The Financial Crisis from a Forecaster's Perspective
Katja Drechsel, Rolf Scheufele
Kredit und Kapital,
Nr. 1,
2012
Abstract
This paper analyses the recession in 2008/2009 in Germany. This recession is very different from previous recessions in particular regarding their causes and magnitude. We show to what extent forecasters and forecasts based on leading indicators fail to detect the timing and the magnitude of the recession. This study shows that large forecast errors for both expert forecasts and forecasts based on leading indicators resulted during this recession which implies that the recession was very difficult to forecast. However, some leading indicators (survey data, risk spreads, stock prices) have indicated an economic downturn and hence, beat univariate time series models. Although the combination of individual forecasts provides an improvement compared to the benchmark model, the combined forecasts are worse than several individual models. A comparison of expert forecasts withthe best forecasts based on leading indicators shows only minor deviations. Overall, the range for an improvement of expert forecasts in the crisis compared to indicator forecasts is small.
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Protect and Survive? Did Capital Controls Help Shield Emerging Markets from the Crisis?
Makram El-Shagi
Economics Bulletin,
Nr. 1,
2012
Abstract
Using a new dataset on capital market regulation, we analyze whether capital controls helped protect emerging markets from the real economic consequences of the 2009 financial and economic crisis. The impact of the crisis is measured by the 2009 forecast error of a panel state space model, which analyzes the business cycle dynamics of 63 middle-income countries. We find that neither capital controls in general nor controls that were specifically targeted to derivatives (that played a crucial role during the crisis) helped shield economies. However, banking regulation that limits the exposure of banks to global risks has been highly successful.
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Towards Unrestricted Public Use Business Microdata: The Synthetic Longitudinal Business Database
John M. Abowd, Ron S. Jarmin, Satkartar K. Kinney, Javier Miranda, Jerome P. Reiter, Arnold P. Reznek
International Statistical Review,
Nr. 3,
2011
Abstract
In most countries, national statistical agencies do not release establishment-level business microdata, because doing so represents too large a risk to establishments’ confidentiality. One approach with the potential for overcoming these risks is to release synthetic data; that is, the released establishment data are simulated from statistical models designed to mimic the distributions of the underlying real microdata. In this article, we describe an application of this strategy to create a public use file for the Longitudinal Business Database, an annual economic census of establishments in the United States comprising more than 20 million records dating back to 1976. The U.S. Bureau of the Census and the Internal Revenue Service recently approved the release of these synthetic microdata for public use, making the synthetic Longitudinal Business Database the first-ever business microdata set publicly released in the United States. We describe how we created the synthetic data, evaluated analytical validity, and assessed disclosure risk.
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The Role of Investment Banking for the German Economy: Final Report for Deutsche Bank AG, Frankfurt/Main
Michael Schröder, M. Borell, Reint E. Gropp, Z. Iliewa, L. Jaroszek, G. Lang, S. Schmidt, K. Trela
ZEW-Dokumentationen, Nr. 12-01,
Nr. 1,
2011
Abstract
The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking.
The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as the development and use of specific products to support the needs of private and professional clients. The assessment of benefits and costs of investment banking has been conducted from a European perspective. Nevertheless there is a focus on the German economy to allow a more detailed analysis of certain aspects as for example the use of derivatives by German companies, the success of M&As in Germany or the effect of securitization on loan supply and GDP in Germany. For comparison purposes other European countries and also the U.S. have been taken into account.
The last financial crisis has shown the negative impacts of banks on the financial system and the whole economy. In a study on the contribution of investment banks to systemic risk we quantify the negative side of the investment banking business.
In the last part of the study we assess how the effects of regulatory changes on investment banking. All important changes in banking and capital market regulation are taken into account such as Basel III, additional capital requirements for systemically important financial institutions, regulation of OTC derivatives and specific taxes.
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Modelling Country Default Risk as a Latent Variable: A Multiple Indicators Multiple Causes Approach
A. Bühn, Stefan Eichler, Dominik Maltritz
Applied Economics,
Nr. 36,
2012
Abstract
We study the determinants of country default risk by applying a Multiple Indicators Multiple Causes (MIMIC) model. This accounts for the fact that country default risk is an unobservable variable. Whereas existing (regression-based) approaches typically use only one of several possible country default risk indicators as the dependent variable, the MIMIC model enables us to consider several indicators at once. The simultaneous consideration of sovereign yield spreads and Standard and Poor (S&P) ratings may help to improve the identification of the latent country default risk. Our results confirm most of the literature's main findings regarding important determinants of country default risk, refute others and provide new evidence to controversial questions.
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A Model for the Valuation of Carbon Price Risk
Henry Dannenberg, Wilfried Ehrenfeld
Antes, R.; Hansjürgen, B.; Letmathe, P.; Pickl, S. (Hrsg.), Emissions Trading - Institutional Design, Decision Making and Corporate Strategies (Second Edition),
2011
Abstract
Die Modellierung des CO2-Zertifikatepreisrisikos ist ein wichtiger Teilaspekt eines ganzheitlichen Managements von mit dem Emissionshandel verbundenen Unternehmensrisiken. Das Papier diskutiert ein Preisbildungsmodell, auf dessen Grundlage das Zertifikatepreisrisiko bewertet werden kann. Es wird davon ausgegangen, dass der Zertifikatepreis durch die erwarteten Grenzvermeidungskosten der Handelsperiode determiniert wird und stochastisch um dieses Niveau schwankt. Dieses Verhalten wird mit einem Mean-Reversion-Prozess modelliert. Aufgrund von Unsicherheiten bezüglich künftiger Umweltzustände ist jedoch zu vermuten, dass innerhalb einer Handelsperiode durch das Bekanntwerden neuer Informationen sprunghafte Veränderungen der erwarteten Grenzvermeidungskosten auftreten können, womit sprunghafte Verschiebungen des erwarteten Preisniveaus einhergehen. Neben der ParameterSchätzung ist es daher auch ein Ziel der Arbeit, den Mean-Reversion-Prozess so zu modifizieren, dass solche sprunghaften Veränderungen des erwarteten Reversion-Niveaus abgebildet werden können.
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Macroeconomic Imbalances as Indicators for Debt Crises in Europe
Tobias Knedlik, Gregor von Schweinitz
Abstract
European authorities and scholars published proposals on which indicators of macroeconomic imbalances might be used to uncover risks for the sustainability of public debt in the European Union. We test the ability of four proposed sets of indicators to send early-warnings of debt crises using a signals approach for the study of indicators and the construction of composite indicators. We find that a broad composite indicator has the highest predictive power. This fact still holds true if equal weights are used for the construction of the composite indicator in order to reflect the uncertainty about the origin of future crises.
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What Might Central Banks Lose or Gain in Case of Euro Adoption – A GARCH-Analysis of Money Market Rates for Sweden, Denmark and the UK
Herbert S. Buscher, Hubert Gabrisch
IWH Discussion Papers,
Nr. 9,
2011
Abstract
This study deals with the question whether the central banks of Sweden, Denmark and the UK can really influence short-term money markets and thus, would lose this influence in case of Euro adoption. We use a GARCH-M-GED model with daily money market rates. The model reveals the co-movement between the Euribor and the shortterm interest rates in these three countries. A high degree of co-movement might be seen as an argument for a weak impact of the central bank on its money markets. But this argument might only hold for tranquil times. Our approach reveals, in addition, whether there is a specific reaction of the money markets in turbulent times. Our finding is that the policy of the European Central Bank (ECB) has indeed a significant impact on the three money market rates, and there is no specific benefit for these countries to stay outside the Euro area. However, the GARCH-M-GED model further reveals risk divergence and unstable volatilities of risk in the case of adverse monetary shocks to the economy for Sweden and Denmark, compared to the Euro area. We conclude that the danger of adverse monetary developments cannot be addressed by a common monetary
policy for these both countries, and this can be seen as an argument to stay outside the Euro area.
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What Can Currency Crisis Models Tell Us about the Risk of Withdrawal from the EMU? Evidence from ADR Data
Stefan Eichler
Journal of Common Market Studies,
Nr. 4,
2011
Abstract
We study whether ADR (American depositary receipt) investors perceive the risk that countries such as Greece, Ireland, Italy, Portugal or Spain could leave the eurozone to address financial problems produced by the sub-prime crisis. Using daily data, we analyse the impact of vulnerability measures related to currency crisis theories on ADR returns. We find that ADR returns fall when yield spreads of sovereign bonds or CDSs (credit default swaps) rise (i.e. when debt crisis risk increases); when banks' CDS premiums rise or stock returns fall (i.e. when banking crisis risk increases); or when the euro's overvaluation increases (i.e. when the risk of competitive devaluation increases).
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Competition, Risk-shifting, and Public Bail-out Policies
Reint E. Gropp, H. Hakenes, Isabel Schnabel
Review of Financial Studies,
Nr. 6,
2011
Abstract
This article empirically investigates the competitive effects of government bail-out policies. We construct a measure of bail-out perceptions by using rating information. From there, we construct the market shares of insured competitor banks for any given bank, and analyze the impact of this variable on banks' risk-taking behavior, using a large sample of banks from OECD countries. Our results suggest that government guarantees strongly increase the risk-taking of competitor banks. In contrast, there is no evidence that public guarantees increase the protected banks' risk-taking, except for banks that have outright public ownership. These results have important implications for the effects of the recent wave of bank bail-outs on banks' risk-taking behavior.
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