Lieven Baele

Bio: Lieven Baele is an academic researcher from Tilburg University. The author has contributed to research in topics: Financial integration & Systematic risk. The author has an hindex of 23, co-authored 51 publications receiving 5121 citations. Previous affiliations of Lieven Baele include Ghent University & Hogeschool Gent.

Measuring financial integration in the euro area

Abstract: In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate bond, government bond, credit and equity markets. Building upon the law of one price, we developed two types of indicators that can be broadly categorised as price-based and news-based measures. We complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government and corporate bond market, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.

Volatility Spillover Effects in European Equity Markets

Abstract: This paper quantifies the magnitude and time-varying nature of volatility spillovers from the aggregate European (EU) and US market to 13 local European equity markets. I develop a shock spillover model that decomposes local unexpected returns into a country specific shock, a regional European shock, and a global shock from the US. The innovation of the model is that regime switches in the shock spillover parameters are accounted for. I find that these regime switches are both statistically and economically important. While both the EU and US shock spillover intensity has increased over the 1980s and 1990s, the rise is more pronounced for EU spillovers. For most countries, the largest increases in shock spillover intensity are situated in the second half of 1980s and the first half of the 1990s. Increased trade integration, equity market development, and low inflation are shown to have contributed to the increase in EU shock spillover intensity. Finally, I find some evidence for contagion from the US market to a number of local European equity markets during periods of high world market volatility.

The Determinants of Stock and Bond Return Comovements

Abstract: We study the economic sources of stock-bond return comovement and its time variation using a dynamic factor model. We identify the economic factors employing structural and non-structural vector autoregressive models for economic state variables such as interest rates, (expected) inflation, output growth and dividend payouts. We also view risk aversion, and uncertainty about inflation and output as additional potential factors. Even the best-fitting economic factor model fits the dynamics of stock-bond return correlations poorly. Alternative factors, such as liquidity proxies, help explain the residual correlations not explained by the economic models.

Does the Stock Market Value Bank Diversification

Abstract: This paper investigates whether or not functionally diversified banks have a comparative advantage in terms of long-term performance/risk profile compared to their specialized competitors. To that end, this study uses market-based measures of return potential and bank risk. We calculate the franchise value over time of European banks as a measure of their long-run performance potential. In addition, we measure risk as both the systematic and the idiosyncratic risk sensitivities derived from a bank stock return model. Finally, we analyze the return/risk trade-off implied in different functional diversification strategies using a panel data analysis over the period 1989-2004. A higher share of non-interest income in total income affects banks' franchise values positively. Diversification of revenue streams from distinct financial activities increases the systematic risk of banks while the effect on the idiosyncratic risk component is non-linear and predominantly downward-sloping. These findings have conflicting implications for different stakeholders, such as investors, bank shareholders, bank managers and bank supervisors.

Volatility Spillover Effects in European Equity Markets

Abstract: This paper investigates to what extent globalization and regional integration lead to increasing equity market interdependence. I focus on Western Europe, as this region has gone through a unique period of economic, financial, and monetary integration. More specifically, I quantify the magnitude and time-varying nature of volatility spillovers from the aggregate European (EU) and U.S. market to 13 local European equity markets. To account for time-varying integration, I use a regime-switching model to allow the shock sensitivities to change over time. I find regime switches to be both statistically and economically important. Both the EU and U.S. shock spillover intensity increased substantially over the 1980s and 1990s, though the rise is more pronounced for EU spillovers. Shock spillover intensities increased most strongly in the second half of the 1980s and the first half of the 1990s. I show that increased trade integration, equity market development, and low inflation contribute to the increase in EU shock spillover intensity. I also find evidence for contagion from the U.S. market to a number of local European equity markets during periods of high world market volatility.

Housing Market Spillovers: Evidence from an Estimated DSGE Model

Abstract: The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant, and have become more important over time. The structural nature of the model allows identifying and quantifying the sources of fluctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.

Federal Reserve Bank of New Yorkの制定せる財務諸表様式について

Abstract: Enclosed is a copy of the Board of Governors’ Semiannual Agenda of Regulations for the period August 1, 1980 through February 1, 1981. The Semiannual Agenda provides you with information on those regulatory matters that the Board now has under consideration or anticipates considering over the next six months, and is divided into three parts: (1) regulatory matters that the Board had considered during the previous six months on which final action has been taken; (2) regulatory matters that have been proposed for public comment and that require further Board consideration; and (3) regulatory matters that the Board may consider over the next six months.

The KOF Globalisation Index – revisited

Abstract: We introduce the revised version of the KOF Globalisation Index, a composite index measuring globalization for every country in the world along the economic, social and political dimension. The original index was introduced by Dreher (Applied Economics, 38(10):1091–1110, 2006) and updated in Dreher et al. (2008). This second revision of the index distinguishes between de facto and de jure measures along the different dimensions of globalization. We also disentangle trade and financial globalization within the economic dimension of globalization and use time-varying weighting of the variables. The new index is based on 43 instead of 23 variables in the previous version. Following Dreher (Applied Economics, 38(10):1091–1110, 2006), we use the new index to examine the effect of globalization on economic growth. The results suggest that de facto and de jure globalization influence economic growth differently. Future research should use the new KOF Globalisation Index to re-examine other important consequences of globalization and why globalization was proceeding rapidly in some countries, such as South Korea, but less so in others. The KOF Globalisation Index can be downloaded from http://www.kof.ethz.ch/globalisation/ .

Were there regime switches in U.S. monetary policy

Abstract: Working Paper 2004-14 June 2004 Abstract: A multivariate model, identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances, is confronted with U.S. data since 1959. The best fit is with a model that allows time variation in structural disturbance variances only. Among models that also allow for changes in equation coefficients, the best fit is for a model that allows coefficients to change only in the monetary policy rule. That model allows switching among three main regimes and one rarely and briefly occurring regime. The three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed, and the differences in policy behavior are substantively interesting, though statistically ill determined. The estimates imply monetary targeting was central in the early '80s but was also important sporadically in the '70s. The changes in regime were essential neither to the rise in inflation in the '70s nor to its decline in the '80s. JEL classification: E52, E47, C53 Key words: counterfactuals, Lucas critique, policy rule, monetary targeting, simultaneity, volatility, model comparison I. THE DEBATE OVER MONETARY POLICY CHANGE In an influential paper, Clarida, Gali and Gertler 2000 (CGG) presented evidence that US monetary policy changed between the 1970's and the 1980's, indeed that in the 70's it was drastically worse. They found that the policy rule apparently followed in the 70's was one that, when embedded in most stochastic general equilibrium models, would imply non-uniqueness of the equilibrium and hence vulnerability of the economy to "sunspot" fluctuations of arbitrarily large size. Their estimated policy rule for the later period, on the other hand, eliminated this indeterminacy. These results are a possible explanation of the volatile and rising inflation of the 70's and of its subsequent decline. The CGG analysis has two important weaknesses. One is that it fails to account for stochastic volatility. US macroeconomic variables, and particularly the federal funds rate, have gone through periods of tranquility and of agitation, with forecast error variances varying greatly from period to period. Ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant, but it strongly biases--toward a finding of changed parameters--tests of the stability of the forecasting equations. The other weakness is that the CGG analysis rests on powerful and implausible identifying assumptions. They require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation, money growth, or output. It is hard to understand why this should be so, especially in the 70's, when monetarism was a prominent theme in policy debates, Congress was requiring reports from the Fed of projected time paths of monetary aggregates, and financial markets were reacting sensitively to weekly money supply numbers. The requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right-hand side of the reaction function. If we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function, we are bound to get distorted conclusions. On the one hand, because expected future inflation will be a "noisy" measure of the full set of nominal influences on policy, we might get downward bias in our estimates from the usual errorsin-variables effect. On the other hand, to the extent that expected future inflation (like most expected future values) shows less variation than current nominal variables, we could find a mistaken scaling up of coefficients. …