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1993 | Buch

Money and Banking

Issues for the Twenty-First Century

herausgegeben von: Philip Arestis

Verlag: Palgrave Macmillan UK

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SUCHEN

Inhaltsverzeichnis

Frontmatter
1. Elasticities of Surprise in the Concept of Policy
Abstract
The lodestar of successful business is the imagined deemed possible. To conceive the unprecedented in diverse forms as rival uses for his resources, and to turn imagination to critical study of the possible best and the possible worst result of each imagined enterprise, is the businessman’s counterpart of high chivalry. Its enlightened heresy lies in its epistemic assumptions and principles.
G. L. S. Shackle
2. Asset Deflation and Financial Fragility
Abstract
The purpose of this chapter is quite modest. The theoretical argument starts by accepting Keynes’s fundamental axiom that money is never neutral in an entrepreneurial economy.1 It is then possible to trace the reason why, if all prices are flexible, falling prices and especially an asset price deflation can have a devastating impact on the financial system. The result will be to lower employment and lower real economic growth. (If, on the other hand, money was really neutral, then falling prices would be the process through which the economic system would either maintain or restore full employment prosperity.)
Paul Davidson
3. The Value of Monetary Stability in the World Today
Abstract
Monetary stability is not only a topic with a long academic tradition, it is, at the same time, the subject of many current social and political controversies. In most cases, what is at issue is the rank to be accorded to it compared with other economic policy objectives.
Hans Tietmeyer
4. Central Bank Policy — Goals and Reality
Abstract
In Germany there is a particularly strong desire for a stable price level because of past experience of hyperinflation. Moreover, a low German inflation rate is of major significance for the European Monetary System. The central bank’s responsibility for fighting inflation and the limits to this responsibility depend on its position in the overall political system and on the policy instruments available to it. As economic theory fails to provide clear instructions on action in many situations calling for monetary policy decisions, monetary policy has considerable latitude in practice. The ‘stability culture’ of a society and the credibility of the central bank play a major part in determining the extent to which this latitude can be exploited for the implementation of an anti-inflationary central bank policy, even when the going gets tough.
Otmar Issing
5. Sources of Finance, Recent Changes in Bank Behaviour and the Theory of Investment and Interest
Abstract
One of Stephen F. Frowen’s abiding interests has been investment and its finance. Recent changes in bank behaviour and the pattern of finance have been dramatic. The banks learnt liability management and used that skill to support a period of rapid, advances-led growth in the later 1970s; they are now beginning to take a new approach to the liquidity of their assets — ‘securitisation’. Roughly coincident with these changes, business finance shifted strongly toward bank loans in the late 1970s and has now reverted to the use of long-term securities and equity as important sources of funds.
Victoria Chick
6. Bank Insolvency and Deposit Insurance: A Proposal
Abstract
The experience of recent bank failures in several major countries — Johnson Matthey in the UK, Continental Illinois in the USA and Canadian Commercial Bank — has pointed up a number of intractable problems facing central banks and bank regulatory authorities. First, if really large banks are always to be prevented from failing, then either there will be inequitable treatment between large and small, with a resulting tendency towards oligopoly, or all banks must enjoy similar protection, which will exacerbate moral hazard problems. This issue is discussed in Section 6.2.
C. A. E. Goodhart
7. Home Country Deposit Insurance?
Abstract
Until the first Basle Concordat of 1975 banking supervision (and regulation) was a domestic affair. As a response to the growth in international banking and some major crises, such as the collapse of Herstatt in Germany, the supervisors of the ‘Group of Ten’ countries, together with those of Switzerland and Luxembourg, established a means of co-ordinating their banking supervision (Hall, 1989). This so-called Basle Committee introduced joint responsibility of the home and host country supervisors for international banks, with a primary role for the home country supervisor, who should be able to examine international banks on a consolidated basis. Consolidated supervision enables the supervisor to get an overview of the total ‘group’ exposure. The European Commission has also laid down the concept of home country supervision in its Second Banking Directive.
Dirk Schoenmaker
8. European Banking Strategies Beyond 1992
Abstract
European banks and banking markets have been involved in a process of fundamental change for some time. In one sense these changes are a part of the broader tapestry of rapid development and innovation that has characterised world banking and financial systems since the late 1960s. The 1992 Single European Market (SEM), however, has stimulated many specific, European questions about the development of EC banking and financial systems; a large and often speculative literature has been spawned. Nevertheless, there is a widespread recognition that financial services are an important element in the development of the post-1992 European economy and in the attainment of the overall economic benefits sought by the 1992 deregulation process.
E. P. M. Gardener
9. The Transmission of Monetary Policy in Interdependent Economies: An Empirical Investigation of the US and Europe
Abstract
At the root of the problem of economic policy co-ordination lies the international transmission of monetary policy. Economic analysis points to a number of ambiguities with respect to the effect on the foreign economy. In particular, a monetary expansion in the home economy may cause recession abroad, lower inflation and deterioration of the current account, depending on parameter values. These ambiguities are exacerbated if the model allows for an endogenous explanation of expected depreciation. Resort has to be made to empirical evidence with two aims: to examine whether these responses are likely to be observed in the real world; and to investigate whether there are any asymmetries between the USA and Europe with respect to the effects on the home and foreign economies, following a monetary expansion at home.
Elias Karakitsos
10. UK Monetary Aggregates — Definition and Control
Abstract
During the 1980s, UK governments, in common with many others, adopted a formal commitment to target growth rates for selected monetary aggregates. For the UK, however, the novelty lay largely in the formality of the policy and the consequent publicity given to target rates of growth, since de facto targeting had first appeared many years earlier, forced upon Labour governments in 1968–9 and again in 1976. By 1985, however, evidence about the declining significance of monetary growth (in the form of a sharp fall in velocity) combined with evidence about the authorities’ inability anyway to control the aggregates and monetary targeting acquired a lower profile in the second half of the 1980s as attention was switched to the exchange rate. In 1988 the episode of ‘shadowing the deutschmark’ led to a very rapid increase in money supply which was later blamed by many for the inflationary boom of 1989–90. The result, as we enter the 1990s, is a revival of interest in strict monetary control and in the methods by which it may be achieved. The central message of this chapter is that whatever methods might be adopted, recent changes in the institutional structure rule out a return to the interest rate methods of the last twenty years.
P. Arestis, I. Biefang-Frisancho Mariscal, P. G. A. Howells
11. Monetary Control: Theory, Empirics and Practicalities
Abstract
The issue of control of the money supply as a means to control inflation is a central area of study in monetary economics. The purpose of this chapter is to present an overview of some of the key arguments in this debate and to present some new evidence which illustrates the difficulties involved in assessing the merits of a policy of controlling the money supply. The overall conclusion in practical terms is rather negative. It is that we have little or no firm evidence that a policy of fairly tight control of a narrow or broad monetary aggregate in the UK is either feasible or desirable now, or in the foreseeable future. Our degree of ignorance is such that apart from the rather weak statement that ‘the authorities will take some form of corrective action if the growth in broad money exceeds 15 per cent p.a. or falls below 3 per cent over a run of years’, there is little the applied economist can constructively say within the framework of a ‘simple policy rule’ for monetary targeting. The above conclusion of course arises from one’s assessment of the range of phenomena addressed by economic theories in this area and of the empirical evidence to back up such theories.
Keith Cuthbertson
12. An Evaluation of the Performance of P-star as an Indicator of Monetary Conditions in the Perspective of EMU: The Case of France
Abstract
The distinction between instruments, intermediate objectives, indicators and final objectives of monetary policy is widely used in academic works as well as by monetary authorities. Among these different concepts, the notion of monetary indicator is the most difficult to handle since it refers in practice to two different concepts (see Dewald, 1967; Davis, 1990). The first one means that the indicator is a scale which is used to measure the orientation of the policy implemented by the authorities (Brunner and Meltzer, 1967; 1969). The second one implies that the indicator provides information on the expansionary or restrictive character of the monetary effects, taken broadly. In order to avoid any confusion, it is better to refer to the first one strictly speaking as a monetary policy indicator and to the second one as an indicator of monetary conditions.
Christian Bordes, Eric Girardin, Velayoudom Marimoutou
13. The Effectiveness of Monetary Policy in the Presence of Liquidity Constraints
Abstract
In recent years the relevance of liquidity and credit constraints in modelling consumers’ expenditure has become an important issue. It was mainly the persistent rejection of the rational expectations permanent income hypothesis by the data that brought the issue to the forefront of the relevant literature. The usual response to the negative results has been to amend the theory to allow for the presence of imperfect capital markets, while at the same time retaining its basic features. But the belated recognition that, in view of the prevalence of liquidity constraints, the implications of the pure theory are empirically untenable, has given rise to the suggestion that the often derided Keynesian consumption function may, after all, be a good approximation to the behaviour of a substantial section of consumers.
George Hadjimatheou
14. The Use of Financial Spreads as Indicators of Real Activity
Abstract
A number of recent papers in the US have suggested that financial spreads are useful indicators of real activity. Stock and Watson (1989) is perhaps the most cited, but work with similar general findings is reported by Friedman and Kuttner (1991), and Bernanke (1990) among others. These papers report tests for information (by which read statistical significance) in financial spreads in a multi-variate dynamic model of output. The models proposed for output and methods of estimating these differ between the different papers, and these are described more fully below. But in what has been a variety of approaches each undertaken within a VAR framework, persuasive evidence has appeared that financial spreads may have an informational role. Of course there are questions about the interpretation to be put on these empirical findings; both in the interpretation they may have for economic behaviour and, relatedly, for the policy implications they may have. Answers to both depend in part on the spreads themselves, as discussed more fully below. The US exercises cited above have focused on the spread between yields on commercial paper and treasury bills. Other spreads figuring in the empirical work have included the long corporate bond-government bond yield differential (Bernanke, 1983; Davis, 1992); the yield curve differential (Estrella and Hardouvelis, 1989; Laurent, 1988, 1989; Bernanke and Blinder, 1992; Mishkin, 1989; Browne and Manasse, 1989) and, in the UK only, reverse yield gaps (bond less equity yield) (see Davis and Henry, 1992a, and Davies and Shah, 1992).
E. P. Davis, S. G. B. Henry
15. Financial Liberalisation and Economic Development: A Critical Exposition
Abstract
In developed economies firms have at least three different sources of financing investment: selling new equity, borrowing from the banking system and using retained earnings.1 In developing economies the first option is generally not available because of the absence of a stock market. Even where such a market exists the number of shares traded is very small in relation to the number of firms in the economy whilst the volume of trading is typically very thin. Issuing new equity is, therefore, not a serious option for most firms.
Philip Arestis, Panicos Demetriades
Backmatter
Metadaten
Titel
Money and Banking
herausgegeben von
Philip Arestis
Copyright-Jahr
1993
Verlag
Palgrave Macmillan UK
Electronic ISBN
978-1-349-13319-2
Print ISBN
978-1-349-13321-5
DOI
https://doi.org/10.1007/978-1-349-13319-2