Avoiding the Fall into the Loop: Isolating the Transmission of Bank-to-Sovereign Distress in the Euro Area and its Drivers
Hannes Böhm, Stefan Eichler
Abstract
We isolate the direct bank-to-sovereign distress channel within the eurozone’s sovereign-bank-loop by exploiting the global, non-eurozone related variation in stock prices. We instrument banking sector stock returns in the eurozone with exposure-weighted stock market returns from non-eurozone countries and take further precautions to remove any eurozone crisis-related variation. We find that the transmission of instrumented bank distress, while economically relevant, is significantly smaller than the corresponding coefficient in the unadjusted OLS framework, confirming concerns on reverse causality and omitted variables in previous studies. Furthermore, we show that the spillover of bank distress is significantly stronger for countries with poorer macroeconomic performances, weaker financial sectors and financial regulation and during times of elevated political uncertainty.
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What Type of Finance Matters for Growth? Bayesian Model Averaging Evidence
Iftekhar Hasan, Roman Horvath, Jan Mares
World Bank Economic Review,
No. 2,
2018
Abstract
We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator—the efficiency of financial intermediaries—is robustly related to long-term growth.
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Did the Swiss Exchange Rate Shock Shock the Market?
Manuel Buchholz, Gregor von Schweinitz, Lena Tonzer
Abstract
The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Based on a synthetic matching framework, we analyse the impact of this unexpected (and therefore exogenous) shock on the stock market. The results reveal a significant level shift (decline) in asset prices in Switzerland following the discontinuation of the minimum exchange rate. While adjustments in stock market returns were most pronounced directly after the news announcement, the variance was elevated for some weeks, indicating signs of increased uncertainty and potentially negative consequences for the real economy.
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Corporate Social Responsibility and Firm Financial Performance: The Mediating Role of Productivity
Iftekhar Hasan, Nada Kobeissi, Liuling Liu, Haizhi Wang
Journal of Business Ethics,
No. 3,
2018
Abstract
This study treats firm productivity as an accumulation of productive intangibles and posits that stakeholder engagement associated with better corporate social performance helps develop such intangibles. We hypothesize that because shareholders factor improved productive efficiency into stock price, productivity mediates the relationship between corporate social and financial performance. Furthermore, we argue that key stakeholders’ social considerations are more valuable for firms with higher levels of discretionary cash and income stream uncertainty. Therefore, we hypothesize that those two contingencies moderate the mediated process of corporate social performance with financial performance. Our analysis, based on a comprehensive longitudinal dataset of the U.S. manufacturing firms from 1992 to 2009, lends strong support for these hypotheses. In short, this paper uncovers a productivity-based, context-dependent mechanism underlying the relationship between corporate social performance and financial performance.
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19.04.2018 • 7/2018
Joint Economic Forecast Spring 2018: Germany’s Economic Experts Raise Forecast Slightly
Berlin, 19 April – Germany’s leading economic experts raised their forecasts for 2018 and 2019 slightly in their Spring Joint Economic Forecast released on Thursday in Berlin. They now expect economic growth of 2.2 percent for this year and 2.0 percent for 2019, versus 2.0 percent and 1.8 percent respectively in their autumn forecast. “The German economy is still booming, but the air is getting thinner as unused capacities are shrinking“, notes Timo Wollmershaeuser, ifo Head of Economic Forecasting. Commenting on the new German government’s economic policy, he adds: “It is precisely when the government’s coffers are full that fiscal policy should reflect the implications of its actions for overall economic stability and the sustainability of public finances. The extension of statutory pension benefits outlined in the coalition agreement runs counter to the idea of sustainability.”
Oliver Holtemöller
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Macro-Financial Modelling of the Singapore Economy: a GVAR Approach
Alessandro Galesi, Filippo di Mauro
Monetary Authority of Singapore Macroeconomic Review,
October
2017
Abstract
Globalisation has greatly increased the degree of interdependence across countries. Macroeconomic policy must therefore take a global perspective, particularly in the case of small open economies such as Singapore. From a modeller’s point of view, this requires considering many countries, regions and markets, as well as multiple channels of transmission, including trade and financial linkages. Cross-country interdependencies are increasingly reflected in the effects of global shocks, to oil or food prices for example, as well as technology and policy uncertainty spillovers.
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The Political Determinants of Government Bond Holdings
Stefan Eichler, Timo Plaga
Journal of International Money and Finance,
No. 5,
2017
Abstract
This paper analyzes the link between political factors and sovereign bond holdings of US investors in 60 countries over the 2003–2013 period. We find that, in general, US investors hold more bonds in countries with few political constraints on the government. Moreover, US investors respond to increased uncertainty around major elections by reducing government bond holdings. These effects are particularly significant in democratic regimes and countries with sound institutions, which enable effective implementation of fiscal consolidation measures or economic reforms. In countries characterized by high current default risk or a sovereign default history, US investors show a tendency towards favoring higher political constraints as this makes sovereign default more difficult for the government. Political instability, characterized by the fluctuation in political veto players, reduces US investment in government bonds. This effect is more pronounced in countries with low sovereign solvency.
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Upturn in Germany Strengthens in Spite of Global Economic Risks
Roland Döhrn, Ferdinand Fichtner, Oliver Holtemöller, Stefan Kooths, Timo Wollmershäuser
Wirtschaftsdienst,
No. 4,
2017
Abstract
The German economy is already in the fifth year of a moderate upturn, which will continue in 2018. Global economic activity is also expanding rapidly. The increase in economic policy uncertainty seems to have few adverse effects on the world economy. The economic policy agenda of the new US government carries both risks and opportunities for the economic outlook for the US and the world. The Joint Economic Forecast predicts consumer prices in advanced economies to increase by 1.9% in 2018 and expects a change in the ECB’s policy.
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