An eclectic third generation model of financial and exchange rate crises

[cat] En aquest treball es presenta un model eclèctic que sistematitza la dinàmica de les crisis que s’autoconfimen, usant els principals aspectes de les tres tipologies dels models de crisis canviàries de tercera generació, amb la finalitat de descriure els fets que precipiten la renúncia al manteniment d’una paritat fixada. Les contribucions més notables són les implicacions per a la política econòmica, així com la pèrdua del paper del tipus de canvi com instrument d’ajust macroeconòmic, quan els efectes de balanç són una possibilitat real.

The effects of monetary policy on stock market bubbles: Some evidence

We estimate the response of stock prices to exogenous monetary policy shocks usinga vector-autoregressive model with time-varying parameters. Our evidence points toprotracted episodes in which, after a a short-run decline, stock prices increase persistently in response to an exogenous tightening of monetary policy. That responseis clearly at odds with the "conventional" view on the effects of monetary policy onbubbles, as well as with the predictions of bubbleless models. We also argue that it isunlikely that such evidence be accounted for by an endogenous response of the equitypremium to the monetary policy shocks.

Federal Dynamics in Times of Economic and Financial Crisis

The global economic and financial crisis is a challenge for all governments, but particularly for federal states because divided and/or shared territorial powers make federations susceptible to coordination problems in fiscal policy making. This article explores the effects of the ongoing crisis on federal relations. Three kinds of problems that may become the cause of federal tensions and conflicts are evoked: opportunism of subgovernments, centralisation and erosion of solidarity among members of the federation. Our analysis of fiscal policies and federal conflicts of 11 federations between 2007 and the present reveals three kinds of coordination problems: shirking in the use of federal government grants, rent-seeking in equalisation payments, and over-borrowing and over-spending. Our results show that shirking remained limited to few cases and occurred only in the first part of the crisis. However, rent-seeking and over-borrowing and over-spending led to a reduction of solidarity among subgovernments and to increased regulation of the fiscal discretion of the members of the federation. Subsequently, tensions in federal relations increased - although only in one case did this challenged the federal order.

The determinants of CAP reform: learning from the European financial crisis and CAP 2013

There is an ongoing debate on which are the determinants of CAP reform. The economic environment has not been contemplated as a direct determinant of CAP reform but its proxy, the budget, has not only been looked at as such but underlined as a key cause of CAP reform. This paper argues, however, that the budget does not affect the modus operandi of the CAP. It affects the quantity of support each farmer is going to get and sometimes even the timing of the reform, but not the form it is going to receive it. Other CAP determinants and international negotiations in particular, have an impact on the substance of CAP reform. This hypothesis is not contradicted by an analysis of CAP 2013 changes.

Optimal Exchange Rate Policy in a Growing Semi-Open Economy

This paper considers an alternative perspective to China's exchange rate policy. It studies a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, it assumes limited financial development generating a large demand for saving instruments by the private sector. The paper analyzes the optimal exchange rate policy by modeling the central bank as a Ramsey planner. Its main result is that in a growth acceleration episode it is optimal to have an initial real depreciation of the currency combined with an accumulation of reserves, which is consistent with the Chinese experience. This depreciation is followed by an appreciation in the long run. The paper also shows that the optimal exchange rate path is close to the one that would result in an economy with full capital mobility and no central bank intervention.

Emergence and development of a financial cluster: the evolution of Andorra’s banking deposits in the long-term, 1931-2007

This paper explores the origins of Andorra’s financial cluster. It shows that the free movement of currency, the protection of infant industry, and geographical concentration lie at the foundation of the cluster’s competitive advantage. Drawing on a new set of data, the paper also provides for the first time an estimate of the total deposits held by Andorra’s banks between 1931 and 2007. Based on this new information, the paper reaches the conclusion that the development of the cluster went through four distinct phases in which large companies, acting as leaders, played an important role in enhancing the cluster’s business capabilities.

Fair value versus historic cost-valuation for biological assets: Implications for the quality of financial information

[spa] Este trabajo realiza un estudio empírico sobre los efectos, que se señalan en las discusiones teóricas, de la utilización del valor razonable (VR) frente al coste histórico (CH), utilizando dos muestras de explotaciones agrícolas, una de las cuales valora sus activos biológicos a CH y la otra a VR. No se encontraron diferencias significativas en los beneficios e ingresos entre ambas muestras, ni siquiera en sus volatilidades. Tampoco se encontraron diferencias significativas en rentabilidad, manipulación contable, ni en el poder de ambos criterios de valoración para predecir los flujos de tesorería. Por el contrario, la mayor parte de los tests realizados revelan un mayor poder de los beneficios calculados bajo el VR para la predicción de los beneficios futuros, respecto de cuando son calculados bajo el CH. El estudio proporciona también evidencia empírica de prácticas contables defectuosas de CH en el sector agrícola, concluyendo que el VR puede representar un criterio de valoración interesante para un sector, como el agrícola, caracterizado por el predominio de pequeñas explotaciones familiares.

Fair value versus historic cost-valuation for biological assets: Implications for the quality of financial information

[spa] Este trabajo realiza un estudio empírico sobre los efectos, que se señalan en las discusiones teóricas, de la utilización del valor razonable (VR) frente al coste histórico (CH), utilizando dos muestras de explotaciones agrícolas, una de las cuales valora sus activos biológicos a CH y la otra a VR. No se encontraron diferencias significativas en los beneficios e ingresos entre ambas muestras, ni siquiera en sus volatilidades. Tampoco se encontraron diferencias significativas en rentabilidad, manipulación contable, ni en el poder de ambos criterios de valoración para predecir los flujos de tesorería. Por el contrario, la mayor parte de los tests realizados revelan un mayor poder de los beneficios calculados bajo el VR para la predicción de los beneficios futuros, respecto de cuando son calculados bajo el CH. El estudio proporciona también evidencia empírica de prácticas contables defectuosas de CH en el sector agrícola, concluyendo que el VR puede representar un criterio de valoración interesante para un sector, como el agrícola, caracterizado por el predominio de pequeñas explotaciones familiares.

Environmental policy instruments concerning industrial end-use energy efficiency

Energy efficiency and saving energy are the main question marks when thinking of reducing carbon dioxide emissions or cutting costs. The objective of thesis is to evaluate policy instruments concerning end-use energy efficiency of heavy industry in European Union. These policy instruments may be divided in various ways, but in this thesis the division is to administrative, financial, informative and voluntary instruments. Administrative instruments introduced in this thesis are Directive on Integrated Pollution Prevention and Control, Directive on Energy End-use Efficiency and Energy Services, and Climate and Energy Package. Financial means include energy and emission taxation, EU Emission Trading Scheme and diverse support systems. Informative instruments consist of horizontal BAT Reference Document for Energy Efficiency, as well as substantial EU documents including Green Paper on Energy Efficiency, Action Plan for Energy Efficiency and An Energy Policy for Europe. And finally, voluntary instruments include environmental managements systems like ISO 14001 and EMAS, energy auditing and benchmarking. The efficiency of different policy instruments vary quite a lot. Informative instruments lack the commitment from industry and are thus almost ineffective, contrary to EU Emission Trading Scheme, which is said to be the solution to climate problems. The efficiency of administrative means can be placed between those mentioned and voluntary instruments are still quite fresh to be examined fruitfully. However, each instrument has their potential and challenges. Cases from corporate world strengthen the results from theoretical part. Cases were written mainly on the basis of interviews. The interviewees praised the energy efficiency contract of Finnish industry, but the EU ETS takes the leading role of policy instruments. However, for industry the reductions do not come easily.

Mapping financial stability

The ongoing global financial crisis has demonstrated the importance of a systemwide, or macroprudential, approach to safeguarding financial stability. An essential part of macroprudential oversight concerns the tasks of early identification and assessment of risks and vulnerabilities that eventually may lead to a systemic financial crisis. Thriving tools are crucial as they allow early policy actions to decrease or prevent further build-up of risks or to otherwise enhance the shock absorption capacity of the financial system. In the literature, three types of systemic risk can be identified: i ) build-up of widespread imbalances, ii ) exogenous aggregate shocks, and iii ) contagion. Accordingly, the systemic risks are matched by three categories of analytical methods for decision support: i ) early-warning, ii ) macro stress-testing, and iii ) contagion models. Stimulated by the prolonged global financial crisis, today's toolbox of analytical methods includes a wide range of innovative solutions to the two tasks of risk identification and risk assessment. Yet, the literature lacks a focus on the task of risk communication. This thesis discusses macroprudential oversight from the viewpoint of all three tasks: Within analytical tools for risk identification and risk assessment, the focus concerns a tight integration of means for risk communication. Data and dimension reduction methods, and their combinations, hold promise for representing multivariate data structures in easily understandable formats. The overall task of this thesis is to represent high-dimensional data concerning financial entities on lowdimensional displays. The low-dimensional representations have two subtasks: i ) to function as a display for individual data concerning entities and their time series, and ii ) to use the display as a basis to which additional information can be linked. The final nuance of the task is, however, set by the needs of the domain, data and methods. The following ve questions comprise subsequent steps addressed in the process of this thesis: 1. What are the needs for macroprudential oversight? 2. What form do macroprudential data take? 3. Which data and dimension reduction methods hold most promise for the task? 4. How should the methods be extended and enhanced for the task? 5. How should the methods and their extensions be applied to the task? Based upon the Self-Organizing Map (SOM), this thesis not only creates the Self-Organizing Financial Stability Map (SOFSM), but also lays out a general framework for mapping the state of financial stability. This thesis also introduces three extensions to the standard SOM for enhancing the visualization and extraction of information: i ) fuzzifications, ii ) transition probabilities, and iii ) network analysis. Thus, the SOFSM functions as a display for risk identification, on top of which risk assessments can be illustrated. In addition, this thesis puts forward the Self-Organizing Time Map (SOTM) to provide means for visual dynamic clustering, which in the context of macroprudential oversight concerns the identification of cross-sectional changes in risks and vulnerabilities over time. Rather than automated analysis, the aim of visual means for identifying and assessing risks is to support disciplined and structured judgmental analysis based upon policymakers' experience and domain intelligence, as well as external risk communication.

Analyzing the Effects of the New Renewable Energy Policy in Russia on Investments into Wind, Solar and Small Hydro Power

This thesis presents an analysis of recently enacted Russian renewable energy policy based on capacity mechanism. Considering its novelty and poor coverage by academic literature, the aim of the thesis is to analyze capacity mechanism influence on investors’ decision-making process. The current research introduces a number of approaches to investment analysis. Firstly, classical financial model was built with Microsoft Excel® and crisp efficiency indicators such as net present value were determined. Secondly, sensitivity analysis was performed to understand different factors influence on project profitability. Thirdly, Datar-Mathews method was applied that by means of Monte Carlo simulation realized with Matlab Simulink®, disclosed all possible outcomes of investment project and enabled real option thinking. Fourthly, previous analysis was duplicated by fuzzy pay-off method with Microsoft Excel®. Finally, decision-making process under capacity mechanism was illustrated with decision tree. Capacity remuneration paid within 15 years is calculated individually for each RE project as variable annuity that guarantees a particular return on investment adjusted on changes in national interest rates. Analysis results indicate that capacity mechanism creates a real option to invest in renewable energy project by ensuring project profitability regardless of market conditions if project-internal factors are managed properly. The latter includes keeping capital expenditures within set limits, production performance higher than 75% of target indicators, and fulfilling localization requirement, implying producing equipment and services within the country. Occurrence of real option shapes decision-making process in the following way. Initially, investor should define appropriate location for a planned power plant where high production performance can be achieved, and lock in this location in case of competition. After, investor should wait until capital cost limit and localization requirement can be met, after that decision to invest can be made without any risk to project profitability. With respect to technology kind, investment into solar PV power plant is more attractive than into wind or small hydro power, since it has higher weighted net present value and lower standard deviation. However, it does not change decision-making strategy that remains the same for each technology type. Fuzzy pay-method proved its ability to disclose the same patterns of information as Monte Carlo simulation. Being effective in investment analysis under uncertainty and easy in use, it can be recommended as sufficient analytical tool to investors and researchers. Apart from described results, this thesis contributes to the academic literature by detailed description of capacity price calculation for renewable energy that was not available in English before. With respect to methodology novelty, such advanced approaches as Datar-Mathews method and fuzzy pay-off method are applied on the top of investment profitability model that incorporates capacity remuneration calculation as well. Comparison of effects of two different RE supporting schemes, namely Russian capacity mechanism and feed-in premium, contributes to policy comparative studies and exhibits useful inferences for researchers and policymakers. Limitations of this research are simplification of assumptions to country-average level that restricts our ability to analyze renewable energy investment region wise and existing limitation of the studying policy to the wholesale power market that leaves retail markets and remote areas without our attention, taking away medium and small investment into renewable energy from the research focus. Elimination of these limitations would allow creating the full picture of Russian renewable energy investment profile.

The Impact of the 2007-2009 Financial Crisis on the Relationship between Central Bank Rates and the Corresponding Interbank Interest Rates in 2002-2014

The role of central banks throughout the global financial system has become even more important during and after the events of the financial crisis. In order to stabilize the market conditions and provide solid ground for future development, the central banks use discount rate as their primary monetary policy tool in many developed and emerging economies. The purpose of this thesis is to examine how the relationship between central bank rates and corresponding interbank rates has developed before, during and after the crisis period of 2007-2009 in five developed countries and five emerging market countries. The results indicate that during the before-crisis period the interest rate markets reacted diversely but the joint recovery attempts of global economies seem to have stabilized the reactions during and especially after the crisis. The crisis also seems to have highlighted the characteristics of each country’s survival strategy as the role of other policy instruments arose.

Innovation, competition and financial vulnerability in economic development

The financial sector has been viewed traditionally as either providing the "oil" for the "wheels of commerce" or as a parasite on the real sector of the economy where real productivity gains provide for increasing real wages and per capita incomes. The present paper takes a different route and attempts to an analysis of financial institutions on a par with the production sector of the economy. It also develops a link which amalgamates "the knowledge-based" perspective on firms' operations with Schumpeterian financial leverage to exploit productivity enhancing innovations, and Minsky's tendency towards financial fragility. The analysis also leads to some policy recommendations concerning financial regulation, risk management and financial institution's building.

The effects of fiscal policy after the global recession: assessing the evidences

This paper offers a commented review of the most recent empirical studies of the effects of fiscal contraction on economic growth, which have helped underpin the prescription that fiscal policy should be expansionary in coming years in order to contain economic semi-stagnation in the developed countries. The paper shows that there is ample literature showing that fiscal expansion helps the economy grow, and that fiscal contraction tends to reduce output and employment in the short term.

Institutions, credibility and crisis: the inconsistencies of Argentine exchange rate policy (1991-2006)

The purpose of this article is twofold. The first is to explain the time inconsistencies of the convertibility regime that led to the 2001 crisis. The argument suggests that the credibility requirements for convertibility induced a dynamic of legal, fiscal, financial and external commitments that increased exit costs and time inconsistencies. The second objective is to explain the tensions of the floating regime that replaced convertibility in 2002. We describe the effects of a floating exchange rate on macroeconomic imbalance and the growing tension between competitiveness and inflation.