Related papers: Borrowing Constraints in Emerging Markets
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network…
Financial markets of emerging economies are vulnerable to extreme and cascading information spillovers, surges, sudden stops and reversals. With this in mind, we develop a new online early warning system (EWS) to detect what is referred to…
Predicting future operational risk losses gives rise to a significant challenge due to the heterogeneous and time-dependent structures present in real-world data. Furthermore, stress test exercises require examining the relationship with…
Empirical growth analysis has three major problems --- variable selection, parameter heterogeneity and cross-sectional dependence --- which are addressed independently from each other in most studies. The purpose of this study is to propose…
We present an elementary analysis of the dynamical aspects of the GDP / government surplus multiplier with relevance to the assessment of a country's debt repayment policy. We show the (at first) counter intuitive result that in order to…
Do labor market policies initiated in periods of loose monetary policy yield different outcomes from those introduced when monetary tightening prevails? Using data from 11 euro-area members up to 2010 -- and extending to 17 countries up to…
This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rate has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
In this survey paper we discuss recent advances on short interest rate models which can be formulated in terms of a stochastic differential equation for the instantaneous interest rate (also called short rate) or a system of such equations…
Growth of monetary assets and debts is commonly described by the formula of compound interest which for the case of continuous compounding is the exponential growth law. Its differential form is dc/dt = i c where dc/dt describes the rate of…
The emergence of Open Banking represents a significant shift in financial data management, influencing financial institutions' market dynamics and marketing strategies. This increased competition creates opportunities and challenges, as…
There is no known explicit global closed form solution for the standard income fluctuation problem with a borrowing constraint and where wealth accumulates with a constant interest rate $r$. Using a continuous time formulation, I derive an…
Economic growth results from countries' accumulation of organizational and technological capabilities. The Economic and Product Complexity Indices, introduced as an attempt to measure these capabilities from a country's basket of exported…
Recent studies highlight economic complexity's role in mitigating fiscal crises, often measured via an economy's trade structure. Trade, however, is just one facet of an economy's structure and omits critical innovative activities like…
In this chapter the complex systems are discussed in the context of economic and business policy and decision making. It will be showed and motivated that social systems are typically chaotic, non-linear and/or non-equilibrium and therefore…
In this paper, we employ Credit Default Swaps (CDS) to model the joint and conditional distress probabilities of banks in Europe and the U.S. using factor copulas. We propose multi-factor, structured factor, and factor-vine models where the…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in…
This paper investigates risk measures derived from the expected maximum deficit in a continuous-time framework and develops optimal reserve allocation strategies across multiple lines of business. We formalize the expected maximum deficit…