store format, the principal retail innovation of the period, was not internationalised primarily by multinationals. Rather it was diffused via indigenous entrepreneurs, driven by a rapidly growing global demand for western style fashion and dress.

A functional coefficient model view of the Feldstein–Horioka puzzle

What does the saving–investment (SI) relation really measure and how should the SI relation be measured? These are two of the most discussed issues triggered by the so-called Feldstein–Horioka puzzle. Based on panel data we introduce a new variant of functional coefficient models that allows to separate long and short to medium run parameter dependence. The new modeling framework is applied to uncover the determinants of the SI relation. Macroeconomic state variables such as openness, the age dependency ratio, government current and consumption expenditures are found to affect the SI relation significantly in the long run.

Asymmetric space market adjustment in the London office market

Models of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicit modeling of asymmetric rental response to supply and demand model. A long run structural model linking demand for office space, real rental levels and office-based employment is estimated and then rental adjustment processes are modeled using an error correction model framework. Adjustment processes are seen to be asymmetric, dependent both on the direction of the supply and demand shock and on the state of the rental market at the time of the shock. A complete system of equations is estimated: unit shocks produce oscillations but there is a return to a steady equilibrium state in the long run.

Statistical monitoring of student performance: an early warning system

Weekly monitoring of profiles of student performances on formative and summative coursework throughout the year can be used to quickly identify those who need additional help, possibly due to acute and sudden-onset problems. Such an early-warning system can help retention, but also assist students in overcoming problems early on, thus helping them fulfil their potential in the long run. We have developed a simple approach for the automatic monitoring of student mark profiles for individual modules, which we intend to trial in the near future. Its ease of implementation means that it can be used for very large cohorts with little additional effort when marks are already collected and recorded on a spreadsheet.

The information content of REIT credit rating actions and transparency

We examine the short-run and long-run price reaction of equity REIT shares following credit rating actions, testing the transparency of the REIT structure. Generally, the economic effect on the stock price is subdued for both upgrades and downgrades compared to prior literature examining the broader U.S. equity market. An examination of trading volume revealed a significant increase in trading in reaction to downgrade credit rating changes, with a more subdued response to upgrades. The findings support the notion that REITs are more publicly forthcoming about the expectation of positive news in comparison to negative news.

The distribution of London residential property prices and the role of spatial lock-in

Much of mainstream economic analysis assumes that markets adjust smoothly, through prices, to changes in economic conditions. However, this is not necessarily the case for local housing markets, whose spatial structures may exhibit persistence, so that conditions may not be those most suited to the requirements of modern-day living. Persistence can arise from the existence of transaction costs. The paper tests the proposition that housing markets in Inner London exhibit a degree of path dependence, through the construction of a three-equation model, and examines the impact of variables constructed for the 19th and early 20th centuries on modern house prices. These include 19th-century social structures, slum clearance programmes and the 1908 underground network. Each is found to be significant. The tests require the construction of novel historical datasets, which are also described in the paper.

International office investment in global cities: the production of financial space and systemic risk

The paper explores the relationships between UK commercial real estate and regional economic development as a foundation for the analysis of the role of real estate investment in local economic development. Linkages between economic growth, development, real estate performance and investment allocations are documented. Long-run regional property performance is not the product of long-run economic growth, and weakly related to indicators of long-run supply and demand. Changes in regional portfolio weights seem driven by neither market performance nor underlying fundamentals. In the short run, regional investment shifts show no clear leads or lags with market performance.

Globalization and the evolution of international retailing: a comment on Alexander’s ‘British Overseas Retailing, 1900-1960'

Nicholas Alexander's (2011. British overseas retailing, 1900–60: International firm characteristics, market selections and entry modes. Business History, 53, 530–556) survey of British overseas retailers from 1900 to 1960 provides pathbreaking new evidence of international retailing activity during the first globalisation boom. The article surveys this and other recent evidence, and confirms that international retailing was far more significant up to 1929 than previously thought. This activity was overwhelmingly undertaken by non-retailers, however, and hence by multinationals whose advantages in retailing were fundamentally unsustainable over the long run. Even the department store format, the principal retail innovation of the period, was not internationalised primarily by multinationals. Rather it was diffused via indigenous entrepreneurs, driven by a rapidly growing global demand for western style fashion and dress.

Real estate markets and the macroeconomy: a dynamic coherence framework

This paper analyzes the dynamic interactions between real estate markets, in the US and the UK and their macroeconomic environments. We apply a new approach based on a dynamic coherence function (DCF) to study these interactions bringing together different real estate markets (the securitized market, the commercial market and the residential market). The results suggest that there is a common trend that drives the different real estate markets in the UK and the US, particularly in the long run, since they have a similar shape of the DCF. We also find that, in the US, wealth and housing expenditure channels are very conductive during real estate crises. However, in the UK, only the wealth effect is significant as a transmission channel during real estate market downturns. In addition, real estate markets in the UK and the US react differently to institutional shocks. This brings some insights on the conduct of monetary policy in order to avoid disturbances in real estate markets.

Price discovery of credit spreads in tranquil and crisis periods

In this paper we investigate the price discovery process in single-name credit spreads obtained from bond, credit default swap (CDS), equity and equity option prices. We analyse short term price discovery by modelling daily changes in credit spreads in the four markets with a vector autoregressive model (VAR). We also look at price discovery in the long run with a vector error correction model (VECM). We find that in the short term the option market clearly leads the other markets in the sub-prime crisis (2007-2009). During the less severe sovereign debt crisis (2009-2012) and the pre-crisis period, options are still important but CDSs become more prominent. In the long run, deviations from the equilibrium relationship with the option market still lead to adjustments in the credit spreads observed or implied from other markets. However, options no longer dominate price discovery in any of the periods considered. Our findings have implications for traders, credit risk managers and financial regulators.

Addressing rural social exclusion through African social purpose ventures

Objectives. The overarching aim of this paper is to consider the relationship between social entrepreneurship and rural development, and as a mechanism to address social exclusion in the Global South, with specific reference to Sub-Saharan Africa. Drawing upon a number of case examples of social purpose ventures in Kenya, Mozambique and Zambia the objectives of this paper are: - To provide a synthesis of existing literature on the interaction between social purpose ventures and rural BoP communities in the developing world; - To explore extant social exclusion literature including economic, political and international development dimensions; and - To analyse the case study examples to consider the channels through which social purpose ventures contribute to tackling social exclusion amongst the rural BoP. Prior Work. There is growing interest in the role that social enterprises and wider social purpose ventures can play in sustainable development in the Global South. In many developing countries the majority of the population still reside in rural areas with these areas often particularly marginalised and underdeveloped. Previous studies have provided anecdotal examples where social purpose ventures have the potential to provide innovative solutions to the development challenges faced by rural households and communities. Yet research in this area remains relatively nascent and fragmented. In depth empirical studies examining social purpose ventures and rural development in the Global South are furthermore limited. Approach. Data was collected during in-depth case study research with social purpose ventures in Zambia, Kenya and Mozambique. Cases were selected through a purposive sample with access negotiated to rural BoP communities through gatekeeper partners. Qualitative research methods were primarily employed including interviews, stakeholder focus groups and observational research. Results Six channels through which social purpose ventures contribute to tackling social exclusion amongst rural BoP communities are identified. These include ventures with the BoP as employees, producers, consumers, entrepreneurs, service users and shareholders. A number of shared characteristics for successful social purpose ventures are also outlined. Finally implications for policy, practice and research are discussed. Implications. Despite the increasing attention being given to social purpose ventures as a mechanism for global sustainable development many questions remain unanswered. Limited empirical work has been undertaken on such ventures operating in rural settings in the developing world, particularly Africa. The paper will add to academic and practitioner knowledge in this area especially in relation to up-scaling impact, the long term sustainability and viability of social purpose enterprise ventures, and effective supporting interventions. This paper adds to knowledge in the field of social purpose venturing in the developing world. It identifies various channels through which such ventures help tackle rural social exclusion and also factors influencing their success. The paper provides insights for practitioners and policy makers, particularly in relation to facilitating successful social purpose venturing. Value This paper will provide insights relevant to both academic and practitioner audiences. It addresses a subject area and geographical region that has received limited research attention to date. The paper adds to knowledge on social purpose ventures and social entrepreneurship in Africa and wider developing world environments, and contributes to debates on its potential and present limitations as a vehicle for development and societal transformation

Are professional macroeconomic forecasters able to do better than forecasting trends?

This paper investigates whether survey forecasters are able to make more accurate forecasts than simply supposing that the future values of the variable will move monotonically to the long-run expectation. We consider the forecasts individually, and the consensus forecasts. Consensus survey forecasts are able to do so to varying degrees depending on the variable, but this ability is largely limited to forecasts of the current quarter.

Adaptive social protection: mapping the evidence and policy context in the agriculture sector in south Asia

An aim of government and the international community is to respond to global processes and crises through a range of policy and practical approaches that help limit damage from shocks and stresses. Three approaches to vulnerability reduction that have become particularly prominent in recent years are social protection (SP), disaster risk reduction (DRR) and climate change adaptation (CCA). Although these approaches have much in common, they have developed separately over the last two decades. However, given the increasingly complex and interlinked array of risks that poor and vulnerable people face, it is likely that they will not be sufficient in the long run if they continue to be applied in isolation from one another. In recognition of this challenge, the concept of Adaptive Social Protection (ASP) has been developed. ASP refers to a series of measures which aims to build resilience of the poorest and most vulnerable people to climate change by combining elements of SP, DRR and CCA in programmes and projects. The aim of this paper is to provide an initial assessment of the ways in which these elements are being brought together in development policy and practice. It does this by conducting a meta-analysis of 124 agricultural programmes implemented in five countries in south Asia. These are Afghanistan, Bangladesh, India, Nepal and Pakistan. The findings show that full integration of SP, DRR and CCA is relatively limited in south Asia, although there has been significant progress in combining SP and DRR in the last ten years. Projects that combine elements of SP, DRR and CCA tend to emphasise broad poverty and vulnerability reduction goals relative to those that do not. Such approaches can provide valuable lessons and insights for the promotion of climate resilient livelihoods amongst policymakers and practitioners.

Pension scheme redesign and wealth redistribution between the members and sponsor: the USS rule change in October 2011

The redesign of defined benefit pension schemes usually results in a substantial redistribution of wealth between age cohorts of members, pensioners, and the sponsor. This is the first study to quantify the redistributive effects of a rule change by a real world scheme (the Universities Superannuation Scheme, USS) where the sponsor underwrites the pension promise. In October 2011 USS closed its final salary scheme to new members, opened a career average revalued earnings (CARE) section, and moved to ‘cap and share’ contribution rates. We find that the pre-October 2011 scheme was not viable in the long run, while the post-October 2011 scheme is probably viable in the long run, but faces medium term problems. In October 2011 future members of USS lost 65% of their pension wealth (or roughly £100,000 per head), equivalent to a reduction of roughly 11% in their total compensation, while those aged over 57 years lost almost nothing. The riskiness of the pension wealth of future members increased by a third, while the riskiness of the present value of the sponsor’s future contributions reduced by 10%. Finally, the sponsor’s wealth increased by about £32.5 billion, equivalent to a reduction of 26% in their pension costs.