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35452. Towards a Sovereign Debt Restructuring Framework
- Author:
- Richard A. Conn Jr.
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Initiatives to improve sovereign debt restructuring (“SDR”) began long before recent Argentine bond decisions but were redoubled in the aftermath of these rulings. At first glance, these cases identify problematic contract language that could be rectified by re-drafting critical boilerplate provisions such as the pari passu and collective action clauses (“CAC”). But given the effects of disorder, costs and delays in restructuring foreign sovereign debt upon debtor countries, creditors, and the bond market itself, it is understandable that some are uncomfortable leaving such matters solely in the hands of private parties to contracts without a framework that assists in minimizing damage to contracting and non-contracting parties alike. The creation of an agreed upon framework that facilitates the interaction among private and public parties is a good alternative to the status quo if this approach can provide greater stability and efficiency in the restructuring process while allowing for sufficient flexibility and certainty (traditional benefits of the iterative development of contract language) for market participants. There are a broad variety of options to consider and analyses to be performed, particularly relating to political feasibility, before proposing a framework. As discussed herein, given the historic context of SDR, a framework that focuses upon consensual procedures seems to be a logical starting point since it could add value to the restructuring process without treading on the political terrain of sovereigns.
- Topic:
- Government, Politics, History, Inequality, Finance, and Sovereign Debt
- Political Geography:
- Global Focus
35453. Anarchic East Asia on an American Tether—and Cushion
- Author:
- Bruce Cumings
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- The usual explanation for the recent turmoil in East Asia goes under the rubric of “the rise of China.” For practitioners of the “realist” school, like John Mearsheimer of the University of Chicago or the late Samuel Huntington of Harvard, all this is merely, and entirely, predictable: “rise” is what budding great powers do, just as in the fullness of time, a war with the leading great power is only to be expected (as both predicted in their most famous books—The Tragedy of Great Power Politics and The Clash of Civilizations). Realists of the containment school take this a bit further, to a strategy for America: contain rising China. This was certainly the policy of Secretary of State Hillary Clinton, lining up publicly as she did with the Philippines and Japan against Chinese island encroachments—which may also turn out to be the policy of President Hillary Clinton in 2017. And this is unquestionably how nearly all experts in China see American policy: containment, encirclement, all in the interests of keeping rising China . . . down. Of course, President Barack Obama and Secretary of State John Kerry fall all over themselves to deny that containment is the policy—and under their (questionable and unsteady) leadership, perhaps it isn’t. Instead the overriding Obama strategy is benign neglect of the political and the military, thus to engage China in the overarching global commons, neo-liberalism, bringing it ever deeper into capitalist practice and the world economy thus to muffle if not contain its insurgent impulses. But then that has been American policy since Richard Nixon ended the Cold War between Washington and Beijing, supported all along by a quiet but very secure bipartisan coalition in Washington embracing Democrats and Republicans, and more broadly Wall Street and multinational corporate leaders. Everybody has been making money in China, even recently-bankrupt General Motors (China now has the largest auto market in the world, and Chinese like to buy GM’s Buicks even though hardly anyone else does, perhaps because forefather Sun Yat Sen drove a Buick). The watchword here is neo-liberal interdependence, but the practice is to let the colossal dailiness of Sino-American exchange fly under the radar, or remain sotto voce, unacknowledged, even secret—hoping no one pays too much attention.
- Topic:
- Development, Government, Politics, History, and Finance
- Political Geography:
- East Asia and United States of America
35454. Gordian knot: A panoramic perspective on stemming illicit financial flows from Africa
- Author:
- Melvin Ayogu
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Pushing this strand of research brings a certain feeling of trepidation. It comes from recognizing that by openly elaborating on how to catch or deter a criminal, you thereby confer an undue advantage on the criminal through forewarning. Obtaining a head start in the race to prevail, they (criminals) are able to consider and possibly devise an effective circumvention strategy. But if the criminal must not see it coming then, what aspects of how to stop a thief shall we and shall we not reveal or discuss openly amongst all? There are no easy answers to the conundrum. For instance, one has to consider the signaling value of openly engaging in discussions on how to stop criminal activities and then, balance that benefit against the paradox of empowerment. The balancing act is important because some aspects of the preventive remedies can unintentionally enable the very thing which society is striving to prevent.
- Topic:
- Development, Government, Politics, History, Inequality, Finance, Microeconomics, and Trade
- Political Geography:
- Africa
35455. Severing the Innovation-Inequality Link: Distribution Sensitive Science, Technology and Innovation Policies in Developed Nations
- Author:
- Amos Zehavi and Dan Breznitz
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Innovation is essential to economic growth. However, it appears that the ways in which we pursue innovation policies have aggravated inequality. Inequality is an increasingly contentious political issue in both wealthy and emerging economies. Yet, it is becoming clear that use of traditional state instruments to alleviate inequality by redistributive means, is no longer sufficient. For those reasons, in this paper we consider other state instruments that are rarely associated with distributive goals. Specifically, we inquire whether we can successfully devise and employ Distributive-Sensitive Science and Technology and Innovation Policies focused on disadvantaged groups of users and consumers of technology. Following an exploratory theoretical approach, the paper first develop four types of such programs, and then utilize a comparative approach to analyze existing programs that fit into these categories, first, in Israel, and then, in the United State, Germany, and Sweden. We conclude by arguing that although these programs are currently driven primarily by economic efficiency concerns and not by distributive ones, they show the promise of our approach of utilizing innovation policy to reach social policy goals.
- Topic:
- Development, Environment, Science and Technology, Inequality, Economic Growth, and Innovation
- Political Geography:
- Israel, Germany, Sweden, and United States of America
35456. Leveraging the network: a stress-test framework based on DebtRank
- Author:
- Stefano Battiston, Guido Caldarelli, Marco D'Errico, and Stefano Gurciullo
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, estimate and disentangle not only first-round effects(i.e. shock on external assets) and second-round effects (i.e. distress induced in the interbank network), but also a third-round effect induced by possible fire sales. Second, monitor at the same time the impact of shocks on individual or groups of financial institutions as well as their vulnerability to shocks on counterparties or certain asset classes. Third, estimate loss distributions, thus combining network effects with familiar risk measures such as VaR and CVaR. Fourth, in order to do robustness analyses and cope with incomplete data, generate sets of networks of interbank exposures coherent with the total lending and borrowing of each bank. As an illustration, we carry out a stress–test exercise on a dataset of listed European banks over the years 2008-2013. We find that second-round and third-round effects dominate first-round effects, therefore suggesting that most current stress-test frameworks might lead to a severe underestimation of systemic risk.
- Topic:
- Debt, Science and Technology, Inequality, Finance, and Innovation
- Political Geography:
- Global Focus
35457. Labour in Europe’s crisis
- Author:
- Mario Pianta
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- A structural transformation is investing labour in Europe, accelerated by the crisis started in 2008. Job destruction is dominating employment trends in most EU countries and deep changes are taking place in labour relations, labour market institutions and wage regimes. The focus of this paper is on three issues. First,an overview is offered of the change taking place across EU countries at the level of industries in manufacturing and services. Second, the changes taking place in the structure of employment by professional groups are investigated, showing the factors that account for the evolution of skills. Third, the need for policies is argued, that are not limited to labour market conditions, but address production structures, especially in the countries hardest hit by the crisis.
- Topic:
- Labor Issues, European Union, Crisis Management, and Labor Market
- Political Geography:
- Europe
35458. The New York Times and American Tax Policy: Representing Citizens or Echoing Elites?
- Author:
- Daniel Chomsky
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- A recent New York Times article observed that Americans want action to address inequality. 2016 presidential candidates from both parties also acknowledge that inequality is a pressing concern. But not one of the candidates has proposed to do anything meaningful about it, sharing wealthy Americans’ (understandable) opposition to any solution (Scheiber 2015). Perhaps nothing has been done because there is nothing to do about it. Some treat inequality as an inevitable or intractable feature of the global economy, or at least impossible to alter at acceptable cost (Cowen 2013). But inequality may be subject to political circumstances, and public policies including progressive taxes might reduce it without adversely affecting economic growth (Diamond and Saez 2011, Piketty 2014). It may be that Americans are just unwilling to support policies that would reduce inequality. Progressive taxation and other policies may reduce inequality. But policy reflects public preferences (Stimson, Mackuen, and Erikson 2002), and the American people just hate taxes. Martin Gilens (2012) effectively demonstrated that policy makers favor the wealthy over the majority when opinions diverge. Yet he accepted that the Bush tax cuts in the early 2000s reflected broad consensus opinion. Public opposition to taxes is seen as so powerful that even observers seeking programs to promote economic equality often abandon progressive taxes as a remedy (Kenworthy 2013).
- Topic:
- Race, Science and Technology, History, Culture, Ethics, Philosophy, Tax Systems, and Innovation
- Political Geography:
- North America and United States of America
35459. Pseudo-wealth Fluctuations and Aggregate Demand Effects
- Author:
- Martin Guzman and Joseph E. Stiglitz
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- This paper presents a theory of pseudo-wealth in a model that displays aggregate demand externalities. With heterogeneous beliefs and a market for exploiting those differences in beliefs, pseudo-wealth will be created–i.e. the sum of expected wealth of all the individuals will be larger than what it is feasible for the society. Under some conditions, those perceptions will lead to larger levels of consumption of (tradable and non-tradable) goods, leisure, and borrowing than in a world with common beliefs. If those differences in beliefs disappear, pseudo-wealth will disappear, leading to adjustments in behavior that amplify the initial decrease in expected wealth. That is, we provide a simple general equilibrium model in which the destruction of pseudo-wealth amplifies the effects of the initial disturbance, leading to large decreases in economic activity. Importantly, this downturn is not associated with any change in the state variables that describe the economy. More generally, the paper shows that completing markets (in this case by creating a market for bets) may imply lower output both in the present and in the future, raising unsettling questions on criteria for welfare analysis.
- Topic:
- Markets, Inequality, Finance, Macroeconomics, Welfare, and Wealth
- Political Geography:
- Global Focus
35460. Board Gender Diversity, Audit Fees and Auditor Choice
- Author:
- Judy Tsui
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Using a sample of U.S. firms spanning 2001-2011, we examine whether female directors (female audit committee members) affect audit quality in terms of audit effort and auditor choice. After correcting for endogeneity and other board, firm and industry characteristics, we find that firms with gender-diverse boards pay higher audit fees and are more likely to choose specialist auditors compared to their peers. Our findings suggest that boards with female directors are likely to demand higher audit quality, ceteris paribus.
- Topic:
- Economics, Gender Issues, Race, Culture, Inequality, Diversity, Private Sector, and Audit
- Political Geography:
- Global Focus