Banks

Africa and the trade crisis

Diagnosing crisis drivers in Africa

Impacts on the continent could be traced through, inter alia, two broad channels:

  • Reduced exports and commodity prices; and
  • Declining capital inflows.

We address each subsequently, in the process taking into consideration the broader macroeconomic impacts, and conclude with some thoughts in what this implies for Africa in light of the wider consequences for global trade.

Commodity prices and trade

African economies depend on commodity exports to create forex and fuel domestic economic growth (Table 1). This fits with the continent’s comparative advantage in resource endowments, particularly of mineral and agricultural products; the only manufacturing centre of any significance is South Africa which makes up about the bulk (a lot more than 50%) of the manufactures represented in Table 1.

Banks

Adverse selection and moral hazard in japanese credit guarantees

Adverse selection and moral hazard in japan public credit guarantee schemes for SMEs

Kuniyoshi Saito, Daisuke Tsuruta 14 November 2014

In Japan, loans with 100% guarantees take into account more than half of most loans included in public credit guarantee schemes, but banks declare that they don’t offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents proof adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.

Banks

Advanced economies’ sovereign debt 100 years of data

A 100-year perspective on sovereign debt composition in 13 advanced economies

S. M. Ali Abbas, Laura Blattner, Mark De Broeck, Asmaa El-Ganainy, Malin Hu 27 October 2014

There’s been renewed interest in sovereign debt because the Global Crisis, but relatively little attention has been paid to its composition. Sovereign debt may vary with regards to the currency it really is denominated in, its maturity, its marketability, and who holds it – and these characteristics matter for debt sustainability. This column presents evidence from a fresh dataset on the composition of sovereign debt in the last century in 13 advanced economies.

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Adoption of digital technologies by firms in europe and the us

Adoption of digital technologies by firms in Europe and the united states: Evidence from the EIB Investment Survey

Debora Revoltella, Désirée Rückert, Christoph Weiss 18 March 2020

European firms lag behind the united states in R&D investment and the adoption of digital technologies. Using firm-level data from 2019, this column finds that larger firms have higher rates of digital adoption than do their smaller peers, and that digital firms have better management practices and show more dynamism. European policymakers seeking to close the innovation gap should address structural barriers to investment in digitalisation, remove disincentives to grow, and reduce market fragmentation, particularly in the service sector.

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Advances in pay-as-bid auctions

Advances in pay-as-bid auctions

This gives a novel explanation for the ambiguity of empirical results surrounding mechanism selection. If sellers expend as much resources optimising within a mechanism because they do choosing which mechanism to implement, empiricists should witness roughly the same outcomes whichever of the pay-as-bid or uniform-price auctions is implemented.

Concluding remarks

Understanding bidder behaviour in divisible-good pay-as-bid auctions is very important to the debate over which of the pay-as-bid or uniform-price auctions ought to be implemented used, and these auction formats are accustomed to allocate trillions of dollars of goods annually. Realizing that equilibrium actions are well-defined, and they may have a tractable closed-form representation shows that structural empirical studies of auctions can correctly infer unobserved outcomes of the pay-as-bid auction. The recent work discussed above presents a rich group of results that may empower policy decisions in valuable markets.

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Adoption of automation technologies

Adoption of automation technologies: Evidence from Denmark

Lene Kromann, Anders Sørensen 15 July 2019

The automation of production processes can be an important topic on the policy agenda in high-wage countries, but proof the economic ramifications of automation at the firm level is bound. This column presents insights on automation from new survey data for Denmark. The findings reveal that variation in the adoption of automation technologies is high, the change in adoption as time passes is slow, and almost half of Danish manufacturing firms relied greatly on manual production processes this year 2010. Increasing international competition from China is a driver for investments in automation.

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Advanced economies’ progress dismal and dazzling

Advanced economies’ progress: Dismal and dazzling

Ian Goldin, Chris Kutarna 04 October 2016

Some economists see currently faltering GDP growth within a longer-term trend for advanced economies, reflecting their belief that the majority of technological innovation is currently behind humankind. This column argues that neither history nor the present-day pace of scientific discovery supports the idea of diminishing returns to know-how. The task for growth economists is that analytic models are poorly suitable for capturing and setting society’s expectations for these impending disruptions.

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Adjustment in the eurozone can reforms help

Adjustment in the eurozone can reforms help

Further tests for the Eurozone

The Eurozone adjustment channel will get a major test in the a long time. Resilient labour and product markets will be key to make sure that the adjustment is efficient and sustainable socially and politically. The need to set up place policies to improve harmful imbalances and favour adjustment in Eurozone countries is underscored in a legislative package recently proposed by the European Commission and the task completed by the EU Council Task Force on economic governance, chaired by Herman Van Rompuy. Promoting adjustment-friendly structural reforms can be among the objectives within the Europe 2020 strategy launched last March by the European Commission, and EU Member States will submit their National Reform Programmes by April 2011, which is assessed by the Commission, the EU Council, and the European Council (draft programmes will be submitted throughout November 2010).

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Addressing the too connected to fail problem

Addressing the too connected to fail problem

Ways of assessing systemic risk

In recent research, we examine methodologies that could reveal when direct and indirect financial linkages may become systemic (IMF 2009, Chapter 2). Specifically, we present several complementary methods to assess financial sector systemic linkages, including:

  • The network approach relies primarily on institution-level data to assess ‘network externalities – how interconnections could cause unexpected problems. This analysis, that may track the reverberation of a credit event or liquidity squeeze through the entire financial system, can offer important measures of financial institutions’ resilience to the domino effects triggered by credit and liquidity distress.

Figure 1. Network analysis

  • The co-risk, or conditional credit risk, model. Because detailed institution-level information is hard to acquire, we also illustrate methodologies that use market data to fully capture direct and indirect systemic linkages. For example, Figure 2 shows the percentage upsurge in the conditional credit risk (CoRisk). Co-risk is measured as the upsurge in credit default swap (CDS) spreads of a “recipient” institution that could result when the CDS spread of a “source” institution (at the bottom of the arrow) reaches the 95th percentile of its distribution. This measures the market’s perception of the upsurge in the “tail risk” induced by one institution toward others by March 2008, before Bear Stearns was merged into JPMorgan. Finally, we present a methodology with high predictive power that exploits historical default data for the united states to assess direct and indirect systemic linkages bank-system wide. Chapter 3 of the IMF report provides further systemic risk analyses predicated on market data.

Figure 2. A diagrammatic depiction of co-risk feedbacks

  • The default intensity model, made to capture the result of contractual and informational systemic linkages among institutions, along with the behaviour of their default rates under different degrees of aggregate distress. The model is formulated when it comes to a stochastic default rate, which jumps at credit events, reflecting the increased probability of further defaults because of spillover effects. The model was estimated with data obtained from Moody’s Default Risk Service. The info comprises all defaults suffered by most of Moody’s rated corporate issuers in america, and spans the time from 1 January 1970 to 31 December 2008.

Each approach has its limitations, but together these procedures can offer invaluable surveillance tools and will form the foundation for policies to handle the too-connected-to-fail problem. More specifically, these approaches might help policymakers to assess direct and indirect spillovers from extreme events, identify information gaps to be filled to boost the precision of the analysis, and offer concrete metrics to aid in the re-examination of the perimeter of regulation – that’s, which institutions ought to be included and which do not need to be at various degrees of regulation.

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Addressing the teen-motherhood ‘crisis’

Is teenage motherhood actually the problem?

If teen motherhood is really costly, then many teenage girls are either uninformed about its costs, or too impulsive to do something upon this information. Providing them with better information and the capability to avoid impulsive behaviour will be effective policy. But, if the true reason teen mothers have bad outcomes is that these were already disadvantaged, they will probably disregard the incorrect information, especially because it violates their own experience. And, if teen motherhood isn’t the problem, changing the teens’ behaviour so they avoid motherhood, won’t help them.