nep-mon New Economics Papers
on Monetary Economics
Issue of 2009‒02‒14
23 papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Monetary Policy Lag, Zero Lower Bound, and Inflation Targeting By Shin-Ichi Nishiyama
  3. Are Commodity Prices Useful Leading Indicators of Inflation? By Calista Cheung
  4. Sticky Wages, Incomplete Pass-Through and Inflation Targeting: What is the Right Index to Target? By Abo-Zaid, Salem
  5. The bank lending channel reconsidered By Milne , Alistair; Wood, Geoffrey
  6. Linden Dollar and Virtual Monetary Policy By Philip Ernstberger
  7. Resurrecting Keynes to Stabilize the International Monetary System By Pietro Alessandrini; Michele Fratianni
  8. Oil Price Shocks and the Optimality of Monetary Policy By Anna Kormilitsina
  9. The Phillips Curve and the Italian Lira, 1861-1998 By Alessandro Del Boca; Michele Fratianni; Franco Spinelli; Carmine Trecroci
  10. The strategy adopted by Romania EURO By Duduiala-Popescu, Lorena
  11. Canada and the IMF: Trailblazer or Prodigal Son? By Michael Bordo; Tamara Gomes; Lawrence Schembri
  12. What Does the Yield Curve Tell Us About Exchange Rate Predictability? By Yu-chin Chen; Kwok Ping Tsang
  13. Liquidity Effects and Cost Channels in Monetary Transmission By Yunus Aksoy; Henrique S Basso; Javier Coto Matinez
  14. Identifying good inflation forecaster By Duasa, Jarita; Ahmad, Nursilah
  15. Money, Crises, and Transition Essays in Honor of Guillermo A. Calvo: An Introduction By Reinhart, Carmen; Vegh, Carlos; Velasco, Andres
  16. The process of convergence towards the euro for the Visegrad-4 countries By Giuliana Passamani
  17. Economies of scale in banking, confidence shocks, and business cycles By Dressler, Scott J.
  18. Does Inflation Targeting Matter for Output Growth? Evidence from Industrial and Emerging Economies By Varella Mollick, Andre; Torres, Rene Cabral; Carneiro, Francisco G.
  19. Are All the Sacred Cows Dead? Implications of the Financial Crisis for Macro and Financial Policies By Demirguc-Kunt, Asli; Serven, Luis
  20. Bond risk premia, macroeconomic fundamentals and the exchange rate By Marcello Pericoli; Marco Taboga
  21. An estimated DSGE model of the Hungarian economy By Zoltán M. Jakab; Balázs Világi
  22. The role of compensation in money market and new money market instruments Open By Duduiala-Popescu, Lorena
  23. Lending organizational structure and the use of credit scoring: evidence from a survey on Italian banks By Giorgio Albareto; Michele Benvenuti; Sauro Mocetti; Marcello Pagnini; Paola Rossi

  1. By: Shin-Ichi Nishiyama
    Abstract: Although the concept of monetary policy lag has historical roots deep in the monetary economics literature, relatively little attention has been paid to the idea. In this paper, we build on Svensson’s (1997) inflation targeting framework by explicitly taking into account the lagged effect of monetary policy and characterize the optimal monetary policy reaction function both in the absence and in the presence of the zero lower bound on the nominal interest rate. We numerically show the function to be more aggressive and more pre-emptive with the lagged effect than without it. We also characterize the long-run stabilization cost to the central bank by explicitly taking into account the lagged effect of monetary policy. It turns out that, in the presence of the zero lower bound constraint, the long-run stabilization cost is higher with the lagged effect than the case without it. This result suggests that the central bank and/or the government should set a relatively high inflation target when confronted with a relatively long monetary policy lag. This can be interpreted as another justification for targeting a positive inflation rate in the long-run.
    Keywords: Inflation targets; Monetary policy framework; Monetary policy implementation
    JEL: E52 E58 C63
    Date: 2009
  2. By: Rangan Gupta (Department of Economics, University of Pretoria); Josine Uwilingiye (Department of Economics, University of Pretoria)
    Abstract: Recent empirical evidence on the direct link of inflation targeting and inflation volatility is at best mixed. However, comparing inflation volatility across alternative monetary policy regimes within a country based on conventional ways, used in previous studies, begs the question. The question is not whether the volatility of inflation has changed, but rather whether the volatility is different than it otherwise would have been. In such a backdrop, this paper uses the cosine-squared cepstrum to provide evidence that CPI inflation in South Africa has become more volatile since the first quarter of 2000, when the country moved into an inflation targeting regime, than it would have been had the South African Reserve Bank (SARB) continued with the more eclectic monetary policy approach pursued in the pre-targeting era.
    Keywords: Cosine-Squared Cepstrum; Inflation Targeting; Inflation Volatility; Saphe Cracking
    JEL: C65 E42 E52 E64
    Date: 2009–02
  3. By: Calista Cheung
    Abstract: Commodity prices have increased dramatically and persistently over the past several years, followed by a sharp reversal in recent months. These large and persistent movements in commodity prices raise questions about their implications for global inflation. The process of globalization has motivated much debate over whether global factors have become more important in driving the inflation process. Since commodity prices respond to global demand and supply conditions, they are a potential channel through which foreign shocks could influence domestic inflation. The author assesses whether commodity prices can be used as effective leading indicators of inflation by evaluating their predictive content in seven major industrialized economies. She finds that, since the mid-1990s in those economies, commodity prices have provided significant signals for inflation. While short-term increases in commodity prices can signal inflationary pressures as early as the following quarter, the size of this link is relatively small and declines over time. The results suggest that monetary policy has generally accommodated the direct effects of short-term commodity price movements on total inflation. While indirect effects of short-term commodity price movements on core inflation have remained relatively muted, more persistent movements appear to influence inflation expectations and signal changes in both total and core inflation at horizons relevant for monetary policy. The results also suggest that commodity price movements may provide larger signals for inflation in the commodity-exporting countries examined than in the commodity-importing economies.
    Keywords: Business fluctuations and cycles; Economic models; Inflation and prices; International topics; Transmission of monetary policy
    JEL: E3 E52 E58
    Date: 2009
  4. By: Abo-Zaid, Salem
    Abstract: This paper studies optimal monetary policy in a small open economy with Inflation Targeting, incomplete pass-through and rigid nominal wages. The paper shows that the right index to target depends on the structure of the individual economy. When wages are fully flexible, the consumer price index (CPI) is better to target given low to moderate levels of pass-through. On the other hand, assuming complete pass-through, economies with relatively high degrees of wage rigidity and wage indexation should either target their CPIs or fully stabilize nominal wages. Also, CPI targeting and nominal wage targeting are superior to targeting the Producer Price Index (DPI) in relatively high degrees of pass-through given that wages are relatively rigid and indexation degrees are high. The results of the paper suggest that, by committing to a common monetary policy in a common-currency area, some countries may not be conducting monetary policy optimally.
    Keywords: Optimal Monetary Policy; Incomplete Pass-Through; Sticky Wages; Inflation Targeting; Conumer Price Index; Domestic Price Index
    JEL: E12 E31 E52 E4 F31
    Date: 2009–02–05
  5. By: Milne , Alistair (Cass Business School, UK and Monetary Policy and Research Department, Bank of Finland); Wood, Geoffrey (Cass Business School, UK and Monetary Policy and Research Department, Bank of Finland)
    Abstract: 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’. We show that the effect of such bank balance sheet constraints on monetary transmission is in fact theoretically ambiguous, with the prior expectation, based on standard theoretical models of household and corporate portfolios, that the bank lending channel attenuates monetary policy transmission. We examine macroeconomic data for the G8 countries and find no evidence that banking sector deposits respond negatively and more than lending to tightening of monetary policy, as the accepted view of the bank lending channel requires. The overall picture is mixed, but these data generally suggest that deposits fluctuate procyclically and somewhat less over the business cycle than bank lending, and that total bank deposits, unlike bank lending, show little direct response to changes in interest rates. This suggests it is very unlikely that the bank lending channel amplifies monetary policy. Our paper has thus corrected a misunderstanding about the role of banks in monetary policy transmission that has persisted in the literature for some two decades.
    Keywords: credit channel; monetary transmission; bank financing constraints
    JEL: E44 E52 G32
    Date: 2009–01–21
  6. By: Philip Ernstberger
    Abstract: Growing activity and commitment of money in Second Life motivate the analysis of its economic and monetary system. It is stated that the allocation of resources to the virtual world can increase utility. Resulting demand for virtual goods drives demand for Linden Dollars - the unit of exchange used in Second Life. Since these can be interpreted as money, the effects of monetary policy are shown, which if unanticipated are fully reflected in a change of demand for virtual goods. If money flows out of the economy, costs of maintaining the fi?xed currency peg arise. In a currency crises model these are weighed against costs of depreciating the currency.
    Date: 2009–01
  7. By: Pietro Alessandrini (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche - Dept of Economics, MoFiR)
    Abstract: We adapt the basic principles of the Keynes Plan and argue for the creation of a supranational bank money that would coexist along side national currencies and for the establishment of a new international clearing union (NICU). These principles remain timely because the fundamental causes of the instability of the international monetary system are as valid today as they were in the early Forties. The new international money would be created against domestic earning assets of the Fed and the ECB. The quantity of this supranational bank money would be demand driven and thus would differ from the helicopter-money Special Drawing Rights. NICU would not hold open positions in assets denominated in national currency and consequently would not bear exchange rate risk. NICU would be more than an office where to record credit and debit entries of the supranational bank money. The financial tsunami that has hit the United States in 2007-2008 provides a unique opportunity for a coordinated strategy.
    Keywords: Keynes Plan, exchange rates, external imbalances, international monetary system, key currency, supranational banl money
    JEL: E42 E52 F33 F36
    Date: 2008–10
  8. By: Anna Kormilitsina (Southern Methodist University)
    Abstract: The observed tightening of interest rates in the aftermath of the post-World War II oil price hikes led some to argue that U.S. monetary policy exacerbated the recessions induced by oil price shocks. This paper provides a critical evaluation of this claim. Within an estimated dynamic stochastic general equilibrium model with the demand for oil, I contrast Ramsey optimal with estimated monetary policy. I find that monetary policy amplified the negative effect of the oil price shock. The optimal response to the shock would have been to raise inflation and interest rates above what had been seen in the past.
    Keywords: Oil price, Optimal monetary policy, DSGE model.
    JEL: C68 E52 Q43
    Date: 2009–01
  9. By: Alessandro Del Boca (University of Brescia); Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche - Dept of Economics, MoFiR); Franco Spinelli (University of Brescia); Carmine Trecroci (University of Brescia)
    Abstract: We examine Italian inflation rates and the Phillips curve with a very long-run perspective, one that covers the entire existence of the Italian lira from political unification (1861) to the entry of Italy in the European Monetary Union (end of 1998). We first study the volatility, persistence and stationarity of the Italian inflation rate over the long run and across various exchange-rate regimes that have shaped Italian monetary history. Next, we estimate alternative Phillips equations and investigate the extent to which nonlinearities, asymmetries and structural changes characterize the inflation-output trade-off in the long run. We capture the effects of structural changes and asymmetries on the estimated parameters of the inflation-output trade-off relying partly on sub-sample estimates and partly on time-varying parameters estimated with the Kalman filter. Finally, we investigate causal relationships between inflation rates and output and extend the analysis to include the US and the UK for comparison purposes. The inference is that Italy has experienced a conventional inflation-output trade-off only during times of low inflation and stable aggregate supply.
    Keywords: Inflation, Italian Lira, Phillips curve
    JEL: E31 E32 E5 N10
    Date: 2008–11
  10. By: Duduiala-Popescu, Lorena
    Abstract: In the context in which most countries in Western Europe is almost unanimously accepted advantage of using the single currency, it appreciates that for Romania, whose foreign trade is facing up to approximately 2 / 3 to the market, adopting the single currency will bring real benefits. To become a EU member state, Romania has had to build and a reference system, the reference currency is Euro, not U.S. dollars. The new currency will be a factor of stability which will reduce a lot of trading losses due to local fluctuations of the dollar against euro. From 1 January 2003, the currency has been established in relation to EURO.
    Keywords: euro; economic and monetary union; the safeguard clause; budget deficit; inflation
    JEL: F15 G31 F02 F01 E44 F43 F36
    Date: 2009–02–03
  11. By: Michael Bordo; Tamara Gomes; Lawrence Schembri
    Abstract: Canada played an important role in the postwar establishment of the International Monetary Fund (IMF), yet it was also the first major member to challenge the orthodoxy of the BrettonWoods par value system by abandoning it in 1950 in favour of a floating, market-determined exchange rate. Although the IMF heavily criticized this decision, Canada's trail-blazing experience demonstrated that a flexible exchange rate could operate in a stable and effective manner under a high degree of capital mobility. Equally important, it showed that monetary policy needs to be conducted differently under a flexible exchange rate and capital mobility. The remarkable stability of the dollar during the 1950s contradicted previous wisdom on floating exchange rates, which had predicted significant volatility. In May of 1962, Canada returned to the BrettonWoods system as a "prodigal son" after a period of controversial monetary policy and a failed attempt to depreciate the value of the Canadian dollar. The authors critically analyze the interaction between Canadian and IMF officials regarding Canada's exchange rate policy in view of the economic circumstances and the prevailing wisdom at the time. They also examine the impact on IMF research and policy, because the Canadian experience influenced the work of Rudolf Rhomberg as well as Robert Mundell and Marcus Fleming, resulting in the development of the Mundell–Fleming model. Thus, the Canadian experience with a floating exchange rate not only had important implications for the IMF and the BrettonWoods system, but also for macroeconomic theory and policy in open economies.
    Keywords: Exchange rate regimes; Exchange rates; Monetary policy framework
    JEL: F41 N72 E52 E58
    Date: 2009
  12. By: Yu-chin Chen; Kwok Ping Tsang
    Abstract: This paper uses information contained in the cross-country yield curves to test the asset-pricing approach to exchange rate determination, which models the nominal exchange rate as the discounted present value of its expected future fundamentals. Research on the term structure of interest rates has long argued that the yield curve contains information about future economic activity such as GDP growth and inflation. Bringing this lesson to the international context, we extract the Nelson-Siegel (1987) factors of relative level, slope, and curvature from cross-country yield differences to proxy expected movements in future exchange rate fundamentals. Using monthly data between 1985-2005 for the United Kingdom, Canada, Japan and the US, we show that the yield curve factors indeed can explain and predict bilateral exchange rate movements and excess currency returns one month to two years ahead. Out-of- sample analysis also shows the yield curve factors to outperform a random walk in forecasting short-term exchange rate returns.
    Keywords: Exchange Rate Forecasting, Term Structure of Interest Rates, Uncovered Interest, Parity
    Date: 2009
  13. By: Yunus Aksoy; Henrique S Basso; Javier Coto Matinez (School of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: We study liquidity effects and cost channels within a model of nominal rigidities and imperfect competition that gives explicit role for money-credit markets and investment decisions. We find that cost channels matter for monetary transmission, amplifying the impact of supply shocks and dampening the effects of demand shocks. Liquidity effects only obtain when the policy is specified by an interest rate policy rule and money-credit conditions are determined endogenously. We also find that determinacy issues are particularly relevant when models include the cost channel and explicit money-credit markets.’s score is variable along its life cycle or if he search process uses resources. It is shown that the discount effect of gradual recognition of popularity tends to reduce growth. Hence, growth is enhanced if the search engine is less sensitive to popularity. Also, growth is lower when the search engine rewards "web page quality" better because of the resources diverted away from R and D into advertising. But these mechanisms generate opposite level effects on the average quality selected by consumers. As a result the net effect on welfare is ambiguous.
    Date: 2009–01
  14. By: Duasa, Jarita; Ahmad, Nursilah
    Abstract: The objective of this paper is to identify the best indicator variable in forecasting inflation in Malaysia. Due to the fact that Malaysia experienced the rise of CPI by 4.8 percent in March 2006, the country’s highest inflation rate in seven years, there is a need to foresee future trend of general price level. To determine whether certain indicator (variable) could predict inflation, we construct a simple forecasting model that incorporates the variable. We estimate a two-variable VECM model of quasi-tradable inflation using monthly data covering the period 1980:01 to 2006:12. We alternate between the following inflation indicators: commodity prices, financial indicators and economic activities. We evaluate each model using out-of-sample forecast. The study proposes that a simple model using industrial production index improves the accuracy of inflation forecasts. The results support our hypothesis.
    Keywords: Goods inflation; VECM ; Malaysian economy.
    JEL: C50 E31 C22
    Date: 2008
  15. By: Reinhart, Carmen; Vegh, Carlos; Velasco, Andres
    Abstract: Most of the chapters in this volume were prepared for a conference in honor of Guillermo Calvo, organized by the International Monetary Fund’s Research Department and held at Fund headquarters in Washington, DC, on April 15–16,2004. At the editors’ request, a couple of chapters were specially prepared after the conference for inclusion in this volume. The Fund was a natural and gracious host since Guillermo had a distinguished affiliation with the Fund’s Research Department from 1987 to 1994. Under his intellectual leadership, the Research Department carried out path-breaking research on, among other issues, capital flows, debt maturity, and inflation stabilization. Guillermo also made important contributions to the internal discussion and formulation of Fund policies, particularly in Eastern Europe, the former Soviet Union, and Latin America.
    Keywords: crises inflation exchange rates debt transition
    JEL: F3 E4
    Date: 2008
  16. By: Giuliana Passamani
    Abstract: The aim of the paper is to analyze the foreign transmission mechanism between each of the Visegrad-4 countries and the eurozone, through an empirical analysis of the basic international parity conditions linking Czech, Hungarian, Polish and Slovakian inflations and interest rates with the ones of the current euro area members. The focus of the analysis is to show the differences among these catching-up economies, with particular attention to their process of convergence towards the eurozone economy. For reasons due to the availability of data, the sample covers the last decade. We use the cointegrated VAR model to define longrun stationary relations as well as common stochastic trends. The methodology adopted is properly apt to uncover the dynamic structure underlying the stochastic behaviour of prices, interest rates and exchange rate. Of particular interest is the empirical finding that the parities do not hold on their own, as expected, but that weaker form of the same parities, or linear combinations of them, hold in our data set, with some differences for each country. Also the process of convergence is different: the Czech Republic seems to have reached a relative convergence, while for the other countries we have that the process show a tendency towards convergence.
    Keywords: Visegrad_4 countries, PPP, UIP, RIP, Cointegrated VAR, Convergence
    JEL: E31 E43 F31
    Date: 2008
  17. By: Dressler, Scott J.
    Abstract: This paper quantitatively investigates equilibrium indeterminacy due to economies of scale (ES) in financial intermediation. Financial intermediation provides deposits (inside money) which can substitute with currency to purchase consumption, and depositing decisions are susceptible to non-fundamental confidence (sunspot) shocks. With the intermediation sector calibrated to match US data: (i) indeterminacy arises for small degrees of ES; (ii) sunspot shocks qualitatively resemble monetary shocks; and (iii) monetary policies can stabilize the real impact of sunspot shocks, but only under complete information. The analysis also assesses the removal of these shocks on the volatility decline observed during the US Great Moderation.
    Keywords: Financial Intermediation; Inside Money; Indeterminacy; Business Cycles
    JEL: E32 C68 E44
    Date: 2009–01
  18. By: Varella Mollick, Andre (University of Texas - Pan American); Torres, Rene Cabral (Escuela de Graduados en Administracion Publica y Politica Publica); Carneiro, Francisco G. (The World Bank)
    Abstract: This paper examines the effects of inflation targeting on industrial and emerging economies' output growth over the "globalization years" of 1986-2004. Controlling for trade openness and two indicators of financial globalization, the authors find systematic positive and significant effects of inflation targeting on real output growth. In dynamic models, the findings show strong output persistence in industrial economies, in which partial and full inflation targeting regimes have a positive long-run impact on growth. In emerging markets, only full inflation targeting policies have any output effect in the long-run. The results suggest that strict inflation targeting is needed to make the discipline effect of the disinflation process outweigh the output costs of promoting high interest rates to attract capital flows in a global world. These findings are robust to the treatment of endogenous globalization measures.
    Keywords: Economic Growth; Globalization; Inflation Targeting; Panel Data Methods
    JEL: F31 F32 F33 F34
    Date: 2008–12–01
  19. By: Demirguc-Kunt, Asli (The World Bank); Serven, Luis (The World Bank)
    Abstract: The recent global financial crisis has shaken the confidence of developed and developing countries alike in the very blueprint of financial and macro policies that underlie the western capitalist systems. In an effort to contain the crisis from spreading, the authorities in the US and many European governments have taken unprecedented steps of providing extensive liquidity, giving assurances to bank depositors and creditors that include blanket guarantees, and structuring bail-out programs that include taking large ownership stakes in financial institutions, in addition to establishing programs for direct provision of credit to non-financial institutions. Emphasizing the importance of incentives and tensions between short term and longer term policy responses to crisis management, this paper draws on a large body of research evidence and country experiences to discuss the implications of the current crisis for financial and macroeconomic policies going forward.
    Keywords: Financial crisis; Regulation and Supervision; Safety Nets; Role of State in Finance; Monetary Policy; Asset Bubbles; Capital Controls
    JEL: E52 E58 F32 G21 G28 G32
    Date: 2009–02–01
  20. By: Marcello Pericoli (Bank of Italy); Marco Taboga (Bank of Italy)
    Abstract: We introduce a two-country no-arbitrage term-structure model to analyse the joint dynamics of bond yields, macroeconomic variables, and the exchange rate. The model allows to understand how exogenous shocks to the exchange rate affect the yield curves, how bond yields co-move in different countries, and how the exchange rate is influenced by the interactions between macroeconomic variables and time-varying bond risk premia. Estimating the model with US and German data, we obtain an excellent fit of the yield curves and we are able to account for up to 75 per cent of the variability of the exchange rate. We find that time-varying risk premia play a non-negligible role in exchange rate fluctuations due to the fact that a currency tends to appreciate when risk premia on long-term bonds denominated in that currency rise. A number of other novel empirical findings emerge.
    Keywords: exchange rate, term structure, UIP
    JEL: C5 E4 G1
    Date: 2009–01
  21. By: Zoltán M. Jakab (Magyar Nemzeti Bank); Balázs Világi (Magyar Nemzeti Bank)
    Abstract: This paper presents and estimates a dynamic stochastic general equilibrium (DSGE) small-open-economy model for the Hungarian economy. The model features different types of frictions, real and nominal rigidities which are necessary to replicate the empirical persistence of Hungarian data. Bayesian methods are applied, and the structural break due to changing monetary regime over the studied period is explicitly taken into account in the estimation procedure. A real-time adaptive learning mechanism describes agents’ perception on underlying inflation. This creates an additional inertia in inflation. We describe the properties of the estimated model by impulse-response analysis, variance decomposition and the analysis of identified structural shocks. Our results are compared with that of estimated euro-area DSGE models, and estimated non-DSGE models of the Hungarian economy. As a robustness check, a model without real time adaptive learning is also estimated and it’s results are also compared to those of the original model.
    Keywords: New Keynesian models, DSGE models, small open economy, Bayesian econometrics.
    JEL: E40 E50
    Date: 2008
  22. By: Duduiala-Popescu, Lorena
    Abstract: Creation and proper functioning of the money market in Romania is subject to a preponderant constancy of private property, to support competition as a factor increasing the efficiency of the economy. Appearance money market in Romania is related to the transformations that have manifested in our country since 1989. As a mechanism of market economy, can not talk about them in existence before 1989. In a centralized economy, instruments, financial categories have ceased to reflect the actual situation in the economy. Fixing of prices with a high dose of subjectivism has generated the emergence of profitable enterprises without their own merits and others with losses that were not responsible for their financial situation.
    Keywords: money market; compensation; surplus; deficit
    JEL: E62 E42 E52 E44 E00 G32 F43
    Date: 2009–02–03
  23. By: Giorgio Albareto (Banca d'Italia); Michele Benvenuti (Banca d'Italia); Sauro Mocetti (Banca d'Italia); Marcello Pagnini (Banca d'Italia); Paola Rossi (Banca d'Italia)
    Abstract: This paper examines the results of a survey carried out in 2007 by the Bank of Italy concerning different characteristics of the organization of lending activities. Between 2003 and 2006 the physical distance between the headquarters and the branches increased, the limits to the decision-making process of loan officers were eased, their mobility raised and the use of economic incentives to reward their activity expanded. The huge heterogeneity in organizational structures persists even within relatively homogenous size classes. The diffusion of statistical models to assess credit risk (scoring), accelerated recently particularly among large banks, boosted by the new Basel Capital Accord. Scoring is either very important or determinant in decisions on credit extension while it is rarely influential in setting interest rates, the duration of the credit and the amount and type of collateral required. The survey shows that banks have been progressively adapting their organizational structure in order to incorporate the credit scoring tools into their lending processes.
    Keywords: banking organization, distance, power delegation, credit scoring, relationship lending, technology diffusion
    JEL: G2 O3 L2 D8
    Date: 2008–04

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