Money Market Liquidity under Currency Board – Empirical Investigations for Bulgaria

Over the last years the efficiency and existence of an automatic adjustment mechanism of currency boards are in the centre of economic discussions. This study is intended to provide an empirical analysis of the volume and interest rate of unsecured overnight deposits at Bulgarian interbank market. Three empirical models are developed in order to explain the behaviour of demand, supply and interest rates. The impact of reserve requirements, operations connected with government budget, transactions in reserve currency (Euro) and some seasonal factors is discussed. The developments of interest rates and volumes are well captured by the employed variables and their statistically significant signs coincide with the theoretical literature.http://deepblue.lib.umich.edu/bitstream/2027.42/40079/3/wp693.pd

Money Market Liquidity under Currency Board – Empirical Investigations for Bulgaria

Over the last years the efficiency and existence of an automatic adjustment mechanism of currency boards are in the centre of economic discussions. This study is intended to provide an empirical analysis of the volume and interest rate of unsecured overnight deposits at Bulgarian interbank market. Three empirical models are developed in order to explain the behaviour of demand, supply and interest rates. The impact of reserve requirements, operations connected with government budget, transactions in reserve currency (Euro) and some seasonal factors is discussed. The developments of interest rates and volumes are well captured by the employed variables and their statistically significant signs coincide with the theoretical literature.money market, currency board, Bulgaria

Empirical Investigation of Systemic Risk in the New EU States

Sovereign CDS spreads have become major variables focused on risks and expectations about the fiscal situation of different countries. In the paper we investigate, first, whether there is a link in the new member states between the expectations about the condition of their public finances and the dynamics of money markets, including integration of national money markets with the Euro area. Second, we look on the particularities of this relationship through the different phases of the crisis and across the different countries using different monetary regimes. This concerns mostly two opposite extreme monetary regimes, namely, currency boards (and quasi-fixed exchange rate) - Bulgaria, Estonia, Latvia, Lithuania, or inflation targeting - Poland, Czech Republic, Hungary and Romania. The results obtained form the high frequency panel data models support the theoretical hypotheses and policy intuition that exists strong relationship between the liquidity risk (measured by the short term money markets) and fiscal risk (measured by CDS) and that this link is extremely unstable and in some sense nonlinear during the financial crisis. Our study confirm that the strong link between monetary and public finance risk as apart of total systemic risk increase during the crisis especially for currency boards regimes, when the link becomes stronger and pronounced. For the inflation targeting countries the link became weaker and less pronounced.money markets, sovereign CDS spreads, monetary regimes, financial crisis

Dynamics of the Inter-Bank Market in Bulgaria

In the last years the effectiveness and the presence of automated mechanism of adjusting, the currency boards are in the center of many economic analyses. The current study will present an empirical analysis of the volume and interest rate on the non-covered one-day deposits of the Bulgarian inter-bank market. Developed are three empirical models in order to explain the behavior of the demand, supply and the interest rates. Studied are the influence of the requirements on the obligatory reserves of the trade banks; the operations connected with the state budget; the deals in reserve currency between the banks and BNB; and some season factors. The behavior of the interest rates and the volume of deposits are well ranged by the variables used. The coefficients, which describe the influence of these variables, are statistically significant and have the same direction as the described in the theoretical literature.

Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis

The paper traces the trends in the development of the Bulgarian banking system focusing on the dynamics of bank efficiency. Although the financial crisis in 1996-1997 and the following shift in monetary regime (introduction of Currency Board Arrangement) exerted significant influence on the development of banking sector characteristics, the study covers only the period of 1999-2006 because of the lack of consistent available data prior 1999. During the analysed period the impact on the bank efficiency of the following factors is studied: change in property, penetration of the foreign commercial banks on the local banking market, competition, structure of bank assets and liabilities, central bank policy in respect to credit activity, etc. The limits of the traditional accounting approaches to bank efficiency evaluation are discussed, as well as the implementation of non-parametric methods, in particular Data Envelopment Analysis (DEA). Different specifications of DEA like intermediation and operating approaches were applied to separate groups and sub-groups. The results show that: firstly, the foreign banks perform better than domestic and state-owned banks because of the technological and managerial improvements; and secondly, the large banks are more efficient than the small banks due to decreasing operating costs and scale economies.DEA; bank efficiency; Bulgarian banking system; foreign banks