When Financial Sectors Become “Too Large”

At the end of July Alan Greenspan published an Op Ed arguing that tighter financial regulation and capital standards will lead to the accumulation of “idle resources that are not otherwise engaged in the production of goods and services” and are instead devoted “to fending off once-in-50 or 100-year crises” resulting in an “excess of buffers at the expense of our standards of living.”...

....While former Chairman Greenspan implicitly assumed that stricter regulation will have a negative effect on financial intermediation and depress future GDP growth, our results suggest that there are many countries for which tighter credit standards could actually increase growth.

The rest on EconoMonitor
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Interview with the BBC on the costs of default

here (my part starts at minute 8)

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Grecia edi costi del default

Il debito pubblico si differenzia da quello privato, per la mancanza di una procedura ben definita per punire uno stato che non ripaga i debiti. Le ripercussioni si pagano in termini di reputazione, commercio estero e accesso ai mercati internazionali. Ma sono effetti che durano pochi anni. Per la teoria economica la ristrutturazione del debito sembrerebbe meno costosa di quanto si pensi. Forse perché è stata sempre accompagnata a un deprezzamento del tasso di cambio. Cosa impossibile per la Grecia.

il resto e' qui

grazie a Giulia

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What will happen if Greece defaults? Insights from theory and reality

My piece (with Eduardo Borensztein) on the costs of default: here

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Bankers' conflicts of interest in the interwar years: Lessons for today’s regulators

My (joint with Marc Flandreau and Norbert Gaillard) new piece on VOX

The global crisis is frequently compared to the Great Depression and the interwar debt crises. This column argues that, contrary to prevailing opinion, the interwar debt crisis had little to do with bankers’ conflicts of interest – intermediaries were in fact careful in selecting and placing sovereign bonds. Then, as now, public opinion may not be the best guide to policy The rest is here

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Me on the Economist

Eduardo Borensztein and Ugo Panizza counts as many as 257 sovereign defaults between 1824 and 2004. Between 1981 and 1990 alone, there were 74 defaults....Messrs Borensztein and Panizza show that having defaulted is associated with a credit-rating downgrade of nearly two notches.....That said, markets appear to have short memories. Only the most recent defaults matter and the effects on spreads are short-lived. Messrs Borensztein and Panizza find that credit ratings between 1999 and 2002 were affected only by defaults since 1995.....Messrs Borensztein and Panizza find that a defaulting country grows by 1.2 percentage points less per year while its debt is being restructured compared with a similar country that is not in default. This effect, too, is concentrated in the first year after default. Once again, measuring from the point of default will somewhat understate the damage: defaults tend to occur during recessions, so GDP is already depressed when a country reneges...Another element to the costs of default may also alarm Greek policymakers. Messrs Borensztein and Panizza find that political leadership changed in the year of default or the year after in half of the 22 cases they study. That is twice the usual probability of such change. These political costs, at least, are unlikely to vary.

The rest is Here

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Great vox piece

with great pictures too. Here

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Macro Data 4 STATA

is now public http://sites.google.com/site/md4stata/.

This is Alex Tabarrok on MR. One commenter suggests to install Kountry. I did not now about it and it's indeed very cool (however, I am not sure that it is more useful than Md4Stata, they are both useful and I think that they complement each other)

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New paper on "Old Bonds"

Conflicts of Interest, Reputation, and the Interwar Debt Crisis: Banksters or Bad Luck?
(with Marc Flandreau and Norbert Galliard)

This paper builds a new dataset with detailed information on the universe of
foreign government bonds issued in New York in the 1920s and uses these data to
describe the behavior of the financial intermediaries which operated in the New
York market during the period leading to the interwar debt crisis. The paper
starts by showing that concerns over reputation played an important role in
intermediaries‘ underwriting choices. Next, the paper checks whether banks
managed to charge abnormal underwriting fees on bonds that would eventually
default and finds no evidence of such practice (―banksterism‖). The paper
concludes by discussing some parallels between the experience of the 1920s and
the current debate on the "originate and distribute" model.

The paper is here
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New paper with Ricardo Hausmann on abstinence versus redemption

Abstract:

This paper updates our previous work on the level and evolution of original sin. It shows that while the number of countries that issue local-currency debt in international markets has increased in the past decade, this improvement has been quite modest. Although we find that countries have been borrowing at home, thanks to deepening domestic markets, we document that foreign participation in these markets is more limited than what is usually assumed. The paper shows that the recent decline of currency mismatches and the consequent ability to conduct countercyclical macroeconomic policies is due to lower net debt (abstinence) and not to redemption from original sin. We conclude that original sin continues to make financial globalization unattractive and developing countries have opted for abstinence because foreign currency debt is too risky. The promised paradise of financial globalization will need to wait for redemption from original sin.

The full paper is here.
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Redemption or Abstinence

Our (Ricardo Hasumann and I) new piece on original sin is here.

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Stuff I did not remember having written about

The cultural values of Islam (Written in 2002, probably because I was pissed off at Oriana Fallaci, but why was I qualified to wrote about this???).

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What about this super cool

JEL paper

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New paper on recovery form recessions

Here

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Stress tests

Baseline scenario explains

My work on public banks: here and here

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Religion and education gender gap in Lebanon

Things are different form what you may think. (ungated version here)

My other Middle-East related papers are:

• “Macroeconomic Policies in Egypt: An Interpretation of the Past and Options for the Future,” Journal of Development and Economic Policies (December, 2002). Download Working Paper
  
•  “Fiscal Sustainability: Issues for Emerging Market Countries” (with A. Izquierdo) in A. El Galal and N. Ul. Haque (eds)Fiscal Sustainability in Emerging Markets: International Experience and Implications for Egypt. AmericanUniversity in Cairo Press (2006). Download Working Paper
  
•  “Poverty and Social Mobility in Lebanon: A Few Guesses.” (with M. El Khoury) Forum, Newsletter of the Economic Research Forum for the Arab Countries, Iran and Turkey. 8: 12- 13.  Not Available online
  
•  “Education, Childbearing, and Female Labor Market Participation: Evidence from Lebanon,” (with M. Hajj) Journal of Development and Economic Policies (June, 2002). Not available online
  
•  “Social Mobility and Religion. Evidence from Lebanon” (with M. El Khoury) Research in the Social Scientific Study of Religion (Fall, 2005). Download Working Paper
  

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Barclays Capital on Ecuador's default

Barclays Capital Research has an excellent piece on potential contagion from Ecuador's default. One of the authors is my friend and co-author Eduardo Levy Yeyati (in fact, the piece is partly based on our past research). Unfortunatley, the piece is not available on the net.
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...told you so

Micco-Panizza (2006) (but written around 2003) “This paper provides evidence for the fact that state-owned banks may play a credit smoothing role. …This suggests that state-owned banks could play a useful role in the transmission of monetary policy”

Oxford Analytica (2008) “Governments in several nations have also aggressively used public sector banks to provide credit and other types of financing to sectors that are particularly vulnerable to the crisis or those that are important for economic growth” Thanks to Arturo Galindo for sending the article.

… and they insulted us when we wrote our series of public bank papers. I don’t know what my noise-to-signal ratio is, but I think that my forecasting ability is improving and I'm still hoping for a crash in the Geneva-region housing market.
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Sovereign defaults are back!

This graph is from a UBS publication (click to enlarge). Over the last few years I have written (together with Eduardo Borensztein, Eduardo Levy Yeyati, Federico Sturzenegger, and Jeromin Zettelmeyer) several papers and a book on sovereign debt and defaults. But people have been telling us that we were stuck in the past.

It looks like that defaults are back. (here is a paper on the cost of default; here is a paper on the elusive cost of default; here is a paper on default and exports; here is book on sovereign debt with a chapter on default; we also have a super cool paper on the Law and Economics of Sovereign Debt and Default but it's not online yet).

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The costs of default

...still hanging out in Lebanon and not reading much. However, I don't need to read this new IMF WP to know that it is absolutely great. :)
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