Empirical Research on Sovereign Debt and Default

The long history of sovereign debt and the associated enforcement problem have attracted researchers in many fields. In this paper, we survey empirical work by economists, historians, and political scientists. As we review the empirical literature, we emphasize parallel developments in the theory of sovereign debt. One major theme emerges. Although recent research has sought to balance theoretical and empirical considerations, there remains a gap between theories of sovereign debt and the data used to test them. We recommend a number of steps that researchers can take to improve the correspondence between theory and data

Capital Flow Waves to and from Switzerland before and after the Financial Crisis

This paper first shows that capital inflows to and outflows from financial centres were disproportionately affected by the global financial crisis. Switzerland was no exception. The paper then identifies waves of capital flows to and from Switzerland from 2000:Q1 to 2014:Q2 by using a simple statistical method. The analysis shows that private capital inflows to and outflows from Switzerland have become exceptionally muted and less volatile since the crisis. Further, strong and long-lasting "home bias" behaviour can be observed for both Swiss and foreign investors. By contrast, net private capital flows have shown significantly higher volatility since the financial crisis, frequently registering extreme movements driven by extreme movements in bank lending flows. These findings suggest that the financial crisis generated a breaking point for capital flows to and from Switzerland

The State Dependent Impact of Bank Exposure on Sovereign Risk

The theoretical literature remains inconclusive on whether changes in bank exposure towards the domestic sovereign have an adverse effect on the sovereign risk position via a diabolic loop in the sovereign-bank nexus or reduce perceived default risk by acting as a disciplinary device for the sovereign. In this paper we empirically analyze the impact of exogenous changes in bank exposure on the risk position of the sovereign within a Markov switching structural vector autoregressive in heteroscedasticity (MSH-SVAR) framework for a set of EMU countries. We add to the methodological literature by allowing for regime dependent shock transmissions according to the volatility state of the financial system. Finding support for both, a stabilizing and a destabilizing effect, we document a clear clustering among the country sample: Rising bank exposure increased default risk for the EMU periphery, but decreased credit risk for the core EMU countries during times of financial stress

Economic Crisis and Investor Behaviour

This study investigates the effects of crises on domestic and foreign investors’ behaviours by utilizing a nonlinear approach. Considering the nonlinearity inherent in many financial variables, this study proposes an appropriate econometric modelling for analysing the investors’ behaviour, particularly during turbulent times. Specifically, STAR-STGARCH family models and generalized impulse response function analysis (GIRF) are employed to understand the different reactions of foreign and domestic investors at the Malaysian Stock Exchange market during the 1997 Asian crisis. The results of the model and the GIRF analysis have shown that foreign investors exhibited a herding behavior during the crisis and responded the shock more quickly than the domestic investors. When the same analysis is applied to understand the effects of the 2008 Subprime Mortgage Crisis in the Malaysian market, the behaviors of foreign and domestic investors are found to be very similar

What Drives Different Types of Capital Flows and their Volatilities in Developing Asia?

Understanding the determinants of capital inflows is essential to designing an effective policy framework to manage volatile capital flows and their disruptive potential. This paper aims to identify factors that explain the size and volatility of various types of capital flows to developing Asia, vis-à-vis other emerging market economies. The estimates for a panel dataset show that per capita income growth, trade openness, and change in stock market capitalization are important determinants of capital inflows to developing Asia. Trade openness increases the volatility of all types of capital inflows; while change in stock market capitalization, global liquidity growth and institutional quality lowers the volatility. A regional factor plays an important role in determining the size and volatility of capital inflows in emerging Europe and emerging Latin America, suggesting that regional economic cooperation and policy coordination may be an important element in designing a policy framework to manage capital inflows

Real Wage Responsiveness to Unemployment in Spain: Asymmetries Along the Business Cycle

We estimate real wage cyclicality in the period compressed between 1987 and 2013 using a large administrative dataset of workers in Spain. Real wages are weakly procyclical in Spain and focusing on differences in different phases of the business cycle, we find that differences across expansions and recessions are significant, with an even lower real wage cyclicality in recessions. Furthermore, higher levels of unemployment do not translate into additional real wages adjustments when the economy is contracting, while lower levels of unemployment during expansions have incremental effects on wage elasticity. This general result holds after accounting for differences in tenure, type of contract and age categories. Nevertheless, wages of newly-hired workers are the most sensitive to the business cycle and exhibit the lowest asymmetric pattern between expansions and recessions. At the other end, wages of workers with more than six years of tenure can be characterized as the most protected against economic downturns. The same is true for fixed-term vs. permanent workers, as well as for young vs. older workers

Structured headache services as the solution to the ill-health burden of headache: 1. Rationale and description

In countries where headache services exist at all, their focus is usually on specialist (tertiary) care. This is clinically and economically inappropriate: most headache disorders can effectively and more efficiently (and at lower cost) be treated in educationally supported primary care. At the same time, compartmentalizing divisions between primary, secondary and tertiary care in many health-care systems create multiple inefficiencies, confronting patients attempting to navigate these levels (the “patient journey”) with perplexing obstacles. High demand for headache care, estimated here in a needs-assessment exercise, is the biggest of the challenges to reform. It is also the principal reason why reform is necessary. The structured headache services model presented here by experts from all world regions on behalf of the Global Campaign against Headache is the suggested health-care solution to headache. It develops and refines previous proposals, responding to the challenge of high demand by basing headache services in primary care, with two supporting arguments. First, only primary care can deliver headache services equitably to the large numbers of people needing it. Second, with educational supports, they can do so effectively to most of these people. The model calls for vertical integration between care levels (primary, secondary and tertiary), and protection of the more advanced levels for the minority of patients who need them. At the same time, it is amenable to horizontal integration with other care services. It is adaptable according to the broader national or regional health services in which headache services should be embedded. It is, according to evidence and argument presented, an efficient and cost-effective model, but these are claims to be tested in formal economic analyses

Assessing Factors Affecting M&As Versus Greenfield FDI in Emerging Countries

A host of external (global and regional) and internal (country-specific) factors affect Multinational Enterprises' Foreign Direct Investment (FDI) decisions. Differentiating the two entry modes of FDI (mergers and acquisitions [M&A] and Greenfield investment), this paper aims to empirically assess whether or not being a part of global emerging market economies or any specific emerging regions affects investors' decisions of FDI flows to an emerging country in addition to various country-specific factors. For this purpose, this paper employs a system generalized method of moments estimator for the panel data consisting of 40 emerging countries for the period 1990–2009. The results suggest that there exist a strong and significant global and regional influence in both types of FDI flows to an emerging country. M&A appears to be more sensitive to external factors, both global and regional effects are about twice stronger for M&A than for Greenfield FDI. The results also suggest that country- specific factors matter a lot for FDI flows both in the form of M&A and Greenfield FDI, pointing to the importance of government roles in helping stabilize FDI flows to emerging countries. This paper also offers empirical evidence which is consistent with the phenomenon of a fire-sale FDI during the period of financial crisis. Additional evidence using extensive and intensive margins of M&A sales suggest that the fire-sale does not necessarily imply an increase in the number of deals, but it may reflect the sales of big firms during the crisis