Burchardt, Michael
Die Banking-Currency-Kontroverse â Beitrag Nr. X
Zenger, Christoph
Ertragsbilanz und Portfoliotheorie der Wechselkurse: Eine grafische Illustration
Schäfer, Wolfgang
Anmerkungen zur J-Kurve
Kyriazis, Nicholas K.
The Drachmaâs Adhesion to the European Monetary System. Possible Effects
Leventakis, John A.
Inflation and the Formation of Expectations: Some Empirical Results
Smith, Gregor W.
âInflationary Expectations and the Demand for Money: The Greek Experienceâ. Another Comment
Rolfes, Bernd
Ansätze zur Steuerung von Zinsänderungsrisiken
Füllenkemper, Horst und Rehm, Hannes
Internationale Finanzmärkte unter Innovations- und Liberalisierungsdruck
Von Rosen, Rüdiger
Seoul: Neue Lösungsansätze für die Schuldenkrise
Francke, Hans-Hermann and Friedrich, Dieter
Zinswirkungen der Staatsverschuldung. Eine empirische Untersuchung für die Bundesrepublik Deutschland
(Wolf-Dieter Becker)
Jansen, Paul
Das Inflationsproblem in der Zentralverwaltungswirtschaft
(Gerd-Jan Krol)
Gretschmann, Klaus and Heinze, Rolf G. and Mettelsiefen, Bernd (Hrsg.)
Schattenwirtschaft. Wirtschafts- und sozialwissenschaftliche Aspekte, internationale Erfahrungen
(Hans-Helmut Kotz)
Berthold, Norbert and Külp, Bernhard
Regelgebundene Rentenanpassung als Mittel zur langfristigen Sanierung der Gesetzlichen Rentenversicherung
(Gerhard Zweig)
OECD: Social Expenditure 1960 â 1990. Problems of Growth and Control
(Gerhard Zweig)
Burchardt, Michael
âThe Banking-Currency Controversy â Essay No. Xâ
The essay deals with the historical controversy during the first half of the past century on the appropriate organization of English monetary structure. The debate, vestiges of which have endured up to the present, colouring topical problems of current monetary theory, is depicted in the literature in varying and in part contradictory manners. The essay sets out to resolve some of the discrepancies and to attain a synthesis of partly conflicting positions.
Although the controversial point of what means of payment were, or were not, to be regarded as money played an important role in the debate, the conceptions of the two schools on this point were less remote from each other than is often described. Actually, the problem of how money and credit exerted an influence of the trade cycle and prices was the crucial issue on which dissension prevailed. While in principle the currency theory adopted a standpoint oriented to the money supply and ascribed inflationary phenomena primarily to excessive growth of the money supply, the banking school proceeded from the contrary conception that the money supply was essentially governed by demand and excessive expansion on the part of the banks against the will of the public was basically impossible and hence hardly probable. In this, their arguÂmentation was based on the so-called closed-circuit principle.
True, the currency school emerged from the debate as the political victors, since their conceptions were largely translated into action in Peelâs second bank act of 1844; but from the theoretical viewpoint it must be affirmed that banking theory had the âmore modernâ approach. That does not mean to say, however, that in those days its monetary policy concept would have been capable of ensuring
a disturbance-free system of banking and credit.
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Zenger, Christoph
âTrade Balance and Portfolio Theory of Exchange Rates: A Graphic Illustrationâ
Although exchange rate theory has made substantial advances in recent years with the portfolio or asset market approach, even now many students still find themselves confronted with textbooks and lectures with choose, at least as a point of departure, the traditional exchange rate explanation using the familiar supply/demand diagram used for the goods markets. This flow approach was gradually displaced with the introduction of portfolio theory by an asset-holding approach to exchange rate explanation. The latter requires that at all times the exchange rates assume a which economic entities are still just prepared to hold assets in various currencies. That on this basis trade flows are in many instances unjustifiably neglected has been demonstrated in a diversity of research studies. The object of the present essay explain the exchange rate-determining role of the trade balance within the framework of the portfolio approach in the simplest possible, didactically easily accessible manner.
Since a trade balance disequilibrium leaves the offers of assets in the currencies involved unaffected, any exchange rate change must be attributed to shifts in the demand for assets. The latter may occur because an unsquared trade balance may be connected with asset redistributions between home and abroad. The decisive factor of the exchange rate is the currency form in which it is desired to build up or re ii assets at home and abroad. The usual exchange rate reaction to a trade balance disequilibrium occurs when - at the original exchange rate - people at home and abroad have a preference to execute the great majority of asset changes in their own currency. This result can be derived in a simple manner with a graphic presentation. Graph analysis also seems to make it evident that with other preference constellations an abnormal reaction of the exchange rates is possible.
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Schäfer, Wolfgang
âObservation on the J Curveâ
The article examines the conditions under which a J curve effect occurs in the balance-of-trade reaction of country following an exchange rate change. Special consideration is given in invoicing conditions in the multicurrency case. The analysis is subdivided into three phases following an exchange rate change: the short-term contract phase, the subsequent Pass-through phase and the then following quantitative reaction phase. It transpires that the form of the J curve over these three phases deÂpends on the invoicing usages and the balance-of-trade surplus or deficit within the contract phase, the exchange rate elasticities of foreign trade prices during the passÂ-through phase, and the price elasticities in exporting and importing in the quantitative reaction phase.
In the following empirical analysis it is examined whether, for the balance of trade of the Federal Republic of Germany in the 1972 - 1983 period, the conditions for a priÂmary anomalous J curve effect prevailed. The invoicing usages in German foreign trade indicate that J curve reactions are less probable and marked when parity changes are undertaken within the framework of the European Monetary System relÂative to the currencies of the most important trading partners of Germany (France, Benelux). With respect to other trading partners, however, marked anomalous priÂmary reactions in the sense of the J curve effect are realistic.
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Kyriazis, Nicholas K.
âThe Drachmaâs Adhesion to the EMSâ
The present paper examines the possible effects on a previously floating currency of a small open economy of joining a currency area with predominantly fixed exchange rates, such as the European Monetary System, taking the Greek drachma as an example.
Economic policy objections that could be raised against participation to the EMS are examined and criticised:
1. âLoss of independence in the shaping of economic policy when abandoning flexible exchange rates, which could have a negative influence on employment and comÂpetitiveness.â The validity of this argument rests on the existence of a normal Phillips relation which actually does not exist. Expansionary monetary policy is not an adequate instrument to reduce unemployment. Furthermore, the autonomy of economic policy is constrained by the size and openness of the economy and is not dependent on the exchange rate system.
2. âRelatively fixed exchange rates could impose a constraint on the balance of payÂments.â Flexible exchange rates, while not solving the balance of paymentsâ constraint, fully transmit the shock of external disturbances to domestic inflation. Moreover, devaluation may not improve the balance of payments, since the negative effect on inflationary expectations often leads to an outflow of capital.
3. âFlexible exchange rates that permit lax monetary policies are preferred by governments due to the existence of an, âinflation taxâ. This is an abuse of die Stateâs monetary monopoly and is inacceptable in a democracy.
Relatively fixed exchange rates that would prevail in the case of the drachmaâs adhesion to the EMS are seen as one element in a general stabilisation policy and the fight against inflation. The cost of such stabilisation is only transitory compared to the alternative permanent inflation cost. The success of such a policy depends to a great extent on wage behaviour so that some sort of accompanying incomes policy would be desirable.
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Leventakis, John A.
âInflation and the Formation of Expectations: Some Empirical Resultsâ
The purpose of this paper is to develop and estimate a model of price determination which includes both foreign and domestic factors. In the estimation of the model we use alternative hypotheses of inflationary expectations which take account of the role of money growth in the formation of expectations. The model is estimated with quarterly data from the small open economy of Greece over the period 1975.I â 1983.IV.
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Rolfes, Bernd
âApproaches to Control of the Risk of Interest Rate Changesâ
The present essay continues the debate on a suitable instrument for controlling the
Risks of interest rate change. The proposals that are probably best known, i. e., the so-called tied-interest balance and duration analysis, are examined critically as to their suitability for decision-oriented risk control. To begin with, the author discusses the genesis and the determinants of the risk of interest-rate changes. In this respect, particularly the influence of transformation of maturities and interest ties on credit and debit interest rate elasticities is made clear. The criticism of duration analysis and the tied-interest balance is directed primarily against the neglect of variable risks of interest changes, against the premisses of the dynamic approach of duration analysis and against the control magnitudes âopen fixed interest rate positionâ and âsolvency effectâ. Particularly in the case of the solvency effect, the author shows that the mixing of temporal outcome effects in a single magnitude not only obscures the actual course of results, but may also give rise to an erroneous estimate of the risk of interest rate changes, which is dangerous for the banks. Following the critical assessment of the two cited methods, the author presents his own approach to the control of the risk of interest rate changes in the shape of the concept of interest yield elasticity. This soÂ-called
Interest yield elasticity describes the dependence of the âoverall marginâ of a transaction on the trend of the interest rate level. With it the interest yield change in the event of an interest level change is measured by a percentage. The advantages of this control magnitude lie, above all, in the fact that the potential interest margin risks are covered completely and detailed information can be obtained on the impact of the control measures with regard to both structural measures in business with customers and also short-term adjustment possibilities on the money and capital market. Lastly, the author stresses as a special advantage the fine control capacity of âinterest yield elasticityâ: risks of interest rate changes can be countered without having to pass up current interest yields to any great extent.
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Füllenkemper, Horst and Rehm, Hannes
âInternational Financial Markets under Innovation and Liberalization Pressureâ
Since the early eighties both national and international financial markets have been characterized by a wave of financial innovations, diminishing the hitherto existing separation between domestic and foreign Euromarkets, between credit and capital markets as well as between markets of different currencies.
The reasons for this development are on the one hand the regulation and segmentation of certain markets, which led to an innovation pressure the result of which was the creation of new products. The growing deregulation of the financial markets in the United States, Great Britain and Japan made it possible to combine such products in a complementary way. On the other hand, tighter banking supervisory regulations and decreasing earnings in the Euroloan business intensified the off-balance-sheet activities. This development is characterized by a market split parallelled by a changing role for the banks: As far as first-class borrowers are concerned, banks are increasingly assuming a broker function instead of a transformative function. This trend suggests that in future first-class borrowers will no longer arrange their financing exclusively through banks, but will also make growing use of other facilities.
At the outset it must be noted, however, that there are limits on the replacement of traditional credit business by the new products. These limits are highlighted when the continued participation of the banks is sought - at concessional rates â despite the usage of instruments which tend to overly benefit the investor. Cases in point here are some forms of Euronotes. This will either lead to compensation being paid to the banks according to the risk involved, or to constraints being placed on the freedom of banks to take part in such arrangements. Such a development appears all the more likely considering the fact that the monetary and supervisory authorities are bound to intervene at some stage. The former will feel themselves called upon to react, as the new products not only affect the informatory value of the money supply, but also impair the transformative process of the monetary policy measures. The banking supervisory authority will become active on account of the new risks, in particular with a view to the back-up facilities, which are to be considered as contingent liabilities and which are held by the underwriters for usage by the borrowers, as up to now these facilities have not yet been subject to the risk limiting rules of the German banking law principles.
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Von Rosen, Rüdiger
âSeoul: New Approaches to a Solution of the Debt Crisisâ
The 1985 Annual Meeting of the International Monetary Fund and World Bank was held in the South Korean capital, Seoul, from October 8 to 12 and was attended by delegates from 149 member countries and more than 10,000 participants in all. The main topics at this monetary conference, which was held in a constructive spirit, were the approaches to a solution of the debt crisis that were outlined primarily by US Treasury Secretary Baker, the appeal to the debtor countries to redouble their efforts to implement comprehensive macroeconomic and structural measures, and the effects of the global economic situation, which was rated less favourable than it had been in the spring. In spite of differences of opinion, there was no majority in Seoul in favour of a new allocation of SDRs. In the case of the Policy of Enlarged Access to Fund Resources, a slight lowering of the upper limits was approved, as expected. In the next five years, the poorest countries are to receive around SDR 2.7 billion on concessionary terms from resources flowing back to the Trust Fund.
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