• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site
Of all publications in the section: 19
Sort:
by name
by year
Working paper
Dobrynskaya V. V. WP BRP 55/LNG/2017. Высшая школа экономики, 2011. No. WP13/2011/01.

Some currencies persistently move together with the stock market and crash in periods of market downturns or high volatility, while others serve as a “safe haven”. In this paper, I study whether or not countries’ macroeconomic characteristics are systematically related to the market risk of their currencies. I find that the market risk is not random, especially on the downside, and it can be predicted by macroeconomic variables. Moreover, the market risk has increased significantly since the 2000s, and its predictability also increased. The real interest rate has the highest explanatory power in accounting for the cross-section of currency market risk. Currencies of countries with high local real interest rates have high market betas, especially downside betas, while low real interest rate currencies are immune to stock market changes. Nominal interest rates also have some explanatory power, but only to the extent to which they correlate with the real interest rates. Other variables considered seem to be irrelevant.

Added: Oct 4, 2012
Working paper
Dobrynskaya V. V. WP BRP 55/LNG/2017. Высшая школа экономики, 2010. No. WP13/2010/01.

Carry trades consistently generate high excess returns with high Sharp ratios, but are subject to crash risk. I take a closer look at the link between the carry trade returns and the stock market to understand the risks involved and to determine when and why currency crashes happen. Every period, I sort currencies of developed and emerging economies by their interest rates and form portfolios to diversify the idiosyncratic risk. First, I find a strong negative relationship between portfolio returns and skewness of exchange rate changes. In fact, skewness and coskewness with the stock market have a much greater explanatory power in the cross-section of excess returns than consumption and stock market betas. But separating the market beta into upside and downside betas improves the validity of the CAPM significantly. Downside beta has a much greater explanatory power than upside beta, and it correlates with coskewness almost perfectly. This means that carry trades crash exactly in the worst states of the world, when the stock market goes down. After controlling for country risk, the downside beta premium in the currency market is comparable to that in the stock market and equals 2-4 percentage points p.a. I also find that country risk proxies well for the downside beta and skewness. This suggests that there is unwinding of carry trades and a “flight to quality” when the stock market plunges, and that lower interest rate currencies serve as a “safe haven”. Finally, I estimate even higher downside betas of the top portfolios and I find an even greater explanatory power of the downside beta in the early 2000s. The growing volume of carry activities might have contributed to the closer link between the currency and the stock markets.

Added: Oct 4, 2012
Working paper
Suslova E., Volchkova N. WP BRP 55/LNG/2017. Высшая школа экономики, 2013. No. WP13/2007/11.
How the country’s natural resource abundance affects the industrial growth? We argue that one of the transmission mechanisms is via the accumulation of country’s high skilled human capital. In particular, we empirically investigate whether link between country’s natural resource endowment and industry-level growth depends on industry human capital requirement. We show that in the 1980s and the 1990s, industrial sectors that are high-skilled labor intensive developed disproportionately slowly in countries with higher contribution of natural resource sectors to GDP. While low-skilled labor intensity did not differentiate industrial growth between resource rich and resource poor countries. Our findings are in line with the theoretical argument that deteriorative effect of natural resources on the development of industrial sector is a byproduct of the capital accumulation process in the resource abundant open economy that slows down the development of marginally high-skilled labor force compared to the resource poor economies.
Added: Oct 2, 2013
Working paper
Pekarski S. E. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 12.
This paper contributes to the literature on budget deficits and inflation in high inflation economies. The main finding is that recurrent outbursts of extreme inflation in these economies can be explained by a certain hysteresis effect associated with public finance. This interpretation meets the evidence that dramatic shifts between regimes of moderately high and extremely high (hyper-) inflation often occur without visible deterioration in public finance or abrupt shifts in fiscal and monetary policies. The existence of the hysteresis effect is explicitly explained by the work of two mechanisms: the arithmetic associated with the wrong side of the inflation tax Laffer curve and the Patinkin effect (the reverse of the much more-cited Olivera-Tanzi effect). It is also shown that the division of the operational budget deficit into the part that is subject to negative inflation feedback and the inflation-proof part has implications for both the discussion of inflationary consequences of budget deficits and the proper design of stabilization policy.
Added: Mar 13, 2013
Working paper
Yakovlev E., Zhuravskaya E. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 01.
What determines the enforcement of deregulation reform of business activities? What are the outcomes of deregulation? We adress these questions using an episode of a drastic reform in Russia between 2001 and 2004 which liberalized registration, licensing, and inspections. Based on the analysis of micro-level panel data on regulatory burden, we find that: 1) The reform reduced administrative costs of firm, on average; but, the progress of reform had substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government, low corruption, strong fiscal incentives (i.e., reliance of local budgets on local taxes rather than fiscal transfers) and a powerful industrial lobby. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial pozitive effect of deregulation on entry and small business employment and no effect on pollution and morbidity. The results support the “tollbooth” theory of the nature of regulation and are inconsistent with either the public interest theory or the regulatory capture theory.
Added: Mar 12, 2013
Working paper
Polishchuk L., Фирсов Е. В. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 15.
The paper explores a possible business rationale for corporate social responsibility which requires that private companies purse social, environmental and other causes unrelated to their primary operations and not required by law on the books. A popular version of corporate social responsibility, known as cause-related marketing, is considered. Cause-related marketing which can serve as a proxy for other types of socially responsible corporate conduct is a business strategy where firms bundle their products and brands with contributions to designated charities. The paper explores the origins and incidence of economic gains of cause-related marketing. It identifies two sources of its profitability – first, corporations utilize their advantages over households in covering transaction costs of philanthropy, and second, can exploit cause-related marketing as a price-discrimination tool. The ability to earn market reward while contributing to social causes exemplifies the modern interpretation of corporate social responsibility as a means “to do well by doing good”.
Added: Mar 14, 2013
Working paper
Atkeson A., Burstein A. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 10.
We present a general equilibrium model of the decisions of firms to innovate and to engage in international trade. We use the model to analyze the impact of a reduction in international trade costs on firms’ process and product innovative activity. We first show analytically that if all firms export with equal intensity, then a reduction in international trade costs has no impact at all on firms’ investments in process innovation. We then show that if only a subset of firms exports, a decline in marginal trade costs raises process innovation in exporting firms relative to that of non-exporting firms. This reallocation of process innovation reinforces existing patterns of comparative advantage, and leads to an amplified response of trade volumes and output over time. In a quantitative version of the model, we show that the increase in process innovation is largely offset by a decline in product innovation. We find that, even if process innovation is very elastic and leads to a large dynamic response of trade, output, consumption, and the firm size distribution, the dynamic welfare gains are very similar to those in a model with inelastic process innovation.
Added: Mar 13, 2013
Working paper
Sosunov K. A., Zamulin O. A. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 17.
The paper investigates the ability of monetary authorities to keep the real exchange rate undervalued over the long run by implementing a policy of accumulating foreign exchange reserves. We consider a model of a three-sector, small, open economy, where the central bank continuously purchases foreign currency reserves and compare the results to Russian and Chinese economies in recent years. Both countries appear to pursue reserve accumulation policies. We find a clear tradeoff between the steady state levels of the real exchange rate and inflation. After calibration, the model predicts an 8.5% real undervaluation of the Russian currency and a 13.7% undervaluation of the Chinese currency. Predicted inflation is found to match observed levels.
Added: Mar 14, 2013
Working paper
Guriev S., Yakovlev E., Zhuravskaya E. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 16.
Added: Mar 14, 2013
Working paper
Pokatovich E. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 08.
The present paper examines the relationship between illegal activity and corruption as a means to overcome legal prohibition of the former. This relationship is modeled by endogenous determination of probability of punishment for illegal activity, which is assumed to depend both on the actions of illegal market participants and on the functioning of law enforcement system (to be specifi c, on the amount of resources available to it in order to counteract illegal activities). Model analysis allows for effi ciency evaluation of various measures to combat illegal activity and shows, in particular, that with corrupt law enforcers increased punishment for illegal activity, though being able to restrict its scope, could at the same time aggravate the issue of corruption.
Added: Mar 13, 2013
Working paper
Zamulin O. A., Sosunov K. A. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 07.
The paper studies monetary policy in an economy, in which the manufacturing sector is ousted completely by the presence of a large natural resource industry. Thus, the economy produces only non-tradable goods, which can complement or substitute imported goods, and the primary shock to the economy comes from the fluctuations in the world price of the exported commodity. A model of such an economy is calibrated using parameters relevant for Russia, which is an example of an economy sick with Dutch Disease, and several conventional policy rules are considered. It is shown that in absence of a well-functioning fiscal stabilization fund, it may be optimal for monetary authorities to respond to the real exchange rate, as the Bank of Russia allegedly does, using purchases of foreign reserves as the policy instrument. The logic of these actions is to replace the absent fiscal stabilization policy. In case monetary policy is conducted using an interest rate instrument, there should be no reaction to the real exchange rate and only slight one – to inflation.
Added: Mar 13, 2013
Working paper
Pekarski S. E. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 13.
In the celebrated paper “Some unpleasant monetarist arithmetic,” Sargent and Wallace (1981) showed that tight monetary policy is not feasible unless it is not supported by appropriate fiscal adjustment. In this paper we explore a simple forward-looking monetary model to show that gradual or anticipated tightening of monetary policy is not necessarily characterized by “unpleasant arithmetic.” This is due to possible short-run gains in seigniorage revenues during the transition period. By applying the principle of sustainable macroeconomic policy that constrains the future choices of both fiscal and monetary authorities, we show that high interest rates on public debt work for the benefit of “pleasant arithmetic.”
Added: Mar 14, 2013
Working paper
Dobrynskaya V. V. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 04.
This paper analyses the optimal monetary policy under incomplete pass-through and asymmetric price rigidity. In a general equilibrium sticky price model of a small open economy we fi nd that the optimal interest rate rule is to respond to all types of shocks in an economy: real exchange rate shocks, supply shocks and demand shocks. The extent of the optimal response of the interest rate to exchange rate and supply shocks depends positively on the degree of pass-through and negatively on price rigidity. Therefore, the interest rate should be adjusted more in case of an infl ationary shock (e.g. depreciation of the domestic currency) than in case of a defl ationary one of the same size due to higher downward price rigidity and lower downward pass-through.
Added: Mar 12, 2013
Working paper
Hongbin C., Treisman D. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 05.
Since 1932, when Justice Louis Brandeis remarked that in a federal system states can serve as “laboratories” of democracy, political decentralization has been thought to stimulate policy experimentation. We reexamine the political economy behind this belief, using a simple model of voting in centralized and decentralized democracies. We find the electoral logic suggests the opposite conclusion: centralization usually leads to “too much” policy experimentation, compared to the social optimum, while decentralization leads to “too little”. Three effects of centralization – an “informational externality”, a “riskseeking” effect, and a “risk-conserving” effect – account for the different outcomes.
Added: Mar 12, 2013
Working paper
Fischer S. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 02.
In this paper I reflect on my first year as Governor of the Bank of Israel, which I joined in May 2005. I start by describing the current state of the Israeli economy and monetary policy and economic developments during the past year. I then review a series of issues that have arisen during the past year. Among them are: the monetary mechanism, which is unusual because exchange rate changes have a very rapid impact on prices; the role of inflation and interest rate expectations in policy decisions; the role of the interest rate gap with the US; the role of the Governor as chief economic adviser to the Government; banking supervision; and management and political issues.
Added: Mar 12, 2013
Working paper
Yakovlev A. A. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 14.
Relations between enterprises and authorities in Russian regions have attracted the attention of many researchers since the mid-1990s. At present, the issues raised by these relations are just as urgent as before because of two current trends. On one hand, growing pressure from the global market is an objective reason for the business community in Russia to seek government support. However, after the Yukos affair Russian business in general found itself subjugated to the federal authorities. For this reason, Russian companies may be expected to more closely cooperate with regional and local administration in pursuit of more favorable conditions for business. On the other hand, the Russian fiscal system was reformed and authority between the federal center and the Russian regions were redistributed so that the budgets of regional governments were reduced and their liabilities remained almost unchanged. Thus, regional authorities may in turn have incentives to change their policy posture towards the business community. In this paper we will use the results of a new empirical study of Russian joint stock companies to assess the extent to which these two trends affected the real mechanisms of interaction between businesses and the state on the regional level.
Added: Mar 14, 2013
Working paper
Guriev S., Klimenko M. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 09.
Why are some trade agreements are concluded for a limited period of time while others have the form of evergreen contracts supplemented with a clause requiring an advance termination notice? We employ the recent advances in contract theory to demonstrate that the time structure of the trade agreement is related to the nature of the goods traded and that of the trade-related investments. If the agreement concerns trade in homogenous goods, the fixed-term contract duration is more likely. The fixed-term agreement provides incentives for an initial investment in trade-related infrastructure but leaves the parties the flexibility to reconsider the need for further investment. If the trade agreement covers heterogenous goods, the investment risk is more diversified and the likelihood of overinvestment is lower. Hence the agreement is more likely to be evergreen (with an advance termination notice or an escape clause).
Added: Mar 13, 2013
Working paper
Nazrul I. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 06.
This paper examines Sachs and Woo’s (1997, 2000) hypothesis on the basis of Viet Nam’s experience with her 1989 reforms that China would have grown faster had she followed the Big Bang approach to reform instead of the Gradual approach. The paper scrutinizes this hypothesis from the viewpoint of accuracy of facts, appropriateness of the characterization, and acceptability of the hypothesis. The paper finds that Sachs and Woo fall short of meeting these criteria. The paper then examines the possible reasons for Sachs and Woo pitfalls and shows that the source of these pitfalls lies in their subjective preference for the Big Bang approach to reform.
Added: Mar 12, 2013
Working paper
Tanzi V. WP BRP 55/LNG/2017. Высшая школа экономики, 2007. No. 03.
This paper examines some of the challenges and opportunities for fi scal policy in the future. It starts by recalling the evolution of the modern tax system with the introduction of a progressive income tax and value-added taxes, and the consequent rise of government spending fi nanced from a widening revenue base. It then highlights the growing role of globalization and the concurrent problem of tax “competition” and the rise of “fi scal termites” which weaken the tax structure of countries. This interplay of globalization, tax competition, and new technologies has given rise to e-commerce, offshore zones, and complex new fi nancial instruments which, in turn, impact tax revenue, tax structures, and the use of particular tax bases. As a consequence, ambitious public spending will need to be constrained. The paper postulates three pillars to address these challenges: improve the working of private markets through effective use of government regulatory power; the progressive substitution of spending programs from a more universal character toward more targeted programs for the poor based exclusively on documented needs; and the progressive exploitation of new opportunities offered by globalization for services not domestically available or only at a high cost. Experimentation will be needed, but the transformation is likely to include elements of these three pillars – without which the public fi nances of several European countries will become more and more a public concern.
Added: Mar 12, 2013