When estimating finance panel regressions, it is common practice to adjust stan-dard errors for correlation either across firms or across time. These procedures are valid only if the residuals are correlated either across time or across firms, but not across both. This note shows that it is very easy to calculate standard errors that are robust to simultaneous correlation along two dimensions, such as firms and time. The covariance estimator is equal to the estimator that clusters by firm, plus the the estimator that clusters by time, minus the usual heteroskedasticity-robust OLS covariance matrix. Any statistical package with a clustering command can be used to easily calculate these standard errors.

NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.

Sudden stops and international financial crises have been a main feature of developing countries in the last 25 years. While their aggregate effects are well known, the microeconomic channels through which they work have yet to be explored. In this paper, we study the rele-vance of financial and labor factors in the restructuring process that take place over episodes of sudden stops. Using microeconomic variables related to job flows using sectoral panel data for four Latin American countries, we find that sudden stops are associatedwith lower job creation and increased job destruction. Furthermore, these effects are heterogeneous across sectors and across countries. Consistent with the idea that dependence of external financing affects mainly the creation margin and that liquidity needs affect affects mainly the destruction margin, we find that while sectors with higher dependence on external financing experience lower cre-ation, sectors with higher indicators of liquidity needs experience significantly larger negative job flows. Finally, we find a negative correlation between a country’s firing and dismissal costs and labor destruction during sudden stops, mostly affecting the decisions of continuing firms. Overall, our results provide evidence of financial conditions being an important transmission

While the existing literature acknowledges the effect of banking structure on industrial growth as well as the effect of financial development on industrial growth and its volatility, we examine whether banking structure, given financial development, exerts any nontrivial effect on industrial growth volatility. We show that bank concentration magnifies industrial growth volatility, but reduces the volatility in sectors with higher external liquidity needs. The reduction in industrial growth volatility mostly reflects the smoothing in the volatility of real value added per firm growth. A variety of sensitivity checks show that our findings remain for different model specifications, banking market structure measures, liquidity need indicators, and omitted variables.

This paper investigates the role of financial markets in evaluating the asymmetric impact of monetary policy on real output over the business cycle. We use quarterly US data which cover 1971:q1–2011:q4 and implement an instrumental variables Markov regime switching methodology to account for the endogeneity problem. Our investi-gation shows that monetary policy has a significant impact on output growth during recessions. More interestingly, we find that financial depth plays an important role as it dampens the effects of monetary policy in recessions. The results are robust compared to an alternative financial depth measure and a different sample period.

The global financial crisis has required policymakers to reconsider the role that the structure of their financial systems plays in achieving good economic outcomes. A number of forces can be expected to change financial intermediation structures in the period ahead, including crisis intervention measures and an evolving regulatory reform agenda. The changing structures for financial intermediation (through banks or nonbanks, funded by deposits or other sources, interconnected domestically or across borders) can be expected to affect economic growth, its volatility, and financial stability. This chapter investigates these potential relationships from 1998 to 2010 using the measures for financial structures developed in Chapter 3. With this knowledge, the chapter forms ideas about how the evolving financial structures relate to economic outcomes. It is worth recognizing that forming concrete inferences about the relationship between financial structures and economic growth is difficult—as is most work on the determinants of growth. First, time series of detailed cross-country data on financial structures are short, circumscribing the ability to do long-term analyses. Second, the recent period for which data is available included a very severe financial crisis, and while some techniques can control for its influence, the ability to isolate structural effects is difficult. And third, data limitations mean that the series used for the concepts for financial structures are not perfectly aligned—they

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This paper examines the long run and causal relationship between financial sector development and industrialization in Nigeria for the period 1981 to 2011 using time series data. Results from a multivariate VAR and vector error correction model provide evidence of long run relationship between financial sector development and industrialization in Nigeria. The two measures of financial development had contrasting effects on industrial output. Ratio of private sector bank credit to GDP has a positive relationship with industrial output while the ratio of broad money stock to GDP has a negative relationship with industrial output. Granger causality test reveals long-run unidirectional causal link running from industrialization to financial development. There is therefore the urgent need for government to consolidate on past financial sector reforms to address the challenges of financial intermediation in the domestic financial sector to improve loan disbursement to the industrial sector of the Nigerian economy.

Fabrizio Coricelli, Isabelle Roland. Credit and recessions. Documents de travail du Centre

I am grateful to my adviser Larry E. Jones for his guidance, encouragement and support. Not enough can be said of his willingness to listen and engage – whether it be during workshop, on a Friday afternoon Reading Group session, or simply chatting daily over coffee. This dissertation would not exist without his mentoring and incisive feedback. I am also grateful to the other members of my committee, V.V. Chari and Christo-pher Phelan. V.V. Chari and Chris Phelan have been amazingly effective teachers. They greatly contributed to my understanding of economics and I am deeply indebted to their patient advice over the years. I can not imagine having achieved my graduate school successes without Chari, Chris or Larry. I owe special thanks to Warren Weber and Kei-Mu Yi. Not only did they provide me with the opportunity to work at the Federal Reserve Bank of Minneapolis, but they also helped me learn, digest and communicate economic ideas. Warren and Kei-Mu might have started as my bosses, but they quickly became teachers and friends. Many others have contributed to the work within, as well as my understanding of economics more generally. It would be infeasible to thank everyone here, but a small list is in order. I would like to specially thank Ali Shourideh and Ariel Zetlin-Jones for countless conversations and advice, as well as Jahiz Barlas and David Wiczer for always having a free moment to talk through my ideas. I would also like to thank Terry Roe for his feedback on my dissertation. Lastly I would like to thank my parents, Fred and Ellen, my sister, Jennifer, and my partner, Eliza.