BANKNOTE PRINTING AT MODERN CENTRAL BANKING: TRENDS, COSTS, AND EFFICIENCY

This paper examines trends in banknote printing during the period 2000-2005 for a crosssection of 56 central banks. Because of the high increase in the demand for currency in recent years, central banks have implemented new strategies to increase efficiency in the production of banknotes. Some of them, involve the private sector by means of different modalities (e.g. joint ventures, subsidiaries or purchase of banknotes from specialized companies), and the integration of banknote printing and cash processing in a single complex (e.g. Portugal and Colombia). A cost function using a panel data model with random effects was estimated. It was identified that the denomination structure, the size of banknotes, and the production method used by central banks have a significant impact on production costs. Government printing was found to be the most costly method, while private-sector involvement in the process substantially reduces production costs. Using a non-parametric efficient frontier model, it was found that most central banks have increased its technical efficiency during the period, especially in central banks where the privatesector has involved. Computing a Malmquist index through distance functions it was identified that central banks have showed a moderate increase in its productivity, primarily due to increases in efficiency and, in a lower proportion to technical change. In most of the cases, a positive change in efficiency is mainly the result of higher scale efficiency. This could obey to high increase in demand for currency.Central Banks, Banknote Printing, Efficiency Frontier, Cost Function, Panel Data, Malmquist Index. Classification JEL: E50; C33; C23; C43.

Bayesian analysis of heterogeneity in stochastic frontier models

Mención Internacional en el título de doctorIn this thesis, we put forward the modeling of heterogeneity in a Bayesian context by capturing both observed and unobserved heterogeneity in the inefficiency distribution under static and dynamic formulations. We propose several novel speciffications which permit the identiffication of heterogeneity in these contexts. The first of our proposed methods captures unobserved heterogeneity in the inefficiency by modeling a random parameter in the inefficiency distribution. Results suggest that this method is successful in identifying unobserved heterogeneity and that it also can be used as a way to test the relevancy of observed covariates. Also, the location of heterogeneity is found to have important effects on efficiency estimations which are more evident when unobserved heterogeneity is accounted for. The second proposal captures unobserved heterogeneity sources related to firm-specific effects of observed covariates in the inefficiency. This is performed by modeling random coefficients in the inefficiency. It is found that allowing random coefficients for the inefficiency covariates captures firm-speciffic effects which remain unidentiffied under the regular fixed coefficients models. This speciffication distinguishes properly firms in term of the effects of inefficiency drivers and separates unobserved heterogeneity related to these effects from efficiency. Our third proposal relies on the framework of dynamic SFA and speciffies a model that is able to capture unobserved heterogeneity in the inefficiency persistence and unobserved technological heterogeneity. Both unobserved effects are found to be very relevant in explaining inefficiency and its evolution over time. Finally, the implications of including observed covariates in dynamic models were studied by mean of an inefficiency speciffication that allows separating observed inefficiency heterogeneity from the dynamic process. The model allows identifying those firm characteristics that may have persistence effect in the inefficiency from those that can be rapidly adjusted. In general, location of observed covariates is found to have important implications in the identiffication of inefficiency drivers and posterior efficiency estimations. The proposed models are implemented in very different applications such as health performance, airlines, banking and electricity distribution and our results have important implications for companies, regulators and policy makers in these sectors. The inference of all the models is carried out using Bayesian methods and the Win-BUGS software package is used for the implementation throughout. We provide the codes used in each chapter of the thesis at the end of the corresponding chapters. This thesis has the following structure. Chapter 1 presents an introduction to the most important concepts on frontier efficiency, the measuring methods, SFA and its Bayesian approach, and a literature review on the treatment of observed and unobserved heterogeneity in SFA models. Chapter 2 presents the problem of observed heterogeneity in SFA by analyzing the effects of including observed covariates in the frontier, and in different parameters and distributions of the inefficiency. Chapter 3 presents the models proposed to identify unobserved heterogeneity in the inefficiency. Firstly, by modeling a random parameter in the inefficiency; and secondly, by allowing coefficients of inefficiency drivers to vary randomly across firms. Chapter 4 extends the analysis of heterogeneity in the dynamic framework by proposing two specifications: one that identifies unobserved heterogeneity in the inefficiency persistence and in the technology and another one that is able to separate observed heterogeneity from the dynamic behaviour of inefficiency. Finally, Chapter 5 discusses the main conclusions, contributions and further lines of research.Programa Oficial de Doctorado en Economía de la Empresa y Métodos CuantitativosPresidente: Luis Orea Sánchez; Secretario: Karim Anaya; Vocal: Camilla Mastromarc

Drivers of productivity in the Spanish banking sector : recent evidence

Este estudio analiza los determinantes de la productividad total de los factores de los bancos españoles desde el año 2000 hasta el período poscrisis. En particular, analizamos los cambios en la productividad derivados del proceso de reestructuración que ha experimentado el sector bancario español después de la crisis. Encontramos que, tras un período de continuo crecimiento, la productividad se ha reducido desde el comienzo de la crisis, aunque los bancos más grandes se han visto menos afectados. También identificamos que el riesgo, los niveles de capital, la competencia y los precios de los inputs han sido determinantes muy importantes que explican las diferencias en los cambios de productividad entre bancos. Finalmente, nuestros resultados sugieren que, al final de la muestra, existe margen para mejoras adicionales en la productividad, principalmente a través del aprovechamiento de economías de escala y de incrementos de la eficiencia en costes. Identificamos que estas oportunidades son, en general, mayores para los bancos pequeños en nuestra muestraWe analyse the drivers of total factor productivity of Spanish banks from early 2000, including the last financial crisis and the post-crisis period. This allows us to study changes in productivity following a major restructuring process in the banking sector such as the one experienced in Spain. Overall, we find that following a period of continued growth, productivity declined after the height of the crisis, though large banks were less affected. We also find that risk, capital levels, competition and input prices were important drivers of the differences in productivity change between banks. Finally, our results suggest that, by the end of our sample period, there was still some room for potential improvements in productivity via exploiting scale economies and enhancing cost efficiency. These opportunities appear to be generally greater for the smaller banks in our sampl

Inefficiency persistence and heterogeneity in Colombian electricity utilities

The electricity reform in Colombia has exhibited gains in terms of reliability but its effects on firm efficiency and service quality have not been clear. Previous studies evaluating the performance of distribution companies after the reform have not found evidence of improvements, although large differences in efficiency have been found among firms. This suggests high inefficiency persistence and heterogeneity in the Colombian distribution sector. In this paper, we propose an extension of dynamic stochastic frontier models that accounts for unobserved heterogeneity in the inefficiency persistence and in the technology. The model incorporates total expenses, service quality and energy losses in an efficiency analysis of Colombian distributors over fifteen years after the reform. We identify the presence of high inefficiency persistence in the sector, and important differences between firms. In particular, rural companies and firms with small customers present low persistence and evidence the largest gains in efficiency during the period. However, increases in efficiency are only manifested during the last five years when the main improvements in service quality and energy losses are presented. Overall, inefficiency persistence, customer density and consumption density are found to be important criteria to be considered for regulatory purposes.Jorge E. Galán acknowledges from the Energy Policy Research Group at the University of Cambridge and the financial support Spanish Ministry of Education and Science, research project ECO2012-3401

La impresión de billetes en la banca central moderna: tendencias, costos y eficiencia

En este documento se estudian las tendencias en la producción de billetes entre los años 2000 a 2005 a partir de una muestra de 56 bancos centrales.Si bien los trabajos mencionados dan luces sobre las recientes estrategias de modernización empleadas por los bancos centrales para ganar eficiencia en la producción de billetes , es importante considerar otros aspectos asociados con el desempeño de esta función, tales como la estructura de denominación en cada país, la características de los billetes y los costos de producción. Estos elementos son tratados a profundidad en el presente estudio, identificando las variables que determinan los costos de impresión de billetes y el efecto de los cambios en las modalidades de producción sobre los costos y la eficiencia

Bayesian analysis of dynamic effects in inefficiency : evidence from the Colombian banking sector

Firms face a continuous process of technological and environmental changes that implies making managerial decisions in a dynamic context. However, costs and other constraints prevent firms from making instant adjustments towards optimal conditions and may cause inefficiency to be persistent in time. In this work, we propose a flexible dynamic model that makes possible to distinguish persistent effects in the inefficiency from firm inefficiency heterogeneity and to capture differences in the adjustment costs between firms. The new model is fitted to a ten year sample of Colombian banks. Our findings suggest that firm characteristics associated to size and foreign ownership have negative effects on inefficiency and separating these heterogeneity factors from the dynamics of inefficiency improves model fit. On the other hand, acquisitions are found to have positive and persistent effects on inefficiency. Colombian banks are found to present high inefficiency persistence but there exist important differences between institutions. In particular, merged banks present low costs of adjustment that allow them to recover rapidly the efficiency losses derived from merging processesFinancial support from the Spanish Ministry of Education and Science, research projects ECO2012- 3401, MTM2010-17323, ECO2009-08100 and SEJ2007-64500 is also gratefully acknowledge

Dynamic effects in inefficiency: evidence from the Colombian banking sector

Financial support from the Spanish Ministry of Education and Science, research Projects ECO2012-3401, MTM2010-17323, SEJ2007-64500 and ECO2012-38442 is also gratefully acknowledged.Firms face a continuous process of technological and environmental changes that requires them to make managerial decisions in a dynamic context. However, costs and constraints prevent firms from making instant adjustments towards optimal conditions and may cause inefficiency to persist in time. We propose a dynamic inefficiency specification that captures differences in the adjustment costs among firms and non-persistent effects of inefficiency heterogeneity. The model is fitted to a ten year sample of Colombian banks. The new specification improves model fit and have effects on efficiency estimations. Overall, Colombian banks present high inefficiency persistence but important differences between institutions are found. In particular, merged banks present low adjustment costs that allow them to recover rapidly efficiency losses derived from merging processes

Bayesian estimation of inefficiency heterogeneity in stochastic frontier models

Estimation of the one sided error component in stochastic frontier models may erroneously attribute firm characteristics to inefficiency if heterogeneity is unaccounted for. However, it is not clear in general in which component of the error distribution the covariates should be included. In the classical context, some studies include covariates in the scale parameter of the inefficiency with the property of preserving the shape of its distribution. We extend this idea to Bayesian inference for stochastic frontier models capturing both observed and unobserved heterogeneity under half normal, truncated and exponential distributed inefficiencies. We use the WinBugs package to implement our approach throughout. Our findings using two real data sets, illustrate the relevant effects on shrinking and separating individual posterior efficiencies when heterogeneity affects the scale of the inefficiency. We also see that the inclusion of unobserved heterogeneity is still relevant when no observable covariates are available.Financial support from the Spanish Ministry of Education and Science, research projects ECO2009-08100, MTM2010-17323 and SEJ2007-64500 is also gratefully acknowledged

Recent developments in financing and bank lending to the non-financial private sector: first half of 2021

Artículo de revistaFinancing conditions for households and firms remained accommodating in the first half of 2021. Improved macroeconomic expectations from the second quarter of the year have allowed credit standards to cease tightening, at the same time as demand for loans has picked up, particularly among households. This has contributed to an increase in the flow of loans as compared with end-2020, especially loans for house purchase. However, up to May (latest available figure) this growth in new financing has not translated into an acceleration of total outstanding household and corporate debt. In the sectors hardest hit by the pandemic, total outstanding bank lending to firms and sole proprietors grew moderately in the initial months of 2021. However, the cumulative growth since the onset of the pandemic has been sizeable as a result of the hefty liquidity needs in 2020, which were covered through increased debt. The significant adverse impact of the COVID-19 pandemic on economic activity is yet to be reflected in a broad-based increase in non-performing loans on deposit institutions’ balance sheets. However, Stage 2 credit remained on a rising trajectory in 2021 Q1, with loans to the hardest-hit sectors of economic activity accounting for the lion’s share. Non-performing loans also grew in these sectors, albeit by a lesser amount

Bayesian estimation of inefficiency heterogeneity in stochastic frontier models

Estimation of the one sided error component in stochastic frontier models may erroneously attribute firm characteristics to inefficiency if heterogeneity is unaccounted for. However, unobserved inefficiency heterogeneity has been little explored. In this work, we propose to capture it through a random parameter which may affect the location, scale, or both parameters of a truncated normal inefficiency distribution using a Bayesian approach. Our findings using two real data sets, suggest that the inclusion of a random parameter in the inefficiency distribution is able to capture latent heterogeneity and can be used to validate the suitability of observed covariates to distinguish heterogeneity from inefficiency. Relevant effects are also found on separating and shrinking individual posterior efficiency distributions when heterogeneity affects the location and scale parameters of the one-sided error distribution, and consequently affecting the estimated mean efficiency scores and rankings. In particular, including heterogeneity simultaneously in both parameters of the inefficiency distribution in models that satisfy the scaling property leads to a decrease in the uncertainty around the mean scores and less overlapping of the posterior efficiency distributions, which provides both more reliable efficiency scores and rankings.Financial support from the Spanish Ministry of Education and Science, research projects ECO2012-3401, MTM2010- 17323 and SEJ2007-64500 is also gratefully acknowledge