Default risk in an interconnected banking system with endogeneous asset markets : [Version: August 2011]

This paper analyzes the emergence of systemic risk in a network model of interconnected bank balance sheets. Given a shock to asset values of one or several banks, systemic risk in the form of multiple bank defaults depends on the strength of balance sheets and asset market liquidity. The price of bank assets on the secondary market is endogenous in the model, thereby relating funding liquidity to expected solvency - an important stylized fact of banking crises. Based on the concept of a system value at risk, Shapley values are used to define the systemic risk charge levied upon individual banks. Using a parallelized simulated annealing algorithm the properties of an optimal charge are derived. Among other things we find that there is not necessarily a correspondence between a bank's contribution to systemic risk - which determines its risk charge - and the capital that is optimally injected into it to make the financial system more resilient to systemic risk. The analysis has policy implications for the design of optimal bank levies. JEL Classification: G01, G18, G33 Keywords: Systemic Risk, Systemic Risk Charge, Systemic Risk Fund, Macroprudential Supervision, Shapley Value, Financial Networ

State of the Industry 4.0 in the Andalusian food sector

The food industry is a key issue in the economic structure of Andalusia, due to both the weight and position of this industry in the economy and its advantages and potentials. The term Industry 4.0 carries many meanings. It seeks to describe the intelligent factory, with all the processes interconnected by Internet of things (IOT). Early advances in this field have involved the incorporation of greater flexibility and individualization of the manufacturing processes. The implementation of the framework proposed by Industry 4.0. is a need for the industry in general, and for Andalusian food industry in particular, and should be seen as a great opportunity of progress for the sector. It is expected that, along with others, the food and beverage industry will be pioneer in the adoption of flexible and individualized manufacturing processes. This work constitutes the state of the art, through bibliographic review, of the application of the proposed paradigm by the Industry 4.0. to the food industry.Telefónica, through the “Cátedra de Telefónica Inteligencia en la Red”Paloma Luna Garrid

Will the US Economy Recover in 2010? A Minimal Spanning Tree Study

We calculated the cross correlations between the half-hourly times series of the ten Dow Jones US economic sectors over the period February 2000 to August 2008, the two-year intervals 2002--2003, 2004--2005, 2008--2009, and also over 11 segments within the present financial crisis, to construct minimal spanning trees (MSTs) of the US economy at the sector level. In all MSTs, a core-fringe structure is found, with consumer goods, consumer services, and the industrials consistently making up the core, and basic materials, oil and gas, healthcare, telecommunications, and utilities residing predominantly on the fringe. More importantly, we find that the MSTs can be classified into two distinct, statistically robust, topologies: (i) star-like, with the industrials at the center, associated with low-volatility economic growth; and (ii) chain-like, associated with high-volatility economic crisis. Finally, we present statistical evidence, based on the emergence of a star-like MST in Sep 2009, and the MST staying robustly star-like throughout the Greek Debt Crisis, that the US economy is on track to a recovery.Comment: elsarticle class, includes amsmath.sty, graphicx.sty and url.sty. 68 pages, 16 figures, 8 tables. Abridged version of the manuscript presented at the Econophysics Colloquim 2010, incorporating reviewer comment

The new keynesian approach to dynamic general equilibrium modeling: models, methods, and macroeconomic policy evaluation

This chapter aims to provide a hands-on approach to New Keynesian models and their uses for macroeconomic policy analysis. It starts by reviewing the origins of the New Keynesian approach, the key model ingredients and representative models. Building blocks of current-generation dynamic stochastic general equilibrium (DSGE) models are discussed in detail. These models address the famous Lucas critique by deriving behavioral equations systematically from the optimizing and forward-looking decision-making of households and firms subject to well-defined constraints. State-of-the-art methods for solving and estimating such models are reviewed and presented in examples. The chapter goes beyond the mere presentation of the most popular benchmark model by providing a framework for model comparison along with a database that includes a wide variety of macroeconomic models. Thus, it offers a convenient approach for comparing new models to available benchmarks and for investigating whether particular policy recommendations are robust to model uncertainty. Such robustness analysis is illustrated by evaluating the performance of simple monetary policy rules across a range of recently-estimated models including some with financial market imperfections and by reviewing recent comparative findings regarding the magnitude of government spending multipliers. The chapter concludes with a discussion of important objectives for on-going and future research using the New Keynesian framework

Global value chains during the great trade collapse: a bullwhip effect?

This paper analyzes the performance of global value chains during the trade collapse. To do so, it exploits a unique transaction-level dataset on French firms containing information on cross-border monthly transactions matched with data on worldwide intra-firm linkages as defined by property rights (multinational business groups, hierarchies of firms). This newly assembled dataset allows us to distinguish firm-level transactions among two alternative organizational modes of global value chains: internalization of activities (intra-group trade/trade among related parties) or establishment of supply contracts (arm's length trade/trade among unrelated parties). After an overall assessment of the role of global value chains during the trade collapse, we document that intra-group trade in intermediates was characterized by a faster drop followed by a faster recovery than arm's length trade. Amplified fluctuations in terms of trade elasticities by value chains have been referred to as the "bullwhip effect" and have been attributed to the adjustment of inventories within supply chains. In this paper we first confirm the existence of such an effect due to trade in intermediates, and we underline the role that different organizational modes can play in driving this adjustment. JEL Classification: F23, F15, L22.Trade collapse, multinational firms, global value chains, hierarchies of firms , vertical integration.

Real-time model uncertainty in the United States: the Fed from 1996-2003

We study 30 vintages of FRB/US, the principal macro model used by the Federal Reserve Board staff for forecasting and policy analysis. To do this, we exploit archives of the model code, coefficients, baseline databases and stochastic shock sets stored after each FOMC meeting from the model’s inception in July 1996 until November 2003. The period of study was one of important changes in the U.S. economy with a productivity boom, a stock market boom and bust, a recession, the Asia crisis, the Russian debt default, and an abrupt change in fiscal policy. We document the surprisingly large and consequential changes in model properties that occurred during this period and compute optimal Taylor-type rules for each vintage. We compare these optimal rules against plausible alternatives. Model uncertainty is shown to be a substantial problem; the efficacy of purportedly optimal policy rules should not be taken on faith. JEL Classification: E37, E5, C5, C6monetary policy, real-time analysis, uncertainty

Food calamities and governance; an inventory of approaches

In normal circumstances a governance structure of the food system has evolved that serves the system so as to reduce transaction costs. While its overarching conditions are often set by the government policy as to the sector, the private sector, with the help of an enabling government, has developed arrangements to its own liking. The question addressed in this review is whether this governance structure of the food system is robust enough to cover extreme events, calamities, that strike unexpectedly and may harm large sections of the system. Do normal arrangements cover part of what should be done in these circumstances, or do they perhaps hinder the application of adequate governance fit for such extreme events