Expectations, and Credibility in a Model of Monetary Policy

Recent monetary history has been characterized by monetary authorities which have been, alternatively hard and soft on inflation. In a vintage capital framework, investment decisions are not easily reversed. Therefore, expectations of policy as well as current policy are important to the investment decision. Here, a vintage capital model is used to assess the value of central bank credibility for a policy change. Policy in this model is assumed to be private information of the central banker. Agents learn about that policy which to study the ensuing transitional dynamics following a change in monetary policy regime.

The Effect of the Asian Financial Crisis on the Performance of Korean Nationwide Banks

The Asian financial crisis spread its effect quickly across a number of countries. Korea faced serious problems in her financial and corporate sectors. This paper considers the performance of Korean nationwide banks before, during, and immediately after the Asian financial crisis. The performance of Korean nationwide banks took a big hit in 1998. Most banks recovered somewhat in 1999 with the notable exception of the further deterioration of Seoul. Several factors possess strong correlations with bank performance. Among other standard findings, equity to assets correlates positively with bank performance, even when the government recapitalized a number of institutions that performed poorly. The Asian crisis did not affect the normal rules of good bank management. The government, however, directly intervened in the banking sector on a large scale to limit the scope of the crisis in the Korean economy.

Foreign and Domestic Bank Performances: An Ideal Decomposition of Industry Dynamics

The aggregate performance of the banking industry depends on the underlying microlevel dynamics within that industry. adjustments within banks, reallocations between banks, entries of new banks, and exits of existing banks. This paper develops a generalized ideal dynamic decomposition and applies it to the return on equity of foreign and domestic commercial banks in Korea from 1994 to 2000. The sample corresponds to the Asian financial crisis and the final stages of a long process of deregulation and privatization in the Korean banking industry. The comparison of our findings reveals that the overall performance of Korean banks largely reflects individual bank efficiencies, except immediately after the Asian financial crisis where restructuring played a more important role on average bank performance. Moreover, Korean regional banks started the restructuring process about one year before the Korean nationwide banks. Foreign bank performance, however, largely reflected individual bank efficiencies, even immediately after the Asian financial crisis.

Determinants and Effects of Maturity Mismatches in Emerging Markets: Evidence from Bank Level Data

Despite the extensive work on currency mismatches, research on the determinants and effects of maturity mismatches is scarce. In this paper I show that emerging market maturity mismatches are negatively affected by capital inflows and price volatilities. Furthermore, I find that banks with low maturity mismatches are more profitable during crisis periods but less profitable otherwise. The later result implies that banks face a tradeoff between higher returns and risk, hence channeling short term capital into long term loans is caused by cronyism and implicit guarantees rather than the depth of the financial market. The positive relationship between maturity mismatches and price volatility, on the other hand, shows that the banks of countries with high exchange rate and interest rate volatilities can not, or choose not to hedge themselves. These results follow from a panel regression on a data set I constructed by merging bank level data with aggregate data. This is advantageous over traditional studies which focus only on aggregate data.

Are Some Indian Bank Too Large? A Examination of Size Efficiency in Indian Banking

In this paper we use data from the years 1997 through 2003 to evaluate the size efficiency of Indian banks. Following Maindiratta (1990) we consider a bank to be too large if breaking it up into a number of smaller units would result in a larger output bundle than what could be produced from the same input by a single bank. When this is the case, the bank is not size efficient. Our analysis shows that many of the banks are, in deed, too large in various years. We also find that often a bank is operating in the region of diminishing returns to scale but is not a candidate for break up.