nep-mon New Economics Papers
on Monetary Economics
Issue of 2005‒05‒29
four papers chosen by
Bernd Hayo
Philipps-University Marburg

  2. Measuring Income Elasticity for Swiss Money Demand: What do the cantons say about financial innovation? By Andreas Fischer
  3. International Capital Markets and Exchange Rate Stabilization in the CIS By Gunther Schnabl
  4. Do non-financial firms react to monetary policy actions as banks do? By Santiago Carbó Valverde; Rafael López del Paso

  1. By: Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn, and a lender of last resort (LLR) that bases its decision on supervisory information on the quality of the bank's assets. The bank is subject to a capital requirement and chooses the liquidity buffer that it wants to hold and the risk of its loan portfolio. The equilibrium choice of risk is shown to be decreasing in the capital requirement, and increasing in the interest rate charged by the LLR. Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer than in the absence of a LLR. Thus, in contrast with the general view, the existence of a LLR does not increase the incentives to take risk, while penalty rates do.
    Keywords: Central bank, lender of last resort, penalty rates, moral hazard, bank supervision, capital requirements, deposit insurance.
    JEL: E58 G21 G28
    Date: 2005–02
  2. By: Andreas Fischer (Swiss National Bank)
    Abstract: Recent time-series evidence has re-confirmed the forecasting ability of Swiss broad money. The same money demand studies and others, however, find that the income elasticity is greater than one. Such parameter estimates are difficult to reconcile with transactions demand theory. This study re-examines the estimates for income elasticity in money demand based on cross-regional evidence for Switzerland. Particular attention is given to the influence of regional financial sophistication. The cross-cantonal results find that the income elasticity lies between 0.4 and 0.6. This discrepancy between the two empirical methodologies has important consequences for the conduct of Swiss monetary policy.
    Date: 2005–01
  3. By: Gunther Schnabl (Tuebingen University)
    Abstract: In this paper, we examine the rationale for dollar and euro pegging in Russia and the CIS. We consider macroeconomic stabilization and transaction costs for international trade as rationales for pegging to the euro. Dollarization of international assets and liabilities are examined as determinants of exchange rate stabilization against the dollar. The impact of network externalities from a common anchor for all CIS countries is explored. Tests on de facto exchange rate stabilization reveal that dollar pegging has been pervasive in the CIS.
    Keywords: CIS, Exchange Rate Systems
    JEL: F31 F32
    Date: 2005–05–24
  4. By: Santiago Carbó Valverde (Department of Economic Theory and Economic History, University of Granada); Rafael López del Paso (Department of Economic Theory and Economic History, University of Granada)
    Abstract: The theory of the bank lending channel indicates that financial institutions with larger size, higher capitalisation and higher liquidity present a greater capacity to maintain their levels of credit supply in a situation of monetary contraction. However, there is a paucity of (European) studies that analyse the bank lending channel from the non-financial firms’ perspective. This paper analyzes the impact of monetary policy actions on a large sample of Spanish firms. The empirical evidence for Spain shows that the impact of size, solvency and liquidity are similar for banks and non-financial firms.
    Keywords: monetary policy transmission, bank lending channel, liquidity, non-financial firms, banks.
    JEL: E51 G21 D21
    Date: 2005–05–22

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