State aid and tacit collusion

Both literature and policy debate on State aid or government subsidies have focused on the trade-off between the potential ine¢ ciencies caused by state intervention (inefficient allocation of resources, moral hazard) and the potential gains from intervention (whether related to the resolution of market failures or to the achievement of some dimension of social equity). The debate however has ignored another important negative e¤ect of State aid: governments, by setting up aid schemes to ailing firms, may increase the likelihood of (tacit) collusion in an industry characterised by idiosyncratic shocks. Indeed, in a repeated-game setting, a systematic bailout regime increases the expected profits of a firm from cooperation and simultaneously raises the probability that competitors will still be in business to carry out punishment against cheaters. Despite the generality of the model and of its key insight, we study this problem through an application to the banking sector, as it has recently been subject of much attention within the context of the ongoing economic crisis.Subsidies, dynamic oligopoly, government policy, banking

A Wake-Up-Call Theory of Contagion

We propose a novel theory of financial contagion. We study global coordination games of regime change in two regions with an initially uncertain correlation of regional fundamentals. A crisis in region 1 is a wake-up call to investors in region 2 that induces a reassessment of local fundamentals. Contagion after a wake-up call can occur even if investors learn that fundamentals are uncorrelated and common lender effects or balancesheet linkages are absent. Applicable to currency attacks, bank runs and debt crises, our theory of contagion is supported by existing evidence and generates a new testable implication for empirical work

A Wake-Up Call: Information Contagion and Strategic Uncertainty

China - Commune, Housewives assembling electrical componentsColorVolume 60, Page 1

Fed liftoff and subprime loan interest rates: Evidence from the peer-to-peer lending market

On December 16th of 2015, the Fed initiated "liftoff," raising the federal funds rate range by 25 basis points and ending a 7-year regime of near-zero rates. We use a unique dataset of 640,000 loan-hour observations to measure the impact of liftoff on interest rates in the peer-to-peer lending segment of the subprime market. We find that the average interest rate dropped by 16.9-22.6 basis points. This holds for 14 and 28 day windows centered around liftoff, and is robust to the inclusion of a broad set of loan-level controls and fixed effects. We also find that the spread between high and low credit rating borrowers decreased by 16% and demonstrate that this was not generated by a change in the composition of borrowers along observable dimensions. Furthermore, we find no evidence that either result was driven by a collapse in demand for funds. Our results are consistent with an investor-perceived reduction in default probabilities; and suggest that liftoff provided a strong, positive signal about the future solvency of subprime borrowers, reducing their borrowing cost, even as short term rates increased in other markets

Spread the Word: International Spillovers from Central Bank Communication

Resumen de la comunicación[EN] We use computational linguistic methods and a novel dataset to measure the sentiment component of central bank communications in 23 countries over the 2002-2016 period. We first construct a Granger causality network to identify how sentiment is transmitted across central banks. The network structure suggests that comovement in sentiment is not reducible to comovement in output across countries. We also show that some central banks in the network, such as the Federal Reserve and the Bundesbank, tend to cause sentiment shifts in other central banks; whereas other central banks, such as the European Central Bank and the Bank of Japan, tend to be shifted by other central banks. Finally, we use a structural VAR to demonstrate that sentiment shocks generate cross-country spillovers in sentiment, policy rates, and real variables.Armelius, H.; Bertsch, C.; Hull, I.; Zhang, X. (2018). Spread the Word: International Spillovers from Central Bank Communication. En 2nd International Conference on Advanced Reserach Methods and Analytics (CARMA 2018). Editorial Universitat Politècnica de València. 263-263. https://doi.org/10.4995/CARMA2018.2018.8573OCS26326

Time Series Forecasting using Machine Learning in Complex Systems under Uncertainty

We aim at enhancing agent-based electricity market simulation with latest time series forecasting techniques. Challenges in this domain include the need for robust predictions without extensive re-training, incorporating knowledge for accuracy and interpretability, and handling uncertainties in complex systems effectively preventing accuracy losses

Economic evaluation of battery storage systems bidding on day-ahead and automatic frequency restoration reserves markets

In future electricity systems, not only electricity generation but also frequency stabilization must be provided by low-carbon technologies. Battery systems are a promising solution to fill this gap. However, uncertainties regarding their revenue potential may hinder investments. Therefore, we apply the agent-based electricity market model AMIRIS to simulate a day-ahead market and an automatic frequency restoration reserves market. Demonstrating the model setup, we chose a scenario with high shares of renewable energies. First, we back-test our model with historic market data from Germany in 2019. The simulation results mean day-ahead prices of 39.20 EUR/MWh are close to the historic ones of 38.70 EUR/MWh. Second, we model both markets in a scenario for 2030. The simulated day-ahead market prices are higher on average than observed today, although, we find around 550 h/yr in which the load is fully covered by renewable energies. The variance in simulated prices is slightly higher compared to historic values. Bids on the reserve capacity market are derived from opportunity costs of not participating in the day-ahead market. This results in prices of up to 45 EUR/MW for positive reserve while the prices for negative reserve are 0 EUR/MW. Finally, we evaluate revenue potentials of battery storages. Compared to 2019, we see an improved economic potential and increased importance of the day-ahead market. High power battery storages perform best whereas improvements in round-trip efficiency only marginally improve revenues. Although demonstrated for Germany, the presented modular approach can be adapted to international markets enabling comprehensive battery storage assessments

A comparative study of semi-empirical noise emission models based on the PANAM and sonAIR aircraft noise simulation tools

In the context of aircraft noise simulations, an accurate representation of the aircraft noise sources is crucial so that reliable predictions can be obtained. In this contribution, we present a comparative study between the predictions provided by the emission models based on the DLR’s in-house PANAM tool and the sonAIR simulation software. Both are based on semi-empirical descriptions of the engine and airframe noise contributions, meaning that the emission levels are modeled separately for each noise source according to the operational conditions of the aircraft. This allows the comparison of the emission models not only in terms of the aircraft’s overall noise levels, but also regarding its different noise sources. The comparative study considers models representing the noise emissions of an A319 aircraft, which are provided by both simulation tools but further simulated within the sonAIR software environment in order to yield noise immission levels on a large calculation area. In general, a good agreement is observed for the departure procedure due to the similar performance of the engine noise models. In contrast, larger differences are observed during the approach procedure and at larger distances from the runway, which might be explained by differences in the airframe noise models