The measurement of meaning

China's economy has been growing rapidly based on globalization of trade, but the country is only beginning to globalize its banking sector China's current banking reform includes partially privatizing three of its dominant Big Four state-owned banks and taking on minority foreign ownership of these institutions Other state-owned banks are also engaging in this practice Predicting the efficiency effects of these and other reforms is difficult because of little relevant background research evidence This paper helps to fill some of the gaps in the literature, analyzing the profit and cost efficiency of banks representing 95% of commercial banking assets in China over 1994-2003 with different majority and minority ownership structures The key findings are that the Big Four state-owned banks are by far the least efficient, and that minority foreign ownership of other banks is associated with significantly improved efficiency These and other findings suggest that minority foreign ownership of the Big Four and other reforms that allow foreign banks to play larger roles will likely improve the performance of the Chinese banking sector, with positive effects on economic growth

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1020583_code852818.pdf?abstractid=1020583&rulid=5230412&mirid=1

Bank Ownership and Efficiency in China: What will Happen in the World's Largest Nation?

China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by far the least efficient; foreign banks are most efficient; and minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners may increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the Big Four will likely improve performance significantly.

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Bank ownership and efficiency in China: What will happen in the world’s largest nation? ☆

In this paper, I construct an equilibrium for markets with frictions, which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters. I show that the equilibrium allocation is socially optimal. I also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay.

Competitive Search Equilibrium

This paper introduces the concepts of time-speci…c weak and strong cross section dependence. A double-indexed process is said to be cross sectionally weakly dependent at a given point in time, t, if its weighted average along the cross section dimension (N) converges to its expectation in quadratic mean, as N is increased without bounds for all weights that satisfy certain ‘granularity’ conditions. Relationship with the notions of weak and strong common factors is investigated and an application to the estimation of panel data models with an in…nite number of weak factors and a …nite number of strong factors is also considered. The paper concludes with a set of Monte Carlo experiments where the small sample properties of estimators based on principal components and CCE estimators are investigated and compared under various assumptions on the nature of the

/pdf/weak-and-strong-cross-section-dependence-and-estimation-of-4sg0174d2g.pdf

Weak and Strong Cross Section Dependence and Estimation of Large Panels

​We study the effects of the ECB monetary policy and the European crisis resolution policies on the 10 year sovereign bond yields of seven European countries. We find that some of the decisions have had significant impact on sovereign bond yields and have succeeded in reducing stress in the financial markets. However, the impact of the same policy decision might have been positive for some countries while negative for others, suggesting that contagion effects may be important. The economically most significant effects on the bond yields have been due to the announcement of ECB's Securities Market Programme.

/pdf/sovereign-risk-european-crisis-resolution-policies-and-bond-39hhjlwmpg.pdf

Sovereign Risk, European Crisis Resolution Policies and Bond Yields

This paper focuses on the productivity dynamics of a …rm-worker match as a potential explanation of "unemployment volatility puzzle". We assume that new matches and continuing jobs dier in their productivity levels and in their sensitiv- ity to aggregate productivity shocks. Lower productivity in new hires implies that new matches have a higher destruction rate and lower wages than old matches, con- sistent with the empirical evidence, while the latter implies that new jobs have more volatile wages, as new hires receive productivity associated with the latest technol- ogy vintage. In our model, an aggregate productivity shock generates a persistent productivity dierence between the two types of matches, creating an incentive to open new productive vacancies and to destroy old matches that are temporarily less productive. As a result, the model produces a well behaving Beveridge curve, de- spite endogenous job destruction, and more volatile vacancies and unemployment, without a need to rely on diering wage setting mechanisms of new and continuing jobs.

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1080.pdf

Productivity and Job Flows: Heterogeneity of New Hires and Continuing Jobs in the Business Cycle

Using the DGE model of the Finnish Economy (the 'Aino' model), we study the response of the economy to reforms in both labour and product markets. The reforms are two-fold. We assume that the wage mark-up, ie the monopoly power of wage-setters is gradually reduced by 5 percentage points. At the same time, the degree of competition is increased, ie price margins are exogenously reduced by 2 percentage points. These reforms imply a very favourable outcome of the economy. Both consumption and employment increases permanently and the reforms are welfare enhancing. Public balances improve giving room for 1.5 percentage point cut in income taxes. Our simulation exercises clearly demonstrate that such reforms may help in financing the future fiscal burden of an ageing population.

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Labour and product market competition in a small open economy – Simulation results using a DGE model of the Finnish economy

We show theoretically that a proportional R&D subsidy accelerates innovation activity at all degrees of competition in the modern Schumpeterian growth model, but less so at high degrees of competition. We then use company-level data on patenting activity, product market competition and R&D subsidies of Finnish firms during 1990-2001 to test the theoretical prediction. The empirical findings can be summarized as follows. Firstly, we find relatively strong evidence in favour of the inverted U-shape between competition and innovation. Secondly, we find some evidence that a direct R&D subsidy increases innovative activity at all but very high degrees of competition. This can be interpreted so mean that the R&D subsidy reinforces the Schumpeterian effect due to the negative cross-effect of R&D subsidy and competition. This is evident from the finding that an increase in the R&D subsidy steepens the inverted U relationship when competition is fierce.

/pdf/when-do-r-d-subsidies-boost-innovation-revisiting-the-2yhe3a4ypb.pdf

When Do R&D Subsidies Boost Innovation? Revisiting the Inverted U-Shape

This paper employs fifteen dynamic macroeconomic models maintained within the European
System of Central Banks to assess the size of fiscal multipliers in European countries. Using a set
of common simulations, we consider transitory and permanent shocks to government expenditures
and different taxes. We investigate how the baseline multipliers change when monetary policy is
transitorily constrained by the zero nominal interest rate bound, certain crisis-related structural
features of the economy such as the share of liquidity-constrained households change, and the
endogenous fiscal rule that ensures fiscal sustainability in the long run is specified in terms of labour
income taxes instead of lump-sum taxes.

Juha Kilponen

Papers

Sovereign Risk, European Crisis Resolution Policies and Bond Yields

Productivity and Job Flows: Heterogeneity of New Hires and Continuing Jobs in the Business Cycle

Labour and product market competition in a small open economy – Simulation results using a DGE model of the Finnish economy

When Do R&D Subsidies Boost Innovation? Revisiting the Inverted U-Shape

Comparing fiscal multipliers across models and countries in Europe. National Bank of Belgium Working Paper No. 278, March 2015