Wechselkursovershooting contra effiziente Devisenmärkte
Widersprüche in der Geldmengenpolitik der Deutschen Bundesbank
Amann, Erwin and Jäger, Albert
Staatsschuldenarithmetik: Zwei unerfreuliche Beispiele
Soll die Bundesbank eine nominelle BSP-Regelpolitik betreiben? Ein Kommentar zu Wagner (1988)
Welcker, Johannes and Schindler, Klaus
Währungsoptionsscheine und der Rückerstattungs-Währungsoptionsschein (RWOS-money-back currency warrant) der Nordiska Investeringsbanken (NIB)
Die Bereitschaft von Banken zur Übernahme von Kreditrisiken
Debt Equity Swaps: Konzeption, Anwendung und Probleme
Microeconomic Theory. An Introduction
Samuelson, Paul A. und Nordhaus, William D.
Exchange Rate Overshooting versus Efficient Foreign Exchange Markets
Dornbusch's financial market theories offer guidance in the attempts made to explain the marked fluctuations of real exchange rates. The exchange rate overshooting reflected therein has, however, turned out to be irreconcilable with the empirically ascertained efficiency of foreign exchange markets. Against this background, the author shows that the condition at the base of the explanation given for overshooting in the Dornbusch model, i. e. the asymmetry in the formation/anticipation of price expectations in national and international financial markets, is not tenable. There is no reason explaining why the (same) market participants do not have identical expectations for the formation of interest rates on domestic capital markets and for the formation of exchange rates on foreign exchange markets, although the movements in money supply relevant to the domestic market need to be systematically recorded as well. In a generalized financial market theory approach, the author lifts this asymmetry and offers an explanation for the wide fluctuations of real exchange rates without getting into conflict with the efficiency of foreign exchange markets. However, this presupposes an interpretation, basically different in part, of the traditional conditions deciding on the money market equilibrium. Fluctuations of real exchange rates are the consequence of monetary distortions not anticipated in price expectations. The extent does, however, in no way correspond to the one assumed by Dornbusch in his model.
Contradictions in the Money Supply Policy of the Deutsche Bundesbank
The present contribution analyzes the obedience to rules and consistency of the Deutsche Bundesbank's monetary policy. It shows that - through its target ranges the Deutsche Bundesbank obtains wide scope for discretionary decisionmaking is spite of its announced rule-bound and potentialoriented monetary policy. This contribution also proves that the Bundesbank is well prepared to take account of new theories in its monetary policy announcements, but it is open whether it actually transforms such theories into practical policies. The extent to which ranges defining the development of the central bank money stock help ensure the stability of the value of money depends on market participants' subjective expectations. On the basis of a rational expectations model, the influence of pay policies and emerging expectations on the effectiveness of monetary policy is analyzed. The stronger the response of the level of employment to changes in real wages, the greater the probability that market participants have their rational expectations guided by the lower limit of the target range announced by the Bundesbank. However, if the responsiveness of the level of employment to high wage demands is deemed to be low and the Bundesbank is expected to abandon its totally restrictive monetary policy course, the probability of an undesired inflationary equilibrium is correspondingly greater.
Amann, Erwin and Jäger, Albert
Public Debt Arithmetic - Two Unpleasant Examples
If real interest rates remain above real growth rates of output in the long run, the current fiscal policy stance in many countries will become unsustainable. The required policies for handling this situation face the following dilemma: Primary deficits (= deficits excluding interest payments) must be adjusted to preclude an explosive development of the debt-income ratio. The more rapid this adjustment is executed, the lower will be the necessary primary budget surplus that guarantees sustainability of the debt-income ratio in the long run. But rapid adjustment will imply high short-run costs in terms of output and employment losses. Slow adjustment implies, however, that the long-run surplus has to be higher than in the case of rapid adjustment. Moreover, a slow adjustment strategy might entail other costs as well, if, e. g. real interest rates increase in response to the expected higher future debt-income ratios. This paper discusses two models intended to illustrate the dilemma. In the first model, we assume an exogenous maximum for the primary budget surplus sustainable in the long run. This model is suited to illustrate the relationship between the speed of adjusting the deficit, the solvency of the sovereign and the sustainable long run budget surplus. The second model introduces a "vicious circle" element into the model by linking the real interest rate to future budget deficits. One implication of the second model is that the long run sustainable debt-income ratio is bounded from above without introducing an exogenous upper bound for deficits as in the first model.
Welcker, Johannes and Schindler, Klaus
Money-back Currency Warrants of the Nordiska Investeringsbanken
At present, 20 of the roughly 30 currency warrants are traded at stock exchanges of the Federal Republic of Germany. Since there is no regular trade in currency futures contracts and currency options in the Federal Republic of Germany, several banks additionally quote and publish bid/ask prices of options issued for periods of up to one year. The market encompasses also DM-puts at US stock exchanges which are the same as US-$-call options. The exercise periods of currency warrants from their dates of issue in most cases exceed one year. Some of them are European, but most are American options. According to the Garman / Kohlhagen model, the parameters determining the value of European currency warrants are the exchange rate, the exercise price, the exercise period, the volatility as well as the domestic and the foreign rates of interest. This paper initially discusses the influence of those quantities on the values of currency warrants. Then the additional term of the McMillan and Stoll / Whaley model is introduced to evaluate American warrants. The Garman / Kohlhagen value based on the Black / Scholes model is roughly identical in value with the market price of European currency warrants. A Pseudo-American evaluation offers an unsatisfactory explanation of the market value of American currency warrants. This holds true especially for longer exercise periods and for in the money options. The Garman/ Kohlhagen values ascertained with the help of the additional McMillan and Stoll/ Whaley-term for the American-type of currency warrant is roughly identical with market values. The evaluation of both European and American currency warrants rather tends to be a bit on the high side. The money-back currency warrant compares with a currency call option like a convertible bond with a warrant. It is necessary upon exercising the money-back currency warrant to waive the repayment of its original price and to pay the extra amount referred to under the "exercise price" in the terms of contract. Both components together make the exercise price of the currency call option. This explains why the value of the money-back currency warrant must be determined ex ante simultaneously with the exercise price, which depends also on the - unknown - date of exercise; so the evaluation of the money-back currency warrant is an unsolved problem. The money-back currency warrant, whose original price is known, is composed of the
- discounted amount of repayment and
- the value of an American currency call option with an exercise price equal to
- the extra amount due on the date of exercise ("exercise price" in the terms of contract) and
- the discounted amount of repayment if the warrant is not exercised.
The value of a money-back currency warrant crucially depends on the selection of the rate of discount to be applied to the amount to be repaid, which - in turn depends on the investor's marginal tax rate, because the growth of the amount to be repaid is not subject to taxation.
The Banks' Willingness to Assume Credit Risks
The risk of default banks are prepared to accept in individual lending operations is a matter of dispute in professional writing. The theory whereby banks are willing to accept the risk of default involved in lending operations insofar as they are able to obtain compensation by way of a risk premium included in the interest rate and the theory whereby banks are not prepared to accept any risk of default are supported by various hypotheses applied in individual lending decision-making. The present contribution analyzes these hypotheses and discusses the view expressed in professional writing that the individual lending decision-making theory has not been in a position so far to explain that the hypothesis whereby banks are prepared to accept the risk of default in lending operations up to a limit independent of the rate of interest charged is the more realistic one. The risk limitation helps derive a security criterion in individual lending decision-making which supports the risk classification hypothesis within the framework set by the individual lending decision-making theory. Risk limitation also makes it possible to put the risk horizon discussed in professional writing on an uncertainty theory basis. Moreover, the approach supporting the risk avoidance theory may be identified as a special case of risk limitation. Possibilities to develop the theoretical concept further and ways in which the instrument developed can support lending decisions in practice are outlined in conclusion.
Debt Equity Swaps: Concepts, Application and Problems
Debt equity swaps widen the scope of action of banks and corporations willing to invest and offer considerable advantages over conventional financing techniques. This conclusion, positive from the point of view of individual economic units, is not true in the overall economic perspective. The suitability of debt equity swaps for fulfilling the expectations placed in them, i. e. reducing foreign debts noticeably, stimulating foreign direct investment, repatriating runaway capital and raising efficiency by privatizing nationalized industries in developing countries, is apparently limited. Moreover, they pose grave monetary, budgetary and allocation problems, whose importance has been underestimated so far, that allow an only moderate extent of conversation, if inflation is not to be additionally stoked up and if the national budget is not to be put under further pressure. Growing domestic political resistance to foreign direct investment gives rise to the expectation that the present rate of debt conversation will be slowed as well. In view of these constraints, the best debt equity swaps can be hoped to achieve is to render a modest contribution to getting the acute problems encountered by developing countries under control; moreover, this hope will become reality only if the governments of the affected countries succeed in ensuring political and economic framework conditions apt to regain the confidence of foreign banks and corporations as well as of their own nationals.