Social Capital and Financial Development after Economic Shocks: Evidence from Italy after the Financial Crisis of 2007-2009
By Sujay Rao & Ethan Lampert
Like traditional forms of capital, social capital – an intangible measure of an individual’s social networks, trust in institutions, and participation in civic life – has implications for personal and financial behavior. Individuals from educated, well established backgrounds with fruitful family ties may be more amenable to opening new lines of credit or investing in stock markets due to their trust in and connectedness with society. But what happens after a major economic shock, such as the financial crisis of 2008? Using Italy as a case study and panel data from the Survey of Household Income and Wealth, we find that social capital has significant effects on an individual’s credit card usage, informal borrowing, and choice to invest in securities.
Advisors: Professor Grace Kim, Professor Michelle Connolly, Professor Giovanni Zanalda | JEL Codes: G01, G2, O1, D1, D14
The Investment Cost of Currency Crises in Emerging Markets: An Empirical Treatment from 1994-2015
By Eric Ramoutar
Currency crises – large and sudden depreciations in the value of a country’s currency – have been an unfortunate by-product of increased financial openness over the last half century. This study extends the already vast literature on the impact of currency crises by estimating how currency crises affect domestic investment in emerging markets. Specifically, the study uses panel data with fixed effects and various robust standard errors as well as a generalized method of moments estimator to investigate the impact of currency crises on domestic investment in a sample of 14 countries that experienced currency crises between 1994 and 2015 and 10 that did not. The results of the analysis initially indicate that, after controlling for a host of macroeconomic fundamentals, currency crises contribute significantly to dampened domestic investment. Ultimately, after controlling for banking crises, the study concludes that relatively severe, but not all, currency crises have a significant depressing effect on investment. The results further indicate that all currency crises should not be treated equally; those involving exceptionally large depreciations lead to an even greater decline in domestic investment.
Advisor: Cosmin Ilut, Kent Kimbrough, Lori Leachman | JEL Codes: E4, F3, F4, E42, F31, F32, F41, G01
Crisis Period Forecast Evaluation of the DCC-GARCH Model
By Yang Ding
The goal of this paper is to investigate the forecasting ability of the Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH). We estimate the DCC’s forecasting ability relative to unconditional volatility in three equity-based crashes: the S&L Crisis, the Dot-Com Boom/Crash, and the recent Credit Crisis. The assets we use are the S&P 500 index, 10-Year US Treasury bonds, Moody’s A Industrial bonds, and the Dollar/Yen exchange rate. Our results suggest that the choice of asset pair may be a determining factor in the forecasting ability of the DCC-GARCH model.
Advisor: Aino Levonmaa, Emma Rasiel | JEL Codes: G01
Could the Kaminsky-Reinhart Model Have Predicted the 2002 Uruguayan Currency and Banking Crises?
by Steven R. Vickers
Abstract
Because currency and banking crises cause substantial and prolonged disruptions
to an economy, economists have long sought ways to predict these events in advance.
One recent theory advanced is the “leading indicators” approach of Kaminsky (1998) and
Kaminsky and Reinhart (1999). Kaminsky (1998) presents four separate composite
indicators, and Kaminsky and Reinhart (1999) refines the model. This paper provides one
test of this theory by analyzing the currency and banking crises that arose in July 2002 in
Uruguay. This study tests the efficacy of these indicators by analyzing the behavior of
the indicators in the months directly preceding the Uruguayan crises. In general, three
indicators performed reasonably well, while one had exceptional predictive power.
Professor Stephanie Schmitt-Grohé, Faculty Advisor
JEL Codes: E47, G01, G15,
