Browsing by Author "Bank of Finland Research Department"

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  • Holm, Pasi; Honkapohja, Seppo; Koskela, Erkki (1990)
    Bank of Finland Research Discussion Papers 24/1990
    The paper formulates a model of wage determination in accordance with the notion of a monopoly union determining wages after which the firm decides on employment. The novelty is to incorporate investment and capital decisions by firms. In the theoretical part the subgame-perfect Nash equilibrium and its comparative statics for wages, capital stock and employment are characterized in various cases.
  • Virén, Matti (1990)
    Bank of Finland Research Discussion Papers 19/1990
    This note presents new evidence on Finnish property criminality. The analysis is based on Earlichls (1973) model; the empirical an~lysis makes use af annual Finnish data for the period 1951 - 1986. The estimation results strongly support the notion that both the appreh~nsion rate and the severity of punishment have a strong deterrence effect on larcenies and robberies.
  • Virén, Matti (1989)
    Bank of Finland Research Discussion Papers 2/1989
    This paper presents some analyses of interest rate determination in six industrialized countries during the Great Depression. The main finding of the paper is that the huge real interest rate shocks experienced during that time were mainly due to policy actions by central banks.
  • Peisa, Paavo (1989)
    Bank of Finland Research Discussion Papers 16/1989
    This paper evaluates the power of aggregate and sector-specific disturbances ta output growth in the Finnish econc:Jrqy using armual data on the growth of value added in 31 industries over the period 1961-87. The unifonn power distribution assumptions implicit in the standa.J:d randam and fixed effects m:rlels are considered and tested by analyzing the power of disturbances by frequency band.
  • Virén, Matti (1990)
    Bank of Finland Research Discussion Papers 15/1990
    This paper reports some policy simulations carried out with the Finnish MICRO-QMED model. This rational expectations model built at the Economics Department of Bank of Finland is used to evaluate the short-run effects of some anticipated policy actions. The role of alternative (income) policy rules is also assessed.All these experiments demonstr-ate the importance of advance effects. In addition, they underline the importance of knowing the nature of the policy actions and the expectations horizon of economic agents. The paper also contains a short desc~iption of the MICRO-QMED model and its computational properties.
  • Malkamäki, Markku (1992)
    Bank of Finland Research Discussion Papers 16/1992
    This paper examines eointegration and Granger eatisality among the stock markets in the United States, the United Kindom, Germany, Sweden and Finland. The first three nations are the biggest trading partners of the two small open Nordie eeonomies, Finland and Sweden. We apply standard univariate VAR models and a system of VAR models under the assumption of multivariate eointegration, first introdueed in Johansen (1988). Our results from eausality analysis eontradiet the prior understanding with respect to the eausal relations between the Nordie and other stoek markets. Our multivariate eointegration analysis suggests that the stoek markets are cointegrated with one eointegrating veetor when prices are measured in IoeaI eurrencies or in Finnish markkas and two eointegrating vectors when prices are measured in US dollars. The Finnish stoek market is always found to be led by the German market, and aIso by the UK market when returns are measured in IoeaI eurreneies or in Finnish markkas. We also found that the Swedish stoek market is Granger eaused by the UK market instead of the US market as previously suggested. The data covers the period 1974-1989.
  • Suominen, Matti (1991)
    Bank of Finland Research Discussion Papers 8/1991
    This paper extends Bresnahan's (1982) test of competition to the two-product case. Applying this extension, as well as Bresnahan's original one-product test to the Finnish banking industry before and after the deregulation of financial markets produces some interesting results. With the two product model, a degree of imperfect competition is identified both in deposit and loan markets in the latter half of 1980s. The one product test, on the other hand, indicates that the competition was fairly intense before this. Besides the estimates of the degree of competition, 1 find evidence of economies of scope in deposit-taking and lending activities of banks. In addition, the paper discusses the concepts of price and output in banking.
  • Tarkka, Juha (1989)
    Bank of Finland Research Discussion Papers 26/1989
    This paper presents a partial equilibrium model of the determination of deposit rates of interest and bank service charges in a competitive banking industry. It is shown that uncertainty regarding the future use of transactions services can cause a positive. interest rate margin on deposits, and below-cost pricing of transactions services. This contrasts with existing literature which has explained the existence of "implicit interest" as a consequence of interest rate ceilings or non-neutral taxation.
  • Malkamäki, Markku (1992)
    Bank of Finland Research Discussion Papers 9/1992
    This paper examines the sensitivity of tests of the Sharpe-Lintner Capital Asset Pricing Model (CAPM) to different estimation methods and asset return samples in a thin European asset market, i.e. the Finnish asset market. A time-varying-parameter model is introduced as an altemative to the static market model. We run a regression over a pooled data set in addition to the second-pass Fama-McBeth regressions. Our tests are carried out with four asset specific samples. In every case, cross-sectional OLS estimation of the betas leads to the rejection of the mean-variance efficiency of the market index. The price of market risk is statistically significant, but negative. Our tests on the time-varying betas indicate just the opposite. We are. not able to reject the mean-variance efficiency of the market index in any of the samples. The price of market risk is positive and statistically significant for the stock return data set that most closely resemble the normal distribution.
  • Tarkka, Juha; Willman, Alpo; Männistö, Hanna-Leena (1989)
    Bank of Finland Research Discussion Papers 9/1989
    This report describes the determination of private consumption and investment in the BOF4 model. The consumption function of the model is largely based on thepermanent income hypothesis. Relative prices and the level of aggregate consumption determine the shares of the three consumption subgroups included in the aggregate. The non-residential investment equations are derived from the capital owners' intertemporal profit maximization problem in accordance with the neoclassical investment theory. Modelling of residential investment is based on Tobin's approach and that of inventories on the buffer stock-accelerator approach. The properties of the equations are illustrated by means of tables of dynamic elasticities throughout the paper.
  • Virén, Matti (1989)
    Bank of Finland Research Discussion Papers 31/1989
    This paper presents some Finnish evidence on the importance of currency substitution and financial innovations for money demand. It is also shown that conventional demand for money specifications which do not take these factors into account are clearly misspecified and produce unreasonable results. The problem is particularly acute for narrow concepts of money.
  • Virén, Matti (1988)
    Bank of Finland Research Discussion Papers 16/1988
    This paper examines the determination of interest rates in small open economies. We use the classical interest rate parity relationships as a starting point in developing a test procedure which allows us to evaluate the importance of various domestic shocks (in particular, monetary and fiscal shocks). This, in turn, gives us some estimates of the degree of monetary autonomy in the respective countries. The empirical analysis covers seven smal' European countries; the sample period is 1980Ml - 1981M12. The general result of this study is that the uncovered interest parity relationship is not sufficient to explain the movement in domestic interest rates, particularly in short-term rates.
  • Willman, Alpo (1988)
    Bank of Finland Research Discussion Papers 8/1988
    Forthcoming in the Scandinavian Journal af Economics
    In this paper balance-of-payments crises are studied in a framework in which investors do not know the threshol~ level of foreign reserves, the attainment of which implies that the central bank abandons its fixed exchange target. Investors are alternatively risk neutral or risk averters. It is shown that, depending on whether the threshold level is stochastic or fixed but unknown to investors, currency speculation reveals itself as, respectively, a speculative outflow distributed over a longer time period or a sudden speculative attack on the currency.
  • Koskela, Erkki; Virén, Matti (1988)
    Bank of Finland Research Discussion Papers 4/1988
    "Monetary Policy: A Theoretical and Econometric Approach", Patrick Artus and Yves Sarroux (eds.), Kluwer Press.
    The purpose of the paper is to revisit the demand for money specifiections by using U.S. quarterly data over the sample period 1951:1 - 1983:4. Utilizing the so-called threshold models suggested by Tong and Lim (1980) we first demonstrate the unsatisfactory performance of standard linear partial adjustment type specifications. Then we turn to compare error correetion type models; the generalized error correetion type demand for money model seems to outperform other specifications, but suffer from heteroscedasticity of residuals. Finally, an attempt is made with some success to account for this heteroscedasticity by augmented variables - variance of nominal interest rate and inflation and covariance between nominal interestrate and inflation - which attempt to measure changes in uncertainty over time. The resulting specification passes all standard diagnostic checks and shows also otherwise reasonable properties.
  • Malkamäki, Markku (1992)
    Bank of Finland Research Discussion Papers 8/1992
    This paper examines the Sharpe-Lintner Capital Asset Pricing Model (CAPM) in which time-varying-parameter models are altemative to the static market model. Prior evidence does not support the CAPM and suggests that market risk is not priced or the price of the beta risk is significantly negative for a thin European stock market, e.g. the Finnish stock market. We show that this phenomenom is due to static ordinary least squares beta estimates that are spurious. We reduce the errors-in-variables problem by estimating the firm-specific betas using the Kalman filter technique and employ the forecasted beta values in cross-sectional analysis. It tums out that in our analysis of pooled data the sign for caefficient of the price of risk becomes positive and we are no longer able to reject the mean-variance efficiency of the market index. The data cavers all Finnish cammon stocks listed on the Helsinki Stock Exchange throughout the years 1972-1989.
  • Sulamaa, Pekka; Virén, Matti (1989)
    Bank of Finland Research Discussion Papers 35/1989
    This paper reports 'some policy simulations which have been carried out with the Finnish MICRO-QMED model. This rational expectations model built at the Economics Department of Bank of Finland is used to evaluate the short-run effects some anticipated policy actions. The paper also contains a short description of the MICRO-QMED model as well as a short user's guide for the model and for the MIKRO-TEKO programme used in simulating the model.
  • Tarkka, Juha; Willman, Alpo (1988)
    Bank of Finland Research Discussion Papers 3/1988
    Specification of the volume and price equation of Finlands multilateral exports of goods is based on the assumption that Finnish products enjoy only temporary monopoly power. In the context of the whole model this implies that the price of exports of goods as well as short-run marginal costs converge towards a level determined solely by competing foreign prices. The modelling of Finlands bilateral trade is based on the assumption that the value of bilateral exports adjusts to the value of bilateral imports, which, in turn, is determined by Finnish demand for imports from eastern markets. Modelling of the trade in services and imports, excluding imports of oil, fuels and lubricants, is quite conventional: the volume of exports of services and the volumes of imports depend on relevant relative price and activity variables. The modelling of imports of crude oil, fuel and lubricants is based on the assumption that imports of energy are a residual determined by the demand for and the domestic supply of energy.
  • Tarkka, Juha; Willman, Alpo (1990)
    Bank of Finland Research Discussion Papers 1/1990
    This paper describes the modelling of financial markets and the balance of payments in BOF4, a quarterly macroeconomic model developed by the Bank of Finland. The short-term interest rate is determined as a result of the interaction of the demand for money and money supply, as in the conventional IS-LM approach. Alternatively, the model may be solved under the assumption that monetary policy is based on pegging interest rates. In that case, the domestic credit of the Central Bank is the equilibrating variable.
  • Peisa, Paavo (1988)
    Bank of Finland Research Discussion Papers 26/1988
    Firm growth is analysed using panel data for a sample of Finnish firms over the period 1978 - 1985. The paper focuses on the relationship between firm characteristics and growth, paying attention to both latent and measured characteristics. Estimation results indicate that small firms grew significantly faster than large firms during the sample period. Small businesses expanded during the first years of the sample period, whereas later on there were no differences in performance between different size groups.
  • Suominen, Matti (1993)
    Bank of Finland Research Discussion Papers 12/1993
    This paper suggests that the optimal contract in lending under asymmetric information is a fixed rate loan contract. It is shown that deposit banks have an advantage to provide maturity transformation with fixed rate contracts. This is because the spatial nature of deposit market competition makes the oligopolistic cooperation likely. Cooperation, on the other hand, provides banks more stable funding when depositors derive utility from both monetary compensation (interest) and the proximity of banks services. lt is also shown that by committing in loan markets to fixed rate returns banks can reduce their incentives to compete over deposits.