Criminal Network Formation and Optimal Detection Policy: The Role of Cascade of Detection
Liuchun Deng, Yufeng Sun
Journal of Economic Behavior and Organization,
September
2017
Abstract
This paper investigates the effect of cascade of detection, how detection of a criminal triggers detection of his network neighbors, on criminal network formation. We develop a model in which criminals choose both links and actions. We show that the degree of cascade of detection plays an important role in shaping equilibrium criminal networks. Surprisingly, greater cascade of detection could reduce ex ante social welfare. In particular, we prove that full cascade of detection yields a weakly denser criminal network than that under partial cascade of detection. We further characterize the optimal allocation of the detection resource and demonstrate that it should be highly asymmetric among ex ante identical agents.
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The Forward-looking Disclosures of Corporate Managers: Theory and Evidence
Reint E. Gropp, Rasa Karapandza, Julian Opferkuch
IWH Discussion Papers,
Nr. 25,
2016
Abstract
We consider an infinitely repeated game in which a privately informed, long-lived manager raises funds from short-lived investors in order to finance a project. The manager can signal project quality to investors by making a (possibly costly) forward-looking disclosure about her project’s potential for success. We find that if the manager’s disclosures are costly, she will never release forward-looking statements that do not convey information to external investors. Furthermore, managers of firms that are transparent and face significant disclosure-related costs will refrain from forward-looking disclosures. In contrast, managers of opaque and profitable firms will follow a policy of accurate disclosures. To test our findings empirically, we devise an index that captures the quantity of forward-looking disclosures in public firms’ 10-K reports, and relate it to multiple firm characteristics. For opaque firms, our index is positively correlated with a firm’s profitability and financing needs. For transparent firms, there is only a weak relation between our index and firm fundamentals. Furthermore, the overall level of forward-looking disclosures declined significantly between 2001 and 2009, possibly as a result of the 2002 Sarbanes-Oxley Act.
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Macroeconomic Trade Effects of Vehicle Currencies: Evidence from 19th Century China
Makram El-Shagi, Lin Zhang
Abstract
We use the Chinese experience between 1867 and 1910 to illustrate how the volatility of vehicle currencies affects trade. Today’s widespread vehicle currency is the dollar. However, the macroeconomic effects of this use of the dollar have rarely been addressed. This is partly due to identification problems caused by its international importance. China had adopted a system, where silver was used almost exclusively for trade, similar to a vehicle currency. While being important for China, the global role of silver was marginal, alleviating said identification problems. We develop a bias corrected structural VAR showing that silver price fluctuations significantly affected trade.
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Much Ado About Nothing: Sovereign Ratings and Government Bond Yields in the OECD
Makram El-Shagi
IWH Discussion Papers,
Nr. 22,
2016
Abstract
In this paper, we propose a new method to assess the impact of sovereign ratings on sovereign bond yields. We estimate the impulse response of the interest rate, following a change in the rating. Since ratings are ordinal and moreover extremely persistent, it proves difficult to estimate those impulse response functions using a VAR modeling ratings, yields and other macroeconomic indicators. However, given the highly stochastic nature of the precise timing of ratings, we can treat most rating adjustments as shocks. We thus no longer rely on a VAR for shock identification, making the estimation of the corresponding IRFs well suited for so called local projections – that is estimating impulse response functions through a series of separate direct forecasts over different horizons. Yet, the rare occurrence of ratings makes impulse response functions estimated through that procedure highly sensitive to individual observations, resulting in implausibly volatile impulse responses. We propose an augmentation to restrict jointly estimated local projections in a way that produces economically plausible impulse response functions.
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The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Makram El-Shagi, Gregor von Schweinitz
Abstract
Can a negative shock to sovereign ratings invoke a vicious cycle of increasing government bond yields and further downgrades, ultimately pushing a country toward default? The narratives of public and political discussions, as well as of some widely cited papers, suggest this possibility. In this paper, we will investigate the possible existence of such a vicious cycle. We find no evidence of a bad long-run equilibrium and cannot confirm a negative feedback loop leading into default as a transitory state for all but the very worst ratings.
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Agrarrohstoffpreise und Lebensmittelpreise in armen Ländern
Oliver Holtemöller
Wirtschaft im Wandel,
Nr. 1,
2016
Abstract
In der Politik und in den Medien wird darüber diskutiert, ob spekulativer Handel mit Agrarrohstoffen den Hunger in der Welt vermehrt. In diesem Aufsatz wird untersucht, in welchem Umfang sich Schwankungen von Agrarrohstoffpreisen auf nationale Verbraucherpreise für Lebensmittel in Indien als einem großen Land mit einem großen Anteil an armen Menschen übertragen. Es wird gezeigt, dass Agrarrohstoffpreisschwankungen mit einem Quartal Verzögerung signifikante Effekte auf die Verbraucherpreisinflation für Lebensmittel und die Verbraucherpreisinflation insgesamt in Indien haben. Quantitativ bedeutend waren diese Effekte etwa 2007/2008 und 2010/2011. Aufgrund der restriktiven Reaktion der indischen Zentralbank auf einen Anstieg der Verbraucherpreisinflation kommt es zusätzlich zu negativen Auswirkungen auf die Konjunktur. Allerdings sind andere Faktoren für die Schwankungen der Lebensmittelpreise in Indien wesentlich bedeutender.
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Negative Bonitätsbewertungen und Zinsen auf Staatsanleihen – Gibt es einen Teufelskreis?
Makram El-Shagi, Gregor von Schweinitz
Wirtschaft im Wandel,
Nr. 3,
2015
Abstract
Kann es nach einer Herabstufung der Bonität eines Staates zu einer Dynamik von steigenden Zinsen auf Staatsanleihen und weiter fallenden Ratings kommen, die unausweichlich in einem Staatsbankrott endet? Die hohe Persistenz von Ratings sowie die Beobachtung, dass Zinsen häufig negativ auf eine Herabstufung reagieren, legen die Möglichkeit einer solchen Abwärtsspirale nahe. Empirisch ist diese Dynamik allerdings nicht zu sehen. In den Daten ist im Gegenteil ausschließlich eine sehr langsame Annäherung an ein langfristiges Gleichgewicht von guten Ratings und niedrigen Zinsen zu beobachten. Gleichzeitig ist die Persistenz von Ratings allerdings hoch genug, um nach einer Herabstufung auf ein hochspekulatives Niveau (Rating von B oder schlechter) massive und langandauernde Zinsaufschläge zu erzeugen. Da eine solche Herabstufung in der Realität allerdings äußerst selten erfolgt, ist die Existenz des oben beschriebenen Teufelskreises zu verneinen. Eine negative Entwicklung wie zum Beispiel in Griechenland in den Jahren 2010 und 2011 lässt sich nicht als Ergebnis der Wechselwirkung von Ratings und Zinsen erklären.
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The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Makram El-Shagi, Gregor von Schweinitz
Abstract
In the present paper, we build a bivariate semiparametric dynamic panel model to repro-duce the joint dynamics of sovereign ratings and government bond yields. While the individual equations resemble Pesaran-type cointegration models, we allow for different long-run relationships in both equations, nonlinearities in the level effect of ratings, and asymmetric effects in changes of ratings and yields. We find that the interest rate equation and the rating equation imply significantly different long-run relationships. While the high persistence in both interest rates and ratings might lead to the misconception that they follow a unit root process, the joint analysis reveals that they converge slowly to a joint equilibrium. While this indicates that there is no vicious cycle driving countries into default, the persistence of ratings is high enough that a rating shock can have substantial costs. Generally, the interest rate adjusts rather quickly to the risk premium that is in line with the rating. For most ratings, this risk premium is only marginal. However, it becomes substantial when ratings are downgraded to highly speculative (a rating of B) or lower. Rating shocks that drive the rating below this threshold can increase the interest rate sharply, and for a long time. Yet, simulation studies based on our estimations show that it is highly improbable that rating agencies can be made responsible for the most dramatic spikes in interest rates.
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Risk and Return - Is there an Unholy Cycle of Ratings and Yields?
Makram El-Shagi, Gregor von Schweinitz
Economics Letters,
2015
Abstract
After every major financial crisis, the question about the responsibility of the rating agencies resurfaces. Regarding government bonds, the most frequently voiced concern targeted “unreasonably” bad ratings that might trigger capital flights and increasing risk premia which sanction further rating downgrades. In this paper we develop a multivariate, nonparametric version of the Pesaran type cointegration model that allows for nonlinearities, to show that a unique equilibrium between ratings and sovereign yields exists. Therefore, we have to reject the concern that there is an unholy cycle leading to certain default in the long run.
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Die mittelfristige wirtschaftliche Entwicklung in Deutschland für die Jahre 2014 bis 2019
Hans-Ulrich Brautzsch, Katja Drechsel, Oliver Holtemöller, Brigitte Loose, Götz Zeddies
Konjunktur aktuell,
Nr. 1,
2015
Abstract
Alles in allem dürfte das Bruttoinlandsprodukt in Deutschland im Jahr 2014 um 1,5% steigen. Im Jahr 2015 wird es wohl um 1,3% zunehmen – etwa 0,2 Prozentpunkte davon sind auf den Ölpreisrückgang zurückzuführen. Nach einer Unterauslastung der Kapazitäten im Jahr 2014 dürfte sich die Produktionslücke Ende des Jahres 2015 schließen. Im Jahr 2016 dürfte die Produktion um 1,6% steigen. Für das Jahr 2014 reicht das 66%-Prognoseintervall für den Zuwachs des Bruttoinlandsprodukts von 1,4% bis 1,6%, für das Jahr 2015 von 0,4% bis 2,1% und für das Jahr 2016 von 0,2% bis 3,4%.
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