We assess the effect of Freedom of Information Act (FOIA) laws on public corruption in the United States. Specifically, we investigate the impact of switching from a weak to a strong state-level FOIA law on corruption convictions of state and local government officials. The evidence suggests that strengthening FOIA laws has two offsetting effects: reducing corruption and increasing the probability that corrupt acts are detected. The conflation of these two effects led prior work to find little impact of FOIA on corruption. We find that conviction rates approximately double after the switch, which suggests an increase in detection probabilities. However, conviction rates decline from this new elevated level as the time since the switch from weak to strong FOIA increases. This decline is consistent with officials reducing the rate at which they commit corrupt acts by about 20%. These changes are more pronounced in states with more intense media coverage, for those that had more substantial changes in their FOIA laws, for FOIA laws which include strong liabilities for officials who contravene them, for local officials, and for more serious crimes. Conviction rates of federal officials, who are not subject to the policy, show no concomitant change.
{"title":"Sunshine as Disinfectant: The Effect of State Freedom of Information Act Laws on Public Corruption","authors":"Adriana S. Cordis, Patrick L. Warren","doi":"10.2139/ssrn.1922859","DOIUrl":"https://doi.org/10.2139/ssrn.1922859","url":null,"abstract":"We assess the effect of Freedom of Information Act (FOIA) laws on public corruption in the United States. Specifically, we investigate the impact of switching from a weak to a strong state-level FOIA law on corruption convictions of state and local government officials. The evidence suggests that strengthening FOIA laws has two offsetting effects: reducing corruption and increasing the probability that corrupt acts are detected. The conflation of these two effects led prior work to find little impact of FOIA on corruption. We find that conviction rates approximately double after the switch, which suggests an increase in detection probabilities. However, conviction rates decline from this new elevated level as the time since the switch from weak to strong FOIA increases. This decline is consistent with officials reducing the rate at which they commit corrupt acts by about 20%. These changes are more pronounced in states with more intense media coverage, for those that had more substantial changes in their FOIA laws, for FOIA laws which include strong liabilities for officials who contravene them, for local officials, and for more serious crimes. Conviction rates of federal officials, who are not subject to the policy, show no concomitant change.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76935644","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Credit rating agencies have an incentive to maintain a public reputation for credibility among investors but also have an incentive to develop a second, private reputation for leniency among issuers. We show that in markets with few issuers, such as markets for structured assets, these incentives may lead rating agencies to inflate ratings as a strategic tool to form a "double reputation". The model extends the existing literature on "cheap-talk" reputation to the case of two audiences. Our results can explain why rating inflation occurred specifically in markets for MBSs and CDOs during the recent financial crisis. Policy implications are discussed. (JEL D82, G01, G12, G24, G32)
{"title":"Repeated Interaction and Rating Inflation: A Model of Double Reputation","authors":"Sivan Frenkel","doi":"10.2139/ssrn.2188877","DOIUrl":"https://doi.org/10.2139/ssrn.2188877","url":null,"abstract":"Credit rating agencies have an incentive to maintain a public reputation for credibility among investors but also have an incentive to develop a second, private reputation for leniency among issuers. We show that in markets with few issuers, such as markets for structured assets, these incentives may lead rating agencies to inflate ratings as a strategic tool to form a \"double reputation\". The model extends the existing literature on \"cheap-talk\" reputation to the case of two audiences. Our results can explain why rating inflation occurred specifically in markets for MBSs and CDOs during the recent financial crisis. Policy implications are discussed. (JEL D82, G01, G12, G24, G32)","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"79 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77039122","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Yield curve fluctuations across different currencies are highly correlated. This paper investigates this phenomenon by exploring the channels through which macroeconomic shocks are transmitted across borders. Macroeconomic shocks affect current and expected future short-term rates as central banks react to changing economic environments. Investors could also respond to these shocks by altering their required compensation for risk. Macroeconomic shocks thus influence bond yields both through a policy channel and through a risk compensation channel. Using data from the US, the UK, and Germany, we find that world inflation and US yield level together explain over two-thirds of the covariance of yields at all maturities. Further, these effects operate largely through the risk compensation channel for long-term bonds.
{"title":"Why Do Term Structures in Different Currencies Comove?","authors":"Chotibhak Jotikasthira, A. Le, C. Lundblad","doi":"10.2139/ssrn.2001788","DOIUrl":"https://doi.org/10.2139/ssrn.2001788","url":null,"abstract":"Yield curve fluctuations across different currencies are highly correlated. This paper investigates this phenomenon by exploring the channels through which macroeconomic shocks are transmitted across borders. Macroeconomic shocks affect current and expected future short-term rates as central banks react to changing economic environments. Investors could also respond to these shocks by altering their required compensation for risk. Macroeconomic shocks thus influence bond yields both through a policy channel and through a risk compensation channel. Using data from the US, the UK, and Germany, we find that world inflation and US yield level together explain over two-thirds of the covariance of yields at all maturities. Further, these effects operate largely through the risk compensation channel for long-term bonds.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79916259","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The macroeconomic effects of housing illiquidity are analyzed using a novel directed search model of housing with long-term debt and default. Debt overhang emerges when highly leveraged sellers are forced to post high prices that produce long selling delays. These delays increase foreclosures, raise default premia, and curtail credit. Cheaper credit fuels temporarily higher house prices, faster sales, and fewer foreclosures, but the borrowing surge facilitates future debt overhang and default. More stringent foreclosure punishments also expand credit and, therefore, either generate higher foreclosures or more debt overhang. Leverage caps avoid this conundrum but reduce welfare by restricting borrowing.
{"title":"Illiquidity and its Discontents: Trading Delays and Foreclosures in the Housing Market","authors":"Aaron Hedlund","doi":"10.2139/ssrn.1932908","DOIUrl":"https://doi.org/10.2139/ssrn.1932908","url":null,"abstract":"The macroeconomic effects of housing illiquidity are analyzed using a novel directed search model of housing with long-term debt and default. Debt overhang emerges when highly leveraged sellers are forced to post high prices that produce long selling delays. These delays increase foreclosures, raise default premia, and curtail credit. Cheaper credit fuels temporarily higher house prices, faster sales, and fewer foreclosures, but the borrowing surge facilitates future debt overhang and default. More stringent foreclosure punishments also expand credit and, therefore, either generate higher foreclosures or more debt overhang. Leverage caps avoid this conundrum but reduce welfare by restricting borrowing.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"76 7 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87867138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Rapidly growing developing economies are characterized by heavy exportation and current account surpluses. Empirical studies suggest that "learning-by-exporting" may be quantitatively important in developing countries and behind some of this dramatic growth. This paper explores if learning-by-exporting helps to explain key macroeconomic behavior of fast growing developing countries. To accomplish this, I build a two country general equilibrium growth model in which a developing economy benefits from learning-by-exporting as it trades with a developed economy. As the benchmark, I consider a setup in which policies are restricted by the World Trade Organization (WTO) to non-trade related policies and compare the outcome to a model with "No-WTO restrictions". The optimal policies in the presence of WTO restrictions rationalize the observed current account surpluses of rapidly growing developing economies. However, if there were no WTO restrictions, developing countries would manipulate their terms of trade rather than their current account, which improves the welfare of both developing and developed countries. This highlights the fact that terms of trade manipulation can be "win-win" in the presence of learning-by-exporting. This paper also considers a "Coordinated Policy" problem to obtain the first-best outcome for the world. In this setup, the developing country's terms of trade deteriorate even further and it runs a greater current account deficit compared to the "No-WTO Restrictions" case.
{"title":"Growth and Global Imbalances: The Role of Learning-by-Exporting","authors":"Byoung Hoon Seok","doi":"10.2139/ssrn.2245229","DOIUrl":"https://doi.org/10.2139/ssrn.2245229","url":null,"abstract":"Rapidly growing developing economies are characterized by heavy exportation and current account surpluses. Empirical studies suggest that \"learning-by-exporting\" may be quantitatively important in developing countries and behind some of this dramatic growth. This paper explores if learning-by-exporting helps to explain key macroeconomic behavior of fast growing developing countries. To accomplish this, I build a two country general equilibrium growth model in which a developing economy benefits from learning-by-exporting as it trades with a developed economy. As the benchmark, I consider a setup in which policies are restricted by the World Trade Organization (WTO) to non-trade related policies and compare the outcome to a model with \"No-WTO restrictions\". The optimal policies in the presence of WTO restrictions rationalize the observed current account surpluses of rapidly growing developing economies. However, if there were no WTO restrictions, developing countries would manipulate their terms of trade rather than their current account, which improves the welfare of both developing and developed countries. This highlights the fact that terms of trade manipulation can be \"win-win\" in the presence of learning-by-exporting. This paper also considers a \"Coordinated Policy\" problem to obtain the first-best outcome for the world. In this setup, the developing country's terms of trade deteriorate even further and it runs a greater current account deficit compared to the \"No-WTO Restrictions\" case.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82427142","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper provides evidence that China's system of tax revenue sharing is an important explanation for differences in the rate of sewage treatment plant construction among its cities. As a result of the 1994 tax reform, Chinese cities retained different shares of their value-added tax (VAT). Exploiting the persistence of this sharing system, we use the VAT share in 1995 as an instrument for the present fiscal incentives. We find that a 10 percentage point increase in the VAT sharing rate resulted in a 13.8 percent increase in the construction of sewage treatment capacity. This result suggests that fiscal incentives can play an important role in the provision of pollution-reducing infrastructure.
{"title":"Fiscal Incentives and Environmental Infrastructure in China","authors":"A. Liu, Junjie Zhang","doi":"10.2139/ssrn.2165500","DOIUrl":"https://doi.org/10.2139/ssrn.2165500","url":null,"abstract":"This paper provides evidence that China's system of tax revenue sharing is an important explanation for differences in the rate of sewage treatment plant construction among its cities. As a result of the 1994 tax reform, Chinese cities retained different shares of their value-added tax (VAT). Exploiting the persistence of this sharing system, we use the VAT share in 1995 as an instrument for the present fiscal incentives. We find that a 10 percentage point increase in the VAT sharing rate resulted in a 13.8 percent increase in the construction of sewage treatment capacity. This result suggests that fiscal incentives can play an important role in the provision of pollution-reducing infrastructure.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"10 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81117661","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates whether the differences in bank regulatory standards matter for the cross-border supply of financial services. A gravity model of the bilateral exports of financial services is implemented to assess the impact of various factors that measure cross-country differences in the bank regulatory standards. The results show that cross-country heterogeneity in private monitoring impedes the export of financial services. However, this effect remains limited compared to the effect of direct trade barriers.
{"title":"Heterogeneous Bank Regulatory Standards and the Cross-Border Supply of …Financial Services","authors":"V. Bouvatier","doi":"10.2139/ssrn.2176754","DOIUrl":"https://doi.org/10.2139/ssrn.2176754","url":null,"abstract":"This paper investigates whether the differences in bank regulatory standards matter for the cross-border supply of financial services. A gravity model of the bilateral exports of financial services is implemented to assess the impact of various factors that measure cross-country differences in the bank regulatory standards. The results show that cross-country heterogeneity in private monitoring impedes the export of financial services. However, this effect remains limited compared to the effect of direct trade barriers.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81350186","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the impact of sovereign risk on the credit risk of the non-financial corporate sector in the Eurozone using credit default swap data. We show that an increase in sovereign credit spreads is associated with a statistically and economically significant increase in corporate spreads and, hence, firms' borrowing costs. A deterioration in a country's credit quality affects more adversely firms that are more likely to benefit from government aid, those whose sales are more concentrated in the domestic market, and those that rely more heavily on bank financing. Our findings suggest that government guarantees domestic demand, and credit markets are important credit risk transmission mechanisms.
{"title":"Sovereign and Corporate Credit Risk: Evidence from the Eurozone","authors":"Mascia Bedendo, Paolo Colla","doi":"10.2139/ssrn.2212089","DOIUrl":"https://doi.org/10.2139/ssrn.2212089","url":null,"abstract":"We study the impact of sovereign risk on the credit risk of the non-financial corporate sector in the Eurozone using credit default swap data. We show that an increase in sovereign credit spreads is associated with a statistically and economically significant increase in corporate spreads and, hence, firms' borrowing costs. A deterioration in a country's credit quality affects more adversely firms that are more likely to benefit from government aid, those whose sales are more concentrated in the domestic market, and those that rely more heavily on bank financing. Our findings suggest that government guarantees domestic demand, and credit markets are important credit risk transmission mechanisms.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"5 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89984341","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we show the interest of the time-varying coefficient model in hedge fund performance assessment and selection. We argue that the alpha of hedge funds is dynamic and that the time-varying alpha captures this dynamic behavior. Therefore, forming portfolios based on their time-varying alpha should lead to outperforming portfolios. Using a persistence analysis, we check this conjecture and show that contrary to top performers in terms of OLS alpha, the top performers in terms of past time-varying alpha generate superior and significant ex-post performance. Additionally, this analysis shows that persistence exists in the hedge fund industry and can be as long as 3 years.Secondly, building on the conclusion that the time-varying analysis gives a better picture of the alpha of the manager at a certain point in time, we use the timevarying analysis to obtain estimates of the expected returns of hedge funds. Using those estimates to construct a mean-variance optimal portfolio enhances the performance of this portfolio, suggesting that in terms of hedge fund performance detection, the time-varying model is superior to the OLS analysis.
{"title":"Portfolio Optimization for Hedge Funds Through Time-Varying Coefficients","authors":"B. Dewaele","doi":"10.2139/ssrn.2150056","DOIUrl":"https://doi.org/10.2139/ssrn.2150056","url":null,"abstract":"In this paper, we show the interest of the time-varying coefficient model in hedge fund performance assessment and selection. We argue that the alpha of hedge funds is dynamic and that the time-varying alpha captures this dynamic behavior. Therefore, forming portfolios based on their time-varying alpha should lead to outperforming portfolios. Using a persistence analysis, we check this conjecture and show that contrary to top performers in terms of OLS alpha, the top performers in terms of past time-varying alpha generate superior and significant ex-post performance. Additionally, this analysis shows that persistence exists in the hedge fund industry and can be as long as 3 years.Secondly, building on the conclusion that the time-varying analysis gives a better picture of the alpha of the manager at a certain point in time, we use the timevarying analysis to obtain estimates of the expected returns of hedge funds. Using those estimates to construct a mean-variance optimal portfolio enhances the performance of this portfolio, suggesting that in terms of hedge fund performance detection, the time-varying model is superior to the OLS analysis.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"91 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73694469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Industrial policy is experiencing a renaissance, at least in terms of public profile: around the world, many governments are actively — and overtly — intervening to influence the structural evolution of their economies, or thinking about it. The European Commission has proposed a “fresh approach to industrial policy”; the Obama Administration has committed to taking “strategic decisions about strategic industries” and the director of the White House’s national economic council has cogently articulated the case for a manufacturing policy; and Japan has indicated it wants to create a new “Japan Inc.” The Economist has worried about it (“Picking winners, saving losers: Industrial policy is back in fashion. Have governments learned from past failures?”); the OECD has studied it (Fostering New Sources of Growth – Is there a Role for “Industrial” Policy in the 21st Century?); UNCTAD has been “rethinking” it; the World Bank has re-introduced it into its development toolkit, albeit with qualifications (only if first best policies fail and then only temporarily and as neutrally as possible); and even the IMF has debated it. Governments of course have never stopped tinkering with industrial structures — for reasons as varied as the myriad collisions between elegant economic theories and messy economic realities. What is novel — and controversial — today is that industrial policy has come in from the cold. This paper reviews the empirical and theoretical developments that have returned industrial policy to the policy mix. This paper reviews the empirical and theoretical developments that have returned industrial policy to the policy mix, including a review of practice in the United States, Canada, the European Union and Japan as well as in the major emerging markets, Brazil, China and India. It concludes that a new economic consensus is required to make this presence comfortable for a generation of policymakers and analysts whose careers were made in a context where it was simply understood that governments cannot “pick winners” and suggests the basic precepts on which a new consensus might be built.
{"title":"The Return of Industrial Policy","authors":"Dan Ciuriak","doi":"10.2139/SSRN.1929564","DOIUrl":"https://doi.org/10.2139/SSRN.1929564","url":null,"abstract":"Industrial policy is experiencing a renaissance, at least in terms of public profile: around the world, many governments are actively — and overtly — intervening to influence the structural evolution of their economies, or thinking about it. The European Commission has proposed a “fresh approach to industrial policy”; the Obama Administration has committed to taking “strategic decisions about strategic industries” and the director of the White House’s national economic council has cogently articulated the case for a manufacturing policy; and Japan has indicated it wants to create a new “Japan Inc.” The Economist has worried about it (“Picking winners, saving losers: Industrial policy is back in fashion. Have governments learned from past failures?”); the OECD has studied it (Fostering New Sources of Growth – Is there a Role for “Industrial” Policy in the 21st Century?); UNCTAD has been “rethinking” it; the World Bank has re-introduced it into its development toolkit, albeit with qualifications (only if first best policies fail and then only temporarily and as neutrally as possible); and even the IMF has debated it. Governments of course have never stopped tinkering with industrial structures — for reasons as varied as the myriad collisions between elegant economic theories and messy economic realities. What is novel — and controversial — today is that industrial policy has come in from the cold. This paper reviews the empirical and theoretical developments that have returned industrial policy to the policy mix. This paper reviews the empirical and theoretical developments that have returned industrial policy to the policy mix, including a review of practice in the United States, Canada, the European Union and Japan as well as in the major emerging markets, Brazil, China and India. It concludes that a new economic consensus is required to make this presence comfortable for a generation of policymakers and analysts whose careers were made in a context where it was simply understood that governments cannot “pick winners” and suggests the basic precepts on which a new consensus might be built.","PeriodicalId":70912,"journal":{"name":"政治经济学季刊","volume":"25 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-05-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89501999","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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