nep-cba New Economics Papers
on Central Banking
Issue of 2016‒02‒12
25 papers chosen by
Maria Semenova
Higher School of Economics

  1. International Transmissions of Monetary Shocks By Han, Xuehui; Wei, Shang-Jin
  2. Interbank market and central bank policy By Ahn, Jung-Hyun; Bignon, Vincent; Breton, Régis; Martin, Antoine
  3. Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops By Farhi, Emmanuel; Tirole, Jean
  4. Banking Crisis, Moral Hazard and Fiscal Policy Responses. By Jin Cheng; Meixing Dai; Frédéric Dufourt
  5. The Signaling Effect and Optimal LOLR Policy By Mei Li; Frank Milne; Junfeng Qiu
  6. International Channels of Transmission of Monetary Policy and the Mundellian Trilemma By Rey, Hélène
  7. The welfare cost of inflation and the regulations of money substitutes By Eden,Benjamin; Eden,Maya
  8. Is there macroprudential policy without international cooperation? By Cecchetti, Stephen G; Tucker, Paul
  9. International Housing Markets, Unconventional Monetary Policy and the Zero Lower Bound By Florian Huber; Maria Teresa Punzi
  10. Credit risk stress testing for EU15 banks: a model combination approach By George Papadopoulos; Savas Papadopoulos; Thomas Sager
  11. Bail-in Expectations for European Banks: Actions Speak Louder than Words By Schäfer, Alexander; Schnabel, Isabel; Weder di Mauro, Beatrice
  12. The QE experience : Worth a try ? By Christophe Blot; Jérôme Creel; Paul Hubert; Fabien Labondance
  13. Macroprudential policy under uncertainty By Bahaj, Saleem; Foulis, Angus
  14. The information in systemic risk rankings By Nucera, Federico; Schwaab, Bernd; Koopman, Siem Jan; Lucas, André
  15. What drives inflation expectations in Brazil? Public versus private information By Waldyr D Areosa
  16. Financial assistance measures in the euro area from 2008 to 2013: statistical framework and fiscal impact By Maurer, Henri; Grussenmeyer, Patrick
  17. "Complementary Currencies and Economic Stability" By Dimitri B. Papadimitriou
  18. New and timely statistical indicators on government debt securities By Hartwig Lojsch, Dagmar; Dias, Jorge Diz; Pérez, Asier Cornejo
  19. Domestic creditors as last lenders in debt crises: a simple model with multiple equilibria By Pauline Gandré
  20. The implications of liquidity expansion in China for the US dollar By Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
  21. Estimating Group Support for German Landesbanken By Benjamin Käfer
  22. Unconventional Monetary Policy and Bank Lending By Nobuhiko Mitani
  23. Economic conditions and monetary policy in a changing world By Kaplan, Robert Steven
  24. Systemic early warning systems for EU15 based on the 2008 crisis By Savas Papadopoulos; Pantelis Stavroulias; Thomas Sager
  25. "A Complementary Currency and Direct Job Creation Hold the Key to Greek Recovery" By Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza

  1. By: Han, Xuehui; Wei, Shang-Jin
    Abstract: This paper re-examines international transmissions of monetary policy shocks from advanced economies to emerging market economies. It combines three novel features. First, it separates co-movement in monetary policies due to common shocks from spillovers of monetary policies from advanced to peripheral economies. Second, it uses surprises in growth and inflation and the Taylor rule to gauge desired changes in a country’s interest rate if it focuses only on growth and inflation goals. Third, it proposes a specification that can work with the quantitative easing episodes when no changes in US interest rate are observed. We find that a flexible exchange rate regime per se does not deliver monetary policy autonomy (in contrast to the conclusions of Obstfeld (2015) and several others). Instead, some form of capital control appears necessary. Interestingly, a combination of capital controls and a flexible exchange rate may provide the most buffer for developing countries against foreign monetary policy shocks.
    Keywords: capital control; exchange rate regime; monetary policy independence; Taylor Rule; trilemma
    JEL: E42 E43 E52
    Date: 2016–01
  2. By: Ahn, Jung-Hyun (NEOMA Business School); Bignon, Vincent (Banque de France); Breton, Régis (Banque de France); Martin, Antoine (Federal Reserve Bank of New York)
    Abstract: We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal amount. The model endogenously generates a situation of cash hoarding, leading to the associated market freezes or underinsurance against liquidity choice. The model therefore provides a unified framework for thinking, on the one hand, about policy measures that can reduce hoarding of cash by banks and, on the other hand, about liquidity requirements of the type imposed by the new Basel III regulation. In our model, banks hold tradable and nontradable assets. Nontradable assets are subject to a liquidity shock, and an injection of cash is required for the asset to mature if it is hit by the shock. Banks have access to an interbank market on which they obtain cash against their tradable securities. The quantity of cash obtained on this market is determined endogenously by the market value of the tradable assets and is subject to cash-in-the-market pricing. Banks holding an asset that turns out to be bad may be constrained on the interbank market and therefore may have to interrupt their nontradable project.
    Keywords: money market; liquidity regulation; nonconventional monetary policy; cash-in-the-market pricing
    JEL: E58 G21 G28
    Date: 2016–01–01
  3. By: Farhi, Emmanuel; Tirole, Jean
    Abstract: The recent unravelling of the Eurozone’s financial integration raised concerns about feedback loops between sovereign and banking insolvency, and provided an impetus for the European banking union. This paper provides a “double-decker bailout” theory of the feedback loop that allows for both domestic bailouts of the banking system by the domestic government and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.
    Keywords: bailouts; feedback loop; shared supervision; sovereign and corporate spreads; sovereign default
    JEL: F34 F36 G28 H63
    Date: 2015–12
  4. By: Jin Cheng; Meixing Dai; Frédéric Dufourt
    Abstract: This paper examines the role of fiscal policy as prudential instrument in preventing banking crisis in a framework where the government faces the tradeoff between the supply of public services and the stabilization of the banking system. We advocate that in a monetary union, the national governments without monetary autonomy should redesign their fiscal policy to prevent financial crises due to the moral hazard of banking entrepreneurs whose incentives are distorted by their expectations of ex-post bailout. We show that the government has incentive to bail out banks under both discretion and commitment if the banking sector is relatively influential. To prevent financial fragility, the pre-committed fiscal bailout policy should be time-consistent and incite banks to keep sufficient liquidity reserves and a low leverage ratio. Such policy could be efficiently complemented by public lending with a pre-announced interest rate that reduces banks’ moral hazard incentives but not their normal risk-taking.
    Keywords: Banking crisis, capital ratio, over risk-taking, too big to fail, fiscal bailout, fiscal policy, government put, moral hazard, crisis resolution, public lending.
    JEL: E44 G01 G11 G28 H21 H32
    Date: 2015
  5. By: Mei Li (Department of Economics and Finance, University of Guelph); Frank Milne (Department of Economics, Queen’s University); Junfeng Qiu (China Economics and Management Academy, Central University of Finance and Economics)
    Abstract: When a central bank implements the LOLR policy in a financial crisis, bank creditors often infer a bank’s quality from whether or not it borrows from the central bank. We establish a formal model to study the optimal LOLR policy in the presence of this signaling effect, assuming that the central bank aims to encourage central bank borrowing to avoid inefficiencies caused by contagion. In our model, there are two types of banks: a high quality type with high expected asset returns and a low quality type with lower returns. Both types of banks need to roll over their short-term debts. A central bank offers to lend to both types of banks. After private creditors observe whether banks borrow from the central bank, banks try to borrow from the private market. We find that there may exist a separating equilibrium where only low quality banks borrow from the central bank; and two pooling equilibria where both types of banks do and do not borrow from the central bank. Our major results are as follows: (1) Considering the signaling effect, the central bank should set its lending rate lower than the prevailing market rate to induce both types of banks to borrow from the central bank. (2) Hiding the identity of banks borrowing from the central bank will encourage banks to borrow from the central bank. (3) The central bank may serve as a coordinator for the realization of its favored equilibrium.
    Keywords: Signaling, Lender of Last Resort
    JEL: E58 G28
    Date: 2016
  6. By: Rey, Hélène
    Abstract: This lecture argues that the Global Financial Cycle is a challenge for the validity of the Mundellian trilemma. I present evidence that US monetary policy shocks are transmitted internationally and affect financial conditions even in inflation targeting economies with large financial markets. Hence flexible exchange rates are not enough to guarantee monetary autonomy in a world of large capital flows.
    Keywords: Global Financial Cycle; Monetary Policy; Trilemma
    JEL: F33 F41 F42
    Date: 2015–12
  7. By: Eden,Benjamin; Eden,Maya
    Abstract: This paper studies the possibility of using financial regulation that prohibits the use of money substitutes as a tool for mitigating the adverse effects of deviations from the Friedman rule. When inflation is not too high regulation aimed at eliminating money substitutes improves welfare by economizing on transaction costs. The gains from regulation depend on the distribution of income and the level of direct taxation. The area under the demand for money curve is equal to the welfare cost of inflation only when there are no direct taxes and no proportional intermediation cost: otherwise, the area under the demand curve overstates the welfare cost of inflation when money substitutes are not important and understates the welfare cost when money substitutes are important.
    Keywords: Debt Markets,Economic Theory&Research,Access to Finance,Emerging Markets,Political Economy
    Date: 2016–02–02
  8. By: Cecchetti, Stephen G; Tucker, Paul
    Abstract: In this paper we address three questions: (1) Does global finance require a common prudential standard? (2) Does global finance require international cooperation in overseeing the system’s safety and soundness? And (3), does global finance require notification, cooperation and coordination of dynamic regulatory-policy adjustments? Our answer to the first question is that global finance does require a common prudential standard, defined as a level of required resilience, applied appropriately to all parts of the financial system. Without adoption of a common resilience standard, the international financial system will fragment and balkanize. In addressing the second question, we explain why shared, collective analysis is necessary to identify and mitigate stability-threatening shortfalls against that standard for resilience. This will be possible only with increased public and private transparency. Finally, we examine the daunting, but essential, task of implementing a dynamic prudential framework that maintains the system’s resilience even as its structure and risk-taking behaviors change. The policy implications of our analysis focus on the need for global agreement, implementation monitoring, information sharing and even, sometimes given damaging spillovers, collective regulatory responses to emerging threats. Institutions will need to be adapted to make all this feasible.
    Keywords: Basel Committee on Banking Supervision; financial globalization; Financial Stability Board; financial stability policy; international cooperation; macroprudential policy; prudential policy; stress tests
    JEL: F53 F55 G28
    Date: 2016–01
  9. By: Florian Huber (Department of Economics, Vienna University of Economics and Business); Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business)
    Abstract: In this paper we propose a time-varying parameter VAR model for the housing market in the United States, the United Kingdom, Japan and the Euro Area. For these four economies, we answer the following research questions: (i) How can we evaluate the stance of monetary policy when the policy rate hits the zero lower bound? (ii) Can developments in the housing market still be explained by policy measures adopted by central banks? (iii) Did central banks succeed in mitigating the detrimental impact of the financial crisis on selected housing variables? We analyze the relationship between unconventional monetary policy and the housing markets by using the shadow interest rate estimated by Krippner (2013b). Our findings suggest that the monetary policy transmission mechanism to the housing market has not changed with the implementation of quantitative easing or forward guidance, and central banks can affect the composition of an investors portfolio through investment in housing. A counterfactual exercise provides some evidence that unconventional monetary policy has been particularly successful in dampening the consequences of the financial crisis on housing markets in the United States, while the effects are more muted in the other countries considered in this study.
    Keywords: Zero Lower Bound, Shadow interest rate, Housing Market, Time-varying parameter VAR
    JEL: C32 E23 E32
    Date: 2016–01
  10. By: George Papadopoulos (Democritus University of Thrace); Savas Papadopoulos (Bank of Greece); Thomas Sager
    Abstract: In bank stress tests, the role of a satellite model is to tie bank-specific risk variables to macroeconomic variables that can generate stress. For valid stress tests it is important to develop a comprehensive satellite model that both preserves the sense of known economic relationships and also exhibits high predictive ability. However, it is often difficult to achieve these desiderata in a single satellite model. Multicollinearity of key macro variables and limited data may militate against inclusion of all important stress variables, thus limiting the range of stress scenarios. In order to address this problem we depart from the custom of using a single model as the "true" satellite. Instead, we generate a full space of candidate models that we then screen for reasonable candidates that remain sufficiently rich to cover a wide range of stress scenarios. We then develop composite models by combining the surviving candidate models through weighting. The result is a composite satellite model that includes all the desired macroeconomic variables, reflects the expected relationships with the dependent variable (NPL growth) and exhibits more than 20% lower RMSE compared to a commonly used benchmark model. An illustrative stress testing application shows that this approach can provide policy makers with prudent estimates of credit risk.
    Keywords: Financial stability; Macroprudential policy; Non-performing loans; Forecast combination; Predictive modelling
    JEL: C53 E58 G28
    Date: 2016–01
  11. By: Schäfer, Alexander; Schnabel, Isabel; Weder di Mauro, Beatrice
    Abstract: The declared intention of policy makers is that future bank restructuring should be conducted through bail-in rather than bail-out. Over the past years there have been a few cases of European banks being restructured where creditors were bailed in. This paper exploits these cases to investigate the market reactions of stock prices and credit default swap (CDS) spreads of European banks in order to gauge the extent to which it is expected that bail-in will indeed become the new regime. We find evidence of increased CDS spreads and falling stock prices most notably after the bail-in in Cyprus. However, bail-in expectations appear to depend on the sovereign’s fiscal strength, i.e., reactions are stronger for banks in countries with limited fiscal space for bail-out. Moreover, actual bail-ins lead to stronger market reactions than the legal implementation of bank resolution regimes, supporting the saying that actions speak louder than words.
    Keywords: bail-in; bank restructuring; creditor participation; event study; Single Resolution Mechanism
    JEL: G21 G28
    Date: 2016–01
  12. By: Christophe Blot (OFCE); Jérôme Creel (OFCE); Paul Hubert (OFCE); Fabien Labondance (Centre de REcherches sur les Stratégies Economiques)
    Abstract: The ECB has decided to implement large-scale quantitative easing (QE) measures since March 2015 until September 2016. This unconventional monetary policy has had a variety of precedents, in the Japanese, UK and US economies. These experiments have been effective a tmodifying government and corporate bond yields, mostly in the UK and US and to a lesser extent in Japan. This conclusion is not context-free. The European QE has started in a deflation era which requires more activism and cooperation from the ECB and Euro area governments than in the UK and the US when their central banks embarked in QE. The success of the European QE will also depend substantially on the depreciation of the Euro and will require clear communication by the ECB that it is prepared to accept a large depreciation at least until the inflation rate goes back to its target.
    Keywords: Quantitative easing (EQ) measures; Unconventional monetary policy; Depreciation of the Euro
    Date: 2015–04
  13. By: Bahaj, Saleem (Bank of England); Foulis, Angus (Bank of England)
    Abstract: We argue that the uncertainty over the impact of macroprudential policy need not make a policymaker more cautious. Our starting point is the classic result of Brainard (1967) which finds that uncertainty over the impact of a policy instrument will make a policymaker less active. This result is challenged in a series of richer models designed to take into account the more complex reality faced by a macroprudential policymaker. We find that the presence of unquantifiable sources of risk, potential asymmetries in policy objectives, the ability to learn from policy actions, and private sector uncertainty over policy objectives can all lead to more active policy in the face of uncertainty.
    Keywords: Macroprudential policy; robust control; Linex; uncertainty
    JEL: D81 E58
    Date: 2016–01–29
  14. By: Nucera, Federico; Schwaab, Bernd; Koopman, Siem Jan; Lucas, André
    Abstract: We propose to pool alternative systemic risk rankings for financial institutions using the method of principal components. The resulting overall ranking is less affected by estimation uncertainty and model risk. We apply our methodology to disentangle the common signal and the idiosyncratic components from a selection of key systemic risk rankings that have been proposed recently. We use a sample of 113 listed financial sector firms in the European Union over the period 2002-2013. The implied ranking from the principal components is less volatile than most individual risk rankings and leads to less turnover among the top ranked institutions. We also find that price-based rankings and fundamentals-based rankings deviated substantially and for a prolonged time in the period leading up to the financial crisis. We test the adequacy of our newly pooled systemic risk ranking by relating it to credit default swap premia. JEL Classification: E
    Keywords: banking supervision, financial regulation, forecast combination, risk rankings, systemic risk contribution
    Date: 2016–01
  15. By: Waldyr D Areosa
    Abstract: This article applies a noisy information model with strategic interactions à la Morris and Shin (2002) to a panel from the Central Bank of Brazil Market Expectations System to provide evidence of how professional forecasters weight private and public information when building inflation expectations in Brazil. The main results are: (i) forecasters attach more weight to public information than private information because (ii) public information is more precise than private information. Nevertheless, (iii) forecasters overweight private information in order to (iv) differentiate themselves from each other (strategic substitutability).
    Keywords: incomplete information, public information, coordination, complementarities, externalities
    Date: 2016–01
  16. By: Maurer, Henri; Grussenmeyer, Patrick
    Abstract: This paper summarises the accounting principles and methodology used by statisticians within the European System of Central Banks (ESCB) to assess the impact on the government’s fiscal position of the assistance measures undertaken to support the financial sector during the financial crisis. It then presents for the euro area and its participating countries the main fiscal impact of these measures for the period 2008-2013. The results are mainly structured around three important questions for the wider public: (i) What is the magnitude of the financial resources needed by governments to provide financial support? (ii) What is the current gain or loss to governments from interventions to support the financial sector? And (iii) How did the guarantees provided by governments to the financing sector change over the period? Finally, the paper discusses further accounting challenges associated with this topic. JEL Classification: H81
    Keywords: bailout measures, capital transfers to the financial sector, change in net financial worth on balance sheet, earmarking and recording imputation, financial needs and estimated loss, impact on government debt and deficit
    Date: 2015–04
  17. By: Dimitri B. Papadimitriou
    Abstract: A complementary currency circulates within an economy alongside the primary currency without attempting to replace it. The Swiss WIR, implemented in 1934 as a response to the discouraging liquidity and growth prospects of the Great Depression, is the oldest and most significant complementary financial system now in circulation. The evidence provided by the long, successful operation of the WIR offers an opportunity to reconsider the creation of a similar system in Greece. The complementary currency is a proven macroeconomic stabilizer--a spontaneous money creator with the capacity to sustain and increase an economy's aggregate demand during downturns. A complementary financial system that supports regional development and employment-targeted programs would be a U-turn toward restoring people's purchasing power and rebuilding Greece's desperate economy.
    Date: 2016–01
  18. By: Hartwig Lojsch, Dagmar; Dias, Jorge Diz; Pérez, Asier Cornejo
    Abstract: New monthly statistical indicators on government debt securities for euro area countries have now been developed on the basis of the information contained in the Centralised Securities Database (CSDB), an internal database available to the European System of Central Banks (ESCB). The CSDB is jointly operated by the ESCB and contains timely and high-quality security-by-security reference data on debt securities, equities and investment funds. The new indicators on government debt securities provide an indication of the expected disbursements made for the servicing of issued debt securities together with the associated interest rate (nominal yield), broken down by country, original and remaining maturity, currency and type of coupon rate. This paper describes in detail the newly compiled statistical information and thus contributes to further describing the euro area government bond markets. The new indicators on euro area government debt securities are also highly relevant for policy-making and monetary and fiscal analyses. They indicate that, as at December 2014, the debt service scheduled for such securities in 2015 stood at approximately 15.9% of GDP (€1.6 trillion). This is associated with an average nominal yield on outstanding government debt securities for the euro area as a whole of 3.1% per annum. Both of these indicators have followed a decreasing path in recent periods. The new indicators also reveal some heterogeneity within the euro area: Italy shows the highest debt service and Luxembourg the lowest, while the debt securities issued by Germany have the lowest average nominal yield and Lithuanian ones the highest. JEL Classification: E62, H63, H68
    Keywords: debt securities, euro area, Government debt
    Date: 2015–06
  19. By: Pauline Gandré (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon)
    Abstract: It is widely acknowledged that the ratios of public debt over GDP reached historically high levels in the Euro area during the recent sovereign debt crisis. More unnoticed however is the simultaneous increase in the share of government debt held by residents that has started in late 2008 in most fragile economies of the area. This paper develops a simple theoretical framework, in which multiple equilibria arise, to explain why exogenous increases in the debt level may cause this share to increase, due to distinct expected returns on domestic sovereign debt for domestic and foreign creditors in times of turmoil.
    Keywords: Debt crises, Domestic creditors, Multiple equilibria
    Date: 2015
  20. By: Kang, Wensheng (Kent State University); Ratti, Ronald A. (Western Sydney University); Vespignani, Joaquin L. (University of Tasmania)
    Abstract: The value of the US dollar is of major importance to the world economy. Global liquidity has grown sharply in recent years with growing importance of China’s money supply to global liquidity. We develop out-of-sample forecasts of the US dollar exchange rate value using US and non-US global data on inflation, output, interest rates, and liquidity on the US, China and non-US/non-China liquidity. Monetary model forecasts significantly outperform a random walk forecast in terms of MSFE at horizons over 12 to 30 months ahead. A monetary model with sticky prices performs best. Rolling sample analysis indicates changes over time in the influence of variables in forecasting the US dollar. China’s liquidity has a distinct, significant and changing influence on the US dollar exchange rate. Post global financial crisis, increases in the growth rate in China’s M2 forecast a significantly higher value for the US dollar 12 months and 18 months ahead and significantly lower values for the US dollar 24 and 30 months.
    JEL: E41 E51 F31 F41
    Date: 2016–01–01
  21. By: Benjamin Käfer (University of Kassel)
    Abstract: This paper estimates the funding advantage afforded by the joint liability scheme to German Landesbanken. The advantage is estimated by computing the difference between Moody’s baseline credit assessment (BCA), representing the stand-alone rating, and the adjusted BCA incorporating group support assumptions. This notch advantage is then multiplied by time-varying yield spreads between the respective notches and the rating-dependent liabilities. Our methodology estimates the funding advantage that remains when governmental support for banks formerly considered ‘Too Big to Fail’ (TBTF) is substantially reduced or even abolished. We find a substantial monetary funding advantage due to group support assumptions, amounting on average to a multiple of the Landesbanken’s aggregated annual profits. The aggregated observations mask a distinct heterogeneity, with some of the banks being significantly more exposed to the funding advantage than others.
    Keywords: Too big to fail, implicit guarantee, support rating, systemic risk, Landesbanken, Haftungsverbund, joint liability scheme, institutional protection scheme, deposit insurance
    JEL: G12 G21 G24
    Date: 2015
  22. By: Nobuhiko Mitani (Osaka School of International Public Policy, Osaka University)
    Abstract: In this paper, I analyze whether liquidity expanded and bank lending was increased by monetary easing in 2000 or not, using pane; data of Japanese bank and shinkin from 2000 to 2014. Analyzing above this, I got the result that lending through shinkin didn't expand and monetary easing didn't take enough effect which increased lending through liquidity expanding.
    Keywords: liquidity rate, nontraditional monetary policy, shinkin
    Date: 2016–01
  23. By: Kaplan, Robert Steven (Federal Reserve Bank of Dallas)
    Abstract: Remarks before the Dallas chapters of Financial Executives International, the Association for Corporate Growth and the National Association of Corporate Directors.
    Date: 2016–01–11
  24. By: Savas Papadopoulos (Bank of Greece); Pantelis Stavroulias (Democritus University of Thrace); Thomas Sager (University of Texas)
    Abstract: Reliable forecasts of an economic crisis well in advance of its onset could permit effective preventative measures to mitigate its consequences. Using the EU15 crisis of 2008 as a template, we develop methodology that can accurately predict the crisis several quarters in advance in each country. The data for our predictions are standard, publicly available macroeconomic and market variables that are preprocessed by moving averages and filtering. The prediction models then utilize the filtered data to distinguish pre-crisis from normal quarters through standard statistical classification methodology plus a proposed new combined method, enhanced by an innovative threshold selection and goodness-of-fit measure. Empirical results are very satisfactory: Country-stratified 14-fold cross validation achieves 92.1% correct classification and 85.7% for both true positive rate and positive predictive value for the EU15 crisis of 2008. Results will be of use to policy makers, investors, and researchers who are interested in estimating the probability of a crisis as much as one and a half years in advance in order to deploy prudential policies.
    Keywords: Banking crisis; financial stability; macroprudential policy; classification methods; goodness-of-fit measures
    JEL: C53 E58 G28
    Date: 2016–01
  25. By: Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza
    Abstract: Even under optimistic assumptions, the policy status quo being enforced in Greece cannot be relied upon to help recover lost incomes and employment within any reasonable time frame. And while a widely discussed public investment program funded by European institutions would help, a more innovative, better-targeted solution is required to address Greece's protracted unemployment crisis: an "employer of last resort" (ELR) plan offering paid work in public projects, financed by issuing a nonconvertible "fiscal currency"--the Geuro.
    Date: 2016–01

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