Bank of Finland

Displaying 1-40 of 67 results

  • White Papers // Jun 2011

    The Economic Transmission Of Fiscal Policy Shocks From Western To Eastern Europe

    This paper studies the transmission of a foreign fiscal policy shock (assumed to be generated in Germany) to key macroeconomic variables in Five Central and Eastern European economies (CEE-5). The authors use quarterly data from 1995 to 2009 and estimate an open economy Structural Vector AutoRegressive (SVAR) model identified by...

    Provided By Bank of Finland

  • White Papers // Apr 2011

    Growth, Expectations And Tariffs

    The authors study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate the...

    Provided By Bank of Finland

  • White Papers // Apr 2011

    The Euro And Corporate Financing

    In this paper, the authors study how the introduction of the euro has affected corporate financing in Europe. They use firm-level data from eleven euro area countries as well as from a control group of five other European countries spanning the years 1991-2006. They show that firms from euro area...

    Provided By Bank of Finland

  • White Papers // Apr 2011

    Do Markets Perceive Sukuk And Conventional Bonds As Different Financing Instruments?

    The last decade witnessed a proliferation in issues of sukuk, Islamic financial instruments structured to replicate the cash flows of conventional bonds. Using a market-based approach on Malaysian data, the authors consider whether investors react differently to the announcements of sukuk and conventional bond issues. Their findings suggest the stock...

    Provided By Bank of Finland

  • White Papers // Feb 2011

    What Explains Risk Premia In Crude Oil Futures?

    This paper studies the existence of risk premia in crude oil futures prices with simple regression and Bayesian VAR models. It also studies the importance of three main risk premia models in explaining and forecasting the risk premia in practice. Whilst the existence of the premia and the validity of...

    Provided By Bank of Finland

  • White Papers // Feb 2011

    Financial Factors In The Boom-Bust Episode In Finland In The Late 1980s And Early 1990s

    This paper proposes a framework for studying the boom and bust in Finland in the late 1980s and early 1990s. The authors develop a small open economy DSGE model with balance sheet-constrained firms ? la BGG and calibrate it to the Finnish economy. They use the model to simulate three...

    Provided By Bank of Finland

  • White Papers // Jan 2011

    Moral Hazard In The Credit Market When The Collateral Value Is Stochastic

    This paper explores the effects of costly and non-costly collateral on moral hazard, when collateral value may fluctuate. Given that all collateral is costly, stochastic collateral will entail the same positive incentive effects as non-stochastic collateral, provided the variation in collateral value is modest. If it is large, the incentive...

    Provided By Bank of Finland

  • White Papers // Dec 2010

    Central Bank Liquidity Operations During The Financial Market And Economic Crisis: Observations, Thoughts And Questions

    The paper concentrates on illustrating and assessing central banks' liquidity operations during the crisis that started in August 2007. In addition to the ECB, the central banks of Sweden, Switzerland, the United Kingdom, Australia, Japan, Canada and the United States are analyzed. During the crisis the liquidity operations of central...

    Provided By Bank of Finland

  • White Papers // Dec 2010

    Effect Of Finance On Growth Through More Efficient Utilization Of Technological Innovations

    This paper models the effects of financial development on economic growth through better or more efficient utilization of technological innovations. The model is based on the endogenous growth theory of Aghion and Howitt and its derivatives, especially the growth model of Aghion, Howitt and Mayer-Foulkes, which covers the effect of...

    Provided By Bank of Finland

  • White Papers // Dec 2010

    Realized Volatility And Overnight Returns

    No consensus has emerged on how to deal with overnight returns when calculating realized volatility in markets where trading does not take place 24 hours a day. This paper explores several common volatility applications, investigating how the chosen treatment of overnight returns affects the results. For example, the selection of...

    Provided By Bank of Finland

  • White Papers // Dec 2010

    The Effect Of Openness In A Small Open Monetary Union

    In this paper the authors build a dynamic stochastic general equilibrium model of a small open monetary union with optimal monetary and fiscal policy, to study the transmission of country specific shocks and associated exchange rate fluctuations. They show that movements of the monetary union's exchange rate stabilize the output...

    Provided By Bank of Finland

  • White Papers // Nov 2010

    Credit Allocation, Capital Requirements And Output

    The authors show how banks' excessive risk-taking, stemming from informational asymmetries in loan markets, can lead to an excessive output loss when a recession starts. Risk-based capital requirements can alleviate the output loss by reducing excessive risk-taking in 'Normal' times. Model simulations suggest that the differentiation of risk-weights in the...

    Provided By Bank of Finland

  • White Papers // Sep 2010

    A New Approach To Analyzing Convergence And Synchronicity In Growth And Business Cycles: Cross Recurrence Plots And Quantification Analysis

    Convergence and synchronization of business and growth cycles are important issues in the efficient formulation of euro area economic policies, and in particular European Central Bank (ECB) monetary policy. Although several studies in the economics literature address the issue of synchronicity of growth within the euro area, this is the...

    Provided By Bank of Finland

  • White Papers // Sep 2010

    Credit Constraints And Durable Consumption A New Empirical Approach

    The author finds quantitative evidence of a significant effect for credit constraints on durable consumption during a post-deregulation consumer spending spree. The effect varied markedly across age and educational groups. Young households with low levels of education displayed high sensitivity to credit conditions. In contrast, older highly educated households were...

    Provided By Bank of Finland

  • White Papers // Sep 2010

    Managers And Efficiency In Banking

    This paper presents evidence on the impact of managers on cost efficiency in banking. Stochastic frontier analysis is applied to a unique Finnish data set. The paper finds that manager age and education have strong yet complicated effects. University education enhances efficiency if the manager is running a large bank....

    Provided By Bank of Finland

  • White Papers // Aug 2010

    The Feasibility Of Through-The-Cycle Ratings

    It has been proposed that the potential pro-cyclicality of Basel II could be alleviated by using Through-The-Cycle (TTC) ratings in IRBA models. A TTC rating would be based on the structural component of the debtor's credit risk ignoring cyclical fluctuations. This paper tests for the existence of such fluctuations in...

    Provided By Bank of Finland

  • White Papers // Aug 2010

    The Crisis As A Wake-Up Call: Do Banks Tighten Screening And Monitoring During A Financial Crisis?

    To what extent was the credit contraction during the global financial crisis due to more intense screening and monitoring by banks? The authors address this question by analyzing changes in the structure of a large number of syndicated loans to private, non-financial corporations. They find an increase in retention rates...

    Provided By Bank of Finland

  • White Papers // Jul 2010

    China's Monetary Policy And The Exchange Rate

    The paper models monetary policy in China using a hybrid McCallum-Taylor empirical reaction function. The feedback rule allows for reactions to inflation and output gaps, and to developments in a trade-weighted exchange rate gap measure. The investigation finds that monetary policy in China has, on average, accommodated inflationary developments. But...

    Provided By Bank of Finland

  • White Papers // May 2010

    Does Ricardian Equivalence Hold When Expectations Are Not Rational?

    This paper shows that the Ricardian Equivalence proposition can continue to hold when expectations are not rational and are instead formed using adaptive learning rules. In temporary equilibrium, with given expectations, Ricardian Equivalence holds under the standard conditions for its validity under rational expectations. Furthermore, Ricardian Equivalence holds for paths...

    Provided By Bank of Finland

  • White Papers // Apr 2010

    New Evidence On Implicit Contracts From Linked Employer-Employee Data

    The authors improve the precision of the test of the implicit contract model that Beaudry and DiNardo proposed twenty years ago. This data set allows them to define the precise industry and plant of a particular employment relationship, link local labor market characteristics and company characteristics to the individual level...

    Provided By Bank of Finland

  • White Papers // Apr 2010

    Risk-Based Classification Of Financial Instruments In The Finnish Statutory Pension Scheme TyEL

    Sufficient solvency of a pension insurance company responsible for defined benefit pensions guarantees that the pensions are paid regardless of turbulence in the financial market. In the Finnish occupational pension system TyEL, the required level of solvency capital (solvency limit) and its computation are specified in the statutes. Before the...

    Provided By Bank of Finland

  • White Papers // Apr 2010

    Stock Market Conditions And Monetary Policy In A DSGE Model For The US

    This paper investigates the relationship between stock market fluctuations and monetary policy in a DSGE model for the US economy. The authors initially adopt a framework in which fluctuations in households' financial wealth are allowed - but not required - to influence current consumption. This is due to interaction in...

    Provided By Bank of Finland

  • White Papers // Mar 2010

    Simultaneous Monetary Policy Announcements And International Stock Markets Response: An Intraday Analysis

    This paper investigates the return and volatility responses of major European and the US equity indices to monetary policy surprises using extensive intraday data on 5-minute price quotes along with a comprehensive dataset on monetary policy decisions and macroeconomic news. These results show that monetary policy decisions generally exert an...

    Provided By Bank of Finland

  • White Papers // Feb 2010

    Long Cycles In Growth: Explorations Using New Frequency Domain Techniques With US Data

    In his celebrated 1966 Econometrica article, Granger first hypothesized that there is a 'Typical' spectral shape for an economic variable. This 'Typical' shape implies decreasing levels of energy as frequency increases, which in turn implies an extremely long cycle in economic fluctuations and therefore in growth. Spectral analysis is however...

    Provided By Bank of Finland

  • White Papers // Feb 2010

    Information Acquisition During A Dutch Auction

    In this paper the authors consider equilibrium behavior in a Dutch (descending price) auction where the bidders are uninformed of their valuations with probability 1-q and can acquire information about their valuation at a positive cost during the auction. They assume that the information acquisition activity is covert. They characterize...

    Provided By Bank of Finland

  • White Papers // Jan 2010

    Financial Market Disturbances As Sources Of Business Cycle Fluctuations In Finland

    This paper studies financial market disturbances as sources of investment fluctuations in Finland during 1995 - 2008. The authors construct a DSGE model of the Finnish economy that incorporates two domestic financial market shocks and financial frictions in the form of a BGG financial accelerator. They investigate empirically the importance...

    Provided By Bank of Finland

  • White Papers // Jan 2010

    Cross-Border Bank M&As And Risk: Evidence From The Bond Market

    The impact of cross-border bank M&As on bank risk remains an open question. Though geographically diversifying bank M&As have the potential to reduce the risk of bank insolvency, they also have the potential to increase that risk due to the increase in risk-taking incentives for bank managers and stockholders following...

    Provided By Bank of Finland

  • White Papers // Jan 2010

    Return From Retail Banking And Payments

    The European banking industry joined forces to achieve a fully integrated market for retail payment services in the euro area: the Single Euro Payments Area (SEPA). Against this background, the present paper examines the fundamental relationship between retail payment business and overall bank performance. Using data from across 27 European...

    Provided By Bank of Finland

  • White Papers // Jan 2010

    Growth Strategies And Value Creation: What Works Best For Stock Exchanges?

    In recent years, demutualized stock exchanges have increasingly engaged in M&A and alliance activities. To shed light on this topic, the authors investigate short-run share price responses to the formation of 110 stock exchange M&As and alliances in the period 2000 - 2008. These findings show that the average stock-price...

    Provided By Bank of Finland

  • White Papers // Jan 2010

    Law And Stock Markets: Evidence From An Emerging Market

    A sweeping and protracted reform of corporate law took place in Finland in the 1970s. The reform brought significant improvements to investor protection and, similar to the US Sarbanes-Oxley Act, tightened disclosure rules at the cost of increasing the work load in corporate reporting. The authors find that the Finnish...

    Provided By Bank of Finland

  • White Papers // Dec 2009

    Bank Relationships And Firms' Financial Performance: The Italian Experience

    The authors examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. The evidence indicates that return on equity and return on assets decrease as the number of bank relationships...

    Provided By Bank of Finland

  • White Papers // Dec 2009

    Financial Crises And Bank Failures: A Review Of Prediction Methods

    In this paper the authors provide a summary of empirical results obtained in several economics and operations research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults, as well as outlines of the methodologies used. They analyze financial and economic circumstances associated with the...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    The Determinants Of Option-adjusted Delta Credit Spreads: A Comparative Analysis Of The United States, The United Kingdom And The Euro Area

    The authors analyse the determinants of the variation of Option-Adjusted credit Spreads (OASs) on a unique database that enlarges the traditional scope of analysis to more disaggregated indexes (combining industry, grade and maturity levels), new variables (volumes of sales and purchases of institutional investors) and a complete set of markets...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    An Analysis Of The Embedded Frequency Content Of Macroeconomic Indicators And Their Counterparts Using The Hilbert-Huang Transform

    Many indicators of business and growth cycles have been constructed by both private and public agencies and are now in use as monitoring devices of economic conditions and for forecasting purposes. As these indicators are largely composite constructs using other economic data, their frequency composition is likely different to that...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    Transmission Of Macro Shocks To Loan Losses In A Deep Crisis: The Case Of Finland

    Building on the work of Sorge and Virolainen (2006), the authors revisit the data on aggregate Finnish bank loan losses from the corporate sector, which covers the 'Big Five' crisis in Finland in the early 1990s. Several extensions to the empirical model are considered. These extensions are then used in...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    The Quality Of Monetary Policy And Inflation Performance: Globalization And Its Aftermath

    With a few unfortunate exceptions the last three decades have seen reductions in inflation around the world to the point that many would argue that further improvements in price stability would offer only limited welfare gains. This experience is the result of many factors, some of which are country-specific. In...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    Bank Safety Under Basel II Capital Requirements

    The authors consider the impact of mandatory information disclosure on bank safety in a spatial model of banking competition in which a bank's probability of success depends on the quality of its risk measurement and management systems. Under Basel II capital requirements, this quality is either fully or partially disclosed...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    Export Pricing And The Cross-Country Correlation Of Stock Prices

    This paper analyses cross-country correlations of stock prices (values of firms) using the basic New Open Economy Macroeconomics model. The authors show that cross-country correlations of stock prices greatly depend on the currency of export pricing in the case of monetary shocks but not notably for temporary technology shocks. In...

    Provided By Bank of Finland

  • White Papers // Oct 2009

    Inferring Market Power From Retail Deposit Interest Rates In The Euro Area

    This paper tests for the existence of market power in banking, using data on demand deposit rates of households and corresponding market rates in five euro area countries. An implicit measure for market power is based on a partial adjustment model that also allows for an asymmetric response of deposit...

    Provided By Bank of Finland

  • White Papers // Oct 2009

    Risk-Adjusted Measures Of Value Creation In Financial Institutions

    Measuring value creation by comparing the RAROC of an exposure (the return on risk capital) with a single institution-wide hurdle rate is inconsistent with the standard theory of financial valuation. The authors use asset pricing theory to determine the appropriate hurdle rate for such a RAROC performance measure. They find...

    Provided By Bank of Finland

  • White Papers // Mar 2009

    A Framework for Evaluating Mobile Payments

    A great number of mobile payment schemes exist in the market. This paper suggests a framework, based on payment type and technology, to classify mobile payment schemes. The framework supports a definition of mobile payments as a way to use existing payment instruments. Based on the framework, mobile payments' success...

    Provided By Bank of Finland

  • White Papers // Feb 2011

    What Explains Risk Premia In Crude Oil Futures?

    This paper studies the existence of risk premia in crude oil futures prices with simple regression and Bayesian VAR models. It also studies the importance of three main risk premia models in explaining and forecasting the risk premia in practice. Whilst the existence of the premia and the validity of...

    Provided By Bank of Finland

  • White Papers // Feb 2011

    Financial Factors In The Boom-Bust Episode In Finland In The Late 1980s And Early 1990s

    This paper proposes a framework for studying the boom and bust in Finland in the late 1980s and early 1990s. The authors develop a small open economy DSGE model with balance sheet-constrained firms ? la BGG and calibrate it to the Finnish economy. They use the model to simulate three...

    Provided By Bank of Finland

  • White Papers // Apr 2010

    Risk-Based Classification Of Financial Instruments In The Finnish Statutory Pension Scheme TyEL

    Sufficient solvency of a pension insurance company responsible for defined benefit pensions guarantees that the pensions are paid regardless of turbulence in the financial market. In the Finnish occupational pension system TyEL, the required level of solvency capital (solvency limit) and its computation are specified in the statutes. Before the...

    Provided By Bank of Finland

  • White Papers // Oct 2009

    Monetary Policy, Inflation Expectations And The Price Puzzle

    This paper re-examines the VAR evidence on the price puzzle and proposes a new theoretical interpretation. Using actual data and two identification strategies based on zero restrictions and model-consistent sign restrictions, the authors find that the positive response of prices to a monetary policy shock is historically limited to the...

    Provided By Bank of Finland

  • White Papers // Jan 2009

    Effect Of Unobserved Defaults On Correlation Between Probability Of Default And Loss Given Default On Mortgage Loans

    This paper demonstrates how the observed correlation between probability of default and loss given default depends on the fact that defaults in which collateral provides 100% recovery are not observed. Creditors see only the defaults of mortgagors who suffer from a fall in collateral value to less than the remaining...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    Bank Safety Under Basel II Capital Requirements

    The authors consider the impact of mandatory information disclosure on bank safety in a spatial model of banking competition in which a bank's probability of success depends on the quality of its risk measurement and management systems. Under Basel II capital requirements, this quality is either fully or partially disclosed...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    Export Pricing And The Cross-Country Correlation Of Stock Prices

    This paper analyses cross-country correlations of stock prices (values of firms) using the basic New Open Economy Macroeconomics model. The authors show that cross-country correlations of stock prices greatly depend on the currency of export pricing in the case of monetary shocks but not notably for temporary technology shocks. In...

    Provided By Bank of Finland

  • White Papers // Oct 2009

    Inferring Market Power From Retail Deposit Interest Rates In The Euro Area

    This paper tests for the existence of market power in banking, using data on demand deposit rates of households and corresponding market rates in five euro area countries. An implicit measure for market power is based on a partial adjustment model that also allows for an asymmetric response of deposit...

    Provided By Bank of Finland

  • White Papers // Nov 2009

    Transmission Of Macro Shocks To Loan Losses In A Deep Crisis: The Case Of Finland

    Building on the work of Sorge and Virolainen (2006), the authors revisit the data on aggregate Finnish bank loan losses from the corporate sector, which covers the 'Big Five' crisis in Finland in the early 1990s. Several extensions to the empirical model are considered. These extensions are then used in...

    Provided By Bank of Finland

  • White Papers // Oct 2009

    Risk-Adjusted Measures Of Value Creation In Financial Institutions

    Measuring value creation by comparing the RAROC of an exposure (the return on risk capital) with a single institution-wide hurdle rate is inconsistent with the standard theory of financial valuation. The authors use asset pricing theory to determine the appropriate hurdle rate for such a RAROC performance measure. They find...

    Provided By Bank of Finland

  • White Papers // Sep 2009

    Expectations, Deflation Traps And Macroeconomic Policy

    The authors examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja, European Economic Review (2008), they find that under normal monetary and fiscal policy the intended steady state is...

    Provided By Bank of Finland

  • White Papers // Sep 2009

    Credit Allocation, Capital Requirements And Procyclicality

    Although beneficial allocational effects have been a central motivator for the Basel II capital adequacy reform, the interaction of these effects with Basel II's procyclical impact has been less discussed. In this paper, the authors investigate the effect of capital requirements on the allocation of credit and its interaction with...

    Provided By Bank of Finland

  • White Papers // Sep 2009

    Does State Street Lead To Europe? The Case Of Financial Exchange Innovations

    The authors study whether and to what extent financial exchange innovations are in practice patentable in Europe. They find that exchange-related applications initially increased significantly after the State Street decision but subsequently decreased. The clear majority (65%) of applications come from the U.S. investment banks and exchanges themselves being among...

    Provided By Bank of Finland

  • White Papers // Sep 2009

    A New Value-Weighted Total Return Index For The Finnish Stock Market

    This paper presents a new monthly value-weighted, all-share total return index for the Finnish stock market. The index covers the period from the establishment of the Helsinki Stock Exchange in October 1912 to the beginning of 1970, after which the WI index by Berglund et al (1983) and later in...

    Provided By Bank of Finland

  • White Papers // Sep 2009

    Testing The Structural Interpretation Of The Price Puzzle With A Cost Channel Model

    The authors estimate a new-Keynesian DSGE model with the cost channel to assess its ability to replicate the price puzzle ie the inflationary impact of a monetary policy shock typically arising in VAR analysis. In order to correctly identify the monetary policy shock, they distinguish between a standard policy rate...

    Provided By Bank of Finland

  • White Papers // Jan 2009

    The Bank Lending Channel Reconsidered

    It has been widely accepted that constraints on the wholesale funding of bank balance sheets amplify the transmission of monetary policy through what is called the 'Bank lending channel'. The authors show that the effect of such bank balance sheet constraints on monetary transmission is in fact theoretically ambiguous, with...

    Provided By Bank of Finland

  • White Papers // Sep 2009

    Screening In The Credit Market When The Collateral Value Is Stochastic

    This paper explores screening with loan collateral when both the collateral value and the probability of project success fluctuate. Some model versions challenge the classic findings of Bester (1985) by showing that high-risk borrowers may in such case be more willing to pledge collateral than low-risk borrowers. Abundant collateral then...

    Provided By Bank of Finland

  • White Papers // Aug 2009

    Noncausal Vector Autoregression

    In this paper, the authors propose a new non-causal Vector Auto Regressive (VAR) model for non-Gaussian time series. The assumption of non-Gaussianity is needed for reasons of identifiability. Assuming that the error distribution belongs to a fairly general class of elliptical distributions, they develop an asymptotic theory of maximum likelihood...

    Provided By Bank of Finland

  • White Papers // Apr 2009

    Regional Growth And Finance In Europe: Is There A Quality Effect Of Bank Efficiency?

    In this paper, the authors test whether regional growth in 11 European countries depends on financial development and suggest the use of cost- and profit-efficiency estimates as quality measures for financial institutions. Contrary to the usual quantitative proxies for financial development, the quality of financial institutions is measured in this...

    Provided By Bank of Finland

  • White Papers // Apr 2009

    Evaluating The Stresses From ECB Monetary Policy In The Euro Area

    This paper investigates the extent to which euro area monetary policy has responded to evolving economic conditions in individual member states as opposed to the euro area as a whole. Based on a forward-looking Taylor rule-type policy reaction function, the authors conduct counterfactual exercises that compare the monetary policy behavior...

    Provided By Bank of Finland

  • White Papers // Mar 2009

    Credit Crunch: An Empirical Test Of Cyclical Credit Policy

    In this paper the authors test the hypothesis that credit policies are pro-cyclical. This approach is based on a stochastic frontier analysis of borrower data, as in Chen and Wang (2008). They extend the applicability of the approach, and propose a novel test specification which is informative of many types...

    Provided By Bank of Finland

  • White Papers // Jan 2009

    Corporate Social Responsibility And Shareholder's Value: An Empirical Analysis

    In today's global economy, Corporate Social Responsibility (CSR) is a core component of corporate strategy. Due in part to financial scandals, losses, and the diminished reputation of the affected listed companies, CRS is emerging as a crucial instrument for minimizing conflicts with stakeholders. While corporations are busy adopting and enhancing...

    Provided By Bank of Finland

  • White Papers // Dec 2008

    Shattered On The Rock? British Financial Stability From 1866 To 2007

    In autumn of 2007 Britain experienced its first bank run of any significance since the reign of Queen Victoria. The run was on a bank called Northern Rock. This was extraordinary, for Britain had been free of such episodes because by early in the third quarter of the 19th century...

    Provided By Bank of Finland

  • White Papers // Dec 2008

    Population Ageing And Fiscal Sustainability Of Finland: A Stochastic Analysis

    This paper analyses the fiscal sustainability of the Finnish public sector using stochastic projections to describe uncertain future demographic trends and asset yields. While current tax rates are unlikely to yield sufficient tax revenue to finance public expenditure with an ageing population, if developments are as expected, the problem will...

    Provided By Bank of Finland

  • White Papers // Dec 2008

    Bank Competition And Collateral: Theory And Evidence

    The authors investigate the impact of bank competition on the use of collateral in loan contracts. They develop a theoretical model incorporating information asymmetries in a spatial competition framework where banks choose between screening the borrower and asking for collateral. They show that presence of collateral is more likely when...

    Provided By Bank of Finland

  • White Papers // Sep 2010

    Managers And Efficiency In Banking

    This paper presents evidence on the impact of managers on cost efficiency in banking. Stochastic frontier analysis is applied to a unique Finnish data set. The paper finds that manager age and education have strong yet complicated effects. University education enhances efficiency if the manager is running a large bank....

    Provided By Bank of Finland

  • White Papers // Jan 2007

    Rating Targeting And The Confidence Levels Implicit In Bank Capital

    The solvency standards implicit in bank capital levels, as reported in Jackson et al (2002), are much higher than those required for top ratings, if standard single period economic capital models are taken seriously. The authors explain this excess capital puzzle by forward looking rating targeting behavior by banks, which...

    Provided By Bank of Finland

  • White Papers // Aug 2010

    The Crisis As A Wake-Up Call: Do Banks Tighten Screening And Monitoring During A Financial Crisis?

    To what extent was the credit contraction during the global financial crisis due to more intense screening and monitoring by banks? The authors address this question by analyzing changes in the structure of a large number of syndicated loans to private, non-financial corporations. They find an increase in retention rates...

    Provided By Bank of Finland

  • White Papers // Nov 2008

    Global And Regional Links Between Stock Markets - The Case Of Russia And China

    In a broad sample of developed and emerging economies over the past ten years the authors apply the approximate factor model in a search for common global and regional driving-forces in stock market returns and volatility. They focus particularly on two emerging stock markets - Russia and China, because of...

    Provided By Bank of Finland

  • White Papers // Apr 2011

    Growth, Expectations And Tariffs

    The authors study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate the...

    Provided By Bank of Finland

  • White Papers // Apr 2011

    The Euro And Corporate Financing

    In this paper, the authors study how the introduction of the euro has affected corporate financing in Europe. They use firm-level data from eleven euro area countries as well as from a control group of five other European countries spanning the years 1991-2006. They show that firms from euro area...

    Provided By Bank of Finland

  • White Papers // Apr 2011

    Do Markets Perceive Sukuk And Conventional Bonds As Different Financing Instruments?

    The last decade witnessed a proliferation in issues of sukuk, Islamic financial instruments structured to replicate the cash flows of conventional bonds. Using a market-based approach on Malaysian data, the authors consider whether investors react differently to the announcements of sukuk and conventional bond issues. Their findings suggest the stock...

    Provided By Bank of Finland

  • White Papers // Oct 2008

    Adverse Selection And Financing Of Innovation: Is There Need For R&D Subsidies

    The authors study the interaction of private and public funding of innovative projects in the presence of adverse-selection based financing constraints. Government programs allocating direct subsidies are based on ex-ante screening of the subsidy applications. This selection scheme may yield valuable information to market-based financiers. They find that under certain...

    Provided By Bank of Finland

  • White Papers // Jul 2010

    China's Monetary Policy And The Exchange Rate

    The paper models monetary policy in China using a hybrid McCallum-Taylor empirical reaction function. The feedback rule allows for reactions to inflation and output gaps, and to developments in a trade-weighted exchange rate gap measure. The investigation finds that monetary policy in China has, on average, accommodated inflationary developments. But...

    Provided By Bank of Finland

  • White Papers // Jun 2009

    The Role Of Banks In Monetary Policy Transmission: Empirical Evidence From Russia

    This paper focuses on the role of the banking sector in monetary policy transmission in an emerging economy with a rapidly developing financial system. Specifically, the authors examine whether the central bank's monetary policy stance affects banks' lending behavior. Based on a comprehensive quarterly dataset on all Russian banks from...

    Provided By Bank of Finland

  • White Papers // Jun 2011

    The Economic Transmission Of Fiscal Policy Shocks From Western To Eastern Europe

    This paper studies the transmission of a foreign fiscal policy shock (assumed to be generated in Germany) to key macroeconomic variables in Five Central and Eastern European economies (CEE-5). The authors use quarterly data from 1995 to 2009 and estimate an open economy Structural Vector AutoRegressive (SVAR) model identified by...

    Provided By Bank of Finland

  • White Papers // Mar 2010

    Simultaneous Monetary Policy Announcements And International Stock Markets Response: An Intraday Analysis

    This paper investigates the return and volatility responses of major European and the US equity indices to monetary policy surprises using extensive intraday data on 5-minute price quotes along with a comprehensive dataset on monetary policy decisions and macroeconomic news. These results show that monetary policy decisions generally exert an...

    Provided By Bank of Finland

  • White Papers // Feb 2010

    Information Acquisition During A Dutch Auction

    In this paper the authors consider equilibrium behavior in a Dutch (descending price) auction where the bidders are uninformed of their valuations with probability 1-q and can acquire information about their valuation at a positive cost during the auction. They assume that the information acquisition activity is covert. They characterize...

    Provided By Bank of Finland

  • White Papers // Feb 2010

    Long Cycles In Growth: Explorations Using New Frequency Domain Techniques With US Data

    In his celebrated 1966 Econometrica article, Granger first hypothesized that there is a 'Typical' spectral shape for an economic variable. This 'Typical' shape implies decreasing levels of energy as frequency increases, which in turn implies an extremely long cycle in economic fluctuations and therefore in growth. Spectral analysis is however...

    Provided By Bank of Finland