banking technology and the existence of a consistent output aggregate abstract this paper addresses the question of the existence of a consistent output aggregate in banking specific necessary and sufficient conditions for output aggregation are developed and tested in the context of a second order approximation to any arbitrary multi product bank cost function the analysis provides evidence that a composite aggregate measure of output fails to provide a proper representation of banking technology and therefore previous studies that used aggregate output measures may well be subject to specification errors

can learning affect exchange rate behavior the case of the dollar in the early 1980 s this paper demonstrates that a change in parameters of the money market that is not immediately understood will affect the behavior of exchange rate forecast errors while the market is learning the analysis is applied to the behavior of u s dollar german mark forecast errors during the early 1980 s when the market appeared to systematically underpredict the strength of the dollar consistent with this observation empirical estimates of implied forecast errors based upon bayesian learning suggest that forecast errors would have been on average negative during the period as the market came to realize the increase in u s money demand

estimation of economies of scale in banking using a generalized functional form this paper addresses four issues that arise in the estimation of economies of scale in the commercial banking industry first a common assumption underlying many of the studies of economies of scale in banking is the assumption of a cobb douglas production function with exogenous input prices the use of a cobb douglas production function facilitates the estimation of the output elasticity of cost however there does not appear to be any other reason a priori for such an assumption this paper utilizes a box cox hereafter b c generalized functional form methodology to directly test the assumption of an underlying cobb douglas production function second if the assumption of a cobb douglas production function is inappropriate as a description of the production process of the financial firm estimates of the output elasticity may be biased the sensitivity of the estimates of this elasticity to the choice of functional form can also be examined through the use of a generalized functional form methodology third no general consensus has been reached regarding the appropriate definition of bank output thus a diversity of measures of bank output have been employed in previous estimates of economies of scale in banking the sensitivity of the estimated output elasticity of cost to the selection of several alternative measures of output is examined through the use of the generalized functional form methodology finally the b c estimates of the cost function for commercial banks can be used

non price strategic behavior the case of bank branches abstract we perform an empirical study of banks branching decisions as a strategic non price variable in an oligopolistic setting using panel data of banks from norway we find clear evidence that banks act strategically in their branching decisions taking into consideration the future response from rival banks the analysis is applied to a unique data set which covers the entire banking sector during both pre and post banking crisis periods where very different types of conduct are found in each of these periods both for banks and borrowers moreover we find that a bank specific branch network does not confer externality on other banks as a result branch network affects only market shares but not market size

scale and scope economies in the multi product banking firm abstract the multi product nature of the banking firm is examined utilizing the translog cost function this analysis indicates that contrary to conventional wisdom natural monopoly scale economies and product specific decreasing costs are not robust characterizations of the banking industry there is however evidence that the cost function is characterized by economies of scope the implications of these results are discussed and extensions of this approach suggested

on the definition and measurement of bank output this study offers a theory and technique for the derivation of a new concept for bank output in an effort to bridge a gap in banking theory banks as costs minimizing firms is the background for most bank cost studies however this element plays very little explicit role in analyzing banks within the monetary process this gap might be bridged by extracting the flow of moneyness embodied in bank activities and using it as the output measure this measure might then be used to develop a comprehensive theory of banks as producers as well as vehicles for the implementation of monetary policy

the robustness of output measures in property liability insurance efficiency studies abstract we empirically examine two methods for measuring output in property liability insurer efficiency studies the value added approach and the flow or financial intermediation approach the approaches are not mutually consistent the value added approach is closely related to traditional measures of firm performance but the flow approach is not in addition efficient value added approach firms are less likely to go insolvent while firms characterized as efficient by the flow approach are generally more likely to fail we also find that the theoretical concern regarding the value added approach s use of losses as a measure of output is not validated empirically

malmquist indices of productivity growth during the deregulation of norwegian banking 1980 89 productivity growth during the deregulation of the norwegian banking industry is studied within the framework of data envelopment analysis which explicitly allows for multiple outputs introducing malmquist indices for productivity growth total growth can be decomposed into frontier growth and change in each bank s distance to the frontier both the total growth index and its components can be consistently chained over time we find productivity regress at the average bank prior to the deregulation but rapid growth when deregulation took place deregulation also led to less dispersion of productivity levels within the industry

purchasing power parity and the behavior of prices and nominal exchange rates across exchange rate regimes abstract the evidence presented in this paper shows that purchasing power parity as a long run proposition is indeed a very useful approximation we see this quite clearly in the panel data for three historical periods examined here the classical gold standard era from 1870 to 1914 the interwar period from 1921 to 1939 and the period after world war ii from 1959 to 1998 price level behavior across countries differs in the way that ppp suggests when monetary arrangements differ and is highly similar when monetary arrangements are themselves similar inflation rates adjusted for exchange rate changes in general are highly correlated and bear a one to one relation to one another within and across the three periods and the varied monetary regimes that prevailed

an empirical study of joint production and scale economies in commercial banking this paper utilizes the translog cost function to test the proposition that the bank productionfunction is characterized by jointness the cross section analysis for the years 1973 through 1978 indicates that bank production is in fact characterized by jointness this result calls into question the findings and implications of studies that utilize the assumption of non jointness in production since virtually all of the major bank cost studies employ the assumption of nonjointness the second part of our analysis examines scale economies for the banking firm while allowing for jointness in production our estimates indicate that scale economies characterize bank production at only small bank sizes and that the cost structure of large banks is characterized by diseconomies of scale

real exchange rate variability and the choice of exchange rate regime by developing countries abstract this paper draws together two distinct strands of the exchange rate literature it proposes that real exchange rate variability and the choice of exchange rate regime are jointly determined i test this claim by estimating a simultaneous limited dependent variable model with data from a cross section of developing countries during the recent floating period drawing on the relevant exchange rate literature the paper examines a number of exogenous determinants of exchange rate variability and the choice of exchange rate regime

returns to scale and input substitution for large u s banks the united states commercial banking industry has experienced significant changes in recent years the recent wave of mergers and the near term prospects of interstate banking suggests that the industry is moving toward much larger average banking organizations rhoades 1985 will a more concentrated banking industry result in lower costs due to scale economies we address this question by examining the cost function for large banks numerous studies of economies of scale in banking exist generally tracing their roots to the classic papers by benston 1965 and bell and murphy 1968 a good review of the most recent studies can be found in clark 1988 the majority of the papers uses samples of smaller banks that is under 1 billion in deposits finding generally that economies of scale are quickly exhausted and that further increases in bank size occur at constant or possibly increasing cost the extrapolation of previous findings for samples of smaller banks to large banks may be problematic especially in the current environment first large banks service a different mix of markets and customers than small banks suggesting that large and small banks probably face different cost structures second the process of deregulation may have rendered the results of prior studies moot since the data pertain to periods before significant deregulation since we

international comparison of bank production characteristics and technological change in this paper we conduct an international comparison of bank production and technological characteristics the comparison is performed using novel evidence on changes in labour demand over the period 1980 89 for banks headquartered in canada france west germany italy japan and the united states the results suggest that there is relatively low substitutability of labour for capital in the production process of these banking organizations significant scale economies were found with regards to the expansion of output and the concomitant increase in labour in addition technological change operated to lower the quantity of inputs needed to produce a given level of outputs and increased the minimum efficient size bank over the sample period many of the production characteristics and technology effects varied significantly across countries these findings imply that intercountry differences in production characteristics and technological change should be explicitly recognized in bank strategic planning

the cost output relationship of banks revisited abstract this paper offers a different method for the analysis of economies to scale in banks it concentrates on the characteristics of the cost surface rather than on those of the cost function this facilitates a direct test for the existence of interproduct complementarity in banks the paper suggests that the interest charges should be examined as part of the banks operating costs this study offers two main empirical results regarding a more efficient growth pattern and organizational structure of banks first it shows that a proportionate increase in bank outputs does not reduce the average costs of production and secondly it reveals that the production process of banks involves interproduct complementarity

the demand for money from the great depression to the present myths and legends about the great depression have dominated the public s perception of the business cycle they have shaped government policy and until recently they have even held powerful sway among economists in the immediate aftermath of the great depression many economists came to question the fundamental concept of economic equilibrium velocity was thought to be highly unstable as in the case of the liquidity trap so that the quantity of money supplied was consistent with any level of nominal income in the real sector there was the frightening specter of underemployment

real dollar exchange rate under the bretton woods and floating exchange rate regimes abstract the focus of the paper is on real exchange rates for the dollar over the period 1957 to 1985 most such exchange rates followed an almost steplike pattern showing relatively little movement in the late 1950s and 1960s falling abruptly and then remaining low in the 1970s and finally in the 1980s rising back to levels close to those that prevailed initially contrary to much recent commentary therefore the period that appears different is not the last five years but the decade that preceded them an important factor underlying this pattern of exchange rate movement according to results presented in the paper was the behavior of monetary policy and hence inflation in the united states what remains to be established is the precise mechanism linking money and real exchange rates and the relative strength of those links

international price behavior and the demand for money oil prices commodity prices and american monetary policy the last operating through a variety of channels have all figured prominently in explanations of the international inflation process in the late 1960s and early 70s out major purpose in this paper is to test these various hypotheses we do so in the context of a reduced form rational expectations price equation which we estimate for the united states and seven other industrial countries using quarterly data for the period 1955 through 1976 the principal conclusion that emerges from this exercise is that movements in domestic money in these countries served as the key link in the inflation process the factors that produced these monetary changes however differed among countries price shocks of various sorts were clearly of secondary importance the other important set of conclusions concerns the demand for money in place of a traditional stock adjustment model we used gls with a second order correction for autocorrelation we believe this produced more plausible estimates of the parameters of the long run demand function and of the adjustment process itself

the long run behavior of the income velocity of money in five advanced countries 1870 1975 an institutional approach the income velocity of money in canada the united states great britain norway and sweden displays a u shaped pattern over the last one hundred years this paper presents and tests empirically an explanation for this secular pattern emphasizing the influence on velocity of institutional changes the inclusion into a simple velocity function of institutional developments such as the process of monetization the spread of commercial banking financial development and the growth of economic stability improves the explanation of long run movements in velocity provided by a regression of velocity on real permanent income per head and the interest rate

a characteristics definition of financial markets abstract this paper employs a characteristics approach to define and classify financial products and markets emphasis is placed on the demand side models for the supply side being comparatively well developed based on changes in the united kingdom the model is used to illustrate how applied economists might analyse the impact of regulatory and technological changes on financial markets avenues for further research are discussed

the structure of technology in a multioutput branch banking firm we formulate and estimate a multioutput bank s cost function amenable for distinguishing between economies of scale and economies of network density we find significant returns to network density especially for smaller banks diseconomies of scale are found for the larger banks whereas the hypothesis of constant returns to scale could not be rejected for the smaller banks