187 research outputs found

    Non-financial corporations and systemic risk

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    We investigate the systemic importance of U.S. non-financial corporations and analyse the firmspecific characteristics that identify systemically important non-financial firms. We compute two firm-specific measures of systemic risk for 1145 non-financial corporations and confirm that these firms are both vulnerable to systemic shocks and contribute to system-wide risk, though firms that are high in one dimension of risk are not necessarily high in the other. Systemic risk measures exhibit substantial variation across firms and over time. The firm's beta, value-at-risk, size, debt and trade credit are related to both dimensions of systemic risk, while a range of other firm characteristics are associated with systemic risk in at least one direction. The differences between the dimensions of risk and their associated characteristics underline the importance of analysing both measures of risk

    Banks and sovereigns: did adversity bring them closer?

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    We analyse the stability of the cross-market shock transmission mechanism betweenbanks and sovereign bonds during the Eurozone sovereign debt crisis for crisis-hitperiphery countries and Germany. We also examine the shock propagation of bankingshocks and sovereign bond shocks between domestic and external markets. Using aMarkov-switching framework, we find strong evidence of bilateral contagion betweenbanks and sovereign bonds and also between domestic and external banking sectors.Sovereign bond markets are different. An external shock only produces contagiouseffects in Greece, who were largely dependent on external aid. For all the others, exter-nal shocks lead to decoupling as investors became increasingly discerning in theirperception of the debt instruments issued by different Eurozone states

    Using multiple correspondence analysis for finance: A tool for assessing financial inclusion

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    This paper introduces multiple correspondence analysis (MCA) to the literature on financial product choice. MCA is a useful way of assessing the typology of actual or potential consumers, which can then be used to assess the extent to which existing products cover consumer needs. Given the importance of the financial inclusion agenda, this provides a useful means of detecting areas of financial under-servicing. An illustration using bank mortgage data shows how some groups are well-serviced, but others suffer from mismatch between the characteristics of the available and desirable products

    Endogeneity in household mortgage choice

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    We show that failing to correct for both sample selection and endogeneity bias leads to an under-estimate of the importance of mortgage price in determining the mortgage product a household selects. With proprietary, loan-level data from a major Australian mortgage provider we study interest rate determination, loan size and mortgage product choice. The level of mortgage indebtedness varies with the value and characteristics of the property, while individual mortgage interest rates depend on borrower characteristics. Our results show that borrowers consider the initial interest rate and implicitly the loan amount they can access when choosing a mortgage product.We acknowledge funding support from Australian Research Council grant DP12010084

    Systemic risk in the US: Interconnectedness as a circuit breaker

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    We measure systemic risk via the interconnections between the risks facing both financial and real economy firms. SIFIs are ranked by building on the Google PageRank algorithm for finding closest connections. For a panel of over 500 US firms over 2003-2011 we find evidence that intervention programs (such as TARP) act as circuit breakers in crisis propagation. The curve formed by the plot of firm average systemic risk against its variability clearly separates financial firms into three groups: (i) the consistently systemically risky (ii) those displaying the potential to become risky and (iii) those of little concern for macro-prudential regulators.The authors acknowledge the support provided for this research by the Centre for International Finance and Regulation under Grant E102: Detecting Systemically Important Risk. A large part of this paper was written while Matteo Luciani was charge de recherches F.R.S.- F.N.R.S., and he gratefully acknowledges their financial support

    International trade and the transmission of shocks: The case of ASEAN-4 and NIE-4 economies

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    We investigate the effects of the increasing importance of ASEAN-4 and NIE-4 economies in global trade for the transmission of shocks using a structural VAR framework. We specifically account for time variation, using the changing trade links to provide a means of identifying the propagation of economic shocks and spillovers across the US, EU and Asia Pacific economies from 1978 to 2015. The results include evidence of China's emergence as a major driver of growth in Asian markets. The identification mechanism highlights the relative importance of changing trade relationships versus changing shocks in propagating shocks between global markets, and shows that the international transmission mechanisms have changed substantially over the sample period

    Chinese resource demand and the natural resource supplier

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    This article provides empirical evidence on the effects of Chinese resource demand on the resource-rich natural resource supplier using the example of Australia. A structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resource export sector. The key findings of the article are that shocks to Chinese demand and commodity prices result in a sustained increase in commodity prices and mining investment and a positive impact on the resource sector. However, these shocks eventually lead to lower real domestic output with factors of production moving out of the nonresource sectors and into the resource sector, resulting in a fall in nonresource sector output which is not fully offset by the rise in resource sector output. The results also indicate some market power by the natural resource supplier.Copyright Information: 2013 Taylor & Franci
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