Séminaire Monnaie Banque Finance Assurance du 26 janvier 2011

Mercredi 26 janvier 2011 à 17h, à la Maison des Sciences Économiques (MSE), le Centre d’Économie de la Sorbonne, sous l’Axe Finance, organise le Séminaire Monnaie Banque Finance Assurance (MBFA), sur le thème suivant: Remittances and Financial Openness and The interactions between the credit default swap and the bond markets in financial turmoil

Sous la direction de Dominique Guégan et Catherine Bruneau et modéré par Gunther Capelle -Blancard (Université Paris 1 Panthéon Sorbonne), deux chercheurs présenterons leurs papiers:

Michel Beine (CREA, Univ. of Luxembourg and CES-Ifo)
Elisabetta Lodigiani (CREA, University of Luxembourg and Ld’A)
Robert Vermeulen (University of Luxembourg and Maastricht University)

Matthieu Gex (Banque de France)
Virginie Coudert (Banque de France and Univ. Paris Nanterre La Défense)

Contact

Maison des Sciences Économiques
106 boulevard de l’hôpital 75013
Métro Campo Formio
Lieu: 6ème étage
Horaire: 17h00

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Michel Beine (CREA, University of Luxembourg and CES-Ifo)
Elisabetta Lodigiani (CREA, University of Luxembourg and Ld’A)
Robert Vermeulen (University of Luxembourg and Maastricht University)
Remittances and Financial Openness
Abstract
Remittances have greatly increased during recent years, becoming an important and reliable source of funds for many developing countries. Therefore, there is a strong incentive for receiving countries to attract more remittances, especially through formal channels that turn to be either less expensive or less risky. One way of doing so is to increase their financial openness, but this policy option might generate additional costs in terms of macroeconomic volatility. In this paper we investigate the link between remittance receipts and financial openness. We develop a small model and statistically test for the existence of such a relationship with a sample of 66 mostly developing countries from 1980-2005. Empirically we use a dynamic generalized ordered logit model to deal with the categorical nature of the financial openness policy. We apply a two-step method akin to two stage least squares to deal with the endogeneity of remittances and potential measurement errors. We find a strong positive statistical and economic effect of remittances on financial openness.

Matthieu Gex (Banque de France)
Virginie Coudert (Banque de France and Univ. Paris Nanterre La Défense)
The interactions between the credit default swap and the bond markets in financial turmoil
Abstract
Credit default swaps (CDS) are aimed at insuring their holder against the default of a borrower. Holding a CDS and a bond on the same entity for the same maturity is therefore roughly equivalent to holding a risk-free asset. Therefore there is a very close relationship between CDS premia and bond spreads. For example, if the risk of default rises, both CDS and bond spread should increase in parallel. Here, we study how the prices of two markets adjust to each other. Does the CDS market lead the bond market? or is it the other way round? As all derivatives, CDS allow market participants to take speculative positions without holding the underlying asset (the so-called naked positions). Therefore, the pessimistic agents are more likely to intervene on the CDS market than on the bond market. Indeed, once they have sold their bonds, bearish investors are excluded from the bond market. We then expect that during financial turmoil, as more agents turn pessimistic, the CDS market takes the lead on the bond market. We verify this hypothesis empirically. To do that, we construct a sample of CDS premia and bonds spreads on a generic 5-year bond, for 17 financials and 18 sovereigns. First, we show that the CDS market has a lead over the bond market over the sample. However, a decomposition of the sample shows that this result holds only for corporate and high-yield sovereigns. The bond market still drives the CDS market for the low-yield sovereigns of Western Europe; indeed there is little speculation on the default of these States and their bond market outsizes the CDS market. Second, we check for non-linearities in the adjustment process during the current crisis. Results show that the CDS market’s lead has been fuelled by the crisis, for firms as well as for sovereigns.

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