David G. Mayes

Technical Inefficiency in Manufacturing Industries

This article examines technical inefficiency of manufacturing industry in the United Kingdom, based on data for 19,023 establishments in 151 industries. These data, drawn from the Annual Census of Production for 1977, have been used to estimate technical inefficiency in each industry by fitting translog stochastic frontier production functions and decomposing the residuals into two components, one measuring inefficiency and the other unobservable random factors. The work is the first step in a larger project to explain the sources of technical inefficiency, and to compare efficiency between Australia, the United States, Canada, Japan, South Korea, and Norway. Copyright 1991 by Royal Economic Society.

Improving banking supervision

This paper explains how banking supervision within the EU, and in Finland in particular, can be improved by the implementation of greater market discipline and related changes.Although existing EU law, institutions, market structures and practices of corporate governance restrict the scope for change, substantial improvements can be introduced now while there is a window of opportunity for change.The economy is growing strongly and the consequences of the banking crises of the early 1990s have been worked through.Greater market discipline, in the form of a regime of quarterly public disclosure by banks of their capital adequacy, peak exposures and risk management systems, along with improved incentives, will help improve the prudential management of banks, reduce the costs of supervision, enable supervisors to focus on systemic risks and help customers determine the risks they face.Banking inherently involves the taking of risks, but transparency and improved public information about them will help all concerned manage the risks more effectively and greatly reduce the chance that the taxpayer will again be called upon to help rescue the banking system. Keywords: Banking supervision, market discipline, disclosure, systemic risk, financial system oversight

Financial Conditions Indexes

This paper provides an exposition of the nature, means of estimation and uses of Financial Conditions Indexes (FCIs) and their relationship to the more common Monetary Conditions Indexes (MCIs) that are used by market analysts, international organisations and central banks. Using panel datasets for Western Europe we explore how asset prices, particularly house and stock prices, can provide useful additional indicators of future changes in output and inflation. We find a clear role for house prices but a poorly determined relationship for stock prices. Unfortunately the most useful role for FCIs comes from their incorporation of high frequency data and the opportunity this gives for extracting information about changes in market expectations for inflation and output. This helps market participants make judgements about likely central bank reactions and helps central banks assess the stance of policy between forecasts. While stock prices are high frequency, house prices are not. At quarterly frequency central banks in particular will want to use traditional economic forecasting methods and summary indicators like FCIs will have only a limited role. We illustrate how such an FCI can be used, drawing on monthly data for Finland.

The exchange rate and monetary conditions in the Euro area

The Exchange Rate and Monetary Conditions in the Euro Area. — Using information from a variety of sources, this paper suggests that the exchange rate will play an important role in the transmission of the impact of monetary policy on the real economy and inflation in the euro area. As a first approximation it would be reasonable to assume that an increase in the real 90-day interest rate of 100 basis points would have the same effect on demand two years later as a 3.5 percent fall in the real euro exchange rate. This implies that the euro area will tend to behave like a large open economy rather than a closed economy and hence that it would be helpful in informing monetary policy to construct a Monetary Conditions Index (MCI).ZusammenfassungDer Wechselkurs und monetÄre Bedingungen im EuroRaum. — Der Verfasser benutzt Informationen aus einer Reihe von Quellen und kommt zu dem Ergebnis, dass der Wechselkurs bei der übertragung der geldpolitischen Impulse auf die reale Wirtschaft und Inflation im Euro-Raum eine bedeutende Rolle spielen wird. In erster AnnÄherung hÄlt er es für annehmbar zu vermuten, dass ein Anstieg des 90-Tage-Zinssatzes um 100 Basispunkte dieselbe Wirkung auf die Nachfrage in zwei Jahren haben dürfte wie ein 3,5-prozentiger Rückgang des Euro-Wechselkurses. Das deutet darauf hin, dass der Euro-Raum dahin tendiert, sich wie eine gro\e offene Volkswirtschaft und nicht wie eine geschlossene Volkswirtschaft zu verhalten, und dass es somit zur Information der geldpolitischen Instanzen hilfreich wÄre, einen Index der monetÄren Bedingungen (Monetary Conditions Index = MCI) zu entwickeln.

UK Trade Performance and R&D

This paper assesses the effects of R&D on trade by constructing an econometric model of exports and imports and estimating it with data for 15 industries in the G5 economies over 13 years. The results suggest that the stock of R&D capital, relative to competitor countries, is an important determinant of industrial trade performance.

How Hard is the Euro Area Core? An Evaluation of Growth Cycles Using Wavelet Analysis

Using recent advances in time-varying spectral methods, this research analyses the growth cycles of the core of the euro area in terms of frequency content and phasing of cycles.The methodology uses the continuous wavelet transform (CWT) and also Hilbert wavelet pairs in the setting of a non-decimated discrete wavelet transform in order to analyse bivariate time series in terms of conventional frequency domain measures from spectral analysis.The findings are that coherence and phasing between the three core members of the euro area (France, Germany and Italy) have increased since the launch of the euro. Key words: time-varying spectral analysis, coherence, phase, business cycles, EMU, growth cycles, Hilbert transform, wavelet analysis JEL classification numbers: C19, C63, C65, E32, E39, E58, F40

The Role of Market Discipline in Handling Problem Banks

This paper considers the conditions that are necessary for market discipline to complement prompt corrective action (PCA) by the authorities in handling problem banks. We initially consider precisely what market discipline means in this context, who exercises it and the preconditions that are necessary for it to operate effectively. We explore the incentives that are necessary for PCA and market discipline to reinforce rather than cancel each other and in particular consider the limits to market discipline in this context from corporate governance and from difficulties in valuation. While our analysis is primarily aimed at advanced countries, we also examine problems in emerging markets and how deposit insurance arrangements might conflict with the aims of both PCA and market discipline.

The Structure of Financial Regulation

1. Introduction 2. Financial Supervision from an Historical Perspective: Was the Development of Such Supervision Designed or Largely Accidental? 3. Some Historical Perspective on Financial Regulation 4. Bank Regulations and Money Laundering 5. Governing the Corporation: Transcending Compliance in an Age of Scandal 6. Multiple Regulators and Insolvency Regimes: Obstacles to Efficient Supervision and Resolution 7. Institutional Allocation of Bank Regulation: A Review 8. Agency Problems in the Design of Bank Regulatory and Supervisory Structures: The Case of EMU 9. Cross-Border Issues in European Financial Supervision 10. Regulating Cross-Border Retail Payment Systems: A Network Industry Problem 11. Payment System Developments: Their Dependence on Competition, Cooperation, Incentives and Authority Action 12. Competition and the Rationalization of European Securities: Clearing and Settlement 13. Links Between Securities Settlement Systems: An Oligopoly Theoretic Approach

A new standard for deposit insurance and government guarantees after the crisis

Purpose - The purpose of this paper is to explore the arrangements that have been used in the present crisis and their relative success and to look to the post-crisis situation. Design/methodology/approach - The paper examines and explains the crisis and the roles of deposit insurance and government guarantees. It deals with coverage, funding, institutional structure, speed of payout, incentives, accountability and, in particular, considers how such systems should function in a world of cross-border institutions. Findings - The paper suggests how such principles and standards should be set either through International Association of Deposit Insurers or some more efficient means to complement an international approach to financial stability being addressed by the Basel institutions. Originality/value - There is no widely accepted standard over what the reformed financial system safety net should look like with respect to the protection of deposits and the wider guaranteeing of creditors and other stakeholders. This paper, therefore, makes an attempt to fill that gap.

Did Recent Experience of a Financial Crisis Help in Coping with the Current Financial Turmoil? The Case of the Nordic Countries

This article considers the lessons learned from the Nordic crises of the 1980s and 1990s and how far problems incurred during the present crisis stem from a failure to act on those lessons. Iceland, which was little affected on the first occasion, has had the worst crisis of any country round the world while Finland, which was worst affected last time, has come through almost unscathed. The ways of avoiding problems caused by having cross-border banks, a feature that did not exist on the previous occasion, were known but it has taken a second crisis to get governments to act.