Ivan T. Ivanov, M. Macchiavelli, João A. C. Santos
{"title":"Bank Lending Networks and the Propagation of Natural Disasters","authors":"Ivan T. Ivanov, M. Macchiavelli, João A. C. Santos","doi":"10.2139/ssrn.3541335","DOIUrl":"https://doi.org/10.2139/ssrn.3541335","url":null,"abstract":"We study how syndicated lending networks propagate natural disasters. Natural disasters lead to an increase in corporate credit demand in affected regions. Banks meet the increase in credit demand in part by reducing credit to distant regions, unaffected by disasters. Capital constraints play a key role in this effect as lower-capital banks propagate disasters to unaffected regions to a greater extent. While shadow banks offset the reduction in bank credit supply on term loan syndicates, they do not offset the loss in credit line financing. As a result, corporate credit in unaffected regions falls by approximately 3%.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126954305","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Recessions and Local Labor Market Hysteresis","authors":"Brad J. Hershbein, B. Stuart","doi":"10.2139/ssrn.3593345","DOIUrl":"https://doi.org/10.2139/ssrn.3593345","url":null,"abstract":"This paper studies the effects of each U.S. recession since 1973 on local labor markets. We find that recession-induced declines in employment are permanent, suggesting that local areas experience permanent declines in labor demand relative to less-affected areas. Population also falls, primarily due to reduced in-migration, but by less than employment. As a result, recessions generate long-lasting hysteresis: persistent decreases in the employment-to-population ratio and earnings per capita. Changes in the composition of workers explain less than half of local hysteresis. We further show that finite sample bias in vector auto-regressions leads to artificial convergence, which can explain why some previous work finds no evidence of hysteresis in employment rates.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129201440","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"COVID-19: Dealing with an Untamable Virus","authors":"Shalu Nigam","doi":"10.2139/ssrn.3571289","DOIUrl":"https://doi.org/10.2139/ssrn.3571289","url":null,"abstract":"COVID-19, a virus of disease and death, has affected the world since the beginning of 2020. Dealing against it is becoming increasingly difficult for the governments, across the world, because each one has different priorities. More so, in India, the fight against this virus becomes more challenging because of persisting difficulties such as extensive socio-economic inequalities, less value of life being accorded to those on margins and the apathetic response of the government. Also, otherwise corona virus is defiant and untamable. It is not afraid of mighty governments, wealth of rich, modern technologies, war arsenals, nuclear weapons, strict laws, or police brutalities. So, who will win, the people or the virus? Ultimately, science may find the cure, but meanwhile, the deadly virus is endangering democracies while destroying the economies, jobs and businesses, destructing the health, the emotional and social well-being and killing thousands more on the planet because of fear or starvation besides taking toll due to dearth of medical facilities. A silver lining behind the dark clouds, is that epidemics in past have made profound effects on the way people live, so probably, this time too, this pandemic may transform the way people interact with each other and with the eco system that surrounds them, but meanwhile, the poor, women and those on margins are paying the price with their lives.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114423042","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Financial Crisis and Slow Recovery with Bayesian Learning Agents","authors":"Ryo Horii, Yoshiyasu Ono","doi":"10.2139/ssrn.3570386","DOIUrl":"https://doi.org/10.2139/ssrn.3570386","url":null,"abstract":"In a simple continuous-time model where the learning process affects the willingness to hold liquidity, we provide an intuitive explanation of business cycle asymmetry and post-crisis slow recovery. When observing a liquidity shock, individuals rationally increase their subjective probability of re-encountering it. It leads to an upward jump in liquidity preference and a discrete fall in consumption. Conversely, as a period without shocks continues, they gradually decrease the subjective probability, reduce liquidity preference, and increase consumption. The recovery process is particularly slow after many shocks are observed within a short period because people do not easily change their pessimistic view.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":" 12","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141219736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Asymmetry in the Conditional Distribution of Euro-area Inflation","authors":"A. Tagliabracci","doi":"10.2139/ssrn.3612940","DOIUrl":"https://doi.org/10.2139/ssrn.3612940","url":null,"abstract":"Macroeconomic conditions are among the key determinants of the inflation outlook. This paper studies how business cycles affect the conditional distribution of euro-area inflation forecasts. Using a quantile regression approach, I estimate the conditional distribution of inflation to assess the impact of business cycle conditions over time and the possible asymmetries across quantiles of inflation. Interestingly, downside risks to inflation forecasts are related to the business cycle while upside risks are instead relatively stable over time and are not affected by the state of the economy.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121853895","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"What Are the Monetary Systems Leading Most Likely to Business Cycles?","authors":"Rui Santos","doi":"10.2139/ssrn.3556453","DOIUrl":"https://doi.org/10.2139/ssrn.3556453","url":null,"abstract":"It is widely regarded that a monetary system like the predominant present one, with fractional reserve banking and central bank money creation, is very prone to the frequent occurrence of business cycles characterized by a phase of economic expansion followed by a phase of recession. In this paper I assess this and other monetary systems regarding their tendency to avoid business cycles. In particular, besides the present one, it is then analyzed a system that keeps the central bank as monopolist producer of money but with no fractional reserves by commercial banks; a commodity money system with no fractional reserves and, finally, a monetary system with a constant volume of money supply. Some of the features of the system known as “free-banking” are also assessed. The conclusion is that the best monetary systems in the sense of the avoidance of recurrent business cycles are the ones with constant money supply or with a commodity money with no fractional reserves. Regarding the former, some fears are usually advanced because of its supposed “deflationary” character. It is then shown that, in this system, price deflation is only a consequence of economic growth and is a sign of lower unit costs of production due to a rise in productivity. In particular it is shown that in this system of constant monetary supply with increasing output and a corresponding fall in commodity prices the fears associated with “bad deflation” – a decrease in money supply – are unfounded.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131856437","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"FDI Flows and Sudden Stops in Small Open Economies","authors":"Sergio Villalvazo","doi":"10.2139/ssrn.3557945","DOIUrl":"https://doi.org/10.2139/ssrn.3557945","url":null,"abstract":"Balance of payment crises, characterized by Sudden Stops, are not a phenomenon exclusive to emerging economies. This paper identifies 16 and 50 crises in advanced and emerging economies, respectively. Further, decomposing the Financial Account uncovers important differences between both groups of economies in the Foreign Direct Investment (FDI) flows: the average net FDI in advanced economies is close to zero and in emerging economies is negative, and during Sudden Stop episodes, net FDI in emerging economies shows large contractions while advanced economies flows do not move at all. To quantify the FDI’s channel effect on the dynamics of a crisis episode we develop a model with incomplete markets and an endogenous collateral constraint that generates endogenous Sudden Stops. The results from the model suggest that an emerging economy that increases the outflow FDI and eliminates the expropriation risk would reduce the long-run probability of a Sudden Stop from 2.9 to 1.3 percent.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125562718","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Juan Carlos Parra-Alvarez, Hamza Polattimur, Olaf Posch
{"title":"Risk Matters: Breaking Certainty Equivalence in Linear Approximations","authors":"Juan Carlos Parra-Alvarez, Hamza Polattimur, Olaf Posch","doi":"10.2139/ssrn.3173519","DOIUrl":"https://doi.org/10.2139/ssrn.3173519","url":null,"abstract":"In this paper we use the property that certainty equivalence, as implied by a first-order approximation to the solution of stochastic discrete-time models, breaks in its equivalent continuous-time version. We study the extent to which a first-order approximated solution built by perturbation methods accounts for risk. We show that risk matters economically in a real business cycle (RBC) model with habit formation and capital adjustment costs and that neglecting risk leads to substantial pricing errors. A first-order approximation in continuous time reduces pricing errors by 90 percent relative to the certainty equivalent linear solution.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122760058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Real-Time Signals Anticipating Credit Booms in Euro-Area Countries","authors":"Francesco Simone Lucidi","doi":"10.2139/ssrn.3546170","DOIUrl":"https://doi.org/10.2139/ssrn.3546170","url":null,"abstract":"This paper identifies credit booms in 11 Euro Area countries by tracking private loans from the banking sector. The events are associated with both financial crises and specific macro fluctuations, but the standard identification through threshold methods does not allow to catch credit booms in real time data. Thus, an early warning model is employed to predict the explosive dynamics of credit through several macro-financial indicators. The model catches a large part of the in-sample events and signals correctly both the global financial crisis and the sovereign debt crisis in an out-of-sample setting by issuing signals in real-time data. Moreover, while tranquil booms are driven by global dynamics, crisis-booms are related to the resilience of domestic banking systems to adverse financial shocks. The results suggest an ex-ante policy intervention can avoid dangerous credit booms by focusing on the solvency of the domestic banking system and financial market's overheating.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125022486","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Effects and Origins of House Price Uncertainty Shocks","authors":"Sanha Noh","doi":"10.2139/ssrn.3530350","DOIUrl":"https://doi.org/10.2139/ssrn.3530350","url":null,"abstract":"This paper investigates the effects of house price uncertainty shocks on economic activity, and traces the origins of the shocks. A Markov-switching vector autoregression (MS-VAR) model shows that house price uncertainty shocks in expansionary regimes increase residential investment, housing prices, and mortgage debt, while they have the opposite effects in recessionary regimes. These empirical results are investigated in an estimated New-Keynesian dynamic stochastic general equilibrium (DSGE) model with a housing sector that allows for multiple structural uncertainty shocks. We show that uncertainty shocks to housing preference and the inflation target are the main sources of house price uncertainty shocks. Uncertainty shocks to investment-specific technology and the inflation target can reproduce the empirical impulse responses in recessionary regimes from the MS-VAR. By contrast, the responses to housing preference uncertainty shocks are consistent with the empirical impulse responses in expansionary regimes. House price uncertainty generated by these structural uncertainty shocks affects the housing market via both housing demand and real-options channels.","PeriodicalId":291048,"journal":{"name":"ERN: Business Fluctuations; Cycles (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131719324","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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