KREDIT und KAPITAL - Issue 3/1990


Contents


Articles

Bernholz, Peter
Probleme der Währungs- und Budgetpolitik beim Übergang von der zentralgeplanten zur wirtschaftlichen Ordnung

Gersbach, Hans and Nedwed, Harald
Die Selbststabilisierung von Hyperinflationen: Eine überraschende monetäre Arithmetik

Heri, Erwin W. and Theurillat, Michael J.
Purchasing Power Parities for the DM. A Cointegration Exercise

Chang, Wen-ya and Lai, Ching-chong
A Note on Tax Multiplier

Tichy, Gunther
Bankengröße und Effizienz


Reports

Ngogang, Samuel
Credibility of Monetary Policy in a Currency Area: The Case for the Franc Area


Book Reviews

Filc, Wolfgang, Hübl, Lothar and Pohl, Rüdiger (Hrsg.)
Herausforderungen der Wirtschaftspolitik. Festschrift zum 60. Geburtstag von Claus Köhler
(Werner Lachmann)

Gondring, Hanspeter
Finanzmärkte im Wandel – Struktur- und Marktveränderungen im Finanzsystem der USA
(Lukas Menkhoff)


Summaries

Bernholz, Peter
„Switching from Centrally Planned to Market Economy: Problems of Monetary and Fiscal Policy“

The present paper shows that common monetary and fiscal problems arise, when a centrally planned regime tries to move towards a market economy. The process begins with an overhang of monetary assets, with subsidies to loss-making firms and price subsidies, with an underdeveloped tax system and, therefore, usually a budget deficit. During the reforms the budget deficit worsens, because of the still underdeveloped tax system and increasing subsidies as a consequence of keeping some prices fixed, of decentralization and of supporting loss-making firms and too big investments. Such developments strengthen the opponents of the reform since the Population assigns the inflation, resulting from budget deficit and money creation, to the reforms. This often leads to a standstill or even reversal of the reform process. At the end of the paper it is shown how these transition problems can be solved by adequately timing consistent measures.

top


Gersbach, Hans and Nedwed, Harald
„Self-Stabilization of Hyperinflation - Surprising Monetary Arithmetics“

This paper discusses the interrelations between budget deficits, money supply growth and rates of inflation in periods of hyperinflation. The traditional approach is generalized and analyzed in respect of its explanatory value for high rates of inflation, the interrelations between budget deficits and rates of inflation as well as stabilization properties, It turns out that monetary models are unable to explain the emergence of unlimited inflationary processes when governmental budget deficits are monetized by the central bank. Moreover, monetary arithmetics do not permit any monotonous link between levels of inflation in balanced inflationary situations and the level of the real budget deficit. When the budget deficit grows in the course of the inflationary process, this leads to a curbing of inflation. Stabilizing the level of prices in periods of hyperinflation presupposes a non-recurring drastic increase in nominal money supply on the one hand and the binding of governmental authorities to a complete waiver of monetization in future on the other. When, after stabilization, budget deficits are financed again, the outcome is deflation.

top


Heri, Erwin W. and Theurillat, Michael J.
„The Purchasing Power Theory with Relation to the D-Mark“

The purchasing power theory represents one of the probably oldest theoretical components in determining long-term exchange-rate equilibrium. It forms part also of the most recent approaches to the determination of exchange rates as an important equilibrium condition and has thus hardly lost in relevance over time. The present paper analyzes this approach to equilibrium en the basis of the theory of co-integrated processes with regard to its empirical evidence. The introductory (part I and II) throws some light on the exchange rate credo of the last few decades and briefly presents the main characteristics of the theoretical concept underlying the purchasing power parity theory. Moreover, the paper deals with a number of problems involved in such empirical model-building and/or revision. Part III contains an introductory to the theory of co-integrated time series as developed by Engle and Granger, among others, for reviewing long-term equilibrium relations. Part IV presents and discussed the empirical results of 14 DM-related bilateral exchange rates with a number of important industrialized countries in the period from 1974 to 1987. The results of the co-integration assessment speak in favour of the validity of the purchasing power parity theory in 50 % of the cases. It may be interesting in this context that the hypothesis of long-term equilibrium relations within the meaning of the purchasing power parity theory had to be rejected also for the DM/FF rate - with France being Germany's most important partner in the EMS - besides the DM/US-$ and the DM/yen rates enjoying real freedom of float.

top


Chang, Wen-ya and Lai, Ching-chong
„ A Note on Tax Multiplier “

The conclusion of Holmes and Smyth (1972), which has received wide attention in the literature, indicates that a tax cut policy may depress domestic output if the money demand function is determined by disposable income rather than national income. This paper adopts the Cebula (1976) specification of the consumption and investment functions, and finds that the Holmes-Smyth assertion is not valid under this amended framework.

top


Tichy, Gunther
„The Size of Banks and Efficiency“

The discussion about concentration in the European banking sector is largely being conducted in qualitative terms without attempting empirical testing. University studies of economies of scale, economies of scope or mere analyses of the consequences of bank mergers already completed in respect of efficiency, growth, market shares, earnings etc. do still not exist to any noticeable extent. But a least certain empirical evidence of the size of banks and efficiency exists abroad, especially in English-speaking countries, although such evidence cannot simply be adopted and applied in the German-speaking area because financial institutions are different. The question of economies of scale and economies of scope has been investigated mainly in the USA on the basis of multi-product production functions as well as of returns-to-scale functions. Except at the level of very small banks, no convincing evidence has been found suggesting noticeable returns to scale and just modest evidence suggesting advantages of scope. Individual - methodically rather simple - test runs on the basis of profit functions for European banks do not contradict these mostly American results. The few ex-post analyses of bank mergers which showed but a few positive and even a number of negative implications for the goodwill of companies point to the same direction or relatively low returns to scale in the case of banks as well. Euphoria about concentration suggesting that big banks and universal financing groups would be the only ones to survive in future can thus in no way be substantiated by the evidence obtained on the basis of the empirical studies made to date. On the other hand, the question arises to what extent small and big banks can be compared at all, whether they do not perform different functions and do thus not compete with one another, but find their tasks to be complementary in nature. Empirical studies on this subject are even rarer than evidence concerning returns to scale.

top


Reports

Ngogang, Samuel
“Credibility of Monetary Policy in a Currency Area: The Case for the Franc Area”

In this paper the mechanisms of the Franc area and the actual implementation of monetary policy in the so-called BEAC-Zone have been described. With respect to the existing agreements between France and the CFA-countries as well as to the underling credibility analysis it has be shown that the African monetary unions cannot pursuit a 'credible' monetary policy insofar as the Franc area is in fact a monetary payments system as well as an accounting system of exchange. The agreements didn't take these features into consideration so that the actual policymaking can only be time-inconsistent, not credible. A credible policy in these countries calls for a clear Definition of what is meant by convertibility. Based on theoretical considerations a practical Definition has been proposed in this paper, and an optimal convertibility rate has been determined following the so-called "social welfare approach" to the credibility problem, as opposed to the so-called "political approach" [see Cukierman (1985); Cukierman / Meltzer (1986)]. The proposed setup clearly shows the shortcomings of the current structure and functioning of the Franc area and calls for further analyses in the perspective of the European Common Market of 1993 where capital movements will be free.

hoch