Geldpolitische Strategien im Umbruch
Diemo Dietrich, Albrecht F. Michler
Systeme monetärer Steuerung - Analyse und Vergleich geldpolitischer Strategien. Schriften zu Ordnungsfragen der Wirtschaft, Band 86,
No. 86,
2007
Abstract
In recent times the strategies of monetary policy, in particular that of the ECB, have been in the limelight of both scientific and public attention. After introducing into conceptual basics of monetary policy strategies, we compare inflation targeting and monetary targeting as the two prevalent strategies. The criteria established for this comparison are the way how the transmission of monetary policy is modeled, the role of expectations, the meaning of a nominal anchor as well as transparency and accountability. We conclude with a critical appraisal of the current ECB strategy.
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Slippery Slopes of Stress: Ordered Failure Events in German Banking
Thomas Kick, Michael Koetter
Journal of Financial Stability,
No. 2,
2007
Abstract
Outright bank failures without prior indication of financial instability are very rare. In fact, banks can be regarded as troubled to varying degrees before outright closure. But failure studies usually neglect the ordinal nature of bank distress. We distinguish four different kinds of increasingly severe events on the basis of the distress database of the Deutsche Bundesbank. Only the worst distress event entails a bank to exit the market. Since the four categories of hazard functions are not proportional, we specify a generalized ordered logit model to estimate respective probabilities of distress simultaneously. We find that the likelihood of ordered distress events changes differently in response to given changes in the financial profiles of banks. Consequently, bank failure studies should account more explicitly for the different shades of distress. This allows an assessment of the relative importance of financial profile components for different degrees of bank distress.
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The role of banking portfolios in the transmission from the currency crises to banking crises - potential effects of Basel II
Tobias Knedlik, Johannes Ströbel
IWH Discussion Papers,
No. 21,
2006
Abstract
This paper evaluates the potential effects of the Basel II accord on preventing the transmission from currency crises to financial crises. By analyzing the case study of South Korea, it shows how mismatches on banks’ balance sheets were the primary cause for such a transmission, and models how Basel II would have affected those balance sheets. The paper shows that due to South Korea’s positive credit rating in the months leading up to the crisis, the regulatory capital reserves under Basel II would have been even lower than those under Basel I, and that therefore Basel II would have had adverse effects on the development of the crisis. In the second part, the article analyses whether the behavior of rating agencies has changed since their failure to predict the Asian crisis. The paper finds no robust econometric evidence that rating agencies have started to take micromismatches into account when assigning sovereign ratings. Thus, given the current approach of credit rating agencies, we have reservations concerning the effectiveness of Basel II to prevent the transmission from currency crises to banking crises, both for the case of South Korea and for potential future crises.
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Equity and Bond Market Signals as Leading Indicators of Bank Fragility
Reint E. Gropp, Jukka M. Vesala, Giuseppe Vulpes
Journal of Money, Credit and Banking,
No. 2,
2006
Abstract
We analyse the ability of the distance to default and subordinated bond spreads to signal bank fragility in a sample of EU banks. We find leading properties for both indicators. The distance to default exhibits lead times of 6-18 months. Spreads have signal value close to problems only. We also find that implicit safety nets weaken the predictive power of spreads. Further, the results suggest complementarity between both indicators. We also examine the interaction of the indicators with other information and find that their additional information content may be small but not insignificant. The results suggest that market indicators reduce type II errors relative to predictions based on accounting information only.
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Monetary Policy and Bank Lending in Japan: An Agency-based Approach
Diemo Dietrich
Incentives and Economic Behaviour,
2005
Abstract
This paper studies the incentive effects on Japanese banks of a low interest rate policy by the Bank of Japan. It utilizes a simplified version of an overlapping principal-agent-style model of corporate finance originally developed in Dietrich (2003). This model is dedicated to study the monetary policy transmission mechanism by combining arguments of the broad credit channel and the bank lending channel taking into account that banks need to be provided with incentives to monitor entrepreneurs. We argue that stipulating banks to possess some amount of own capital generate these incentives. We denote this capital requirement to be market based and show that this requirement depends crucially on interest rates. After revealing some shortcomings of the credit crunch hypothesis, we apply this approach to the Japanese economy. As a result, a policy of very low interest rates may not only be inefficient but counterproductive to reactivate a stumbled economy via the usual credit channel.
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Business cycle in Germany: Bottom phase almost completed
Wirtschaft im Wandel,
No. 10,
2001
Abstract
In the report, the economic situation in Germany and in the Eurozone in the current year 2001 and in the following year 2002 is analyzed and forecasted in detail. Due to the unfavorable global economic situation and the unexpectedly high inflation, GDP growth has been slowing down in Germany in the year 2001. In 2002, growth will regain momentum. In the remaining course of this year, inflation will abate, thus allowing the European Central Bank leeway for an ease in monetary policy, provided wage increases remain moderate. Due to the cyclically lower revenues and higher expenditures, the public deficit will be temporarily higher than projected in the Stability Program. This should not be counteracted so as not to further endanger economic growth. The main National Accounts data for Germany are summarized in a detailed table in the appendix.
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Environmental policy under product differentiation and asymmetric costs - Does leapfrogging occur and is it worth it?
Jacqueline Rothfels
IWH Discussion Papers,
No. 124,
2000
Abstract
This paper studies the influence of environmental policies on environmental quality, domestic firms, and welfare. Point of departure is Porter’s hypothesis that unilateral environmental regulation may enhance the competitiveness of domestic firms. This hypothesis has recently received considerable support in theoretical analyses, especially if imperfectly competitive markets with strategic behavior on behalf of the agents are taken into account. Our work contributes to this literature by explicitely investigating the implications of asymmetric cost structures between a domestic and a foreign firm sector. We use a partial-equilibrium model of vertical product differentiation, where the consumption of a product causes environmental harm. Allowing for differentiated products, the domestic industry can either assume the market leader position or lag behind in terms of the environmental quality of the produced product. Assuming as a benchmark case that the domestic industry lags behind, we investigate the possibility of the government to induce leapfrogging of the domestic firm, i.e. a higher quality produced by the domestic firm after regulation than that of the competitor prior to regulation. It is shown that in the case of a cost advantage for the domestic firm in the production process the imposition of a binding minimum quality standard can serve as a tool to induce leapfrogging. In case of a cost disadvantage the same result can be achieved through an adequate subsidization of quality dependend production costs. Thus, careful regulation enables the domestic firm in both scenarios to better its competitive position against foreign competitors and to earn larger profits. Additionally, environmental quality and welfare can be enhanced.
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