This paper considers the issue of forecasting financial fragility of banks and insurances using a panel data set of performance indicators, namely distance-to- default, taking unobserved common factors into account. We show that common factors are important in the performance of banks and...

We argue that a financial transaction tax complements financial market regulation. With the tax, governments have an additional instrument at hand to influence trading activity. FTT aims to reduce regulatory arbitrage, flash trading, overactive portfolio management, excessive leverage and...

In the European Emission Trading scheme the supply of allowances exceeds emissions - cumulating, according to our estimates, in a surplus of 2.7 billion tonnes by 2013/2014. We find that initially the surplus was acquired by power companies so as to hedge future carbon costs. As the surplus...

In the European Emissions Trading System, power generators hold CO2 allowances to hedge for future power sales. First, we model their aggregate hedging demand in response to changes in expectations of future fuel, carbon and power prices from forward prices. This partial equilibrium analysis is...

We put forward a modern version of the 'developmental' view of government-owned banks which shows that the combination of information asymmetries and weak institutions creates scope for such banks to play a growth-promoting role. We present new cross-country evidence consistent with our...

This paper investigates whether there are bubbles in stock prices. We do this using a previously studied structural vector autoregressive (SVAR) model claiming to distinguish fundamental and non-fundamental shocks to real stock prices. TheSVAR model relies on an identification restriction in...

In this paper, we show, using the consumer's budget constraint, that the residuals of the trend relationship among consumption, aggregate wealth, and labour income should predict both stock returns and housing returns. We use quarterly data for a panel of 31 emerging economies and find that,...

In this paper we use a representative consumer model to analyse the equilibrium relation between the transitory deviations from the common trend among consumption, aggregate wealth, and labour income, cay, and focus on the implications for both stock returns and housing returns. The evidence...

This study assesses how banking sector integration and especially cross-border lending affect macroeconomic stability. I use a two-country general equilibrium model with heterogeneous banks that are hit by idiosyncratic shocks. According to the concept of granularity, idiosyncratic shocks to...

This paper examines the significance of different fundamental regimes by applying various monetary models of the exchange rate to one of the politically most important exchange rates, the exchange rate of the US dollar vis-à-vis the euro (the DM). We use monthly data from 1975:01 to 2007:12....