ABSTRACT
One of the regulatory responses to the 2008 financial crisis was to internalize the costs related to banks' distress by introducing bank levies. More than 23 European banking sectors have been confronted with the new levy regime imposing the additional tax on banks' balance sheet. This study analyzes the effect of the levy introduction on banks' profitability, credit activity, and on their business models. More importantly, we confront two different levy regimes - one imposed on banks' assets and the other on liabilities - to assess their differential impact. A generalized least squares regression with a random effect is performed on a data sample of Hungarian and German credit institutions from 2005 to 2015. The results show that levy introduction weakened banking sectors in terms of their profitability as well as their lending activity. Even though banks try to compensate for the cost of the levies by passing some of the costs on to the customers and restructuring their operations to limit the tax burden, we find that these activities are not sufficient to offset the whole tax burden. We also note that while the asset levy has a more severe effect on banks' profits, the liability levy severely affects banks' lending due to lower interest margin resulting from higher cost of funding. Our research results provide important conclusions for regulators, especially during turbulent periods such as the COVID-19 pandemic to strengthen the banking sectors by considering the levy suspension.
ABSTRACT
Between COVID-19 and the ongoing trade friction between China and the United States, the domestic and international economic situations have become much more complicated. In this context, what is of vital importance is studying the impact of exchange rate fluctuations on trade balance from two perspectives, namely China's international balance of payments and maintaining the smooth operation of the domestic economy. Economists at home and abroad have done considerable research into the relationship between exchange rate fluctuations and trade balance. However, few studies to date have examined the relationship from the perspective of exchange rate pass-through. This paper reviews relevant theories about exchange rate pass-through (EPT in short) and its impact on trade balance, both at home and abroad. A literature review on empirical studies of the relationship between exchange rate pass-through (EPT) and trade balance is also conducted. After that, a brief conclusion of the literature is made. As a result, the findings of this research can provide a reference platform for future scholars who choose to study the relationship between exchange rate fluctuation and its influence on trade balance, from the exchange rate pass-through (EPT) perspective. © 2021 Kriedt Enterprises Ltd. All right reserved.
ABSTRACT
Japan has experienced several appreciation episodes. These appreciations may squeeze profit margins and lower export volumes. This paper investigates whether firms can weather appreciation periods by producing differentiated rather than commoditized products. To do this it investigates different sectors within the Japanese transportation equipment industry. Results from estimating pricing-to-market (PTM) coefficients indicate that firms producing differentiated products can pass-through more of exchange rate appreciations into higher foreign currency prices and thus better preserve their profit margins. Results from estimating trade elasticities are consistent with the PTM results and indicate that the automobile industry has exported much less than predicted after the yen depreciated in 2012. Finally, estimates of the stock market exposure across sectors indicates that the profitability of firms producing differentiated products is less exposed to appreciations. Producing differentiated, knowledge-intensive goods can thus help firms to survive endaka periods.