Are Crises Good for Long-Term Growth? The Role of Political Institutions

This paper provides empirical evidence for the importance of institutions in determining the outcome of crises on long-term growth. Once unobserved country-specific effects and other sources of endogeneity are accounted for, political institutions affect growth through their interaction with crises. The results suggest that only countries with strong democracies, high levels of political competition and external constraints on government can potentially benefit from crises and use them as opportunities to enhance long-term output per capita and productivity growth.

SoS in Disasters: Why following the manual can be a mistake

According to both the US Geological Survey and the World Bank, $280 billion dollars could have been saved if$40 billion dollars had been invested in disaster prevention. Natural and human-made disasters that have occurred over the last few years show that there is a gap in disaster prevention caused by the interconnected nature of risks, which cannot be foreseen with current risk management methods. In this paper we point out how disaster management could benefit from a SoS approach in emergency response and preparedness strategies. Using recent disasters as case studies, we identify some keys to success in managing a SoS in preparation, during and in the aftermath of a disaster. In particular, we discuss the idea of the interconnectedness of risks in independent and interdependent systems and the application of Boardman and Sauser’s concept of “creative disobedience”, which are fundamental for goal achievement of systems belonging to a SoS

Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causality

Openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflow, currency crashes, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. We use the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade. We find that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade.

Quid pro Quo: National Institutions and Sudden Stops in International Capital Movements

The paper explores the incidence of sudden stops in capital flows on the incentives for building national institutions that secure property rights in a world where sovereign defaults are possible equilibrium outcomes. Also thepaper builds upon the benchmark model of sovereign default and direct creditor sanctions by Obstfeld and Rogoff (1996). In their model it is in the debtor country’s interest to “tie its hands” and secure the property rights of lenders as much as possible because this enhances the credibility of the country’s romise to repay and prevents default altogether. It incorporate two key features of today’s international financial markets that are absent from the benchmark model: the possibility that lenders can trigger sudden stops in capital movements, and debt contracts in which lenders transfer resources to the country at the start of the period, which have to be repaid later. The papershows that under these conditions the advice “build institutions to secure repayment at all costs” may be very bad advice indeed.

Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality

Openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflows, crashes in currencies, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. Using the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade, this paper finds that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade.

The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis

This study explores the determinants of corporate bond spreads in emerging market economies. Using a largely unexploited dataset, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, sovereign risk, and global factors. A variance decomposition analysis shows that firm-level characteristics account for the larger share of the variance. In addition, the paper finds two asymmetries. The first is in line the sovereign ceiling “lite” hypothesis which states that the transfer of risk from the sovereign to the private sector is less than 1 to 1. The second is consistent with the popular notion that panics are common in emerging markets where investors are less informed and more prone to herding.

The Classical Spectral Density Method at Work: The Heisenberg Ferromagnet

In this article we review a less known unperturbative and powerful many-body method in the framework of classical statistical mechanics and then we show how it works by means of explicit calculations for a nontrivial classical model. The formalism of two-time Green functions in classical statistical mechanics is presented in a form parallel to the well known quantum counterpart, focusing on the spectral properties which involve the important concept of spectral density. Furthermore, the general ingredients of the classical spectral density method (CSDM) are presented with insights for systematic nonperturbative approximations to study conveniently the macroscopic properties of a wide variety of classical many-body systems also involving phase transitions. The method is implemented by means of key ideas for exploring the spectrum of elementary excitations and the damping effects within a unified formalism. Then, the effectiveness of the CSDM is tested with explicit calculations for the classical $d$-dimensional spin-$S$ Heisenberg ferromagnetic model with long-range exchange interactions decaying as $r^{-p}$ ($p>d$) with distance $r$ between spins and in the presence of an external magnetic field. The analysis of the thermodynamic and critical properties, performed by means of the CSDM to the lowest order of approximation, shows clearly that nontrivial results can be obtained in a relatively simple manner already to this lower stage. The basic spectral density equations for the next higher order level are also presented and the damping of elementary spin excitations in the low temperature regime is studied. The results appear in reasonable agreement with available exact ones and Monte Carlo simulations and this supports the CSDM as a promising method of investigation in classical many-body theory.Comment: Latex, 58 pages, 12 figure

Spectral density method in quantum nonextensive thermostatistics and magnetic systems with long-range interactions

Motived by the necessity of explicit and reliable calculations, as a valid contribution to clarify the effectiveness and, possibly, the limits of the Tsallis thermostatistics, we formulate the Two-Time Green Functions Method in nonextensive quantum statistical mechanics within the optimal Lagrange multiplier framework, focusing on the basic ingredients of the related Spectral Density Method. Besides, to show how the SDM works we have performed, to the lowest order of approximation, explicit calculations of the low-temperature properties for a quantum $d$-dimensional spin-1/2 Heisenberg ferromagnet with long-range interactions decaying as $1/r^{p}$ ($r$ is the distance between spins in the lattice)Comment: Contribution to Next-SigmaPhi conference in Kolymbari, Crete, Greece, August 13-18, 2005, 9 page

Two-time Green's functions and spectral density method in nonextensive quantum statistical mechanics

We extend the formalism of the thermodynamic two-time Green's functions to nonextensive quantum statistical mechanics. Working in the optimal Lagrangian multipliers representation, the $q$-spectral properties and the methods for a direct calculation of the two-time $q$% -Green's functions and the related $q$-spectral density ($q$ measures the nonextensivity degree) for two generic operators are presented in strict analogy with the extensive ($q=1$) counterpart. Some emphasis is devoted to the nonextensive version of the less known spectral density method whose effectiveness in exploring equilibrium and transport properties of a wide variety of systems has been well established in conventional classical and quantum many-body physics. To check how both the equations of motion and the spectral density methods work to study the $q$-induced nonextensivity effects in nontrivial many-body problems, we focus on the equilibrium properties of a second-quantized model for a high-density Bose gas with strong attraction between particles for which exact results exist in extensive conditions. Remarkably, the contributions to several thermodynamic quantities of the $q$-induced nonextensivity close to the extensive regime are explicitly calculated in the low-temperature regime by overcoming the calculation of the $q$ grand-partition function.Comment: 48 pages, no figure