Imperfect markets and banking (Slovenia)

My dissertation focuses on the effects of the imperfect markets on banking. Chapters 1 and 2 examine the evidence for speculative bubbles in the foreign exchange markets. The first chapter of the dissertation analyses Slovenian exchange rates thoroughly. It was assumed that the Bank of Slovenia official exchange rate is the long-run equilibrium value for monthly, and daily exchange rates. I use a class of models, known as error-correcting, that allow long-run components of variables to obey equilibrium constraints while short-run components have a flexible dynamic specification. An error correction model using daily data revealed some evidence of speculative bubbles in the Slovenian currency market. A model using monthly data also revealed some evidence of speculative bubbles. The second chapter uses Monte Carlo techniques in an effort to identify speculative bubbles in the foreign exchange markets. Usually, the frequency of the data is an issue in tests for speculative bubbles. Monte Carlo techniques were used to compare the ability of error correction to identify speculative bubbles using the different frequency data. First, I estimated the model using data from Slovenian currency market. Then I used this model to generate data. Finally, three different martingale processes representing speculative bubbles were included in the data generation process. Power and size of tests depend on the size and the length of the attack. Practitioners should be careful when explaining the results from tests for speculative bubbles. The third chapter discusses the existence of a bank lending channel of monetary policy transmission. In particular, possible cross-sectional differences are studied. Banks with varying characteristics could differently respond to policy shocks. I am interested in the impact that central bank monetary policy has on the performance of commercial banks. Monetary policy affects the balance sheets and lending capacities of the banking sector. Panel data of Slovenian commercial banks were used in an attempt to characterize the distributional effects of monetary policy directly. The goal was to test whether the reduction in loans during monetary contractions is a consequence of shifts in loan demand or loan supply.