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21. Too Much of a Good Thing? Speculative Effects on Commodity Futures Curves

Author:
Sophie van Huellen
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The increasing inflow of institutional investors replicating broad based indices into commodity futures markets has been linked to excessive calendar spreads and anomalies in futures curves. At the same time, these investors have been welcomed as liquidity providers. This paper hypothesises that this apparent dissent can be reconciled by considering the relative size of index positions to hedging positions, rather than the presence of index traders alone. The hypothesis is tested empirically for three soft commodity markets: cocoa, coffee, and cotton. By use of factor decomposition, the paper shows empirically that (a) index and hedging positions have inverse and offsetting effects on futures curves, and (b) index positions, net of hedging positions, are associated with upward sloping and peaked futures curves and occasionally wave-like shapes linked to roll-effects. The paper concludes that index traders are welcomed liquidity providers but can become ‘too much of a good thing’ if exceeding hedgers’ demand for counterparty.
Topic:
Investment, Commodities, Fiscal Policy, and Trade
Political Geography:
Global Focus

22. Fiscal Sustainability: Conceptual, Institutional, and Policy Issues

Author:
Marek Dabrowski
Publication Date:
08-2016
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.' What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
Topic:
Debt, Financial Crisis, Finance, Global Financial Crisis, Macroeconomics, Fiscal Policy, and Deficit
Political Geography:
Europe, Global Focus, and Global Markets

23. On Historical Household Budgets

Author:
Brian A'Hearn, Nicola Amendola, and Giovanni Vecchi
Publication Date:
05-2016
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The paper argues that household budgets are the best starting point for investigating a number of big questions related to the evolution of the living standards during the last two-three centuries.
Topic:
Budget, Fiscal Policy, Homeownership, and Housing
Political Geography:
Global Focus

24. A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks

Author:
Edward J. Kane
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper applies Schein’s model of organizational culture to financial firms and their prudential regulators. It identifies a series of hard-to-change cultural norms and assumptions that support go-for-broke risk-taking by megabanks that meets the every-day definition of theft. The problem is not to find new ways to constrain this behavior, but to change the norms that support it by establishing that managers of megabanks owe duties of loyalty, competence, and care directly to taxpayers.
Topic:
Economic Theory, Central Bank, Risk, Fiscal Policy, and Banking
Political Geography:
Global Focus

25. Risk, Financial Development and Firm Dynamics

Author:
Bernardo Morias
Publication Date:
05-2015
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
I document that the average productivity of firms tends to increase, and its variance to decrease, as they age. These two facts combined suggest that managers learn to reduce their mistakes as they operate. I develop a quantitative framework mimicking these dynamics and find that young firms have substantially higher financing costs due to lower and riskier returns. In this scenario, a reduction in the financial development of an economy raises disproportionately the cost of credit of young-productive firms increasing the input misallocation within this subgroup. To test the validity of the theory, I find that the data confirms some novel predictions on a series of firm-level moments. Finally, I show that introducing these two facts allows the model to better explain the relation between financial and economic development.
Topic:
Development, Economic Theory, Risk, Fiscal Policy, Models, and Productivity
Political Geography:
Global Focus

26. International Financial Spillovers to Emerging Market Economies: How Important Are Economic Fundamentals?

Author:
Shaghil Ahmed, Brahima Coulibaly, and Andrei Zlate
Publication Date:
05-2015
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs). Our analysis covers the so-called taper-tantrum episode of 2013 and six earlier episodes of severe EME-wide financial stress since the mid-1990s. Cross-country regressions lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in quite early and persisted throughout this episode. (3) Controlling for economic fundamentals, we also find that, during the taper tantrum, financial conditions deteriorated more in those EMEs that had earlier experienced larger private capital inflows and greater exchange rate appreciation. (4) For earlier episodes, we find little evidence of investor differentiation across EMEs being explained by differences in their relative vulnerabilities during EME crises of the 1990s and early 2000s. (5) That said, differentiation across EMEs based on fundamentals does not appear to be unique to the 2013 episode. Differences in economic fundamentals played a role in explaining the heterogeneous EME financial market responses during the global financial crisis of 2008, and the role of fundamentals appeared to progressively increase through the European crisis in 2011 and subsequently the 2013 taper tantrum.
Topic:
Economics, Emerging Markets, Markets, Exchange Rate Policy, Fiscal Policy, and Economic Crisis
Political Geography:
Global Focus

27. Parliamentary Briefing: Fiscal Regimes

Author:
Natural Resource Governance Institute
Publication Date:
03-2015
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
A fiscal regime is the set of instruments (e.g., taxes, royalties, dividends) that determines how the often-vast sums of funds generated by oil, gas and mining projects are shared between the state and investors. Fiscal instruments are generally set by legislation or specific contracts and can vary significantly from one extractive project to another. In addition, the way in which royalty and taxes are applied can also have a significant effect on the actual size of the revenues that are collected. This factsheet provides an introduction to the different elements of a fiscal regime and suggests various questions and strategies members of parliament can follow for establishing effective fiscal policies and conducting oversight.
Topic:
Natural Resources, Tax Systems, Fiscal Policy, and Revenue Management
Political Geography:
Global Focus

28. Financial Business Cycles

Author:
Matteo Iacoviello
Publication Date:
08-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Using Bayesian methods, I estimate a DSGE model where a recession is initiated by losses suffered by banks and exacerbated by their inability to extend credit to the real sector. The event triggering the recession has the workings of a redistribution shock: a small sector of the economy--borrowers who use their home as collateral--defaults on their loans. When banks hold little equity in excess of regulatory requirements, the losses require them to react immediately, either by recapitalizing or by deleveraging. By deleveraging, banks transform the initial shock into a credit crunch, and, to the extent that some firms depend on bank credit, amplify and propagate the shock to the real economy. I find that redistribution and other financial shocks that affect leveraged sectors accounts for two-thirds of output collapse during the Great Recession.
Topic:
Economics, Global Recession, GDP, Economic Theory, Fiscal Policy, and Banking
Political Geography:
Global Focus

29. When will the global economy return to rapid growth?

Author:
Marek Dabrowski
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
More than six years have passed since the subprime mortgage crisis began in the US in the summer of 2007. In the following year, it spread to the entire world economy. Its consequences have not been fully overcome yet. Thus it’s not surprising that economists’ attention has been largely devoted to short-term, crisis-related issues like financial deleveraging and repairing the balance sheets of governments, corporations and households. For the macroeconomic policy debate, this means concentrating on demand management by using monetary and fiscal policy tools in order to return to a pre-crisis growth path. Rarely has the question been asked of whether or not this is a realistic goal, i.e., whether post-crisis growth can return to pre-crisis levels. An analysis of growth perspectives in the medium-to-longterm calls for using the neo-classical growth theory, according to which there are three factors at play: labor, capital and total factor productivity (TFP). In this brief we will try to figure out what their expected dynamics are and how much each of them can contribute to economic growth in the foreseeable future.
Topic:
Economic Growth, Global Financial Crisis, Economic Policy, Macroeconomics, and Fiscal Policy
Political Geography:
Global Focus and Global Markets

30. Asymmetric Information and the Death of ABS CDOs

Author:
Daniel O. Beltran, Larry Cordell, and Charles Thomas
Publication Date:
03-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
A key feature of the 2007 financial crisis is that for some classes of securities trade has practically ceased. And where trade has occurred, it appears that market prices are well below their intrinsic values. This seems especially true for those securities where the payoff streams are particularly complex, for example, structured finance ABS CDOs. One explanation for this is that information about these securities' intrinsic values since the crisis has been asymmetric, with current holders having better information than potential buyers. We first characterize the information asymmetries that were present in the structured finance ABS CDO market. Because many of the CDO dealers had partially or fully integrated the pipeline from mortgage originations through CDO issuance, they had informational advantages over potential buyers that could well have disrupted trading in CDOs as the crisis took hold in August of 2007. Using a "workhorse" model for pricing securities under asymmetric information and a novel dataset for the intrinsic values of ABS CDOs, we show how the resulting adverse selection problem could explain why the bulk of these securities either trade at significant discounts to their intrinsic values or do not trade at all.
Topic:
Security, Economics, Financial Crisis, and Fiscal Policy
Political Geography:
Global Focus