Implementing the macroprudential approach to financial regulation and supervision.

There is now a widespread recognition in the policy community of the need to strengthen the macroprudential orientation of financial regulatory and supervisory frameworks. At the same time, the usage of the term “macroprudential” remains ambiguous. This essay summarises the specific definition and characterisation of the term that was developed in the early 2000s at the BIS and outlines the policies needed for implementing the approach. The policies are discussed with reference to two dimensions of the approach. The first is the cross-sectional dimension and is concerned with how aggregate risk is distributed in the financial system at a given point in time. The policy issue here is how to calibrate prudential instruments so as to address common exposures across financial institutions and the contribution of each institution to system-wide tail risk. The second is the time dimension and is concerned with how aggregate risk evolves over time. The policy issue is how to dampen the inherent procyclicality of the financial system, seen as a key source of financial instability. The essay also briefly considers the implications of the adoption of a macroprudential approach for the institutional set-up.

Advancements in low NOx tangential firing systems

The most cost effective method of reducing nitrogen oxide emissions when burning fossil fuels, such as coal, is through in-furnace NOx reduction processes. ABB Combustion Engineering, Inc. (ABB CE), through its ABB Power Plant Laboratories has been involved in the development of such low NOx pulverized coal firing systems for many years. This development effort is most recently demonstrated through ABB CE`s involvement with the U.S. Department of Energy`s (DOE) {open_quotes}Engineering Development of Advanced Coal Fired Low-Emission Boiler Systems{close_quotes} (LEBS) project. The goal of the DOE LEBS project is to use {open_quotes}near term{close_quotes} technologies to produce a commercially viable, low emissions boiler. This paper addresses one of the key technologies within this project, the NOx control subsystem. The foundation for the work undertaken at ABB CE is the TFS 2000{trademark} firing system, which is currently offered on a commercial basis. This system encompasses sub-stoichiometric combustion in the main firing zone for reduced NOx formation. Potential enhancements to this firing system focus on optimizing the introduction of the air and fuel within the primary windbox to provide additional horizontal and vertical staging. As is the case with all in-furnace NOx control processes, it is necessary to operate the system in a manner which does not decrease NOx at the expense of reduced combustion efficiency

The Role of Macroprudential Policy for Financial Stability in East Asia’s Emerging Economies

This paper analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies. It analyzes the behavior of the housing market in a dynamic setting to identify some of the factors responsible for the volatility of housing markets and their susceptibility to boom-bust cycles, which it identifies as a key source of financial imbalances in these economies. It then discusses the causal nexus between price and financial stability and the roles and complementary nature of macroprudential and monetary policies in addressing aggregate risk in the financial system. The paper identifies currency and maturity mismatches, which contributed to the 1997 - 1998 Asian financial crisis, as ongoing concerns in these economies although the high levels of reserves in the region now act as a buffer

Modelling Opportunity Cost Effects in Money Demand due to Openness

We apply a novel model-based approach to constructing composite international financial indices (CIFIs) as measures of opportunity cost effects that arise due to openness in money demand models. These indices are tested on the People’s Republic of China (PRC) and Taiwan Province of China (TPC), two economies which differ substantially in size and degree of financial openness. Results show that (a) stable money demand equations can be identified if accounting for foreign opportunity costs through CIFIs, (b) the monetary policy intervention in the PRC over the global financial crisis period temporarily mitigated disequilibrating foreign shocks to money demand, (c) CIFIs capture opportunity costs due to openness more adequately than commonly used US interest rates and (d) CIFI construction provides valuable insights into the channels through which foreign financial markets affect domestic money demand

Modelling Opportunity Cost Effects in Money Demand due to Openness

We apply a novel model-based approach to constructing composite international financial indices (CIFIs) as measures of opportunity cost effects that arise due to openness in money demand models. These indices are tested on the People’s Republic of China (PRC) and Taiwan Province of China (TPC), two economies which differ substantially in size and degree of financial openness. Results show that (a) stable money demand equations can be identified if accounting for foreign opportunity costs through CIFIs, (b) the monetary policy intervention in the PRC over the global financial crisis period temporarily mitigated disequilibrating foreign shocks to money demand, (c) CIFIs capture opportunity costs due to openness more adequately than commonly used US interest rates and (d) CIFI construction provides valuable insights into the channels through which foreign financial markets affect domestic money demand

A new, very massive modular Liquid Argon Imaging Chamber to detect low energy off-axis neutrinos from the CNGS beam. (Project MODULAr)

The paper is considering an opportunity for the CERN/GranSasso (CNGS) neutrino complex, concurrent time-wise with T2K and NOvA, to search for theta_13 oscillations and CP violation. Compared with large water Cherenkov (T2K) and fine grained scintillators (NOvA), the LAr-TPC offers a higher detection efficiency and a lower backgrounds, since virtually all channels may be unambiguously recognized. The present proposal, called MODULAr, describes a 20 kt fiducial volume LAr-TPC, following very closely the technology developed for the ICARUS-T60o, and is focused on the following activities, for which we seek an extended international collaboration: (1) the neutrino beam from the CERN 400 GeV proton beam and an optimised horn focussing, eventually with an increased intensity in the framework of the LHC accelerator improvement program; (2) A new experimental area LNGS-B, of at least 50000 m3 at 10 km off-axis from the main Laboratory, eventually upgradable to larger sizes. A location is under consideration at about 1.2 km equivalent water depth; (3) A new LAr Imaging detector of at least 20 kt fiducial mass. Such an increase in the volume over the current ICARUS T600 needs to be carefully considered. It is concluded that a very large mass is best realised with a set of many identical, independent units, each of 5 kt, "cloning" the technology of the T600. Further phases may foresee extensions of MODULAr to meet future physics goals. The experiment might reasonably be operational in about 4/5 years, provided a new hall is excavated in the vicinity of the Gran Sasso Laboratory and adequate funding and participation are made available.Comment: Correspondig Author: C. Rubbia (E-mail: [email protected]), 33 pages, 11 figure

The Real-Time Predictive Content of Asset Price Bubbles for Macro Forecasts

This paper contributes to the debate of whether central banks can \lean against the wind" of emerging stock or house price bubbles. Against this background, the paper evaluates if new advances in real-time bubble detection, as brought forward by Phillips et al. (2011), can timely detect bubble emergences and collapses. Building on simulations, the paper shows that the detection capabilities of all indicators are sensitive to their exact specifications and to the characteristics of the bubbles in the sample. Therefore, the paper suggests a combination approach of different bubble indicators which helps to account for the uncertainty around start and end dates of asset price bubbles. Additionally, the paper then investigates if the individual and combination indicators carry predictive content for inflation and output growth when the real-time availability of all variables is taken into account. It finds that a combination indicator is best suited to uncover the most common stock and house price bubbles in the U.S. and shows that this indicator improves output forecasts