Browsing by Author "Monetary Policy and Research Department"

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  • Kemppainen, Kari (2005)
    Bank of Finland Research Discussion Papers 19/2005
    This paper considers effects of price regulation in retail payment systems by applying the model of telecommunications competition by Laffont-Rey-Tirole (1998).In our two-country model world there is one retail payment network located in each country and markets are segmented à la Hotelling.We show that the optimal price under price regulation is the weighted average of pre-regulation domestic and cross-border prices where the degree of home-bias in making payments serves as the weight.Furthermore, we find that the general welfare effects of price regulation are ambiguous: gross social welfare is higher under price discrimination than under price regulation in the special case where costs of access to banking services (transportation costs) are high.However, there also exist cases where prohibitively high transaction costs make price discrimination to reduce total welfare.Finally, if transportation costs are reduced sufficiently, segmentation of payment markets is eliminated.Markets then become fullyserved as in the original Laffont-Rey-Tirole model, suggesting that price discrimination would be beneficial for welfare. Key words: payment systems, price regulation, retail payments JEL classification numbers: D49, G28, L59
  • Kauko, Karlo (2005)
    Bank of Finland Research Discussion Papers 9/2005
    This paper presents econometric analyses on the determination of bank deposit and lending rates using longitudinal Finnish data. Interest rate pass-through is very strong, possibly complete, in the case of lending rates; in the case of deposit rates the pass-through is far from complete, even in the long term.The monetary union has benefited customers by decreasing the average rate on new loans.Credit and interest rate risk premiums are clearly observable in banks' lending rates.The impact of money market rates on loan stock rates seems to have been non-linear; no obvious explanation for this phenomenon has been found. Key words: banking, interest rates JEL classification numbers: G21, E43, E44
  • Pesola, Jarmo (2005)
    Bank of Finland Research Discussion Papers 13/2005
    The macroeconomic determinants of banking sector distresses in the Nordic countries, Belgium, Germany, Greece, Spain and the UK are analysed using an econometric model estimated on panel data from partly the early 1980s to 2002.The dependent variable is the ratio of banks' loan losses to lending.In addition to the lagged dependent variable, the explanatory variables include a surprise change in incomes and real interest rates, both variables as a separate cross-product term with lagged aggregate indebtedness.The underlying macroeconomic account that this paper puts forward is that loan losses are basically generated by strong adverse aggregate shocks under high exposure of banks to such shocks.The underlying innovations to income and real interest rates are constructed using published macro-economic forecast for these variables.According to the results, high customer indebtedness combined with adverse macroeconomic surprise shocks to income and real interest rates contributed to the distress in banking sector. Loan losses also display strong autoregressive behaviour which might indicate a feedback effect from loan losses back to macroeconomic level in deep recessions.The results can be used in macro stresstesting the banking sector. Key words: financial fragility, shock, loan loss, banking crisis JEL Classification numbers: G21, E44
  • Kauko, Karlo (2005)
    Bank of Finland Research Discussion Papers 14/2005
    This paper presents a model on the demand for money market funds (MMFs).These funds are a very close substitute for M1 deposits, except that MMFs do not satisfy immediate transaction requirements. The demand for MMFs strengthens when the intended volume of transactions is low.A high interest rate level makes it expensive to hold M1 deposits.High interest rate volatility, paradoxically, increases the risk of holding M1 deposits stronger than the risk of holding MMFs.The results are largely corroborated by Finnish data. Key words: money market mutual funds, money demand JEL classification numbers: G23, G29, E41
  • Kauko, Karlo (2005)
    Bank of Finland Research Discussion Papers 11/2005
    Published in International Research Journal of Finance and Economics, Issue 24, February 2009: 153-166
    This paper presents a model depicting cross-border payment systems as a mixed oligopoly.A private net settlement system that maximises profit competes with the central banks' gross settlement system that maximises welfare.It may be optimal for the central bank system to encourage increased use of the private system by charging fees that exceed the marginal cost.The central bank system is not only a competitor but also an essential service provider, because central bank money is needed for net settlement of payments in the private system.In some cases the central bank system can paradoxically induce the private system to charge lower fees by making it expensive to use central bank money for settlement purposes. Key words: payment systems, network economics, mixed oligopolies JEL Classification numbers: L13, L44, F36, G29