Research articles for the 2019-04-26
Consumer Lending Efficiency: Commercial Banks versus a Fintech Lender
SSRN
We compare the performance of unsecured personal installment loans made by traditional bank lenders with that of LendingClub, using a stochastic frontier estimation technique to decompose the observed nonperforming loans into three components. The first is the best-practice minimum ratio that a lender could achieve if it were fully efficient at credit-risk evaluation and loan management. The second is a ratio that reflects the difference between the observed ratio (adjusted for noise) and the minimum ratio that gauges the lender's relative proficiency at credit analysis and loan monitoring. The third is statistical noise. In 2013 and 2016, the largest bank lenders experienced the highest ratio of nonperformance, the highest inherent credit risk, and the highest lending efficiency, indicating that their high ratio of nonperformance is driven by inherent credit risk, rather than by lending inefficiency. LendingClub's performance was similar to small bank lenders as of 2013. As of 2016, LendingClub's performance resembled the largest bank lenders â€" the highest ratio of nonperforming loans, inherent credit risk, and lending efficiency â€" although its loan volume was smaller. Our findings are consistent with a previous study that suggests LendingClub became more effective in risk identification and pricing starting in 2015. Caveat: We note that this conclusion may not be applicable to fintech lenders in general, and the results may not hold under different economic conditions such as a downturn.
SSRN
We compare the performance of unsecured personal installment loans made by traditional bank lenders with that of LendingClub, using a stochastic frontier estimation technique to decompose the observed nonperforming loans into three components. The first is the best-practice minimum ratio that a lender could achieve if it were fully efficient at credit-risk evaluation and loan management. The second is a ratio that reflects the difference between the observed ratio (adjusted for noise) and the minimum ratio that gauges the lender's relative proficiency at credit analysis and loan monitoring. The third is statistical noise. In 2013 and 2016, the largest bank lenders experienced the highest ratio of nonperformance, the highest inherent credit risk, and the highest lending efficiency, indicating that their high ratio of nonperformance is driven by inherent credit risk, rather than by lending inefficiency. LendingClub's performance was similar to small bank lenders as of 2013. As of 2016, LendingClub's performance resembled the largest bank lenders â€" the highest ratio of nonperforming loans, inherent credit risk, and lending efficiency â€" although its loan volume was smaller. Our findings are consistent with a previous study that suggests LendingClub became more effective in risk identification and pricing starting in 2015. Caveat: We note that this conclusion may not be applicable to fintech lenders in general, and the results may not hold under different economic conditions such as a downturn.
Crise des Subprimes, Réglementation Prudentielle: Z-score ou Rating? Une Etude sur Des Banques De La Zone Euro (Subprime Crisis, Prudential Regulatory: Z-Score or Rating? A Study on Banks of the Eurozone)
SSRN
French Abstract: Le présent article s’intéresse à l’étude de l’impact de la réglementation prudentielle bancaire sur le risque de défaillance des banques de la zone Euro pendant la crise financière des subprimes. Deux indicateurs de mesures de risque de faillite sont utilisés, le Z-score et le rating. La méthodologie adoptée consiste à effectuer des estimations en utilisant un modèle du type Logit incluant comme variables explicatives des variables du type CAMEL, des variables réglementaires mais aussi des variables macroéconomiques. Les résultats empiriques trouvés montrent que, quelle que soit l'approche retenue pour mesurer le risque de faillite, les variables telles que le renforcement des capitaux propres, le niveau des liquidités, la restriction et la surveillance sur les activités bancaires, sont statistiquement significatives. De plus, on trouve que le Z-score, comme méthode d’évaluation du risque bancaire, montre une certaine supériorité par rapport au rating pour mieux prévenir en ex post les cas des banques en situation de faillite pendant la crise des subprimes.English Abstract: The present article examined the impact of prudential banking regulation on distress in European Banks during the subprime crisis. Two indicators are used to assess the risk of bankruptcy, the Z-score and the rating. The methodology consists to use a logit model which includes CAMEL, regulatory and also macroeconomic variables. This study revealed that capital adequacy requirements, liquidity position, restrictions and supervisory monitoring are the most statistically significant bank specific factors which influence distress in European banks during the subprime crisis. In addition, we found that the Z-score criteria is more able to predict banks bankruptcy than the rating.
SSRN
French Abstract: Le présent article s’intéresse à l’étude de l’impact de la réglementation prudentielle bancaire sur le risque de défaillance des banques de la zone Euro pendant la crise financière des subprimes. Deux indicateurs de mesures de risque de faillite sont utilisés, le Z-score et le rating. La méthodologie adoptée consiste à effectuer des estimations en utilisant un modèle du type Logit incluant comme variables explicatives des variables du type CAMEL, des variables réglementaires mais aussi des variables macroéconomiques. Les résultats empiriques trouvés montrent que, quelle que soit l'approche retenue pour mesurer le risque de faillite, les variables telles que le renforcement des capitaux propres, le niveau des liquidités, la restriction et la surveillance sur les activités bancaires, sont statistiquement significatives. De plus, on trouve que le Z-score, comme méthode d’évaluation du risque bancaire, montre une certaine supériorité par rapport au rating pour mieux prévenir en ex post les cas des banques en situation de faillite pendant la crise des subprimes.English Abstract: The present article examined the impact of prudential banking regulation on distress in European Banks during the subprime crisis. Two indicators are used to assess the risk of bankruptcy, the Z-score and the rating. The methodology consists to use a logit model which includes CAMEL, regulatory and also macroeconomic variables. This study revealed that capital adequacy requirements, liquidity position, restrictions and supervisory monitoring are the most statistically significant bank specific factors which influence distress in European banks during the subprime crisis. In addition, we found that the Z-score criteria is more able to predict banks bankruptcy than the rating.
Forecasting the Equity Premium: Mind the News!
SSRN
This paper introduces a novel strategy for predicting monthly equity premia based on extracted news from more than 700,000 newspaper articles, published in The New York Times and Washington Post between 1980 and 2018. We propose a flexible data-adaptive switching approach for mapping a large set of different news-topics into forecasts of aggregate stock returns. The information embedded in our extracted news are not captured by established equity premium predictors. Compared to the historical mean model between 1999 and 2018, we find large out-of-sample (OOS) gains with an R²OOS of 6.52% and sizeable utility gains for a mean-variance investor. The empirical results imply that (geo-)political rather than economic news are more valuable to forecast the equity premium out of sample.
SSRN
This paper introduces a novel strategy for predicting monthly equity premia based on extracted news from more than 700,000 newspaper articles, published in The New York Times and Washington Post between 1980 and 2018. We propose a flexible data-adaptive switching approach for mapping a large set of different news-topics into forecasts of aggregate stock returns. The information embedded in our extracted news are not captured by established equity premium predictors. Compared to the historical mean model between 1999 and 2018, we find large out-of-sample (OOS) gains with an R²OOS of 6.52% and sizeable utility gains for a mean-variance investor. The empirical results imply that (geo-)political rather than economic news are more valuable to forecast the equity premium out of sample.
Government Credit and Trade War
SSRN
By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.
SSRN
By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.
Guaranteed Success? The Effects of Export Credit Guarantees on Firm Performance
RePEC
Many countries offer government-backed export credit guarantees to domestic firms. We investigate the effects of such guarantees on firm exports, jobs and value added. Using uniquely detailed and exhaustive transaction-level panel data on guarantees and granular information on trade as well as on exporters and foreign-buyers, we perform difference-in-difference matching estimations. We find that guarantees improve firm performance. However, the effects are strikingly heterogeneous across firm size and response variables. Using guarantees increases the firm-destination probability to export and the value of exports by 18 and 172 percent, respectively, but does not generally increase jobs and value added. Smaller firms benefit the most in terms of exports. Overall, the evidence suggests a causal link from guarantees to firm export performance
RePEC
Many countries offer government-backed export credit guarantees to domestic firms. We investigate the effects of such guarantees on firm exports, jobs and value added. Using uniquely detailed and exhaustive transaction-level panel data on guarantees and granular information on trade as well as on exporters and foreign-buyers, we perform difference-in-difference matching estimations. We find that guarantees improve firm performance. However, the effects are strikingly heterogeneous across firm size and response variables. Using guarantees increases the firm-destination probability to export and the value of exports by 18 and 172 percent, respectively, but does not generally increase jobs and value added. Smaller firms benefit the most in terms of exports. Overall, the evidence suggests a causal link from guarantees to firm export performance
Javanese Lunar Calendar Effect (Primbon) on Abnormal Return
SSRN
The purpose of this study is to examine Javanese lunar calendar (Primbon) effect to abnormal return on Indonesian Stock Market. Type of this study is conclusive descriptive using intraday trading data. The research observed and tested cultural phenomena called Primbon as a calendar effect on abnormal return. Studies of cultural event, Ramadhan effect. This research examined other issues which is a belief of traditional calendar called Primbon among Javanese in Indonesia. This study uses event study methodology to ob-serve abnormal return of stocks recommended by Primbon that grouping into defensive stock called “rahayu†and aggressive stock called big luck (rezeki besar) on certain time in a day. Abnormal return from groups of stock recommended by Primbon only presented on Monday aggressive stocks group from 09.00 to 11.00. Thus it can be concluded that the recommendations of Primbon only partially affect the abnormal return on the Indonesia Stock Exchange.
SSRN
The purpose of this study is to examine Javanese lunar calendar (Primbon) effect to abnormal return on Indonesian Stock Market. Type of this study is conclusive descriptive using intraday trading data. The research observed and tested cultural phenomena called Primbon as a calendar effect on abnormal return. Studies of cultural event, Ramadhan effect. This research examined other issues which is a belief of traditional calendar called Primbon among Javanese in Indonesia. This study uses event study methodology to ob-serve abnormal return of stocks recommended by Primbon that grouping into defensive stock called “rahayu†and aggressive stock called big luck (rezeki besar) on certain time in a day. Abnormal return from groups of stock recommended by Primbon only presented on Monday aggressive stocks group from 09.00 to 11.00. Thus it can be concluded that the recommendations of Primbon only partially affect the abnormal return on the Indonesia Stock Exchange.
Management’s Chinese Zodiac and Ownership to Firm Performance
SSRN
The research examines the effect of Chinese Astrology (shio) and managerial ownership on firm’s performance. The research also examines other issue of agency problem which is called managerial ownership. The separation between the principal with ownership function and agent with control function leads to a potential conflict called agency conflict. Sample is manufacturing firms listed in Indonesia Stock Exchange for the period of 2013-2015. The results of this study indicate that Chinese Zodiac of the CEOs have no effect on the company's performance, while managerial ownership positively affects the company's performance. Financial ratios used to measure company's performance are profitability ratios, such as Return on Assets (ROA) as the main parameter and Return on Equity (ROE) as supporting parameter or robustness with no significant effect which aims to confirm the effect of managerial ownership on the company's performance.
SSRN
The research examines the effect of Chinese Astrology (shio) and managerial ownership on firm’s performance. The research also examines other issue of agency problem which is called managerial ownership. The separation between the principal with ownership function and agent with control function leads to a potential conflict called agency conflict. Sample is manufacturing firms listed in Indonesia Stock Exchange for the period of 2013-2015. The results of this study indicate that Chinese Zodiac of the CEOs have no effect on the company's performance, while managerial ownership positively affects the company's performance. Financial ratios used to measure company's performance are profitability ratios, such as Return on Assets (ROA) as the main parameter and Return on Equity (ROE) as supporting parameter or robustness with no significant effect which aims to confirm the effect of managerial ownership on the company's performance.
Mapping bank securities across euro area sectors: comparing funding and exposure networks
RePEC
We present new evidence on the structure of euro area securities markets using a multilayer network approach. Layers are broken down by key instruments and maturities as well as the secured nature of the transaction. This paper utilizes a unique dataset of banking sector cross-holdings of securities to map these exposures among banks and economic and financial sectors. We can compare and contrast funding and exposure networks among banks themselves and of banks, non-banks and the wider economy. The analytical approach presented here is highly relevant for the design of appropriate prudential measures, since it supports the identification of counterparty risk, concentration risk and funding risk within the interbank network and the wider macro-financial network.
RePEC
We present new evidence on the structure of euro area securities markets using a multilayer network approach. Layers are broken down by key instruments and maturities as well as the secured nature of the transaction. This paper utilizes a unique dataset of banking sector cross-holdings of securities to map these exposures among banks and economic and financial sectors. We can compare and contrast funding and exposure networks among banks themselves and of banks, non-banks and the wider economy. The analytical approach presented here is highly relevant for the design of appropriate prudential measures, since it supports the identification of counterparty risk, concentration risk and funding risk within the interbank network and the wider macro-financial network.
New Consumer Bankruptcy in Poland â€" A New Start Not Only for the Consumer?
SSRN
In Poland, over the past four years we have been witnessing the liberalisation of the laws on consumer bankruptcy which results in an increased number of declared bankruptcies and there are many indications that both phenomena will proceed. This paper deals with some major manifestations of such a liberalisation. It shows that a very significant effect of liberalising the law and bankruptcy regime adopted in Poland is the fact that natural persons conducting business activity increasingly perceive consumer bankruptcy as a chance to get out of financial trouble. An obstacle in taking advantage of such a solution is, among other things, the entrepreneur’s failing to file a petition for declaring bankruptcy within 30 days of becoming "insolvent". As the findings of the conducted interviews show entrepreneurs are not at all aware of such an obligation. In the light of the experience gained, it seems indispensable to stress the importance of educating natural persons about financial issues and insolvency procedures. Obtained results indicate the need to equalize bankruptcy proceedings for all natural persons, regardless of whether they are or are not entrepreneurs, while being an important argument in the current discussion on the government's project of 18 April 2018 for further liberalization of the bankruptcy law.
SSRN
In Poland, over the past four years we have been witnessing the liberalisation of the laws on consumer bankruptcy which results in an increased number of declared bankruptcies and there are many indications that both phenomena will proceed. This paper deals with some major manifestations of such a liberalisation. It shows that a very significant effect of liberalising the law and bankruptcy regime adopted in Poland is the fact that natural persons conducting business activity increasingly perceive consumer bankruptcy as a chance to get out of financial trouble. An obstacle in taking advantage of such a solution is, among other things, the entrepreneur’s failing to file a petition for declaring bankruptcy within 30 days of becoming "insolvent". As the findings of the conducted interviews show entrepreneurs are not at all aware of such an obligation. In the light of the experience gained, it seems indispensable to stress the importance of educating natural persons about financial issues and insolvency procedures. Obtained results indicate the need to equalize bankruptcy proceedings for all natural persons, regardless of whether they are or are not entrepreneurs, while being an important argument in the current discussion on the government's project of 18 April 2018 for further liberalization of the bankruptcy law.
Taking Regulation Seriously: Fire Sales Under Solvency and Liquidity Constraints
SSRN
We build a framework for modelling fire sales where banks face both liquidity and solvency constraints and choose which assets to sell in order to minimise liquidation losses. Banks constrained by the leverage ratio prefer to first sell assets that are liquid and held in small amounts, while banks constrained by the risk-weighted capital ratio and the liquidity coverage ratio need to trade off assets’ liquidity with their regulatory weights. We calibrate the model to the UK banking system, and find that banks’ optimal liquidation strategies translate into moderate fire-sale losses even for extremely large solvency shocks. By contrast, severe funding shocks can generate significant losses. Thus models focusing exclusively on solvency risk may significantly underestimate the extent of contagion via fire sales. Moreover, when studying combined funding and solvency shocks, we find complementarities between the two shocks’ effects that cannot be reproduced by focusing on either shock in isolation.
SSRN
We build a framework for modelling fire sales where banks face both liquidity and solvency constraints and choose which assets to sell in order to minimise liquidation losses. Banks constrained by the leverage ratio prefer to first sell assets that are liquid and held in small amounts, while banks constrained by the risk-weighted capital ratio and the liquidity coverage ratio need to trade off assets’ liquidity with their regulatory weights. We calibrate the model to the UK banking system, and find that banks’ optimal liquidation strategies translate into moderate fire-sale losses even for extremely large solvency shocks. By contrast, severe funding shocks can generate significant losses. Thus models focusing exclusively on solvency risk may significantly underestimate the extent of contagion via fire sales. Moreover, when studying combined funding and solvency shocks, we find complementarities between the two shocks’ effects that cannot be reproduced by focusing on either shock in isolation.
Taking regulation seriously: fire sales under solvency and liquidity constraints
RePEC
We build a framework for modelling fire sales where banks face both liquidity and solvency constraints and choose which assets to sell in order to minimise liquidation losses. Banks constrained by the leverage ratio prefer to first sell assets that are liquid and held in small amounts, while banks constrained by the risk-weighted capital ratio and the liquidity coverage ratio need to trade off assets' liquidity with their regulatory weights. We calibrate the model to the UK banking system, and find that banks' optimal liquidation strategies translate into moderate fire-sale losses even for extremely large solvency shocks. By contrast, severe funding shocks can generate significant losses. Thus models focusing exclusively on solvency risk may significantly underestimate the extent of contagion via fire sales. Moreover, when studying combined funding and solvency shocks, we find complementarities between the two shocks' effects that cannot be reproduced by focusing on either shock in isolation.
RePEC
We build a framework for modelling fire sales where banks face both liquidity and solvency constraints and choose which assets to sell in order to minimise liquidation losses. Banks constrained by the leverage ratio prefer to first sell assets that are liquid and held in small amounts, while banks constrained by the risk-weighted capital ratio and the liquidity coverage ratio need to trade off assets' liquidity with their regulatory weights. We calibrate the model to the UK banking system, and find that banks' optimal liquidation strategies translate into moderate fire-sale losses even for extremely large solvency shocks. By contrast, severe funding shocks can generate significant losses. Thus models focusing exclusively on solvency risk may significantly underestimate the extent of contagion via fire sales. Moreover, when studying combined funding and solvency shocks, we find complementarities between the two shocks' effects that cannot be reproduced by focusing on either shock in isolation.
The Bank of England and Central Bank Credit Rationing During the Crisis of 1847: Frosted Glass or Raised Eyebrows?
SSRN
It is well known that quantitative credit restrictions, rather than Bagehot-style ‘free lending’ constituted the standard response to financial crises in the early days of central banking. But why did central banks in the past frequently restrict the supply of loans during financial crises? In this paper, we draw on a large novel, loan-level data set to study the Bank of England’s policy response to the crisis of 1847. We find that credit rationing due to residual imperfect information in the sense of Stiglitz and Weiss (1981) cannot be a convincing explanation for quantitative credit restrictions during the crisis of 1847. We provide preliminary evidence which could suggest that discriminatory credit rationing on the basis of loan applicants’ type and identity characterized the Bank of England’s (BoE’s) response to the crisis of 1847. Our results also show that collateral characteristics played an important role in the BoE’s loan decisions, even after controlling for the identity of loan applicants. This finding confirms the hypothesis in Capie (2002) and Flandreau and Ugolini (2011, 2013, 2014) that the characteristics of bills of exchange submitted to the discount window mattered. Since our results suggest that the Bank also took decisions on the basis of the identity of loan applicants, our preliminary findings would seem to challenge Capie’s ‘frosted glass’ metaphor, but more work is required to confirm these conjectures.
SSRN
It is well known that quantitative credit restrictions, rather than Bagehot-style ‘free lending’ constituted the standard response to financial crises in the early days of central banking. But why did central banks in the past frequently restrict the supply of loans during financial crises? In this paper, we draw on a large novel, loan-level data set to study the Bank of England’s policy response to the crisis of 1847. We find that credit rationing due to residual imperfect information in the sense of Stiglitz and Weiss (1981) cannot be a convincing explanation for quantitative credit restrictions during the crisis of 1847. We provide preliminary evidence which could suggest that discriminatory credit rationing on the basis of loan applicants’ type and identity characterized the Bank of England’s (BoE’s) response to the crisis of 1847. Our results also show that collateral characteristics played an important role in the BoE’s loan decisions, even after controlling for the identity of loan applicants. This finding confirms the hypothesis in Capie (2002) and Flandreau and Ugolini (2011, 2013, 2014) that the characteristics of bills of exchange submitted to the discount window mattered. Since our results suggest that the Bank also took decisions on the basis of the identity of loan applicants, our preliminary findings would seem to challenge Capie’s ‘frosted glass’ metaphor, but more work is required to confirm these conjectures.
The Bank of England and central bank credit rationing during the crisis of 1847: frosted glass or raised eyebrows?
RePEC
It is well known that quantitative credit restrictions, rather than Bagehot-style 'free lending' constituted the standard response to financial crises in the early days of central banking. But why did central banks in the past frequently restrict the supply of loans during financial crises? In this paper, we draw on a large novel, loan-level data set to study the Bank of England's policy response to the crisis of 1847. We find that credit rationing due to residual imperfect information in the sense of Stiglitz and Weiss (1981) cannot be a convincing explanation for quantitative credit restrictions during the crisis of 1847. We provide preliminary evidence which could suggest that discriminatory credit rationing on the basis of loan applicants' type and identity characterized the Bank of England's (BoE's) response to the crisis of 1847. Our results also show that collateral characteristics played an important role in the BoE's loan decisions, even after controlling for the identity of loan applicants. This finding confirms the hypothesis in Capie (2002) and Flandreau and Ugolini (2011, 2013, 2014) that the characteristics of bills of exchange submitted to the discount window mattered. Since our results suggest that the Bank also took decisions on the basis of the identity of loan applicants, our preliminary findings would seem to challenge Capie's 'frosted glass' metaphor, but more work is required to confirm these conjectures.
RePEC
It is well known that quantitative credit restrictions, rather than Bagehot-style 'free lending' constituted the standard response to financial crises in the early days of central banking. But why did central banks in the past frequently restrict the supply of loans during financial crises? In this paper, we draw on a large novel, loan-level data set to study the Bank of England's policy response to the crisis of 1847. We find that credit rationing due to residual imperfect information in the sense of Stiglitz and Weiss (1981) cannot be a convincing explanation for quantitative credit restrictions during the crisis of 1847. We provide preliminary evidence which could suggest that discriminatory credit rationing on the basis of loan applicants' type and identity characterized the Bank of England's (BoE's) response to the crisis of 1847. Our results also show that collateral characteristics played an important role in the BoE's loan decisions, even after controlling for the identity of loan applicants. This finding confirms the hypothesis in Capie (2002) and Flandreau and Ugolini (2011, 2013, 2014) that the characteristics of bills of exchange submitted to the discount window mattered. Since our results suggest that the Bank also took decisions on the basis of the identity of loan applicants, our preliminary findings would seem to challenge Capie's 'frosted glass' metaphor, but more work is required to confirm these conjectures.
The Rise of Star Firms: Intangible Capital and Competition
SSRN
There is a divergence in the returns of top-performing firms and the rest of the economy, especially in industries that rely on a skilled labor force, raising concerns of their market power. We show that the divergence is explained by the mismeasurement of intangible capital. In fact, star firms produce more per dollar of invested capital, have higher growth, innovation, and productivity and are not differentially affected by exogenous competitive shocks than other firms. Their pricing power supports their high intangible capital investment. Some exceptional firms may pose concerns due to their potential to foreclose competition in the future.
SSRN
There is a divergence in the returns of top-performing firms and the rest of the economy, especially in industries that rely on a skilled labor force, raising concerns of their market power. We show that the divergence is explained by the mismeasurement of intangible capital. In fact, star firms produce more per dollar of invested capital, have higher growth, innovation, and productivity and are not differentially affected by exogenous competitive shocks than other firms. Their pricing power supports their high intangible capital investment. Some exceptional firms may pose concerns due to their potential to foreclose competition in the future.
The Two-Pillar Policy for the RMB
SSRN
We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of the RMB under the two-pillar policy. Using derivatives data on the RMB and the U.S. dollar index, we estimate the model to assess financial markets' views about the fundamental exchange rate and sustainability of the policy. Our model is able to predict the modification of the two-pillar policy in May 2017, when a discretion-based "countercyclical factor" was introduced for the first time. We also examine the model's ability to forecast RMB movements.
SSRN
We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of the RMB under the two-pillar policy. Using derivatives data on the RMB and the U.S. dollar index, we estimate the model to assess financial markets' views about the fundamental exchange rate and sustainability of the policy. Our model is able to predict the modification of the two-pillar policy in May 2017, when a discretion-based "countercyclical factor" was introduced for the first time. We also examine the model's ability to forecast RMB movements.
Türkiye’de Kredi Faizlerini Etkileyen Faktörlerin Belirlenmesi: MARS Yöntemiyle Bir Analiz (Determination of Influencing Factors of Credit Interest Rates in Turkey: An Analysis with MARS Method)
SSRN
Turkish Abstract: Bankaların ticari kredilere uyguladıkları faiz oranı artış eğilimi göstermektedir. Ticari kredi faizi 2018 Eylül’de %36’ya ulaşmış olup bu oran 2004’ten beri en görülen yüksek seviyedir. Ticari kredi faizi 2018 yılını ise %28 seviyesinde tamamlamıştır. Türkiye’de piyasa fonlamasının büyük kısmı kredi kanalıyla sağlandığı için ticari kredi faizindeki artış eğilimi ekonomik aktörler için risk oluşturmaktadır. Bu nedenle, Türkiye’de sürdürülebilir ekonomik büyümenin sağlanması için ticari kredi faizinin düşürülmesi önem taşımaktadır. Bu kapsamda, öncelikle ticari kredi faizini etkileyen faktörlerin belirlenmesi gerekmektedir. Bu amaçla, 2006/1-2018/9 arasındaki üçer aylık veriler ile 8 adet bağımsız değişken ve Çok Değişkenli Uyumlu Regresyon Uzanımları (MARS) yöntemi kullanılarak Türkiye’de ticari kredi faizini etkileyen faktörler incelenmiştir. Çalışma sonucunda, sırasıyla mevduat faizinin, dış ticaret dengesinin, merkez bankası rezervlerinin, Dolar/TL kurunun, M2 büyüklüğünün ve enflasyonun ticari kredi faizi üzerinde etkili olduğu belirlenmiştir. Türkiye’de ticari kredi faizinin düşürülmesi için söz konusu faktörlerin olumsuz etkilerinin azaltılmasına yönelik tedbir alınması gerekmektedir. English Abstract: Commercial credit interest rate of banks has been increasing. Commercial credit interest rate has reached 36% as of 2018 September which is the highest level since 2004. Commercial credit interest has completed 2018 at the level of 28%. Upward trend in commercial credit interest rate constitutes risks for all economic actors due to most of the funding are provided by bank channel in Turkey. Therefore, decreasing commercial credit interest rate has importance in order for providing sustainable growth. In this context, affecting factors of commercial credit interest rate should be determined firstly. With this aim, quarterly data for the period 2006/1-2018/9, 8 explanatory variables and Multivariate Adaptive Regression Splines (MARS) method is used in order to determine which factors affect commercial credit interest rates in Turkey. As a result of the study, it is determined that deposit interest rate, foreign trade balance, central bank reserves, USD/TL exchange rate, M2 volume, and inflation affect commercial credit interest rate in Turkey respectively. Necessary precautions should be taken in order to decrease negative effects of affecting factors on commercial credit interest rate in order to decrease commercial credit interest rate in Turkey.
SSRN
Turkish Abstract: Bankaların ticari kredilere uyguladıkları faiz oranı artış eğilimi göstermektedir. Ticari kredi faizi 2018 Eylül’de %36’ya ulaşmış olup bu oran 2004’ten beri en görülen yüksek seviyedir. Ticari kredi faizi 2018 yılını ise %28 seviyesinde tamamlamıştır. Türkiye’de piyasa fonlamasının büyük kısmı kredi kanalıyla sağlandığı için ticari kredi faizindeki artış eğilimi ekonomik aktörler için risk oluşturmaktadır. Bu nedenle, Türkiye’de sürdürülebilir ekonomik büyümenin sağlanması için ticari kredi faizinin düşürülmesi önem taşımaktadır. Bu kapsamda, öncelikle ticari kredi faizini etkileyen faktörlerin belirlenmesi gerekmektedir. Bu amaçla, 2006/1-2018/9 arasındaki üçer aylık veriler ile 8 adet bağımsız değişken ve Çok Değişkenli Uyumlu Regresyon Uzanımları (MARS) yöntemi kullanılarak Türkiye’de ticari kredi faizini etkileyen faktörler incelenmiştir. Çalışma sonucunda, sırasıyla mevduat faizinin, dış ticaret dengesinin, merkez bankası rezervlerinin, Dolar/TL kurunun, M2 büyüklüğünün ve enflasyonun ticari kredi faizi üzerinde etkili olduğu belirlenmiştir. Türkiye’de ticari kredi faizinin düşürülmesi için söz konusu faktörlerin olumsuz etkilerinin azaltılmasına yönelik tedbir alınması gerekmektedir. English Abstract: Commercial credit interest rate of banks has been increasing. Commercial credit interest rate has reached 36% as of 2018 September which is the highest level since 2004. Commercial credit interest has completed 2018 at the level of 28%. Upward trend in commercial credit interest rate constitutes risks for all economic actors due to most of the funding are provided by bank channel in Turkey. Therefore, decreasing commercial credit interest rate has importance in order for providing sustainable growth. In this context, affecting factors of commercial credit interest rate should be determined firstly. With this aim, quarterly data for the period 2006/1-2018/9, 8 explanatory variables and Multivariate Adaptive Regression Splines (MARS) method is used in order to determine which factors affect commercial credit interest rates in Turkey. As a result of the study, it is determined that deposit interest rate, foreign trade balance, central bank reserves, USD/TL exchange rate, M2 volume, and inflation affect commercial credit interest rate in Turkey respectively. Necessary precautions should be taken in order to decrease negative effects of affecting factors on commercial credit interest rate in order to decrease commercial credit interest rate in Turkey.
Upstream, Downstream & Common Firm Shocks
SSRN
We develop a multi-sector DSGE model to calculate upstream and downstream industry exposure networks from U.S. input-output tables and test the relative importance of shocks from each direction by comparing these with estimated networks of firms’ equity return responses to one another. The correlations between the upstream exposure and equity return networks are large and statistically significant, while the downstream exposure networks have lower  but still positive  correlations that are not statistically significant. These results suggest a low short-term elasticity of substitution across inputs transmitting shocks from suppliers, but more flexible ties with downstream firms. Additionally, both the DSGE model and simulations of our empirical approach highlight the importance of accounting for common factors in network estimation, which become more important over our 1989-2017 sample period, explaining 11.7% of equity return variation over the first ten years and 35.0% over the final ten.
SSRN
We develop a multi-sector DSGE model to calculate upstream and downstream industry exposure networks from U.S. input-output tables and test the relative importance of shocks from each direction by comparing these with estimated networks of firms’ equity return responses to one another. The correlations between the upstream exposure and equity return networks are large and statistically significant, while the downstream exposure networks have lower  but still positive  correlations that are not statistically significant. These results suggest a low short-term elasticity of substitution across inputs transmitting shocks from suppliers, but more flexible ties with downstream firms. Additionally, both the DSGE model and simulations of our empirical approach highlight the importance of accounting for common factors in network estimation, which become more important over our 1989-2017 sample period, explaining 11.7% of equity return variation over the first ten years and 35.0% over the final ten.
