Direct and Indirect Risk-taking Incentives of Inside Debt
Stefano Colonnello, Giuliano Curatola, Ngoc Giang Hoang
Abstract
We develop a model of managerial compensation structure and asset risk choice. The model provides predictions about the relation between credit spreads and dif-ferent compensation components. First, we show that credit spreads are decreasing in inside debt only if it is unsecured. Second, the relation between credit spreads and equity incentives varies depending on the features of inside debt. We show that credit spreads are increasing in equity incentives. This relation becomes stronger as the seniority of inside debt increases. Using a sample of U.S. public firms with traded credit default swap (CDS) contracts, we provide evidence supportive of the model’s predictions.
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Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis
Makram El-Shagi, Axel Lindner, Gregor von Schweinitz
Review of International Economics,
No. 1,
2016
Abstract
The European debt crisis has revealed severe imbalances within the Euro area, sparking a debate about the magnitude of those imbalances, in particular concerning real effective exchange rate misalignments. We use synthetic matching to construct a counterfactual economy for each member state in order to identify the degree of these misalignments. We find that crisis countries are best described as a combination of advanced and emerging economies. Comparing the actual real effective exchange rate with those of the counterfactuals gives evidence of misalignments before the outbreak of the crisis: all peripheral countries appear strongly and significantly overvalued.
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Determinants of the Size of the Sovereign Credit Default Swap Market
Tobias Berg, Daniel Streitz
Journal of Fixed Income,
No. 3,
2016
Abstract
We analyze the sovereign credit default swap (CDS) market for 57 countries, using a novel dataset comprising weekly positions and turnover data. We document that CDS markets—measured relative to a country’s debt—are larger for smaller countries, countries with a rating just above the investment-grade cutoff, and countries with weaker creditor rights. Analyzing changes in credit risk, we find that rating changes matter but only for negative rating events (downgrades and negative outlooks). In particular, weeks with downgrades and negative outlooks are associated with a significantly higher turnover in the sovereign CDS market, even after controlling for changes in sovereign CDS spreads. We conclude that agencies’ ratings are a major determinant of the size of the sovereign CDS market.
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03.12.2015 • 44/2015
Migration Affects Labour Market in Eastern Germany
Migration increasingly affects the labour market in Eastern Germany, having effects on employment and unemployment figures as well as the number of recipients of social assistance benefits under the SGB II regulations. Particularly with countries in Middle and Eastern Europe, countries affected by the European debt and confidence crisis and with people seeking asylum, there are large increases meeting the dimensions in Western Germany. However, migrants overall still form a significantly smaller percentage of the population and other labour market parameters in Eastern Germany, since migration was a lot stronger in Western Germany during the last decades. While on the short run negative effects on unemployment have to be expected, there are also chances, in the medium- and long-term, to soften the expectable demographic problems, if integration and qualification are supported.
Oliver Holtemöller
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Exit Expectations and Debt Crises in Currency Unions
Alexander Kriwoluzky, G. J. Müller, M. Wolf
IWH Discussion Papers,
No. 18,
2015
Abstract
Membership in a currency union is not irreversible. Exit expectations may emerge during sovereign debt crises, because exit allows countries to reduce their liabilities through a currency redenomination. As market participants anticipate this possibility, sovereign debt crises intensify. We establish this formally within a small open economy model of changing policy regimes. The model permits explosive dynamics of debt and sovereign yields inside currency unions and allows us to distinguish between exit expectations and those of an outright default. By estimating the model on Greek data, we quantify the contribution of exit expectations to the crisis dynamics during 2009 to 2012.
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Support for Public Research Spin-offs by the Parent Organizations and the Speed of Commercialization
Viktor Slavtchev, D. Göktepe-Hultén
Abstract
We empirically analyze whether support by the parent organization in the early (nascent and seed) stage speeds up the process of commercialization and helps spin-offs from public research organizations generate first revenues sooner. To identify the impact of support by the parent organization, we apply multivariate regression techniques as well as an instrumental variable approach. Our results show that support in the early stage by the parent organization can speed up commercialization. Moreover, we identify two distinct channels - the help in developing a business plan and in acquiring external capital - through which support by the parent organization can enable spin-offs to generate first revenues sooner.
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EFN Report Autumn 2015: Economic Outlook for the Euro Area in 2015 and 2016
European Forecasting Network Reports,
No. 4,
2015
Abstract
For the end of this year and for 2016, chances are good that production in advanced economies will continue to expand a bit faster than at trend rates, while growth dynamics in emerging markets economies will not strengthen or even continue to decrease.
Since autumn 2014, production in the euro area expands at an annualized rate of about 1.5%. The recovery appears to be broad based, with contributions from private consumption, exports, and investment into fixed capital, although it fell back in the second quarter after a strong increase at the beginning of the year. From a regional perspective, the recovery is as well quite broad based: production is expanding in almost every country, surprisingly and according to official data, including Greece.
Structural impediments still limit the ability of the euro area economy to grow strongly: firms and, in particular, private households are only slowly reducing their heavy debt burdens.
According to our forecasts, the euro area GDP will grow by 1.6% in 2015 and by 1.9% in 2016. The high increase in the number of refugees in 2015 will, in principle, positively affect private as well as public consumption, but the effect should be below 0.1 percentage points relative to GDP.
Our inflation forecast for 2015 is 0.1%. For 2016, we expect that inflation will increase to 1.3%, which is still below the ECB’s target of 2%.
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