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1
Demographic change in industrialized nations has been a matter of common interest for some time. The financial implications of an ageing society are also increasingly discussed, particularly with regard to pension systems. The impact of this development on public finances is, however, only gradually being realized and the constitutional framework of public finances in Germany and the European Union just falls short of ignoring it entirely. This paper is a preliminary assessment of the burden of an ageing society under the fiscal law, specifically in respect of prospective entitlements to the public pension system. The first part analyses the provisions of the German constitution on finances (Finanzverfassungsrecht) to identify what rules, if any, exist addressing such (potential) expenditures, which lie in the immediate or very distant future. The second part of the paper analyses the fiscal requirements under European Union law. In the third and final part a few comments on the proposed national pact on stability and the recent moves to amend the German Federal Constitution are presented.
4
This paper provides an overview of conceptual issues and recent research findings concerning the structure and the role of financial systems and an introduction into the new research area of comparative financial systems. The authors start by pointing out the importance of financial systems in general and then sketch different ways of describing and analysing national financial systems. They advocate using what they call a “systemic approach”. This approach focuses on the fit between the various elements that constitute any financial system as a major determinant of how well a given financial system performs its functions. In its second part the paper discusses recent research concerning the relationships between financial sector development and general economic growth and development. The third part is dedicated to comparative financial systems. It first analyses the similarities and, more importantly, the differences of the financial systems of major industrialised countries and points out that these differences seem to remain in existence in spite of the current wave of liberalisation, deregulation and globalisation. This leads to the concluding discussion of what the systemic approach suggests with respect to the question of whether the financial systems of different countries are likely to converge to a common structure. Key words: Financial sector, financial system, growth and development, convergence JEL classification: G32, G34, G38
6
We consider an imperfectly competitive loan market in which a local relationship lender has an information advantage vis-à-vis distant transaction lenders. Competitive pressure from the transaction lenders prevents the local lender from extracting the full surplus from projects, so that she inefficiently rejects marginally profitable projects. Collateral mitigates the inefficiency by increasing the local lender’s payoff from precisely those marginal projects that she inefficiently rejects. The model predicts that, controlling for observable borrower risk, collateralized loans are more likely to default ex post, which is consistent with the empirical evidence. The model also predicts that borrowers for whom local lenders have a relatively smaller information advantage face higher collateral requirements, and that technological innovations that narrow the information advantage of local lenders, such as small business credit scoring, lead to a greater use of collateral in lending relationships. JEL classification: D82; G21 Keywords: Collateral; Soft infomation; Loan market competition; Relationship lending
5
This paper shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors’ bargaining positions. And yet, entrepreneurs’ incentives may be improved, because projects funded by investors with “shallow pockets” must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our paper may help to understand provisions used in venture capital finance that limit a fund’s initial capital and make it difficult to add more capital once the initial venture capital fund is raised.
9
Die Abhandlung ist eine überarbeitete und erweiterte Fassung der vom Institute for Monetary and Financial Stability am 19. Juni 2006 veranstalteten Guest Lecture des Autors zum Thema "Demystifying Hedge Funds"
12
We test the menu cost model of Ball and Mankiw (1994, 1995), which implies that the impact of price dispersion on inflation should differ between inflation and deflation episodes, using data for Japan and Hong Kong. We use a random cross-section sample split when calculating the moments of the distribution of price changes to mitigate the small-cross-sectionsample bias noted by Cecchetti and Bryan (1999). The parameter on the third moment is positive and significant in both countries during both the inflation and deflation periods, and the parameter on the second moment changes sign in the deflation period, as the theory predicts. Keywords: inflation, deflation, menu costs, Hong Kong, Japan JEL Numbers: E31
18
Hong Kong’s Linked Exchange Rate System (LERS) has been in operation for twenty-five years during which time many other fixed exchange rate systems have succumbed to shocks and/or speculative attacks. This fact alone suggests that the LERS is a robust system which enjoys a large measure of credibility in financial markets. This paper intends to investigate whether this is indeed the case, and whether it has been the case throughout its 25-year history. In particular we will use the tools of modern finance to extract information from financial asset prices about market expectations that are related to the credibility of the LERS. The main focus is on how market participants ‘judged’ the various changes made to the LERS, such as the ‘seven technical measures’ introduced in September 1998 and the ‘three refinements’ made in May 2005. These changes have been characterizes as making the system less discretionary over time, and we hypothesize that they have also made it more credible as revealed in the prices of exchange rate related asset prices. We also investigate the relationship between interest rates and exchange rates in the current system in light of modern models of target-zone exchange rate systems. We will examine whether the intramarginal intervention in November 2007 changed the dynamic properties of the exchange rate as suggested by such models.
16
Ensuring financial stability : financial structure and the impact of monetary policy on asset prices
(2008)
This paper studies the responses of residential property and equity prices, inflation and economic activity to monetary policy shocks in 17 countries, using data spanning 1986-2006. We estimate VARs for individual economies and panel VARs in which we distinguish between groups of countries on the basis of the characteristics of their financial systems. The results suggest that using monetary policy to offset asset price movements in order to guard against financial instability may have large effects on economic activity. Furthermore, while financial structure influences the impact of policy on asset prices, its importance appears limited. Keywords: asset prices, monetary policy, panel VAR. JEL Number: C23, E52
13
Recently, the Bank of Japan outlined a “two perspectives” approach to the conduct of monetary policy that focuses on risks to price stability over different time horizons. Interpreting this as pertaining to different frequency bands, we use band spectrum regression to study the determination of inflation in Japan. We find that inflation is related to money growth and real output growth at low frequencies and the output gap at higher frequencies. Moreover, this relationship reflects Granger causality from money growth and the output gap to inflation in the relevant frequency bands. Keywords: spectral regression, frequency domain, Phillips curve, quantity theory. JEL Numbers: C22, E3, E5
36
Misselling through agents
(2009)
This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's "suitability" for the specific needs of customers. When structuring sales-force compensation, firms trade off the expected losses from "misselling" unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm's sales process, the transparency of its commission structure, and the steepness of its agents' sales incentives. JEL Classification: D18 (Consumer Protection), D83 (Search; Learning; Information and Knowledge), M31 (Marketing), M52 (Compensation and Compensation Methods and Their Effects).