Showing papers in "PSL Quarterly Review in 2002"
TL;DR: The authors analyzed the interaction between business cycles and banks over the past two decades for 26 industrial countries and found that profits of banks move up and down with the business cycle, allowing for accumulation of capital in boom periods.
Abstract: The proposed risk sensitive minimum requirements of the new Basel capital accord have raised concerns about possible (acceleration of) procyclical behaviour of banking, which might threaten macroeconomic stability. This article analyses the interaction between business cycles and banks over the past two decades for 26 industrial countries. As expected, profits appear to move up and down with the business cycle, allowing for accumulation of capital in boom periods. Provisioning for credit losses rise when the cycle falls, but less so when net income of banks is relatively high, which reduces procyclicality. Lending fluctuates with the business cycle too, but appears to be driven by demand rather than by supply factors such as (shortage of) capital, which contradicts the assumptions underlying capital crunch theory. All in all, over the last decades, distortion caused by procyclical behaviour of banks has been limited, banking crises excepted. JEL Codes: G21, G28, E32
422 citations
TL;DR: In this paper, the authors consider alternative exchange rate regimes for the East European accession candidates, both prior to EU accession and following EU-accession but prior to EMU membership, and conclude that, from an economic point of view, membership should be as early as possible.
Abstract: The paper considers alternative exchange rate regimes for the East European accession candidates, both prior to EU accession and following EU accession but prior to EMU membership. We conclude that, from an economic point of view, EMU membership should be as early as possible. There is, however, a risk that prevailing interpretations of the inflation and exchange rate criteria for EMU membership could lead to unnecessary delays in EMU membership for the accession countries. The exchange rate criterion for EMU membership requires that the candidate "has respected the normal fluctuation margins provided for by the exchange ratemechanism of the European Monetary System without severe tensions for at least the last two yeas before the examination." Both this text and the precedents of Finland, Italy and Greece, support the view that the exchange rate criterion can be satisfied without two years of formal ERMII membership. Insistence on at least two years of formal ERMII membership for the accession countries, would result in an unnecessary, costly and potentially risky stay in EMU purgatory. JEL Codes: F33, P33 Keywords: EMU, Exchange Rates
167 citations
TL;DR: In this article, the effects of monetary and wage bargaining on employment and inflation in the European Monetary Union (EMU) were investigated using a Post-Keynesian competitive claims model.
Abstract: Assessing the effects of monetary policy and wage bargaining on employment andinflation in the European Monetary Union (EMU), the first step sees development of a Post-Keynesian competitive claims model of inflation with endogenous money. In this model the NAIRU is considered to be a short-run limit to employment enforced by independent and conservative central banks. In the long run, however, the NAIRU will follow actual unemployment and is therefore also dependent on the forces determining aggregate demand, including monetary policies. But the NAIRU may also be reduced through effectively co-ordinated wage bargaining, as has been shown by institutional political economists. Applying these considerations to the economic performance of the EMU, different scenarios determined by wage bargainingcoordination and the European Central Bank's (ECB) monetary policies are developed. It is shown that the first phase of the EMU was dominated by uncoordinated wage bargaining across the EMU and an "anti-growth-bias" of theECB. Thus the euro area was plagued with nominal wage restraint, highunemployment and inflation above the ECB target. Economic performance will improve if the ECB abandons its asymmetric monetary strategy. This may be facilitated by a higher degree of effective wage bargaining co-ordination across the EMU. JEL Codes: E52, J52, F36, J31
60 citations
TL;DR: In the case of Iran, the real cost to Iran and the U.S. is not so much due to reduced trade but to factors such as missed investment and joint venture opportunities, especially in the energy sector as discussed by the authors.
Abstract: Economic sanctions are seen as a foreign policy instrument less severe than military engagement but more potent than diplomacy. The assessment of the economic impact of sanctions invariably focuses on direct bilateral trade, with little regard to indirect costs. In the case of sanctions on Iran, the real cost to Iran and the U.S. is not so much due to reduced trade but to factors such as missed investment and joint venture opportunities, especially in the energy sector. The significant size of these costs for Iran will make it difficult for Iran to resume business as usual with U.S. companies when sanctions are lifted; and for U.S. energy companies, their long-term competitiveness in Iran and also globally will be reduced. JEL Codes: F23, F13 Keywords:
11 citations
Journal Article•
TL;DR: In this paper, the authors comment on a recent paper (Leon-Ledesma and Thirlwall 2000) in which an interesting issue is raised concerning the notion of the natural rate of growth, first proposed by Sir Roy Harrod (1939).
Abstract: The authors comment a recent paper (Leon-Ledesma and Thirlwall 2000 – from now on LLT) in which an interesting issue is raised concerning the notion of the natural rate of growth, first proposed by Sir Roy Harrod (1939). JEL Codes: O41, O47 Keywords: Growth
9 citations
TL;DR: In this article, the authors reply to the comment of Boggio and Seravalli about the question "Is the natural rate of growth exogenous?". JEL Codes: O41, O47
Abstract: The authors reply to the comment of Boggio and Seravalli about the paper "Is the natural rate of growth exogenous?". JEL Codes: O41, O47
9 citations
Journal Article•
TL;DR: In this paper, the authors measure the amount of central bank's prestige generated in three economies in transition and inquire to what extent this prestige ultimately accrues to the government, finding that, in parallel to the process of disinflation, central bank prestige declined substantially in the 1990s in all three countries under consideration pointing to more monetary discipline and a strengthening of centralbank independence.
Abstract: We measure the amount of central bank seigniorage generated in three economies in transition and inquire to what extent seigniorage ultimately accrues to the government. We relate our findings to the institutional environment of the three countries. We find that, in parallel to the process of disinflation, seigniorage has declined substantially in the 1990s in all three countries under consideration pointing to more monetary discipline and a strengthening of central bank independence. Only in Hungary seigniorage benefited the government to a significant amount. We interpret this as being the consequence of past policies, rather than an obstacle to further disinflation. JEL Codes: E58, P24, E31, E52, P21, P34, P35
9 citations
TL;DR: In this paper, a simple model of the interaction between central bank liquidity management and the interbank overnight rate is suggested, which allows analysing the publication of forecasts of liquidity factors by the European Central Bank.
Abstract: A simple model of the interaction between central bank liquidity management and the inter-bank overnight rate is suggested, which allows analysing the publication of forecasts of liquidity factors by the European Central Bank adopted in June 2000. The paper argues that the main practical advantage of the publication of these forecasts is that it makes the signal extraction problem with regard to the centralbank's intentions trivial and hence allows establishing a superior behavioural equilibrium between the central bank and the money market participants. In this equilibrium, the central bank can achieve a better steering of overnight rates than under private autonomous factor forecasts, depending of course also on the quality of liquidity forecasts. It is furthermore shown that the publication of an average of autonomous factors, such as adopted by the ECB, is, at least within the model presented, superior to the separate publication of autonomous factors for each single day. JEL Codes: E52, E58, E43 Keywords: Interest Rates, Interest
5 citations
TL;DR: Using error-correction model (ECM) estimation, the authors empirically examined the relationship between the US government budget deficit and the real long-term interest rate, and provided results that suggest a bi-directional relationship.
Abstract: Using error-correction model (ECM) estimation, this study empirically examines, for theUS, the causality relationship between the federal government budget deficitand the ex ante real long term interest rate. The system includes personal federal income tax rates, the M2 money supply, the unemployment rate, an ex ante realshort term interest rate and net international capital inflows. To clarify the deficit/interest rate relationship, the budget deficit is measured by the primary deficit, which excludes net interest payments by the Treasury. The ECM estimates in this study provide results that suggest a bi-directional relationship between the primary budget deficit and the ex ante real long term interest rate yield. JEL Codes: E43, H62, E62
4 citations
TL;DR: In this paper, the authors review the literature regarding the impact of financial innovation on the monetary transmission mechanism and the way the central bank can achieve its ultimate goal, that is to control the price level.
Abstract: We review the literature regarding the impact of financial innovation on the monetary transmission mechanism and on the way the central bank can achieve its ultimate goal, that is to control the price level. We argue that, although the form of central bank instruments and current methods for implementing monetary policy may change, the goals that the policy makers try achieve by employing these instruments remain valid, and achievable. JEL Codes: E42, E58, E31, E51, E52 Keywords: Central Banking, Monetary Policy, Monetary, Policy, Price Level, Prices
2 citations
TL;DR: In this article, the effect of M&A transactions on foreign exchange rates was investigated through interviews with Treasurers of multinationals conducting large-scale M&As, and the impact of different techniques made for different effects.
Abstract: The large cross-border Merger and Acquisition flows of the last three years were seen by financial markets as one of the factors behind movements in exchange rates. However, the extent to which an M&A-transaction actually leads to a foreign exchange transaction is dependent on the financing and transaction techniques used and is difficult to measure. In this article, we analyse which considerations underlie the decisions of corporate Treasurers regarding the financing of take-overs and the techniques to be used by forex transactions. We investigate the effect Treasurers believe M&A transactions have on exchange rates and examine whether different techniques make for different effects. The information was obtained through interviews with Treasurers of multinationals conducting large-scale M&A activities. JEL Codes: G34, F31, G32 Keywords:
TL;DR: In this article, the authors present a fair-value-type-asset-and-liability model to identify diversification effects for financialconglomerates (PCs) under various shocks.
Abstract: Risk diversification is one of the many reasons for cross-sector mergers of financial institutes. This paper presents a fair-value type asset and liability model in order to identify diversification effects for financial conglomerates (PCs) under various shocks. My analysis for the Netherlands reveals that diversification effects on PCs of especially interest rate shocks are very strong. In principle, substantial diversification effects argue for lower capital requirements for PCs. However, there are other non-negligible risks run by PCs to consider, namely contagion risk, regulatory arbitrage and cross-sector and TBTF moral hazard risks, which have not yet been quantified. JEL Codes: G34, G38, G12, G21, G22, G28, M41 Keywords: merger