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The paper suggests an innovative contribution to the investigation of banking liabilities pricing contracted by sovereign agents. To address fundamental issues of banking, the study focuses on the determinants of the up-front fees (the up-front fee is a charge paid out at the signature of the loan arrangement). The investigation is based on a uniquely extensive sample of bank loans contracted or guaranteed by 58 less-developed countries sovereigns in the period from 1983 to 1997. The well detailed reports allow for the calculation of the equivalent yearly margin on the utilization period for all individual loan. The main findings suggest a significant impact of the renegotiation and agency costs on front-end borrowing payments. Unlike the sole interest spread, the all-in interest margin better takes account of these costs. The model estimates however suggest the non-linear pricing is hardly associated with an exogenous split-up intended by the borrower and his banker to cover up information. Instead the up-front payment is a liquidity transfer as described by Gorton and Kahn (2000) to compensate for renegotiation and monitoring costs. The second interesting result is that banks demand payment for all types of sovereign risk in an identical manner public debt holders do. The difference is that, unlike bond holders, bankers have the possibility to charge an up-front fee to compensate for renegotiation costs. Hence, beyond the information related issues, the higher complexity of the pricing design makes bank loan optimal for lenders on sovereign capital markets, especially relative to public debt, thus motivating for their presence. The paper contributes to the expanding literature on loan syndication and banking related issues. The study also has relevance for the investigation of the developing countries debt pricing.
We present an analysis of VaR forecasts and P&L-series of all 13 German banks that used internal models for regulatory purposes in the year 2001. To this end, we introduce the notion of well-behaved forecast systems. Furthermore, we provide a series of statistical tools to perform our analyses. The results shed light on the forecast quality of VaR models of the individual banks, the regulator's portfolio as a whole, and the main ingredients of the computation of the regulatory capital required by the Basel rules.
We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between the macroeconomy and the yield curve. We find strong evidence of the effects of macro variables on future movements in the yield curve and much weaker evidence for a reverse influence. We also relate our results to a traditional macroeconomic approach based on the expectations hypothesis.
Using the Johansen test for cointegration, we examine to which extent inflation rates in the Euro area have converged after the introduction of a single currency. Since the assumption of non-stationary variables represents the pivotal point in cointegration analyses we pay special attention to the appropriate identification of non-stationary inflation rates by the application of six different unit root tests. We compare two periods, the first ranging from 1993 to 1998 and the second from 1993 to 2002 with monthly observations. The Johansen test only finds partial convergence for the former period and no convergence for the latter.
Financial markets are to a very large extent influenced by the advent of information. Such disclosures, however, do not only contain information about fundamentals underlying the markets, but they also serve as a focal point for the beliefs of market participants. This dual role of information gains further importance for explaining the development of asset valuations when taking into account that information may be perceived individually (private information), or may be commonly shared by all traders (public information). This study investigates into the recently developed theoretical structures explaining the operating mechanism of the two types of information and emphasizes the empirical testability and differentiation between the role of private and public information. Concluding from a survey of experimental studies and own econometric analyses, it is argued that most often public information dominates private information. This finding justifies central bankers´ unease when disseminating news to the markets and argues against the recent trend of demanding full transparency both for financial institutions and financial markets themselves.
The paper describes the legal and economic environment of mergers and acquisitions in Germany and explores barriers to obtaining and executing corporate control. Various cases are used to demonstrate that resistance by different stakeholders including minority shareholders, organized labour and the government may present powerful obstacles to takeovers in Germany. In spite of the overall convergence of European takeover and securities trading laws, Germany still shows many peculiarities that make its market for corporate control distinct from other countries. Concentrated share ownership, cross shareholdings and pyramidal ownership structures are frequent barriers to acquiring majority stakes. Codetermination laws, the supervisory board structure and supermajority requirements for important corporate decisions limit the execution of control by majority shareholders. Bidders that disregard the German preference for consensual solutions and the specific balance of powers will risk their takeover attempt be frustrated by opposing influence groups. Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press.
This paper is a draft for the chapter "German banks and banking structure" of the forthcoming book "The German financial system" edited by J.P. Krahnen and R.H. Schmidt (Oxford University Press). As such, the paper starts out with a description of past and present structural features of the German banking industry. Given the presented empirical evidence it then argues that great care has to be taken when generalising structural trends from one financial system to another. Whilst conventional commercial banking is clearly in decline in the US, it is far from clear whether the dominance of banks in the German financial system has been significantly eroded over the last decades. We interpret the immense stability in intermediation ratios and financing patterns of firms between 1970 and 2000 as strong evidence for our view that the way in which and the extent to which German banks fulfil the central functions for the financial system are still consistent with the overall logic of the German financial system. In spite of the current dire business environment for financial intermediaries we do not expect the German financial system and its banking industry as an integral part of this system to converge to the institutional arrangements typical for a market-oriented financial system.
We present a survey on the role of initial public offerings (Epos) and venture capital (VC) in Germany after the Second World War. Between 1945 and 1983 IPOs hardly played a role at all and only a minor role thereafter. In addition, companies that chose an IPO were much older and larger than the average companies going public for the first time in the US or the UK. The level of IPO underpricing in Germany, in contrast, has not been fundamentally different from that in other countries. The picture for venture capital financing is not much different from that provided by IPOs in Germany. For a long time venture capital financing was hardly significant, particularly as a source of early stage financing. The unprecedented boom on the Neuer Markt between 1997 and 2000, when many small venture capital financed firms entered the market, provides a striking contrast to the preceding era. However, by US standards, the levels of both IPO and venture capital activities remained rather low even in this boom phase. The extent to which recent developments will have a lasting impact on the financing of German firms, the level of IPO activity, and venture capital financing, remains to be seen. At the time of writing, activity has come to a near stand still and the Neuer Markt has just been dissolved. The low number of IPOs and the fairly low volume of VC financing in Germany before the introduction of the Neuer Markt are a striking and much debated phenomenon. Understanding the reasons for these apparent peculiarities is vital to understanding the German financial system. The potential explanations that have been put forward range from differentces in mentality to legal and institutional impediments and the availability of alternative sources of financing. Moreover the recent literature discusses how interest groups may have benefited and influenced the situation. These groups include politicians, unions/workers, managers/controlling-owners of established firms as well as banks. Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press.
We analyze the venture capitalist´s decision on the timing of the IPO, the offer price and the fraction of shares he sells in the course of the IPO. A venture capitalist may decide to take a company public or to liquidate it after one or two financing periods. A longer venture capitalist´s participation in a firm (later IPO) may increase its value while also increasing costs for the venture capitalist. Due to his active involvement, the venture capitalist knows the type of firm and the kind of project he finances before potential new investors do. This information asymmetry is resolved at the end of the second period. Under certain assumptions about the parameters and the structure of the model, we obtain a single equilibrium in which high-quality firms separate from low-quality firms. The latter are liquidated after the first period, while the former go public either after having been financed by the venture capitalist for two periods or after one financing period using a lock-up. Whether a strategy of one or two financing periods is chosen depends on the consulting intensity of the project and / or on the experience of the venture capitalist. In the separating equilibrium, the offer price corresponds to the true value of the firm. An earlier version of this paper appeared as: The Decision of Venture Capitalists on Timing and Extent of IPOs (ZEW Discussion Paper No. 03-12). This version July 2003.
Using a unique, hand-collected database of all venture-backed firms listed on Germany´s Neuer Markt, we analyze the history of venture capital financing of these firms before the IPO and the behavior of venture capitalists at the IPO. We can detect significant differences in the behavior and characteristics of German vs. foreign venture capital firms. The discrepancy in the investment and divestment strategies may be explained by the grandstanding phenomenon, the value-added hypothesis and certification issues. German venture capitalists are typically younger and smaller than their counterparts from abroad. They syndicate less. The sectoral structure of their portfolios differs from that of foreign venture capital firms. We also find that German venture capitalists typically take companies with lower offering volumes on the market. They usually finance firms in a later stage, carry through fewer investment rounds and take their portfolio firms public earlier. In companies where a German firm is the lead venture capitalist, the fraction of equity held by the group of venture capitalists is lower, their selling intensity at the IPO is higher and the committed lock-up period is longer.
This paper deals with the proposed use of sovereign credit ratings in the "Basel Accord on Capital Adequacy" (Basel II) and considers its potential effect on emerging markets financing. It investigates in a first attempt the consequences of the planned revisions on the two central aspects of international bank credit flows: the impact on capital costs and the volatility of credit supply across the risk spectrum of borrowers. The empirical findings cast doubt on the usefulness of credit ratings in determining commercial banks' capital adequacy ratios since the standardized approach to credit risk would lead to more divergence rather than convergence between investment-grade and speculative-grade borrowers. This conclusion is based on the lateness and cyclical determination of credit rating agencies' sovereign risk assessments and the continuing incentives for short-term rather than long-term interbank lending ingrained in the proposed Basel II framework.
Do changes in sovereign credit ratings contribute to financial contagion in emerging market crises?
(2003)
Credit rating changes for long-term foreign currency debt may act as a wake-up call with upgrades and downgrades in one country affecting other financial markets within and across national borders. Such a potential (contagious) rating effect is likely to be stronger in emerging market economies, where institutional investors' problems of asymmetric information are more present. This empirical study complements earlier research by explicitly examining cross-security and cross-country contagious rating effects of credit rating agencies' sovereign risk assessments. In particular, the specific impact of sovereign rating changes during the financial turmoil in emerging markets in the latter half of the 1990s has been examined. The results indicate that sovereign rating changes in a ground-zero country have a (statistically) significant impact on the financial markets of other emerging market economies although the spillover effects tend to be regional.
Accounting for financial instruments in the banking industry: conclusions from a simulation model
(2003)
The paper analyses the effects of three sets of accounting rules for financial instruments - Old IAS before IAS 39 became effective, Current IAS or US GAAP, and the Full Fair Value (FFV) model proposed by the Joint Working Group (JWG) - on the financial statements of banks. We develop a simulation model that captures the essential characteristics of a modern universal bank with investment banking and commercial banking activities. We run simulations for different strategies (fully hedged, partially hedged) using historical data from periods with rising and falling interest rates. We show that under Old IAS a fully hedged bank can portray its zero economic earnings in its financial statements. As Old IAS offer much discretion, this bank may also present income that is either positive or negative. We further show that because of the restrictive hedge accounting rules, banks cannot adequately portray their best practice risk management activities under Current IAS or US GAAP. We demonstrate that - contrary to assertions from the banking industry - mandatory FFV accounting adequately reflects the economics of banking activities. Our detailed analysis identifies, in addition, several critical issues of the accounting models that have not been covered in previous literature.
Some of the most widely expressed myths about the German financial system are concerned with the close ties and intensive interaction between banks and firms, often described as Hausbank relationships. Links between banks and firms include direct shareholdings, board representation, and proxy voting and are particularly significant for corporate governance. Allegedly, these relationships promote investment and improve the performance of firms. Furthermore, German universal banks are believed to play a special role as large and informed monitoring investors (shareholders). However, for the very same reasons, German universal banks are frequently accused of abusing their influence on firms by exploiting rents and sustaining the entrenchment of firms against efficient transfers of firm control. In this paper, we review recent empirical evidence regarding the special role of banks for the corporate governance of German firms. We differentiate between large exchangelisted firms and small and medium sized companies throughout. With respect to the role of banks as monitoring investors, the evidence does not unanimously support a special role of banks for large firms. Only one study finds that banks´ control of management goes beyond what nonbank shareholders achieve. Proxyvoting rights apparently do not provide a significant means for banks to exert management control. Most of the recent evidence regarding small firms suggests that a Hausbank relationship can indeed be beneficial. Hausbanks are more willing to sustain financing when borrower quality deteriorates, and they invest more often than arm´s length banks in workouts if borrowers face financial distress.
In Germany a public discussion on the "power of banks" has been going on for decades now with power having at least two meanings. On the one hand it is the power of banks to control public corporations through direct shareholdings or the exercise of proxy votes - this is the power of banks in corporate control. On the other hand it is market power - due to imperfect competition in markets for financial services - that banks exercise vis-à-vis their loan and deposit customers. In the past, bank regulation has often been blamed to undermine competition and the working of market forces in the financial industry for the sake of soundness and stability of financial services firms. This chapter tries to shed some light on the historical development and current state of bank regulation in Germany. In so doing it tries to embed the analysis of bank regulation into a more general industrial organisation framework. For every regulated industry, competition and regulation are deeply interrelated as most regulatory institutions - even if they do not explicitly address the competitiveness of the market - either affect market structure or conduct. This paper tries to uncover some of the specific relationships between monetary policy, government interference and bank regulation on the one hand and bank market structure and economic performance on the other. In so doing we hope to point to several areas for fruitful research in the future. While our focus is on Germany, some of the questions that we raise and some of our insights might also be applicable to banking systems elsewhere. Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press.
The experience in the period during and after the Asian crisis of 1997-98 has provoked an extensive debate about the credit rating agencies' evaluation of sovereign risk in emerging markets lending. This study analyzes the role of credit rating agencies in international finan-cial markets, particularly whether sovereign credit ratings have an impact on the financial stability in emerging market economies. The event study and panel regression results indicate that credit rating agencies have substantial influence on the size and volatility of emerging markets lending. The empirical results are significantly stronger in the case of government's downgrades and negative imminent sovereign credit rating actions such as credit watches and rating outlooks than positive adjustments by the credit rating agencies while by the market participants' anticipated sovereign credit rating changes have a smaller impact on financial markets in emerging economies.
The German financial system is the archetype of a bank-dominated system. This implies that organized equity markets are, in some sense, underdeveloped. The purpose of this paper is, first, to describe the German equity markets and, second, to analyze whether it is underdeveloped in any meaningful sense. In the descriptive part we provide a detailed account of the microstructure of the German equity markets, putting special emphasis on recent developments. When comparing the German market with its peers, we find that it is indeed underdeveloped with respect to market capitalization. In terms of liquidity, on the other hand, the German equity market is not generally underdeveloped. It does, however, lack a liquid market for block trading. Klassifikation: G 51 . Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press.
This chapter analyzes the role of financial accounting in the German financial system. It starts from the common perception that German accounting is rather "uninformative". This characterization is appropriate from the perspective of an arm´s length or outside investor and when confined to the financial statements per se. But it is no longer accurate when a broader perspective is adopted. The German accounting system exhibits several arrangements that privately communicate information to insiders, notably the supervisory board. Due to these features, the key financing and contracting parties seem reasonably well informed. The same cannot be said about outside investors relying primarily on public disclosure. A descriptive analysis of the main elements of the Germany system and a survey of extant empirical accounting research generally support these arguments.
The paper explores factors that influence the design of financing contracts between venture capital investors and European venture capital funds. 122 Private Placement Memoranda and 46 Partnership Agreements are investigated in respect to the use of covenant restrictions and compensation schemes. The analysis focuses on the impact of two key factors: the reputation of VC-funds and changes in the overall demand for venture capital services. We find that established funds are more severely restricted by contractual covenants. This contradicts the conventional wisdom which assumes that established market participants care more about their reputation, have less incentive to behave opportunistically and therefore need less covenant restrictions. We also find that managers of established funds are more often obliged to invest own capital alongside with investors money. We interpret this as evidence that established funds have actually less reason to care about their reputation as compared to young funds. One reason for this surprising result could be that managers of established VC funds are older and closer to retirement and therefore put less weight on the effects of their actions on future business opportunities. We also explore the effects of venture capital supply on contract design. Gompers and Lerner (1996) show that VC-funds in the US are able to reduce the number of restrictive covenants in years with high supply of venture capital and interpret this as a result of increased bargaining power by VC-funds. We do not find similar evidence for Europe. Instead, we find that VC-funds receive less base compensation and higher performance related compensation in years with strong capital inflows into the VC industry. This may be interpreted as a signal of overconfidence: Strong investor demand seems to coincide with overoptimistic expectations by fund managers which make them willing to accept higher powered incentive schemes.
Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero
(2003)
This paper employs stochastic simulations of a small structural rational expectations model to investigate the consequences of the zero bound on nominal interest rates. We find that if the economy is subject to stochastic shocks similar in magnitude to those experienced in the U.S. over the 1980s and 1990s, the consequences of the zero bound are negligible for target inflation rates as low as 2 percent. However, the effects of the constraint are non-linear with respect to the inflation target and produce a quantitatively significant deterioration of the performance of the economy with targets between 0 and 1 percent. The variability of output increases significantly and that of inflation also rises somewhat. Also, we show that the asymmetry of the policy ineffectiveness induced by the zero bound generates a non-vertical long-run Phillips curve. Output falls increasingly short of potential with lower inflation targets.
We study optimal nominal demand policy in an economy with monopolistic competition and flexible prices when firms have imperfect common knowledge about the shocks hitting the economy. Parametrizing firms´ information imperfections by a (Shannon) capacity parameter that constrains the amount of information flowing to each firm, we study how policy that minimizes a quadratic objective in output and prices depends on this parameter. When price setting decisions of firms are strategic complements, for a large range of capacity values optimal policy nominally accommodates mark-up shocks in the short-run. This finding is robust to the policy maker observing shocks imperfectly or being uncertain about firms´ capacity parameter. With persistent mark-up shocks accommodation may increase in the medium term, but decreases in the long-run thereby generating a hump-shaped price response and a slow reduction in output. Instead, when prices are strategic substitutes, policy tends to react restrictively to mark-up shocks. However, rational expectations equilibria may then not exist with small amounts of imperfect common knowledge.
In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi agent model. Moreover, the c&f regime switching model seems to describe the data much better than a competing regime switching GARCH(1,1) model. Finally, our findings turned out to be relatively robust when estimating the model in subsamples. The empirical results suggest that the model is able to explain daily DM/Dollar forward exchange rate dynamics from 1982 to 1998.
We develop a behavioral exchange rate model with chartists and fundamentalists to study cyclical behavior in foreign exchange markets. Within our model, the market impact of fundamentalists depends on the strength of their belief in fundamental analysis. Estimation of a STAR GARCH model shows that the more the exchange rate deviates from its fundamental value, the more fundamentalists leave the market. In contrast to previous findings, our paper indicates that due to the nonlinear presence of fundamentalists, market stability decreases with increasing misalignments. A stabilization policy such as central bank interventions may help to deflate bubbles.
In this paper we study the role of the exchange rate in conducting monetary policy in an economy with near-zero nominal interest rates as experienced in Japan since the mid-1990s. Our analysis is based on an estimated model of Japan, the United States and the euro area with rational expectations and nominal rigidities. First, we provide a quantitative analysis of the impact of the zero bound on the effectiveness of interest rate policy in Japan in terms of stabilizing output and inflation. Then we evaluate three concrete proposals that focus on depreciation of the currency as a way to ameliorate the effect of the zero bound and evade a potential liquidity trap. Finally, we investigate the international consequences of these proposals.
In this paper we estimate a small model of the euro area to be used as a laboratory for evaluating the performance of alternative monetary policy strategies. We start with the relationship between output and inflation and investigate the fit of the nominal wage contracting model due to Taylor (1980)and three different versions of the relative real wage contracting model proposed by Buiter and Jewitt (1981)and estimated by Fuhrer and Moore (1995a) for the United States. While Fuhrer and Moore reject the nominal contracting model in favor of the relative contracting model which induces more inflation persistence, we find that both models fit euro area data reasonably well. When considering France, Germany and Italy separately, however, we find that the nominal contracting model fits German data better, while the relative contracting model does quite well in countries which transitioned out of a high inflation regime such as France and Italy. We close the model by estimating an aggregate demand relationship and investigate the consequences of the different wage contracting specifications for the inflation-output variability tradeoff, when interest rates are set according to Taylor 's rule.
In this study, we perform a quantitative assessment of the role of money as an indicator variable for monetary policy in the euro area. We document the magnitude of revisions to euro area-wide data on output, prices, and money, and find that monetary aggregates have a potentially significant role in providing information about current real output. We then proceed to analyze the information content of money in a forward-looking model in which monetary policy is optimally determined subject to incomplete information about the true state of the economy. We show that monetary aggregates may have substantial information content in an environment with high variability of output measurement errors, low variability of money demand shocks, and a strong contemporaneous linkage between money demand and real output. As a practical matter, however, we conclude that money has fairly limited information content as an indicator of contemporaneous aggregate demand in the euro area.
We investigate the performance of forecast-based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics. We identify the key characteristics of rules that are robust to model uncertainty: such rules respond to the one-year-ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia. In contrast, rules with longer forecast horizons are less robust and are prone to generating indeterminacy. Finally, we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences.
Inflation-targeting central banks have only imperfect knowledge about the effect of policy decisions on inflation. An important source of uncertainty is the relationship between inflation and unemployment. This paper studies the optimal monetary policy in the presence of uncertainty about the natural unemployment rate, the short-run inflation-unemployment tradeoff and the degree of inflation persistence in a simple macroeconomic model, which incorporates rational learning by the central bank as well as private sector agents. Two conflicting motives drive the optimal policy. In the static version of the model, uncertainty provides a motive for the policymaker to move more cautiously than she would if she knew the true parameters. In the dynamic version, uncertainty also motivates an element of experimentation in policy. I find that the optimal policy that balances the cautionary and activist motives typically exhibits gradualism, that is, it still remains less aggressive than a policy that disregards parameter uncertainty. Exceptions occur when uncertainty is very high and in inflation close to target.
The use of GARCH models with stable Paretian innovations in financial modeling has been recently suggested in the literature. This class of processes is attractive because it allows for conditional skewness and leptokurtosis of financial returns without ruling out normality. This contribution illustrates their usefulness in predicting the downside risk of financial assets in the context of modeling foreign exchange-rates and demonstrates their superiority over use of normal or Student´s t GARCH models.
Learning and equilibrium selection in a monetary overlapping generations model with sticky prices
(2003)
We study adaptive learning in a monetary overlapping generations model with sticky prices and monopolistic competition for the case where learning agents observe current endogenous variables. Observability of current variables is essential for informational consistency of the learning setup with the model set up but generates multiple temporary equilibria when prices are flexible and prevents a straightforward construction of the learning dynamics. Sticky prices overcome this problem by avoiding simultaneity between prices and price expectations. Adaptive learning then robustly selects the determinate (monetary) steady state independent from the degree of imperfect competition. The indeterminate (non-monetary) steady state and non-stationary equilibria are never stable. Stability in a deterministic version of the model may differ because perfect foresight equilibria can be the limit of restricted perceptions equilibria of the stochastic economy with vanishing noise and thereby inherit different stability properties. This discontinuity at the zero variance of shocks suggests to analyze learning in stochastic models.
This paper compares Bayesian decision theory with robust decision theory where the decision maker optimizes with respect to the worst state realization. For a class of robust decision problems there exists a sequence of Bayesian decision problems whose solution converges towards the robust solution. It is shown that the limiting Bayesian problem displays infinite risk aversion and that decisions are insensitive (robust) to the precise assignment of prior probabilities. This holds independent from whether the preference for robustness is global or restricted to local perturbations around some reference model.
This paper considers a sticky price model with a cash-in-advance constraint where agents forecast inflation rates with the help of econometric models. Agents use least squares learning to estimate two competing models of which one is consistent with rational expectations once learning is complete. When past performance governs the choice of forecast model, agents may prefer to use the inconsistent forecast model, which generates an equilibrium where forecasts are inefficient. While average output and inflation result the same as under rational expectations, higher moments differ substantially: output and inflation show persistence, inflation responds sluggishly to nominal disturbances, and the dynamic correlations of output and inflation match U.S. data surprisingly well.
Over-allotment arrangements are nowadays part of almost any initial public offering. The underwriting banks borrow stocks from the previous shareholders to issue more than the initially announced number of shares. This is combined with the option to cover this short position at the issue price. We present empirical evidence on the value of these arrangements to the underwriters of initial public offerings on the Neuer Markt. The over-allotment arrangement is regarded as a portfolio of a long call option and a short position in a forward contract on the stock, which is different from other approaches presented in the literature. Given the economically substantial values for these option-like claims we try to identify benefits to previous shareholders or new investors when the company is using this instrument in the process of going public. Although we carefully control for potential endogeneity problems, we find virtually no evidence for a reduction in underpricing for firms using over-allotment arrangements. Furthermore, we do not find evidence for more pronounced price stabilization activities or better aftermarket performance for firms granting an over-allotment arrangement to the underwriting banks.
A number of recent studies have suggested that activist stabilization policy rules responding to inflation and the output gap can attain simultaneously a low and stable rate of inflation as well as a high degree of economic stability. The foremost example of such a strategy is the policy rule proposed by Taylor (1993). In this paper, I demonstrate that the policy settings that would have been suggested by this rule during the 1970s, based on real-time data published by the U.S. Commerce Department, do not greatly differ from actual policy during this period. To the extent macroeconomic outcomes during this period are considered unfavorable, this raises questions regarding the usefulness of this strategy for monetary policy. To the extent the Taylor rule is believed to provide a reasonable guide to monetary policy, this finding raises questions regarding earlier critiques of monetary policy during the 1970s.
Ambivalence in the regulatory definition of capital adequacy for credit risk has recently stirred the financial services industry to collateral loan obligations (CLOs) as an important balance sheet management tool. CLOs represent a specialised form of Asset-Backed Securitisation (ABS), with investors acquiring a structured claim on the interest proceeds generated from a portfolio of bank loans in the form of tranches with different seniority. By way of modelling Merton-type risk-neutral asset returns of contingent claims on a multi-asset portfolio of corporate loans in a CLO transaction, we analyse the optimal design of loan securitisation from the perspective of credit risk in potential collateral default. We propose a pricing model that draws on a careful simulation of expected loan loss based on parametric bootstrapping through extreme value theory (EVT). The analysis illustrates the dichotomous effect of loss cascading, as the most junior tranche of CLO transactions exhibits a distinctly different default tolerance compared to the remaining tranches. By solving the puzzling question of properly pricing the risk premium for expected credit loss, we explain the rationale of first loss retention as credit risk cover on the basis of our simulation results for pricing purposes under the impact of asymmetric information. Klassifikation: C15, C22, D82, F34, G13, G18, G20
The following descriptive paper surveys the various types of loan securitisation and provides a working definition of so-called collateralised loan obligations (CLOs). Free of the common rhetoric and slogans, which sometimes substitute for understanding of the complex nature of structured finance, this paper describes the theoretical foundations of this specialised form of loan securitisation. Not only the distinctive properties of CLOs, but also the information economics inherent in the transfer of credit risk will be considered, so that we can equally privilege the critical aspects of security design in the structuring of CLO transactions.
In this paper we assess the implications of sunk costs and product differentiation on the pricing decisions of the multinational firms. For this purpose we use a modified version of Salop's spatial competition. The model yields clear-cut predictions regarding the effects of exchange rate shocks on the market structure and on pass-through. The main results are following: shocks within the band of inaction do not affect market structure. The upper bound of this range rises as the industry ratio of sunk- to fixed costs increases. As fixed costs and product heterogeneity jointly increase, the lower bound drops. Outside of the range, depreciations cause one or several of those foreign brands closest to the home brand to leave. This decreases the overall responsiveness of prices to exchange rate shocks. Large appreciations induce entry and increase the elasticity of prices. This asymmetry implies larger positive than negative PPP deviations. When accounting for price changes in foreign markets, strategic pricing behaviour is no longer sufficient to generate real exchange rate variability. Incomplete pass-through obtains if and only if the domestic firms have a smaller market share abroad. With large nominal exchange rate shocks a hysteresis result obtains if and only if sunk costs are non-zero. Klassifikation: C33, E31
Since the second half of the nineties the euro area has been subject to a considerable accumulation of temporary and idiosyncratic price shocks. Core inflation indicators for the euro area are thus of utmost interest. Based on euro area-wide data core inflation in this paper is analyzed by means of an indicator derived from the generalized dynamic factor model. This indicator reveals that HICP inflation strongly exaggerated both the decline as well as the increase in the price trend in 1999 and 2000/2001. Our results reinforce those achieved by Cristadoro, Forni, Reichlin and Versonese (2001) based on euro area country data which indicates the robustness of the indicator. Klassifikation: C33, E31
Both unconditional mixed-normal distributions and GARCH models with fat-tailed conditional distributions have been employed for modeling financial return data. We consider a mixed-normal distribution coupled with a GARCH-type structure which allows for conditional variance in each of the components as well as dynamic feedback between the components. Special cases and relationships with previously proposed specifications are discussed and stationarity conditions are derived. An empirical application to NASDAQ-index data indicates the appropriateness of the model class and illustrates that the approach can generate a plausible disaggregation of the conditional variance process, in which the components' volatility dynamics have a clearly distinct behavior that is, for example, compatible with the well-known leverage effect. Klassifikation: C22, C51, G10
In this paper, we present a monetary policy game in which the central bank has a private forecast of supply and demand shocks. The public needs to form its inflationary expectations and can make use of central bank announcements. However, because of the credibility problem that the central bank faces, the public will not believe a precise announcement. By extending the arrangement proposed by Garfinkel and Oh (1995) to a model that includes private information about both demand and supply shocks, we investigate the feasibility of making imprecise credible announcements concerning the rate of inflation. Klassifikation:E52;E58
This paper investigates the financial contracting behavior of German venture capitalists against the results of recent theoretical work on the design of venture capital contracts, especially with regard to the use of convertible securities. First, we identify a special feature of the German market, namely that public-private partnership agencies require significantly lower returns than private and young venture capitalists. The latter are most likely to follow their North-American counterpart by refinancing themselves with closed-end funds. Second, with regard to financing practices it is shown that the use of convertibles, relative to other instruments, is influenced by the anticipated severity of agency problems. Klassifikation: C24; G24; G32
We analyze the desinvestment decision of venture capitalists in the course of an IPO of their portfolio firms. The capital market learns of the project quality only in the period following the IPO. Venture capitalists with high-quality firms face a trade-off between immediately selling their stake in the venture at a price below the true value and having to wait until the true value is revealed. We show that the dilemma may be resolved via a reputation-acquiring mechanism in a repeated game set-up. Thereby, we can explain, e.g., the advent of "hot-issue market behavior" involving early disinvestments and a high degree of price uncertainty. Furthermore, we provide a new rationale for underpricing. Young venture capitalists may use underpricing as a device for credibly committing themselves to acquiring reputation.
Within a two step GARCH framework we estimate the time-varying spillover effects from European and US return innovations to 10 economic sectors within the euro area, the United States, and the United Kingdom. We use daily data from January 1988 - March 2002. At the beginning of our sample sectors in all three currency areas/blocks formed a quite homogeneous group exhibiting only minor sector-specific characteristics. However, over time sectors became more heterogeneous, that is the response to aggregate shocks increasingly varies across sectors. This provides evidence that sector-specific effects gained in importance. European industries show increased heterogeneity simultaneously with the start of the European Monetary Union, whereas in the US this trend started in the early 1990's. Information technology and non-cyclical services (including telecommunication services) became the most integrated sectors worldwide, which are most affected by aggregate European and US shocks. On the other hand, basic industries, non-cyclical consumer goods, resources, and utilities became less affected by aggregate shocks. Volatility spillovers proved to be small and volatile. JEL_Klassifikation: G1, F36
Forecasting stock market volatility and the informational efficiency of the DAX-index options market
(2002)
Alternative strategies for predicting stock market volatility are examined. In out-of-sample forecasting experiments implied-volatility information, derived from contemporaneously observed option prices or history-based volatility predictors, such as GARCH models, are investigated, to determine if they are more appropriate for predicting future return volatility. Employing German DAX-index return data it is found that past returns do not contain useful information beyond the volatility expectations already reflected in option prices. This supports the efficient market hypothesis for the DAX-index options market.
Money-back guarantees in individual pension accounts : evidence from the German pension reform
(2002)
The German Retirement Saving Act instituted a new funded system of supplementary pensions coupled with a general reduction in the level of state pay-as-you-go old-age pensions. In order to qualify for tax relief, the providers of supplementary savings products must offer a guarantee of the nominal value at retirement of contributions paid into these saving accounts. This paper explores how this "money-back" guarantee works and evaluates alternative designs for guarantee structures, including a life cycle model (dynamic asset allocation), a plan with a pre-specified blend of equity and bond investments (static asset allocation), and some type of portfolio insurance. We use a simulation methodology to compare hedging effectiveness and hedging costs associated with the provision of the money-back guarantee. In addition, the guarantee has important implications for regulators who must find an appropriate solvency system for such saving schemes. This version June 17, 2002 . Klassifikation: G11, G23, G28
Why borrowers pay premiums to larger lenders : empirical evidence from sovereign syndicated loans
(2003)
All other terms being equal (e.g. seniority), syndicated loan contracts provide larger lending compensations (in percentage points) to institutions funding larger amounts. This paper explores empirically the motivation for such a price design on a sample of sovereign syndicated loans in the period 1990-1997. I find strong evidence that a larger premium is associated with higher renegotiation probability and information asymmetries. It hardly has any impact on the number of lenders though. This is consistent with the hypothesis that larger lenders act as main lenders, namely help reduce information asymmetries and provide services in situations of liquidity shortage. This constitutes new evidence of the existence of compensations for such unique services. Moreover, larger payment discrepancies are also associated with larger syndicated loan amounts. This provides further new evidence that larger borrowers bear additional borrowing costs.
We use consumer price data for 205 cities/regions in 21 countries to study PPP deviations before, during and after the major currency crises of the 1990s. We combine data from industrialized nations in North America (Unites States, Canada and Mexico), Europe (Germany, Italy, Spain and Portugal), Asia (Japan and South Korea), and Oceania (Australia and New Zealand) with corresponding data from emerging market economies in South America (Argentina, Bolivia, Brazil, Columbia) and Asia (India, Indonesia, Malaysia, Philippines, Taiwan, Thailand). By doing so, we confirm previous results that both distance and border explain a significant amount of relative price variation across different locations. We also find that currency attacks had major disintegration effects by considerably increasing these border effects and by raising within-country relative price dispersion in emerging market economies. These effects are found to be quite persistent since relative price volatility across emerging markets today is still significantly larger than a decade ago.
We investigate into the role of the trade channel as important determinant of a country's current account position and the degree of business cycle synchronization with the rest of the world by comparing the predictions of two types of DGE models. It is shown that the behavior of a country's external balance and the international transmission of shocks depends amongst other things on two factors: i) the magnitude of trade interdependence, ii) the degree of substitutability between importable and domestically-produced goods. Using time series data on bilateral trade flows, we estimate the magnitude of trade interdependence and the elasticity of substitution between importable and domestic goods for the G7 countries. Given these estimates, idiosyncratic supply shocks potentially induce changes in the current account and foreign output that vary in direction and magnitude across G7 countries. The relationship between the magnitude of foreign trade and the import substitutability with various correlation measures is examined empirically in a cross-sectional dimension. First Draft, July 2001. Final Draft, November 2001. Klassifikation: E32, F41
Industrial production in G7 countries is assumed to be driven by two exogenous disturbances. Those disturbances are identified in a VAR model so they can be interpreted as country-specific and global supply shocks. The dynamic properties of the model are analyzed and the relative importance of each shock is measured. It is shown that the VAR model matches most of the theoretical predictions of standard intertemporal open-economy models. The identified structural disturbances are analyzed with regard to their impact on the current account and investment. First Draft, October 2000. Final Draft, January 2001. This paper is based on the second chapter of my doctoral dissertation at the University of Frankfurt. Klassifikation: E32, F41
Our study examines the existence and the nature of private benefits of control in Germany. We do this by analyzing initial public offerings of founding-family owned firms and tracking their fate up to ten years following the IPO. Our sample includes a uniquely rich data set of 105 IPOs of family-owned firms floated from 1970 to 1991 on German stock exchanges. We find that, first, even ten years after the IPO, family owners, in the cross section, continue to exercise considerable control. Second, we show that there exist substantial private benefits of control in these firms and - to our understanding for the first time - we empirically measure what the nature of these private benefits really is. We also show that the separation of cash flow rights and voting rights via the issuance of dual-class shares is used to create controlling shareholder structures in order to preserve these private benefits. Third, we find a puzzling and significant underperformance of dual-class share IPOs, which can be explained by ex ante unanticipated expropriation of minority shareholders due to poor investor protection in Germany. This Version: 4th draft, November 2001 This paper has been presented at the European Financial Management Association 2001 Meeting in Lugano, the CEPR Conference "The Firm and its Stakeholders" in Courmayeur, the Fall 2000 WAFA Conference in Washington, D.C., the European Economic Association 2000 Conference in Bozen, the ABN AMRO International Conference on IPOs in Amsterdam, the SIRIF Conference on Corporate Governance in Edinburgh, the Financial Center Seminar at the Tinbergen Institute Rotterdam, and the G-Forum on Entrepreneurship Research in Vienna. Klassifikation: G14, G32, G15
Against the difficult background of analysing aggregated data in this paper core inflation in the euro area is estimated by means of the structural vector autoregressive approach. We demonstrate that the HICP sometimes seems to be a misleading indicator for monetary policy in the euro area. We furthermore compare our core inflation measure to the wide-spread "ex food and energy" measure, often referred to by the ECB. In addition we provide evidence that our measure is a coincident indicator of HICP inflation. Assessing the robustness of our core inflation measure we carefully conclude that it seems to be quite reliable. This Version: April, 2002 Revised edition published in: Allgemeinenes Statistisches Archiv, Vol 87, 2003. Klassifikation: C32, E31
Recent empirical research found that the strong short-term relationship between monetary aggregates and US real output and inflation, as outlined in the classical study by M. Friedman and Schwartz, mostly disappeared since the early 1980s. In the light of the B. Friedman and Kuttner (1992) information value approach, we reevaluate the vanishing relationship between US monetary aggregates and these macroeconomic fundamentals by taking into account the international currency feature of the US dollar. In practice, by using official US data for foreign flows constructed by Porter and Judson (1996) we find that domestic money (currency component of M1 corrected for the foreign holdings of dollars) contains valuable information about future movements of US real output and inflation. Statistical evidence here provided thus suggests that the Friedman and Schwartz's stylized facts can be reestablished once the focus of analysis is back on the domestic monetary aggregates. This Version: August, 2001. Klassifikation: E3, E4, E5
We use consumer price data for 81 European cities (in Germany, Austria, Finland, Italy, Spain, Portugal and Switzerland) to study the impact of the introduction of the euro on goods market integration. Employing both aggregated and disaggregated consumer price index (CPI) data we confirm previous results which showed that the distance between European cities explains a significant amount of the variation in the prices of similar goods in different locations. We also find that the variation of relative prices is much higher for two cities located in different countries than for two equidistant cities in the same country. Under the EMU, the elimination of nominal exchange rate volatility has largely reduced these border effects, but distance and border still matter for intra-European relative price volatility.
This paper investigates how US and European equity markets affected the US dollar-euro rate from the introduction of the euro through April 2001. More detailed the following questions are raised: First, do movements in the stock market help to explain movements in the exchange rate? Second, how large is the impact of stock market returns on the exchange rate? And third, does the exchange rate respond differently to different equity markets? The investigation was carried out using daily data within a vector-autoregression model (VAR). Surprisingly, positive returns on US equities as well as on European stock markets had a negative impact on the US dollar-euro rate. Quantitatively, the US dollar-euro rate seems to be more influenced by European stock markets compared to US stock markets. Further, there is evidence for a somewhat weaker impact of technology stock indices on the US dollar-euro rate compared with broader market indices. Finally, the long-term interest rate differential seems to contain more information about exchange rate movements than the short-term interest rate differential. This Version: August, 2001. Klassifikation: C32, F31
This paper uses a unique data set from credit files of six leading German banks to provide some empirical insights into their rating systems used to classify corporate borrowers. On the basis of the New Basle Capital Accord, which allows banks to use their internal rating systems to compute their minimum capital requirements, the relations between potential risk factors, rating decisions and the default probabilities are analysed to answer the question whether German banks are ready for the internal ratings-based approach. The results suggests that the answer is not affirmative at this stage. We find internal rating systems not comparable over banks and furthermore we reveal differences between credit rating determining and default probability determining factors respectively. Klassifikation: G21, G33, G38
In the recent theoretical literature on lending risk, the coordination problem in multi-creditor relationships have been analyzed extensively. We address this topic empirically, relying on a unique panel data set that includes detailed credit-file information on distressed lending relationships in Germany. In particular, it includes information on creditor pools, a legal institution aiming at coordinating lender interests in borrower distress. We report three major findings. First, the existence of creditor pools increases the probability of workout success. Second, the results are consistent with coordination costs being positively related to pool size. Third, major determinants of pool formation are found to be the number of banks, the distribution of lending shares, and the severity of the distress shock.
In recent years new methods and models have been developed to quantify credit risk on a portfolio basis. CreditMetrics (tm), CreditRisk+, CreditPortfolio (tm) are among the best known and many others are similar to them. At first glance they are quite different in their approaches and methodologies. A comparison of these models especially with regard to their applicability on typical middle market loan portfolios is in the focus of this study. The analysis shows that differences in the results of an application of the models on a certain loan portfolio is mainly due to different approaches in approximating default correlations. That is especially true for typically non-rated medium-sized counterparties. On the other hand distributional assumptions or different solution techniques in the models are more or less compatible.
This paper shows that emerging market eurobond spreads after the Asian crisis can be almost completely explained by market expectations about macroeconomic fundamentals and international interest rates. Contrary to the claim that emerging market bond spreads are driven by market variables such as stock market volatility in the developed countries, it is found that this did not play a significant role after the Asian crisis. Using panel data techniques, it is shown that the determinants of bond spreads can be divided into long-term structural variables and medium-term variables which explain month-to-month changes in bond spreads. As relevant medium-term variables, ''consensus forecasts'' of real GDP growth and inflation, and international interest rates are identified. The long-term structural factors do not explicitly enter the model and show up as fixed or random country-specific effects. These intercepts are highly correlated with the countries' credit rating.
This paper analyzes a comprehensive data set of 160 non venture-backed, 79 venture-backed and 61 bridge financed companies going public at Germany´s Neuer Markt between March 1997 and March 2002. I examine whether these three types of issues differ with regard to issuer characteristics, balance sheet data or offering characteristics. Moreover, this empirical study contributes to the underpricing literature by focusing on the complementary or rather competing role of venture capitalists and underwriters in certifying the quality of a company when going public. Companies backed by a prestigious venture capitalist and/or underwritten by a top bank are expected to show less underpricing at the initial public offering (IPO) due to a reduced ex-ante uncertainty. This analysis provides evidence to the contrary: VC-backed IPOs appear to be more underpriced than non VC-backed IPOs.
This paper examines thoroughly the Chilean Pension Reform, giving first an overview of the mandatory saving plan, the relevant institutions, and the rules for transition from the old to the new system. The main part of the paper contains a critical evaluation of the reform, in particular the macroeconomic performance with respect to capital formation and growth, and the effects on the savings rate as well as on the rates of return and labor market are discussed. Furthermore, the development of capital markets is reviewed. A short critique is presented with respect to intergenerational distribution and risk sharing as well as with respect to the social consequences. This paper is the result of a CFS sponsored research project. A preliminary version was presented at the meeting of the committee of Social Policy of the Verein fuer Socialpolitik, May 1999 and at the 55th Congress of IIPF, 23-26 August 1999, in Moskow.
This paper provides empirical evidence on initial public offerings (IPOs) by investigating the pricing and long-run performance of IPOs using a unique data set collected on the German capital market before World War I. Our findings indicate that underpricing of IPOs has existed, but has significantly decreased over time in our sample. Employing a mixture of distributions approach we also find evidence of price stabilization of IPOs. Concerning long-run performance, investors who bought their shares in the early after-market and held them for more than three years experienced significantly lower returns than the respective industry as a whole. Earlier versions of this paper were presented at the ABN-AMRO Conference on IPOs in Amsterdam, the Annual Meetings of the European Finance Association, the Annual Meetings of the Verein für Socialpolitik, the IX Tor Vergata International Conference on Banking and Finance in Rome, and at Johann Wolfgang Goethe-University in Frankfurt.
This paper examines empirically the question whether the presence of foreign banks and a liberal trade regime with regard to financial services can contribute to a stabilization of capital flows to emerging markets. Since foreign banks, so the argument goes, provide better information to foreign investors and increase transparency, the danger of herding is reduced. Previous findings by Kono and Schuknecht (1998) confirmed empirically that such an effect does exist. This study expands their data set with respect to the length of the time period and the number of countries. Contrary to Kono and Schuknecht, it is found that foreign bank penetration tends to rather increase the volatility of capital flows. The trade regime variables are not significant in explaining cross-country variations in the volatility of capital flows. This result does not change significantly when alternative measures of volatility are considered. This paper was presented at the conference ''Financial crisis in transition countries: recent lessons and problems yet to solve'' on 13-14 July 2000 at the Institute for Economic Research (IWH) in Halle, Germany.
This paper discusses the role of internal corporate ratings as a means by which commercial banks condense their informational advantage and preserve it vis-à-vis a competitive lending market. In drawing on a unique data set collected from leading universal banks in Germany, we are able to evaluate the extent to which non-public information determines corporate ratings. As a point of departure, the paper describes a sample of rating systems currently in use, and points at methodological differences between them. Relying on a probit analysis, we are able to show that the set of qualitative, or soft, factors is not simply redundant with respect to publicly available accounting data. Rather, qualitative information tends to be decisive in at least one third of cases. It tends to improve the firms' overall corporate rating. In the case of conflicting rating changes, i.e. when qualitative and quantitative rating changes have opposing signs, quantitative criteria dominate the overall rating change. Furthermore, the more restrictive the weighting scheme as part of the rating methodology is, the stronger is the impact of qualitative information on the firms' overall rating. The implications of our results underline the need to define stringent rating standards, from both a risk management and a regulatory point of view. Revised edition published in: ZEW Wirtschaftsanalysen 2001, Bd 54, Baden-Baden, Nomos
This paper provides a broad empirical examination of the major currencies' roles in international capital markets, with a special emphasis on the first year of the euro. A contribution is made as to how to measure these roles, both for international financing as well as for international investment. The times series collected for these measures allow for the identification of changes in the role of the euro during 1999 compared to the aggregate of euro predecessor currencies, net of intra -euro area assets/liabilities, before stage 3 of EMU. A number of key factors determining the currency distribution of international portfolio investments, such as relative market liquidity and relative risk characteristics of assets, are also examined empirically. It turns out that for almost all important market segments for which data are available, the euro immediately became the second most widely used currency for international financing and investment. For the flow of international bond and note issuance it experienced significant growth in 1999 even slightly overtaking the US dollar in the second half of the year. The euro's international investment role appears more static though, since most of the early external asset supply in euro is actually absorbed by euro area residents.
This paper examines the interaction of G7 real exchange rates with real output and interest rate differentials. Using cointegration methods, we generally find a link between the real exchange rate and the real interest differential. This finding contrasts with the majority of the extant research on the real exchange rate - real interest rate link. We identify a new measure of the equilibrium exchange rate in terms of the permanent component of the real exchange rate that is consistent with the dynamic equilibrium given by the cointegration relation. Furthermore, the presence of cointegration also allows us to identify real, nominal and transitory disturbances with only minimal identifying restrictions. Our findings suggest that persistent deviations of real exchange rates from their equilibrium value can have feedback effects on the underlying fundamentals, hence altering the equilibrium exchange rate itself. This has important implications for the persistence measures of real exchange rates that are reported elsewhere in the literature.
In this study the firms' choice of the number of bank relationships is analyzed with respect to influential factors like borrower quality, size and the existence of a close housebank relationship. Then, the number of bank relationships is used as a proxy to examine if bank competition is reflected in loan terms. It is shown that the number of bank relationships is foremost determined by borrower size and the existence of a housebank relationship. Loan rate spreads are not effected by the number of bank relationships. However, borrowers with a small number of bank relationships provide more collateral and get more credit. These effects are amplified by a housebank relationship. Housebanks get more collateral and are ready to take a larger stake in the financing of their customers.
The globalization of markets and companies has increased the demand for internationally comparable high quality accounting information resulting from a common set of accounting rules. Despite remarkable efforts of international harmonization for more than 25 years, accounting regulation is still the domain of national legislators or delegated standard setters. The paper starts by outlining the reasons for this state of affairs and by characterizing the different institutional backgrounds of accounting standard setting in four selected countries as well as on the international level. This is followed by a summary of important international differences in accounting rules and a summary of the empirical evidence of the impact of different rules on the resulting numbers and their relevance to users. It is argued that neither a priori theoretical reasoning nor the evidence from empirical studies provides a convincing basis for choices between accounting regimes and even less so between specific accounting rules. As there is a broad consensus that there is a need for one set of global accounting standards the final sections of the paper discuss currently existing and proposed structures of international accounting standard setting. The evolving new IASC structure is critically evaluated.
This paper discusses the role of the credit rating agencies during the recent financial crises. In particular, it examines whether the agencies can add to the dynamics of emerging market crises. Academics and investors often argue that sovereign credit ratings are responsible for pronounced boom-bust cycles in emerging-markets lending. Using a vector autoregressive system this paper examines how US dollar bond yield spreads and the short-term international liquidity position react to an unexpected sovereign credit rating change. Contrary to common belief and previous studies, the empirical results suggest that an abrupt downgrade does not necessarily intensify a financial crisis.
Bank internal ratings of corporate clients are intended to quantify the expected likelihood of future borrower defaults. This paper develops a comprehensive framework for evaluating the quality of standard rating systems. We suggest a number of principles that ought to be met by 'good rating practice'. These 'generally accepted rating principles' are potentially relevant for the improvement of existing rating systems. They are also relevant for the development of certification standards for internal rating systems, as currently discussed in a consultative paper issued by the Bank for International Settlement in Basle, entitled 'A new capital adequacy framework'. We would very much appreciate any comments by readers that help to develop these rating standards further. Simply send us an E-mail, or give us a call.
This paper measures the economy-wide impact of bank distress on the loss of relationship benefits. We use the near-collapse of the Norwegian banking system during the period 1988 to 1991 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experience large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks face only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on the real economy appears small. We analyze the cross-sectional variation in firm abnormal returns and find that firms that maintain international bank relationships suffer more upon announcement of bank distress.
This paper presents evidence that spillovers through shifts in bank lending can help explain the pattern of contagion. To test the role of bank lending in transmitting currency crises we examine a panel of data on capital flows to 30 emerging markets disaggregated by 11 banking centers. In addition we study a cross-section of emerging markets for which we construct a number of measures of competition for bank funds. For the Mexican and Asian crises, we find that the degree to which countries compete for funds from common bank lenders is a fairly robust predictor of both disaggregated bank flows and the incidence of a currency crisis. In the Russian crisis, the common bank lender helps to predict the incidence of contagion but there is also evidence of a generalized outflow from all emerging markets. We test extensively for robustness to sample, specification and definition of the common bank lender effect. Overall our findings suggest that spillovers through banking centers may be more important in explaining contagion than similarities in macro-economic fundamentals and even than trade linkage.
For some time now the buzzword 'transparency' has been bandied about in the media almost daily. For example, calls were made for greater transparency in the financial system in connection with developments in the Asian financial markets. But the call for greater transparency goes far beyond the financial markets. It is now regarded as a necessary part of "good governance" demanded of all economic policy makers. As the World Bank's chief economist Joseph Stiglitz put it: 'No one would dare say that they were against transparency (....): It would be like saying you were against motherhood or apple pie.' This paper focuses on transparency in monetary policy, in particular with respect to the European System of Central Bank.
This study uses Markov-switching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a two-state regime-switching process. Moreover, our simple univariate model turns out to be a filter that transforms accurately term spread changes into turning point predictions. The term structure is confirmed to be a reliable recession indicator. However, the results of probit estimations show that the markov-switching filter does not significantly improve the forecasting ability of the spread.
Modeling short-term interest rates as following regime-switching processes has become increasingly popular. Theoretically, regime-switching models are able to capture rational expectations of infrequently occurring discrete events. Technically, they allow for potential time-varying stationarity. After discussing both aspects with reference to the recent literature, this paper provides estimations of various univariate regime-switching specifications for the German three-month money market rate and bivariate specifications additionally including the term spread. However, the main contribution is a multi-step out-of-sample forecasting competition. It turns out that forecasts are improved substantially when allowing for state-dependence. Particularly, the informational content of the term spread for future short rate changes can be exploited optimally within a multivariate regime-switching framework.
Collateral, default risk, and relationship lending : an empirical study on financial contracting
(2000)
This paper provides further insights into the nature of relationship lending by analyzing the link between relationship lending, borrower quality and collateral as a key variable in loan contract design. We used a unique data set based on the examination of credit files of five leading German banks, thus relying on information actually used in the process of bank credit decision-making and contract design. In particular, bank internal borrower ratings serve to evaluate borrower quality, and the bank's own assessment of its housebank status serves to identify information-intensive relationships. Additionally, we used data on workout activities for borrowers facing financial distress. We found no significant correlation between ex ante borrower quality and the incidence or degree of collateralization. Our results indicate that the use of collateral in loan contract design is mainly driven by aspects of relationship lending and renegotiations. We found that relationship lenders or housebanks do require more collateral from their debtors, thereby increasing the borrower's lock-in and strengthening the banks' bargaining power in future renegotiation situations. This result is strongly supported by our analysis of the correlation between ex post risk, collateral and relationship lending since housebanks do more frequently engage in workout activities for distressed borrowers, and collateralization increases workout probability. First version: March 12, 1999
We analyze the role of different kinds of primary and secondary market interventions for the government's goal to maximize its revenues from public bond issuances. Some of these interventions can be thought of as characteristics of a "primary dealer system". After all, we see that a primary dealer system with a restricted number of participants may be useful in case of only restricted competition among sufficiently heterogeneous market makers. We further show that minimum secondary market turnover requirements for primary dealers with respect to bond sales seem to be in general more adequate than the definition of maximum bid-ask-spreads or minimum turnover requirements with respect to bond purchases. Moreover, official price management operations are not able to completely substitute for a system of primary dealers. Finally it should be noted that there is in general no reason for monetary compensations to primary dealers since they already possess some privileges with respect to public bond auction.
This paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions. It shows, in the context of a simple model of optimizing private-sector behavior, that such inertial behavior on the part of the central bank may indeed be optimal, in the sense of minimizing a loss function that penalizes inflation variations, deviations of output from potential, and interest-rate variability. Sluggish adjustment characterizes an optimal policy commitment, even though no such inertia would be present in the case of a reputationless (Markovian) equilibrium under discretion. Optimal interest-rate feedback rules are also characterized, and shown to involve substantial positive coefficients on lagged interest rates. This provides a theoretical explanation for the numerical results obtained by Rotemberg and Woodford (1998) in their quantitative model of the U.S. economy.
This paper analyses two reasons why inflation may interfere with price adjustment so as to create inefficiencies in resource allocation at low rates of inflation. The first argument is that the higher the rate of inflation the lower the likelihood that downward nominal rigidities are binding (the Tobin argument) which implies a non-linear Phillips-curve. The second argument is that low inflation strengthens nominal price rigidities and thus impairs the flexibility of the price system resulting in a less efficient resource allocation. It is argued that inflation can be too low from a welfare point of view due to the presence of nominal rigidities, but the quantitative importance is an open question.
As inflation rates in the United States decline, analysts are asking if there are economic reasons to hold the rates at levels above zero. Previous studies of whether inflation "greases the wheels" of the labor market ignore inflation's potential for disrupting wage patterns in the same market. This paper outlines an institutionally-based model of wage-setting that allows the benefits of inflation (downward wage flexibility) to be separated from disruptive uncertainty about inflation rate (undue variation in relative prices). Our estimates, using a unique 40-year panel of wage changes made by large mid-western employers, suggest that low rates of inflation do help the economy to adjust to changes in labor supply and demand. However, when inflation's disruptive effects are balanced against this benefit the labor market justification for pursuing a positive long-term inflation goal effectively disappears.
Since 1990, a number of countries have adopted inflation targeting as their declared monetary strategy. Interpretations of the significance of this movement, however, have differed widely. To some, inflation targeting mandates the single-minded, rule-like pursuit of price stability without regard for other policy objectives; to others, inflation targeting represents nothing more than the latest version of cheap talk by central banks unable to sustain monetary commitments. Advocates of inflation targeting, including the adopting central banks themselves, have expressed the view that the efforts at transparency and communication in the inflation targeting framework grant the central bank greater short-run flexibility in pursuit of its long-run inflation goal. This paper assesses whether the talk that inflation targeting central banks engage in matters to central bank behavior, and which interpretation of the strategy is consistent with that assessment. We identify five distinct interpretations of inflation targeting, consistent with various strands of the current literature, and identify those interpretations as movements between various strategies in a conventional model of time-inconsistency in monetary policy. The empirical implications of these interpretations are then compared to the response of central banks to movements in inflation of three countries that adopted inflation targets in the early 1990s: The United Kingdom, Canada, and New Zealand. For all three, the evidence shows a break in the behavior of inflation consistent with a strengthened commitment to price stability. In no case, however, is there evidence that the strategy entails a single-minded pursuit of the inflation target. For the U.K., the results are consistent with the successful implementation the optimal state-contingent rule, thereby combining flexibility and credibility; similarly, New Zealand's improved inflation performance was achieved without a discernable increase in counter-inflationary conservatism. The results for Canada are less clear, perhaps reflecting the broader fiscal and international developments affecting the Canadian economy during this period.
Derivatives usage in risk management by U.S. and German non-financial firms : a comparative survey
(1998)
This paper is a comparative study of the responses to the 1995 Wharton School survey of derivative usage among US non-financial firms and a 1997 companion survey on German non-financial firms. It is not a mere comparison of the results of both studies but a comparative study, drawing a comparable subsample of firms from the US study to match the sample of German firms on both size and industry composition. We find that German firms are more likely to use derivatives than US firms, with 78% of German firms using derivatives compared to 57% of US firms. Aside from this higher overall usage, the general pattern of usage across industry and size groupings is comparable across the two countries. In both countries, foreign currency derivative usage is most common, followed closely by interest rate derivatives, with commodity derivatives a distant third. Usage rates across all three classes of derivatives are higher for German firms than US firms. In contrast to the similarities, firms in the two countries differ notably on issues such as the primary goal of hedging, their choice of instruments, and the influence of their market view when taking derivative positions. These differences appear to be driven by the greater importance of financial accounting statements in Germany than the US and stricter German corporate policies of control over derivative activities within the firm. German firms also indicate significantly less concern about derivative related issues than US firms, which appears to arise from a more basic and simple strategy for using derivatives. Finally, among the derivative non-users, German firms tend to cite reasons suggesting derivatives were not needed whereas US firms tend to cite reasons suggesting a possible role for derivatives, but a hesitation to use them for some reason.
The purpose of the paper is to survey and discuss inflation targeting in the context of monetary policy rules. The paper provides a general conceptual discussion of monetary policy rules, attempts to clarify the essential characteristics of inflation targeting, compares inflation targeting to the other monetary policy rules, and draws some conclusions for the monetary policy of the European system of Central Banks.
Despite the relevance of credit financing for the profit and risk situation of commercial banks only little empirical evidence on the initial credit decision and monitoring process exists due to the lack of appropriate data on bank debt financing. The present paper provides a systematic overview of a data set generated during the Center for Financial Studies research project on "Credit Management" which was designed to fill this empirical void. The data set contains a broad list of variables taken from the credit files of five major German banks. It is a random sample drawn from all customers which have engaged in some form of borrowing from the banks in question between January 1992 and January 1997 and which meet a number of selection criteria. The sampling design and data collection procedure are discussed in detail. Additionally, the project's research agenda is described and some general descriptive statistics of the firms in our sample are provided.
We studied information and interaction processes in six lending relationships between a universal bank and medium sized firms. The study is based on the credit files of the respective firms. If no problems occur in these lending relationships, bank monitoring is based mainly on cheap, retrospective and internal data. In case of distress, more expensive, prospective and external information is used. The level of monitoring and the willingness to renegotiate the lending relationship depends on what the lending officers can learn about the future prospects of the firm from the behaviour of the debtors. We identify both signalling and bonding activities. Such learning from past behaviour seems to allow monitoring at low cost, whereas the direct observation of the firm's investment outlook seems to be very costly. Also, too much knowledge about the firm's investments might leave the bank in a very strong bargaining position and distort investment incentives. Therefore, the traditional view of credit assessment as observation of the quality of a borrower's investment programme needs to be reconsidered.
Shares trading in the Bolsa mexicana de Valores do not seem to react to company news. Using a sample of Mexican corporate news announcements from the period July 1994 through June 1996, this paper finds that there is nothing unusual about returns, volatility of returns, volume of trade or bid-ask spreads in the event window. This suggests one of five possibilities: our sample size is small; or markets are inefficient; or markets are efficient but the corporate news announcements are not value-relevant; or markets are efficient and corporate news announcements are value-relevant, but they have been fully anticipated; or markets are efficient and corporate news announcements are value-relevant, but unrestricted insider trading has caused prices to fully incorporate the information. The evidence supports the last hypothesis. The paper thus points towards a methodology for ranking emerging stock markets in terms of their market integrity, an approach that can be used with the limited data available in such markets.
No one seems to be neutral about the effects of EMU on the German economy. Roughly speaking, there are two camps: those who see the euro as the advent of a newly open, large, and efficient regime which will lead to improvements in European and in particular in German competitiveness; those who see the euro as a weakening of the German commitment to price stability. From a broader macroeconomic perspective, however, it is clear that EMU is unlikely to cause directly any meaningful change either for the better in Standort Deutschland or for the worse in the German price stability. There is ample evidence that changes in monetary regimes (so long as non leaving hyperinflation) induce little changes in real economic structures such as labor or financial markets. Regional asymmetries of the sorts in the EU do not tend to translate into monetary differences. Most importantly, there is no good reason to believe that the ECB will behave any differently than the Bundesbank.
Where do we stand in the theory of finance? : a selective overview with reference to Erich Gutenberg
(1998)
For the past 20 years, financial markets research has concerned itself with issues related to the evaluation and management of financial securities in efficient capital markets and with issues of management control in incomplete markets. The following selective overview focuses on key aspects of the theory and empirical experience of management control under conditions of asymmetric information. The objective is examine the validity of the recently advanced hypothesis on the myths of corporate control. The present overview is based on Gutenberg's position that there exists a discrete corporate interest, as distinct from and separate from the interests of the shareholders or other stakeholders. In the third volume of Grundlagen der BWL: Die Finanzen, published in 1969, this position of Gutenberg's is coupled with an appeal for a so-called financial equilibrium to be maintained. Not until recently have models grounded in capital market theory been developed which also allow for a firm's management to exercise autonomy vis-à-vis its stakeholder. This paper was prepared for the Erich Gutenberg centenary conference on December 12 and 13, 1997 in Cologne.
This study examines the relation of bank loan terms like interest rates, collateral, and lines of credit to borrower risk defined by the banks' internal credit rating. The analysis is not restricted to a static view. It also incorporates rating transition and its implications on the relation. Money illusion and phenomena linked with relationship banking are discovered as important factors. The results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance. Housebanks obtain more collateral and provide more finance. Caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high. There was no evidence for an appropriate adjustment of loan terms to rating changes. But bank market power represented by a weighted average of credit rating before and after a rating transition serves to compensate for low earlier profits caused by phenomena of interest rate smoothing. Klassifikation: G21.
Banks increasingly recognize the need to measure and manage the credit risk of their loans on a portfolio basis. We address the subportfolio "middle market". Due to their specific lending policy for this market segment it is an important task for banks to systematically identify regional and industrial credit concentrations and reduce the detected concentrations through diversification. In recent years, the development of markets for credit securitization and credit derivatives has provided new credit risk management tools. However, in the addressed market segment adverse selection and moral hazard problems are quite severe. A potential successful application of credit securitization and credit derivatives for managing credit risk of middle market commercial loan portfolios depends on the development of incentive-compatible structures which solve or at least mitigate the adverse selection and moral hazard problems. In this paper we identify a number of general requirements and describe two possible solution concepts.
Das Ziel der Untersuchung von ultra-relativistischen Schwerionenkollisionen ist die Suche nach dem Quark Gluon Plasma (QGP), einem Zustand hochdichter stark wechselwirkender Materie in dem der Einschluss von Quarks und Gluonen in Hadronen aufgehoben ist. Die bisher gewonnenen experimentellen Hinweise deuten daraufhin,daß in Schwerionenkollisionen bei den derzeit höchsten zur Verfügung stehenden Energien von 158 GeV/Nukleon in Pb+Pb Reaktionen am CERN-SPS die Rahmenbedingungen für einen Phasenübergang von hadronischer Materie zu einer partonischen Phaseerfüllt sind. Die exakte Phasenstruktur stark wechselwirkender Materie hingegen ist derzeit noch nicht vollständig verstanden. Da inklusive hadronische Observablen und "penetrierende Proben" nicht direkt sensitiv auf die Existenz und Natur des Phasenübergangs sind, wurde die Analyse von Einzelereignis-"event-by-event"-Fluktuationenvorgeschlagen. Das Fluktuationsverhalten von Einzelereignis-Observablen sollte direkt sensitiv auf die Natur des zu beobachtenden Phasenübergangssein. In dieser Arbeit wurden Fluktuationen in der "chemischen" Zusammensetzung der Teilchenquelle untersucht und erste Ergebnisse werden präsentiert.
During the last years the lending business has come under considerable competitive pressure and bank managers often express concern regarding its profitability vis-a-vis other activities. This paper tries to empirically identify factors that are able to explain the financial performance of bank lending activities. The analysis is based on the CFS-data-set that has been collected in 1997 from 200 medium-sized firms. Two regressions are performed: The first is directed towards relationships between the interest rate premiums and various determining factors, the second aims at detecting relationships between those factors and the occurrence of several types of problems during the course of a credit engagement. Furthermore, the results of both regressions are used to test theoretical hypotheses regarding the impact of certain parameters on credit terms and distress probabilities. The findings are somewhat “puzzling“: First, the rating is not as significant as expected. Second, credit contracts seem to be priced lower for situations with greater risks. Finally, the results do not fully support any of three hypotheses that are often advanced to describe the role of collateral and covenants in credit contracts.
The mammalian retina contains around 30 morphological varieties of amacrine cell types. These interneurons receive excitatory glutamatergic input from bipolar cells and provide GABA- and glycinergic inhibition to other cells in the retina. Amacrine cells exhibit widely varying light evoked responses, in large part defined by their presynaptic partners. We wondered whether amacrine functional diversity is based on a differential expression of glutamate receptors among cell populations and types. In whole cell patch-clamp experiments on mouse retinal slices, we used selective agonists and antagonists to discriminate responses mediated by NMDA/ non-NMDA (NBQX) and AMPA/ KA receptors (cyclothiazide, GYKI 52466, GYKI 53655, SYM 2081). We sampled a large variety of individual cell types, which were classified by their dendritic field size into either narrow-field or wide-field cells after filling with Lucifer yellow or neurobiotin. In addition, we used transgenic GlyT2-EGFP mice, whose glycinergic neurons express EGFP. This allowed us to classify amacrines on basis of their neurotransmitter into either glycinergic or GABAergic cells. All cells (n = 300) had good responses to non-NMDA agonists. Specific AMPA receptor responses could be obtained from almost all cells recorded: 94% of the AII (n = 17), 87% of the narrow-field (n = 45), 81% of the wide-field (n = 21), 85% of the glycinergic (n = 20) and 78% of the GABAergic cells (n = 9). KA receptor selective drugs were also effective on the majority of the AII (79%, n = 14), narrow-field (93%, n = 43), wide-field (85%, n = 26), glycinergic (94%, n = 16) and GABAergic amacrine cells (100%, n = 6). Among the cells tested for the two receptors (n = 65), we encountered both exclusive expression of AMPA or KA receptors and co-expression of the two types. Most narrow-field (70%, n = 27), glycinergic (81%, n = 16) and GABAergic cells (67%, n = 6) were found to have both AMPA and KA receptors. In contrast, only less than half of the wide-field cells (43%, n = 14) were found to co-express AMPA and KA receptors, most of them expressing exclusively AMPA (36%) or KA receptors (21%). We could elicit small NMDA responses from most of the wide-field (75%, n = 13) and GABAergic cells (67%, n = 3), whereas only 47% of the narrow-field (n = 15), 14% of the AII (n = 22) and no glycinergic cell (n = 2) reacted to NMDA. Abstract 83 Our data suggest that AMPA, KA and NMDA receptors are differentially expressed among different types of amacrine cells rather than among populations with different neurotransmitters or different dendritic coverage of the retina. Selective expression of kinetically different glutamate receptors among amacrine types may be involved in generating transient and sustained inhibitory pathways in the retina. Since AMPA and KA receptors are not generally clustered at the same postsynaptic sites, a single amacrine cell expressing both AMPA and KA receptors may provide inhibition with different temporal characteristics to individual synaptic partners.
Life of Varroa destructor, Anderson and Trueman, an ectoparasitic mite of honeybees, is divided into a reproductive phase in the bee brood and a phoretic phase during which the mite is attached to the adult bee. Phoretic mites leave the colony with workers involved in foraging tasks. Little information is available on the mortality of mites outside the colony. Mites may or not return to the colony as a result of death of the infested foragers, host change by drifting of foragers, or removal of mites outside the colony. That mites do not return to the colony was indicated by substantially higher infestation of outflying workers compared to the infestation of returning workers (Kutschker, 1999). The main objective of the study was to provide information whether V. destructor influences flight behaviour of foragers and consequently returning frequency of foragers to the colony. I first repeated the experiment of Kutschker (1999) examining the infestation of outflying and returning workers. Further, I registered flight duration of foragers using a video method. In this experiment I compared also the infestation and flight duration of bees of different genetic origin, Carnica from Oberursel and bees from Primorsky region. I investigated returning time of workers, returning frequency until evening, drifting to other colonies and orientation toward the nest entrance in the experiments in which workers were released in close vicinity of the colony. At last, I measured the loss of foragers in relation to colony infestation using a Bee Scan. Results from this study, listed below, showed considerable influence of V. destructor on flight behavior of foragers translating into loss of mites. Loss of mites with foragers add substantial component to mite mortality and was underestimated in previous studies. Such loss might be viewed as a mechanism of resistance against V. destructor. a) The mean infestation of outflying workers (0.019±0.018) was twice as the mean infestation of returning workers (0.009±0.018). The difference in the infestation between outflying and returning workers was more marked in highly infested colonies. b) Investigation of individually tagged workers by use of a two camera video recording device showed significantly higher infestation of outflying workers compared to returning workers. Mites were lost by the non returning of infested foragers (22%) and by loss of mites from foragers that returned to the colony without the mite (20%). A small portion of mites (1.8%) was gained. Loss of mites significantly exceeded mite gain. c) The flight duration of infested workers determined by using the same two camera video system was significantly higher in infested compared to uninfested workers of the same age that flew closest at time. The median flight duration of infested workers was 1.7 higher (214s) than the median duration of unifested workers (128s). d) Infested workers took 2.3 times longer to return to the colony than uninfested workers of the same age when released from the same locations, closest at time. The returning time increased with the distance of release. In a group of bees released simultaneously the infestation was higher in bees returning later and in those that did not return in the observation period of 15 min. e) Released workers did not return to the colony 1.5 more frequently than uninfested workers in evening. The difference in returning was significant for locations of 20 and 50m from the colony. No difference in returning between infested and uninfested workers were observed for the most distant location of 400m. f) No significant difference was found in returning time and/or in the returning frequency until evening between workers artificially infested overnight and naturally infested workers. Artificially infested workers returned later and less frequently than a control group indicating rapid influence of V. destructor on flight behavior of foragers. g) The orientation ability of infested workers toward the nest entrance was impaired. Infested workers compared to uninfested workers twice as often approached a dummy entrance before finding the nest entrance. h) No significant differences were found in drifting between infested and uninfested workers. Drifting in the neighboring nucleus colony occurred in about 1% occasions after release of marked workers. Similarly, more infested, but not significantly more infested workers (2.6%) entered a different colored hive than the same colored hive (1.9%). However, the number of drifting bees were to low to make results conclusive. i) The comparison between Carnica and Primorsky workers revealed higher infestation in Carnica compared to Primorsky. Further, Primorsky workers lost more mites during foraging due to mite loss from foragers and non returning of infested workers. No significant differences in flight duration were observed between the two bee stocks. j) Loss of foragers, as determined by the Bee Scan counts of outflying and returning foragers, and the infestation of outflying bees increased significantly over a period of 70 days. A colony with 7.7. higher infestation of outflying foragers lost 2.2. time more bees per flight per day compared to a low infested colony. k) The estimates of mite loss with foragers from mite population per day up to 3.1% exceeds approximately mite mortality of 1% within the colony as represented by counting dead mites on bottom board inserts.
Cold target recoil ion momentum spectroscopy (COLTRIM) has been employed to image the momentum distributions of continuum electrons liberated in the impact of slow He2+ on He and H2. The distributions were measured for fully determined motion of the nuclei that is as a function of the impact parameter and in a well de ned scattering plane The single ionization (SI) of H2 leading to H2+ recoil ions in nondissociative states (He2+ + H+ -> He2+ + H+ + e-) and the transfer ionization (TI) of H2 leading to H2 dissociation into two free protons (He2+ H2 -> He+ + H+ + H+ + e-) were investigated. Similar measurements have been carried out for He target, the corresponding atomic two electron system, i.e. the single ionization (SI) (He2+ + He -> He+ + He2+ e- and the transfer ionization (TI) (He2+ + He -> He+ + He2+ + e-). These measurements have been exploited to understand the results obtained for H target. In comparing the continuum electron momentum distributions for H2 with that for He, a high degree of similarity is observed. In the case of transfer ionization of H2, the electron momentum distributions generated for parallel and perpendicular molecular orientations revealed no orientation dependence. The in scattering plane electron momentum distributions for the transfer ionization of H2 by He2+ and for the transfer ionization of He by He2e showed that the salient feature of these distributions for both collisions systems consists in the appearance of two groups of electrons with difeerent structures. In addition to the group of the saddle electrons forming two jets separated by a valley along the projectile axis we nd a new group of electrons moving with a velocity higher than the projectile velocity These new fast forward electrons result from a narrow range of impact parameters and appear as image saddle in the projectile frame. In contrast to the transfer ionization of He, the fast forward electrons group disappears in the in scattering plane electron momentum distribution generated for the single ionization of He. Instead of this group another new group of electrons appear These electrons exhibit an amount of backscattering These backward elec trons appear as image saddle in the target frame The structures that the saddle electrons show are owing to the quasi molecular nature of the collision process For the TI of H2, the TI of He and the SI of He, a pi-orbital shape of the electron momentum distribution is observed This indicates the importance of the rotational coupling 2-p-theta -> 2p-pi in the initial promotion of the ground state followed by further promotions to the continuum The backward electrons as well as the fast forward electrons are not discussed in the theoretical literature at all. However, a number of obvious indications of the existence of the backward and fast forward electrons could be seen in the experimental works of Abdallah et al. as well as in the theoretical calculations of Sidky et al One might speculate that electrons which are promoted on the saddle for some time during the collision could finally swing around the He+ ion in the way out of the collision, i.e. either around the projectile in the forward direction as in the TI case forming the fast forward electrons or around the recoil ion in the backward direction as in the SI case forming the backward electrons. This might be a result of the strong gradient, and hence the large acceleration of the screened He+ potential.
Alzheimer’s disease (AD) is the most common neurodegenerative disorder world wide, causing presenile dementia and death of millions of people. During AD damage and massive loss of brain cells occur. Alzheimer’s disease is genetically heterogeneous and may therefore represent a common phenotype that results from various genetic and environmental influences and risk factors. In approximately 10% of patients, changes of the genetic information were detected (gene mutations). In these cases, Alzheimer’s disease is inherited as an autosomal dominant trait (familial Alzheimer’s disease, FAD). In rare cases of familial Alzheimer’s disease (about 1-3%), mutations have been detected in genes on chromosomes 14 and 1 (encoding for Presenilin 1 and 2, respectively), and on chromosome 21 encoding for the amyloid precursor protein (APP), which is responsible for the release of the cell-damaging protein amyloid-beta (ß-amyloid, Aß). Familial forms of early-onset Alzheimer’s disease are rare; however, their importance extends far beyond their frequency, because they allow to identify some of the critical pathogenetic pathways of the disease. All familial Alzheimer mutations share a common feature: they lead to an enhanced production of the Aß, which is the major constituent of senile plaques in brains of AD patients. New data indicates that Aß promotes neuronal degeneration. Therefore, one aim of these thesis was to elucidate the neurotoxic biochemical pathways induced by Aß, investigating the effect of the FAD Swedish APP double mutation (APPsw) on oxidative stress-induced cell death mechanisms. This mutation results in a three- to sixfold increased Aß production compared to wild-type APP (APPwt). As cell models, the neuronal PC12 (rat pheochromocytoma) and the HEK (human embryonic kidney 293) cell lines were used, which have been transfected with human wiltyp APP or human APP containing the Swedish double mutation. The used cell models offer two important advantages. First, compared to experiments using high concentrations of Aß at micromolar levels applied extracellularly to cells, PC12 APPsw cells secret low Aß levels similar to the situation in FAD brains. Thus, this cell model represents a very suitable approach to elucidate the AD-specific cell death pathways mimicking physiological conditions. Second, these two cell lines (PC12 and HEK APPwt and APPsw) with different production levels of Aß may additionally allow to study dose-dependent effects of Aß. The here obtained results provide evidence for the enhanced cell vulnerability caused by the Swedish APP mutation and elucidate the cell death mechanism probably initiated by intracellulary produced Aß. Here it seems likely that increased production of Aß at physiological levels primes APPsw PC12 cells to undergo cell death only after additional stress, while chronic high levels in HEK cells already lead to enhanced basal apoptotic levels. Crucial effects of the Swedish APP mutation include the impairments of cellular energy metabolism affecting mitochondrial membrane potential and ATP levels as well as the additional activation of caspase 2, caspase 8 and JNK in response to oxidative stress. Thereby ,the following model can be proposed: PC12 cells harboring the Swedish APP mutation have a reduced energy metabolism compared to APPwt or control cells. However, this effect does not leads to enhanced basal apoptotic levels of cultured cells. An exposure of PC12 cells to oxidative stress leads to mitochondrial dysfunction, e.g., decrease in mitochondrial membrane potential and depletion in ATP. The consequence is the activation of the intrinsic apoptotic pathway releasing cytochrome c and Smac resulting in the activation of caspase 9. This effect is amplified by the overexpression of APP, since both APPsw and APPwt PC12 cells show enhanced cytochrome c and Smac release as well as enhanced caspase 9 activity as vector transfected control. In APPsw PC12 cells a parallel pathway is additionally emphased. Due to reduced ATP levels or enhanced Aß production JNK is activated. Furthermore, the extrinsic apoptotic pathway is enhanced, since caspase 8 and caspase 2 activation was clearly enhanced by the Swedish APP mutation. Both pathways may then converge by activating the effector enzyme, caspase 3, and the execution of cell death. In addition, caspase independent effects also needs to be considered. One possibility could be the implication of AIF since AIF expression was found to be induced by the Swedish APP mutation. In APPsw HEK cells high chronic Aß levels leads to enhanced apoptotic levels, reduce mitochondrial membrane potential and ATP levels even under basal conditions. Summarizing, a hypothetical sequence of events is proposed linking FAD, Aß production, JNK-activation, mitochondrial dysfunction with caspase pathway and neuronal loss for our cell model. The brain has a high metabolic rate and is exposured to gradually rising levels of oxidative stress during life. In Swedish FAD patients the levels of oxidative stress are increased in the temporal inferior cortex. This study using a cell model mimicking the in vivo situation in AD brains indicates that probably both, increased Aß production and the gradual rise of oxidative stress throughout life converge at a final common pathway of an increased vulnerability of neurons to apoptotic cell death from FAD patients. Presenilin (PS) 1 is an aspartyl protease, involved in the gamma-secretase mediated proteolysis of Amyloid-ß-protein (Aß), the major constituent of senile plaques in brains of Alzheimer’s disease (AD) patients. Recent studies have suggested an additional role for presenilin proteins in apoptotic cell death observed in AD. Since PS 1 is proteolytic cleaved by caspase 3, it has been prosposed that the resulting C-terminal fragment of PS1 (PSCas) could play a role in signal transduction during apoptosis. Moreover, it was shown that mutant presenilins causing early-onset of familial Alzheimer's disease (FAD) may render cells vulnerable to apoptosis. The mechanism by which PS1 regulates apoptotic cell death is yet not understood. Therefore one aim of our present study was to clarify the involvement of PS1 in the proteolytic cascade of apoptosis and if the cleavage of PS1 by caspase 3 has an regulatory function. Here it is demonstrated that both, PS1 and PS1Cas lead to a reduced vulnerability of PC12 and Jurkat cells to different apoptotic stimuli. However a mutation at the caspase 3 recognition site (D345A/ PSmut), which inhibits cleavage of PS1 by caspase 3, show no differences in the effect of PS1 or PSCas towards apoptotic stimuli. This suggest that proteolysis of PS1 by caspase 3 is not a determinant, but only a secondary effect during apoptosis. Since several FAD mutation distributed through the whole PS1 gene lead to enhanced apoptosis, an abolishment of the antiapoptotic effect of PS1 might contribute to the massive neurodegeneration in early age of FAD patients. Here, the regulate properties of PS1 in apoptosis may not be through an caspase 3 dependent cleavage and generation of PSCas, but rather through interaction of PS1 with other proteins involved in apoptosis.
The German financial market is often characterized as a bank-based system with strong bank-customer relationships. The corresponding notion of a housebank is closely related to the theoretical idea of relationship lending. It is the objective of this paper to provide a direct comparison between housebanks and "normal" banks as to their credit policy. Therefore, we analyze a new data set, representing a random sample of borrowers drawn from the credit portfolios of five leading German banks over a period of five years. We use credit-file data rather than industry survey data and, thus, focus the analysis on information that is directly related to actual credit decisions. In particular, we use bank-internal borrower rating data to evaluate borrower quality, and the bank's own assessment of its housebank status to control for information-intensive relationships.
This paper reviews the factors that will determine the shape of financial markets under EMU. It argues that financial markets will not be unified by the introduction of the euro. National central banks have a vested interest in preserving local idiosyncracies (e.g. the Wechsels in Germany) and they might be allowed to do so by promoting the use of so-called tier two assets under the common monetary policy. Moreover, a host of national regulations (prudential and fiscal) will make assets expressed in euro imperfect substitutes across borders. Prudential control will also continue to be handled differently from country to country. In the long run these national idiosyncracies cannot survive competitive pressures in the euro area. The year 1999 will thus see the beginning of a process of unification of financial markets that will be irresistible in the long run, but might still take some time to complete.
In this paper we analyze the relation between fund performance and market share. Using three performance measures we first establish that significant differences in the risk-adjusted returns of the funds in the sample exist. Thus, investors may react to past fund performance when making their investment decisions. We estimated a model relating past performance to changes in market share and found that past performance has a significant positive effect on market share. The results of a specification test indicate that investors react to risk-adjusted returns rather than to raw returns. This suggests that investors may be more sophisticated than is often assumed.
From the mid-seventies on, the central banks of most major industrial countries switched to monetary targeting. The Bundesbank was the first central bank to take this step, making the switch at the end of 1974. This changeover to monetary targeting was due to the difficulties which the Bundesbank - like other central banks - was facing in pursuing its original strategy, and whichcame to a head in the early seventies, when inflation escalated. A second factor was the collapse of the Bretton Woods system of fixed exchange rates, which created the necessary scope for national monetary targeting. Finally, the advance of monetarist ideas fostered the explicit turn towards monetary targets, although the Bundesbank did not implement these in a mechanistic way. Whereas the Bundesbank has adhered to its policy of monetary targeting up to the present, nowadays monetary targeting plays only a minor role worldwide. Many central banks have switched to the strategy of direct inflation targeting. Others favour a more discretionary approach or a policy which is geared to the exchange rate. In the academic debate, monetary targeting is often presented as an outdated approach which has long since lost its basis of stable money demand. These findings give riseto a number of questions: Has monetary targeting actually become outdated? Which role is played by the concrete design of this strategy, and, against this background, how easily can it be transferred to European monetary union? This paper aims to answer these questions, drawing on the particular experience which the Bundesbank has gained of monetary targeting. It seems appropriate to discuss monetary targeting by using a specific example, since this notion is not very precise. This applies, for example, to the money definition used, the way the target is derived, the stringency applied in pursuing the target and the monetary management procedure.
In this speech (given at the CFSresearch conference on the Implementation of Price Stability held at the Bundesbank Frankfurt am Main, 10. - 12. Sept 1998), John Vickers discusses theoretical and practical issues relating to inflation targeting as used in the United Kingdom doing the past six years. After outlining the role of the Bank s Monetary Policy Committee, he considers the Committee s task from a theoretical perspective, beforediscussing the concept and measurement of domestically generated inflation.