Why could political incentives be different during election times?

Why could political incentives be different during election times? This article provides answers to this question using a career-concern model of political cycles. The analysis in the article is also relevant to understanding other agency relationships in which an important part of compensation is decided on infrequently.Business cycles

Are we working too hard or should we be working harder? A simple model of career concerns

Productivity ; Employment

Legal protection to foreign investors

Foreign investment is typically considered an important source of growth for developing countries. This article describes the legal protection granted to foreign investors and its enforcement mechanisms. Governments have signed international investment agreements intended to protect foreign investors from the risk of expropriation and have increasingly chosen to issue sovereign debt in international financial centers, which expose defaulting governments to litigations in foreign national courts. In most cases, governments have complied with unfavorable rulings of international arbitration courts, and many recent sovereign default episodes were followed by relatively friendly debt restructuring agreements. But there have been cases in which expropriated investors or holders of sovereign debt in default have not been compensated, which suggests that the actual legal protection granted to foreign investors is limited.Economic growth ; Business cycles

Online Appendix to "Quantitative properties of sovereign default models: solution methods"

This document describes how we evaluate the accuracy of the solution of the baseline sovereign default model using the test proposed by den Haan and Marcet (1994). We show that the solutions obtained using Chebyshev collocation and cubic spline interpolation approximate the equilibrium with reasonable accuracy and illustrate the challenges that arise when the test is applied to the solution obtained using the discrete state space technique.

Global survey of development banks

Historically, development banks have been an important instrument of governments to promote economic growth by providing credit and a wide range of advisory and capacity building programs to households, small and medium enterprises, and even large private corporations, whose financial needs are not sufficiently served by private commercial banks or local capital markets. During the current financial crisis, most development banks in Latin America, followed by Asia, Africa, and Europe, have assumed a countercyclical role by scaling up their lending operations exactly when private banks experienced temporary difficulties in granting credit to the private sector. Despite the importance of development banks during crisis and non-crisis periods, little is known about them. This survey examines how development banks operate, what their policy mandates are, what financial services they offer, which type of clients they target, how they are regulated and supervised, what business models they have adopted, what governance framework they have, and what challenges they face. It also examines the countercyclical role played by development banks during the recent financial crisis. This survey is based on new data that have been collected from 90 national development banks in 61 countries.Banks&Banking Reform,Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Emerging Markets

Sovereign default risk with heterogenous borrowers

We study a standard quantitative model of sovereign default in which the government in a small open economy (SMO) decides how much to save and whether to default on its debt. In contrast with previous quantitative studies, we do not assume that a defaulting country is exogenously excluded from capital markets, and we assume that political parties with different discount factors alternate in power. Preliminary quantitative results indicate that even without assuming exogenous exclusion, after a default episode, the model generates difficulties in market access---in average, for the same level of debt, spreads are higher after default; due to this increase in borrowing costs, capital inflows are initially decreased, and recover slowly after that. We also describe the strategic interaction of governments with different patienceSovereign Default, Strategic Behavior; Endogenous Borrowing Constraints; Markov Perfect Equilibrium.

Quantitative models of sovereign default and the threat of financial exclusion

Business cycles ; Debt ; Default (Finance)

Operações do Banco Mundial em Estados afetados por conflitos e os Princípios Ruggie: uma oportunidade para a prestação de contas

In spite of the efforts that both States and International Institutions have carried out to prevent Human Rights abuses related to development activities, the results obtained have not completely fulfilled the expectations. In fact, in some cases, they have contributed to weaken the delicate balance in conflict-affected areas, increasing poverty and marginalization. Indeed, the WBG activities in Fragile and Conflict States face several challenges regarding the implementation of the UNGPs and their analysis is crucial in the improvement of social risks linked with Banks operations in conflict-affected areas. To this regard, the present paper analyses the system created by the WB to avoid Human Rights violations and how it can be influenced by the UNGPs. The author has divided the WBG system in two structural elements: Operational Policies and the Bank Risk Assessment analyzing. At the same time the paper face the issue of the immunity regarding human rights violations.Apesar dos esforços que tanto os Estados como as Instituições Internacionais têm realizado para prevenir os abusos dos Direitos Humanos relacionados com as atividades de desenvolvimento, os resultados obtidos não têm correspondido completamente às expectativas. De fato, em alguns casos, eles contribuíram para enfraquecer o delicado equilíbrio nas áreas afetadas pelo conflito, aumentando a pobreza e a marginalização. De fato, as atividades do Banco Mundial em Estados frágeis e em situação de conflito enfrentam diversos desafios em relação à implementação das UNGP e sua análise é crucial para a melhoria dos riscos sociais ligados às operações dos Bancos em áreas afetadas por conflitos. Neste sentido, o presente documento analisa o sistema criado pelo BM para evitar violações dos Direitos Humanos e como pode ser influenciado pelos UNGPs. O autor dividiu o sistema do BMG em dois elementos estruturais: Políticas operacionais e a análise da Avaliação de Risco do Banco. Ao mesmo tempo, o documento enfrenta a questão da imunidade em relação às violações dos direitos humanos

Mortgage defaults

We incorporate house price risk and mortgages into a standard incomplete market (SIM) model. We calibrate the model to match U.S. data and we show that the model also ac- counts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home ownership, and the mortgage default rate. In addition, we show that the average coefficients that measure the agents' ability to self-insure against income shocks are similar to those of a SIM model without housing (as presented by Kaplan and Violante, 2010). However, incorporating housing increases the values of these coefficient for younger agents, which narrows the gap between the SIM model's implications and the data. The response of consumption to house price shocks is minimal. We also study the effects of default prevention policies. Introducing a minimum down payment requirement of 15% reduces defaults on mortgages by 30%, reduces the home ownership rate up to only 0.2 percentage points (if the aggregate house price level does not adjust), and may cause house prices to decline up to 0.7% (if home ownership does not adjust). Garnishing defaulters' income in excess of 43% of median consumption for one year produces a similar decline in defaults; but, since it reduces the median equilibrium down payment from 19% to 9%, it boosts home ownership up to 4.3 percentage points (if the aggregate house price level does not adjust) and may increase house prices up to 16.1% (if home ownership does not adjust). The introduction of minimum down payments or income garnishment benefit a majority of the population.Mortgage loans ; Default (Finance)