To study the effects on credit availability, we first match each loan with the rel- evant bank balance-sheet variables and then aggregate all the different loans for each bank-firm pair in each month in order to construct a measure of total com- mitted lending from January 2008 to December 2008. By focusing on firms’ bor- rowing from multiple banks, we follow a difference-in-difference approach which compares lending to the same firm before (April, 2008) and after (July, 2008) the policy change among banks with different degrees of exposition to the sources of funds targeted by the policies (Jim´enez, Ongena, Peydr´o, Saurina, 2013). This allows us to identify the effects ofthe new reserve requirements onthe average supply of loans, both onthe intensive and the extensive margins, and the hetero- geneous effects of these changes among different firm and bank characteristics. In particular, on firms’ heterogeneity, we analyze whether the impact is different from firms with different ex-ante risk, and on banks’ heterogeneity, we analyze bank size, solvency and liquidity (Kashyap and Stein, 2000). Moreover, as we lose a significant number of firms imposing multiple banks loans, we also control for unobserved borrower fundamentals with industry fixed effects. Finally, we also analyze the period before (January to April 2008) and after (July to October 2008) to run a placebo test.
This paper develops a search and matching model with an explicit theoretical link between wage stickiness and job destruction. This task has proved to be a difficult one in the existing literature, as one needs to deal with the criticism of Barro (1977), directed at the allocational effects of wage stickiness. In particular, Barro argued that job separations due to wage stickiness violate rationality as the worker and the firm have an ongoing relationship and should therefore be able to exploit all potential gains from mutual trade. The model developed here avoids this criticism by relying on microeconomic foundations for wage stickiness. More precisely, the model explicitly acknowledges that wage bargaining takes time and other resources, and thus relates the origins of infrequent wage adjustments to a fixed wage bargaining cost. Firms and workers are thus free to renegotiate the wage at any point in time, but need to pay a fixed bargaining cost whenever such wage negotiations occur. Whether it is optimal to renegotiate or not, will depend on aggregate and idiosyncratic productivity shocks experienced, with wage iner- tia emerging as an endogenous outcome ofthe model. Crucially, in recessionary periods characterized by low aggregate productivity some firms and workers will find it optimal to separate instead of renegotiating the wage and paying the fixed wage bargaining cost. In this sense, the model rationalizes the empirical obser- vation that many firms in recessions do not avoid layoffs by cutting pay (Bewley, 1998, 1999).
In the first essay, I ask how banks make their loan approval decisions and se- lect their screening activity if their loan offers can be observed by uninformed rival lenders. I find that the impact of such an informational imperfection on screening incentives and lending standards can be rather dramatic: in order to prevent unin- formed outsiders from poaching their customers, informed banks will intention- ally make “more erratic” lending decisions and will include too many borrowers of poor quality in their loan portfolio. Moreover, they will intentionally under- invest in screening and accept that their screening decisions remain quite noisy. Both effects aggravate the adverse selection problem that an uninformed outsider faces which helps informed banks to protect themselves from competition. Most interestingly, these distortions in credit are not constant in time but vary substan- tially as the expected cash flows of projects change: I find that especially in times of low interest rates and high collateral values banks are likely to lend too much and to screen too little. I argue that the predictions ofthe model are well in line with many known stylized facts about credit booms. Finally, I explore a dynamic version ofthe model in which banks’ choices of screening precision exhibit some sort of rigidity. This extended model generates boom-bust cycles in credit that are increasing in the amount of bank competition: it features both excessive credit in boom times and inefficiently severe lending contractions in recessions.
In this regard, we observe that the United Kingdom is the leading country in terms ofthe number of active entities by far, being this figure approximately five times bigger than Germany, Spain or France. As some authors and consulting groups have emphasised, the implementation ofthe regulatory sandbox in 2015 is one ofthe primary circumstances explaining their success. If we are able to confirm that the increase in the number of Fintechs and funding rounds have a positive effect onthe level of competitiveness and efficiency ofthe British banking system, the employment of regulatory sandboxes would be a very recommendable policy for each country who wants to benefit from technological disruption and financial innovation. Besides that, it could also be a motivating topic for future research to study how the Brexit’s economic and financial consequences will affect their FinTech sector.
Our findings are relevant in understanding the liquidity provision process and might enlighten policy makers onthe implications of insider trading restrictions, disclosure requirements, and insider transactions publicity onthe liquidity of stock markets. Moreover, the impact of insider trading on liquidity, short-horizon variance and skewness is relevant for risk management and asset pricing. Firms that restrict insider trading activity might have less liquid and more volatile stocks. Further- more, the inability to provide price support onthe firm’s account makes financially constrained firms riskier. Finally, the presence of lockup periods, in which insiders cannot sell their holdings, can make stock prices more prone to temporal overpricing. At the current state of our research agenda, two important questions remain that will be addressed in further work. The first is to improve our understanding of liquidity provision by insiders by focusing on large price corrections due to liquidity shocks. In this event-study type setting we will be in a better position to asses insiders actions and their impact on return distributions. The second is analyzing the effect of earlier disclosure of insider trades, as imposed by Sarbanes-Oxley Act after August of 2002. Furthermore, our results call for the need to develop a full theory that analyzes the tradeoffs involved in insiders’ decision to trade onthe firm’s vs their own account, in the presence of liquidity shocks, when both moral hazard and adverse selection considerations are in place. All these extensions, however, are beyond the scope ofthe present paper.
ratio serves as a proxy for bank stability. The loan ratio is commonly used to accurately time nancial crises and presents a more detailed way to analyze the eect of competition on risk distribution. The use ofthe non-performing loan ratio has several distinct advantages over the crisis dummy variable, namely the fact that it is not binary and helps to isolate the eects of competition onthe risk allocation channel. High non-performing loans ratios are highly correlated with crisis periods. However, the loan ratios yields information onthe size ofthe shock to thebanking sector without taking in to account the initial conditions. In other words, outside of risk distribution, the ratio of non-performing loans to total loans should not depend onthe charter value of a rm, or its available capital. Two countries may experience similar shocks to borrower ability to pay, but have diering capital positions. A system with stronger assets held in reserve may survive the shock without a crisis while a less buered system may experience a crisis. This data is, regrettably, only available from 2005-2010. While the use of such a short data sample is problematic for many reasons, it is only critical to the nal exercise in this paper and further research should be in this area when more data is available. The use of this data also serves as an additional check for robustness, as the sign onthe proxy for competition should be the same in regressions using the crisis dummy and those using the loans ratio.
gests that the main mechanism that …ring costs a¤ect the dynamics of unemployment is through termination decision. Firing costs dampen sensitivity ofthe response of a match to productivity shocks, since …rms are less willing to layo¤ the redundant workers. This decreases the contribution of out‡ows to unemployment ‡uctuations. In contrast, a higher unemployment bene…t provides a larger opportunity cost of employment. This makes a match more vulnerable to endogenous break, which in turn corresponds to a larger contri- bution of out‡ows to the ‡uctuations of unemployment. My proposed explanation for the observed e¤ect of restrictive regulations –in the empirical part as well as in the simulations- has the same ‡avor. The restrictive regulations create more ‡uctuations in separations, since they impose additional operational costs to the threshold …rms. In the bad times, a match may need to change some of its work arrangements to survive. However, restrictive regulations could make those arrangements too expensive -or even infeasible- for the match. Consequently, a …rm bounded with those restrictive regulations, even in the presence of high …ring costs, …nds it optimal to terminate a match to not bear the excess costs implied by restrictive regulations.
I develop a new dynamic framework to analyze juvenile crime. The consistent decisions, between crime and legal activities, of forward-looking youths depend upon their work and crime related skills, which in turn are shaped by their history of past choices. The model explicitly recognizes the contrasting levels of punishment ofthe juvenile and adult criminal systems. Signi…cant changes in the incentives to engage in criminal activities coupled with an unusual increase in juvenile delinquency make Uruguay an ideal environment to calibrate and test this framework. Model predictions indicate that four factors can account for 86 percent ofthe observed variation in juvenile crime: the evolution of wages relative to the monetary gains from crime; a new lenient juvenile crime regulation that includes the decriminalization of attempted-theft; an increase in the escape rate from correctional facilities, and a cocaine base epidemic. Additional counterfactual results suggest an increase in the expected punishments of young o¤ enders in the juvenile justice system is a better way to …ght juvenile crime than an early transition to adult courts. The …rst alternative not only predicts a similar reduction in juvenile o¤ ending but also avoids negative consequences in terms of adult criminal behavior.
The affiliated companies are owned and managed by a small group of persons. These persons are generally individuals who have kinship, and/or business relationships that eventually consolidate trust between them, to share economic interests in several companies not necessarily related with their core business 36 . An example of this is Grupo Carso, which, together with control exercised by other families, have business interests in fixed telephony (Telefonos de Mexico), mobile (America Movil), a chain of retail and restaurants (Sanborns), banking, insurance and securities (Grupo Financiero Inbursa), the construction sector (Cementos Moctezuma, IDEAL and INCARSO), and mining (MFRISCO). In addition, they are partners ofthe company that manages the Mexican Stock Exchange (BOLSA), have participation in a Pension Funds firm (ACTINVER), and control a holding of manufacturing companies (GCARSO) 37 . The peculiarity of this business group is that its main shareholder is the wealthiest Latin American, and in recent years, according to Forbes magazine, is one ofthe three richest in the world.
The results in this paper sheds some light onthe discussion about contingent credit lines for …nancial systems. Propositions 4.1 and 5.1 state that international institutions may provide funds with high liquidity needs in the short run, so that withdrawals do not have to be suspended. This is helpful to interpret the bank- ing distress situation in Argentina, in 1995, after the Mexican crisis. The model suggests that the help from the International Monetary Fund, the Inter American Development Bank and the World Bank was mainly directed to provide funds due to a fundamental liquidity shock faced by thebanking system of this country (besides thebanking system restructuring process, see Camdessus, 1995). It is interesting to compare this view to the traditional self-ful…lling run interpretation of such a crisis. Thebanking crisis in Argentina in 1995 may be viewed as a high realization ofthe liquidity shock. This interpretation seems to be more consistent with the model presented here than with the usual (ine¢cient) equilibrium inter- pretation. As Chang and Velasco (1998a) and others have shown, in a traditional Diamond - Dybvig model without aggregate uncertainty a lender of last resort always prevents runs. Hence runs cannot occur in these equilibria. This is incon- sistent with the evidence. Proposition 5.1 specially implies that, in state 1 (when the proportion of impatient consumers is high) banks must reduce payments at some point. It also implies that the borrowing constraint is binding. This can be interpreted as a situation in which the government negotiates an increase in loans (which is not necessary with lower liquidity needs). This negotiation actu- ally happened in 1995 (see the document IMF News, 1995). The actual increase in Disbursements from 1994 to 1995 to Argentina was larger than 2.5 times (from 611.95 millions of ADR’s to 1,558.966 millions).
Minsky’s interpretation of business cycles being driven by credit is related to the Post Keynesian endogenous money model (Moore, 1988). In the era of modern liability management, bank lending operations are neither deposit nor reserve constrained: instead, loans make deposits and deposits make reserves (Lavoie, 1984). Recent research evidences banking credit booms are related to the business cycle. Jorda, Schularick and Taylor (2011) show higher rates of credit growth relative to GDP tend to be followed by deeper recessions and slower recoveries. Carpenter and Demiralp (2010) note the money multiplier is not useful to assess the effects of monetary policy on future money growth or bank lending. Upswings, when based on credit booms, are often induced by financial innovations (Brown, 1997). The development of financial innovations such as the collateralized debt obligations (CDO) or the credit default swaps (CDS) surely would have made theconsequencesof overconfidence over leverage more severe, also fostering demand-side effects (Brown, 2007). Under the money endogeneity principle, the supply of reserves is horizontal at the central bank’s target and, since they pay low or even zero rates, banks continually innovate to reduce the quantity of reserves they need to hold, increasing the rate of return on equity within regulatory constraints (Wray, 2007). This was evident for Alan Greenspan himself, who complained how easy it was for CEOs to craft financial statements to deceive the public (Friedman and Friedman, 2009). Boz and Mendoza (2014) provide a model of financial innovation and overconfidence in the context ofthe U.S. credit crisis, showing that financial innovation can lead to significant underestimation of risk.
Second, regarding the exogenous variation ofthe population, I argue that this is ob- tained conditionally in some predetermined variables. When examining the population density of Brazil across its territory, it can be seen that this is concentrated along the coast ofthe country, which should be explained because ofthe resource exploitation strategy ofthe Portuguese colonizers (Martine and McGranahan, 2010; Martine and Diniz, 1997; Martine, 1990). In fact, Frei Vicente of Salvador, a Franciscan scholar ofthe time, said that the Portuguese colonists were like “crabs scratching onthe coastline” (Diniz, 2005). The exploited wealth was mostly agricultural and mineral. However, Martine and Mc- Granahan (2010) document that the distribution ofthe population outside the main ports and the main points of exploitation (this refers to other places along the coast or near the Amazon Forest) depended onthe economic cycles experienced by the exploited products, depending, for example, on fluctuations in the international market. As they posit: “Each new economic cycle led to flourishing towns in some limited part ofthe country’s extensive coastline. Leading the drive towards the interior, these towns and cities were closely linked to the motherland but isolated from one another.”
Wessels, 1988; Frank and Goyal, 2008, 2009). In particular, we use the logic ofthe pecking order theory to examine whether the banks’ choices of ﬁnancial instruments are related to adverse selection costs. Also, we test whether the choice of ﬁnancial instruments targets an optimal capital structure. To perform such tests, we look at the expected choices of ﬁnancial instruments if banks have liquidity needs or have growth opportunities as predicted by the different theories. Speciﬁcally, we test whether banks have a preference toward debt, as the pecking order predicts, or if banks want to maintain a target capital ratio, as predicted by the trade-off theory. The pecking order theory argues that the issuance of ﬁnancial instruments responds to informational problems and banks should prefer to issue the type of market instrument that minimizes the adverse selection discount. The trade-off theory states that there is an optimal capital structure for each individual bank and banks should issue those ﬁnancial instruments that minimize the overall cost of their capital structure. If the pecking order holds, we expect a higher probability in issuing instruments with more information asymmetries (i.e., capital) for those banks that the markets know, such as listed banks. If the trade-off theory holds, banks prefer to combine issuances of different instruments to reach or maintain an optimal capital structure. We also test how the fulﬁllment of capital regulation affects the choice of ﬁnancial instruments. Under the pecking order, we hypothesize that banks prefer to issue debt-like capital instruments (from now on, hybrid instruments) rather than capital instruments (i.e., common shares) because the former can also be computed as regulatory capital but suffer from lower costs of asymmetric information as compared to capital instruments. Under a trade-off, we could expect a combination of issuances of hybrid and capital instruments to maintain the relative weight ofthe different capital instruments.
In the last three decades there have been several banking crises, including the current financial crisis, around the world affecting low-income and high-income countries alike. The costs, both social and fiscal, in resolving bank failures has led to a substantial debate over this role ofthe Lender of Last Resort (LOLR). The LOLR was originally conceived as a means to rescue banks experiencing liquidity problems and to prevent bank runs occurring. However, the role ofthe LOLR has been extended to rescuing insolvent institutions. Recent bailouts have involved, amongst other resolution policies, governments guaranteeing bank loans, buying equity and injecting capital, purchasing illiquid securities and non-performing loans at favourable prices. In these cases the government has injected real resources or become exposed to potential real losses. The ability of a government to absorb these losses is not unlimited, both because a government generally has competing uses for its resources but also must keep debt at a sustainable level. Lenient rescue policies have long been criticised for inducing an ex-ante moral hazard problem and excessive risk taking by banks as far back as Bagehot (1873). Onthe other hand, not having a LOLR at all can cause unnecessary social losses resulting from bank failures. This has become the rational extending the role ofthe Lender of Last Resort from the original role of liquidity provider to a role where it may rescue insolvent institutions. There is a well known tradeoff between the ability to deal with a crisis with a generous Lender of Last Resort and exacerbating moral hazard. This suggests that the optimum may lie somewhere inbetween.
The gure suggests that interest rate smoothing (TTRS) may improve somewhat onthe truncated Taylor rule (TTR), and may do a bit worse than the rule reacting to the price level (TTRP). However, it implies the least instrument volatility. Onthe other hand, the truncated rst-difference rule (TFDR) seems to be doing the best job at stabi- lization in a liquidity trap among the examined four simple instrument rules. However, under this rule the nominal interest rate deviates most from its steady-state, hitting zero for ve quarters. Interestingly, the paths for in ation and the output gap under this rule resemble, at least qualitatively, those under the optimal commitment policy. This sug- gests that introducing a substantial degree of interest rate inertia may be approximating the optimal history dependence of policy implemented by the optimal commitment rule. It is important to keep in mind that the above simulations are conditional on one particular path for the natural real rate. It is of course possible that a rule which appears to perform well while the economy is in a liquidity trap, turns out to perform badly “on average”. In the following section I undertake the ranking of alternative rules according to an unconditional expected welfare criterion, which takes into account the stochastic nature ofthe economy, time discounting, as well as the relative cost of in ation vis-a-vis output gap uctuations.
The second strand of literature to which our study relates is that of financial market contagion or shock transmission in the immediate aftermath of a banking crisis. Again, this topic has attracted much attention and tends to focus onthe international transmission ofbankingshocks. Due to the highly integrated nature ofthe international banking industry, (see Bekaert et al., 2009), it is important to distinguish between ‘normal’ levels of asset comovements (interdependence) and those that are excessive or unpredictable during a crisis period (see Forbes and Rigobon, 2002). A rigorous study, covering 54 countries, by Dungey and Gajurel (2015) finds widespread evidence of contagion following the U.S. banking crisis. Gropp et al. (2009) use micro-level bank data for European countries and similarly finds evidence of contagion within the Eurozone. Fry-McKibben and Hsiao (2015) apply new tests of contagion to a sample of eight countries and conclude that contagion among international banking sectors was prevalent after the U.S. crisis.
My doctoral thesis is a collection of three essays that study various aspects of eco- nomic development, with a special emphasis on Latin America. The first two chap- ters analyze some ofthe determinants of human capital investments and other family decisions in developing countries. In the first chapter, I study the impact of violence onthe educational gender gap. In the last few decades, Latin America has experienced a substantial increase in violence related to gang/organized crime, fueled by the expansion of narcotraffic. This paper analyzes the impact of this type of violence on human capital investment decisions. I focus onthe relationship between the male versus female homicide rate differential and the gender gap in education. Using data from Colombia and exploiting the temporal and spatial variation in violence between 1985 and 2005, I find that boys are less likely to be enrolled at secondary school age relative to girls when male-biased violence is high. An increase of one standard deviation in violence leads to a 1.1 percentage point enlargement ofthe gender gap in enrolment, in disfavor of boys. This effect is important since the gender gap in enrolment in secondary school in Colombia is estimated to be 8 percentage points, in favor of girls. I find a similar effect on years of school completed. Estimates are larger in families with lower levels of education and robust to the inclusion of municipality-year fixed effects and household fixed effects. In addition, results are not driven by migration or coca production. The evidence in this paper suggests that violence has an impact on investments in education through two main chan-nels: changes in the opportunity cost of schooling, and changes in life expectancy and perceived safety.
Of course, the explanation, in terms of non-monetary incentive, is not exclusive. Another one in terms of organizational resource is possible. This organizational resource is part ofthe production function in the same way as the physical resource, and has a positive role in productive efficiency (Black and Lynch 2002, 2006; Capelli and Neumark, 1999; Bailey et al. 2001) and the employees’ level of effort. But what is an organizational resource? It is the ability ofthe organization to mobilize skilled workers’ knowledge in order to support the process of necessary change to improve work conditions. In other words, it corresponds to the organizational structures to promote new practices in human resource management (HRM), and would cover techniques allowing, for example, more autonomy at work, shortened hierarchical lines, team work (autonomous teams with cross disciplinary groups, or problem-solving groups), with total focus on quality and just in time production.
The first principle corresponds to the compensation principle: compensation means we should compensate for factors for which the individual is not responsible. Therefore, people with the same preferences should achieve the same well-being. This is very similar to Roemer’s criterion that requires people with the same responsibility factors should end up with an equal outcome. The second principle corresponds to the neutrality principle: neutrality refers to the neutral treatment of individuals with respect to their preferences. This neutrality principle means that individuals should be treated equally with respect to their preferences 2 . As a result, redistribution mechanisms should be designed in such a way that individuals with equal circumstances will pay/receive the same taxes/transfers. This principle is closer to Van de gaer’s criterion that recommends people to have equal opportunities whatever their non-responsibility factors. Because people should have the same opportunities before making their own choice (i.e. deciding on their responsibility factor), this principle encapsulates the idea of neutrality according to which the treat- ment ofthe individuals should be independent from their responsibility factors. The compensation and natural reward principles, probably equally appealing, cannot be both satisfied when individuals have heterogeneous preferences [35, 11]. That is why, Fleurbaey and Maniquet measure unfairness through two criteria, each one giving the priority to one principle and fulfilling only partially the second one. The criterion of conditional equality fulfills the natural reward principle and compensates partially inequalities due to non- responsibility factors. The criterion of egalitarian equivalence gives priority to
irrespectively ofthe good purchased. When reference prices are enforced, the situation differs because if the consumer buys the branded good, with a price higher than the generic, then (s)he not only pays the same copayment as before, but this time associated to the reference price, but also the difference between the price ofthe branded good and the reference price. If the consumer decides to buy the generic good, the situation is unchanged, in the sense that (s)he pays the same copayment ofthe price ofthe generic as before. Results obtained show that changing a copayment system to a reference price system can actually affect the R&D decision of firms. When a breakthrough drug is produced, one ofthe (short-run) objectives of reference prices is actually achieved: prices are lower than with copayments. However, we can have cases where the demand for the branded drugs is also lower under reference prices, so that overall, profits for the incumbent firm might be reduced. Hence, if this is the case, Health Authorities might actually discourage the production of breakthrough drugs if reference prices substitute copayments, since profits for these firms will be reduced. The story is somewhat similar when a me-too drug is produced. Prices for the branded drugs are reduced with the introduction of reference prices. Again, under certain conditions, demand for these goods can be higher under such system. For this to be the case, we require that the reference price is set high enough. Moreover, the demand for the new drug produced has to be sufficiently high. Otherwise, the incumbent firm will again be left worse off under reference prices.