KREDIT und KAPITAL - Issue 3/1989


Contents


Articles

Konrad, Anton
Reale Wechselkurse, Leistungsbilanz und Wachstum

Fausten, Dietrich K.
A Note on External Adjustment

Baade, Robert A. and Natzmi, Nader
Current Substitution and Money Demand in the United States, West Germany and Japan

Klump, Rainer
Der Dollar als internationale Schlüsselwährung. Ursachen und Perspektiven

Bühler, Wolfgang and Herzog, Walter
Die Duration - eine geeignete Kennzahl für die Steuerung von Zinsänderungsrisiken in Kreditinstituten? (Teil I)


Reports

Bofinger, Peter
Zum “Bericht zur Wirtschafts- und Währungsunion in der Europäischen Gemeinschaft” des “Ausschusses zur Prüfung der Wirtschafts- und Währungsunion” – “Delors-Bericht”


Book Reviews

Hölscher, Reinhold
Risikokosten-Management in Kreditinstituten: Ein integratives Modell zur Messung und ertragsorientierten Steuerung der bankbetrieblichen Erfolgsrisiken
(Elke Büsselmann)

Kersch, Annette
Wechselkursrisiken, internationaler Handel und Direktinvestitionen
(Lukas Menkhoff)


Summaries

Konrad, Anton
„Real Exchange Rates, Balance on Current Account, and Growth“

Recent stock-flow models have yielded the so-called acceleration hypothesis according to which a surplus (deficit) on current account leads to an appreciation (depreciation) until balance is achieved. In a growing economy, however, the increase in wealth may be associated with an additional demand for net foreign assets or with the readiness for increased foreign indebtedness. This growth effect militates against the equilibrium mechanism of flexible exchange rates and may even exacerbate the imbalance. In the long run, however, considerations of risk may put an end to further capital flows and enforce a balanced current account.

top


Fausten, Dietrich K.
„A Note on External Adjustment“

Exchange rates are determined by the interaction between the financial and real sectors of the economy. Alternative preoccupation with either assets markets or goods markets is unlikely to yield a meaningful explanation of balance of payments or exchange rate behaviour. In order to trace the implications of this interdependence for short-run adjustment behaviour, real assets are included in portfolios together with financial assets. Portfolio balance behaviour is animated by income as well as by relative yields, giving rise to the phenomenon of the "income-mobility" of international capital movements in addition to their "interest-mobility". Disturbances initiate asset substitutions that are not confined to financial markets but that affect the real sector directly, and generate simultaneous and mutually compatible changes on current and on capital account. Any residual imbalances between the component accounts are eliminated by exchange rate changes which, consequently, do not display a stable relationship with movements in either component account.

top


Baade, Robert A. and Natzmi, Nader
„Currency Substitution and Money Demand in the United States, West Germany and Japan“

Money demand equations for the United States that predicted well during the late 1950s and throughout the 1960s began to significantly overpredict money demand in 1974. This "missing money" puzzle inspired a myriad of explanations. Since the adoption of floating exchange rates coincided with dollar demand overpredictions, one explanation has focused on a growing tendency to substitute other currencies for dollars in international portfolios. The purpose of this paper is to test the currency substitution thesis. The authors concluded that while there was a structural shift in the demand for money, perhaps induced by currency substitution among countries analyzed, currency substitution at best only partially explains dollar overpredictions.

top


Klump, Rainer
„The Dollar as an International Key Currency - Reasons and Perspectives“

The US dollar has been by far the most important international key currency todate. However, a rising number of voices have been heard recently that predict - as was the case already once in the end-1950s - the early loss of its dominant position in the international currency system. Assessing the dollar's special position and its future development presupposes a theory that allows to reduce the existence of international key currencies to rational decision-making by private individuals and by monetary authorities. Within the framework of such a theory pertaining to international key currencies it is possible to identify transaction costs, monetary risks and the process of international liquidity transformation as factors that can explain the rise of the dollar to its dominant position as an international key currency. Since several factors must come together in order to give a currency the status of a key currency, it is not possible either to explain emergency-like changes in status in just one respect. Insofar neither the USA's high level of external debts nor the decline of the rate of exchange of the dollar represent, of necessity, the end of the international dollar standard. Together with a strongly rising rate of inflation, increasing protectionism and declining savings formation in the USA, it may nonetheless initiate a dramatic decline in the international use of the dollar.

top


Bühler, Wolfgang and Herzog, Walter
„The Duration-Based Concept - A Meaningful Approach to Managing Banking Institutions' Risk of Interest Changes? (Part 1)“

This is the first part of a contribution to be followed by another one in the 4/1989 edition of this publication that discusses the extent to which the duration-based concept in its net assets-related form is a meaningful approach to managing banking institutions' risk of interest rate variations. This discussion is, however, no continuation of the theoretical assessment of that concept's pros and cons. It rather attempts, with the help of a simulation model based on empirical interest rate data compiled for the period 1972/1986, to analyze the quality of various duration-based approaches to risk management. The simulation runs have produced a number of remarkable results: contrary to the wide-spread opinion, banking institutions, for instance, that are characterized by fixed-interest lending surpluses neither run any risk in respect of their net interest income when interest rates go up nor do they have any opportunity in respect of the net interest they earn when interest rates go down. It is rather a fact that lending terms, much more volatile here than borrowing terms, lead to a much stronger response to market interest rate variations by interest earned compared to interest due in spite of the smaller volume of interest-variable assets. An analysis of results shows on the one hand that "net cash assets" as a management quantity are, since they are aimed at immediate hedging of net assets, inappropriate for managing net assets within the planning horizon. Moreover, the simulation runs based on the management quantity of "ultimate net assets" make it clear on the other hand that the assumption of uniform interest rate variations result in management mistakes of a dimension that are no longer acceptable. By taking account of maturity-specific yield fluctuations on the capital market, it has been possible to obtain management results that are - it is true - partially better, but in no way satisfactory overall. So, it should be noted as a major result that the description of changes in the behaviour of banks' individual interest rates is indispensable to managing banking institutions' interest rate variation risk. It will therefore be a matter of prominent importance in future to analyze the empirically ascertained behavioural changes in respect of anyone business position and to take account of the data obtained in managing position-specific interest rate variation risks.

top


Reports

Bofinger, Peter
„Report on Economic and Monetary Union in the European Community“

This contribution discusses in a critical manner the central results of the Delors Report. The reason the experts give for the need to run more closely coordinated monetary and fiscal policies as early as from 1 July 1990 (stage I) is the liberalization of financial markets in the large EC member states planned for that date. It is argued that the EMS is in a position to bring about effective monetary policy coordination also in an environment of free capital movements. At this stage, the monetary problem is the existence, side by side, of direct coordination (through the council of governors) and of indirect coordination (through the EMS mechanisms with the Deutsche Bundesbank as the stability guardian) which may turn out to be detrimental to monetary stability in Europe. Stage II provides that the council of governors is replaced by a European system of institutionally fully developed central banks; at this stage, the monetary policy responsibilities are to be transferred from national to Com­munity institutions. It is this important point on which the Report is particularly unspecific, which gravely affects its suitability as a schedule for integration. The ulti­mate character of economic and monetary union unconditionally corresponds, as far as monetary union is concerned, to the concepts developed mainly in the Federal Republic of Germany (independence, commitment to monetary stability, federal structure). The perceptions regarding economic union (binding requirements formulated by the EG Council of Ministers for national budget deficits), an the other hand, go far beyond what is necessary. These perceptions prepare the ground for a European demand management system through an institution that is not subject to parliamentary control.

hoch