How bad are twins? output costs of currency and banking crises

We investigate the output effects of severe banking and currency crises in emerging markets, focusing on whether “twin crises” (simultaneous occurrence of currency and banking crises) exist as a unique phenomenon and whether they entail especially large losses. Recent literature, mostly relating to the East Asian crisis, emphasizes the interplay and reinforcement between currency and banking crises, presumably making twin crises particularly damaging to the real economy. Using a panel data set over the 1975–97 period and covering 24 emerging-market economies, we find that twin crises do not contribute any additional (marginal) negative impact on output growth. That is, twin crises do not adversely impact output over and above the independent effects associated with a currency and banking crisis taken together. We find that currency (banking) crises are very damaging, reducing output by about 5–8 (8–10) percent over a two-four year period. The cumulative output loss of both types of crises occurring at the same time is therefore very large, around 13–18 percent, and should alarm policymakers. However, twin crises are “bad” only in that they entail output losses associated with both currency and banking crises, not because there are additional feedback or interactive effects further damaging the economy. This result is robust to alternative model specifications, lag structures and using IV and GMM estimation procedures that correct bias associated with simultaneity and estimation of dynamic panel models with country-specific effects.Financial crises - Asia ; East Asia

Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations

We investigate the effects of IMF stabilization programs, and the reasons behind the unusually high IMF activity and relatively low program completion rates in Latin America. We base our tests on a panel, and distinguish between IMF program approvals and completion. We find that Latin America has higher output costs of IMF programs (especially when completed), no improvement in the current account, and a much higher likelihood of program failure and recidivism than other regions. The common finding that entering into an IMF-supported program incurs real short-run costs on the economy is entirely driven by the experiences in Latin America.Economic development - Latin America ; International Monetary Fund ; Macroeconomics

Model structure on projective systems of C∗C^*-algebras and bivariant homology theories

Using the machinery of weak fibration categories due to Schlank and the first author, we construct a convenient model structure on the pro-category of separable $C^*$-algebras $\mathrm{Pro}(\mathtt{SC^*})$. The opposite of this model category models the $\infty$-category of pointed noncommutative spaces $\mathtt{N}\mathcal{S_*}$ defined by the third author. Our model structure on $\mathrm{Pro}(\mathtt{SC^*})$ extends the well-known category of fibrant objects structure on $\mathtt{SC^*}$. We show that the pro-category $\mathrm{Pro}(\mathtt{SC^*})$ also contains, as a full coreflective subcategory, the category of pro-$C^*$-algebras that are cofiltered limits of separable $C^*$-algebras. By stabilizing our model category we produce a general model categorical formalism for triangulated and bivariant homology theories of $C^*$-algebras (or, more generally, that of pointed noncommutative spaces), whose stable $\infty$-categorical counterparts were constructed earlier by the third author. Finally, we use our model structure to develop a bivariant $\mathrm{K}$-theory for all projective systems of separable $C^*$-algebras generalizing the construction of Bonkat and show that our theory naturally agrees with that of Bonkat under some reasonable assumptions.Comment: 47 pages; v2 revised according to referee's comments (to appear in New York J. Math.

Sudden Stops and the Mexican Wave: Currency Crises, Capital Flow Reversals and Output Loss in Emerging Markets.

Sudden Stops are the simultaneous occurence of a currency/balance of payments crisis with a reversal in capital flows (Calvo, 1998). We investigate the output effects of financial crises in emerging markets, focusing on whether sudden-stop crises are a unique phenomenon and whether they entail an especially large and abrupt pattern of output collapse (a "Mexican wave"). Despite an emerging theoretical literature on Sudden Stops, empirical work to date has not precisely identified their occurences nor measured their subsequent output effects in broad samples. Analysis of Sudden Stops may provide the key to understanding why some currency/balance of payments crises entail very large output losses, while others are frequently followed by expansions. Using a panel data set over the 1975-97 period and covering 24 emerging-market economies, we distinguish between the output effects of currency crises, capital inflow reversals, and sudden-stop crises. We find that sudden-stop crises have a large negative, but short-lived, impact on output growth over and above that found with currency crises. A currency crisis typically reduces output by about 2-3 percent, while a Sudden Stop reduces output by and additional 6-8 percent in the year of the crisis. The cumulative output los of a Sudden Stop is even larger, around 13-15 percent over a three-year period. Out model estimates correspond closely to the output dynamics of the "Mexican wave" (such as seen in Mexico in 1995, Turkey in 1994 and elsewhere), and out-of-sample predictions of the model explain the sudden (and seemingly unexpected) collapse in output associated with the 1997-98 Asian Crisis. The empirical results are robust to alternative model specifications, lag structures and using estimation procedures (IV and GMM) that correct for bias associated with simultaneity and estimation of dynamic panel models with country-specific effect.

Sudden stops and the Mexican wave: currency crises, capital flow reversals and output loss in emerging markets

Sudden Stops are the simultaneous occurrence of a currency/balance of payments crisis with a reversal in capital flows (Calvo, 1998). We investigate the output effects of financial crises in emerging markets, focusing on whether sudden-stop crises are a unique phenomenon and whether they entail an especially large and abrupt pattern of output collapse (a “Mexican wave”). Despite an emerging theoretical literature on Sudden Stops, empirical work to date has not precisely identified their occurrences nor measured their subsequent output effects in broad samples. Analysis of Sudden Stops may provide the key to understanding why some currency/balance of payments crises entail very large output losses, while others are frequently followed by expansions. Using a panel data set over the 1975-97 period and covering 24 emerging-market economies, we distinguish between the output effects of currency crises, capital inflow reversals, and sudden-stop crises. We find that sudden-stop crises have a large negative, but short-lived, impact on output growth over and above that found with currency crises. A currency crisis typically reduces output by about 2-3 percent, while a Sudden Stop reduces output by an additional 6-8 percent in the year of the crisis. The cumulative output loss of a Sudden Stop is even larger, around 13-15 percent over a three-year period. Our model estimates correspond closely to the output dynamics of the ‘Mexican wave’ (such as seen in Mexico in 1995, Turkey in 1994 and elsewhere), and out-of-sample predictions of the model explain the sudden (and seemingly unexpected) collapse in output associated with the 1997-98 Asian Crisis. The empirical results are robust to alternative model specifications, lag structures and using estimation procedures (IV and GMM) that correct for bias associated with simultaneity and estimation of dynamic panel models with country-specific effects.Financial crises - Mexico ; Developing countries

How Bad Are Twins? Output Costs of Currency and Banking Crises.

We investigate the output effects of severe banking and currency crises in emerging markets, focusing on whether "twin crises" (simultaneous occurrence of currency and banking crises) exist as a unique phenomenon and whether they entail especially large losses. Recent literature, mostly relating to the East Asian crisis, emphasizes the interplay and reinforcement between currency and banking crises, presumably making twin crises particularly damaging to the real economy. Using a panel data set over the 1975-97 period and covering 24 emerging-market economies, we find that twin crises do not contribute any additional (marginal) negative impact on output growth. That is, twin crises do not adversely impact output over and above the independent effects associated with a currency and banking crisis taken together. We find that currency (banking) crises are very damaging, reducing output by about 5-8 (8-10) percent over a two-four year period. The cumulative output loss of both types of crises occurring at the same time is therefore very large, around 13-18 percent, and should alarm policymakers. However, twin crises are "bad" only in that they entail output losses associated with both currency and banking crises, not because there are additional feedback or interactive effects further damaging the economy. This result is robust to alternative model specifications, lag structures and using IV and GMM estimation procedures that correct bias associated with simultaneity and estimation or dynamic panel models with country-specific effects.

The Regional Dimension of Collective Wage Bargaining: The Case of Belgium

The potential failure of national industry agreements to take into account productivity levels of least productive regions has been considered as one of the causes of regional unemployment in European countries. Two solutions are generally proposed: the first, encouraged by the European commission and the OECD, consists in decentralising wage bargaining to the firm. The second solution, the regionalisation of wage bargaining, is frequently mentioned in Belgium or in Italy where regional unemployment differentials are high. The objective of this paper is to verify if the Belgian wage setting system, where industry bargaining has a national scope, indeed prevents regional productivity levels to be taken into account in wage formation. Using a very rich linked employer-employee dataset which provides detailed information on wages, productivity, and worker's and firm's characteristics, we find that regional wage differentials and regional productivity differentials within joint committees are positively correlated. Moreover, this relation is stronger (i) for joint committees where firm-level bargaining is relatively frequent and (ii) for joint committees already sub-divided along a local line. We conclude that the current Belgian wage setting system (which combines interprofessional, industry and firm level bargaining) already includes mechanisms that allow regional productivity to be taken into account.wages, collective bargaining, federalism, regions, Belgium

Fiscal and Monetary Policies and the Cost of Sudden Stops

This article investigates the effects of macroeconomic policy (monetary and fiscal) on output growth during financial crises characterized by a “sudden stop” in net capital inflows in developing and emerging market economies. We investigate 83 sudden stop crises in 77 countries over 1982-2003 using a baseline empirical model to control for the various determinants of output losses during sudden stop crises. Extending the baseline model to account for policies-- contractionary as well as expansionary-- we measure the marginal effects of policy on output losses. Simple descriptive statistics indicate no apparent correlation between the costs of financial crises and the economic policies pursed at the time. Once controlling for various pre-conditions and other factors, however, we find that monetary and fiscal tightening at the time of a sudden stop crisis significantly worsens output losses.Output losses, financial crises, sudden stops, fiscal policy, financial policy

Pumping conductance, the intrinsic anomalous Hall effect, and statistics of topological invariants

The pumping conductance of a disordered two-dimensional Chern insulator scales with increasing size and fixed disorder strength to sharp plateau transitions at well-defined energies between ordinary and quantum Hall insulators. When the disorder strength is scaled to zero as system size increases, the "metallic" regime of fluctuating Chern numbers can extend over the whole band. A simple argument leads to a sort of weighted equipartition of Chern number over minibands in a finite system with periodic boundary conditions: even though there must be strong fluctuations between disorder realizations, the mean Chern number at a given energy is determined by the {\it clean} Berry curvature distribution expected from the intrinsic anomalous Hall effect formula for metals. This estimate is compared to numerical results using recently developed operator algebra methods, and indeed the dominant variation of average Chern number is explained by the intrinsic anomalous Hall effect. A mathematical appendix provides more precise definitions and a model for the full distribution of Chern numbers.Comment: 12 page