Crisis In Countries Research Articles

High Frequency Newswire Textual Sentiment: Evidence from International Stock Markets During the European Financial Crisis

Textual analysis is performed in a total of 13145 high frequency (intraday) news: 6536 news from the Dow Jones Newswires and 6609 news from the Thomson Reuters Newswires. Selected news are Euro-periphery (Portugal, Ireland, Italy, Greece, Spain) crisis-related news which contain a number of keywords in their content and their title. News pessimism as a product of textual analysis sentiment significantly and negatively affects stock returns (an increase in news pessimism is associated with lower stock prices). Media pessimism does not only affect the crisis-hit Euro-periphery countries but also European (Germany, France, Austria, Belgium, Finland, UK, Switzerland, Norway) and overseas (Brazil, Canada, US Dow Jones, US S&P, Japan, China) stock markets. Stock markets can be very fast when absorbing the of media pessimism. Even small time frames such as 30-minutes can be enough for stock prices to be negatively affected by a higher media pessimism. The results are significant in the sense that they provide quantitative evidence that individual countries in crisis can indeed affect not only their own stock markets, not only markets close to them, but also overseas markets from both sides of the globe. The media (and especially newswires which release news with extreme speeds and coverage) provide a channel through which bad news are instantaneously circulated and provide worldwide shocks to stock prices in extremely small time windows (even 30 minutes). If one takes into account the number of news examined (13145), small can ultimately add up to pretty significant losses for all parties involved (individual investors, funds, corporations, nations). Stock market from Athens, Lisbon, Madrid, Dublin and Rome are felt quite fast not only in Berlin, Paris, Vienna, London and Zurich, but also in New York, Toronto, Tokyo and Hong Kong.

The Polish Transition in a Comparative Perspective (Polska transformacja ustrojowa w perspektywie porrwnawczej)

English Abstract: In 1989, Poland stood out as a country in chronic political and economic crisis. It had been ravaged by strikes, economic decline and default since 1976. A popular view both in Poland and abroad was that Poland was incurable. Germans talked about the polnische Wirtschaft (Polish economy), meaning dysfunctional economy, while the Swedes used the term polsk riksdag (Polish Parliament) for political disorder. Norman Davies, the great historian of Poland, called his monumental history of Poland God’s Playground because of all the disasters it has faced. He said these words “can be aptly used as an epithet for a country where fate has frequently played mischievous tricks”. Today, Poland stands out as possibly the greatest economic success among the thirty post-communist countries.Polish Abstract: W 1989 r. Polska postrzegana byla jako panstwo znajdujące sie w chronicznym kryzysie politycznym i ekonomicznym. Od 1976 r. kraj ten nieustannie zmagal sie ze strajkami oraz stagnacją gospodarczą. Za granicą o Polsce zwyklo sie mowic, ze jest nieuleczalna. Niemcy, chcąc opisac dysfunkcyjną gospodarke, mowili o polskim gospodarzeniu (polnische Wirtschaft), Szwedzi zaś chaos polityczny określali mianem polskiego parlamentu (polsk riksdag). Uznany historyk zajmujący sie Polską, Norman Davies, napisal ksiązke Boze Igrzysko, opisująca historie tego kraju. Jak mowil, tytul symbolizuje wszystkie katastrofy, ktore spadly na polski narod. Określenie to moze z powodzeniem zostac uzyte wobec kraju, ktoremu los czesto platal zlośliwe figle (Davies 1982, xvi). Dziś Polska wyroznia sie praktycznie najwiekszym sukcesem ekonomicznym spośrod trzydziestu krajow postkomunistycznych.

Fiscal and Monetary Policies During the Great Recession: A Critical Evaluation

This paper discusses the fiscal and monetary policies that were adopted by the crisis countries. It challenges the commonly held view that the countries followed policies of ‘austerity’. It shows that in most countries there was far less reduction of public spending than reported or believed. This paper argues that the fiscal and monetary policies that were followed may have had damaging repercussions on private investment and private spending, because of their impact on psychology and on uncertainty. This paper also questions the assumed benefits of the monetary policies followed, because of their negative impact on income distribution.

The European debt crisis and fiscal reactions in Europe 2000–2014

After the outbreak of the global financial crisis, some governments in the EU experienced serious fiscal problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance in the EU countries before and after the outbreak of the crisis. Fiscal reaction functions of the primary balance are estimated for different groups of EU countries using quarterly data for the pre-crisis period 2001–2008 and for the crisis period 2009–2014. The pre-crisis estimations reveal some differences in persistence and cyclical reaction between different groups of countries, but in most cases little feedback from the debt stock to the primary balance. The fiscal reaction functions of the countries that eventually developed fiscal problems do not stand out. The estimations on data from the crisis period show largely unchanged persistence and counter-cyclicality but much more feedback from the debt stock, and this applies both to the crisis countries and those less affected. In spite of large deficits and accumulation of debt, the underlying fiscal reaction has become more prudent after the outbreak of the European debt crisis.

Current account imbalances in the EMU: An assessment of official policy responses

To handle the sovereign debt crisis in general and macroeconomic imbalances in particular the leading EU institutions and the Troika (European Central Bank, European Commission and International Monetary Fund) adopted two broad approaches: The short-term approach is based on enhancing the Stability and Growth Pact and to impose fiscal austerity on crisis countries. The medium- to long-term strategy consists of internal devaluation via reducing wage costs. Both approaches were combined with structural adjustment programs in the spirit of the Washington Consensus. The Troika?s policy implies an asymmetric adjustment process burdening only crisis countries. It led to the shrinking of demand and output in crisis countries comparable to the Great Depression and brought the European Monetary Union to the edge of deflation. These polices must be judged as mislead increasing the risk of Japanese disease with more than one lost decade.

The Flexibility of European Identities

Europe suffers from an existential identity crisis, which may seem unmatched in its history. However, this essay argues that hesitance and discussion about the European identity and borders, internal as well as external, have always existed. The first part elaborates on Europe’s most classic internal division, between East and West, and demonstrates that this juxtaposition was invented in the 18th century without any historical foundations. The second part discusses the European identity of a number of peripheral regions in the West: Portugal, Sicily, Ireland, and Scandinavia. It shows that all of these regions have traditionally turned their back to Europe and did only recently acknowledge a European identity. The third part looks for some explanations for these evolutions and also reflects on the consequences for today. It highlights that Greece, the most troublesome country in the current Eurozone crisis, has only in the nineteenth century been acknowledged as the cradle of Europe and that this recognition has favoured Greek expansion under a European banner, up to (the southern part of) Cyprus. Greece and Cyprus, however, have significantly diverged from European developments: being orthodox and Ottoman for centuries, they were excluded from Renaissance and industrialization. This discrepancy reveals that European identities are utmost flexible and will undoubtedly develop further in the future.

Income Distribution, Tourism, Crisis and Southern European Countries

In this paper it is pointed out that tourism sector, apart from its contribution to economic growth, it also improves income distribution but only in the southern European countries. Further, it is shown that economic growth and crisis do not affect income distribution. Data are taken from Eurostat and are elaborated through the Eviews software package.

Capital Controls or Macroprudential Regulation?

International capital flows can create significant financial instability in emerging economies because of pecuniary externalities associated with exchange rate movements. Does this make it optimal to impose capital controls or should policymakers rely on domestic macroprudential regulation? This paper presents a tractable model to show that it is desirable to employ both types of instruments: Macroprudential regulation reduces overborrowing, while capital controls increase the aggregate net worth of the economy as a whole by also stimulating savings. The two policy measures should be set higher the greater an economy's debt burden and the higher domestic inequality. In our baseline calibration based on the East Asian crisis countries, we find optimal capital controls and macroprudential regulation in the magnitude of 2 percent. In advanced countries where the risk of sharp exchange rate depreciations is more limited, the role for capital controls subsides. However, macroprudential regulation remains essential to mitigate booms and busts in asset prices.

Comments by Zhichao Zhang, on Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis

Zhichao Zhang: Schnabl’s paper on Japanese lessons for the European crisis is informative and insightful. The paper carefully examines the origins of the crises, crisis triggers, and consequences of crisis therapies in both Japan and Europe. It then draws lessons from the Japanese experience in the spirit of Hayek (1929, 1944). The paper maintains that the Japanese case shows that, in the face of crisis, the Keynesian stimulus would lead to the malfunctioning of the market mechanism. This is evidenced in the hysteresis of the lowinterest rate and high government debt environment, the erosion of the allocation and signalling of the interest rate, the gradual quasi-nationalization of financial institutions, and gradual real income losses. Given that Europe has taken a similar path in its policy response to the crisis, the paper indicates that Europe may suffer similar consequences that Japan has experienced in recent decades.

Systemic risk in European sovereign debt markets: A CoVaR-copula approach

We studied systemic risk in European sovereign debt markets before and after the onset of the Greek debt crisis, taking the conditional value-at-risk (CoVaR) as a systemic risk measure, characterized and computed using copulas. We found that, before the debt crisis, sovereign debt markets were all coupled and systemic risk was similar for all countries. However, with the onset of the Greek crisis, debt markets decoupled and the systemic risk of the countries in crisis (excepting Spain) for the European debt market as a whole decreased, whereas that of the non-crisis countries increased to a small degree. The systemic risk of the Greek debt market for other countries in difficulties increased, especially for Portugal where systemic risk tripled after the onset of the crisis, whereas the systemic impact on the non-crisis countries decreased.

Reproducible Model to Perform Kidney Transplantation in a Low-Resource Population

BackgroundIn several countries, organ transplantation is limited. We describe the implementation of a model to perform kidney transplantation in a low-resource population through a financial mechanism sharing public, patient, and private foundations funds. MethodsThis was a cohort study of 100 low-resource patients undergoing renal transplantation at the Hospital General of México. The mean age of the transplanted population was 30.07 ± 11.4 years, from which 84% reported an income <400 USD/month. Ninety percent of grafts were obtained from live donors. ResultsThe survival rate at 1 year after the procedure was 98%. Patient rehabilitation after transplantation included the incorporation of individuals into productive life and work. The economically active population increased from 8% to 40% after the transplant procedure. The model was successfully implemented as the result of (i) adequate incorporation of medical staff with solid experience in organ transplantation; (ii) institutional public policy and collaboration between diverse services to support donors and receptors; and (iii) financial collaboration to attract resources and funds to guarantee access to immunosuppressants. ConclusionsOur results led toward an operational, reproducible model for transplanting patients in developing and financial crisis countries, reflecting beneficial long-lasting effects on the patient from the therapeutic, clinical, and economic points of view.

Risk Profiles for Re-Profiling the Sovereign Debt of Crisis Countries

This paper uses a risk-management approach to re-profile the sovereign of countries facing crises. Using scenario analysis we develop a risk measure of the sovereign's -- Conditional Debt-at-Risk -- and an optimization model is used to trace risk profiles that tradeoff expected cost of financing against the Conditional Debt-at-Risk. The risk profiles are particularly informative for crisis countries, as they allow us to identify, with high-probability, unsustainability. We develop risk profiles for two Eurozone countries with excessive debt, Cyprus and Italy, both in their current form and under various forms of restructuring or rescheduling, and show how to assess sustainability. We also develop the risk profiles for a proposal to impose debt sanctions in the Ukrainian crisis and show that the (financial) impact could be substantial.

The Phillips Curve: (In)Stability, the Role of Credit, and Implications for Potential Output Measurement

The path of output prior to the financial and economic crisis turned out to be not sustainable and lower than previously estimated in some European crisis countries. Specifically, the output gaps have been underestimated (and inversely potential output overestimated) before the recent crisis. It is fair to say that the employed estimation techniques failed to provide valid real-time assessments of the state of the credit boom driven euro area economies. One reason for this may be the breakdown of the Phillips curve relationship during the last years. Against this backdrop, we comprehensively analyse the validity of the Phillips curve for five European countries with a focus on the recent crisis. We find that a mostly insignificant relation between in ation and the output gap or unemployment gap, which questions the adequacy of the Phillips curve to identify the sustainable level of output in an economy. The credit-driven boom in crisis countries has made clear that (disadvantageous) financial markets conditions may result in structural and long-term real economic distortions that are not yet taken into account in conventional methods for the estimation of potential output and the output gap. Since both, potential output and output gaps, are a key notion in policymaking, incorporating financial factors could improve the reliability of the estimates. Our results point in this direction.

The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises

We examine the effects of the 2007-09 U.S. financial crisis and the 2011-12 European sovereign debt crisis on global banks’ foreign operation in Hong Kong. During both crises, foreign banks from crisis countries did not exhibit significantly different liquidity management than banks from non-crisis countries, suggesting that the liquidity interventions by the home countries’ central banks seemed effective. However, foreign banks from crisis countries significantly pulled back their lending in Hong Kong, relative to their non-crisis counterparts, resulting in significantly slower asset growth. Our results suggest the possibility of a lending channel in the transmission of shocks from the home country to the host country. On the other hand, quantitative easing by central banks is found to have significant effects on their global banks’ liquidity management in Hong Kong. Foreign banks held less liquid assets, and up streamed less funds to their parents when their home country central bank conducted QE. QE banks in Hong Kong are also found to lend less, and grew their assets slower, than non-QE banks.

The International Transmission of Shocks: Foreign Bank Branches in Hong Kong During Crises

The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank’s foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which is more relevant to the host country policy makers. We find that global banks use their foreign branches in Hong Kong as a funding source during a liquidity crunch in the home country, suggesting that global banks manage their liquidity risk globally. After the central bank in the home country introduced a liquidity facility to relieve funding pressure, this effect disappeared. We also find strong evidence that foreign branches of banks in the crisis countries lend significantly less in Hong Kong relative to a control group, suggesting the presence of a lending channel in the transmission of shocks from the home country to the host country.

Risk profiles for re-profiling the sovereign debt of crisis countries

Purpose– This paper aims to use a risk management approach for re-profiling of sovereign debt. It develops profiles that trade off expected cost of financing alternative debt structures against their risk. The risk profiles are particularly informative for countries facing sovereign debt crisis, as they allow us to identify, with high probability, debt unsustainability. Risk profiles for two eurozone countries with excessive debt, Cyprus and Italy, were developed. In addition, risk profiles were developed for a proposal to impose debt sanctions in the Ukrainian crisis and it was shown that the financial impact could be substantial.Design/methodology/approach– Using scenario analysis, a risk measure of the sovereign’s debt – Conditional Debt-at-Risk – was developed, and an optimization model was then used to trade off expected cost of debt financing against the Conditional Debt-at-Risk. The model is applied to three diverse settings from current crises.Findings– The methodology traces informative risk profiles to identify sustainable debt structures. Interesting, although tentative, conclusions are drawn for the countries where the methodology was applied. Cyprus’s debt sustainability hinges on current International Monetary Fund (IMF) projections about gross domestic product growth and small deviations can push debt into unsustainable territory. For Italy, our analysis provides evidence of debt unsustainability. Common assumption of debt by eurozone member states could restore sustainability for Italy. Finally, it is shown how a proposal to impose debt sanctions against Russia for the Ukrainian crisis could have significant financial impact for Ukraine.Research limitations/implications– Additional work is needed to calibrate the simulation models for each country separately. Nevertheless, the direction of the results is such that more careful calibration will most likely not alter the conclusions but make them stronger instead.Practical implications– The results provide significant insights for the management of sovereign debt for Cyprus and Italy. They also show the significant positive impact on Ukrainian public finances from debt sanctions. However, the most important practical implication is to show how the proposed methodology provided a decision support tool for restructuring and rescheduling sovereign debt for crisis countries.Social implications– There is widespread acceptance that debt restructuring has been too little and too late in recent crises failing to re-establish market access in a durable way. How to develop risk profiles for alternative debt structures has been illustrated. Debt profiles that are unsustainable can be identified, with high probability, and alternative structures proposed that restore sustainability. The methodology proposed in this paper is providing a useful tool of analysis. The topic of debt relief is currently debated widely at policy circles by the IMF and the United Nations, and the analysis of this paper provides some insightful input to the debate.Originality/value– The use of scenario analysis for sovereign debt modeling and the use of an optimization model developed by the authors in previous research provide empirical analysis for three current problems in sovereign debt management. Useful insights are obtained for three important real-world cases for Cyprus, Italy and Ukraine.

The More Divergent, the Better? Lessons on Trilemma Policies and Crises for Asia

This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the extent of policy divergence among the three trilemma policy choices—monetary independence, exchange rate stability, and financial openness—we find that emerging market economies have adopted trilemma policy combinations with the smallest degree of policy divergence in the last 15 years. We then investigate whether and to what extent the degree of open macro policy convergence affects the probability of a crisis and find that a developing or emerging market economy with a higher degree of policy divergence is more likely to experience a currency or debt crisis. We also compare the development of trilemma policies around the crisis period for the groups of Latin American crisis countries in the 1980s and the Asian crisis countries in the 1990s. We find that Latin American crisis countries tended to close their capital accounts in the aftermath of a crisis, while that is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of policy divergence in the aftermath of the crisis, which possibly meant they decided to adopt open macro policies that made their economies less prone to a crisis.

Global Financial System, Technological Revolution and Financial Crisis: Policy Implication for India

India has not participated in any industrial revolution. However, it has witnessed several crisis linked with finance and financial frauds. Whenever there is some new opportunities coming up as was the case in 1991’s opening up of Indian economy, and new technology excitement in 2000 etc., it leads to euphoria in the market and ends up in crisis. The paper aims to learn from the lesson of other countries in financial crisis linked with technological revolution. Using the learning from the previous discussion, it cautions that the new government in India in 2014 is opening up lot of new opportunities in infrastructures development and other sectors. This may in due course lead to financial instability if not monitored and controlled by the regulators effectively.

Structure of a Global Network of Financial Companies Based on Transfer Entropy

This work uses the stocks of the 197 largest companies in the world, in terms of market capitalization, in the financial area, from 2003 to 2012. We study the causal relationships between them using Transfer Entropy, which is calculated using the stocks of those companies and their counterparts lagged by one day. With this, we can assess which companies influence others according to sub-areas of the financial sector, which are banks, diversified financial services, savings and loans, insurance, private equity funds, real estate investment companies, and real estate trust funds. We also analyze the exchange of information between those stocks as seen by Transfer Entropy and the network formed by them based on this measure, verifying that they cluster mainly according to countries of origin, and then by industry and sub-industry. Then we use data on the stocks of companies in the financial sector of some countries that are suffering the most with the current credit crisis, namely Greece, Cyprus, Ireland, Spain, Portugal, and Italy, and assess, also using Transfer Entropy, which companies from the largest 197 are most affected by the stocks of these countries in crisis. The aim is to map a network of influences that may be used in the study of possible contagions originating in those countries in financial crisis.

Never Say Never: Commentary on a Policymaker’s Reflections

Stanley Fischer is a rarity among economic policymakers. He came to the policy world as an internationally recognized intellectual leader on macroeconomic theory and policy. He confronted numerous emerging market crises, including the globally systemic Asian crisis, as the IMF’s First Deputy Managing Director from September 1994 to August 2001. And then, as governor of an emerging economy’s central bank starting in May 2005, he decided the monetary responses to the worldwide crisis of 2008–09 and its aftershocks. Fischer’s unpublished Robbins Lectures, delivered at the London School of Economics late in 2001, drew lessons from his service at the IMF. Did emerging markets follow up on those lessons, and did their preparations help them weather the storm of 2008–09? How have economists’ views, and Fischer’s, changed as a result of the global financial crisis? This paper proposes answers to these questions, focusing on the experiences of three Asian crisis countries, Indonesia, Korea, and Thailand.