Macro-financial Linkage and Financial Deepening in China after the Global Financial Crisis

As China's economic integration with the global economy deepens, the amount of capital flow to/from China has been increasing significantly, especially since it joined the WTO. In spite of such environment, the recent global financial crisis has not severely affected the Chinese financial markets because of China's relatively strict control of cross-border capital transactions and its strong economic and financial fundamentals. The government's stimulus policies worked effectively to realize a quick recovery of the country's economic growth. However, on the horizon, the factors that protected the Chinese economy during the crisis also seem to carry with them substantial risks and challenges to its sustainable growth. This paper reviews the factors that have kept the Chinese economy and financial markets relatively stable and analyzes the recent changes in China's macro financial linkage overseas, and highlights the challenges that China faces in realizing a sustainable and efficient economic development.Macro-financial Linkage, Financial Deepening, Cross-border Capital Flow, Bank Lending

On the polynomial identities of the algebra M11(E)M_{11}(E)

Verbally prime algebras are important in PI theory. They were described by Kemer over a field $K$ of characteristic zero: 0 and $K$ (the trivial ones), $M_n(K)$, $M_n(E)$, $M_{ab}(E)$. Here $K$ is the free associative algebra of infinite rank, with free generators $T$, $E$ denotes the infinite dimensional Grassmann algebra over $K$, $M_n(K)$ and $M_n(E)$ are the $n\times n$ matrices over $K$ and over $E$, respectively. The algebras $M_{ab}(E)$ are subalgebras of $M_{a+b}(E)$, see their definition below. The generic (also called relatively free) algebras of these algebras have been studied extensively. Procesi described the generic algebra of $M_n(K)$ and lots of its properties. Models for the generic algebras of $M_n(E)$ and $M_{ab}(E)$ are also known but their structure remains quite unclear. In this paper we study the generic algebra of $M_{11}(E)$ in two generators, over a field of characteristic 0. In an earlier paper we proved that its centre is a direct sum of the field and a nilpotent ideal (of the generic algebra), and we gave a detailed description of this centre. Those results were obtained assuming the base field infinite and of characteristic different from 2. In this paper we study the polynomial identities satisfied by this generic algebra. We exhibit a basis of its polynomial identities. It turns out that this algebra is PI equivalent to a 5-dimensional algebra of certain upper triangular matrices. The identities of the latter algebra have been studied; these were described by Gordienko. As an application of our results we describe the subvarieties of the variety of unitary algebras generated by the generic algebra in two generators of $M_{11}(E)$. Also we describe the polynomial identities in two variables of the algebra $M_{11}(E)$.Comment: 21 page

Search for exotic neutrino-electron interactions using solar neutrinos in XMASS-I

We have searched for exotic neutrino-electron interactions that could be produced by a neutrino millicharge, by a neutrino magnetic moment, or by dark photons using solar neutrinos in the XMASS-I liquid xenon detector. We observed no significant signals in 711 days of data. We obtain an upper limit for neutrino millicharge of 5.4$\times$10$^{-12} e$ at 90\% confidence level assuming all three species of neutrino have common millicharge. We also set flavor dependent limits assuming the respective neutrino flavor is the only one carrying a millicharge, $7.3 \times 10^{-12} e$ for $\nu_e$, $1.1 \times 10^{-11} e$ for $\nu_{\mu}$, and $1.1 \times 10^{-11} e$ for $\nu_{\tau}$. These limits are the most stringent yet obtained from direct measurements. We also obtain an upper limit for the neutrino magnetic moment of 1.8$\times$10$^{-10}$ Bohr magnetons. In addition, we obtain upper limits for the coupling constant of dark photons in the $U(1)_{B-L}$ model of 1.3$\times$10$^{-6}$ if the dark photon mass is 1$\times 10^{-3}$ MeV$/c^{2}$, and 8.8$\times$10$^{-5}$ if it is 10 MeV$/c^{2}$

Measurement of the Blackbody Radiation Shift of the 133Cs Hyperfine Transition in an Atomic Fountain

We used a Cs atomic fountain frequency standard to measure the Stark shift on the ground state hyperfine transiton frequency in cesium (9.2 GHz) due to the electric field generated by the blackbody radiation. The measures relative shift at 300 K is -1.43(11)e-14 and agrees with our theoretical evaluation -1.49(07)e-14. This value differs from the currently accepted one -1.69(04)e-14. The difference has a significant implication on the accuracy of frequency standards, in clocks comparison, and in a variety of high precision physics tests such as the time stability of fundamental constants.Comment: 4 pages, 2 figures, 2 table

Foreclosures, House Prices, and the Real Economy

A central idea in macroeconomic theory is that negative price effects from the leverage-induced forced sale of durable goods can amplify negative shocks and reduce economic activity. We examine this idea by estimating the effect of U.S. foreclosures in 2008 and 2009 on house prices, residential investment, and durable consumption. We show that states that require judicial process for a foreclosure sale have significantly lower rates of foreclosures relative to states that have no such requirement. Using state laws requiring a judicial foreclosure as an instrument for actual foreclosures, as well as a regression discontinuity design around state borders with differing foreclosure laws, we show that foreclosures have a large negative impact on house prices. Foreclosures also lead to a significant decline in residential investment and durable consumption. The magnitudes of the effects are large, suggesting that foreclosures have been an important factor in weak house price, residential investment, and durable consumption patterns during and after the Great Recession of 2007 to 2009.

Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework

This paper contributes to the discussion on the functioning of the monetary policy transmission mechanism in Japan during the past three decades. It extends the methodology of time-varying parameter vector autoregressions (TVP-VAR) by employing an identification scheme based on sign restrictions. This approach allows for an explicit account of the zero lower bound on the nominal interest rate. Results suggest differences in the transmission mechanism between the quantitative easing policy period and the periods when the call rate played the role of a monetary policy instrument. Monetary policy operating through call rate movements is found to influence output more than when it targets banksf balances held at the central bank. Monetary policy operating through quantitative easing is found to influence inflation, in sharp contrast to the previous literature.Structural vector autoregressive model, time-varying parameters, sign restrictions, unconventional monetary policy, zero lower bound

Bubbles, Banks, and Financial Stability

This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2)When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by ordinary savers have relatively muted effects. Banks tend to invest in bubbles when financial liberalisation decreases their profitability.Rational bubbles, Financial Frictions, Financial Stability

The Role of Default in Macroeconomics

What is the main limitation of much modern macro-economic theory, among the failings pointed out by William R. White at the 2010 Mayekawa Lecture? We argue that the main deficiency is a failure to incorporate the possibility of default, including that of banks, into the core of the analysis. With default assumed away, there can be no role for financial intermediaries, for financial disturbances, or even for money. Models incorporating defaults are, however, harder to construct, in part because the representative agent fiction must be abandoned. Moreover, financial crises are hard to predict and to resolve. All of the previously available alternatives for handling failing systemically important financial institutions (SIFIs) are problematical. We end by discussing a variety of current proposals for improving the resolution of failed SIFIs.Default, Transversality, Money, Bankruptcy cost, Asset bubbles, Resolution mechanisms

International Recessions

The 2008-2009 crisis was characterized by an unprecedented degree of international synchronization as all major industrialized countries experienced large macroeconomic contractions. Countries also experienced large and synchronized contractions in the growth of financial flows. In this paper we present a two-country model with financial markets frictions where credit-driven recessions can explain these features of the recent crisis. A credit contraction can emerge as a self-fulfilling equilibrium caused by pessimistic but fully rational expectations. As a result of the credit contraction, in a financially integrated world, countries experience large and, endogenously synchronized, declines in asset prices and economic activity ( international recessions).