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The pure expectations hypothesis states that the current yields on bonds with different maturities reflect investor expectations of future interest rates. Analysing the short-term inter-bank rates in a Vector Error Correction Model (VECM), the study could reject the pure as well as the general expectations theory in case of the 1 month and 3 months rates but not in case of 14 day rates. The term premia is found to be time-varying. The study attempts to quantify and decompose the term premia, inherent in the money market rates. The study uses the market spreads derived from the swap market, T-Bills, and CD markets to understand the level of decomposition of the term premia. A latent factor model was used to break down the term premia and decompose the same into credit and liquidity risk factors by using information from related money market instruments. [ABSTRACT FROM AUTHOR]

This paper investigates dynamic and causal relations between stock returns and mutual fund flows in Korea using a system method that utilizes information from the stock, bond, and money markets. For this purpose, we employ the Dynamic Seemingly Unrelated Regression, the Seemingly Unrelated Regression Error Correction Model, and two causality tests in a system method to account for cross-equation correlations among markets that have a close relationship with one another. Furthermore, we use the information in the variance-covariance matrix of residual to improve the efficiency of the statistical estimates. The empirical evidence from the system method indicates that fund flows do not respond to eliminate deviations from long-run equilibrium, and stock prices cause net fund flows in the Korean market, implying that investors move their money to the securities that yield higher returns to rebalance their investment portfolios in the short-run. Thus, our findings do not support the popular notion of mutual fund flows as the driving force behind rallies in the Korean financial markets. [ABSTRACT FROM AUTHOR]

From 2010 to 2017, with interest rate liberalization and capital market development in China, the impact of monetary policies on China's financial markets underwent continuous evolution. Using the DCC-GARCH model, this study investigates the transmission process of monetary policies from the money market to capital markets (stock and bond markets). The results show that in the early stage the instability of the money and stock markets and the downturn in the bond market are primarily caused by the block of monetary policy transmission and the paucity of fund sources in the capital markets. Subsequently, the outbreak of the 2013 money shortage and the 2015 stock market crash are also closely related to monetary policies. In the later periods, the money and stock markets maintain a low degree of correlation for a long time, reducing the impact of destabilizing factors on the stock market. By contrast, with the advancement of interest rate reform and the optimization of bond market structure, the bond market is highly relevant to the money market. The central bank regulates the bond market more effectively using both traditional and innovative monetary policy tools. [ABSTRACT FROM AUTHOR]

This article shows how the recent money market disruptions with elevated counterparty risks and uncertainty about the fundamental value of liquidity influenced the trading behaviour of a key dealer in the Euro money market. The complete trading record in the unsecured segment of the money market for 2007 and 2008 is used to estimate a stylized pricing model, which explicitly accounts for the over-the-counter structure. The empirical results suggest that the market maker learns from order flow, but this information aggregation was increasingly hampered as the crisis unfolded. [ABSTRACT FROM AUTHOR]

The main work of this article is to access the role of macroeconomic uncertainty in effecting the correlation between gold and the dollar. The empirical analysis is divided into two parts. Firstly, we examine the impact of macroeconomic uncertainty on short and long correlation between gold and the dollar. Secondly, we analyse the explanatory power of economic uncertainty for the abnormal market relation between gold and the dollar with a threshold model. In particular, we investigate impacts of economic uncertainty sourced from different economies. The empirical results indicate that economic uncertainty generates direct impacts on the correlation between gold and the dollar. Moreover, our results emphasize that uncertainty sourced from different economies have different impacts on the dynamics between gold and the dollar. This article also presents the relative contribution of gold and the dollar shocks to the likelihood of being in the high-uncertainty regime. These results have implications for risk management, international asset allocation and hedging strategies. [ABSTRACT FROM PUBLISHER]

This article investigates the effects of the US money supply shock on global business cycles by employing a global vector autoregressive model containing 26 economies over the period from 1979Q2 to 2009Q4. The US money supply is incorporated as an endogenous variable for the US and a global factor for other economies. When a positive US money supply shock hits the global economy, developed economies (such as the US, Euro area and the UK) will have neither real output decline nor inflation pressure, while China and some other developing countries are going to have a significant decline of real GDP. The international spillover of the liquidity effect exists. The global effects of quantitative easing are discussed as well. [ABSTRACT FROM AUTHOR]

There is a sizeable literature that tests for weak-form efficiency in commodity and energy spot and future prices. While many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change, the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity. We apply a recently developed generalized autoregressive conditional heteroscedasticity (GARCH) unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak-form efficiency than that found using tests that fail to allow for conditional heteroscedasticity. Our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices. [ABSTRACT FROM AUTHOR]

The underlying asset pool of collateral debt obligations (CDOs) simultaneously encompasses credit risk and market risk. However, the standard CDO pricing model not only underestimates the risk to the asset pool due to a poor description of the correlation structure among obligors but is also incapable of reflecting the impacts of interdependent markets, credit risks and systematic sudden shocks on the asset pool. This paper studies the joint impact of interrelated market and credit risk factors on the key inputs of CDO pricing (default probability, default correlation and default loss rate) under the framework of factor copula CDO pricing model and constructs a risk-integrated model for CDO pricing. In addition, we extend the static integrated model to a dynamic version by allowing the risk factors driven by the copula-GARCH process. The simulation results show that, compared with an integrated model, the premium of senior tranches is significantly lower under the standard model. Such difference is mainly due to different assumptions of the distributions of risk-driving factor. [ABSTRACT FROM AUTHOR]

Financial market development is said to have equalizing or unequalizing effects on income distribution. Previous research used cross-sectional and panel data and provided mixed results. Suspecting that they suffer from aggregation bias, we adhere to time-series data and error-correction modeling technique and address the issue one more time in each of the 17 countries for which we have time-series data. In 10 counties, short-run effects of financial market development on income distribution were found to be equalizing. In five countries, the effects were unequalizing. However, the equalizing effects lasted into the long run only in three countries of Denmark, Kenya and Turkey. [ABSTRACT FROM PUBLISHER]

We analyse the individual rationality of inflation and output forecasts from Money Market Survey (MMS) for a group of G7 countries and EU under asymmetric univariate Linlin and Linex loss functions. We also test for joint rationality of inflation–output forecasts using the forecast rationality test under multivariate asymmetric loss functions proposed by Ulu (2013). Our results indicate that rationality is often rejected under symmetric loss, and results improve towards rationality when asymmetric loss functions are assumed. The assumption of multivariate asymmetric loss compared to univariate asymmetric loss provides further evidence towards rationality. We also analyse directional forecast accuracy of the inflation and output forecasts and find that the inflation–output forecasts of MMS are valuable when considered both jointly and separately. [ABSTRACT FROM PUBLISHER]

This study is a response to Klein et al. (2008), which was highly critical of earlier work by Ashton et al. (2003). This work considering the link between international soccer results and stock market returns was challenged by Klein et al. (2008), who reject the presence and importance of this link. In response, this work provides a reassessment of the link between international soccer results and stock market returns within Ashton et al. (2003). This new analysis extends the original work by using a larger dataset, employing an extended range of tests and allowing for outliers. It is reported that, contrary to the findings of Klein et al. (2008), the link between international soccer results and stock market prices does indeed exist particularly within the sample period 1984–2002 used by Ashton et al. (2003). After extending the dataset to include observations from 2002 until 2009, it is reported that the effect on stock market returns has declined in importance over this period, particularly the impact of wins. [ABSTRACT FROM PUBLISHER]

This study employs the asymmetric threshold cointegration test suggested by Enders and Siklos (2001) and creates asymmetric EC-EGARCH(1, 1)- M model to investigate the pass-through of money-market rate to banking retail rates in Taiwan and Hong Kong. It further explores the impact of interest volatility on interest rates. Over the period of February 1988 to December 2004, we find that the interest pass-through mechanism of these two markets is noncomplete. In addition, based on the asymmetric threshold cointegration test, we discover the existence of asymmetric cointegration relationship between retail rates and market rate in both markets. In particular, while employing asymmetric EC-EGARCH (1, 1)-M model to test for the influence of money-market rate adjustment and volatility on retail rates in short-run, we find robust evidence that there exist the upward rigidity in deposit rate and the downward rigidity in lending rate in both Taiwan and Hong Kong. This finding supports the hypothesis of the collusive pricing arrangements. Furthermore, interest volatility should cause a smaller margin of variation for Taiwan's deposit/lending rates and wider margin for Hong Kong's lending rate. [ABSTRACT FROM AUTHOR]

Socialism in internal capital markets (SICM) is the phenomenon whereby multi-division firms underinvest in high-profit segments and overinvest in low-profit segments. This article modifies and extends the Scharfstein and Stein (2000) model that explains SICM. The major modification is to abstract from rent-seeking behaviour - a central ingredient that is used by most SICM models and has the side effect of overturning SICM when the underlying rent-seeking game is slightly perturbed. It is shown that when division managers' private benefits are not exactly propotional to their division's production profit, as assumed by Scharfstein and Stein (2000), SICM arises due to the CEO's incentive to extract gain from the trade of capital between his division managers by equalizing their marginal private benefits, instead of accommodating rent-seeking. Furthermore, we show that 'diversification discounts' exist, increase in diversity and decrease in CEO ownership. The results are robust to endogenizing the investors' choice of the total capital provided to the firm, which allows the conditions for aggergate underinvestment or overinvestment to be determined. [ABSTRACT FROM AUTHOR]

In order to evaluate the efficiency of the monetary transmission mechanism, we develop the formulas for testing rational expectations theory in the term structure of interest rates with VAR models of stochastically switching regimes in which all the parameters are regime dependent. These formulas are obtained for the strict version of rational expectations as well as for the case where measurement errors are assumed in the expectations relationship. They are extensible to other contexts that involve variables linked by rational-expectations behaviours. The testing procedure is implemented on interest rates of the Spanish inter-bank money market. Measurement errors must be assumed to find signs favourable to the theory. [ABSTRACT FROM AUTHOR]

Using probability distribution techniques, this article explores whether any differences exist between the returns and volatility of yen/dollar spot markets in Tokyo, London and New York. After the intraday returns were fit into probability distributions, New York is found to have the highest return, followed by London, and then Tokyo. In estimating the peaks and widths of the distributions of volatility, Tokyo is found to have the lowest volatility in the log-normal distribution, while London and New York show similar volatility distributions, implying similar investor risk-return preference behaviour in the London and New York markets. The findings also imply that arbitrage opportunities between London and New York could be trivial. After estimating the panel distribution from Monday to Friday across the three markets, we found that the Monday effect disappears. Instead, Tuesday shows negative and significantly lower returns. The Friday (weekend) effect no longer exists. Instead, Thursday shows a positive and significantly higher return than the other weekdays. Finally, the three major currency markets did not become more volatile after Japan's deregulation in the foreign currency market in April 1998. On the contrary, they show less volatile behaviour than before deregulation. The probability distributions of volatility on different weekdays did not change significantly after deregulation. [ABSTRACT FROM AUTHOR]

Significant second-moment transmission effects and obvious time-varying patterns of correlation coefficients among major equity and currency markets in the US, Japan and the UK are found to exist. Such observations inspire the time-varying setting of dynamic conditional correlation coefficients in MGARCH models. On the other hand, the multivariate Student-t distribution is suitable for analysing the visible leptokurtosis that is common in financial markets. Both are important for international portfolio risk management. Thus, a comparison on the hedging efficiency of hypothetical portfolios consisting of stock and currency future positions is conducted in order to justify the multivariate Student-t distribution based on the DCC-MGARCH model. [ABSTRACT FROM AUTHOR]

Analysis of the future behaviour of economic variables can be biased if structural breaks are not considered. When these structural breaks are present, the in-sample fit of a model gives us a poor guide to ex ante forecast performance. This problem is true for both univariate and multivariate analysis and can be extremely important when co-integration relationships are analysed. The main goal of this article is to analyse the impact of structural breaks on forecast accuracy evaluation. We focus on forecasting several interest rates from the Spanish interbank money market. In order to carry out the analysis, we perform two forecasting exercises: (a) without structural breaks and (b) when structural breaks are explicitly considered. We use new sequential methods in order to estimate change-points in an endogenous way. This method allows us to detect structural breaks in all four rates in May 1993. However, the effects of these breaks are not very strong, since we found scarce gains in forecasting accuracy when the structural breaks are included in the models. [ABSTRACT FROM AUTHOR]

Empirical examinations into aggregate money demand functions, generally, incorporate a monetary aggregate as the dependent variable. While this custom may be inefficient, it does not create any new difficulties for estimating the demand function's long-run parameters, as money supply would equal money demand. The short-run estimates, however, are not as fortunate. As the monetary aggregate is a measure of supply and not demand, one needs to tease out the short-run responses associated with money demand changes with those which are associated with monetary supply shocks. The present article, therefore, proposes a more complete representation of monetary sector behaviour and in doing so, finds significant support for the so-called buffer stock money demand models. [ABSTRACT FROM AUTHOR]

This article draws on a variety of time series tools to more deeply explore issues surrounding the emergence of a national capital market in the late 19th century. Our focus is on the timing of the emergence of a national capital market. Rather than relying on the absolute narrowing of regional interest rate differentials, which is a common approach in this literature, we use Gregory and Hansen cointegration tests, which allow us not only to test for cointegrating relations in the interest rate series but to identify unknown structural change dates as a byproduct. We also use dynamic conditional correlations to determine the dates at which regional interest rate correlations began increasing. Our results suggest that structural changes are centred around the year 1900, which is consistent with Sylla's argument that the lowering of capital requirements by the Gold Standard Act of 1900 increased bank entry and competition and facilitated regional capital market convergence. [ABSTRACT FROM AUTHOR]

This article examines the velocity and asymmetry of the response of bank interest rates to monetary policy shocks. Using an asymmetric vector error correction model, it analyses the pass-through of changes in money market rates to retail bank interest rates in Italy in the period 1985-2002. The main results of the article are: (1) the speed of adjustment of bank interest rates to monetary policy changes increased significantly after the introduction of the 1993 Consolidated Law on Banking; (2) interest rate adjustment in response to positive and negative shocks is asymmetric in the short run, but not in the long run; (3) banks adjust their loan (deposit) rate faster during periods of monetary tightening (easing); (4) this asymmetry almost vanished since the 1990s. [ABSTRACT FROM AUTHOR]

This study investigates the determinants of inflation in the Dominican Republic during 1991 to 2002, a period characterized by remarkable macroeconomic stability and growth. By developing a parsimonious and empirically stable error correction model using quarterly observations, the study finds that inflation is explained by changes in monetary aggregates, real output, foreign inflation and the exchange rate. Long-run relationships in the money and traded goods markets are found to exist, but only the disequilibrium from the money market exerts a significant impact on inflation. [ABSTRACT FROM AUTHOR]

There is a large literature that investigates whether or not real exchange rates are stationary in an attempt to unravel support for purchasing power parity (PPP). At best, the empirical results are mixed. This paper applies a unit root test that allows for a simultaneous structural break in the intercept and slope, shown by Sen (2003) to minimize power distortions, to examine PPP for 17 OECD countries. Our results on PPP are mixed. When the real exchange rate is based on the US dollar, evidence is found of PPP for only France, Portugal and Denmark. When the real exchange rate is based on the Deutschmark, we find evidence of PPP for Austria, Belgium, Norway, Spain, Netherlands, Switzerland, and Denmark. [ABSTRACT FROM AUTHOR]

The behaviour of the short-run responses implied by the identification of a long-run money demand relationship is examined. These responses have recently been interpreted as representing the policy stance of the monetary authority. However, as movements in the monetary aggregate reflect both demand and supply adjustments, estimating the short-run dynamics solely within the money demand relationship may produce biased results. In order to address this issue, the paper explicitly acknowledges the importance of the supply of money function by including the function alongside the demand for money function. While the interaction of the two equations continues to produce the long-run quantity theory result, the additional detail provides more accurate estimates of the individual short-run adjustments within the two equations. [ABSTRACT FROM AUTHOR]

The profitability of chartist trading rules on foreign exchange markets is still under debate. Since simple technical trading rules may not adequately capture the complex phenomenon of chartist trading, this study focuses on the prominent head-and-shoulder pattern as a representative trading rule which incorporates various 'technical' ideas such as smoothed trends, trend reversal, resistance levels, and volatility clustering. For various combinations of the building blocks of head-and-shoulder definitions the result is generally negative: Returns to head-and-shoulder trading rules are not significantly positive — and if there is any evidence for non-zero returns at all, then it is evidence for negative returns. [ABSTRACT FROM AUTHOR]

The theoretical literature on exchange rate behaviour in target zones predicts that the exchange rate would be mean reverting. This article empirically investigates this theoretical prediction in the case of the German mark bilateral exchange rates. Using a recently developed unit root test, this article provides evidence that is generally negative to the idea of mean reversion. It shows that all bilateral exchange rates under investigation appear to be unit root processes with the exception of the Dutch guilder/German mark rate. [ABSTRACT FROM AUTHOR]

This article deals with the expectation hypothesis of the term structure of interest rates. It is argued that the rapid progress and financial market liberalization that is occurring in emerging financial markets could provide additional evidence for testing the expectation hypothesis. This article employs data from the Malaysian government securities market which represents one of the examples of an emerging financial market. Cointegration and error correction analyses show significant empirical validity for the expectation hypothesis. The long- and short-term interest rates are shown to be cointegrated and subject to a long-run equilibrium path. In addition to shedding some light on the experience of emerging financial market, this article explicitly identifies the process of adjustment towards the long run equilibrium. For the long-run, the results are in favour of the long-to-short version of expectation hypothesis with longer-term interest rates playing a greater role as equilibrium attractor. However, in the short run causal impact runs from short- to long-term interest rates. The empirical findings of the article generally support the proposition of expectation hypothesis. [ABSTRACT FROM AUTHOR]

This paper analyses the effect of government budget deficits on national saving in the USA utilizing annual time series data from 1967 to 1996. A model that includes budget deficits, money supply, real exchange rate, real interest rate, and the proportion of working age population to total population to explain national saving is developed. After examining the time series properties of the data an error correction model is estimated. The overall results suggest that an increase in government budget deficits tend to reduce national saving. The working age population coming out of the baby boom generation has positively contributed to an increase in national saving. [ABSTRACT FROM AUTHOR]

This paper empirically investigates the relationship between equity and credit market development and economic growth, in a sample of five very important 'emerging' markets. In particular, employing a multivariate time-series methodology to test for long-run trends and causality between variables that proxy for stock market development, credit market development and economic development. The results seem to suggest that equity markets have a role to play only in relatively liberalized economies, like Chile and Mexico. In financially repressed economies, like India, the equity market does not affect real sector growth. Furthermore, the banking crises in the 1980s and 1990s in Chile and Mexico resulted in a negative relation between economic growth and the credit market. In South Korea, equity and credit markets both affect economic growth, but not vice versa. In countries where the nature of the stock market has been speculative, like Taiwan, a negative relationship is detected between equity market development and economic development. [ABSTRACT FROM AUTHOR]

The paper aims at identification of the main explanatory factors of the currency crises in Brazil. Following Choueiri and Kaminsky (1997) a VAR monetary model is used and the historical decomposition procedure developed by Sims (1980) to evaluate the importance of the 'fundamentals' represented by fiscal/monetary and exchange-rate policies, and the 'external factors' represented by foreign interest rates and contagious effects. The main results show the importance of the exchange-rate management on the overall period and the contagious effects more recently to explain the Brazilian currency crises. [ABSTRACT FROM AUTHOR]

This paper tests a composite empirical model of cross-border acquisitions involving UK firms between 1987-1995 using panel data analysis. The empirical model includes capital market variables and regulatory variables derived from the existing literature. The results show that models that explain cross-border acquisitions through capital market imperfections are not significant. Cross-border activity has a strong relationship with the level of the UK stock market suggesting that crossborder acquisitions are, in some part, an extension of domestic activity. Corporate tax differentials also have significant impact on activity. [ABSTRACT FROM AUTHOR]

This paper examines the effects of anticipated and unanticipated components of US money supply announcements on exchange rates for each day of the week for eight industrialized countries. The results show that most of the reaction to the anticipated component occurs before the announcement. However, the unanticipated component of the announcement causes strong reactions on the Friday and the Monday following the announcement, and in the days preceding the announcement. [ABSTRACT FROM AUTHOR]

Many studies investigating the relation between inflation and exchange rates have found that exchange rates influenced inflation, while other studies have failed to do so or reported mixed results. These findings, however, might be spurious as the majority of the earlier investigations suffered from misspecifications of one kind or another. The current paper addresses the problem by employing an up-to-date and powerful cointegration method developed by Johansen (1988). In a system of five-equation vector error correction model, this paper finds that the US inflation, exchange rate, money supply, income, and interest rate are cointegrated. The cointegration analysis of the data covering the 1973-95 period reveals that the dollar exchange rate has a significant negative impact on the inflation measured by the producer price index. It is further established that the exchange rate Granger causes the inflation. [ABSTRACT FROM AUTHOR]

Price stickiness is incorporated in the partial information-localizedmarket framework of rational expectation models to show that the money stock has less than an equiproportionate effect on the aggregate price, and that the unanticipated monetary policy component has differing impacts on prices at the market level. The empirical analysis involves estimation of generated regressor models of money forecasting and price equations using the computationally intensive parametric bootstrap method developed most recently by Smith and McAleer. The results are unfavourable to the hypothesis of a one-to-one relationship between current money stock and prices, rather they lend distinct support to conclusions of a sluggish price adjustment model that money stock has less than equiproportionate effect on prices. Empirical results also show that the effects of unanticipated money growth on prices vary across markets. [ABSTRACT FROM AUTHOR]

The article considers the impact of resignation of J. Dawkins, Federal Treasurer of the Australian government on the foreign exchange rates of the major traded currencies in Australia. Much work has been done on the effect on stock prices and exchange rates as a result of releases of economic news and regulations both expected and unexpected by the markets. The findings typically rest on the assumption that efficient markets impound all known information and that asset prices will, therefore, only shift once markets encounter unanticipated information. These studies relate to research in the area of semi-strong form tests of market efficiency. Generally, the media, market participants and researchers will concede that political news may also have an economic effect on security prices and exchange rates. In testing for political risks and market efficiency on the British stock and options market in the 1987 general election, economist G. Gemmill showed that markets do take account of political risks in pricing securities. Furthermore, there is evidence from press reports that political news can have an effect on currency markets.

Numerical simulation methods were used to explore the consequences of asymmetrical behaviour in a two-country model. The asymmetries are located in the asset and goods demand functions and in the parameters governing foreign exchange market intervention. In a stylized fashion, these asymmetries reflect differences that might be characteristic of differences between the USA and the European countries (the EMS). The model is in continuous time, with an overlapping wage contact set-up underlying the domestic inflation process, good demand functions which incorporate dependence on wealth and rational expectations. Shocks to the model reveal the effect of the asymmetries when compared to a fully symmetrical base case. [ABSTRACT FROM AUTHOR]

Using Geweke's approach to Wiener-Granger causality, bidirectional causation between money supply and nominal output were detected. Inflation in Malaysia is essentially a monetary phenomenon. The empirical findings suggest that by controlling money supply, the central bank might be able to successfully maintain price stability at producer's level but not at consumer's level unless narrow money stock is being targeted. Serious attempts by the central bank to tighten money supply could have a strong feedback on real output and even instantaneous impact on nominal output. [ABSTRACT FROM AUTHOR]

This paper tests whether the government's budget is intertemporally balanced in a number of EC countries by applying a method first developed to detect speculative bubbles in financial markets. The test aims to establish whether the government can engage in bubble finance, and is based on a comparison between two sets of estimates. The first is obtained directly by regressing the stock of outstanding debt on a distributed lag of the primary surplus The second is obtained indirectly from a pair of equations, one relating the current debt stock to next period's primary surplus and debt stock, the other specifying an AR process for the primary surplus. In the presence of a bubble, only the first set of estimates is inconsistent, and hence the two sets differ It is found that the null of no bubble can be rejected in the cases of Italy, Germany, Denmark and Greece implying that the government is not intertemporally solvent in these countries The other EC member states appear to be on a sustainable path. [ABSTRACT FROM AUTHOR]

Attention to federal activity in credit markets is typically focused on the government's role as a borrower. In contrast, scant attention is paid to its equally large and dominant role as a lender. This paper evaluates the aggregate impact of federal lending activity within the framework of a vector autoregressive representation of the US macroeconomy. The empirical regularities uncovered suggest that aggregate federal lending activity does not have a net positive impact on output. [ABSTRACT FROM AUTHOR]

It is a peculiar feature of European banking markets that, in almost every country, a handful of large banks tend to emerge over time, whether through government encouragement, or the workings of the market mechanism. From a general perspective, however, it is difficult to evaluate the competitive implications of increased concentration. The traditional structure-conduct-performance (SCP) paradigm would suggest that increased concentration fosters collusion and anti-competitive practices whereas the efficiency hypothesis suggests otherwise. This paper presents tests of the two hypotheses with respect to the European banking industry using pooled and annual data for the period 1986 to 1989. The results generally support the traditional SCP paradigm as an explanation for the market behaviour of European banks. [ABSTRACT FROM AUTHOR]

This paper presents a simple model of foreign exchange market intervention which shows that such intervention introduces positive structure into exchange rate changes. Evidence linking this structure to observable filter rule profits is also provided. [ABSTRACT FROM AUTHOR]

In this paper, a simple intertemporal current account model is developed for a small open economy with imperfect capital markets. The model nests both perfect and imperfect international capital mobilities as its special cases. The model is empirically examined using Taiwan's annual data for the period between 1961 and 1990. Our results show that the model is able to explain some historical movements of Taiwan's trade balance. However, in contrast to many findings from previous studies for other countries, the model is rejected. One important feature of the rejection of the model is that the actual trade balance series is much more volatile than can be explained by the model, this is especially so for the periods when world oil shocks occurred. These results indicate that changes in the terms of trade, which our simple model neglects, might be important factors in Taiwan's current account determination. [ABSTRACT FROM AUTHOR]

This paper investigates the consistency property of exchange rate expectations formation process using cointegration techniques. The consistency property is a precursor to testing the rationality of the expectation formation process though it is weaker than rationality. The results support cointegratability between the spot and the expectation exchange rate series, thus upholding the consistency hypothesis.
A proper measurement of the investor's exchange rate expectation formation process is a critical issue in answering the question of efficiency of the foreign exchange market. The volatility of exchange rates in the 1980s has been a major concern of policy-makers. The foreign exchange market is strongly influenced by expectations of future events and of future policies. These expectations are based on probabilisitic evaluation of current expectations of future changes in policies (for example, devaluation or a specific change in intervention policies). [ABSTRACT FROM AUTHOR]

The volatility of the British pound with respect to the US dollar is examined for the period 1900-40 to ascertain how changes in exchange arrangements affect uncertainty faced by users of the foreign exchange market. Although, on average, volatility of the real exchange rate is higher during flexible regime periods, this proves to be the result of an 'explosion' of volatility at the start of the flexible regime periods. Volatility settles down to those levels experienced during fixed exchange regime periods after a period of time. These results were obtained using a GARCH measure of volatility. [ABSTRACT FROM AUTHOR]

The issue of the relationship between domestic and eurocurrency interest rates is reexamined using the Granger causality test. It is concluded that while earlier results suggesting causality runs from the eurocurrency market to the domestic money market remains valid for the US dollar market, this result cannot be generalized to behaviour in the money markets denominated in sterling and deutschemarks. This note uses the Granger causality test to examine the validity of the GDM hypothesis that domestic interest rates show greater stickiness than eurocurrency interest rates. The results from weekly average interest rate data over the period November 1987 to November 1989 suggest that while this does appear to be the case in the US money market, this result cannot be generalized to other currency-denominated money markets. [ABSTRACT FROM AUTHOR]

US financial deregulation was theoretically supposed to help consumers by making it possible for a larger number of households to earn a market (unregulated) rate of interest on their savings. Empirical evidence is presented which shows that by 1983 only one quarter of US households had gained access to market-yield instruments. Three quarters of all households had not been able or willing to open any type of market-yield account. This analysis suggests that minimum-balance requirements were the biggest obstacle (other than poverty) preventing households from gaining access to market-yield accounts. [ABSTRACT FROM AUTHOR]

The relationship between monetary growth and nominal interest rates continues to attract considerable attention in the literature. Mishkin (1982) has found that, by explicitly imposing market efficiency in an interest rate model for the US, empirical analysis does not support the 'Keynesian' proposition that increases in monetary growth are associated with reductions in short-term rates. In this paper a similar theoretical structure is used but, unlike Mishkin, explicit account is taken of the fact that Australia's capital market is closely integrated with international money markets. Incorporating this into the interest rate model indicates there is some empirical support for the 'Keynesian' proposition in the Australian case. The analytical model also incorporates a measure of interest rate volatility to account for the risk premium present in the forward rate for 90 day bank bills. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to empirically test the relationship between velocity growth and anticipated and unanticipated money growth and its variability. In particular, by decomposing actual monetary growth into anticipated and unanticipated components, the study investigates whether knowledge of past variability of anticipated and unanticipated monetary growth improves the prediction of future velocity growth beyond predictions that are based on past velocity growth alone. This is the empirical definition of Granger causality. Comparisons are made, in all tests, among simple sum and Division aggregates (of M1, M2, M3, and L) and with Spindt's monetary velocity (MQ) aggregate. [ABSTRACT FROM AUTHOR]