KREDIT und KAPITAL - Issue 1/1980



Poniachek, Harvey A.
Alternative Definitions of Money in an Open Economy: The Case of West Germany

Frowen, Stephen F. and Kouris, G. J.
Inflation and the World Demand-for-Money Function

Henschel, Helmut
Interbankgeschäfte und Bankenliquidität

Fausten, Dietrich K.
Beyond the Analytics of the Monetary Approach to the Balance of Payments: Methodology, Innovation and Monetarism


Kleinheyer, Norbert
Der Abweichungsindikator im EWS

Wartenberg, Uwe
Die Steuerlastverteilung in der Bundesrepublik Deutschland. Eine empirische Analyse für die Jahre 1969 und 1973

Book Reviews

Lenk, Reinhard
(Ein Saldo ist ein Saldo) Zur Schätzung und Beurteilung konjunktureller Wirkungen öffentlicher Haushalte
(Thies Thormählen)

Hadding, Walther and Schneider, Uwe H. (Hrsg.)
Gesellschaftsanteile als Kreditsicherheit
(Helmut Becker)

Brunner, Karl and Neumann, Manfred J. M. (Hrsg.)
Inflation, Unemployment and Monetary Control
(Artur Woll)

Volkart, H.
Unternehmensspiele für Bankkaderschulung, Möglichkeiten, Erfahrungen, Folgerungen
(Jürgen Backhaus)

Frowen, Stephen F. and Courakis, Anthony S. and Miller, Marcus H.
Monetary Policy and Economic Activity in West Germany
(Manfred Borchert)

Tobin, James
Grundsätze der Geld- und Staatsschuldenpolitik
(Werner Lachmann)


Poniachek, Harvey A.
„Alternative Definitions of Money in an Open Economy: The Case of West Germany“

The existence of a stable demand for money function and control of the monetary Aggregates, are the necessary conditions for the conduct of an effective monetary policy. However, lf the monetary Aggregates are not defined and measured properly, they cannot be used effectively as intermediate monetary targets. The concepts of the domestic money supply could be defined either theoretically or empirically. Changes in the domestic payments mechanism and increased financial interdependence among economies, through the emergence of the Eurocurrency market, led to a sharp expansion of residents' foreign currency deposits at domestic banks and of foreign non-bank holdings of domestic deposits denominated in both domestic and foreign currencies, of which some are Eurocurrency components. Although there is no precise definition of money for an open economy, the exclusion of these components from the domestic money concepts could reduce their usefulness for monetary policy, thereby making it more difficult for the authorities to implement effectively their policies. This paper examines the hypothesis whether the current definitions of the domestic monetary Aggregate are appropriate for an open economy or whether they should be redefined to include foreign owned deposits and Eurocurrency deposits. This is given both theoretical and empirical considerations. By identifying similar characteristics between these components and domestic money, a case can be made for their inclusion in the domestic stock. To examine the hypothesis empirically, two methods are applied to the case of West Germany, whereby demand for money functions are estimated for alternative definitions of the money stock, based on quarterly data from 1968 IV to 1976 IV, and the most appropriate concept is selected. The first method applies Friedmann-Meiselman's dual criteria based on money-income correlation. Accordingly, the best definition of money must have the highest correlation with income than any of the components separately. Four definitions Aof money supply are tested, of which the first two are the common concepts of the money stock currently used in Germany, and the latter two were constructed for testing purposes and they include residents' foreign currency deposits in domestic banks and non residents' domestic deposits denominated in both domestic and foreign currency. The second method estimates demand functions for alternative definitions of the money stock, then simulated them for the in-sample and out-of-sample periods, and compares their predictive performance, based on the size of the root-mean-square error (RMSE). The evidence in the case of Germany supports our hypothesis that a re-definition of the money supply is warranted in an open economy. Hence, as the economy becomes more open, the significance of foreign monetary components increases and their inclusion in the domestic monetary aggregates may be warranted. The evidence shows that the Euro-currency components are related to the West German economic activity in the same manner as other components of the broadly defined money supply. Additional findings suggest that the narrow definitions of money seems to be marginally superior to or as good as an alternative definition of it: the redefinition of the broader money supply, by including foreign non-bank holdings of deposits in domestic banks and non-bank domestic deposits, is superior to the current definition of M2. In summary, it seems that the increase in international financial interdependence through capital flows affects the broader definition of the money supply and provides a significant channel for domestic money and credit substitution.


Frowen, Stephen F. und Kouris, G. J.
„Inflation and the World Demand-for-Money Function“

The aim of this study is to test at world level for the period 1957 to 1971 the contention that, in accordance with the monetarist inflation thesis (i.e. the money growth-inflation relationship), world inflation can be controlled by controlling the world money supply. In this connection the present paper investigates (a) the hypothesis that under a fixed exchange rate regime, national inflation rates converge, moving in a systematic and predictable fashion consistent with purchasing power parity, and (b) the demand-for-money function at the level of the Aggregate of fourteen advanced countries (as a proxy for the world). The work presented here is an extension and integration of previous research by the authors published in earlier issues of Kredit und Kapital (1977 and 1979). The results indicate that the world demand-for-money function significantly depends on both income and interest rates but that its form changed between the mid-1960s and 1971. Thus the elasticities determining this function are unstable and pedictions based on them would therefore be unreliable. One might argue, of course, that there are a number of additional determinants that ought to be included in any world demand-for-money function relating to the period close to the 1970s. Hence is these influences are not included in the function, we are bound to get unstable elasticities. The resulting policy implication of this analysis for the design of an anti-inflation policy is that it is highly doubtful whether world inflation can in fact be controlled in a predictable fashion by simply controlling the world money supply. (This is not to say that a reduction in the rate of increase of the world money supply would have no beneficial effect on world Inflation.) The paper further challenges the interpretation of the function in the late 1960s und early 1970s. The fact that a simple autoregressive scheme can explain so much implies that it is not economic criteria which govern the function. lf a lagged endogenous variable ends up by absorbing the greatest portion of the dependent variable's variation, the whole function boils down to being determined by an autonomous growth. Through this process, the world demand-for-money function evaporates.


Henschel, Helmut
„Interbank Transactions and Bank Liquidity“

Ever and again the opinion is encountered that banks could create liquidity themselves by expanding interbank business and thus thwart a restrictive policy of the Bundesbank.
- Claus Köhler et al. support the view that the Bundesbank does indeed control the objective bank liquidity measured by the free liquidity reserves, but that subjectively the banks feel liquid as long as they have unused basic facilities at their disposal.
- Otmar Issing et al. assert that by better utilization of free liquidity reserves the banks could in fact procure objective liquidity by way of interbank transactions.
In both cases, the banks would not follow a restrictive policy of the Bundesbank either closely enough or quickly enough. On the basis of these deliberations, the various authors discuss proposals for improving money and credit policy control instruments. In this article it is shown that the hypotheses on which such proposals are based will not standup to close scrutiny and that, on the contrary, by Variation of the free liquidity reserves the Bundesbank can enforce any and restriction it desires. To demonstrate this, it is first examined.
- how the bank liquidity that is to be controlled can be defined,
- whether a restrictive policy may possibly be hindered because the (objective) overall liquidity is increased by expanding interbank business, or
- whether a restrictive policy may possible be hindered because, independently of the trend of overall bank liquidity, the (subjective) liquidity of individual institutions is increased by expanding interbank business.
It is then shown that in the case of monetary expansion the banks have to orient themselves directly or indirectly also to the free liquidity reserves and that in the past (to some extent in contrast to first appearances) they have done so.


Fausten, Dietrich K.
„Beyond the Analytics of the Monetary Approach to the Balance of Payments : Methodology, Innovation and Monetarism“

In the present study an attempt is made to elucidate the meaning of the frequent attributions in the literature on the frequent attributions in the literature on the monetary approach to David Hume, and to the classical tradition of balance of payments analysis. Given the distinct analytical dissimilarities between the classical, specifically the Human, and contemporary monetary approaches, it is contended that this meaning lies outside the sphere of the specific analytics of economic model-building. Instead, it is argued, the recurring references to orthodoxy are indicative of a non-extremist methodological approach to the history of economic thought, and further that they are consistent with the requirements of Innovation in economies as well as with the express desire to dissociate the monetary approach from contemporary monetarism.



Kleinheyer, Norbert
“The Divergence lndicator in the EMS”

The divergence indicator is a new Instrument in the EMD, the make-up of which is largely identical with its predecessor, the so-called "snake". The divergence of the ECU daily exchange rate of a currency from the ECU reference rate is related to the maximum possible divergence of a currency. In this way, the varying influence of the different weights of the currencies in the ECU basket is neutralized. The triggering of the indicator gives grounds to assume that the authorities concerned will take appropriate action. The hypothesis that the divergence indicator is intended as an early warning instrument prior to reaching the intervention points is not tenable in the light of the technical make-up and procedure practiced up to now. On the contrary, the function of the divergence indicator is to point out those currencies which, on account of trends diverging from the average, give rise to tensions in the exchange rate structure of the EMS. The consequences of indicator triggering are not governed by rules, but rather depend on the will of the individual country or on the consultations initiated by the divergence indicator. In the very recent past, the causality appears to have been reversed: action is no longer taken when the indicator is triggered, but in order to avoid reaching the divergence threshold. This might have a positive integration effect on the economic policies of the EMS countries.


Wartenberg, Uwe
„The Distribution of the Tax Burden in the Federal Republic of Germany - An Empirical Analysis for the Years 1969 and 1973“

1. Empirical tax burden analyses are faced with the difficulty that the findings of theoretical impact models cannot be transposed without further ado and up to the present there is a hiatus between theory and empiricism. Consequently, empirical studies have to resort to necessary simplifications. These simplifications relate to tax-shift hypotheses, imputation indicators, and the actual goal of tax burden analysis, i. e., the determination of personal distribution impacts in as differentiated a form as possible.
2. In order nevertheless to obtain the most significant possible result, it is advisable to calculate the possible extreme forms: "no tax shifting" and "total tax shifting" for all types of tax, in order to arrive at distribution bands within which the actual result must lie. lf it is desired to apportion the tax burden to private households on the basis of more than just one attribute (e. g. income brackets), a combination of income and social position is expedient, by which the significance spectrum can be extended substantially.
3. The distribution bands for 1973 show that the German tax system cannot be described as either progressive (upper income brackets bear relatively more taxes than the lower ones) or regressive (upper income brackets bear relatively less taxes than the lower ones). As far as the level of the burden is concerned, farmers are affected least, whether there is any shifting or not. The burdens are most evenly distributed among civil servants and workers, and are most highly concentrated among the self-employed and those not gainfully employed. An additionally computed "probable alternative" leads to the conclusion that the burden is regressive for civil servants and progressive for non-gainfully employed. In the case of farmers, self-employed, salaried employees and wage-earners varying burden curves are found. Across the board, the main burden is borne by the monthly net income brackets from DM 1,800.00 to 2,500.00 and DM 2,500.00 to 5,000.00. Referred to the gross income, the average burden of these income brackets is 34 %, but for the lower income brackets it is only 1 % less.
4. A comparison of the "probable alternatives" for 1969 and 1973 shows that in both years the farmers bore the smallest burden, and that in the comparable income brackets the burden rate even diminished from 1969 to 1973. In the case of the self-employed, the burden rate likewise decreased, but more in the lower income brackets than in the higher. In the case of civil servants and salaried employees slight rises in the burden rate were found in some instances, while for wage-earners and those not gainfully employed there were slight decreases.
In all groups other than the self-employed, the concentration of the tax burden was more even in 1973 than in 1969, which even then was an indication of gradual "growth into the progression".