Stefanie Kleimeier

Expected versus unexpected monetary policy impulses and interest rate pass-through in euro-zone retail banking markets

Abstract This paper investigates the interest rate pass-through in the euro-zone’s retail banking markets by differentiating between expected and unexpected monetary policy impulses. The paper introduces interest futures as measures of expected interest rates into pass-through studies. By allowing various specifications of the pass-through process, including asymmetric adjustment, we find a faster pass-through in loan markets when interest rate changes are correctly anticipated. In contrast, deposit markets are found to be more rigid. Overall, our results suggest that a well-communicated monetary policy is important for a speedier and a more homogenous pass-through but may also be complemented by competition policies.

Contagion and causality: an empirical investigation of four Asian crisis episodes

Our study extends on conventional measures of contagion defined as a marked increase of cross-market correlation by directly investigating changing causality pattern by using the Granger-causality methodology. Our results show that the Asian crisis first established new and changed causality patterns that were not present before the crises on a regional base. Moreover, in some cases it even appeared that in the post-crisis period formerly unrelated markets became co-integrated, pointing to a changed perception of emerging country risk. Furthermore, it is shown that while the initial impact of the Asian crisis appeared to be changing only the regional causality pattern the additional impact of the Russian crisis appeared to have changed the causality pattern in an even less predictable way crossing continents at random and thus pointing to the important role of international financial markets in regional and global financial contagion.

Regionalisation versus globalisation in European financial market integration: Evidence from co-integration analyses

Abstract Motivated by recent regulatory changes, this study investigates the degree of integration in retail lending in six core European Union (EU) countries using co-integration methodology which allows to investigate the presence and effects of structural breaks. While in the pre-break period we could detect integration to a limited degree, the evidence for integration weakened in the post-1992 period. This could however reflect a convergence process, particularly with respect to spreads. This result is clearly a regional, not a global phenomenon. As European lending rates are not yet fully integrated, the still segmented financial markets pose a challenge for a unified monetary policy.

Project Finance as a Driver of Economic Growth in Low-Income Countries

This study investigates the role of project finance as a driver of economic growth. We hypothesize that project finance is beneficial to the least developed economies as it compensates for any lack of domestic financial development. The contractual structure unique to project finance should lead to better investment management and governance. Investigating 90 countries from 1991 to 2005, we find support for our hypothesis. Project finance indeed fosters economic growth and this effect is strongest in low-income countries, where financial development and governance is weak.

Measuring Financial Contagion Using Time-Aligned Data : The Importance of the Speed of Transmission of Shocks

This paper presents a new empirical approach to address the problem of trading time differences between markets in studies of financial contagion. In contrast to end‐of‐business‐day data common to most contagion studies, we employ price observations, which are exactly aligned in time to correct for time‐zone and end‐of‐business‐day differences between markets. Additionally, we allow for time lags between price observations in order to test the assumption that the shock is not immediately transmitted from one market to the other. Our analysis of the financial turmoil surrounding the Asian crisis reveals that such corrections have an important bearing on the evidence for contagion, independent of the methodology employed. Using a correlation‐based test, we find more contagion the faster we assume the shock to be transmitted.

The role of regulatory capital in international bank mergers and acquisitions

When investigating the role of regulatory capital in bank mergers and acquisitions (M&As) we finds that i.e. US targets are better capitalized than their acquirers and non-acquired peers and that US banks maintain higher capital than European banks. Thus, US banks strategically raise their capital levels to avoid regulatory scrutiny. Furthermore, more value is created for targets with higher excess capital and in M&As involving targets with considerably higher excess capital ratios than their acquirers. Thus, the excess regulatory capital hypothesis is supported. The market prices the influence that capital has on the probability of the merger’s regulatory approval.

Regional versus global integration of euro-zone retail banking markets: Understanding the recent evidence from price-based integration measures

This study investigates the current state of eurozone banking market integration by applying price convergence and cointegration measures to mortgage and short-term corporate loan rates. These two measures of integration often lead to contradicting conclusions and are therefore comparatively analyzed. As an innovation to the literature, price convergence measures are exposed to a difference-in-differences methodology which allows separating eurozone-specific from global integration effects. Our results show that eurozone-specific convergence exists mainly in the pre-EMU period. Rolling cointegration analyses, on the other hand, reveal that cointegration is especially prominent before 1993 and after January 1999 but hardly present in between. Overall, we conclude that (1) convergence of retail banking interest rates is largely a result of integrating money and bonds markets in anticipation of the single currency and (2) a monetary union can produce (co)integration when retail rates react similarly to a single monetary policy rate. Thus, for the eurozone it appears that convergence measures provide the most information for the period leading up to the EMU whereas cointegration is more useful during the EMU period as well as prior to the ERM crisis in 1992.

Project Finance as a Driver of Economic Growth in Low-Income

This study investigates the role of project finance as a driver of economic growth. We hypothesize that project finance is beneficial to the least developed economies as it compensates for any lack of domestic financial development. The contractual structure unique to project finance should lead to better investment management and governance. Investigating 90 countries from 1991 to 2005, we find support for our hypothesis. Project finance indeed fosters economic growth and this effect is strongest in low-income countries, where financial development and governance is weak.

Project Finance as a Risk-Management Tool in International Syndicated Lending

Why do banks grant project finance loans to borrowers in risky countries? Our double moral hazard model predicts that the use of project finance increases with the degree of managers’ moral hazard, projects’ political risk and banks’ influence over the political risk exposure of projects. We test these predictions with two samples of project finance loans from 1980 to 2003, one global sample and one sample of loans to borrowers in transition countries. We find empirical support for our predictions regarding moral hazard and political risk. With the exception of the IFC, the bank’s role is, however, insignificant.We develop a double moral hazard model that predicts that the use of project finance increases with both the political risk of the country in which the project is located and the influence of the lender over this political risk exposure. In contrast, the use of project finance should decrease as the economic health and corporate governance provisions of the borrower’s home country improve. When we test these predictions with a global sample of syndicated loans to borrowers in 139 countries, we find overall support for our model and provide evidence that multilateral development banks act as “political umbrellas†.

Banking market integration in the SADC countries : evidence from interest rate analyses

This study investigates the state, development and drivers of banking market integration in the member countries of the Southern African Development Community (SADC). A Principal Component Analysis (PCA) of national retail interest rates indicates increasing integration in loan and deposit markets. These integration processes are not developing uniformly and we can identify a convergence club. When investigating the interest rate pass-through from central bank onto retail rates for this convergence club, we find both, genuine and monetary-integration driven processes though the latter dominate. We thus conclude that a selective expansion of the Common Monetary Area (CMA) is possible.