KREDIT und KAPITAL - Issue 4/2005


Contents


Articles

Carr, Jack, and Chu, Kam Hon
"Inflation, Financial Development and Income Inequality"

Knell, Markus, and Stix, Helmut
"How Robust are Money Demand Estimations? A Meta-Analytic Summary of Findings about Income Elasticities"

Breuer, Wolfgang, and Gürtler, Marc
"Investors' Direct Stock Holdings and Performance Evaluation for Mutual Funds"

Bigus, Jochen, Langer, Thomas, and Schiereck, Dirk
"Why there is Collateral?"


Reports

Peter Tillmann
Konstanz Seminar on Monetary Theory and Monetary Policy 2005


Book Reviews

Verein für Kreditmanagement, Schneider-Maessen, Jan, und Weiß, Bernd (Hrsg.)
Management in a European Context (Dietmar Grichnik)

Freire, Mila, Petersen, John, Huertas, Marcela, and Valadez, Miguel (eds.)
Subnational Capital Markets in Developing Countries - From Theory to Practice (Daniela Beckmann)


Summaries

Carr, Jack, and Chu, Kam Hon
"Inflation, Financial Development and Income Inequality"

Contrary to most traditional studies which focus on the distributional effects of inflation, this paper theoretically examines how income distribution can be a determinant of inflation. Using an overlapping-generations model, this paper shows that inflation in the steady state under financial "undevelopment", defined as both the rich and the poor hold money, is higher than it is under financial "underdevelopment" where only the poor hold money. Furthermore, inflation will be higher if the income of the poor when they are old is lower. Thus, more unequal income distribution can lead to higher steady-state inflation. This is because the government can extract more inflation taxes, which have a lower incidence on the rich people than a progressive income tax does. This may explain why higher inflation rather than tax reform is chosen in the political process, particularly among non-democratic countries. We apply both OLS and GIVE estimation techniques to cross-country data for 90 countries over the period 1950-92. Our hypothesis is supported by the results for a subsample of 56 non-democracies, which indicate that inflation is related positively to money supply growth and the Gini coefficient but negatively to the level of financial development. (JEL D30, E31, E58, H22)

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Knell, Markus, and Stix, Helmut
"How Robust are Money Demand Estimations? A Meta-Analytic Summary of Findings about Income Elasticities"

In this paper we conduct a meta-analysis of empirical money demand studies involving almost 500 individual money demand estimations. We analyze whether the wide variety of results can be explained by characteristics of the studies or the imprecision of individual estimates. We find that estimates for the income elasticity of money are systematically related to various study characteristics (e.g., broadness of the monetary aggregate, inclusion of financial innovation and wealth). Nevertheless, a substantial part of the variability remains unexplained. (JEL E41, E52)

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Breuer, Wolfgang, and Gürtler, Marc
"Investors' Direct Stock Holdings and Performance Evaluation for Mutual Funds"

Investors need performance measures particularly as a means for funds selection in the process of ex-ante portfolio optimization. Unfortunately, there are various performance measures recommended for different decision situations. Since an investor may be uncertain which kind of decision problem is best apt to describe his personal situation the question arises up to which extent funds rankings react sensitive with respect to changes in performance measurement. To be more precise, an investor with mean-variance preferences is considered who is trying to identify the best fund f* out of a set consisting of F funds and to combine this one optimally with the direct holding of a broadly diversified (reference) portfolio P of stocks as well as riskless lending or borrowing. For an investor just starting to acquire risky securities all three fractions of the various assets in question as part of his overall portfolio can be considered variable, while there also might be investors with already given direct holdings of stocks amounting to a certain fraction of their total wealth which cannot or shall not be altered. For both situations different adequate performance measures have been suggested by Breuer/ Gürtler (1999, 2000) and Scholz/ Wilkens (2003). We theoretically analyze as well as empirically possible deviations in resulting funds rankings for the two decision situations described previously. While there are indeed only loose theoretical relationships between the performance measures under consideration, empirical evidence suggests almost identical funds rankings. As a consequence, potential investors need not bother much about whether their situation is best described by an already fixed or a still variable amount of direct stock holdings. Moreover, traditional performance measures like the Sharpe ratio or the Treynor ratio will in general lead to reasonable funds selection in both situations. (JEL G11)

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Bigus, Jochen, Langer, Thomas, and Schiereck, Dirk
"Why there is Collateral?"

This paper surveys theoretical models addressing this question. The literature emphasizes two benefits of collateral. First, collateral allows a borrower to signal quality thus mitigating the problem of adverse selection. Second, collateral serves to mitigate moral hazard by the borrower. The models mainly look at external collateral, that is, secured private assets. However, loans are also often secured by the firm's assets. This internal collateral is less useful to mitigate problems of adverse selection or borrower's moral hazard. Rather, it seems to mitigate conflicts of interest between different creditors. So far, there are only a few papers on this issue. There is another issue that has hardly been explored yet: What is the role of collateral if we weaken the assumption of strict rationality?

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