Gerald Dwyer | Clemson University (original) (raw)
Papers by Gerald Dwyer
Systemic risk in financial markets is the risk or probability of a breakdown in the ability to tr... more Systemic risk in financial markets is the risk or probability of a breakdown in the ability to transact in an economy using customary procedures. Regulation can reduce systemic risk by changing the behavior of financial market participants and by making the financial system more resilient to shocks. Systemic risk to the financial system will be regulated. While it may seem obvious that it should be, an important question is, why? An equally important question is, how? Real and fanciful systemic risk George G. Kaufman and Kenneth E. Scott probably have published the best definition of systemic risk to date, namely Systemic risk refers to the risk or probability of breakdowns in an entire system, as opposed to breakdowns in individual parts or components, and is evidenced by comovements (correlation) among most or all the parts. (Kaufman and Scott 2003, 371) While fine for some purposes, this definition uses one important term that is quite vague: breakdown. Can one tell with any prec...
A speculator is someone who assumes a risk with the hope of gain. Buyers of credit default swaps ... more A speculator is someone who assumes a risk with the hope of gain. Buyers of credit default swaps are in a similar position to short sellers of stock in some ways: They sell what they don’t own and hope to gain from adverse developments affecting the underlying security. Complaints about speculators in the credit default swap market are more about the information reflected in market prices than the actual trading in credit default swaps. Speculators and speculation have been pilloried far and wide in news stories recently even though there is little new about speculators ’ recent activities. The Prime Minister of Greece suggested that the stark choice his country faced in its debt crisis was “Will we let the speculators strangle us, or will we take our fate in our own hands? ” (Kyriakidou 2010). Who is a speculator? The definition of speculate is an informative way to start thinking about these speculators and their apparent effects on a whole country. The first meaning of speculate ...
The Oxford Handbook of the Economics of Central Banking, 2019
Regulation of financial institutions to avoid the worst effects of financial crises has become a ... more Regulation of financial institutions to avoid the worst effects of financial crises has become a major topic of research and a focus of regulators’ efforts. Policies designed to reduce crises’ effects on real GDP and employment are called macroprudential. Moral hazard has been introduced by deposit insurance and bailouts of banks and large financial institutions. Too little is known to premise macroprudential regulation on externalities. That said, higher capital at banks and other institutions counteracts one effect of deposit insurance and would make the financial system more resilient. Living wills are likely not to be time-consistent. Regulators will not have an incentive to use them in a financial crisis. Instead, they will bail out firms to avoid adverse effects on the economy. Institutions determining regulators’ choices in a crisis need to be designed to make it equilibrium behavior for regulators to let financial firms fail.
Computers are deterministic devices, and a computer-generated random number is a contradiction in... more Computers are deterministic devices, and a computer-generated random number is a contradiction in terms. As a result, computer-generated pseudorandom numbers are fraught with peril for the unwary. We summarize much that is known about the most well-known pseudorandom number generators: congruential generators. We also provide machine-independent programs to implement the generators in any language that has 32-bit signed integers—for example C, C++, and FORTRAN. Based on an extensive search, we provide parameter values better than those previously available. JEL classification: C15
SSRN Electronic Journal, 2016
The Journal of Economic Asymmetries, 2009
What are the implications for monetary policy of a central bank's payment of interest on rese... more What are the implications for monetary policy of a central bank's payment of interest on reserves? Is the demand for reserves infinitely elastic if interest is paid at the same rate as is available on government securities, or in the United States, at the Federal Funds rate? In general, the answer is no. Reserves and government securities are perfect substitutes when a government central bank pays interest at the same rate as the rate on government securities. This implies that the Federal Reserve cannot ignore the size of its balance sheet in the aftermath of the financial crisis of 2008.
Behavioural Processes, 1985
ABSTRACT The subprime mortgage backed securities market declined dramati-cally before and during ... more ABSTRACT The subprime mortgage backed securities market declined dramati-cally before and during the Financial Crisis of 2008. To understand the factors driving its demise we utilise a latent factor model representing common effects, asset rating effects, vintage of issuance effects and idio-syncratic effects -extending the recent representation of CDO pricing in Longstaff and Rajan (2008). The common factor is shown to have an increasing influence on the performance of the ABX-HE indices, with the role of vintage factors changing dramatically from January 2006 to April 2009. Consistent with other evidence, risk from systematic factors has transferred risk to more highly rated tranches of these structured finance products. The common shock is found to be related to conditions in the real estate sector, liquidity and counterparty risk as well as general financial market volatility.
We survey the theories on why banks promise to pay par on demand and examine evidence on the cond... more We survey the theories on why banks promise to pay par on demand and examine evidence on the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature can be broadly divided into four strands: liquidity provision; asymmetric information; regulatory restrictions and a medium of exchange. One strand of the literature argues that banks offer to pay par on demand in order to provide liquidity insurance services to consumers who are uncertain about their future time preferences and who have investment opportunities inconsistent with some of their preferred consumption paths. A second strand of the literature argues that banks offer to pay at par because of asymmetric information about banks ’ assets. The demand deposit contract can keep the bank from dissipating depositors ’ wealth by exploiting information available to the banker but not to depositors. The deposit is then on deman...
Journal of Financial Stability, 2018
Systemic risk in financial markets is the risk or probability of a breakdown in the ability to tr... more Systemic risk in financial markets is the risk or probability of a breakdown in the ability to transact in an economy using customary procedures. Regulation can reduce systemic risk by changing the behavior of financial market participants and by making the financial system more resilient to shocks. Systemic risk to the financial system will be regulated. While it may seem obvious that it should be, an important question is, why? An equally important question is, how? Real and fanciful systemic risk George G. Kaufman and Kenneth E. Scott probably have published the best definition of systemic risk to date, namely Systemic risk refers to the risk or probability of breakdowns in an entire system, as opposed to breakdowns in individual parts or components, and is evidenced by comovements (correlation) among most or all the parts. (Kaufman and Scott 2003, 371) While fine for some purposes, this definition uses one important term that is quite vague: breakdown. Can one tell with any prec...
A speculator is someone who assumes a risk with the hope of gain. Buyers of credit default swaps ... more A speculator is someone who assumes a risk with the hope of gain. Buyers of credit default swaps are in a similar position to short sellers of stock in some ways: They sell what they don’t own and hope to gain from adverse developments affecting the underlying security. Complaints about speculators in the credit default swap market are more about the information reflected in market prices than the actual trading in credit default swaps. Speculators and speculation have been pilloried far and wide in news stories recently even though there is little new about speculators ’ recent activities. The Prime Minister of Greece suggested that the stark choice his country faced in its debt crisis was “Will we let the speculators strangle us, or will we take our fate in our own hands? ” (Kyriakidou 2010). Who is a speculator? The definition of speculate is an informative way to start thinking about these speculators and their apparent effects on a whole country. The first meaning of speculate ...
The Oxford Handbook of the Economics of Central Banking, 2019
Regulation of financial institutions to avoid the worst effects of financial crises has become a ... more Regulation of financial institutions to avoid the worst effects of financial crises has become a major topic of research and a focus of regulators’ efforts. Policies designed to reduce crises’ effects on real GDP and employment are called macroprudential. Moral hazard has been introduced by deposit insurance and bailouts of banks and large financial institutions. Too little is known to premise macroprudential regulation on externalities. That said, higher capital at banks and other institutions counteracts one effect of deposit insurance and would make the financial system more resilient. Living wills are likely not to be time-consistent. Regulators will not have an incentive to use them in a financial crisis. Instead, they will bail out firms to avoid adverse effects on the economy. Institutions determining regulators’ choices in a crisis need to be designed to make it equilibrium behavior for regulators to let financial firms fail.
Computers are deterministic devices, and a computer-generated random number is a contradiction in... more Computers are deterministic devices, and a computer-generated random number is a contradiction in terms. As a result, computer-generated pseudorandom numbers are fraught with peril for the unwary. We summarize much that is known about the most well-known pseudorandom number generators: congruential generators. We also provide machine-independent programs to implement the generators in any language that has 32-bit signed integers—for example C, C++, and FORTRAN. Based on an extensive search, we provide parameter values better than those previously available. JEL classification: C15
SSRN Electronic Journal, 2016
The Journal of Economic Asymmetries, 2009
What are the implications for monetary policy of a central bank's payment of interest on rese... more What are the implications for monetary policy of a central bank's payment of interest on reserves? Is the demand for reserves infinitely elastic if interest is paid at the same rate as is available on government securities, or in the United States, at the Federal Funds rate? In general, the answer is no. Reserves and government securities are perfect substitutes when a government central bank pays interest at the same rate as the rate on government securities. This implies that the Federal Reserve cannot ignore the size of its balance sheet in the aftermath of the financial crisis of 2008.
Behavioural Processes, 1985
ABSTRACT The subprime mortgage backed securities market declined dramati-cally before and during ... more ABSTRACT The subprime mortgage backed securities market declined dramati-cally before and during the Financial Crisis of 2008. To understand the factors driving its demise we utilise a latent factor model representing common effects, asset rating effects, vintage of issuance effects and idio-syncratic effects -extending the recent representation of CDO pricing in Longstaff and Rajan (2008). The common factor is shown to have an increasing influence on the performance of the ABX-HE indices, with the role of vintage factors changing dramatically from January 2006 to April 2009. Consistent with other evidence, risk from systematic factors has transferred risk to more highly rated tranches of these structured finance products. The common shock is found to be related to conditions in the real estate sector, liquidity and counterparty risk as well as general financial market volatility.
We survey the theories on why banks promise to pay par on demand and examine evidence on the cond... more We survey the theories on why banks promise to pay par on demand and examine evidence on the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature can be broadly divided into four strands: liquidity provision; asymmetric information; regulatory restrictions and a medium of exchange. One strand of the literature argues that banks offer to pay par on demand in order to provide liquidity insurance services to consumers who are uncertain about their future time preferences and who have investment opportunities inconsistent with some of their preferred consumption paths. A second strand of the literature argues that banks offer to pay at par because of asymmetric information about banks ’ assets. The demand deposit contract can keep the bank from dissipating depositors ’ wealth by exploiting information available to the banker but not to depositors. The deposit is then on deman...
Journal of Financial Stability, 2018