Banking Sector Performance in Latin America: Market Power versus Efficiency

TSince the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalisation, a significant increase in foreign investments and greater mergers activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks’ market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2,500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks.Structure-Conduct-Performance; Efficient Structure; Latin American banking; Data Envelopment Analysis (DEA).

Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?

Approaching monetary policy as a principal agent problem provides a useful framework for interpreting alternative delegation schemes. In this paper, we consider the effectiveness of central banker incentive schemes when the principal delegates monetary policy through contracts but remains uncertain about the central banker\u27s responsiveness to such schemes. We adopt a simple principal-agent model and assume that the central banker\u27s trade-off between social welfare and the incentive scheme is private information. We consider two types of central bankers; one who responds to the incentive scheme ( selfish ) and one who does not and only cares about social welfare ( benevolent ). We demonstrate that when a benevolent central banker accepts a contract designed for a selfish central banker, positive inflation surprises occur and output exceeds its natural rate. We further show that a benevolent central banker with an inflation bias has an incentive to masquerade as selfish. Mechanisms exist that solve that problem by achieving preference revelation. We consider a simple mechanism in dominant strategies that induces the benevolent type either not to breach or not to accept the appointment (contract) in the first place. This multi-period mechanism works with either inflation targets, or the appointment of a conservative central banker. Our results suggest that more complicated incentive schemes, embedded within broader constitutional arrangements, are required in the presence of private information for them to work effectively

Banking Sector Performance in Some Latin American Countries: Market Power versus Efficiency

The wave of consolidation and the rapid increase in market concentration that took place in most Latin American countries has generated concerns about the rise in banks' market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2,500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. Finally, capital ratios and bank size seem to be among the most important factors in explaining profits for these Latin American banks.Structure-Conduct-Performance, Efficient Structure, Banking System in Some Latin American Countries, Data Envelopment Analysis (DEA)

Trade openness and aggregate productive efficiency

We consider whether openness is related to the aggregate technical efficiency in the OECD countries. We obtain efficiency measures using Data Envelopment Analysis and we find that our measure of openness is positively related to the technical efficiency scores.peer-reviewe

International evidence on convergence and openness

In this paper we examine for both economic convergence and openness convergence across the global economy and within specific regions. We find that convergence in openness is much more profound than income convergence. Moreover, convergence within regions takes place faster than convergence across the globe. We then examine for the effects of trade openness on income convergence. We use both trade openness indicators based on actual trade volumes as well as indices that rank countries according to trade policy openness. Finally, we consider the effects of such indices on openness convergence. We discuss our results in the context of the regionalism versus globalization debate.peer-reviewe

Political cycles in Greece's municipal employment

We consider the politically motivated fluctuations in Greece’s municipal employment, constructing a data-set from primary data and focusing on the composition of municipal employment in terms of employment relationship forms. Our analysis produces strong evidence of pre-electoral manipulation through increases in the number of contract employees. Considering a number of control variables and robustness checks does not affect the key results. Such variables include whether mayors run for reelection, incumbents’ political alignment with central government, partisan shifts, general elections, mayors’ turnover rate, and timing patterns. Our evidence provides insights into Greece’s political economy in the run-up to the current economic crisis

Essays on the political economy of central banking

This dissertation examines the delegation of monetary policy through optimal central banker contracts and the effects of central bank behavior on fiscal policy discipline in a monetary union. First, we examine whether central banker contracts are an optimal form of monetary policy delegation when incomplete information about the central banker\u27s preferences exists. We show that optimal Walsh (1995) contracts do not eliminate the inflationary bias in monetary policy. We design a more comprehensive mechanism that achieves this task by inducing central bankers to reveal their preferences. This mechanism can work with the adoption of inflation targets or the appointment of conservative central bankers. We then consider the effectiveness of central banker contracts when more that one potential principal exists. We develop a common agency model in central banking and show that the government\u27s (society\u27s) contract does not always dominate the competing contract offered by a (private) interest group. Which of the two incentive schemes dominates depends on the goals of the contracts and the principals\u27 relative concerns about contract costs. Finally, we develop a model of central bank decision making in a monetary union and examine how central bank behavior can enhance discipline for the national fiscal authorities. We show that introducing the possibility of tough punishment schemes enhances fiscal policy discipline by allowing the union central bank to reveal its type.