Browsing by Subject "E51"

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  • Ponomarenko, Alexey (2016)
    BOFIT Discussion Papers 4/2016
    Published in Journal of Financial Economic Policy, Volume 9, Issue 1, 2017, Pages 70-85
    This paper discusses the money creation mechanisms in emerging markets with special focus on external transactions. We argue that one should not rule out the possibility that fluctuations in the loans-to-deposits and non-core liabilities ratios are driven by the banks. We also argue that, under a flexible exchange rate regime in which the central bank is not trying to accumulate foreign reserves, external transactions are unlikely to contribute significantly to money growth. To make our argument, we analyze a historical episode of these flows in Korea and Russia and conduct a canonical correlation analysis for a cross-section of emerging market economies.
  • Mehrotra, Aaron (2007)
    Bank of Finland Research Discussion Papers 2/2007
    We examine developments in national contributions to euro area M3 for a sample of nine euro area countries during 1999-2005.We investigate the co-movements of national contributions with euro area M3 and discuss possible reasons for divergencies in growth rates of national contributions.Finally, we evaluate the information content of national contributions to M3 using formal tests of causality between monetary aggregates, consumer prices and equity prices. Key words: national contribution, M3, euro area JEL classification numbers: E51, E31
  • Bask, Mikael (2006)
    Bank of Finland Research Discussion Papers 6/2006
    Published in International Journal of Finance and Economics, Volume 14, Issue 1, January 2009: 64-84
    The aim of this paper is to analyse the announcement effects on exchange rate movements using the basic asset pricing model, where currency trade is partly determined by technical trading in the form of moving averages since it is the most commonly used technique according to questionnaire surveys.Specifically, the announcement and implementation of temporary as well as permanent monetary policy are analysed, where the exchange rate model developed is summarised in a linear difference equation in current exogenous fundamentals, a large number of lags of the endogenous exchange rate and time-t dating of exchange rate expectations. However, since there are a large number of rational expectations equilibria, continuity is proposed as a selection criterion among the equilibria, meaning that the parameter for the time-t - 1 exchange rate should have the limit 0 when there is no technical trading to have an economically meaningful equilibrium.It turns out that there is a unique rational expectations equilibrium that satisfy the continuity criterion, and focusing on this equilibrium, it is shown that the exchange rate is much more sensitive to changes in money supply than when technical trading is absent in currency trade.This result is important since it sheds light on the so-called exchange rate disconnect puzzle in international finance.Key words: asset pricing, exchange rate disconnect puzzle, heterogeneous agents, least squares learnability, monetary policy and technical trading. JEL classification numbers: E51, E52, F31, G12
  • Snellman, Heli; Virén, Matti (2006)
    Bank of Finland Research Discussion Papers 21/2006
    Published in Applied Financial Economics, Volume 19, Number 10, 2009: 841-851
    This paper deals with the issue of how the market structure in banking affects the choice of means of payment.In particular, the demand for cash is analysed from this point of view.The analysis is based on a simple spatial transactions model in which the banks' optimization problem is solved.The solution quite clearly shows that monopoly banks have an incentive to restrict the number of ATMs to a minimum.In general, the number of ATMs depends on competitiveness in the banking sector.The predictions of the theoretical analysis are tested using panel data from 20 OECD countries for the period 1988-2003.Empirical analysis reveals that there is a strong and robust relationship between the number of ATM networks and the number of ATMs (in relation to population).It also reveals that the demand for cash depends both on the number of ATMs and ATM networks and on the popularity of other means of payment.Thus, the use of cash can be fairly well explained in a transaction demand framework, assuming proper controls for market structure and technical environment. Key words: automated teller machine, demand for cash, banking, means of payment JEL classification numbers: E41, E51
  • Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling (2016)
    Bank of Finland Research Discussion Papers 23/2016
    Formal enforcement actions issued against banks for violations of laws and regulations related to safety and soundness can theoretically have both positive and negative effects on the terms of lending. Using hand-collected data on such enforcement actions issued against U.S. banks, we show that they have a strong negative effect on price terms (loan spreads and fees) for corporate loans and a positive one on non-price terms (loan maturity, size, covenants, and collateral). The results also indicate that in the absence of enforcement actions, the cost of borrowing during the subprime crisis would have been much higher, while punished banks intensify use of collateral.
  • Herrala, Risto (2009)
    Bank of Finland Research Discussion Papers 10/2009
    In this paper we test the hypothesis that credit policies are pro-cyclical. Our approach is based on a stochastic frontier analysis of borrower data, as in Chen and Wang (2008). We extend the applicability of the approach, and propose a novel test specification which is informative of many types of pro-cyclicality. The analysis of representative samples of household borrowers during a huge cycle and its aftermath yields evidence of time-varying credit policy. We find that the focus of credit policy changed from collateral to current income during the cycle. Instead of a credit crunch, ie, an overall tightening of credit during the economic and financial contraction, we find a tightening of credit limits with respect to a minority of borrowers and an easing for the majority. In the course of the post-crisis period, credit policy became more lenient. Both the level of credit limits and the 'tailoring' of limits to group-specific characteristics of households increased. A reduction in the idiosyncratic variance of limits suggest that banks have become more consistent in their credit policies. Keywords credit policy, credit constraints, household borrowing, frontier analysis JEL classification numbers D14, E32, E51, G21
  • Deryugina, Elena; Kovalenko, Olga; Pantina, Irina; Ponomarenko, Alexey (2015)
    BOFIT Discussion Papers 8/2015
    ​This article presents three alternative models for decomposing loan developments into components associated with changes in loan demand and supply fundamentals. Two models are based on macro data (error correction model and structural vector autoregression with sign restrictions) and one is based on bank-specific Bank Lending Survey results. We conclude that although loan growth in Russia converges to a long-run equilibrium determined by macroeconomic (demand) factors the convergence is likely to be driven by bank-side (supply) shocks. We identify large and unexplained supply shocks in loan fluctuations during the crisis of 2008–2009, signifying an impairment of credit markets. We also find contractionary shocks unrelated to demand fundamentals or balance sheet structures in 2013, although in general loan developments in 2013 and the first half of 2014 were not at all extraordinary.
  • Ponomarenko, Alexey (2012)
    BOFIT Discussion Papers 22/2012
    Published in Emerging Markets Review 15, 92–106 (2013)
    We apply recently developed early warning indicators systems to a cross-section of emerging markets. We find that, with little or no modification, models designed to predict asset price booms/busts in advanced countries may be useful for emerging markets. The concept of monitoring a set of asset prices, real activity (especially investment) and financial (especially credit) indicators is generally found to be efficacious. Keywords: early warning indicators, asset prices, emerging markets JEL classification: E37, E44, E51.
  • Hattendorff, Christian (2015)
    BOFIT Discussion Papers 18/2015
    ​The paper investigates the relationship between economic concentration and level of financial development to illuminate the linkage of real economy structure and financial markets. Using data from 81 Russian regions for the period 2005–2011, empirical evidence is offered to show that poor diversification weakens credit. Geographical variables are used as instruments of concentration in accounting for endogeneity. This work supports previous findings at the national level that policymakers seeking to promote economic development should place stronger emphasis on output diversification.
  • Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling (Elsevier, 2019)
    Journal of Banking and Finance April
    Available also as Bank of Finland Research Discussion Papers 19/2018
    We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997–2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that works over and above the lower risk of punished banks post-enforcement and survives in a number of sensitivity tests. We also find that this effect persists for approximately four years post-enforcement.
  • Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling (2018)
    Bank of Finland Research Discussion Papers 19/2018
    Available also as Journal of Banking and Finance 2019 ; 101 ; April.
    We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997-2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that forces banks to lower their cost of credit, irrespective of other changes in their business models after the enforcement action.
  • Cai, Ning; Feng, Jinlu; Liu, Yong; Ru, Hong; Yang, Endong (2019)
    BOFIT Discussion Papers 7/2019
    By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.
  • Isoré, Marlène (2016)
    Bank of Finland Research Discussion Papers 28/2016
    This paper develops a two-country model in which transmission of financial shocks arises despite a flexible exchange rate regime and substitutable financial assets, contrary to the open-economy literature results under these two conditions. The search and matching approach first accounts for the time needed to restore normal functioning of financial markets following a disruption. It also allows dissociating two types of financial shocks: (i) pure liquidity contractions imply negative co-movements of home and foreign outputs, so that the model nests the standard open macroeconomy results as a particular case; (ii) shocks to banks’ capitalization costs in one country do generate international financial contagion.
  • Tuuli, Saara (2019)
    Bank of Finland Research Discussion Papers 4/2019
    This paper investigates the impact of the model-based approach to bank capital regulation (i.e. the Internal Ratings Based Approach; IRBA) on firms' access to finance. A difference-in-differences methodology is used given that the IRBA, introduced as part of Basel II, was adopted by different banks in different times. The results suggest that firms indirectly affected by the new regulation via their main bank adopting the IRBA faced a 6-7 percentage point higher probability of facing a deterioration in their access to finance. When the sample is adjusted for the demand for credit, this estimate increases to 12-13 percentage points. The impact is found to come via increases in the cost of credit and to a smaller extent, reductions in the volume or size of loans. Around three-quarters of the effect is attributed to the sensitivity of the IRBA capital requirements to economic conditions, with adopting banks also found to specialize in low-risk lending.
  • Coricelli, Fabrizio; Égert, Balázs; MacDonald, Ronald (2006)
    BOFIT Discussion Papers 8/2006
    This paper surveys recent advances in empirical studies of the monetary transmission mechanism (MTM), with special attention to Central and Eastern Europe.In particular, while laying out the functioning of the separate channels in the MTM, it explores possible interrelations between different channels and their impact on prices and the real economy.The empirical findings for Central and Eastern Europe are then briefly compared with results for industrialized countries, especially for the euro area.We highlight potential pitfalls in the literature and assess the relative importance, and potential development, of the different channels, emphasizing the relevant asymmetries between Central and Eastern European countries and the euro area. JEL classification: E31, E51, E58, F31, O11, P20 Keywords: Monetary transmission, transition, Central and Eastern Europe, credit channel, interest rate channel, interest-rate pass-through, exchange rate channel, exchange rate pass-through, asset price channel
  • Korhonen, Iikka; Mehrotra, Aaron (2007)
    BOFIT Discussion Papers 14/2007
    Published in Emerging Markets Finance and Trade 46. (2), 2010, 5-19
    Estimating money demand functions for Russia following the 1998 crisis, we find a stable money demand relationship when augmented by a deterministic trend signifying falling velocity. As predicted by theory, higher income boosts demand for real rouble balances and the income elasticity of money is close to unity. Inflation affects the adjustment towards equilibrium, while broad money shocks lead to higher inflation. We also show that exchange rate fluctuations have a considerable influence on Russian money demand. The results indicate that Russian monetary authorities have been correct in using the money stock as an information variable and that the strong influence of exchange rate on money demand is likely to continue despite de-dollarisation of the Russian economy.
  • Korhonen, Tapio (2011)
    Suomen Pankki. Yleistajuiset selvitykset. A 114
    Rahoitus- ja valuuttamarkkinoita säännösteltiin toisen maailmansodan jälkeen pitkään niin Suomessa kuin useimmissa muissakin Euroopan maissa. Vielä 1970-luvulla Suomen Pankki säänteli rahoitustoimintaa varsin kattavasti. Aitoja kotimaisia rahamarkkinoita ei säännöstelykaudella Suomessa ollut. Kansantalouden korkotaso asetettiin poliittisesti ohjaamalla laajavaikutteista peruskorkoa. Rahoituskasvun rajaaminen perustui pankkien keskuspankkivelan kustannusten sääntelyyn. Aitoa määrällistä säännöstelyä ei kotimaisessa rahoituksessa kuitenkaan juuri käytetty. Rahapolitiikan itsenäisyyden takasi jokseenkin kattava ulkomaisten pääomanliikkeiden säännöstely, jonka kireys vaihteli kuitenkin tuntuvasti. Valuuttakurssia ohjattiin poliittisesti. Rahoitus- ja valuuttamarkkinat vapautettiin vaiheittain 1980-luvun kuluessa. Se vaati rahapolitiikan ohjausjärjestelmän uudistamisen markkinaehtoiseksi. Liberalisoinnissa myötäiltiin kansainvälistä kehitystä epävakaan kotimaisen rahoitusmarkkinakehityksen oloissa. Suomen talous ei sopeutunutkaan ongelmitta vapaisiin markkinoihin. Rahoitusriskejä otettiin liikaa, erityisesti siirtymällä laajalti käyttämään ulkomaan valuutan määräisiä luottoja kiinteistöalalla ja yleensäkin suljetussa sektorissa. Rahoitusmarkkinat olivat säännöstely- ja inflaatiokauden jäljiltä yksinkertaiset ja suppeat, mutta silti markkinat ajautuivat 1980-luvun lopulla kansantalouden kehityksen kannalta vaikeisiin tasapaino-ongelmiin. Avainsanat: Suomen Pankki, rahapolitiikka, säännöstely, liberalisointi JEL classification: N14, N24, E51, E52, E58, E65
  • Korhonen, Tapio (2011)
    Suomen Pankki. Yleistajuiset selvitykset. A 115
    Suomen talous ajautui 1990-luvun alussa poikkeuksellisen syvään talous- ja pankkikriisiin, josta kuitenkin elvyttiin vuosikymmenen loppupuolella vahvaan kasvuun. Talous- ja pankkikriisin syvyys aiheutui säännöstely- ja inflaatiokaudelta periytyneistä taloudellisista, institutionaalisista ja asenteellisista tekijöistä. Rahoitusmarkkinat oli vapautettu ja rahapolitiikan ohjausjärjestelmä uudistettu keskeisiltä osin ennen kriisiä. Rahoitusrajoitteiden väljenemisellä oli vaikutuksensa kriisiin, mutta taustalla vaikuttivat myös kansainväliset tekijät, kuten korkea korkotaso ja Neuvostoliiton hajoamista seurannut Suomen idänkaupan romahdus. Merkittävä taustatekijä oli säännöstelykaudelta periytynyt yritysten heikko rahoitusrakenne. Rahapolitiikan välineitä kehitettiin kriisin aikana enää suhteellisen vähän. Kotimaisen rahapolitiikan merkitys kriisin hoidossa jäikin toissijaiseksi, sillä korkotaso määräytyi oleellisilta osiltaan ulkomaisen kehityksen perusteella. Kansantalouden rahoituksen turvaaminen jäi kriittisimmissä vaiheissa valtion runsaan ulkomaisen lainanoton varaan. Suomen Pankin kannalta merkittävät muutokset toteutuivat 1990-luvulla valuuttakurssijärjestelmässä. Valuuttakytkennässä siirryttiin ensin kauppapainoisesta korista ecukoriin vuonna 1991, sitten kiinteä kurssi vaihdettiin kelluntaan vuonna 1992, markka kytkettiin EU:n valuuttakurssimekanismiin (ERM) vuonna 1996 ja vaihdettiin lopuksi euroksi vuoden 1999 alusta. Rahaliittoon sopeutuminen vaati laajan uudistustyön sekä Suomen Pankin eri toiminnoissa että Suomen rahoitusmarkkinainstituutioissa. Avainsanat: Suomen Pankki, rahapolitiikka, talouskriisi, pankkikriisi, talous- ja rahaliitto JEL classification: N14, N24, E51, E52, E58, E65
  • Havrylchyk, Olena (2011)
    BOFIT Discussion Papers 11/2011
    Published in Journal of Banking and Finance, Volume 36, Issue 6, June 2012, Pages 1710-1721.
    This study investigates the impact of foreign bank penetration on firm entry in Central and Eastern Europe. Acquisition of domestic banks by foreign investors has lowered rates of firm creation, decreased the average size of entrants, and increased firm exit in industries with greater informational opacity, while entry of greenfield foreign banks appears to have spurred firm creation and exit. We modify the view in earlier studies that informational opacity equates with firm size, defining opacity in terms of technological characteristics for a given industry. We find the economic significance of foreign bank entry is larger for opaque industries than industries with large shares of small firms. The study provides evidence of increased credit constraints for start-ups in Central and Eastern Europe, which is consistent with the theoretical proposition that the presence of foreign banks exacerbates informational asymmetries. Keywords: Entrepreneurship, Foreign bank entry, Asymmetric information, Credit constraints JEL: E51, G21, M13
  • Laine, Olli-Matti (2021)
    Journal of Banking and Financial Economics 15
    Published in BoF DP 7/2019 : "The effect of TLTRO-II on bank lending" http://urn.fi/URN:NBN:fi:bof-201904081141
    This paper studies the effect of central banks’ targeted refinancing operations on bank lending. It utilizes data from the European Central Bank’s targeted longer-term refinancing operations (TLTROs) together with monthly bank level balance sheet data from multiple countries. The effect of targeted policy is identified utilizing the institutional setting that provides natural instrumental variables and a proxy for credit demand. Unlike previous papers, this paper studies the effects on corporate loans and loans for consumption separately. The cumulative effect of TLTROs on participating banks’ stock of corporate loans is estimated to be significant (about 20 per cent). However, the effect on lending for consumption is found close to zero. Furthermore, the positive effects on corporate loans are found to be driven by crisis countries suggesting that the effectiveness of monetary policy depends on the economic conditions. The paper also finds some evidence that the effect on government bond purchases is negative. This result is very different from the earlier results regarding non-targeted liquidity operations.