DEREGULATION, LIBERALIZATION AND CONSOLIDATION OF THE MEXICAN BANKING SYSTEM: EFFECTS ON COMPETITION

This paper analyses the evolution of competition in the Mexican banking system in the period 1993-2005, a period of deregulation, liberalization and consolidation of the sector. For this purpose we use two indicators of competition from the theory of industrial organization (the Lerner index and the Panzar and Rosse´s H-statistic). The empirical evidence does not permit us to reject the existence of monopolistic competition. The Lerner index shows a decrease in competitive rivalry in the deposit market and an increase in the loan market, a cross subsidization strategy being observed. The results obtained call into question the effectiveness of the measures implemented hitherto, aimed at increasing the competitiveness of the Mexican banking system. Este artículo analiza la evolución de la competencia en el sistema bancario Mexicano en el periodo 1993-2005, periodo de desregulación, liberalización y consolidación del sector. Para ello se utilizan dos medidas de competencia derivadas de la teoría de la Organización Industrial: el índice de Lerner y el estadístico H de Panzar y Rosse. La evidencia empírica no permite rechazar la existencia de competencia monopolística. El índice de Lerner muestra una disminución en la rivalidad competitiva en el mercado de los depósitos y un incremento en el mercado de los préstamos, observándose una estrategia de subsidiación cruzada entre ambos mercados. Los resultados obtenidos cuestionan la efectividad de las medidas hasta ahora implementadas dirigidas a incrementar la competencia en la banca Mexicana.banca, competencia, desregulación banking, competition, deregulation

Trade reform, uncertainty, and export promotion : Mexico 1982-88. BEBR 92-0135

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Putting the Brakes on Sudden Stops: The Financial Frictions-Moral Hazard Tradeoff of Asset Price Guarantees

The hypothesis that Sudden Stops to capital inflows in emerging economies may be caused by global capital market frictions, such as collateral constraints and trading costs, suggests that Sudden Stops could be prevented by offering price guarantees on the emerging-markets asset class. Providing these guarantees is a risky endeavor, however, because they introduce a moral-hazard-like incentive similar to those that are also viewed as a cause of emerging markets crises. This paper studies this financial frictions-moral hazard tradeoff using an equilibrium asset-pricing model in which margin constraints, trading costs, and ex-ante price guarantees interact in the determination of asset prices and macroeconomic dynamics. In the absence of guarantees, margin calls and trading costs create distortions that produce Sudden Stops driven by occasionally binding credit constraints and Irving Fisher's debt-deflation mechanism. Price guarantees contain the asset deflation by creating another distortion that props up the foreign investors' demand for emerging markets assets. Quantitative simulation analysis shows the strong interaction of these two distortions in driving the dynamics of asset prices, consumption and the current account. Price guarantees are found to be effective for containing Sudden Stops but at the cost of introducing potentially large distortions that could lead to 'overvaluation' of emerging markets assets.

Margin Calls, Trading Costs, and Asset Prices in Emerging Markets: The Finanical Mechanics of the 'Sudden Stop' Phenomenon

A central feature of emerging markets crises is the Sudden Stop' phenomenon characterized by large reversals of capital inflows and current accounts, deep recessions, and collapses in asset prices. This paper proposes an open-economy asset-pricing model with financial frictions that yields predictions in line with these observations. Margin requirements and information costs distort asset trading between a small open economy and foreign securities firms. If the economy's debt-equity ratio is low, standard productivity shocks cause normal recessions with smooth current-account adjustments. If the ratio is high, the same productivity shocks trigger margin calls forcing domestic agents to firesell equity to foreign traders who are slow to adjust their portfolios. This sets off a Fisherian asset-price deflation and subsequent rounds of margin calls. A current account reversal and a collapse in consumption occur if the fire-sale of assets cannot prevent a sharp increase in net foreign asset holdings.

Quantitative Implication of A Debt-Deflation Theory of Sudden Stops and Asset Prices

This paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with the large consumption and current-account reversals and asset-price collapses observed in the "Sudden Stops" of emerging markets crises. Margin requirements set a collateral constraint on foreign borrowing by domestic agents. Foreign traders incur costs in trading assets with domestic agents. Margin constraints bind occasionally depending on equilibrium portfolios and asset prices. When the constraints do not bind, productivity shocks cause standard real-business-cycle effects. When the constraints bind, shocks of the same magnitude cause strikingly different effects that vary with the leverage ratio and the liquidity of asset markets. With high leverage and liquid markets, the shocks trigger margin calls forcing "fire sales" of assets. Fisher's debt-deflation mechanism causes subsequent rounds of margin calls, a fall in asset prices and large consumption and current account reversals. The size of the price decline depends on trading costs parameters because these parameters determine the price elasticity of the foreign traders' asset demand function. Price declines of the magnitude observed in the data require a less-than-unitary price elasticity. Precautionary saving makes Sudden Stops infrequent in the long run so that the model can explain both regular business cycles and the unusually large reversals of consumption and current accounts associated with Sudden Stops.

Are Asset Price Guarantees Useful for Preventing Sudden Stops?: A Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff

The globalization hazard hypothesis maintains that the current account reversals and asset price collapses observed during 'Sudden Stops' are caused by global capital market frictions. A policy implication of this view is that Sudden Stops can be prevented by offering global investors price guarantees on emerging markets assets. These guarantees, however, introduce a moral hazard incentive for global investors, thus creating a tradeoff by which price guarantees weaken globalization hazard but strengthen international moral hazard. This paper studies the quantitative implications of this tradeoff using a dynamic stochastic equilibrium asset-pricing model. Without guarantees, distortions induced by margin calls and trading costs cause Sudden Stops driven by Fisher's debt-deflation mechanism. Price guarantees prevent this deflation by introducing a distortion that props up foreign demand for assets. Non-state-contingent guarantees contain Sudden Stops but they are executed often and induce persistent asset overvaluation. Guarantees offered only in high-debt states are executed rarely and prevent Sudden Stops without persistent asset overvaluation. If the elasticity of foreign asset demand is low, price guarantees can still contain Sudden Stops but domestic agents obtain smaller welfare gains at Sudden Stop states and suffer welfare losses on average in the stochastic steady state.

Dynamics of Buyer-Supplier Co-dependency for Optimizing Functional Efficiency

The performance related issues of buyer-supplier relationship have attracted both the academic and corporate managers. The study attempts to make theoretical contributions to the literature on relationships in marketing channels. Compared with the impact of the often-investigated construct of dependence structure, the impact of channel function performance on relationship quality is relatively large. This study has been conducted in reference to the suppliers of office equipments serving to the industrial accounts in Mexico. The study addresses broadly the issues as to what extent is the impact of quality performance responsible for doing business with the organizational buyers. Discussions also analyze the impact of channel function performance on relationship quality, which is moderated by the extent dependence structure of the relationship.Buyer behavior, supplier performance, co-dependency, supply design, profit optimization, buyer value, market coverage, conformance, supply quality

Genetic optimization of a trading algorithm based on pattern recognition

In the present paper, a trading strategy based onpattern recognition is optimized by means of a genetic algorithm.The genetic algorithm is used to determine decisions of buy/sellbased on the patterns found through time for a portfolio in thestock market. The predominant algorithms used in this workwere theK-means clustering algorithm to find the patterns indifferent time lapses, and the genetic algorithm for optimization.The results are supported by simulations using a selected sharesof the Mexican stock market.ITESO, A.C