Debt-Deflation: Concepts, and a Stylised Model

This paper proposes a model of how agents adjust their asset holdings in response to losses in general equilibrium. By emphasising the relation between deflation and financial distress, we capture some original features of the early debt-deflation literature, such as distress selling, instability, and endogenous monetary contraction. The agents affected by a shock sell off assets to prevent their debt from crowding out consumption. But their distress-selling causes a decline in equilibrium prices, and the resulting losses elicit reactions by all agents. This activates several channels of debt-deflation. Yet we show that this process remains stable, even in the presence of large shocks, high indebtedness, and wide-spread default. What keeps the asset market stable is the presence of agents without prior debt or losses, who borrow to exploit the expected asset price recovery. By contrast, debt-deflation becomes unstable when agents try to contain their indebtedness, or when a credit crunch interferes with the accommodation necessary for stability.Debt-Deflation, Leverage, Refinancing, Losses, Financial Distress, Distress Selling, Asset Prices, Credit, Inside Money.

Asset Prices and Banking Distress: A Macroeconomic Approach

This paper links banking with asset prices in a monetary macroeconomic model. The main innovation is to consider how falling asset prices affect the banking system through wide-spread borrower default, while deriving explicit solutions and balance sheet effects even far from the steady state. We find that the effect of falling asset prices is indirect, non-linear, and involves feedback from the banking system in the form of credit contraction. When borrowers repay, the effect ‘passes through’ the bank balance sheet; once borrowers default, asset prices drive bank capital, and constrained credit in turn drives asset prices. This interaction can explain capital crunches, financial instability, and banking crises, either as fundamental or as self-fulfilling outcomes. This model, unlike others, distinguishes between financial and macroeconomic stability, and makes precise the notion of balance sheet vulnerability. It also sheds some light on the role of asset prices in monetary policy and carries regulatory implications. The case studies apply the model to Japan’s Lost Decade, the Nordic Banking Crises, and the US Great Depression.Banking, Asset Prices, Inside Money, Default, Non-Performing Loans, Capital Requirements, Credit Crunch, Financial Instability, Banking Crisis, Vulnerability.

A Unified Approach to Credit Crunches, Financial Instability, and Banking Crises

We link banking and asset prices in a simple monetary macroeconomic model. Our main innovation is to consider how wide-spread default affects the banking system. We find that the interaction of credit, asset prices, and loan losses explains a complete spectrum of outcomes, including financial extremes for which separate theories were thought to apply. When fundamentals deteriorate, an asset price decline causes default among leveraged firms, and banks suffer loan losses. Their size determines whether a capital crunch, financial instability, or a banking crisis occurs. But self-fulfilling capital crunches and banking crises are also possible when loan losses force a credit contraction that feeds back onto asset prices. This model, unlike others, distinguishes between financial and macroeconomic stability, and derives explicit solutions and balance sheet effects even far from the steady state. It is applied to Japan’s Lost Decade and to the US Great Depression. It also sheds light on the role of asset prices in monetary policy, and on the procyclical effect of capital adequacy requirements.Asset Prices, Elastic Credit, Inside Money, Default, Non- Performing Loans, Banking, Capital Adequacy, Credit Crunch, Financial Instability, Banking Crisis, Debt Deflation.

Interbank tiering and money center banks

This paper provides evidence that interbank markets are tiered rather than flat, in the sense that most banks do not lend to each other directly but through money center banks acting as intermediaries. We capture the concept of tiering by developing a core-periphery model, and devise a procedure for tting the model to real-world networks. Using Bundesbank data on bilateral interbank exposures among 1800 banks, we find strong evidence of tiering in the German banking system. Econometrically, bank-specific features, such as balance sheet size, predict how banks position themselves in the interbank market. This link provides a promising avenue for understanding the formation of financial networks.Interbank market ; Banks and banking, Central - Germany

Interbank tiering and money center banks

Interbank markets are tiered rather than flat, in the sense that many banks do not lend to each other directly but through money center banks which act as intermediaries. This paper captures the notion of tiering by designing a core-periphery model and develops a procedure for fitting an empirical network to this model. We find strong evidence of tiering for the German banking system, using bilateral interbank exposures among 1,800 banks. Moreover, bank-specific features, such as bank size, help explain how banks position themselves in the interbank market, suggesting that models with heterogenous banks could help shed light on how financial networks are formed.Interbank market

Asymmetric Price Transmission in the Israeli Citrus Export Sector in the Aftermath of Liberalization

The Israeli citrus export sector was liberalized in 1991 with the aim to increase citrus growers' income and to improve overall efficiency of the international citrus marketing channel. However, the former government export monopoly's activities were mainly taken over by four large companies accounting for over 90% of total Israeli citrus market exports. In addition, citrus exporters maintained the monopoly's consignment system, substantially limiting transparency on how the grower price is determined. This lead the government to intervene in the newly liberalized market by implementing a minimum price agreement in the 1994/95 season to protect citrus growers against exporters' abuse of market power. In this paper we analyze whether market power was exerted by exporting companies over citrus growers in the form of asymmetric price transmission. Our study is unique in that it investigates vertical price transmission across international borders, i.e. in the context of Israeli grapefruit exports to France. We explicitly account for possible changes in exporters' pricing behaviour in the post-liberalization period. We apply an error correction model (ECM) to disaggregated firm-level Israeli grower price and French import price data. An ECM is estimated individually for each of the major exporting companies within a seemingly unrelated regression (SUR) framework. We find asymmetric price transmission in the first years after liberalisation, but symmetry in the second half of the 1990s. Our results indicate that growers' losses due to asymmetry amounted to as much as 2.5% of their total revenues. Our results suggest that liberalization improved the efficiency of the Israeli citrus international marketing channel, but that this took time and was probably accelerated by government intervention.Demand and Price Analysis,

ASYMMETRIC PRICE TRANSMISSION IN THE ISRAELI CITRUS EXPORT SECTOR IN THE AFTERMATH OF LIBERALIZATION

The Israeli citrus export sector was liberalized in 1991 with the aim to increase citrus growers income and to improve overall efficiency of the international citrus marketing channel. However, the former government export monopolys activities were mainly taken over by four large companies accounting for over 90% of total Israeli citrus market exports. In addition, citrus exporters maintained the monopolys consignment system, substantially limiting transparency on how the grower price is determined. This lead the government to intervene in the newly liberalized market by implementing a minimum price agreement in the 1994/95 season to protect citrus growers against exporters abuse of market power. In this paper we analyze whether market power was exerted by exporting companies over citrus growers in the form of asymmetric price transmission. Our study is unique in that it investigates vertical price transmission across international borders, i.e. in the context of Israeli grapefruit exports to France. We explicitly account for possible changes in exporters pricing behaviour in the post-liberalization period. We apply an error correction model (ECM) to disaggregated firm-level Israeli grower price and French import price data. An ECM is estimated individually for each of the major exporting companies within a seemingly unrelated regression (SUR) framework. We find asymmetric price transmission in the first years after liberalisation, but symmetry in the second half of the 1990s. Our results indicate that growers losses due to asymmetry amounted to as much as 2.5% of their total revenues. Our results suggest that liberalization improved the efficiency of the Israeli citrus international marketing channel, but that this took time and was probably accelerated by government intervention.Crop Production/Industries, International Relations/Trade,

Considering threshold effects in the long-run equilibrium in a vector error correction model: An application to the German apple market

We propose a three-step procedure to estimate a regime-dependent vector error correction model (VECM). In this model, not only the short-run adjustment process towards equilibrium is non-linear, as in threshold VECM and Markov switching VECM frameworks, but the long-run equilibrium relationship itself can also display threshold-type non-linearity. The proposed approach is unique in explicitly testing the null hypothesis of linear cointegration against the alternative of threshold cointegration based on the Gonzalo AND PITARAKIS (2006) test. The model is applied to apple price data on wholesale markets in Hamburg and Munich, using the share of domestic apples in total wholesale trade as the threshold variable. We identify four price transmission regimes characterized by different equilibrium relationships and short-run adjustment processes. This proposed approach is particularly suitable for capturing irregular seasonal threshold effects in price transmission typical for fresh fruits and vegetables.threshold cointegration, spatial price transmission, vector error correction model, Marketing,

PubFinder: a tool for improving retrieval rate of relevant PubMed abstracts

Since it is becoming increasingly laborious to manually extract useful information embedded in the ever-growing volumes of literature, automated intelligent text analysis tools are becoming more and more essential to assist in this task. PubFinder () is a publicly available web tool designed to improve the retrieval rate of scientific abstracts relevant for a specific scientific topic. Only the selection of a representative set of abstracts is required, which are central for a scientific topic. No special knowledge concerning the query-syntax is necessary. Based on the selected abstracts, a list of discriminating words is automatically calculated, which is subsequently used for scoring all defined PubMed abstracts for their probability of belonging to the defined scientific topic. This results in a hit-list of references in the descending order of their likelihood score. The algorithms and procedures implemented in PubFinder facilitate the perpetual task for every scientist of staying up-to-date with current publications dealing with a specific subject in biomedicine

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