Lags in Economic Behavior

On estimation of an econometric model of short-run bank behaviour

THE PURPOSE of this paper is to test a model of commercial bank portfolio behavior. The focus of the analysis is on how an individual commercial bank adjusts its portfolio of liquid assets to changes in the relative yields on asset holdings, the availability of funds, and the stability of deposits. The proper implementation of monetary policy must, of course. be based upon some assumption concerning the reaction of the commercial banking system to changes in deposits and interest rates, and other policy related variables such as the composition of deposits. The assets chosen for empirical testing of the model are the following: total cash assets, excess reserves, short-term Government securities, and longterm municipal securities. The explanatory variables include the interest return on the assets under consideration, the interest return on alternative assets, the total amount of assets, and the mix of deposits. The relationships were estimated from time series data since the 1968 change in Regulation D. Applications of the familiar stock-adjustment model worked quite well for investment holdings, less well for cash assets, and quite poorly for excess reserves. THE MODEL

Short‐run bank portfolio behavior: an examination of selected liquid assets

The portfolio behavior of banks in a developing financial market environment is somewhat different from that of developed markets. To explore such a situation, in this study, a dynamic and multivariate analysis of the behavior of treasury bills in the bank's asset portfolio is employed by using data from the Ethiopian banking sector. A very comprehensive econometric model that includes initial stock variable, asset portfolio variables, liability portfolio variables, and yield differentials has been developed. The study is time series and covers the period from the first quarter of 2000 to second quarter of 2010 of the Ethiopian banking sector. Except for the yield differentials other variables are found to be significant. Besides, all the explanatory variables maintain the a priori expected sign except one of the yield differentials: relative yield differential between long-term and short-term securities. This is attributed to the less attractive and more stable nature of the yield on long-term securities in the Ethiopian financial market.

https://eujournal.org/index.php/esj/article/download/869/912

A dynamic and multivariate analysis of treasury bill behavior in a bank asset portfolio

Commercial bank behavior is not adequately dealt with in existing macro models of the financial sector. The central role of a demand for excess reserves (or free reserves) function in models of the money supply process is particularly suspect. In this paper, it is argued that changes in commercial bank behavior induced by alterations in economic and financial conditions and various banking regulations, along with the central bank's approach to policy, have combined to alter the excess reserve function and the relationship between bank reserves and the money supply. Empirical work presented suggests that the “demand” for excess reserves has indeed undergone structural change. Thus, the study indicates that conventional approaches to commercial bank behavior and the demand for excess reserves need to be reworked.

The demand for excess reserves, liability management, and the money supply process

Most dynamic theories of the monetary policy mechanism, and reserve position doctrine in particular, specify a homogeneous banking system response to monetary policy actions. This article argues that the micro models of bank behavior implicit in these monetary theories remain untested and perhaps misspecified. An experimental model of a single bank's weekly balance sheet adjustments is specified and estimated with the purpose of improving the micro foundations of the theory of monetary dynamics.

Willard T. Carleton

Papers

Short-run adjustments of an individual bank

Deposit Expansion and Federal Reserve-Banking System Interaction: A Micro Unit Simulation