Browsing by Author "Suomen Pankki, Tutkimusosasto"

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  • Mayes, David G. (1997)
    Suomen Pankin keskustelualoitteita 18/1997
    Viimeisen vuosikymmenen pankkikriisit ovat herättäneet huolestumista monissa teollisuusmaissa.Tässä raportissa tarkastellaan Uudessa-Seelannissa vuonna 1996 käyttöön otetun, julkistamisperiaatteeseen nojautuvan pankkivalvontajärjestelmän etuja.Vaikka Uudella-Seelannilla on monia erityispiirteitä, jotka tekevät uudesta järjestelmästä juuri sille erityisen soveliaan, soveltuvat järjestelmän kaikki pääperiaatteet muuhunkin OECD-alueeseen, myös nykyisen EU-lainsäädännön yhteyteen.Nämä periaatteet ovat seuraavat: 1) yritysjohdon kontrollin laadun varmistaminen ja laadukkaat laskentatoimen ja riippumattoman tilintarkastuksen standardit rahoituslaitoksissa, jotka haluavat pankkitoimiluvan 2) markkinakurin edellyttämän konkreettisen informaation julkistaminen yksittäisten pankkien riskinotosta; informaatioon on sisällyttävä pankkien koko toimintaa koskevat value-at-risk -laskelmat 3) pankkien johdon ja hallinnon pitäminen vastuullisina pankkien liiketoiminnan asiaankuuluvasta varovaisuudesta; tähän kuuluvat rangaistukset ja taloudellinen vastuu virheellisistä tiedoista 4) veronmaksajien varojen vaarantamisen välttäminen antamalla ymmärtää, että mikään pankki ei ole liian iso kaatumaan, ja keskittämällä valvontaviranomaisten toimet sen varmistamiseen, että ne voivat puuttua asioihin ja estää koko rahoitusjärjestelmän kannalta haitalliset seuraukset yksittäisen pankin joutuessa vaikeuksiin. Näillä keinoin voidaan merkittävästi vähentää pankkivalvontaan liittyvää moraalikatoa ja valvonnan kustannuksia. Asiasanat: rahoitusmarkkinoiden valvonta, markkinakuri, järjestelmän vakaus
  • Tarkka, Juha (1997)
    Suomen Pankin keskustelualoitteita 15/1997
    This paper analyses the prerequisites for and the results of unanimous monetary policy decisions in a monetary union consisting of heterogeneous members.The analysis is based on a multicountry version of Rogoff's model of the determination of monetary policy in the presence of supply shocks.It is shown that an international transfer system can be designed which creates consensus both on the average rate of inflation and the common response to asymmetric shocks to the participating economies.We conjecture that this kind of transfer mechanisms, institutionalized or informal, supporting joint decisions tend to evolve in contexts where there is strong aversion of disagreement.Monetary policy is arguably such a context, because frequent disagreement within the decision-making body could be harmful to credibility. The transfer system capable of supporting consensus on monetary policy can be based on activity-related, automatic subsidies for countries which would individually prefer lower inflation rates, and activity-related taxes for countries which would prefer higher inflation in absence of the transfer system. It turns out that the common monetary policy created by unanimous decisions under the supporting transfer mechanism can be characterized as a weighted average of the national "stand-alone" inflation rates, i.e. the rates which would prevail without the monetary union.The weights of the countries are not related to the sizes of the national economies, but rather to the national attitudes towards inflation and transfer income.Countries with a low stand-alone rate of inflation get a large weight in the determination of the common monetary policy, as do the countries which have a relatively low marginal valuation of international transfer income. Keywords: Positive inflation theory, monetary union, monetary policy
  • Hukkinen, Juhana; Virén, Matti (1995)
    Suomen Pankin keskustelualoitteita 5/1995
    This paper contains a description of a small quarterly model for the Finnish economy model (formerly, the QMED model).In addition to the basic features of this macroeconomic model, we report results from some stochastic simulations which illustrate the model's properties.Thus, the role of uncertainty in both endogenous and exogenous variables is scrutinized.We also report some simulations in which we try assess the importance of various factors which (presumably) contributed to the economic depression in Finland in 1991-1994.
  • Vihriälä, Vesa (1996)
    Suomen Pankin keskustelualoitteita 9/1996
    The paper analyzes bank loan supply in a simple value maximizing partial equilibrium framework.The focus is on the role of bank capital, capital regulation and the pricing of bank liabilities.The model is constructed so as to resemble the situation of the Finnish local banks in the late 1980s and the early 1990s, particularly with regard to capital regulation which changed subtantially during this period.While equity capital is assumed exogenous, the bank may choose the amount of subordinated debt which also counts as regulatory capital.The model shows that bank characteristics matter for loan supply, when the bank is penalized for bank failure (capital insufficiency relative to a regulatory requirement).When this penalty is positive, fair or excessive pricing (lemons premium) of bank liabilities makes bank lending depend positively on bank capital but underpricing results in a negative relationship.A negative relationship may also emerge if the bank anticipates "perverse" bank support policies ie. that capital insufficiency will be rewarded with transfers from the authorities.Thus both a credit crunch due to lack of capital and "excessive" risky lending due to moral hazard can obtain in a single model, depending on the circumstances.The precise nature of capital regulation is not important, provided a failure to meet the requirement is sufficiently penalized.The model suggests that the mutually exclusive hypotheses of credit crunch excessive lending due to moral hazard can be tested not only by examining the relationship between bank lending on the one hand and bank equity and bank costs on the other hand, but also by examining the relationship of subordinated debt with bank lending and the capital ratio. Keywords: bank lending, capital, capital regulation, moral hazard, credit crunch
  • Takala, Kari; Virén, Matti (1995)
    Suomen Pankin keskustelualoitteita 28/1995
    This paper deals with Finnish bankruptcies.It shows that bankruptcies are strongly related to the business cycle and that they are perhaps even more strongly related to indebtedness, real interest rates and asset prices.The importance of these financial factors probably increased when the financial markets were liberalized in the early 1980s. Although there is a lot of seasonal and cyclical variation in bankruptcies the long run level (especially when adjusted to the number of firms) is almost constant representing some sort of "a natural rate of bankruptcies".What makes bankruptcies so important is the fact that they directly affect production, employment and credit expansion.The credit crunch effect in particular is scrutinized in the paper.
  • Takala, Kari; Virén, Matti (1994)
    Suomen Pankin keskustelualoitteita 11/1994
    This paper contains a set of tests for nonlinearities in economic time series.The tests correspond both to standard diagnostic tests and some new developments in testing nonlinearities.The latter test procedures make use of models in chaos theory, so-called long-memory models and some asymmetric adjustment models.Empirical tests are carried out with Finnish monthly data for ten macroeconomic time series covering the period 1920-1993.Test results support unambiguous the notion that there are strong nonlinearities in the data.The evidence for chaos, however, is weak.Nonlinearities are detected not only in a univariate setting but also in some preliminary investigations dealing with a multivariate case.Certain differences seem to exist between nominal and real variables in nonlinear behaviour.
  • Ripatti, Antti; Saikkonen, Pentti (1998)
    Suomen Pankin keskustelualoitteita 29/1998
    We extend the conventional cointegrated VAR model to allow for general nonlinear deterministic trends.These nonlinear trends can be used to model gradual structural changes in the intercept term of the cointegrating relations.A general asymptotic theory of estimation and statistical inference is reviewed and a diagnostic test for testing the correct specification of an employed nonlinear trend is developed.The methods are applied to Finnish interest rate data.A smooth level shift of the logistic form between the own-yield of broad money and the short-term money market rate is found appropriate for these data.The level shift is motivated by the deregulation of issuing certificates of deposit and its inclusion in the model solves the puzzle of 'missing cointegration vector' found in a previous study. Keywords: cointegrated VAR model, gradual structural change, nonlinear deterministic trend
  • Vihriälä, Vesa (1996)
    Suomen Pankin keskustelualoitteita 11/1996
    The paper examines the determination of bank lending in the early 1990s with the data on 393 savings and cooperative banks. Particular attention is paid to the respective roles of bank capital and costs on the one hand and borrower quality on the other hand.The findings do not support the hypothesis of a general credit crunch caused by capital insufficiency.Some findings suggest, nevertheless, that regulatory pressures and perhaps distractions caused by restructuring may have had a negative effect on lending by the savings banks and some cooperative banks.In addition there is some evidence that weak capital contributed positively to credit growth of some subset of banks in 1992.This moral hazard behaviour differs, however, from that observed in a companion paper for the late 1980s. This time the banks resorting to a "gamble for resurrection" were not the weakest banks in terms of capitalization or credit risks, but more in the middle of the spectrum: not so strong that they could take the full losses associated with non-performing assets and not so weak that regulatory pressures had strongly constrained additional lending to ailing customers.These banks were typically cooperative banks rather than savings banks as in the 1980s.On the other hand, weak borrower quality - measured mainly by the share of non- performing assets - contributed significantly to the low growth and contraction of bank lending in 1991 and 1992.In sum, bank capital was not a major factor in the contraction of lending in the early 1990s but lending was significantly reduced by weak borrower quality. Keywords: credit crunch, capital crunch, borrower quality, collateral squeeze, bank lending
  • Vihriälä, Vesa (1996)
    Suomen Pankin keskustelualoitteita 10/1996
    The paper examines the determination of bank lending during the Finnish credit boom of 1986-1990 with the data of 483 savings and cooperative banks.A particular objective is to establish whether bank behaviour is consistent with what is called moral hazard hypothesis, according to which banks expanded risky lending in part to benefit from underpricing of bank liabilities and/or anticipated bank support policies, which would reward capital insufficiency.The results strongly support the moral hazard hypothesis.Growth of lending was, ceteris paribus, negatively associated with bank capital and positively associated with bank costs.Also the behaviour of subordinated debt is consistent with the moral hazard hypothesis.The findings suggest that the cause of such behaviour was underpriced non-deposit liabilities rather than underpriced deposit insurance or anticipation at perverse bank policies.The perverse behaviour was much stronger among the savings banks than among the cooperative banks.According to calculations based on the estimation results, the growth rate of savings bank lending had been 1/3 smaller than the actual growth rate in 1986-1990 in the absence of moral hazard.In the case of the cooperative banks the estimated moral hazard effect is less than l/10 of the growth rate.Given the clear positive association of the rate of growth of lending during the boom period and the amount of non-performing assets later during the banking crisis, the disproportionary losses of the savings bank group are - in the light of this analysis - largely due to moral hazard.Consequently also most of the government expenditure on bank support appears to be caused by distorted incentives. Keywords: bank lending, moral hazard, deposit insurance, creditor protection, bank support
  • Brunila, Anne (1997)
    Suomen Pankin keskustelualoitteita 6/1997
    This paper considers the effects of fiscal policy on private consumption in a framework that encompasses both the conventional (Keynesian) view of fiscal policy and the Ricardian debt neutrality hypothesis.The model is built on Blanchard's stochastic model of intertemporal optimization with finitely lived consumers.As an extension to the basic framework public consumption is explicitly incorporated in the model.The model nests also the excess sensitivity hypothesis whereby the role of current income on consumption can be investigated.Empirical analyses are based on annual data from ten EU countries covering the years 1961-1994 and use the nonlinear instrumental variable GMM estimator both in country-specific and panel estimations.The tests reject clearly the Ricardian debt neutrality for majority of the countries in the sample.Moreover, deviations from Ricardian neutrality seem to arise from excess sensitivity of consumption to current income rather than from a finite planning horizon on the part of consumers.The results also suggest that in the consumers' utility functions, government consumption and private consumption tend to be unrelated or complements rather than substitutes. Keywords: private consumption, private saving, current income, fiscal policy, planning horizon
  • Vesala, Jukka (1998)
    Suomen Pankin keskustelualoitteita 18/1998
    Sisällysluettelo: The paper presents a method of measuring bank differentiation in terms of branch and ATM networks and uses the measures thus obtained to explain the pricing of deposits as well as corporate and household loans.Structural system models of demand and pricing equations are also estimated to separate network differentiation effects from collusion in loan and deposit rates.Pricing power due to network differentiation is found to exist mostly in household lending, while the benefits of differentiation are found to decrease trend-wise in all lending and deposit-taking activities. This result is in line with predictions concerning the technological transformation of services' delivery in banking. Differentiation is found to be the primary source of pricing power in lending, while collusion dominates in deposit-taking.Thus, European liberalization has greater potential to increase the contestability of the deposit market.Identified impacts of technological change imply more efficient pass-through of money market rate changes to loan and deposit rates in the future. Keywords: banking, delivery networks, differentiation, collusion
  • Kauko, Karlo (1998)
    Suomen Pankin keskustelualoitteita 28/1998
    In this paper a game theoretic duopoly model is developed to analyse the development of an interbank payment system.There are two competing banks in the model, and payment services offered to the public are among their main products.The customer of the larger bank uses mainly intrabank payment services; these services are assumed to be of high quality.This creates a so-called network externality, meaning that many customers prefer to use the large bank for quality reasons.The development of interbank payment systems reduces the significance of this factor and hence benefits the small bank.A big bank has a sufficient incentive to develop the system only if a fee is charged for using payment systems.The role for public investment depends critically on the pricing of payment services.If banks offer payment services free of charge, their incentives to develop the system are strongly biased, and it would be efficient for the central bank to have an active role in developing the system.If instead payment services are directly priced, eventual distortions are much less serious, and the role of the central bank need not be as prominent. JEL Classification Numbers: G18, G21, L13 Keywords: banks, payments systems, network externality, duopoly
  • Hartikainen, Johanna (1995)
    Suomen Pankin keskustelualoitteita 36/1995
    The purpose of this study is to analyze the dynamic effects of demand and supply disturbances on the Finnish economy.In addition, the study aims at finding out whether liberalization of capital movements affected the transmission of disturbances. The analysis is based on a vector autoregressive model for unemployment and the GNP from 1970.1 to 1990.4.The vector autoregressive representation is then transformed to a corresponding moving average representation and the dynamic effects of disturbances are analyzed by impulse response functions The model restricts the number of disturbances to two, called demand and supply disturbances.Estimation shows that demand disturbances have temporary effects on GNP and unemployment, the effects of supply disturbances on GNP are permanent but their effects on unemployment are temporary.As capital mobility increases the effects of demand disturbances die out faster.There is no significant difference in the short term effects of supply disturbances on GNP but the long term effects are magnified.This is in accordance with economic theory.
  • Ayub, Mikko (1996)
    Suomen Pankin keskustelualoitteita 16/1997
    Tutkimuksessa analysoidaan miten palkkasumman pieneminen (tulosokki) tai väestönkasvun hidastuminen (väestösokki) vaikuttavat kansantalouden tasapainoon ja kasvuun, kun eläkejärjestelmä on osittain rahastoiva kuten mm.Suomessa. Tutkimustulokset johdetaan teoreettisesti ns. limittäisten sukupolvien mallista. Jos sokkien aiheuttama rahoitusvajaus katetaan palkkaperusteisia eläkevakuutusmaksuja korottamalla, sekä väestö- että tulosokki alentavat työssä olevan sukupolven ja kaikkien tulevien sukupolvien koko elinkaaren aikaista tulotasoa.Sokkien tapahtuessa jo eläkkeelle siirtyneiden tulot säilyvät luonnollisesti ennallaan. Jos sokkien eläkejärjestelmään aiheuttama rahoitusvajaus katetaan eläkkeitä supistamalla, sekä tulo- että väestösokki heikentävät eläkkeellä olevien tulotasoa.Tulosokki heikentää työssä olevien ja kaikkien myöhempien sukupolvien henkeä kohti laskettua tulotasoa, mutta vähemmän kuin järjestelmässä, jossa eläkkeet eivät jousta. Väestösokki muuttuu työssä olevien ja myöhempien sukupolvien kannalta henkeä kohti laskettua tulotasoa korottavaksi. Tutkimuksessa osoitetaan, että talouden kasvu muodostuu mainittujen negatiivisten sokkien sattuessa suotuisammaksi silloin, kun vakuutusmaksuperuste pidetään vakaana ja eläkkeet joustavat.Tämä johtuu eläkejärjestelmän vaikutuksesta kotitalouksien säästämiseen ja investointeihin. Tutkimuksessa tarkastellaan myös Suomen eläkejärjestelmää ja sen tulevaa kehitystä.Tapahtuneiden tulo- ja väestösokkien seurauksena suositellaan järjestelmän rahastointiasteen korottamista ja toisena vaihtoehtona eläketason alentamista. Avainsanat: eläkkeet, rahastointi, säästäminen, väestönkasvu
  • Mayes, David G. (1998)
    Suomen Pankin keskustelualoitteita 2/1998
    This paper argues that, despite the substantial independence offered by the Maastricht Treaty, the ESCB will wish to bind itself by a set of voluntary rules in the conduct of monetary policy.This binding will occur because of the demands of policy itself.The ESCB as such has no history of a successful pursuit of price stability, although it can borrow some reputation in this from the existing national central banks.The ESCB will therefore need to make a H5 and verifiable precommitment about how it will run monetary policy if it is to be seen as highly credible by all those who can affect prices.The paper surveys the types of rules and rule systems adopted by other central banks and draws conclusions for the ESCB, which require it to be open, straightforward and highly transparent in its conduct of policy.This openness will not only help to dispel any fears that the ESCB will be subject to covert influence to follow objectives other than price stability but it will at the same time help fill the "democratic deficit" attached to such an independent institution.It will need to persuade the public at large and governments, the European Parliament and financial markets in particular that it is pursuing price stability effectively and at minimum cost.Thus, although external sanctions may appear limited, the ESCB is likely to choose to make itself highly "accountable" in the conduct of policy and hence dispel much of the deficit.The paper concludes that action is required now to commit the ESCB to this approach. Keywords: European Central Bank, monetary policy, transparency, accountability, voluntary rules
  • Ahlstedt, Monica (1997)
    Suomen Pankin keskustelualoitteita 7/1997
    The study derives a theoretically and empirically founded procedure for volatility estimation and forecasting of daily financial return series for use in value-at-risk model frameworks.GARCH modelling is applied to account for time varying heteroskedastic conditional variances and covariances.Through univariate estimation, the historical conditional variance models are specified within a group of twelve markka-denominated exchange rates, a group of thirteen short-term interest rates, the long-term interest rate and Finland's general stock market index.Within these groups, the method of principal components is used to detect common short-term factors driving the high frequency stochastic processes.Spectral analysis is applied to identify the length and regularity in the cyclical behaviour of the estimated conditional variances and their principal components.Since there turned out to be a great similarity in the univariate estimation results within groups of rates, GARCH estimation on pooled data was performed to force the rates within groups into the same model.The estimated models on pooled data were found to be integrated in variance with closely similar parameter values for both exchange rates and interest rates. Since a general multivariate framework is not possible to apply to the amount of series in this study due to the huge number of parameters to be identified, the covariances were calculated in two step-wise ways from the univariately estimated variances.First, assuming dependence between the autocorrelation structure of the conditional variances and covariances, univariately estimated parameters of the conditional variance models were used in identifying the pairs of conditional covariances.Second, assuming constant correlations, conditional covariances were estimated using joint information on the correlation coefficients of the GARCH standardized residuals and the univariate conditional variances. The first method is only applicable in estimating covariances within groups, the second is also applied in estimating the covariances between groups. Although the magnitude or direction of the expected changes in rates cannot be forecast, the estimated GARCH structure makes it possible to forecast the expected future variances.By developing the parameter structure estimated on pooled data, a theoretically and empirically founded procedure is suggested to replace the usual ad hoc decision process of selecting the sample period and the weight structure for estimating variances and covariances. Keywords: Time-dependent volatility, GARCH estimation, value-at-risk models
  • Kovenock, Dan; Vries, Casper G. de (1995)
    Suomen Pankin keskustelualoitteita 23/1995
    The state of the art of rendering fiat money valuable is either to impose a boundary condition, or to make the boundary condition unimportant by using infinities concerning the sequence of markets and/or the number of agents, so as to circumvent backward induction.We present two models of fiat exchange in deliberately finite economies in which the usage is not imposed.In the first approach agents have incomplete information about their relative position in the trade cycle.The second approach relies on the possibility that multiple non-monetary equilibria of the one-shot game can support monetary equilibria in the repeated game.
  • Sierimo, Carolina; Virén, Matti (1995)
    Suomen Pankin keskustelualoitteita; Bank of Finland. Discussion papers 34/1995
    This paper examines the relationships between financial and nonfinancial variables in three Nordic countries (Finland, Norway and Sweden).We try to find out whether there exists some kind of dichotomy between these two sets of variables, both in terms of levels of variables and the respective volatilities.In particular, we scrutinize the role of the stock market (stock prices and stock market turnover) in this respect.The analysis makes use of standard time series analytical tools, cointegration analysis, analysis of Granger causality and cross-spectral analysis.The results of these empirical analyses suggest that, although the behaviour of the financial variables has been quite similar, there are important differences between these three countries.Still, in all countries important relationships between these sets of variables are detected.However, in most cases causality seems to be bidirectional or instantaneous.
  • Brunila, Anne (1996)
    Suomen Pankin keskustelualoitteita 28/1996
    The paper presents a theoretical model of private consumption that emcompasses both the conventional (Keynesian) view of fiscal policy and the Ricardian debt neutrality hypothesis.The effects of fiscal policy on private consumption are analyzed in an extended framework built on Blanchard's stochastic model of intertemporal optimization with finitely lived consumers, in which private consumption depends on expected lifetime wealth.The model also nests various hypotheses concerning the relationship between public spending and private consumption.Empirical analysis is based on the Finnish annual data from 1960-1995 and uses the nonlinear instrumental variable GMM estimator.The tests cannot reject the hypothesis that consumers are Ricardian.Moreover, the results suggest that in the consumers' utility functions, government consumption is a substitute for private consumption. Keywords: private consumption, private saving, fiscal policy, planning horizon
  • Brunila, Anne (1997)
    Suomen Pankin keskustelualoitteita 2/1997
    This paper considers the effects of fiscal policy on private consumption in a framework that encompasses both the conventional (Keynesian) view of fiscal policy and the Ricardian debt neutrality hypothesis.The model is built on Blanchard's stochastic model of intertemporal optimization with finitely lived consumers.As an extension to the basic framework, the model also nests various hypotheses concerning the relationship between public spending and private consumption.Empirical analyses are based on annual data from nine EU countries covering the years 1961-1994 and use the nonlinear instrumental variable GMM estimator both in country-specific and in panel estimations.The tests cannot reject the hypothesis that consumers are Ricardian except for one country. Moreover, the results suggest that in the consumers' utility functions, government consumption tends to be a complement rather than a substitute for private consumption. Keywords: private consumption, private saving, fiscal policy, planning horizon