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on Financial Markets |
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Issue of 2005‒12‒01
75 papers chosen by |
| By: | Emine Boz (Economics University of Maryland) |
| Keywords: | financial crises, emerging markets, informational frictions, signal extraction |
| JEL: | F41 D82 G15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:496&r=fmk |
| By: | Leena Mörttinen; Paolo Poloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Patrick Sandars (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jukka Vesala |
| Abstract: | This paper presents the methodological and statistical framework for macro-prudential analysis of the financial condition of the EU banking sector that has been adopted by the European System of Central Banks (ESCB). The framework is also a central component of broader financial stability assessments carried out by the ECB in co-operation with national authorities. The framework has three main building blocks, which draw on a large number of macro-prudential indicators. The first block is designed for assessing the financial condition of the banking sector. The second building block provides a framework for analysing potential sources of risk and vulnerability to which banks are exposed and an assessment of the importance of related exposures. The final part of the analysis deals with the resilience of banks vis-à-vis these different sources of risk and vulnerability. Analysing the impact of the identified risks on banks’ financial condition is the ultimate objective of the ESCB banking sector stability analysis. |
| Keywords: | Financial stability, Banking sector, Macro-prudential analysis and indicators, Financial sector statistics. |
| JEL: | C82 E44 E58 G21 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050026&r=fmk |
| By: | Livio Stracca (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | This paper proposes a general equilibrium model with heterogeneous households and a financial market where each financial instrument provides liquidity services in addition to enabling a transfer of purchasing power over time. Importantly, liquidity services may be asymmetric according to whether the financial instrument is held as an asset or as a liability, and are also agentspecific. The main purpose of the study is to develop an analytical framework and a language for evaluating the effect of (broadly defined) liquidity factors on equilibrium rates of return and intertemporal allocation. |
| Keywords: | Real interest rates; liquidity services; financial market; heterogeneity. |
| JEL: | E40 E43 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050542&r=fmk |
| By: | Harald Uhlig; Fiorella De Fiore (Directorate General Research European Central Bank) |
| Keywords: | Financial structure, agency costs, heterogeneity |
| JEL: | E20 E44 C68 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:618&r=fmk |
| By: | Jesper Berg (Danmarks Nationalbank, Havnegade 5, 1093 Copenhagen K, Denmark.); Annalisa Ferrando (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Gabe de Bondt (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Silvia Scopel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This occasional paper explains why the bank lending survey was developed by the ECB and describes its main features. It discusses the importance of credit developments for both the economy and the functioning of monetary policy, and further clarifies why the survey was introduced. Furthermore, the paper demonstrates that the value added of implementing a bank lending survey for the euro area lies in particular in the way it provides greater insight into developments in credit standards, non-interest rate credit conditions and terms, the risk perception of banks and the willingness of banks to lend. Credit standards are the internal guidelines or criteria of a bank which reflect the bank’s loan policy. The terms and conditions of a loan refer to the specific obligations agreed upon by the lender and the borrower. This occasional paper also considers similar surveys conducted by the Federal Reserve System in the US and by the Bank of Japan. |
| Keywords: | Survey; Banks; Credit Standards; Credit Markets; European Central Bank; Federal Reserve; Bank of Japan |
| JEL: | E43 E51 G21 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050023&r=fmk |
| By: | Byström, Hans (Department of Economics, Lund University) |
| Abstract: | In this paper we suggest a simple way of backing out market-wide risk-neutral default probability (and default density) distributions from quoted credit default swap (CDS) index spreads. We apply the approach to two market-wide European portfolios represented by two frequently traded iTraxx Europe CDS indexes, and the resulting analytical default probability term structures are updated on a daily basis. We believe such instantaneous default probability term structures to be useful not only for risk managers in commercial banks but also for hedge funds and others involved in speculation and arbitrage as well as for supervisory authorities like central banks in their quest for financial stability. |
| Keywords: | iTraxx; credit default swap index; default probability; term structure |
| JEL: | C20 G33 |
| Date: | 2005–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_044&r=fmk |
| By: | Tomas Garbaravicius (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Frank Dierick (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The paper provides an overview of the hedge fund industry, mainly from a financial stability and European angle. It is primarily based on an extensive analysis of information from the TASS database. On the positive side of the financial stability assessment, hedge funds have a role as providers of diversification and liquidity, and they contribute to the integration and completeness of financial markets. Possible negative effects occur through their impact on financial markets (e.g. via crowded trades) and financial institutions (e.g. via prime brokerage). Several initiatives have been launched to address these concerns and most of them follow indirect regulation via banks. If any direct regulation were to be considered, it would probably have to be implemented in a coordinated manner at the international level. At the EU level there is currently no common regulatory regime, although some Member States have adopted national legislation. |
| Keywords: | Asset management, crowded trades, financial regulation, financial stability, hedgefunds, prime brokerage, risk management. |
| JEL: | G15 G18 G21 G23 G24 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050034&r=fmk |
| By: | Cristina Arellano (Department of Economics University of Minnesota) |
| JEL: | E44 F32 F34 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:516&r=fmk |
| By: | Cedric Tille (International Research Function Federal Reserve Bank of New York) |
| Keywords: | foreign assets, valuation effect, exchange rate |
| JEL: | F31 F41 F42 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:282&r=fmk |
| By: | Christian Thimann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Regine Wölfinger; Thierry Bracke (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Rita Bessone Basto; Ole Hollensen (Danmarks Nationalbank, Havnegade 5, 1093 Copenhagen, Denmark.); Stephan von Stenglin (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany.); Santiago Fernández de Lis (Banco de España, Alcalá 50, 28014 Madrid, Spain.); Pierre-François Weber (Banque de France, 39, rue Croix-des-Petits-Champs, 75049 Paris Cedex 01, France.); Marco Committeri (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.); Rolf Pauli (De Nederlandsche Bank, Westeinde 1, 1017 ZN Amsterdam, The Netherlands.); Christian Just (Oesterreichische Nationalbank, Otto Wagner Platz 3, 1011 Vienna, Austria.); Minna Nikitin (Suomen Pankki, P.O. Box 160, 00101 Helsinki, Finland.); John Drage (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.) |
| Abstract: | Ensuring the involvement of private sector creditors in the resolution of sovereign debt crises is crucial to ensure an effective management and orderly resolution of those crises. A review of experience gained in past financial crises suggests that crisis management practices have been largely following a case-by-case approach. This has led to some uncertainty about how the official sector addresses different types of crises, which in turn might partially account for the very mixed results achieved so far. From a global welfare perspective, the resolution of international financial crises is too costly and takes too long. Efforts to improve predictability of crisis resolution processes – through guiding debtor, creditor and official sector behaviour – could lower overall costs of such crises and bring about a better distribution of these costs. Past experience with such private sector involvement shows that, in certain cases, existing instruments have successfully contributed to minimising the economic disruptions caused by crises. However, the effective use of these instruments requires predictable and strong commitment of all parties involved. Key variables in that regard are the country’s economic fundamentals and its track record prior to the crisis, underscoring the importance of effective surveillance and crisis prevention. Success also hinges on the country’s resolve to implement necessary domestic adjustment measures. A transparent process providing for early dialogue between a debtor and its creditors also facilitates private sector involvement. Finally, the IMF plays a key role in crisis situations, as accurate and timely diagnosis by the IMF helps identify at an early stage the need for private sector involvement. |
| Keywords: | Sovereign default, bond restructuring, emerging markets, financial crises, moral hazard, international financial architecture. |
| JEL: | F33 F34 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050032&r=fmk |
| By: | Helene Rey; Philippe Martin (Economics University of Paris I) |
| Keywords: | financial crisis, financial integration, trade integration |
| JEL: | F36 F15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:152&r=fmk |
| By: | Dimitrios P. Tsomocos; Lea Zicchino |
| Abstract: | Not only in the classic Arrow-Debreu model, but also in many mainstream macro models, an implicit assumption is that all agents honour their obligations, and thus there is no possibility of default. That leads to well-known problems in providing an essential role for either money or for financial intermediaries. So, in more realistic models, the introduction f minimal financial institutions, for example default and anks, becomes a logical necessity. But if default involved no penalties, everyone would do so. Hence there must be default penalties to allow for an equilibrium with partial default. What we show here is that there is an equivalence between a general equilibrium model with incomplete markets (GEI) and endogeneous default, and a model with exogenous probabilities of default (PD). The practical, policy implications are that a key function of regulators (via bankruptcy codes and default legislation), or the markets (through default premia) are broadly substitutable. The balance between these alternatives depends, however, on many institutional details, which are not modelled here, but should be a subject for future research. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2005fe15&r=fmk |
| By: | Peter Ilmolelian |
| Abstract: | This is an exploratory study that attempts to identify and provide empirical evidence on the possible determinants of the market capitalisation of the Harare Stock Exchange (HSE) with the view of understanding the development prospects of the HSE and other similar markets. The study was conducted in 1997 as an exploratory work in partial fulfilment of the MSc Development Economics degree at the School of Oriental and African Studies (SOAS), University of London, London, United Kingdom. It used 1976-1996 quarterly data from the International Finance Corporation (IFC) which was analysed using Microfit statistical package. Using the assumption that market size is positively correlated with the ability to mobilise capital and diversify risk, the study findings suggest that share price and the exchange rate are the most important determinants of the HSE market capitalisation. The study suggests that further in-depth research into the determinants of market capitalisation for the African and other emerging stock markets is required to identify best ways of developing these markets within the global financial system while at the same time promoting local economic growth. The paper begins with an introduction about the HSE followed by short description of stock markets in developing countries. The second part of the paper outlines the theory behind market capitalisation, the development of of the general econometric model and specific cointegrating regression model and the results from the analysis. The third section provides conclusions and policy implications associated with encouraging the stock markets in the emerging stock markets with particular reference to the HSE. |
| Keywords: | Zimbabwe, Harare Stock Exchange, Stock Markets, African Stock Markets, Developing Countries, Cointegration, Econometrics, Error Correction Models (ECM), Time Series |
| JEL: | C1 C2 C3 C4 C5 C8 |
| Date: | 2005–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0511016&r=fmk |
| By: | Guido M. Sandleris (Economics Columbia University) |
| Keywords: | sovereign debt, default, sanctions, reputation, information |
| JEL: | F34 F41 G15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:21&r=fmk |
| By: | Angela Maddaloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Darren Pain (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.) |
| Abstract: | The recent corporate failures in the US and in Europe have considerably damaged investors’ confidence in the functioning of financial markets and the ability of the regulatory framework to safeguard their interest and prevent fraud. These episodes demonstrate that market failures exist, which can undermine the effectiveness of market discipline to ensure the appropriate allocation of capital. Specifically the paper considers four particular features of financial markets that may have given rise to market failures: (a) perverse incentives/conflict of interests, (b) destabilising trading/investment strategies, (c) lack of disclosure/transparency and (d) concentrated versus fragmented ownership structures. The paper reviews the theoretical arguments and empirical evidence related to these four possible types of market failures, illustrating these with evidence drawn from the most recent corporate scandals. The last part of the paper is devoted to the policy responses both in the US and in Europe to prevent these failures. |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040017&r=fmk |
| By: | Andrea Enria (Committee of European Banking Supervisors, London, United Kingdom.); Lorenzo Cappiello (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Frank Dierick (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Sergio Grittini (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Andrew Haralambous (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Angela Maddaloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Philippe Molitor (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Fatima Pires (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Paolo Poloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Accounting standard setters are considering the wider use of fair value accounting. This paper focuses on the financial stability implications of a move in the banking sector from the current accounting framework to full fair value accounting. A simulation exercise is performed on how various external shocks affect the balance sheet of an average European bank under the two frameworks. The paper further investigates the impact of the alternative framework on the main balance sheet items, and the interaction with banks’ risk management, supervisory tools and statistical requirements. It also examines how the application of fair value accounting to banks’ trading book has impacted their share price volatility. It is concluded that the introduction of full fair value accounting could have a significant effect in terms of income volatility, procyclicality of bank lending and more generally financial stability. Hence, any move towards this alternative accounting framework should be gradual. |
| Keywords: | accounting, banks, fair value, financial regulation, financial reporting, financial stability, risk management. |
| JEL: | G14 G21 G28 M41 |
| Date: | 2004–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040013&r=fmk |
| By: | Jose A. Lopez |
| Abstract: | The credit risk capital requirements within the current Basel II Accord are based on the asymptotic single risk factor (ASRF) approach. The asset correlation parameter, defined as an obligor's sensitivity to the ASRF, is a key driver within this approach, and its average values for different types of obligors are to be set by regulators. Specifically, for commercial real estate (CRE) lending, the average asset correlations are to be determined using formulas for either income-producing real estate or high-volatility commercial real estate. In this paper, the value of this parameter was empirically examined using portfolios of U.S. publicly traded real estate investment trusts (REITs) as a proxy for CRE lending more generally. CRE lending as a whole was found to have the same calibrated average asset correlation as corporate lending, providing support for the recent U.S. regulatory decision to treat these two lending categories similarly for regulatory capital purposes. However, the calibrated values for CRE categories, such as multifamily residential or office lending, varied in important ways. The comparison of calibrated and regulatory values of the average asset correlations for these categories suggest that the current regulatory formulas generate parameter values that may be too high in most cases. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2005-22&r=fmk |
| By: | Bernardo Guimaraes |
| Keywords: | currency crises, expectations, exchange rate, options |
| JEL: | F3 D8 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:174&r=fmk |
| By: | Micha? Brzoza-Brzezina (National Bank of Poland and Warsaw School of Economics, Warsaw, Poland.) |
| Abstract: | The paper analyses the potential for lending booms in the three biggest new EU Member States (the Czech Republic, Hungary and Poland) during the process of euro adoption. Experiences of some old members (Greece, Ireland and Portugal) and the econometric evidence speak in favour of strong loan increases in Hungary and Poland even though their magnitude may be smaller than in the case of those recently recorded in Ireland and Portugal. Due to estimation problems, the situation in the Czech Republic was more difficult to foresee, but given almost complete interest rate convergence with the euro area only modest increases in lending should be expected there. In conclusion, it may be stated that, given the currently available information, no substantial risk to the banking sectors of the new Member States should be expected. |
| Keywords: | lending booms, euro area, banking sector stability, new Member States. |
| JEL: | E51 E58 G21 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050543&r=fmk |
| By: | Luiz Alberto D´Ávila de Araújo; Paulo de Melo Jorge Neto |
| Abstract: | One of the most relevant discussions on bank regulation is the dichotomy between liberalization, with higher competition, and financial stability. To investigate this problem, the article examines competitive conditions and risk taking in Brazilian banks, and investigates their interrelationship. Competition is measured using Panzar & Rosse model and risk taking by Basel Brazilian Index. Given the relevance of the discussion between Allen & Gale, Grochulski & Kareken and Kahn a measure of concentration was used as a proxy for competition. It is shown that Brazilian banks operate in monopolist competition and that competition increases risk taking. However, competition is not significance to explain credit offer. |
| JEL: | D89 E61 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:042&r=fmk |
| By: | Caio Fonseca Ferreira; Elizabeth M. M. Q. Farina |
| Abstract: | Financial markets have become increasingly integrated throughout the world. Does this mean that local financial institutions are becoming irrelevant? We argue that due to the information asymmetries involved in credit concession and banks' role as monitors the answer is no. Motivated by empirical evidences that show a great dispersion among Brazilian banks' interest spreads, we have developed an imperfect competition model where the need to monitor loans and the heterogeneity of demand for credit create market niches in which it is possible to systematically charge higher interest rates on credit. Bank deposits do not need monitoring; thus the tendency to more intense competition. The difference in the level of competition under which these two services operate can generate an inefficient allocation of resources in the economy, particularly harming less developed areas. Volumes of loans and deposits observed in different Brazilian cities and states support the conclusions of the model. |
| JEL: | D21 D43 D61 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:083&r=fmk |
| By: | Eijffinger,Sylvester C.W.; Goderis,Benedikt (Tilburg University, Center for Economic Research) |
| Abstract: | This paper studies how the exposure of a country's corporate sector to interest rate and exchange rate changes affects the probability of a currency crisis. To analyze this question, we present a model that defines currency crisis as situations in which the costs of maintaining a fixed exchange rate exceed the costs of abandonment. The results show that a higher exposure to interest rate changes increaes the probability of crisis through an increased need for output loss compensation and an increased efficacy of monetary policy in stimulating output. A higher exposure to exchange rate changes also increases the need for output loss compensation. However, it lowers the efficacy of monetary policy in stimulating output through the adverse balance sheet effects of exchange rate depreciation. As a result, its effects on the probability of crisis is ambiguous. |
| Keywords: | short term debt; currency;financial crisis;monetary policy;foreign debt;balance sheets |
| JEL: | E52 E58 F34 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2005113&r=fmk |
| By: | Christian Hellwig (Department of Economics University of California Los Angeles); Arijit Mukherji |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:172&r=fmk |
| By: | Frank Dierick (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Over time, the banking, insurance and securities sectors have become increasingly interlinked and one way through which this occurs is via financial conglomerates. Such groups, in particular those that combine banking and insurance, have over time become more important in Europe. They require an appropriate regulatory and supervisory set-up to deal with the specific risks they raise. In the EU, this regulatory set-up was introduced with the Financial Conglomerates Directive (2002) and which Member States are now implementing into national law. The Directive introduces a regime of supplementary supervision, in addition to the one that already exists for the regulated entities of the conglomerate. The Directive covers areas such a capital requirements, intra-group transactions, large exposures, organisational requirements and information exchange between authorities. The paper further compares the regime in the US and the EU. It concludes with issues that might require attention from authorities in the future. |
| Keywords: | cross-sector risk, European Union, financial conglomerate, financial regulation, financial supervision. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040020&r=fmk |
| By: | Louis Bê Duc (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Gabe de Bondt (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alessandro Calza (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); David Marqués Ibáñez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Adrian van Rixtel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Silvia Scopel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | For central banks, the monitoring of financing conditions plays a pivotal role in assessing the actual transmission of monetary policy impulses to borrowers. This paper presents in detail some of the indicators and data used by the ECB to assess financing conditions in the euro area. It also shows how these indicators have been used to provide a broad assessment of developments in financing conditions in the euro area in recent years. The ECB’s analysis of financing conditions is dynamic and seeks to reflect underlying changes in the euro area’s financial structure. |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050037&r=fmk |
| By: | Cyril Monnet; Erwan Quintin |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:275&r=fmk |
| By: | Skander Van den Heuvel (Finance Department University of Pennsylvania) |
| Keywords: | Bank capital requirements, Welfare, Sidrauski model |
| JEL: | E44 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:880&r=fmk |
| By: | Bruce Mizrach; Christopher J. Neely |
| Abstract: | This paper characterizes the tatonnement of high-frequency bond returns from U.S. Treasury spot and futures markets. We highlight the previously neglected role of the futures markets in price discovery. The lower bound estimate of information shares for 30-year Treasury futures exceeds 50% from 1998 on. Standard liquidity measures, including the proportion of trades and relative bid-ask spreads, explain daily information shares. Macroeconomic announcements do not have a significant impact on these conclusions. Finally, a 5-dimensional cointegrated system explains a high percentage of Treasury returns. The 30-year futures contract and the 5-year spot market dominate price discovery. |
| Keywords: | Bond market |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2005-070&r=fmk |
| By: | B. Ravikumar; Enchuan Shao |
| Keywords: | Excess volatility, liquidity |
| JEL: | G12 E4 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:227&r=fmk |
| By: | Felipe Meza; Erwan Quintin |
| Keywords: | Financial crises, total factor productivity, output fluctuations |
| JEL: | F41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:478&r=fmk |
| By: | Reinhard Petschnigg (Oesterreichische Nationalbank, Otto Wagner Platz 3, 1011 Vienna, Austria.) |
| Abstract: | The paper takes a closer look at the institutional set-up of financial markets in the United States of America and investigates whether the US can serve as a model for the EU. The overall conclusion is that the US institutional set-up as a whole does not seem to be a suitable benchmark for the EU as it is the outcome of specific historical, political and economic circumstances, which differ substantially from those in the EU. Nevertheless, there are features which could provide inspiration for further debate on the EU institutional framework, such as the prominent role of federal regulatory agencies (including the central bank and its role as "umbrella supervisor" over financial holding companies), the capacity of the Office of the Comptroller of the Currency (OCC) as a federal institution to remove barriers to cross-border activities, and the elements of choice for the supervised entities in the regulatory system, which allow for some regulatory competition. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050035&r=fmk |
| By: | Joel Peress |
| Keywords: | Stock Market, Capital Allocation, Production Economy, Information, Rational Expectations, Total Factor Productivity, Partial Revelation, Income, GDP, Concentration |
| JEL: | G14 O41 O16 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:534&r=fmk |
| By: | Victoria Geyfman |
| Abstract: | This paper examines risk-adjusted performance measures in banking, which are used as a guide for efficient asset allocation, performance evaluation, and capital structure decisions in complex, multidivisional financial institutions. Traditional measures of performance are contrasted with the portfolio-based risk-adjusted measures using a unique detailed micro data set for a sample of domestic bank holding companies (BHCs) that engaged in both commercial banking and investment banking activities between 1990 and 1999. This paper finds evidence that traditional stand-alone performance measures can lead to results substantially different from those of the portfolio models. This study also examines BHCs’ optimal portfolios consisting of traditional and nontraditional banking activities derived from the efficient frontiers. These results show that there are gains from diversification as indicated by the composition of optimal portfolios. |
| Keywords: | Bank holding companies ; Risk management |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:05-26&r=fmk |
| By: | Lieven Baele (Tilburg University, The Netherlands.); Annalisa Ferrando (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Peter Hördahl (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Elizaveta Krylova (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Cyril Monnet (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| 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. |
| Keywords: | financial integration, EMU, law of one price. |
| JEL: | G12 G14 G15 G18 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040014&r=fmk |
| By: | Burcu Duygan |
| Keywords: | uncertainty, durable goods spending, unemployment, financial crisis |
| JEL: | D1 D8 D9 E2 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:594&r=fmk |
| By: | Jean-Claude Maswana (Kyoto University) |
| Abstract: | Focused on the case of China’s financial development, the present discursive essay sets out to argue that if the Chinese financial system distorted the allocation of funds then economic growth could not be sustained and financial depth would remain deficient. The essay puts forward selected financial facts and policies, discusses their relevance in the particular context of China’s economic development goals and concludes that although the Chinese financial system is not developed according to the standards of industrialized countries, financial intermediation has nevertheless been efficient in terms of promoting savings and credit to the extent that might have been good enough to facilitate economic growth. Furthermore, in order to reconcile China’s financial efficiency-growth apparent paradox, the essay supports the view that analyzing China’s financial system using market-based standards may not be valid. |
| Keywords: | China, financial development, growth-finance nexus |
| JEL: | O P |
| Date: | 2005–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0511024&r=fmk |
| By: | Pavel Cizek; Karel Komorad |
| Keywords: | option pricing, Black-Scholes formula, binomial trees, implied trinomial trees, implied Volatility, German Stock Index, DAX |
| JEL: | C51 G12 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2005-007&r=fmk |
| By: | Warren E. Weber (public Federal Reserve Bank of Minneapolis) |
| Keywords: | banknotes, asset pricing, state banks |
| JEL: | N22 E59 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:306&r=fmk |
| By: | Alexandre Ziegler (HEC, University of Lausanne and FAME); François-Xavier Delaloye (HEC, University of Lausanne); Michel Habib (Swiss Banking Institute, University of Zurich) |
| Abstract: | Over the period 2002 to 2003,Switzerland and the European Union (EU) were engaged in negotiations regarding banking secrecy. The EU's stated goal was for Switzerland to abolish banking secrecy. Switzerland refused and offered to impose a withholding tax on interest income instead. The two parties eventually agreed on the latter solution. We examine the effect of these negotiations on the share prices of four Swiss banks: UBS, Credit Suisse Group (CSG), Julius Baer (Baer), and Vontobel. Overall, investors believe that bank profitability will not be impacted by the imposition of the withholding tax. The event-by-event response of the share prices differs across banks. Whereas the two universal banks (UBS and CSG) primarily react to the threat of sanctions on their EU-based operations, the private banks (Baer and Vontobel) react strongly to events suggesting that banking secrecy might be abolished. |
| Keywords: | Banking Secrecy; Switzerland; Event Study |
| JEL: | G14 G18 G21 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp157&r=fmk |
| By: | Timothy H. Hannan |
| Abstract: | It is frequently claimed that high ATM surcharges actually attract customers to the banks that impose them, particularly if they operate large ATM networks. By exploiting as "natural experiments" two events associated with the lifting of surcharge bans in Iowa and in the states that neighbor Iowa, this paper seeks to test for the implications of this phenomenon as it applies to the market shares of banking institutions and to several aspects of market structure. Consistent with these implications, results of "difference-in-difference" analyses suggest that the shares of larger market participants increase, the shares of smaller market participants decrease, market concentration increases, and the number of market competitors decreases after the lifting of surcharge bans. |
| Keywords: | Automated tellers - Middle West ; Banks and banking - Middle West |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-46&r=fmk |
| By: | André Geis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Arnaud Mehl (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Stefan Wredenborg (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper analyses the main features of the market for euro-denominated bonds issued by non-euro area residents on the basis of a new database. It shows that large private corporations from mature economies have contributed significantly to the internationalisation of the euro since 1999, more than sovereigns in transition and emerging economies, whose part was initially expected to be stronger. It confirms that the euro’s international role is characterised by a strong regional focus, being most prominent in countries located in the immediate vicinity of the euro area. In particular, the paper provides ample evidence that the City of London plays a key role in the market for euro-denominated bonds issued by non-euro area residents, be it on the supply side, the demand side or as an intermediary. When it comes to demand, the paper shows that the euro’s reach in the rest of the world has been more limited thus far, notwithstanding some recent interest in Asia. Finally, the paper finds evidence that the international role of the euro has, to some extent, been driven by the euro area itself, with euro area investors being significant purchasers of euro-denominated bonds issued by non-euro area residents. |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040018&r=fmk |
| By: | Fernando Gonzalez (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.); François Haas (Banque de France, 39, rue Croix-des-Petits-Champs, 75049 Paris Cedex 01, France.); Ronald Johannes (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.); Mattias Persson (Sveriges Riksbank, Brunkebergstorg 11, 103 37 Stockholm, Sweden.); Liliana Toledo (Banco de España, Alcalá 50, 28014 Madrid, Spain.); Roberto Violi (Banca d’Italia, Via Nazionale 91, 00184 Rome, Italy.); Martin Wieland (Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany.); Carmen Zins (Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the potential impact of the growing influence of the opinions of credit rating agencies (CRAs) on market dynamics. This impact can be seen as a consequence of the information content of the ratings themselves or indirectly as a consequence of the "hardwiring" of ratings into regulatory rules, management mandates, bond covenants, etc. Rating agencies who strive to provide credit assessments that remain broadly stable through the course of the business cycle have been themselves affected as the growing reliance on rating mean that they are increasingly expected to satisfy a widening range of constituencies with different and sometimes conflicting interests. They have responded to this challenge largely by adding more products to their traditional product palette but also through modifications in the rating process. It is however too early to say whether these changes mean a fundamental shift in their approach to credit risk measurement. |
| Keywords: | credit rating agencies, ratings, market dynamics, rating triggers, rating methodologies. |
| JEL: | G10 G28 G29 |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040016&r=fmk |
| By: | Vivian Z. Yue (Economics University of Pennsylvania) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:138&r=fmk |
| By: | Craig Burnside; Martin Eichenbaum |
| Keywords: | Currency crisis, banking crisis, speculative attacks, seigniorage, fiscal reform, bailouts |
| JEL: | F31 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:429&r=fmk |
| By: | Sanjay Banerjee; Parantap Basu |
| Abstract: | Using a two period model with moral hazard and uninsured risk, we argue that the decline in equity premium from its historically high level is due to a gradual elimination of barriers to universal banking. The loan contracts set up by financial intermediaries became more complete in nature with the advent of universal banking in the 90s following the Gramm-Leach-Billy Act. Hence, it is the nature of the loan contracts, not just the borrowing constraint and uninsured risks that is more fundamental in explaining the size of the equity premium. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmacp:0502&r=fmk |
| By: | Geir H. Bjønnes (Norwegian School of Management(BI)); Steinar Holden (University of Oslo and Norges Bank (Central Bank of Norway)); Dagfinn Rime (Norges Bank (Central Bank of Norway)); Haakon O.Aa. Solheim (Ministry of Trade and Industry) |
| Abstract: | What is the role of “large players” like hedge funds and other highly leveraged institutions in speculative attacks? In recent theoretical work, large players may induce an attack by an early move, providing information to smaller agents. In contrast, many observers argue that large players are in the rear. We propose a model that allows both the large player to move early in order to induce speculation by small players, or wait so as to benefit from a high interest rate prior to the attack. Using data on net positions of “large” (foreigners) and “small” (locals) players,we find that large players moved last in three attacks on the Norwegian krone (NOK) during the1990s: The ERM-crisis of 1992, the NOK-pressure in 1997, and after the Russian moratorium in1998. In 1998 there was a contemporaneous attack on the Swedish krona (SEK) in which large players moved early. Interest rates did not increase in Sweden so there was little to gain by a delayed attack. |
| Keywords: | Speculative attacks, microstructure, international finance, large players |
| JEL: | F31 F41 G15 |
| Date: | 2005–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2005_13&r=fmk |
| By: | Juan Carlos Cordoba (Economics Rice University) |
| Keywords: | Idiosyncratic Risk, Incomplete Markets, Borrowing Constraints, Wealth |
| JEL: | E2 E44 G22 D |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:235&r=fmk |
| By: | Rosemarie Bröker Bone |
| Abstract: | The international financial crises of the 1990s rose doubts on the usefulness of sovereign ratings. The present paper has two aims: identify whether sovereign ratings can be predicted using a small set of macroeconomic fundamentals; and test whether sovereign spreads can be predicted by sovereign ratings and/or fundamentals. In the first case, a good adjustment of an ordered logit model can be obtained using the following indicators: Debt/Exports, Public Sector Net Debt, Gov´t Deficit and Current Account. In the second case, when fundamentals (mostly public sector financial conditions) are included, sovereign ratings do not help predict sovereign spreads. |
| JEL: | E66 G14 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:037&r=fmk |
| By: | Luiz Chabalgoity; Emerson Marinho; Mauricio Benegas; Paulo de M. Jorge Neto |
| Abstract: | This paper analyzes the impact after the entry and the increase in the capital participation of foreign banks in the Brazilian financial institutions. In this sense, taking into account three sub-sets of banks by controlling capital origin - domestic privates, foreigner and public-, an analysis was carried out to find out whether there were technical efficiency and productivity gains in Brazil' banking industry. Therefore, a production frontier was built using the Data Envelopment Analysis (DEA) which allows for the calculation of technical efficiency. Next, performing one of these measures, Malmquist's total productivity index is calculated. The results showed that the technical efficiency of the Brazilian banking industry has not evolved as must as it has been expected, although a total productivity increase has actually occurred, arising only from the technological progress. The foreign banks earned the most productivity gains followed by the domestic private banks. The technological leadership (test), proposed by Marinho and Benegas (2002), showed that the domestic private banks determined the industry's technological pattern. |
| JEL: | G21 G28 O33 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:093&r=fmk |
| By: | Lieven Baele (Tilburg University, CentER, Netspar); Koen Inghelbrecht (Ghent University) |
| Abstract: | This paper analyzes the dynamics and determinants of the relative benefits of geographical and industry diversification over the last 30 years. First, we develop a new structural regime-switching volatility spillover model to decompose total risk into a systematic and a country (industry) specific component. Contrary to most other studies, we explicitly allow market betas and asset-specific risks to vary with both structural and temporary changes in the economic and financial environment. In a second step, we investigate the relative benefits of geographical and industry diversification by comparing average asset- specific volatilities and model-implied correlations across countries and industries. We find a large positive (negative) effect of the structural factors on country betas (country-specific volatility), especially in Europe, while industry betas are mainly determined by temporary factors. Not taking into account the time variation in betas leads to biases in measures of industry and country-specific risk of up to 33 percent. After correcting for this bias, we find that under the influence of globalization and regionial integration, the traditional dominance geographical over industry diversification has been eroded, and that over the last years geographical and industry diversification roughly yield the same diversification benefits. Finally, our results indicate that the surge in industry risk at the end of the 1990s was partly (but not fully) related to the TMT bubble. |
| Keywords: | International portfolio diversification, Country versus Industry Effects, Financial integration, Idiosyncratic risk, Time- Varying Correlations, Regime-switching models |
| JEL: | G11 G12 G15 C32 |
| Date: | 2005–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0511005&r=fmk |
| By: | Luis Berggrun |
| Abstract: | This paper analyzes the risk reduction effectiveness of currency hedging international portfolios from the perspective of an average Dutch pension fund and insurer during the period 1999-2004. Several portfolios and approaches to hedging are analyzed. Passive hedging seems to be efficient in reducing the volatility of a foreign bond portfolio whereas the risk reduction achieved for a foreign equity portfolio is not significant. The case of mixed (bonds and equities) portfolios and hedging is also analyzed. No significant risk reduction (at the same level of returns as that of an unhedged portfolio) was attained using a static hedging approach and portfolio optimization under short sale constraints. Using a selective (dynamic) hedging approach based on the forward premium, showed similar results; the volatility of an unhedged and hedged portfolio was virtually the same. Nevertheless, this selective hedging strategy had a positive impact improving the hedged portfolio returns. |
| JEL: | F31 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:054&r=fmk |
| By: | Paul Beaudry; Franck Portier (Economics Universite de Toulouse) |
| Keywords: | Stock Prices - Total Factor Productivity |
| JEL: | E3 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:515&r=fmk |
| By: | Denis Blum; Márcio I. Nakane |
| Abstract: | Over the last ten years, Brazilian banking system has been resilient to shocks, and its credit concession has been low in volume and expensive. This situation motivated the analysis of the relation between a banking regulation instrument that targets systemic stability - capital requirement - and the credit supply of Brazilian banks. A model was elaborated, with its central hypothesis being the incidence, in credit operations, of "regulation costs", negatively related to the capital level of a bank. Under this hypothesis, one expects to find, ceteris paribus, a positive relation between a bank credit supply and its Basel index. Besides, this relation should be exacerbated in banks whose Basel index stands below the minimum required. The hypothesis was tested through the estimation of the model using the generalized method of moments in nonaggregate Brazilian banking data. The results evidence the importance of capital regulation in banking decision of credit supply, in accordance with the model prediction. |
| JEL: | C33 G21 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:085&r=fmk |
| By: | Christopher Waller; Aleksander Berentsen (Economics University of Basel) |
| Keywords: | Financial Intermediation, Aggregate Shocks, Monetary Policy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:416&r=fmk |
| By: | Bernard Dumas; Alexander Kurshev; Raman Uppal |
| Abstract: | Our objective is to understand the trading strategy that would allow an investor to take advantage of "excessive" stock price volatility and "sentiment" fluctuations. We construct a general equilibrium model of sentiment. In it, there are two classes of agents and stock prices are excessively volatile because one class is overconfident about a public signal. This class of irrational agents changes its expectations too often, sometimes being excessively optimistic, sometimes being excessively pessimistic. We find that because irrational traders introduce an additional source of risk, rational investors reduce the proportion of wealth invested into equity except when they are extremely optimistic about future growth. Moreover, their optimal portfolio strategy is based not just on a current price divergence but also on a prediction concerning the speed of convergence. Thus, the portfolio strategy includes a protection in case there is a deviation from that prediction. We find that long maturity bonds are an essential accompaniment of equity investment, as they serve to hedge this "sentiment risk." The answer to the question posed in the title is: "There is little that rational investors can do optimally to exploit, and hence, eliminate excessive volatility, except in the very long run." |
| JEL: | G1 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11803&r=fmk |
| By: | Arup Daripa (School of Economics, Mathematics & Statistics, Birkbeck College); Simone Varotto |
| Abstract: | The current debate on the new Basel Accord gives rise to a natural question about the appropriate form of capital regulation. We construct a simple framework to analyze this issue. In our model the risk carried by a bank as well as managerial risk preference are a bank’s private information. We show that ex ante constraints waste the superior risk information of a bank, while an ex post regime makes full use of it. However, the latter is more vulnerable to the problem of unknown managerial risk-aversion. The results imply that the two regimes are complements, rather than substitutes. Further, under plausible conditions, an ex post regime emerges as the dominant element of the optimal combination. We use the results to shed light on current policy concerns. In particular, our results provides theoretical underpinning for the inclusion of pillar 2 alongside pillar 1 in Basel II. |
| Keywords: | Ex Post Regulation, Asymmetric Information, Safety Loss, Overprotection Loss, Safety Bias, Basel II. |
| JEL: | G28 D82 L51 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0518&r=fmk |
| By: | Adalbert Winkler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Francesco Mazzaferro (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Carolin Nerlich (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Christian Thimann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Official and unilateral dollarisation/euroisation has become a common policy advice for emerging market economies. Against this background, the paper provides a comprehensive review of all the main cases of dollarisation/euroisation, analysing motives, features and policy implications of this exchange rate regime. The main results are that policies fostering integration with the anchor country, in particular fiscal transfers, tourism and offshore finance, have been crucial in supporting the exchange rate regime. To this end, most dollarised/euroised countries have exploited advantages that are largely prior to the choice of exchange rate regime, namely their small size, geographic proximity to the anchor country, and politically dependent status. Thus, recommending dollarisation/euroisation irrespective of countries’ ex ante degree of integration with the potential anchor country seems to bear considerable risks, as dollarisation/euroisation does not seem to be a straightforward substitute for integration. |
| Date: | 2004–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20040011&r=fmk |
| By: | Heiko Schmiedel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Andreas Schönenberger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the state and process of integration of the European securities market infrastructure. The integration of financial infrastructures is one of the basic policy goals and key responsibilities of the Eurosystem. The paper finds that, despite the single currency, the euro area securities infrastructure remains highly fragmented and insufficiently integrated. There are still a high number of providers for trading, clearing and settlement, and they are not efficiently connected to one another. The paper also finds that the degree of consolidation varies among different integrated groups of market infrastructure. Economies of scale and scope and positive network externalities inherent in the securities services industry mean that substantial cost savings and increased efficiency can be expected from further integration. The most relevant factors underlying the less advanced areas of integration are likely to be not only persistent cross-border differences in tax regimes, procedures and laws, but also vested interests among users, owners and managers. Current work at the Eurosystem level can be expected to be helpful in promoting further integration. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050033&r=fmk |
| By: | Hortlund, Per (Dept. of Economics, Stockholm School of Economics) |
| Abstract: | The working of the”asset currency” provided by the Swedish note banking system in 1878–1901 is described. Natural and institutional conditions caused the demand for currency to peak in March and September, with troughs in July and January. The paper investigates how the Enskilda banks provided liquidity to solve the problem. This is done by describing how the volume of notes varied over the year, and how other balance sheet items co-moved with them. Strong seasonal co-variation is found particularly between lending and foreign payments media, varying like communicating vessels over the sailing season in May–October (when the sea was ice free and shipments were made). |
| Keywords: | Free banking; Elastic currency; Asset currency; Clearing mechanism; Note competition; Needs of trade; Lender of last resort; Sailing season |
| JEL: | G21 N13 N23 |
| Date: | 2005–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0613&r=fmk |
| By: | Francis E. Warnock; Veronica C. Warnock |
| Abstract: | Foreign flows have an economically large and statistically significant impact on long-term interest rates. Controlling for various macroeconomic factors we estimate that had there been no foreign flows into U.S. bonds over the past year, the 10-year Treasury yield would currently be 150 basis points higher; even a step-down to average inflows would imply an increase of 105 basis points. The impact of the headline-making foreign official flows—a relatively small subset of total foreign accumulation of U.S. bonds—is also significant but markedly smaller. Our results are robust to a number of alternative specifications. |
| Keywords: | Capital movements ; Interest rates |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:840&r=fmk |
| By: | Hortlund, Per (Dept. of Economics, Stockholm School of Economics) |
| Abstract: | Does the combination of inflation and high corporate taxes explain the increase in bank leverage in the 20th century? Inflation automatically increases bank debt, while high corporate taxes hinder capital accumulation. Capital ratios therefore drop, until leverage-induced returns are sufficient to uphold them at constant levels. This theory was confronted with Swedish bank data 1870–2001. Bank capital ratios dropped when inflation and corporate tax rates were high, during WWI and in 1940–1980. The theory can explain the sinking bank capital ratios during these periods, but also their relative stability since the early 1980s. High corporate taxes and inflation were estimated to account for half of the drop in Swedish bank capital ratios since WWII. |
| Keywords: | Bank leverage; Capital-asset ratio; Inflation; Corporate taxes. |
| JEL: | E44 E52 G28 G32 H25 N23 N24 |
| Date: | 2005–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0612&r=fmk |
| By: | Sean D. Campbell |
| Abstract: | Using data on corporate profits forecasts from the Survey of Professional Forecasters, I decompose real stock returns into a fundamental news component and a return news component and analyze the effects of the Great Moderation on each. Empirically, the response of each component of real stock returns to the Great Moderation has been quite different. The volatility of fundamental news shocks has declined by 50% since the onset of the Great Moderation, suggesting a strong link between underlying fundamentals and the broader macroeconomy. Alternatively, the volatility of return news shocks has remained stable over the Great Moderation period. Since the bulk of stock market volatility is attributable to return shocks, the Great Moderation has not had a significant effect on stock return volatility. These empirical findings are shown to be consistent with Campbell and Cochrane's (1999) habit formation asset pricing model. In the face of a large decline in consumption volatility, the volatility of fundamental news shocks declines while the volatility of return shocks stagnate. Ultimately, the effect of a Great Moderation in consumption volatility on overall stock return volatility in the habit formation model is slight. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-47&r=fmk |
| By: | Geoffrey Dunbar (Economics Queen's University) |
| Keywords: | Collateral, Capital Controls, Wealth Distribution |
| JEL: | F41 F30 D58 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:492&r=fmk |
| By: | Emilie Laffiteau (CATT / UPPA); Jean-Marc Montaud (CATT / UPPA; CED / IFReDE-GRES, Université Montesquieu Bordeaux IV) |
| Abstract: | L’objectif de cette étude est d’évaluer, à travers l’expérience récente de l’Argentine, le lien entre les mécanismes du Currency Board et les ajustements macroéconomiques, notamment sur le marché du travail. Dans un premier temps, nous présentons les principales spécificités du système monétaire argentin. Dans un deuxième temps nous construisons un modèle d’Equilibre Général Financier qui incorpore les mécanismes du Currency Board et les principales caractéristiques de l’économie argentine. Enfin, dans un troisième temps, nous simulons trois situations économiques qu’à connu l’Argentine à la fin des années quatre-vingt-dix : un renforcement des politiques d’austérité, les chocs des crises financières et une accélération des efforts d’intégration régionale. Chaque simulation montre alors comment l’économie argentine et son marché du travail réagissent dans un contexte où les mécanismes monétaires sont contraints par le régime du Currency Board. The aim of this study is to address, through the recent argentine experience, the link between Currency Board’s mechanisms and macroeconomic adjustments, especially in the labour market. First, we present how the argentine monetary system was set up; secondly we build a financial general equilibrium model which includes a Currency Board mechanism and the main features of the argentine economy. Thirdly, three types of simulations illustrate the argentine economic situation at the end of nineties: austerity politics strengthening, financial crisis and regional integration strengthening scenarii. Each simulation explains how the argentine economy react in a framework where monetary mechanisms are constraint by the Currency Board. (Full text in french) |
| JEL: | E42 E58 E24 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:mon:ceddtr:120&r=fmk |
| By: | Istvan Konya; Peter Benczur (Economics Magyar Nemzeti Bank) |
| Keywords: | real effects of nominal shocks, endogenous pass-through, two-sector growth model, q-theory, money-in-the-utility |
| JEL: | F32 F41 F43 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:51&r=fmk |
| By: | Natalia Chernyshoff; David S. Jacks; Alan M. Taylor |
| Abstract: | Did adoption of the gold standard exacerbate or diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. A hard exchange-rate regime such as the gold standard might limit monetary shocks if it ties the hands of policy makers. But any decision to forsake exchange-rate flexibility might compromise shock absorption in a world of real shocks and nominal stickiness. A simple model shows how a lack of flexibility can be discerned in the transmission of terms of trade shocks. Evidence on the relationship between real exchange rate volatility and terms of trade volatility from the late nineteenth and early twentieth century exposes a dramatic change. The classical gold standard did absorb shocks, but the interwar gold standard did not, and this historical pattern suggests that the interwar gold standard was a poor regime choice. |
| JEL: | F33 F41 N10 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11795&r=fmk |
| By: | John Ammer; Nathanael Clinton; Gregory P. Nini |
| Abstract: | Publicly traded financial firms within the European Union will be required to adhere to International Accounting Standards (IAS) in their financial reporting beginning in 2005, which can entail a higher degree of financial disclosure than was previously mandated under national accounting standards. A number of European financial firms had previously subjected themselves to additional disclosure by listing their stock on U.S. exchanges, which obligates them to reconcile their financial accounts to U.S. GAAP (Generally Accepted Accounting Principles). Among national accounting systems, U.S. GAAP is considered to be both among the strictest and the most similar to International Financial Reporting Standards (IFRS). To test whether U.S. GAAP reconciliation effectively enhances disclosure, we examine several measures of transparency for the cross-listed firms, relative both to pre-listing measures and to a control sample of firms that have not cross-listed. Our measures include bid-ask spreads, earnings forecast errors, analyst coverage, dispersion in earnings expectations, and disagreement between Moody’s and S&P’s bond ratings. We find evidence that cross-listing increases transparency in at least some cases. Our cross-sectional results also distinguish a handful of European financial firms that had already adopted IFRS before the European Commission announced that IAS would be required in the near future, with results similar to those of the cross-listed firms. Accordingly, to the extent that commitment to increased transparency has been a motivation for cross-listing, the adoption of IAS in Europe may reduce the incentives for European firms to cross-list in the United States. |
| Keywords: | Accounting - Standards ; International finance |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:843&r=fmk |
| By: | Xiaosong Zeng; Charles Goodhart |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp163&r=fmk |
| By: | fadil govori (Institute for Finance & Management) |
| Abstract: | Investitorët institucionalë karakterizohen nga mënyra e formimit të fondeve financiare dhe mënyra e investimit të tyre. Ndryshe nga institucionet depozituese, investitorët institucionalë i krijojnë potencialet e tyre financiare nëpërmjet formave jodepozitare, në bazë të shitjës së kontratave të sigurimit të individëve dhe bizneseve, përmes sigurimit pensional të të punësuarve në shoqëritë e mëdha dhe shitjes së aksioneve qytetarëve. Investimin e fondeve të tyre financiare investitorët institucionalë e bëjnë në formë të investimeve në letra me vlerë, duke krijuar kështu portofolin e tyre optimal në kuptimin e të ardhurave të pritura dhe të shkallës optimale të likuiditetit të segmentit të caktuar të portofolit. Investitorët institucionalë dallohen për nga ajo se si i krijojnë potencialet e tyre financiare (shoqëritë e sigurimit, fondet pensionale dhe fondet e përbashkëta). Karakteristikë e tyre e përbashkët është se potencialet e tyre financiare, të krijuara në bazë të burimeve afatgjata, i investojnë në formë të blerjes së letrave me vlerë në tregjet e kapitalit. Ata blejnë aksione dhe obligacione të shoqërive dhe obligacione të qeverisë. Në bazë të këtyre letrave me vlerë, investitorët institucionalë krijojnë portofol sipas strukturës së dëshiruar. Si kritere të përgjithshme për krijimin e portofolit me strukturë të caktuar, merren norma e pritur e rendimenteve nga obligacionet afatgjata, lartësia e pritur e dividendës në aksione, por edhe shkalla më e lartë e likuiditetit të një pjese të letrave me vlerë, kryesisht me afate të shkurtëra, me qëllim të ruajtjes së likuidititetit të institucionit. |
| Keywords: | Tregjet Financiare |
| JEL: | G |
| Date: | 2005–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0511011&r=fmk |
| By: | Stephane Guibaud |
| Keywords: | Financial and Trade Integration, Enforcement Frictions, Recursive Contracts |
| JEL: | F34 F36 F15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:762&r=fmk |
| By: | Selo Imrohoroglu; Kaiji Chen; Ayse Imrohoroglu (finance and business economics usc) |
| Keywords: | Growth Model, Total Factor Productivity, Saving Behavior |
| JEL: | E13 E22 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:747&r=fmk |
| By: | Alexandre Rands Barros |
| Abstract: | This paper develops the hypothesis that the co-existence of state owned banks with privately owned banks together tends to raise interest rates spreads and profitability of privately owned banks. This hypothesis can help explain the relationship between the share of state owned banks on total banking assets and economic growth, as reported in the literature. Three empirical tests of the two parts of the main hypothesis are presented. Two of them rely on Brazilian monthly time series data and the other one uses a cross section regression with data for a sample of countries. One of them builds on an estimation of an expanded version of the composition of a rate of return of an asset under the market efficient hypothesis. Another one estimates a factor augmented vector autoregression (FAVAR) model. All of these tests give support to the hypotheses tested. |
| JEL: | G21 G28 E44 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:041&r=fmk |
| By: | Daniel Reichstul; Gilberto Tadeu Lima |
| Abstract: | This study contributes to the understanding of the causality between different credit measures and indicators of economic activity in the State of São Paulo. Questions have been raised as to the prevailing Granger-causality for national economies, and a regional approach that has not yet been followed in the empirical literature is pursued here. More precisely, it is dealt with the relationship between different credit modalities and diverse aspects of São Paulo´s industrial output over the period from January 1995 to December 2003, by using both a multivariate and a bivariate Autoregressive Vector model (VAR). The results show that such a dimension of the the local financial development has followed industrial development. |
| JEL: | R11 R12 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:119&r=fmk |
| By: | Julimar da Silva Bichara; André Moreira Cunha; Marcos Tadeu Caputi Lélis |
| Abstract: | In the aftermath of 1997-98 financial crises the asian countries initiated a more ambitious process of economic and institutional coordination. In a long term scenario that movement opens a new perspective: the emulation of European integration process, culminating with the creation of a common currency. In this paper we explore the recent effort of financial cooperation between asian economies. Using the optimum currency areas approach why try to identify some opportunities and limits for monetary integration in the asian case. We replicate this exercise to the Mercosur's major partners. We assume that any integration process is political in essence. So our empirical results are nothing but an exploratory exercise. We can't deny the possibility of new advances in the integrationist, because its ultimate determinants were not considered in our empirical treatment. |
| JEL: | F15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2005:082&r=fmk |
| By: | David Andolfatto |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed005:9&r=fmk |