Monetary and banking policy transmission through interest rates: an empirical application to the USA,Canada, the UK and the Eurozone

The main purpose of this paper is an examination of the pass‐through interest rate transmission from the wholesale rates (central bank and/or money market rates) to the retail rates (deposit and lending rates) of the banking system. Knowledge of the transmission substantially helps us to calculate the pass‐through interest rate margin or mark‐up in the banking systems under examination (USA, Canada, the UK and the Eurozone). The selection of the wholesale interest rate is also an important part of this pass‐through transmission framework because it is related to the money supply process and therefore the central bank's policy capabilities. In the empirical part, a Johansen (1988) cointegration based error‐correction procedure (ECM‐GE) is implemented for the wholesale interest rate selection. Then an LSE–Hendry general‐to‐specific model (GETS) is applied, for the revelation of the banking sector pass‐through interest rate behaviour. In the empirical part, on the issue of the wholesale interest rate selection, the USA and the Eurozone seem to favour the Money Market rate while the UK and Canada favour the central bank policy rate. The results indicate two types of interest rate pass‐through behaviour, with market structure implication – namely, the US and UK banking systems contrasted with Canada–Eurozone.     

The citizen‐candidate model with imperfect policy control: Strategic delegation and polarization

We present a modified citizen‐candidate model where the implemented policy arises from a compromise between the government and an unelected external power. We show that the two‐candidate equilibria of this model differ significantly from the original: however small the cost of candidacy, the distance between the candidates' policies, both ideal and implemented, remains strictly above a threshold. Moreover, there may be one‐candidate equilibria in which the only candidate is not the one most preferred by the median voter. Both results point out that, even with negligible cost of entry, there are limits to strategic delegation.     

MODELLING BANKS' LENDING BEHAVIOUR IN A CAPITAL‐REGULATED FRAMEWORK

This paper adds to the literature on the money supply theory by assessing the effect of banks' equity on the loan generating process. First, a new ‘credit’ multiplier is examined, the so‐called ‘equity’ multiplier model. This, in a second stage, is incorporated in a new multivariate lending model. The models are assessed by using panel data cointegration techniques for the G7 countries. According to our results, a feedback relationship exists between banks' loans and equity. Moreover, the factors determining loans are: the aggregate demand, the loan–customer relation, the banks' equity and banks' portfolio adjustments and/or the monetary stance.     

Voting as a signaling device

In this paper, citizens vote in order to influence the election outcome and in order to signal their unobserved characteristics to others. The model is one of rational voting and generates the following predictions: (i) The paradox of not voting does not arise, because the benefit of voting does not vanish with population size. (ii) Turnout in elections is positively related to the importance of social interactions. (iii) Voting may exhibit bandwagon effects and small changes in the electoral incentives may generate large changes in turnout due to signaling effects. (iv) Signaling incentives increase the sensitivity of turnout to voting incentives in communities with low opportunity cost of social interaction, while the opposite is true for communities with high cost of social interaction. Therefore, the model predicts less volatile turnout for the latter type of communities.