International capital flows and the returns to safe assets in the United States 2003-2007.

A broad array of domestic institutional factors –including problems with the originate-to-distribute model for mortgage loans, deteriorating lending standards, deficiencies in risk management, conflicting incentives for the government-sponsored enterprises (GSEs), and shortcomings of supervision and regulation– were the primary sources of the US housing boom and bust and the associated financial crisis. In addition, the extended rise in US house prices was likely also supported by long-term interest rates (including mortgage rates) that were surprisingly low, given the level of short-term rates and other macro fundamentals –a development that Greenspan (2005) dubbed a “conundrum.” The “global saving glut” (GSG) hypothesis (Bernanke, 2005 and 2007) argues that increased capital inflows to the United States from countries in which desired saving greatly exceeded desired investment –including Asian emerging markets and commodity exporters– were an important reason that US longer-term interest rates during this period were lower than expected. This essay investigates further the effects of capital inflows to the United States on US longer-term interest rates; however, we look beyond the overall size of the inflows emphasised by the GSG hypothesis to examine the implications for US yields of the portfolio preferences of foreign creditors. We present evidence that, in the spirit of Caballero and Krishnamurthy (2009), foreign investors during this period tended to prefer US assets perceived to be safe. In particular, foreign investors –especially the GSG countries–acquired a substantial share of the new issues of US Treasuries, Agency debt, and Agency-sponsored mortgage-backed securities. The downward pressure on yields exerted by inflows from the GSG countries was reinforced by the portfolio preferences of other foreign investors. We focus particularly on the case of Europe: although Europe did not run a large current account surplus as did the GSG countries, we show that it leveraged up its international balance sheet, issuing external liabilities to finance substantial purchases of apparently safe US “private label” mortgage-backed securities and other fixed-income products. The strong demand for apparently safe assets by both domestic and foreign investors not only served to reduce yields on these assets but also provided additional incentives for the US financial services industry to develop structured investment products that “transformed” risky loans into highly-rated securities. Our findings do not challenge the view that domestic factors, including those listed above, were the primary sources of the housing boom and bust in the United States. However, examining how changes in the pattern of international capital flows affected yields on US assets helps provide a deeper understanding of the origins and dynamics of the crisis.

Assessing Damages: The 1983 Israeli Bank Shares Crisis

In 1983 Israeli bank shares collapsed following several years during which the bank had actively intervened to promote share prices and thereby contributed to a 300% rise in real terms. During the crisis the government assumed control of the banks, which they did not begin to sell back to the public until 1993. We compare 1993 bank share prices after the banks were partially re-listed on the stock market values were$10 billion lower than in 1983, a decline born by pre-crisis shareholders ($4 billion) and by taxpayers ($6 billion). Of this latter amount, two-thirds represent a transfer from the government to the shareholders, while approximately one-third represents an efficiency loss- and hence a direct cost- resulting from government ownership of the banks for 10 years following the crisis. The results highlight the risk inherent in a banking system that is both concentrated and universal and illustrates the costs associated with sustained government ownership

Monetary policy and stock valuation: Structural VAR identification and size effects

his paper examines the relationship between the US monetary policy and stock valuation using a structural VAR framework that allows for the simultaneous interaction between the federal funds rate and stock market developments based on the assumption of long-run monetary neutrality. The results confirm a strong, negative and significant monetary policy tightening effect on real stock prices. Furthermore, we provide evidence consistent with a delayed response of small stocks to monetary policy shocks relative to large stocks

Incomplete reform or opportunity: the role of the banking sector in the credit transmission mechanism in India

The recent financial crisis in developed economies is attributed to the credit crunch and features of a free market economy. One main concern is the spreading of this crisis to emerging economies. This paper tests the importance of the banking sector as a credit transmission channel in India. The empirical analysis discovers a structurally stable long-run relationship (immune to exogenous shocks) between bank credit and interest rate spread. This suggests that the reform process has not yet reached an extent where capital markets are fully competitive and banks' role in credit formation remains significant, suggesting India's reduced exposure to the current financial crisis.economic reforms, credit channel, financial crisis, regime change, cointegration,

MACROECONOMIA

Il manuale \ue8 la prima edizione italiana del testo di Macroeconomia redatto da Andrew B. Abel, Ben S. Bernanke e Dean Croushore. Non si tratta di una mera traduzione del testo americano in italiano: il testo contiene il materiale di studio pi\uf9 recente rivisto e aggiornato in seguito alla crisi finanziaria globale iniziata nel 2008. In particolare la nostra attenzione si \ue8 concentrata sulla realt\ue0 italiana ed europea che era quasi assente nella versione americana, maggiormente incentrata su quella istituzionale degli Stati Uniti. Sono anche state introdotte numerose novit\ue0. Chiarezza espositiva, presentazione dei singoli capitoli, riassunti per sezione, proposta di dati che raccontano la realt\ue0 italiana, autovalutazione per ogni capitolo preparano ad affrontare i singoli argomenti, accompagnano lo studio e permettono di verificare costantemente la propria preparazione. Il manuale \ue8 frutto di una lunga esperienza di ricerca e di insegnamento di tutti gli autori