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on Regulation |
| By: | Pierre-Richard Agénor; K. Alper; Luiz A. Pereira da Silva |
| Abstract: | This paper examines the roles of bank capital regulation and monetary policy in mitigating procyclicality and promoting macroeconomic and financial stability. The analysis is based on a dynamic stochastic model with imperfect credit markets. Macroeconomic (financial) stability is defined in terms of the volatility of nominal income (real house prices). Numerical experiments show that even if monetary policy can react strongly to inflation deviations from target, combining a credit-augmented interest rate rule and a Basel III-type countercyclical capital regulatory rule may be optimal for promoting overall economic stability. The greater the degree of interest rate smoothing, and the stronger the policymaker’s concern with macroeconomic stability, the larger is the sensitivity of the regulatory rule to credit growth gaps. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:237&r=reg |
| By: | Kiema , Ilkka (University of Helsinki, Department of Political and Economic Studies); Jokivuolle, Esa (Aalto University School of Economics, Department of Finance and Bank of Finland, Monetary Policy and Research) |
| Abstract: | We study the effects on credit allocation and bank stability of introducing a leverage ratio requirement (LRR) on top of risk-based capital requirements, as in Basel III. For the current 3% LRR, both low-risk and high-risk loan rates and volumes remain essentially unchanged, because banks previously specializing in low-risk lending can adapt by granting both low-risk and high-risk loans. For sufficiently high LRRs, low-risk lending rates would significantly increase and high-risk lending rates would fall. In the presence of severe ‘model risk’ concerning low-risk loans, as happened in the subprime crisis, the current 3% LRR might even reduce bank stability, counter to regulatory intentions. This is because the allocational effect caused by the LRR, which makes bank loan portfolios more alike, may turn beneficial risk spreading into harmful risk contamination. For higher levels of LRR, however, bank stability is likely to be improved even in the presence of model risk. |
| Keywords: | bank regulation; Basel III; capital requirements; credit risk; leverage ratio |
| JEL: | D41 D82 G14 G21 G28 |
| Date: | 2011–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2011_010&r=reg |
| By: | S. Jansen, Eilev (Statistics Norway); S.H. Krogh, Tord (Dept. of Economics, University of Oslo) |
| Abstract: | The interaction between financial markets and the macroeconomy can be strongly affected by changes in credit market regulations. In order to take account of these effects we control explicitly for regime shifts in a system of debt equations for Norway using a common, exible trend. The estimated shape of the trend matches the qualitative development in the regulations, and we argue that it can be viewed as a measure of relative credit availability, or credit conditions, for the period 1975-2008 - a credit conditions index (CCI). This entails years of strict credit market regulations in the 1970s, its gradual deregulation in the 1980s, followed by a full-blown banking crisis in the years around 1990 and the development thereafter up to the advent of the current nancial crisis. Our study is inspired by Fernandez-Corugedo and Muellbauer (2006), which introduced the methodology and provided estimates of a CCI for the UK. The trend conditions on a priori knowledge about changes in the Norwegian regulatory system, as documented in Krogh(2010b), and it shows robustness when estimated recursively. |
| Keywords: | credit conditions; exible trend; financial deregulation; household loans |
| JEL: | E44 G21 G28 |
| Date: | 2011–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2011_010&r=reg |
| By: | Gaoussou Diarra (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Sébastien Marchand (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I) |
| Abstract: | This paper investigates empirically the relationships between the corruption climate and the demand for good governance by focusing on firms' behaviors in developing countries. The concept of demand for good governance is conceived in terms of a firm's willingness to comply with regulatory norms measured through the firm's perception of the level of public accountability as well as the firm's behavior in terms of corruption practices. While there is a growing theoretical literature on the importance of externality mechanisms of corruption phenomena, little empirical evidences has been highlighted. This paper contributes to fill this gap by using firm-level data from the World Bank Enterprise Survey. We show that when corruption is found to be a very important constraint for a firm's business, its willingness to comply decreases and the probability of the firm's corrupting officials increases. These results support arguments according to which the demand for good governance is likely to be influenced by the perception of the existence of pervasive corruption. Moreover, the results are conditioned on countries' institutional features and the type of regulation. Some evidence is also found for firms' environmental overcompliance. |
| Keywords: | Corruption; Compliance; Regulation; Firms |
| Date: | 2011–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00588191&r=reg |
| By: | Chen, Xiaoguang; Huang, Haixiao; Khanna, Madhu |
| Abstract: | This paper examines the extensive and intensive margin changes in land use in the U.S. likely to be induced by biofuel policies and the implications of these policies for GHG emissions over the 2007-2022 period. The policies considered here include the Renewable Fuel Standard (RFS) by itself as well as combined with current biofuel tax credits or a carbon price policy. We use a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to endogenously determine the effects of these policies on cropland allocation, food and fuel prices, and the mix of first and second-generation biofuels. We find that the increase in crop prices under the RFS is likely to be less than 20% in most cases and this increase is much smaller when the RFS is accompanied by volumetric subsidies or a carbon price policy since these policies induce a switch away from corn ethanol to cellulosic biofuels. The impact of the RFS on GHG emissions reduction in the U.S. is fairly modest in size but increases when the RFS is accompanied by volumetric subsidies or a carbon price policy. However, domestic savings in GHG emissions achieved by the RFS can be severely eroded by the indirect land use changes and the rebound effect on global gasoline consumption. The net reductions in global GHG emissions are largest when the RFS is accompanied by a carbon price policy. |
| Keywords: | Biofuel Mandates, Land Use, GHG Emissions, Technology, Environmental Economics and Policy, Land Economics/Use, Resource /Energy Economics and Policy, |
| Date: | 2011–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea11:103216&r=reg |
| By: | Clara Cardone Riportella; Antonio Trujillo; Anahí Briozzo |
| Abstract: | This paper analyses the impact of the new Basel Capital Accords (Basel II and Basel III) on the bank’s capital requirements in a portfolio of Small and Medium-sized Enterprises (SMEs) when the internal ratings-based (IRB) approach is used. To do this, the study uses a large database of Spanish firms and covers the period from 2005 to 2009. We also examine the effect on the credit risk premium charged by banks of the guarantee offered by a Loan Guarantee Association (LGA) to a SME; and whether this foreseeable decrease in the interest rates applicable to the SME is compensated by the cost of this guarantee |
| Keywords: | Bank capital requirements, Credit risk mitigation, Bank financing of SMEs, Basel II, Basel III Loan Guarantee Association |
| JEL: | G21 G32 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb111004&r=reg |
| By: | Thrasher, Jim; Rousu, Matthew; Hammond, David; Navarro, Ashley; Corrigan, Jay |
| Abstract: | Objective: To estimate differences in demand for cigarette packages with different packaging and health warning label formats. Methods: Adult smokers (n=404) in four states participated in experimental auctions. Participants bid on two of four experimental conditions, each involving a different health warning label format but with the same warning message: 1. text on 50% of pack side; 2. text on 50% of the pack front and back; 3. text with a graphic picture on 50% of the pack front and back; and 4. same as previous format, but without brand imagery. Results: Mean bids decreased across conditions (1. $3.52; 2. $3.43; 3. $3.11; 4. $2.93). Bivariate and multivariate random effects models indicated that there was no statistically significant difference in demand for packs with either of the two text only warnings; however, demand was significantly lower for both packs with prominent pictorial warnings, with the lowest demand associated with the plain, unbranded pack. Conclusions: Results suggest that prominent health warnings with graphic pictures will reduce demand for cigarettes. Regulators should not only consider this type of warning label, but also plain packaging policies for tobacco products. |
| Keywords: | experimental auctions, cigarette labels, grotesque images, Food Consumption/Nutrition/Food Safety, Health Economics and Policy, C93, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea11:103169&r=reg |
| By: | Bae, Yong-Kyun |
| Abstract: | According to the offsetting effect theory, since drivers wearing seat belts feel more secure, they tend to drive less carefully and may cause more accidents, including those involving pedestrians. Most previous studies have used only state-level accident data, which cannot control for individual characteristics of drivers, vehicles, and the environmental factors surrounding the accidents. This paper uses individual-level accident data to analyze how drivers respond to the laws exploiting changes in the seat belt laws in a number of US states in the last decade. I find that the laws do not cause less careful behavior by drivers. In fact, they drive more carefully when more stringent seat belt laws are in effect, and this leads to less involvement of pedestrians in accidents. These results show that the offsetting effects do not exist when all accidents, including fatal accidents, are considered. |
| Keywords: | Offsetting Effects; Safety Regulation; Seat Belt Laws; Vehicle Accidents |
| JEL: | L51 L62 D01 |
| Date: | 2011–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30443&r=reg |
| By: | Nobuhiro Hosoe (National Graduate Institute for Policy Studies); Shingo Takagi (Graduate School of Economics and Business Administration, Hokkaido University) |
| Abstract: | Deregulation in the electric power industry has been aimed at promoting competition and thereby enhancing the industry's efficiency. We use the auction data of public power procurements to study the impact of the reform on the retail power market in Japan. We quantify this impact by measuring a decline in power charges, controlling for the endogeneity bias caused by the entrants' bid-submission decisions. Our results suggest that power charges would decline by about 0.48 yen/kWh on average when two or more providers bid at an auction. |
| Keywords: | electric power industry, auction data, public procurement, sample selection bias |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:11-01&r=reg |
| By: | Luigi Siciliani (Department of Economics and Centre for Health Economics, University of York, Heslington); Odd Rune Straume (Universidade do Minho - NIPE); Roberto Cellini (Department of Economics, University of Catania) |
| Abstract: | We study incentives for quality provision in markets where providers are motivated (semi-altruistic); prices are regulated and firms are funded by a combination of block grants and unit prices; competition is based on quality, and demand adjusts sluggishly. Health or education are sectors in which the mentioned features are the rule. We show that the presence of motivated providers makes dynamic competition tougher, resulting in higher steady-state levels of quality in the closed-loop solutions than in the benchmark open-loop solution, if the price is sufficiently high. However, this result is reversed if the price is sufficiently low (and below unit costs). Sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady-state quality. Prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated. |
| Keywords: | Quality competition; Differential games;Motivated agents |
| JEL: | C73 H42 I18 I21 L13 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:14/2011&r=reg |
| By: | Francisco Rosas; Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)) |
| Abstract: | On average, U.S. farmers choose to apply nitrogen fertilizer at a rate that exceeds the ex post agronomically optimal rate. The technology underlying the yield response to nitrogen rewards producers who over apply in years when rainfall is excessive. The overapplication of nutrients has negative environmental consequences because the nitrogen that is not taken up by the plant will typically volatilize causing N2O emissions, or leach causing water pollution. We present a nonlinear offset program that induces farmers to reduce their nitrogen applications to the level that will be consumed by the plant in a typical year and, as a result, reduce N2O emissions from agriculture. The offset program is nonlinear because of the nonlinear relationship between N2O and nitrogen application rates. We assume that the farmer solves an expected utility maximization problem, choosing the optimal nitrogen application rate. The key contribution is a set of simulations that shows that modest offset payments will induce participation in the program and will have a significant impact on both expected and actual N2O emissions without having a significant impact on actual or expected yields. We also find that more risk-averse farmers will reduce emissions by a greater amount than less risk-averse farmers. Finally, we show the distribution of emission reductions induced by this nonlinear offset scheme. |
| Keywords: | carbon offsets, nitrogen fertilizer, nitrous oxide, pollution, uncertainty. JEL Codes: Q12, Q18, Q51, Q53, Q54, D8 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:ias:fpaper:11-wp521&r=reg |
| By: | Jean BELIN (GREThA, CNRS, UMR 5113); Jens HORBACH (University of Applied Sciences Augsburg); Vanessa OLTRA (GREThA, CNRS, UMR 5113) |
| Abstract: | Many recent papers deal with exploring and explaining the determinants of eco-innovations for different countries supporting the formulation of efficient policy measures to trigger eco-innovation activities of firms. Unfortunately, there is still a lack of cross-country analyses allowing recognizing “international” stylized facts, but also regional characteristics of eco-innovations. Based on data from the fourth Community Innovation Survey (CIS) for France and Germany, the present paper tries to contribute to fill this gap. Using econometric methods, we are able to detect remarkable similarities between the different determinants of eco-innovation in the two countries. The results confirm the central role of regulation and cost savings as motivations for eco-innovation. Furthermore, eco-innovative activities seem to require more external sources of knowledge and information than innovation in general. |
| Keywords: | Eco-Innovation, Industry, Discrete Choice Models |
| JEL: | Q55 O33 O38 C25 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2011-17&r=reg |
| By: | Hoel, Michael (Dept. of Economics, University of Oslo) |
| Abstract: | Several recent articles have analyzed climate policy giving explicit attention to the nonrenewable character of carbon resources. In most of this literature the economy is treated as a single unit, which in the context of climate policy seems reasonable to interpret as the whole world. However, carbon taxes and other climate policies differ substantially across countries. With such heterogeneity, the effects on emission paths of changes in taxes, costs and subsidies may be very different from what one …finds for a hypothetical world of identical countries. |
| Keywords: | climate change; exhaustible resources; renewable energy; green paradox |
| JEL: | Q31 Q41 Q42 Q54 Q58 |
| Date: | 2011–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2011_008&r=reg |