Global factors in capital flows and credit growth | vox

Consistent with the idea that loose monetary policy can be translated across borders and that the Japanese half-hearted attempt at quantitative easing was at least partially responsible for the global financial crisis by spreading Japanese money across the globe (through the carry trade).

"In a recent paper (Bruno and Shin 2012a) we examine the theoretical and empirical basis for global liquidity. Schematically, global liquidity propagates as shown in Figure 1. When global banks apply more lenient conditions on local banks in supplying wholesale funding, the local banks transmit the more lenient conditions to their borrowers through greater availability of local credit. In this way, global liquidity is transmitted through the interactions of global and local banks through the waxing and waning of bank risk-taking."

Valenina Bruno and Hyun Song Shin take a look in Global factors in capital flows and credit growth | vox.  Is there a link between the global carry trade and the transmission of liquidity.  Can the waxing and waning  of the carry identify increased global financial risk?

Unreliable friends and survival time

Mat Asher and the Unreliable Friend takes a look at survival functions.

"You can think of these curves as the chance that your friend will show up in the coming minutes, given how long you’ve already been waiting. At the very beginning of your wait, modeled by the orange curve at the far left, you can be almost certain that your friend will show up in the next 10 minutes. But by the time you’ve been waiting for 500 minutes, as seen in the blue curve at the far right, you are only 50% sure that she will show up in the next 500 minutes. Are those probabilities exact? It seems like it, but let’s zoom in on the first 25 minutes:"

My interest is whether this can be used to model time until financial crisis.  There would have to be two dimensions to the wait:  as the time expands, the intensity of the crash that ensues will be greater; as the time expands, the memory of the previous crash gets less well defined. The model has to be built up in this way with some sort of random exponential crash.  There are lots of small crashes and some major explosions.

Use of odds ratio with event studies

Jenny Hope talks about the use and mis-use of odds-ratio in medical science.  How can 2% become 20%? | Understanding Uncertainty:

"An odds ratio is a standard measure that statisticians and epidemiologists (yes, them again) use to measure an association between an exposure (here statins) and an event (muscle problems). It is defined as the odds of the event given the exposure, divided by the odds without the exposure."

Why not use this quantitative measure of the effect of an event as an addition to an event study.  The Event Study provides the picture of the effect of the event but the odds ratio should compare aftermath with and without the event.