Since its establishment in 2002, IADI has been committed to sharing deposit insurance information and experiences with the international community. The mission of IADI is to contribute to the enhancement of deposit insurance effectiveness by promoting guidance and international cooperation . As part of its mission, IADI undertakes research projects to provide guidance on deposit insurance issues.
In order to deal in a timely and effective manner with the impact of individual bank failures or systemic banking crisis, many countries are seeking to enhance their mechanisms for dealing with failing or failed banks. Establishing an appropriate resolution framework and clarifying the roles and responsibilities of the financial safety-net participants within it are central issues and are highly dependent on a countrys political, cultural, financial, economic, legal and supervisory circumstances.
Since the classical work of Samuelson (1965) and Leroy (1973), the random walk and martingale models of stock prices have formed the cornerstone of modern finance. Hence it is not surprising that an extensive empirical literature has considered deviations from these benchmark models. Several authors, including Lo & MacKinlay (1988), Fama & french (1988), Poterba & Summers (1988), Richardson & Stock (1989) and Boudokh & Richardson (1994) study long-run serial correlations in stock returns. Although this literature finds indications of a slowly mean reverting component in stock prices, deviations from normally distributed returns, time-varying volatility and small sample sizes have plagued existing tests and made it difficult to conclusively reject the random walk model.
This paper proposes a new approach to modelling time series dependence in stock prices that allow bull and bear hazard rates, i.e. the probability that a bull or bear market terminates next period, to depend on the age of the market. Inspection of these hazard rates yields new insights into long-run dependencies and deviations from parametric models of asset prices proposed in the literature, including the simple random walk model with a constant drift and models that allow for volatility persistence. By explicitly focusing on duration dependence in stock prices, the proposed tests are very different from the tests based on autocorrelations previously adopted in the literature. Our approach does not require that stock prices follow a low-order Markov process although this is a special case of our model when termination probabilities are memoryless.
Inequality in earnings has increased significantly in any countries over the last two decades or so. 1 One aspect of this is the increase in the earnings gap between workers and those who own capital assets. Another aspect is the increase in the earnings gap between workers belonging to different religious, ethnic or language groups. 2 Both aspects have been documented and debated at length. Our paper contributes to this literature by providing one explanation of how an initial increase in the incomes of capital owners, regardless of its cause, can feed back into the economy to: (a) reduce the earnings of workers of all communities, (b) increase the earnings gap between workers belonging to different communities even when there is no segmentation or discrimination in the labor market, and (c) increase the incomes of capital owners even further.
Two strands of thought motivate our analysis—the first emanating from a social observation, and the second from a question. The social observation is that “vertical” ties of community cut across “horizontal” class difference between poor and rich individuals. These community ties can be of different types—ethnic, religious, clan, etc—but they exert a pull and affect behavior over and above class position. This is the observation. The question is as follows: can the poor become poorer because the rich become richer? Or, to put the question differently, if the rich become richer for whatever reason, could this event, simply by itself, generate forces that would subsequently reduce the welfare of the poor? Both the observation and the question need elaboration. We start with the question.
