ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

The link between transparency and independence of central banks

Eleftherios Spyromitros

Correspondence: Eleftherios Spyromitros,

Department of Economics, Democritus University of Thrace, Greece

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This paper, using a standard model of monetary delegation, highlights the relationship between transparency and conservativeness of central banks. Precisely, we show that a lack of transparency about the output objective of central banks positively affects the optimal degree of conservativeness of the central bank. Empirical analysis confirms the theoretical link highlighted in this study.


  Central bank independence, conservatism, transparency


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Hedging Effectiveness of Applying Constant and Time-Varying Hedge Ratios: Evidence from Taiwan Stock Index Spot and Futures

Dar-Hsin Chen, Leo Bin and Chun-Yi Tseng

Correspondence: Leo Bin,

Department of Business Administration, University of Illinois at Springfield, USA

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This paper investigates the market-risk-hedging effectiveness of the Taiwan Futures Exchange (TAIFEX) stock index futures using daily settlement prices for the period from July 21, 1998 to December 31, 2010. The minimum variance hedge ratios (MVHRs) are estimated from the ordinary least squares regression model (OLS), the vector error correction model (VECM), the generalized autoregressive conditional heteroskedasticity model (GARCH), the threshold GARCH model (TGARCH), and the bivariate GARCH model (BGARCH), respectively. We employ a rolling sample method to generate the time-varying MVHRs for the out-of-sample period, associated with different hedge horizons, and compare across their hedging effectiveness and risk-return trade-off. In a one-day hedge horizon, the TGARCH model generates the greatest variance reduction, while the OLS model provides the highest rate of risk-adjusted return; in a longer hedge horizon, the OLS generates the largest variance reduction, while the BGARCH model provides the best risk-return trade-off. We find that the selection of appropriate models to measure the MVHRs depends on the degree of risk aversion and hedge horizon.


  Index Futures; Hedge Ratio; VECM model; GARCH model; Multivariate- GARCH model


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An Analysis of the Covered Warrants listed on the Athens Exchange

Costas Siriopoulos and Athanasios P. Fassas

Correspondence: Costas Siriopoulos,

College of Business, Zayed University, U.A.E

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The particular study is the first academic attempt to review a new financial instrument, the covered warrants, which were listed for trading in the Athens Exchange within the framework of the recapitalization of the three systematic Greek banks (Alpha Bank, National Bank of Greece and Piraeus Bank) in the summer of 2013. In particular, we discuss the basic characteristics of these instruments and we examine their pricing efficiency during the fifteen months of their listing. The empirical results suggest that the Greek warrants market is inefficient as the three listed contracts are systematically underpriced compared to their theoretical value based on the historic realized volatility of the underlying shares. Furthermore, a dynamic delta-hedged warrant portfolio yields significant cumulated gains that exceed the risk-free rate.


  Warrants, Cox-Ross-Rubinstein model, Greek banks, Implied volatility, Delta hedging


Athens Exchange (2013) Information Memorandum Methodology for the calculation of the Theoretical Price for Bermudan Style Covered Warrants. Version 1.0 – May 17, 2013.

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Bakshi, G., Cao, C., and Chen, Z. (2000) Do call prices and the underlying stock always move in the same direction?.Review of Financial Studies, 13(3), pp. 549-584.

Bank of Greece (2012) Report on the recapitalisation and restructuring of the Greek banking sector. December 2012.

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Facts and Fantasies about Gold

Joachim Klement

Correspondence: Joachim Klement,

Wellershoff & Partners Ltd, Switzerland

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Due to the increasing popularity of gold as an investment the demand for effective risk management techniques for gold investments has increased as well. In this paper we analyze several drivers of the price of gold that have been proposed in the past. Our analysis indicates that short-term volatility of the price of gold remains rather unpredictable with many of the explanations like the fund flows in physical gold ETF either unreliable or unstable over time. Our analysis suggests that there is a stable non-linear relationship between the price of gold and changes in inflation rates or real interest rates that might be exploited for risk management purposes.


  Gold, Inflation, Real Interest Rates, VIX, US Dollar, ETF Fund Flows


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Baur, D. G. and K. Glover (2012) The Destruction of a Safe Haven Asset?, University of Technology Sydney Working Paper No. 174.

Baur, D. G. and T. K. McDermott (2010) Is Gold a Safe Haven? International Evidence, Journal of Banking and Finance, vol. 34 (8), 1886 – 1898.

Erb, C. B. and C. R. Harvey (2013) The Golden Dilemma, Financial Analyst Journal, 69(4), 10 – 42.

Jastram, R. W. (1977) The Golden Constant, The English and American Experience 1560 – 1976, John Wiley & Sons, New York.

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The Effect of Immigration on Economic Growth in an Ageing Economy

Joan Muysken and Thomas Ziesemer

Correspondence: Joan Muysken,

Department of Economics, Maastricht University, The Netherlands

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Immigration can help to alleviate the burden ageing presents for the welfare states of most Western Economies. To show this, a macroeconomic model is developed which deals with the effect of both ageing and immigration on economic growth, through home-biased capital accumulation. The model includes a detailed description of the labor market, analyzing the interaction with low-skilled unemployment. The empirical relevance of some crucial model assumptions is shown to hold for the Netherlands, 1973 – 2009, using a vector-error-correction model. Simulations of the latter model show that permanent shocks in immigration will help to alleviate the ageing problem in the long run, as long as the immigrants will be able to participate in the labor force at least as much as the native population. Moreover, the better educated the immigrants are or become, the higher their contribution to growth will be.


  Ageing, Immigration, Unemployment, Skills


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A Bank Lending Channel that is Working via Housing or via Consumer Loans? Evidence from Europe

Stefanos Papadamou, Vaggelis Arvanitis and Costas Siriopoulos

Correspondence: S. Papadamou,

Department of Economics, University of Thessaly, Greece

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This paper, tests the bank lending channel of monetary policy transmission mechanism in a series of European countries since the Euro currency circulation. By disaggregating bank loans to households for consumer, housing and other purposes over the period 2003:Q1 to 2012:Q4, we try to shed light to any hidden dynamics by aggregate data. An unrestricted VAR model and impulse response analysis provide empirical evidence of an active bank lending channel working via housing loans for the majority of countries studied (Germany, France, Belgium, Italy, Spain, Sweden and UK). Additionally, there is evidence of a transmission mechanism proceed through consumer credit in Austria, Belgium and Netherlands. Moreover our results reveal that monetary transmission to housing loans proceeds quickly in Germany, Spain, Sweden and UK compared to the others. However in Belgium, Germany and UK, consumer credits reduction also amplifies the initial shock on GDP and on inflation produced by a tightening monetary policy. Finally, banks’ lending behaviour varies significantly according to the purposes of household loans. In Belgium, Sweden and UK, housing loans reductions coexist with increase of loans for consumption and other reasons, implying that the former is driven by supply forces while the latter by demand forces.


  Monetary policy, bank lending, Transmission mechanism VAR models


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Do International Capital Flows Worsen Macroeconomic Volatility in Transition Economies?

Scott W. Hegerty

Correspondence: Scott W. Hegerty,

Department of Economics, Northeastern Illinois University, USA

pdf (1316.31 Kb) | doi:


The 2008 financial crisis helped precipitate a near crisis in the transition economies of Central and Eastern Europe, which ultimately resulted in severe output declines throughout the region. What share of the responsibility did capital movements, particularly “hot money” flows, play in the rapid growth and subsequent recession in the periphery of the European Union? To answer this question, we examine the responses of output, consumption, and investment variability to shocks to both Foreign Direct Investment and non-FDI flows, using quarterly data from the mid-1990s to 2010. Impulse-response and variance decomposition analysis shows that “hot” non-FDI flows contribute more to macroeconomic volatility than do more stable FDI flows, and that certain countries, particularly those with fixed exchange rates, seem to be more vulnerable to shocks than others.


  Capital Inflows, Macroeconomic Volatility, Transition Economies, Vector Autoregression


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