Bust Cycles Research Articles

The Incoming Revolution in the World Banking and Financial System

Manifold and ongoing developments seem to hint that humanity is just ahead of historic shifts in global banking as well as the financial system. The landmark changes at this moment are unavoidable. The ultra-loose monetary policies practiced by the leading central banks in recent years for a record-breaking period have not resulted in a permanent enhancement of the global economic situation but barely extended the inevitable agony of the current global financial system for additional several years. The COVID-19 pandemic and resultant global economic crisis only made things worse. These simple facts beg the following questions: what future global financial system would probably look like? What currency is going to substitute the role hitherto fulfilled by the crumbling U.S. dollar? How painful the upcoming giant changes will be for societies? What the incoming revolution in geo-economics will mean for geopolitics? Unfortunately, financial boom and bust cycles are not the thing of the past but rather seem to be inextricably linked to the way the modern financial system works. This decisively needs to be reformed. The harbingers of epochal changes are on the horizon. The author will describe them in the paper.

Asymmetric Reaction of Investors to Market Risk, Illiquidity Risk, and Credit Risk: Evidence from Tehran Stock Exchange (TSE)

The relationship between risk and return is not symmetric under different circumstances. As the prospect theory describes, the value function which passes through the reference point is steeper for losses than gains (asymmetric risk appetite). But such an asymmetrical risk aversion could be traced in different periods of investment and market boom and bust cycles behind the reference point. Moreover, investors’ asymmetric behavior is different regarding various risks, such as market risk, illiquidity risk, and credit risk. This paper examines the asymmetric investors' reaction to various risks in Tehran Stock Exchange (TSE) both in recession and growth from 2011 through 2016. Evidence reveals that although all three kinds of risks are relevant, especially illiquidity risk, risk factors’ explanation power in the bullish market is less than the bearish one. This indicates that investors tend to show an asymmetric reaction to risk in up and downswing markets. The asymmetric behavior is also predominant due to investors’ weak attention to the market risk in a growing market in opposition to a recessive market condition that turns out to be an important risk consideration. The results of this study can help investors to consider asymmetrical behavior effect when they are making their minds on investment decisions.

Resource curse impacts on the co-evolution of emerging economy institutions and firm internationalization

We investigate natural resource “curse” impacts on co-evolutionary relationships between emerging economy institutions and firm internationalization. We discuss how these relationships challenge and extend IB institutional research using three predominant resource curse characteristics (boom and bust cycles with related public discourse and “Dutch Disease” with associated manufacturing sector investment crowd-out). These characteristics alter regulative, normative and cognitive institutional impacts on state- and privately-owned firm internationalization during an emerging economy’s resource curse. We develop propositions describing these processes using oil and gas, manufacturing and service sector examples in several emerging economies. We discuss our theoretical contributions to the resource curse and international business literatures and outline future research directions.

Resilience in Times of Economic Boom and Bust: A Narrative Study of a Rural Population Dependent upon the Oil and Gas Industry

How do residents of small towns that depend on oil and gas extraction or processing industries withstand economic boom and bust cycles? To answer this question, this article reports on a narrative analysis of residents’ life stories gathered from 37 adults of a small town on the Canadian prairies dependent on the oil and gas industry, employing the theories of narrative inquiry and narrative identity. Participants aged 30 to 76 were interviewed and their experiences of living in an unstable economy that is dependent mostly on a single resource extraction industry were explored. Specifically, we asked participants about the effect of economic change on factors related to resilience like family interactions, work choices, educational pathways, and the quality of their social lives. Our analysis of adult narratives looked for patterns in the relationship between risk exposure, promotive and protective factors at multiple systemic levels (individual, relational, cultural), and functional outcomes such as individual coping, community cohesion, and social and economic sustainability. Results show that a strong identity, in particular expressions of personal agency, communion, and engagement in meaning making are contributing factors to adult resilience in a context of economic change. Our results also highlight how positive attitudes towards a better future may inadvertently undermine the need for residents of oil and gas-dependent towns to commit to economic diversification and other potential resilience-promoting strategies.

The economic and social benefit of coal mining: the case of regional Queensland

This paper examines economic impacts of coal mining across local government areas (LGAs) in Australia. Three main distinguishing features of this research are a) the analysis through the mining boom and bust cycle, b) a focus on small regional areas within one state in Australia and c) the use of socio‐economic indicators in addition to the standard income and employment indicators. An analysis of socio‐economic changes in the LGAs during the business cycle provides insights as to how coal mining affects sustainable development of regions in the long run. Focus on one state reduces endogeneity in statistical analyses. The use of various socio‐economic indicators helps understanding of the reported negative impacts of mining on local economies. The results show that the coal mining sector creates a spillover effect resulting in an increase in non‐mining employment. The income indicators suggest that the coal mining sector creates positive impacts as indicated by the decreased share of low‐income families in the area. However, some potential risks to housing are found since an increase in coal mining employment leads to increased financial stress due to increased rental costs for low‐income households.

International Real Estate Review

The fundamental message of this paper is simple and fourfold. The world has endured many economic - financial frenzies, panics, and crises that, at first glance, appear to be remarkable and special, but upon closer examination, mirror each other in several ways. Typically, these historical economic crises are resultant of excessive debt, contain a trigger event that creates a "crisis in confidence", suffer a boom bust cycle with significantly enhanced financial and economic volatilities, and generate a boom bust cycle that leads to major contagion effects across the financial and real sectors and spreads internationally. Our analysis as a case study examines and demonstrates that the Great Financial Crisis of 2007-2008 exhibits extraordinary causal features and similarities with the Long Depression of 1873.

Sustainable Sugarcane Cultivation in India Through Threats of Red Rot by Varietal Management

Sugarcane is traditionally cultivated in India since time immemorial to extract gur and Khandsari sugar. In the country, white sugar manufacturing started ~ 300 years ago the with imported Saccharum officinarum genotypes. After 1850s, sugar industry expanded rapidly and such expansion also led to emergence of new threats in the form of red rot caused by the dreaded fungal pathogen Colletotrichum falcatum. The new threat caused production losses in the then Presidencies of Madras, Bombay and Bengal. Sugarcane Breeding Institute (SBI) was established in 1912 to breed sugarcane varieties for red rot resistance with other desirable agronomical traits. The institute achieved commercial success by releasing the first interspecific hybrid variety Co 205 during 1918 and release of many such varieties to the subtropical region revolutionized sugarcane cultivation by improved cane yield leading to attaining self-sufficiency in sugar requirement. Although the new varieties sustained the boom, red rot started attacking the elite varieties in different decades through a series of epidemics. These epidemics hindered sugarcane cultivation for a while in different states; however after each epidemic, new varieties were deployed to counter the disease onslaught and saved sugar industry from the brink. Many superior varieties with red rot resistance have benefitted the industry, but evolution of new C. falcatum pathotypes caused breakdown of resistance and made the life of many elite varieties short-lived. In the recent decades, variation in C. falcatum was characterized, designated into new pathotypes, and new pathotypes were used for red rot screening. The historical red rot epidemics in the country over the decades resembled to ‘boom and bust cycle’ reported in cereal rust diseases. Domination of single variety combined with flood during monsoon seasons/waterlogging favoured red rot epidemics. Notwithstanding red rot epidemics, red rot-resistant varieties played a vital role to manage the disease and to sustain sugarcane cultivation in India for more than 100 years.

Circling the barrels: Kazakhstan’s regime stability in the wake of the 2014 oil bust

ABSTRACT Most of Kazakhstan’s wealth hinges on oil rents, and the overall performance of the economy is closely linked to petroleum’s price fluctuations. This study asks (1) why the institution of private ownership of oil proceeds has not led to a positive transformation of patron–client relations embedded in the country’s energy sector, thus challenging the relevance of the ‘private ownership’ narrative, and (2) why the collapse in the price of oil did not affect the stability and essential character of the regime in power. To answer these questions, the article examines two case studies: the privatization of the oil sector in the 1990s, and the post-2014 oil crisis. Thus the article problematizes important theories on oil-sector privatization and contributes to recent work on regime stability as it pertains to the resource curse. The analysis of the constitutive impact of oil wealth on Kazakh politics generates wider insights on the links between the power of informal networks and regime stability in petrostates through boom and bust cycles.

The Local Economic Impacts of the Oil and Gas Industry: Boom, Bust and Resilience to Shocks

In this paper, we study the impact of the oil and gas industry on county-level employment and wage earnings across not only the boom, but also the bust cycle. Our paper is among the first to estimate wage and employment impacts of the bust cycle for the U.S. oil and gas industry and directly compare these employment and wage impacts for the boom. We then evaluate spillovers into other sectors in the economy, comparing impacts on trad-able and non-trad-able industries for three distinct geographic regions and estimate separate models for rural and urban areas. We find variation across geographic context, but in general the oil and gas bust was associated with a significant decrease in overall employment, with the effect most notable in non-trad-able industries in rural counties. Finally, we investigate the differential impact of the 2008 financial crisis on labor in producing and non-producing counties. We find that, employment and wages in oil and gas producing counties were impacted by the financial crisis less than non-oil and gas producing counties and recovery in oil and gas counties stated earlier.

Innovation within Real Sectors, and Sequence for Arrival of Innovations within Stock Markets: Quandary or Conformance?

Whereas a high quality innovation ought always to be preferred, in relation to a lower quality innovation, this study provides formal theoretical evidence for presence of alternate preferences within stock markets. Sequence of arrival of IPOs that is preferred by investors and issuers - an 'increasing cascade' of IPO quality that is induced by forces of demand - is shown to be preferred, precisely because it is susceptible to systemic overvaluations that are induced by political connectedness of lower quality IPOs. Given systemic overvaluations always, in eventuality, transform into busts, and given arrival at busts implies a chasing after previously attained valuation highs, in addition to cycle of boom and bust, there is arrival at valuations that chase their very own overvalued tails. We arrive then at a correlated, equivalently, self fulfilling equilibrium for stock prices that does not coincide with a rational expectations equilibrium (REE). The evidence demonstrates that assessments of healthiness of stock markets on basis of increases to price levels is inconsistent with rational expectations equilibriums. The formal theoretical antidote that is arrived at calls for adoption of each of `top-down' innovation systems (innovation systems in context of which IPOs list in order of decreasing average quality); 'Market Incompleteness Metrics (MIM)' that signal levels of returns of which investors ought to be expectant; and rubrics for pricing of `Innovation Futures' characteristics for each of newly listing and incumbent firms within stock markets. Absent introduction of the three proposed measures, the optimal innovation system within real sectors - the top-down innovation system - conflicts with preferences of investors, as such conflicts with the most desirable sequence for arrival of innovations within stock markets.

On the credit-to-GDP gap and spurious medium-term cycles

I provide empirical evidence suggesting that the credit-to-GDP gap is subject to spurious medium-term cycles, i.e. artificial boom–bust cycles with a maximum duration of around 40 years.

Rough Kansei Mining Model for Market-Oriented Product Design

Companies need to develop new products towards customer's satisfaction in order to survive in the boom and bust cycle in todays’ economy. The capturing of customer satisfaction depends on customer needs, and generally, understanding emotions has a challenge for designers. Kansei engineering is a type of methodology to help customers and designers analyze needs and emotion for the new product development. Producing new product design with Kansei data increases customer satisfaction and helps to reach market goals. In this study, a market-oriented baby cradle design methodology is proposed, and we obtain the new product strategies with association rule extraction by using rough set theory. To obtain efficient rules, beforehand we selected sales knowledge-related Kansei words with our proposed approach: cost-based and multiclass decision-theoretic rough set (DTRS) attribute reduction. The new product design strategies which are obtained with proposed design methodology are consistent with customer expectations (mood space) and expert opinions (design team).

Adjustment dynamics between broker–dealer leverage and stock market: a threshold cointegration analysis

We empirically investigate the short- and long-run dynamic relationship between security broker–dealer leverage and stock prices. To explore various potential adjustment dynamics, we use the error correction term to construct several threshold indicators that distinguish the deviation from long-run equilibrium. Using these indicators, we estimate different types of threshold cointegration and error correction models and analyze the results in the context of boom and bust cycles in financial markets. Our results show that, in the long run, a 1% increase in the stock price leads to approximately a 0.43% increase in leverage. We show that a momentum autoregressive model with an endogenous threshold does a better job of fitting the financial data. The asymmetric error correction structure shows that changes in leverage experience significant corrective measures when the stock prices plunge during recessions.

Incomplete Contracts, Price, and Quality: Hedge Funds' Fees and Performance

When sellers set the price for ex-ante unobservable and ex-post unenforceable quality, price signals credence quality. Hedge funds resemble incomplete long-term contracts for credence goods under buyer-determined auctions. I show that hedge funds' ability to solicit investments at higher management fees signals their capacity to generate higher net returns. This result is more pronounced during bust cycles and closer to financial hubs, i.e., when management quality signaling is more valuable.

CONNECTING THE NORTHERN ANDES AND THE ATLANTIC. THE ROLE OF INLAND PORTS IN NEW GRANADA'S INTERREGIONAL TRADE (1770-1809)

ABSTRACTThis paper analyses the role of Mompox in New Granada's interregional trade during the late colonial period. It focuses on the value, structure and destination of exports of domestic goods from Mompox to markets on the Atlantic and the Andes. By unearthing unexplored sources, this paper provides evidence that will help to understand, indirectly, some issues such as the nature and timing of economic growth, the degree of regional specialisation and, above all, the role of inland ports in the economic geography of the viceroyalty. The paper contends, first, that the region experienced a boom–bust cycle during the late colonial period. The export of domestic goods doubled between 1770 and 1800 but subsequently collapsed during the 1802-1809 years. Second, evidence suggests that the region experienced a process of market deepening and widening. Trade flows, then, played a larger role in shaping the economic history of the region than previously thought.

A New Index of Housing Sentiment

We propose a new measure for housing sentiment and show that it accurately tracks expectations of future house price growth rates. We construct the housing sentiment index using partial least squares on household survey responses to questions about buying conditions for houses. We find that housing sentiment explains a large share of the time variation in house prices during both boom and bust cycles, and it strongly outperforms several macroeconomic variables typically used to forecast house prices. This paper was accepted by Tyler Shumway, finance.

House price dispersion in boom–bust cycles: evidence from Tokyo

We investigate the cross-sectional distribution of house prices in the Greater Tokyo Area for the period 1986–2009. We find that size-adjusted house prices follow a lognormal distribution except for the period of the housing bubble and its collapse in Tokyo, for which the price distribution has a substantially heavier upper tail than that of a lognormal distribution. We also find that, during the bubble era, sharp price movements were concentrated in particular areas, and this spatial heterogeneity is the source of the fat upper tail. These findings suggest that, during a bubble, prices increase markedly for certain properties but to a much lesser extent for other properties, leading to an increase in price inequality across properties. In other words, the defining property of real estate bubbles is not the rapid price hike itself but an increase in price dispersion. We argue that the shape of cross-sectional house price distributions may contain information useful for the detection of housing bubbles.

Technology Focus: Gas Production

Technology Focus While it is easy to see the local gas bubbles and shortages forming, we always seem surprised when it actually happens. The summer of 2019 has been rife with media reports about negative gas pricing in the Permian and, given the propensity of our industry to pick a favorite horse and then all pile on it at the same time, it is not surprising when we create our own boom and bust cycles. Is it the nature of capitalism or crowd psychology or just human nature that we repeatedly drill ourselves into negative cashflow territory and then wonder how we got there? Meanwhile, politicians and environmental activists in the northeast US have stalled pipeline permits, which has led to blackouts and construction cancellations. Gas meant for those markets has to find another home. Surpluses create dynamics like a river overflowing its banks during a flood; old channels are scoured clean and new outlets are created. There is disruption and unwelcome change but also new opportunities. Soon, nearly a billion cubic feet per day of gas will be flared in Texas alone, and innovators are looking for ways to recover value from that excess associated gas. Several operators are expanding gas enhanced-oil-recovery projects in the Eagle Ford, while others are testing the same process with less success in the Bakken. Small-scale gas-to-liquid plants can turn a few million cubic feet per day into high-quality diesel for local consumption. That shipping container full of power-hungry computer processors on a remote oil lease is turning associated gas into Bitcoin. The Jones Act was enacted nearly a century ago to protect US shipbuilders, but now it keeps waterborne liquefied natural gas (LNG) originating in Texas from being sold to any other US customer, prompting New Englanders to import Russian LNG instead. On a more commonsense note, LNG transport by rail is a simple way to deliver gas to LNG-powered ships and those affected by pipeline constraints. One resource is always consumed to create another, but can we manage the pace of development to avoid overshooting demand or store secondary products for a rainy day? Can we do better next time and not be a victim of our own success? Those who find ways to create value from what others consider a waste product will be respected by both entrepreneurs and environmentalists alike. Recommended additional reading at OnePetro: www.onepetro.org. SPE 192114 Increasing Coal Seam Gas Field Productivity With Horizontal Well Technology: A Case Study by Xuejun Lin, Sinopec, et al. SPE 192853 Boosting Condensate Recoveries of a Mature Retrograde Gas-Condensate Field in Pakistan by Sheraz Ahmed, Pakistan Petroleum, et al. URTeC 83 Intrawell Interference in Tight Oil Reservoirs: What Do We Need To Consider? Case Study From the Meramec by Mouin Almasoodi, Devon Energy, et al. URTeC 264 A New Method for Production Forecasting: Predictive Analytics vs. Conventional Methods in the Montney by Melanie R. Popp, Geologic Systems, et al. URTeC 402 Experimental and Numerical Investigation of Diffusion-Based Huff•‘n’•Puff Gas Injection Into Lower Eagle Ford Shale Samples by Qinwen Fu, University of Kansas, et al.

Population Decline of the Invasive Asian Shore Crab (Hemigrapsus sanguineus) and Dynamics of Associated Intertidal Invertebrates on Cape Cod, Massachusetts

A few moderately long-term studies have documented population dynamics of the invasive Hemigrapsus sanguineus (Asian Shore Crab) and species with which it interacts. One such study on Cape Cod reported exponential growth of the Asian Shore Crab through 2012, concurrent with declines in 2 resident species, but recent data at nearby sites suggest considerable geographic variation in population dynamics, with modest recovery of resident crab populations. We monitored the Cape Cod population for an additional 5 years to determine whether population growth of the Asian Shore Crab had slowed and whether there was any change in population dynamics of Carcinus maenas (Green Crab), Littorina littorea (Common Periwinkle), or Mytilus edulis (Blue Mussel). Asian Shore Crab density declined by nearly 90% since 2012. There was no evidence of recovery by the Green Crab, but the Blue Mussel experienced a brief but substantial increase in density in 2015, when both crab species displayed >70% reductions in density from the previous year. The pattern of population dynamics of the Asian Shore Crab from 2003 to 2017 is consistent with boom–bust dynamics, but it remains unclear whether the population will equilibrate near its current density or undergo recurrent boom–bust cycles.

What monetary discretion can and cannot do under boom and bust cycles? Evidence from an emerging economy

Purpose The conventional and new inflation bias theories present two distinct facets to explain the outcome of excess inflation without output gains by a discretionary central banker. First is the temptation to achieve a higher than potential output, and, second is not to let it falter. The authors explicitly account for these two distinct dimensions in empirical formulations both exogenously and endogenously. Specifically, the purpose of this paper is to investigate what monetary discretion can and cannot do in terms of dual objectives – inflation and growth – across boom and bust cycles, both directly and indirectly. Design/methodology/approach (i) Segregate the economic activity into boom and bust cycles; (ii) Explicitly account for the two dimensions of conventional and new inflation bias theories; and (iii) model and estimate the direct and indirect effects of monetary discretion across business cycles. Findings The results indicate considerable asymmetries in the effects of monetary discretion and distribution thereof across objectives and cycles. The direct impact of monetary discretion tends to induce significantly higher inflation in boom and bust cycles, while it exerts a positive but insignificant effect on output. The inflation effects are more pronounced in boom than bust cycles and vice versa are the output effects. The indirect effects on output via inflation are significantly pernicious, which are more pronounced in expansions than recessions. Originality/value In a nutshell, instead of benefiting, monetary discretion tends to harm in terms of both the dual policy objectives, which cautions about its well calculated and constrained use only.