Amir Arjomandi

Does the interest rate for business loans respond asymmetrically to changes in the cash rate?

Abbas Valadkhani et al. — Tue, 22 Jan 2013 16:10:28 PST

This article examines the dynamic relationship between the Reserve Bank of Australia's (RBA's) cash rate and the variable interest rate for lending to small businesses. The relationship is evaluated via an asymmetric GARCH model using monthly data spanning from August 1990 to October 2012. Our results show that a 1 percentage point increase in the cash rate results in an instantaneous 1.086 percentage point rise in the variable rate for small businesses, whereas an equivalent 1 percentage point cut only leads to a 0.862 percentage point fall with a delay of up to 2 months. This outcome has obvious implications for the RBA's monetary policy transmission mechanism and the effectiveness of the expansionary policy versus contractionary policy.

Downward stickiness of interest rates in the Australian credit card market?

Abbas Valadkhani et al. — Tue, 22 Jan 2013 16:10:26 PST

How to capture the full extent of price stickiness in credit card interest rates?

Abbas Valadkhani et al. — Thu, 06 Dec 2012 15:45:15 PST

We present a new approach to evaluate the full extent of price stickiness in credit card interest rates by modifying the existing asymmetric models so that they can be adopted for testing both the amount and adjustment asymmetries as well as the lagged dynamic inertia. Consistent with similar studies, banks behave asymmetrically in response to changes in the Reserve Bank of Australia’s (RBA) target interest rate. Rate rises are passed onto the consumer faster than rate cuts and the credit card interest rate showed a very significant degree of downward rigidity. Based on the magnitude of the pass-through parameters obtained from short-run dynamic models, rate rises had a full one-to-one and instantaneous impact on credit card interest rates. However, in absolute terms the short-run effects of rate cuts were not only less than half of the rate rises but also were delayed on average by three months.

An empirical analysis of Iran's banking performance

Amir Arjomandi et al. — Tue, 23 Oct 2012 21:05:19 PDT

Purpose – The purpose of this paper is to investigate the efficiency and productivity growth of the Iranian banking industry between 2003 and 2008, encompassing pre- and post-2005-reform years.

Design/methodology/approach – The study uses a new decomposition of the Hicks-Moorsteen total factor productivity index developed by O’Donnell to analyse efficiency and productivity changes in a banking context. The advantage of this approach over the popular constant-returns-to-scale Malmquist productivity index is that it is free from any assumptions concerning firms’ optimising behaviour, the structure of markets, or returns to scale. The paper assumes that the production technology exhibits variable returns to scale.

Findings – The banking industry’s technical efficiency level – which had improved between 2003 and 2006 – deteriorated after regulatory changes were introduced in Iran. The results obtained also show that during 2006-2007, the industry’s total factor productivity increased by 32 per cent. However, the industry experienced its highest negative scale efficiency rate of 38 per cent (DROSE ¼ 0.62) and its highest negative efficiency growth of 43 per cent (DEff ¼ 0.57) during this period. The industry also witnessed a strong drop in productivity in 2007-2008. Overall, changes in the production possibility set and scale-efficiency changes exerted dominant effects on productivity changes.

Originality/value – This study is the first to use a comprehensive decomposition of the Hicks-Moorsteen TFP index to analyse efficiency and productivity changes in a banking context.

Keywords Efficiency, Productivity,Banking,Data envelopment analysis (DEA),MalmquistTFP index, Hicks-Moorsteen TFP index, Performance management.

Measuring the banking efficiency and productivity changes using the Hicks-Moorsteen approach: the case of Iran

Amir Arjomandi et al. — Tue, 23 Oct 2012 21:05:17 PDT

This study is the first to use a comprehensive decomposition of the Hicks–Moorsteen TFP index developed by O’Donnell (2010a) to analyse efficiency and productivity changes in a banking context. The paper investigates the efficiency and productivity growth of the Iranian banking industry between 2003 and 2008, encompassing pre- and post-2005-reform years. The advantage of this approach over the popular constant-returns-to-scale Malmquist productivity index is that it is free from any assumptions concerning firms’ returns to scale. We assume that the production technology exhibits variable returns to scale. Our findings show that the banking industry’s technical efficiency level – which had improved between 2003 and 2006 – deteriorated after regulatory changes were introduced in Iran. The results obtained also show that during 2006–2007, the industry’s total factor productivity increased by 32 per cent. However, the industry experienced its highest negative scale efficiency rate of 38 per cent and its highest negative efficiency growth of 43 per cent during this period. The industry also witnessed a strong drop in productivity in 2007–2008. Overall, our findings show that while government regulations may have resulted in large advances in the production possibilities set and therefore banks’ productivity over time, the state regulatory changes exacerbated the industry’s scale inefficiencies.

Is the rising cost of education uniform across all of Australia's Capital Cities?

Abbas Valadkhani et al. — Tue, 23 Oct 2012 21:05:15 PDT

This paper compares and contrasts the aggregate cost of education in Australia with the cost of education in each of its eight capital cities surveyed in the Consumer Price Index. It appears that education is becoming a relatively more expensive item among Australian households with rising substantial differences across various geographical areas. Over the last three decades on average the Australian economy witnessed an overall annual inflation rate of 4.2 per cent, whereas the growth of education cost was 7.3 per cent per annum. It is interesting to note that the rising cost of education was not the same across all capital cities. This paper shows that in Adelaide, Brisbane and Sydney the cost of education grew more than Darwin, Canberra and Melbourne. Our results clearly indicate that the introduction of the Higher Education Contribution Scheme (HECS) in 1989, the Goods and Services Tax (GST) in 2000 and the Reserve Bank of Australia’s (RBA) inflation-targeting policy launched in 1993 each have significantly contributed to changes in the real cost of education over our sample period (1982q1-2009q4).

An Analysis of Productivity Changes in the Iranian Banking Industry: a Bootstrapped Malmquist Approach

Amir Arjomandi et al. — Sun, 22 Apr 2012 18:50:20 PDT

This study employs various bootstrapped Malmquist indices and efficiency scores to investigate the effects of government regulation on the performance of the Iranian banking industry over the period 2003-2008. An alternative decomposition of the Malmquist index, introduced by Simar and Wilson (1998a), is also applied to decompose technical changes further into pure technical change and changes in scale efficiency. A combination of these approaches facilitates a robust and comprehensive analysis of Iranian banking industry performance. While this approach is more appropriate than the traditional Malmquist approach, for the case of banking efficiency studies, it has not previously been conducted for any developing country’s banking system. The results obtained show that although, in general, the regulatory changes had different effects on individual banks, the efficiency and productivity of the overall industry declined after regulation. We also find that productivity had positive growth before regulation mainly due to improvements in pure technology, and that government ownership had an adverse impact on the efficiency level of state-owned banks. The bootstrap approach demonstrates that the majority of estimates obtained in this study are statistically significant.

Analysing Productivity Changes Using the Bootstrapped Malmquist Approach: The Case of the Iranian Banking Industry

Amir Arjomandi et al. — Sun, 22 Apr 2012 18:50:19 PDT

This study employs various bootstrapped Malmquist indices and efficiency scores to investigate the effects of government regulation on the performance of the Iranian banking industry over the period 2003-2008. An alternative decomposition of the Malmquist index, introduced by Simar and Wilson (1998a), is also applied to further decompose technical changes into pure technical change and changes in scale efficiency. A combination of these approaches facilitates a robust and comprehensive analysis of Iranian banking industry performance. While this approach is more appropriate than the traditional Malmquist approach for banking efficiency studies, it has not previously been applied to any developing country’s banking system. The results show that although, in general, the regulatory changes had different effects on individual banks, the efficiency and productivity of the overall industry declined after regulation. We also find that productivity had positive growth before regulation, mainly due to improvements in pure technology, and that government ownership had an adverse impact on the efficiency level of state-owned banks. The bootstrap approach demonstrates that the majority of estimates obtained in this study are statistically significant.

Efficiency and productivity in Iran's financial institutions

Amir Arjomandi — Sun, 22 Apr 2012 18:50:18 PDT

The productivity and efficiency of the banking system is pivotal to the attainment of economic growth and development in both developed and developing economies, and is of particular interest in the wake of financial sector reform and restructuring. Over the last decade the Iranian banking industry has undergone substantial changes due to increased government regulation and technological advances, all of which have resulted in an extensive restructuring of the industry. Changes in policy have affected both state-owned banks (including commercial and specialised banks) and private banks in Iran. The existing literature lacks any rigorous empirical analyses of the impact of these reforms on the efficiency of financial institutions in Iran. The main aim of this study has been to conduct an empirical investigation of financial institutions in Iran during 2003 to 2008, with a view to assessing their technical efficiency and productivity. By investigating technical efficiency and productivity among financial institutions in Iran, this study addressed the following four questions: a) What is the mean efficiency score of financial institutions in Iran; b) What is the total factor productivity change for Iran’s financial institutions; c) Have financial reforms been successful in improving the performance of the banking sector, and has the performance of Iranian banks become more efficient after the regulatory changes; and d) and what are the major sources of inefficiency in the context of Iran’s financial institutions. Data envelopment analysis, which is a non-parametric approach, was employed in this study to analyse empirically the technical efficiency and productivity changes of financial institutions in Iran. For the first time in a developing country, this study employed a Bootstrapped Malmquist technique under Variable Returns to Scale assumptions proposed by Simar and Wilson (1999) to analyse efficiency and productivity changes in the banking industry. The bootstrap approach demonstrates that the majority of estimates obtained in this study are statistically significant. A comprehensive decomposition of the Hicks-Moorsteen TFP index, developed by O’Donnell (2010b), is applied in this thesis for the first time in a banking context to analyse efficiency and productivity changes. Based on our empirical results, from the intermediation perspective, it is found that the industry efficiency level improved over the period 2003-2006, but declined considerably after 2006. The findings also show that, while the state ownership of public banks helped to reduce the extent of their inefficiency by providing banking services to government-specified areas, the lack of independence of public banks, in particular specialised banks, from government controls led to their considerable scale and mix inefficiency particularly after the regulatory measures were introduced in 2005. From a revenue point of view public banks were significantly more mix- and technically inefficient than private banks, suggesting that the profitability maximization is the highest priority of all private banks. Finally, the empirical results indicate that no matter which approach is taken into consideration, scale inefficiency was a major source of inefficiency among the Iranian banks, in particular public banks, indicating significant room for scale optimization to facilitate higher levels of revenue and services. The industry showed negative changes in productivity over the period 2007-2008. The poor overall productivity performance of Iran’s financial sector after 2007 is a cause for concern, as it is likely to constrain the growth and development of the overall economy. As a consequence, the authorities will need to rethink their reform measures to deal with the objective of stimulating more competition in the marketplace. In order to improve scale and mix efficiency levels of public banks, the government needs to redesign their reform measures with the objective of increasing public banks’ independence. This thesis has made four significant contributions to the analysis of efficiency in financial institutions. First, this is the first study to address the issue of efficiency and productivity in Iran’s financial institutions using DEA and TFP indices for a period after 2003. After conducting an inclusive review, all previous studies of Iranian banks suffer from neglect of the importance of market structure (all have been conducted under constant returns to scale), productivity changes over time and the entry of new private banks. Thus, this study conducts an in-depth assessment of the banking sector efficiency and productivity by means of adopting different techniques. This study has employed a larger category of financial institutions than have other studies. The sample data included in this study comes from commercial banks, specialised banks and private bank. All these categories were homogenous in terms of inputs and outputs and hence it was possible to apply DEA methodology. Second, this is the first study to analyse Iranian banking efficiency over a period riddled with significant financial reforms or government interventions. Third, for the first time in a developing country, this study employed a Bootstrapped Malmquist technique under Variable Returns to Scale assumptions to analyse efficiency and productivity changes of a banking industry. Finally, this study is the first to use the new decomposition of the Hicks-Moorsteen TFP index to analyse efficiency and productivity changes in a banking context.

Banks’ efficiency and productivity analysis using the Hicks-Moorsteen approach: a case study of Iran

Amir Arjomandi et al. — Sun, 22 Apr 2012 18:50:17 PDT

This study is the first to use the Hicks-Moorsteen TFP index developed by O’Donnell (2008, 2009, 2010c) to analyse efficiency and productivity changes in the banking system. The advantage of this approach over the popular Malmquist productivity index is that it is free from any assumptions concerning firm optimising behaviour, the structure of markets, or returns to scale. The effects of Iranian government regulations launched in 2005 on the Iranian banking industry are investigated through an analysis of performance over the period 2003-2008 assuming variable returns to scale. The results obtained show that although the Iranian banking industry has been inefficient over the entire period of the study, the industry’s technical efficiency level - which had improved over the period 2003-2006 - deteriorated considerably after the regulatory changes were introduced. The industry experienced its highest negative efficiency growth in 2006 which was 43% and became more mix inefficient after 2005, with a considerably negative productivity change after 2007. Overall, changes of production possibility set and scale efficiency changes exerted dominant effects on productivity changes.