Is foreign exchange intervention effective? Some micro-analytical evidence from the Czech Republic

I estimate a two-equation system on the euro-Czech koruna exchange rate and order flow at hourly frequency within the framework of Evans-Lyons (JME 2002). I use transac-tions data from the Reuters Spot Matching market in the second half of 2002, during which the Czech National Bank conducted discreet interventions to stem the appreciation of the domestic currency. I find a significant impact of order flow on the exchange rate, equal on average to 7.6 basis points per €10 million, of which 80 percent persists through the day. The news of intervention increases the price impact of order flow by 3.9 basis points per €10 million, consistently with the notion of intervention efficacy. The order flow equation yields in-conclusive results.Foreign exchange, central bank intervention, Czech koruna, ERM II, empirical microstructure

Ranking, risk-taking and effort: an analysis of the ECB's foreign reserves management

The investment of the ECB reserves in US dollars and yen, delegated to a network of portfolio managers in the Eurosystem’s national central banks, involves a periodic assessment of performance against a common benchmark, controlled by the ECB and subject to revision on a monthly basis. Monetary reward for the best performers is almost entirely absent, and compensation comes mainly as reputational credit following the transmission of the annual report to the Governing Council. Employing a new data set on individual portfolio variables during 2002-2009, we study this peculiar tournament and show the existence of risk-shifting behaviour by reserve managers related to their year-to-date ranking: interim losers increase relative risk in the second half of the year, in the same way as mutual fund managers. In the dollar case, risk-shifting is asymmetric: the adjustment to ranking is generally reduced or entirely offset if reserve managers have achieved a positive interim performance against the benchmark. Yen reserve managers that rank low show a tendency to increase effort, as proxied by portfolio turnover. We also find that reserve managers who ranked low in the previous year tend to reduce risk significantly. Our evidence is consistent with a reserve managers’ anecdote, according to which they obtain a concave reputational reward within their national central banks, which induces risk aversion and explains the observed low usage of the risk budget. Since reserve managers should have a comparative advantage over the tactical benchmark within a monthly horizon, possible enhancements to the design of the tournament are discussed. These might involve an increased reward for effort and performance by means of a convex scoring system linked to monthly, rather than annual, performance. JEL Classification: G11, E58, D81Delegated portfolio management, effort, Foreign reserves, incentives, tournament

Does Market Transparency Matter? a Case Study

We analyse a change in the degree of transparency of MTS, the electronic inter-dealer market for Italian Government bonds, namely the July 1997 move to the anonymity of quotes. Our evidence supports the hypothesis that a decrease in transparency makes liquidity traders worse-off, whereas large/informed traders find it less costly to execute block trades. The evidence is also consistent with the “waiting game” hypothesis of Foster and Viswanathan (1996): under anonymity, traders tend to delay their trades in an attempt to acquire information through the order flow. From a public welfare perspective, our results indicate that the move to anonymity has been accompanied by an increase in market liquidity and by a reduction in volatility, a phenomenon that is also partly explained by the growth in Italy’s prospects for early participation in the EMU. The speed of information aggregation on MTS increases, as shown by an improvement of the MTS lead over the futures market. In a European perspective, the current organisation and performance of MTS place the market in a competitive position with respect to other sovereign bond markets and may contribute to their integration under the single currency.Electronic trading, market efficiency

Ranking, risk-taking and effort: an analysis of the ECB's foreign reserves management

The investment of the ECB reserves in US dollars and yen involves an annual performance assessment of portfolio managers, located in the Eurosystem’s national central banks. Employing new data on individual portfolios during 2002-2009, we study this peculiar tournament and show the existence of risk-shifting behaviour by reserve managers related to their year-to-date ranking: interim losers increase relative risk in the second half of the year, in the same way as mutual fund managers. In the dollar case the adjustment to ranking is reduced or offset if reserve managers have achieved a positive interim performance against the benchmark. Yen reserve managers that rank low show a tendency to increase effort, as proxied by portfolio turnover. Those who ranked low in the previous year tend to reduce risk significantly. Since reserve managers should have a comparative advantage over the benchmark within a monthly horizon, possible enhancements to the design of the tournament might involve an increased reward for effort and performance by means of a convex scoring system linked to monthly, rather than annual, performance.foreign exchange reserves, tournament, incentives, effort, portfolio management

BanksÂ’ participation in the Eurosystem auctions and money market integration

Bidding Behaviour, auctions, open market operations, money market, liquidity management Abstract: We perform a panel analysis of bidding in the Eurosystem auctions, using individual data that include the bidder code, size, nationality and membership in a banking group. We find that an increase in interest rate volatility lowers the probability of bidding, but induces bidders to shade rates less. Large bidders participate more regularly, while group bidders demand larger amounts, showing an aptitude to act as liquidity brokers. Our findings support the transnational bank hypothesis (Freixas- Holthausen, 2005): banks with a multinational profile use their informational advantage to arbitrage out the differences in interest rates across countries, thus fostering money market integration.

mathematical problems in the theory of bone poroelasticity

This paper concerns with the quasi-static theory of bone poroelasticity for materials with double porosity. The system of equations of this theory based on the equilibrium equations, conservation of fluid mass, the effective stress concept and Darcy's law for material with double porosity. The internal and external basic boundary value problems (BVPs) are formulated and uniqueness of regular (classical) solutions are proved. The single-layer and double-layer potentials are constructed and their basic properties are established. Finally, the existence theorems for classical solutions of the BVPs are proved by means of the potential method (boundary integral method) and the theory of singular integral equations