1. DEMAND FOR SHORT-TERM FOREIGN ASSETS BY THE GERMAN BANKS.
- Author
-
OU, CHARLES C. F.
- Subjects
CAPITAL movements ,FOREIGN assets ,BANKING industry ,BANK assets ,BANK investments - Abstract
The purpose of this paper is to present a case study of this type--the holdings of short-term foreign assets by the German banks. The ratio of short-term foreign asset to the total asset is explained by various yields on alternative assets. In addition, the effect of short-term constraint variable on the adjustment of actual stock to the desired stock of asset holdings is incorporated in the analysis. The variables included perform rather well in explaining the monthly fluctuations of the asset ratios. This paper presents a case study of the international movements of short-term banking funds with the application of the asset portfolio approach which has been so fruitful in the investigation of demand for domestic financial assets. The study demonstrates that when a balance-sheet framework can be clearly defined, the portfolio balance analysis provides a very effective approach to the study of capital flows between countries. The experience of the holding of short-term foreign assets of the German banks is investigated. With the holding of foreign assets treated as one of many assets (and liabilities) in a well-defined balance sheet for the German banks, the portfolio approach is applied with some success. The importance of such variables as total asset holdings (LA), yields on alternative assets (r[sub 1]), and flows of liquid funds (CBM) in affecting the asset holdings is borne out by the results obtained. Some 70 per cent of the fluctuations of the ratios of foreign assets to total liquid assets are explained by the variables r[sub L], r[sub LA[sub d]] - r[sub FA], and CBM/LA[sub t-1]. The estimated coefficients are all significant. The incorporation of variables LA and CBM also helps improve the estimation of interest rate variables, giving us a very satisfactory result for the estimated coefficients for interest rates. The scope of the paper is obviously limited. Those problems such as the need for non-linear equation, the importance of adopting simul... [ABSTRACT FROM AUTHOR]
- Published
- 1972
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