KREDIT und KAPITAL - Issue 4/1973



Brunner, Karl
Credit-Market, Interest Rate and Three Types of Inflation

Vogl, Gerald and Woll, Artur
Der Einfluß von Geldsubstituten auf die Effizienz der Geldpolitik

Kath, Dietmar
Aktiva-Reserve und Offenmarktpolitik in kontroversen geldtheoretischen Konzepten


Bryant, John
Housing and Housing Policies in Western Europe

Book Reviews

Wai, U Tun
Financial Intermediaries and National Savings in Developing Countries (Gerhard Jaeger)

Caspritz, Klaus
Debt Management als Instrument monetärer Stabilisierungspolitik (Wolf-Albrecht Prautzsch)

Willgerodt, Hans und Domsch, Alexander und Hasse, Rolf und Merx, Volker unter Mitwirkung von Kellenbenz, Paul
Wege und Irrwege zur europäischen Währungsunion (Hans Pfisterer)

Ungnade, Dieter
Die Zuverlässigkeit der staatlichen Einflussnahme auf den primären Rentenmarkt, speziell im Hinblick auf § 795 BGB (Eberhard Wolff)

Bosch, Heinz-Dieter (Hrsg.)
Zur Vermögenssituation der privaten Haushalte in der Bundesrepublik Deutschland. Teil II: Ein tabellarischer Vergleich für die Jahre 1960/61 und 1969 aufgrund statistischer Erhebungen des Deutschen Sparkassen- und Giroverbandes (Manfred Hiltner)


Brunner, Karl
"Credit-Market, Interest Rate and Three Types of Inflation"

The paper develops an analytic framework explaining the joint determination of interest rates on financial assets, market value of real capital (or real rate of return on real capital) money stock, and total "bank credit". These four magnitudes emerge from the responses of public, banks and monetary-fiscal authorities conditioned by the interaction of asset markets.

An important characteristic of the analysis is the differentiation between money demand and asset-supply (i. e., loan demand and implicit supply of securities to banks). The properties of money demand and asset supply differ substantially in crucial respects. This differentiation implies in particular that the standard analysis of the superiority of an interest target policy based on the relatively dominant variability of the LM curve cannot be subsumed under our analysis. It also implies that the transmission of monetary impulses does not depend on the absolute magnitude of the interest elasticity of money demand. It depends on the other hand on the relative magnitude of the interest-elasticity's en credit-market and money-market.

The structure of the model also implies that the real rate on financial assets and the real rate on real capital do not always coincide or even move together. The analyse of short-run responses of asset-market interactions established cases of divergent responses in the two real rates. The longer-run repercussions via the output-market modify the results, however, and the two rates converge in the long-run. Divergent movements of the two rates are thus an essential element of short-run adjustment processes.

Movements in the market rate of interest were organized into an impact effect, an intermediate-run feedback effect and a long-run feedback effect. The impact effect is determined by the interaction of asset-markets without feedbacks via any other markets. It was also shown that this impact effect cannot be interpreted as a liquidity effect. The intermediate-run feedback effect depends on the repercussions via the output-market. The long-run effect depends on the other hand on the operation of price expectation mechanisms. The interaction of those effects implies that short-run and longer-run effects of monetary impulses differ in sign, and that short-run and longer-run consequences of Wicksallian or Keynesian impulses differ in magnitude.

Three types of inflations were distinguished and their consequences with respect to credit-markets examined. It was shown that the behaviour of interest rate and equity values relative to output prices differentiates between the major types of inflation. A financial inflation determines a given level of real base and real securities with a constant real rate of interest. Changes in these magnitudes require an acceleration or deceleration of inflation. Moreover, changes in the real rate of interest induced by variations in the magnitude of the inflationary impulse -are negligible compared to the associated changes in the nominal rate of interest. The Wicksellian and Keynesian inflation exhibit a substantially different pattern. A constant rate of inflation continuously raises the real rate. It follows that the nominal rate also continuously rises even with fully adjusted and constant anticipations of the inflation rate. The nominal rate can be determined under a financial inflation to a first approximation by the rate of inflation. Under a Wicksellian or Keynesian inflation the nominal rate is determined to a first approximation by the whole past history of the inflation rate. The longer the inflation and the larger past inflation values, the larger are real and nominal rates of interest. The Wicksellian and Keynesian inflation exhibit thus similar patterns with respect to the real rate on financial assets. They differ, however, with respect to the movement of the relative price of real capital. In a Wicksellian inflation equity values rise relative to output prices, and in a Keynesian inflation these values fall relative to output prices. On the other hand, equity values do not change relative to output prices under a financial inflation. A systematic study of interest rates and equity values should thus yield some information on the relative frequency or prevalence of the various inflationary motor forces.


Vogl, Gerald and Woll, Artur
"The Influence Of Money Substitutes on Monetary Policy"

For the long-term trend in the financial sector of the U.S.A. Goldsmith determined empirically that the share of the banks in the economy's overall financial assets decreases where there is a steady increase in the share of the intermediary institutions. For Gurley and Shaw this result gives cause for the formulation and theoretical substantiation of the substitution or instability hypothesis according to which money substitution results in a long-term decrease in the demand for money and a loss of efficiency of monetary policy. The objections of the instability hypothesis to monetary stabilization policy as a rational strategy for stabilizing the trend of national income are the subject matter of this analysis.

It is shown that the instability hypothesis contains two components of a functional instability. The reduction effect - parallel displacement to the left of the money demand curve - is the long-term expression of money substitution. It is determined by the growth of wealth and must be expressed in the money demand function by the variable "wealth". The second component of the instability hypothesis is the elasticity effect, which finds expression in a change in the degree of liquidity of near monies - defined as the relationship between non-pecuniary yield and the total yield of an asset. Related to the curve of money demand, the elasticity effect causes a change in the slope. It must be regarded as a short-term effect of money substitution and may go over into the reduction effect. Both effects of money substitution increase the substitution elasticity of near monies relative to money.

The intermediaries which issue near monies are in a position to influence demand for money both via the reduction effect by a growing supply of their money substitutes and via the elasticity effect by modifying the degree of liquidity. Near monies affect accumulation of wealth in the amount of the quotient of the non-pecuniary and total yield rate, i. e. in step with the degree of liquidity. Both effects of money substitution influence the overall demand via the interest rate and wealth structure, which may adversely affect a monetary stabilization policy.

From the evaluation of the statistical material, it can be said for the Federal Republic of Germany in respect of the empirical evidence of the instability hypothesis that

-after the growth phase of the intermediaries up to 1957 - measured by the aggregate balance sheet assets of the financial sector - followed a consolidation phase, and from 1966 onwards a slight downward trend is perceptible;

-the long-term relative decrease in the demand for money cannot be attributed to the substitution of intermediary assets for money;

-the instability hypothesis for periods of monetary restriction can be confirmed neither by substitution of near monies for money nor by an expansive intermediary credit policy;

-no relevant long-term influence of near monies on the stability of the money demand function can be perceived.


Kath, Dietmar
"Asset Reserves and Open Market Policy in Controversial Monetary Theory Conceptions"

Despite the very restrictive monetary policy of the German Bundesbank since June 1972, economic development in the Federal Republic of Germany is marked by rising inflation rates. For this reason doubts have recently been expressed as to whether the Bundesbank is at all in a position to limit overall economic demand by influencing the quantity of money and the volume of credit. However, since those aggregate monetary magnitudes continue to grow at almost un diminished rates despite the contractive policy, the failure of central bank policy might also be due to the fact that the Bundesbank's monetary policy instruments are not sufficient to control these magnitudes effectively. Against this background, in recent months a plan put forward by the Bundesbank for the introduction of an assets reserve and another advanced by the Board of Experts for more effective organization of open market policy have been developed.

This contribution demonstrates that the two reform conceptions are based on different interpretations of the transmission mechanism for monetary impulses. Underlying the proposal for reorganization of open market policy is the conception of the monetarists to the effect that the central bank can control monetary expansion only if it has a firm hold on the supply of centralbank money. In contrast, the assets reserve plan is based on the hypothesis of the neo-Keynesians that the volume of credit is determined predominantly endogenously and must therefore be controlled by the monetary authorities directly.

The chief object of this article is to analyse the reform plans with regard to their impact and simultaneously to examine to what extent the recommended instruments are suitable to improve the efficiency of the centralbank in the boom phase.

The conclusions drawn from the analysis in respect of monetary policy are that the central bank should regard the quantity of money and the volume of credit as equal-ranking target magnitudes. This dual objective of its policy also demands reorientation of its instruments. In a concluding consideration of the situation it is shown that an assets reserve and reorganized open market policy might together form components of an efficacious reform conception for the Bundesbank's monetary policy.



Bryant, John
"Housing and Housing Policies in Western Europe"

During the post-war period European governments have maintained extensive housing support programs. Two possible goals could account for the continuance of these programs: a) to increase the rate of growth of housingstock, b) to stabile the construction industry. There seems to be little evidence that either of these goals have been achieved in the countries studied. In the main the study of both cross-section and time series evidence is limited to five countries - Denmark, Finland, France, Sweden, and the United Kingdom. For six other countries, Belgium, Italy, Netherlands, Norway, Switzerland and West Germany, the data permit either cross-section or times series analysis, but not both, and often provide fewer details.

Growth rate and stability of housing investment in the post-war period were estimated for these countries for which sufficient data was available. Omission of the years before 1951 was necessary in order to minimize the effect of war related destruction which was highly variable between countries. As a measure of the magnitude of government housing programs, percentage of housing unassisted was chosen. Correlations of percentage housing unassisted to stability and growth are insignificant in cross-sections. These crude cross-section tests are supplemented by estimating a model of housing investment using pooled cross-section and time series data. Once again the magnitude of government subsidy does not have significant explanatory power.

As the types of housing programs differ greatly (between the countries studied, percentage housing unassisted may not be an accurate measure of size of housing subsidy. Therefore the housing investment model is also estimated using time series data for those countries for which there is adequate data. Here too, the results give little support to the continuance of current housing programs. The coefficients vary greatly between countries, but never is there the large significant positive coefficient on government aid that one might expect. Denmark provides a dramatic example where a curtailment of government programs coincides with a large increase in housing production.

In most of the countries studied the governments support or supplement the mortgage market. However, attempts to increase housing production by lowering the cost of borrowing work only to the extent that borrowers are forced to purchase more housing. In Europe there exist many opportunities to use credit obtained by mortgaging real estate to purchase goods and services other than housing, or to buy equities.

The most significant variables affecting housing investment seem to be income and quality of existing housing stock. Growth in housing production is brought about by increasing gross national product. Attempts by the governments to reallocate income in favour of housing are not noticeably successful.