Currency Crises and the Stock Market: Empirical Evidence for Another Type of Twin Crisis
Stefan Eichler, Dominik Maltritz
Applied Economics,
No. 29,
2011
Abstract
We explore the dependency between currency crises and the stock market in emerging economies. Our focus is two-fold. First, the risk of a currency crisis rises as the foreign stake in the domestic stock market increases. Successful economies with high capital flows into their booming stock markets especially are prone to stock market-induced currency crises. Second, we apply the dividend growth model to show that stock markets crash in the run-up to a currency crisis. This new type of twin crisis is empirically tested by employing a logit framework using quarterly data for 33 emerging economies for 1994Q1–2007Q4.
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The German New Fiscal Rule (Schuldenbremse): Previous Agreements Question Success on the Länder Level
Kristina vanDeuverden, Sabine Freye
Wirtschaft im Wandel,
No. 9,
2010
Abstract
Starting in 2011, Germany will have a new fiscal rule to limit indebtedness - the debt brake. To encourage the functioning of this regulation on federal and Länder level, an advice board (Stabilitätsrat) was founded in April 2010. In a first step he selected four key numbers and defined thresholds. This article focuses on the chosen indicators and thresholds on Länder level by evaluating the effectiveness of both, the key figures themselves and their thresholds. We are analyzing time series from 1995 to 2009. The findings show that in general, the chosen figures are able to indicate a possible debt risk. However, the threshold values of the advice board endanger the effectiveness of the debt brake. This danger is especially caused by the mode of calculation: The thresholds are based on an average of German Länder. For this reason, only extremely negative household developments are pointed out. Furthermore, the new German debt brake is fundamentally based on the structural budget balance. Nevertheless, this key figure has not directly been chosen by the board. The approach of the board can be explained by the fact that there is - so far - no agreement between the federal level and the Länder how to calculate the structural balance on the Länder level.
This circumstance is precarious, because the debt brake cannot step really into force without the calculation of the structural budget balance for the Länder. For this reason, we try to close this vacancy by proposing a possible calculating mode for the structural part of the budget. The results of this calculation are indicating that on average the fiscal policy of the Länder was not sustainable. Key numbers as defined by the board indicated this only for a few of the Länder. From our point of view policy urgently has to act – otherwise the debt brake might not be successful.
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Do Banks Benefit from Internationalization? Revisiting the Market Power-Risk Nexus
Claudia M. Buch, C. T. Koch, Michael Koetter
Abstract
Recent developments on international financial markets have called the benefits of
bank globalization into question. Large, internationally active banks have
acquired substantial market power, and international activities have not
necessarily made banks less risky. Yet, surprisingly little is known about the
actual link between bank internationalization, bank risk, and market power.
Analyzing this link is the purpose of this paper. We jointly estimate the
determinants of risk and market power of banks, and we analyze the effects of
changes in terms of the number of foreign countries (the extensive margin) and
the volume of foreign assets (the intensive margin). Our paper has four main
findings. First, there is a strong negative feedback effect between risk and market
power. Second, banks with higher shares of foreign assets, in particular those held
through foreign branches, have higher market power at home. Third, holding
assets in a large number of foreign countries tends to increase bank risk. Fourth,
the impact of internationalization differs across banks from different banking
groups and of different size.
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Klimarisikomanagement mit dem CO2-Navigator
Edeltraud Günther, C. Manthey, G. Weber, M. Nowack, Wilfried Ehrenfeld, Henry Dannenberg
HMD - Praxis der Wirtschaftsinformatik,
2010
Abstract
Die Software CO2-Navigator wendet den Realoptionsansatz und den Risikomanagementprozess auf den unternehmerischen Umgang mit dem Klimawandel an. Er richtet sich in erster Linie an emissionsintensive, kleine und mittlere Unternehmen ist jedoch auch in größeren Unternehmen, die beispielsweise eine eigene „Sustainability“-Abteilung unterhalten, anwendbar. Der Wertbeitrag des Softwaretools besteht darin, dass es die Aspekte Klimastrategie, quantitative Bewertung von Klimaschutzinvestitionen sowie Emissionsrechtemanagement vereint. Es kann im Unternehmen in Bereichen strategisches Management, regulatorisches Management, Energie- und Umweltmanagement, Technologiemanagement sowie Controlling Anwendung finden. Der spezielle Wertbeitrag dieses Artikels liegt in der Verknüpfung von Klimarisikomanagement und Realoptionsansatz sowie in der Darstellung des CO2-NAVIGATORs vor dem Hintergrund seiner Entwicklung im Sinne konstruktionsorientierter Forschung.
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Cross-border Exposures and Financial Contagion
Hans Degryse, Muhammad Ather Elahi, Maria Fabiana Penas
International Review of Finance,
No. 2,
2010
Abstract
Integrated financial markets provide opportunities for expansion and improved risk sharing, but also pose threats of contagion risk through cross-border exposures. This paper examines cross-border contagion risk over the period 1999–2006. To that purpose we use aggregate cross-border exposures of 17 countries as reported in the Bank for International Settlements Consolidated Banking Statistics. We find that a shock that affects the liabilities of one country may undermine the stability of the entire financial system. Particularly, a shock wiping out 25% (35%) of US (UK) cross-border liabilities against non-US (non-UK) banks could lead to bank contagion eroding at least 94% (45%) of the recipient countries' banking assets. We also find that since 2006 a shock to Eastern Europe, Turkey and Russia affects most countries. Our simulations also reveal that the ‘speed of propagation of contagion’ has increased in recent years resulting in a higher number of directly exposed banking systems. Finally, we find that contagion is more widespread in geographical proximities.
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The Extreme Risk Problem for Monetary Policies of the Euro-Candidates
Hubert Gabrisch, Lucjan T. Orlowski
Abstract
We argue that monetary policies in euro-candidate countries should also aim at mitigating excessive instability of the key target and instrument variables of monetary policy during turbulent market periods. Our empirical tests show a significant degree of leptokurtosis, thus prevalence of tail-risks, in the conditional volatility series of such variables in the euro-candidate countries. Their central banks will be well-advised to use both standard and unorthodox (discretionary) tools of monetary policy to mitigate such extreme risks while steering their economies out of the crisis and through the euroconvergence process. Such policies provide flexibility that is not embedded in the Taylor-type instrument rules, or in the Maastricht convergence criteria.
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Taxing Banks: Do it properly or not at all
Ulrich Blum, Diemo Dietrich
Wirtschaft im Wandel,
No. 5,
2010
Abstract
Taxing banks in favor of a mutual fund to safeguard future financial stability has been subject to an intensive public debate. The currently proposed solution, however, will not provide any protection against systemic risks. We argue that using tax revenues to reduce public debt would bring down the risk premium that government has to pay and thereby improves the capability of economic policy to stabilize the economy in future times of distress. Anything else is associated with the risk that bank capital is devastated which would hamper the economic recovery.
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Government Interventions in Banking Crises: Assessing Alternative Schemes in a Banking Model of Debt Overhang
Diemo Dietrich, Achim Hauck
Abstract
We evaluate policy measures to stop the fall in loan supply following a banking crisis. We apply a dynamic framework in which a debt overhang induces banks to curtail lending or to choose a fragile capital structure. Government assistance conditional on new banking activities, like on new lending or on debt and equity issues, allows banks to influence the scale of the assistance and to externalize risks, implying overinvestment or excessive risk taking or both. Assistance granted without reference to new activities, like establishing a bad bank, does not generate adverse incentives but may have higher fiscal costs.
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Im Fokus: Polen in der globalen Finanz- und Konjunkturkrise – Realwirtschaft trotzt mit IWF-Unterstützung den Finanzmarktturbulenzen
Tobias Knedlik
Wirtschaft im Wandel,
No. 4,
2010
Abstract
Poland’s economy resists turbulences on financial markets
Poland has been affected by the global financial crisis. However, developments in Poland deviated considerably from developments in other middle and eastern European countries. Risk premiums, as measured by credit default swaps, increased by less but more suddenly as compared with other countries of the region. The Polish currency crisis started earlier and lasted longer as in other countries of the region. The developments on financial markets did, however, not result in a recession.
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