Capital requirements and competition in banking industry

This paper focuses on the interaction between regulation and competition in an industrial organisation model. We analyze how capital requirements affect the profitability of two banks that compete as Cournot duopolists on a market for loans. Bank management of both banks choose optimal levels of loans provided, equity ratio and effort to reduce loan losses so as to maximize profits. From the regulator's point of view, the free market solution is not optimal as private banks do not take in to account the consumer surplus and the social cost of bankruptcy (financial stability aspects). It is show that capital requirements may improve welfare, even under conditions that both banks would ever default. Moreover, we find that higher capital requirements impose a higher burden on the inefficient bank than on the efficient one, even though the requirement may only be binding for the efficient bank. If the inefficient bank chooses a strategy that might result in bankruptcy, capital requirements are particularly welfare improving.Bank capital ; Competition

Forecasting inflation: An art as well as a science!

In this study we build two forecasting models to predict inflation for the Netherlands and for the euro area. Inflation is the yearly change of the Harmonised Index of Consumer Prices (HICP). The models provide point forecasts and prediction intervals for both the components of the HICP and the aggregated HICP-index itself. Both models are small-scale linear time series models allowing for long run equilibrium relationships between HICP components and other variables, notably the hourly wage rate and the import or producer prices. The model for the Netherlands is used to generate the Dutch inflation projections over a horizon of 11-15 months ahead for the eurosystem’s Narrow Inflation Projection Exercise (NIPE). The recursive forecast errors for several forecast horizons are evaluated for all models, and are found to outperform a naive forecast and optimal AR models. Moreover, the same result holds for the Dutch NIPE projections, which have been provided quarterly since 1999. The direct and aggregation methods to predict total HICP inflation perform about equally goodmodel selection, time series models, aggregation

Coping with Problems of Understanding in Interorganizational Relationships: Using Formalization as a Means to make Sense

Research into the management of interorganizational relationships has hitherto primarily focused on problems of coordination, control and to a lesser extent, legitimacy. In this article, we assert that partners cooperating in such relationships are also confronted with ‘problems of understanding’. Such problems arise from differences between partners in terms of culture, experience, structure and industry, and from the uncertainty and ambiguity that participants in interorganizational relationships experience in early stages of collaboration. Building on Karl Weick’s theory of sensemaking, we advance that participants in interorganizational relationships use formalization as a means to make sense of their partners, the interorganizational relationships in which they are engaged and the contexts in which these are embedded so as to diminish problems of understanding. We offer a systematic overview of the mechanisms through which formalization facilitates sensemaking, including: (1) focusing participants’ attention; (2) provoking articulation, deliberation and reflection; (3) instigating and maintaining interaction; and (4) reducing judgment errors and individual biases, and diminishing incompleteness and inconsistency of cognitive representations. In this way, the article contributes to a better understanding of the relationships between formalization and sensemaking in collaborative relationships, and it carries Karl Weick’s thinking on the relationship between sensemaking and organizing forward in the context of interorganizational management.Formalization;Sensemaking;Interorganizational Cooperation;Understanding

Continental emergence and growth on a cooling earth

Isostasy considerations are connected to a 1-D model of mantle differentiation due to pressure release partial melting to obtain a model for the evolution of the relative sea level with respect to the continent during the earth secular cooling. In this context, a new mechanism is derived for the selective exhumation of exposed ancient cratons. The model results in a quantitative scenario for sea-level fall due to the changing thicknesses of the oceanic basaltic crust and its harzburgite residual layer as a function of falling mantle temperature. It is also shown that the buoyancy of the harzburgite root of a stabilized continental craton has an important effect on sea-level and on the isostatic readjustment and exhumation of exposed continental surface during the earths secular cooling. The model does not depend on the usual assumption of constant continental freeboard and crustal thickness and its application is not restricted to the post-Archaean. It predicts large-scale continental emergence near the end of the Archaean and the early Proterozoic. This provides an explanation for reported late Archaean emergence and the subsequent formation of late Archaean cratonic platforms and early Proterozoic sedimentary basins. For a period of secular cooling of 3.8 Ga, corresponding to the length of the geological record, the model predicts a fall of the ocean floor of some 4 km or more. For a constant ocean depth, this implies a sea-level fall of the same magnitude. A formula is derived that allows for an increasing ocean depth due to either the changing ratio of continental with respect to oceanic area, or to a possible increase of the oceanic volume during the geological history. Increasing ocean depth results in a later emergence of submarine ancient geological formations compared to the case when ocean depth is constant. Selective exhumation is studied for the case of constant ocean depth. It is shown that for this case, early exposed continental crust can be exhumed to a lower crustal depth, which explains the relative vertical displacement of low-grade- with respect to high-grade terrain. Increasing ocean depth is not expected to result in diminished exhumation. © 2000 Elsevier Science B.V. All rights reserved

A non-symmetric Yang-Baxter algebra for the quantum nonlinear Schrödinger model

We study certain non-symmetric wavefunctions associated to the quantum nonlinear Schrödinger (QNLS) model, introduced by Komori and Hikami using representations of the degenerate affine Hecke algebra. In particular, they can be generated using a vertex operator formalism analogous to the recursion that defines the symmetric QNLS wavefunction in the quantum inverse scattering method. Furthermore, some of the commutation relations encoded in the Yang-Baxter equation are generalized to the non-symmetric case