Di Mauro et al.: Islamic Finance in Europe

ABSTRACT:

Islamic finance is based on ethical principles in line with Islamic religious law. Despite its low
share of the global financial market, Islamic finance has been one of this sector’s fastest growing components over the last decades and has gained further momentum in the wake of the financial crisis.

The paper examines the development of and possible prospects for Islamic finance, with a special focus on Europe. It compares Islamic and conventional finance, particularly as concerns risks associated with the operations of respective institutions, as well as corporate governance. The paper also analyses empirical evidence comparing Islamic and conventional financial institutions with regard to their: (i) efficiency and profitability; and (ii) stability and resilience. Finally, the paper considers the conduct of monetary policy in an Islamic banking context. This is not uncomplicated given the fact that interest rates – normally a cornerstone of monetary policy – are prohibited under Islamic finance. Liquidity management issues are thus discussed here, with particular reference to the euro area.

 

Available for download here.

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Li, Yang & Xiao: Integrating the Level of Pension System in China | Insights from Predatory-Prey Model

ABSTRACT:

In this paper, the author used a Predator-Prey Model to study how the pension reform in China(increasing the integrated level of pension system) can in uence the relationship between governments and individuals. We separate governments as central government and local governments. The central government play a role of intelligent designer while the local governments play as predator and the rms are considered to be preys. We nd that to increase
the level of integrate of the pension system is not only necessary to build a solid social security, but also to accelerate the economy. While during the reform, a destabilization may happen and require extra attention.

 

Available for download here.

Holzmann: A Provocative Perspective on Population Aging and Old‐Age Financial Protection

ABSTRACT:

Population aging is typically associated with economic challenges for productivity and financial threats for the old‐age financial protection system of a country. This paper takes an optimistic position and outlines key ingredients to make it a successful experience. Yet to turn this challenge into an opportunity requires a significant change in a society’s mindset and policies, such as recognizing that population aging and increased life expectancy are quite likely the biggest challenge to mankind in recorded history. This calls for a review and revision of societal institutions, from the likely oldest one – marriage – to one of the youngest – retirement income schemes. Mere tinkering at the margin of existing retirement income programs will be neither sufficient nor helpful. To develop the arguments, the paper reviews and proposes changes to the measurement of population aging – globally and for East Asian countries; outlines critical policy paths to address population aging successfully; analyzes the implications of population aging for the selection of an old‐age financial protection system; and offers guidance to this end.

 

Available for download here.

Andersen & Bhattacharya: The Intergenerational Welfare State

ABSTRACT:

The welfare state is not merely a stand-in for missing markets; it can do a whole lot more. When generations overlap and the young must borrow to make educational investments, a dynamically-efficient welfare state, by taxing the middle-aged and offering a compensatory old-age pension, can generate higher long-run human capital and welfare compared to laissez faire. Along the transition, no generation is hurt and some are better off. If an intergenerational human capital externality is present, unfunded pensions can be gradually phased out entirely. Public pension reform can be rationalized on efficiency grounds without relying on political-economy concerns or aging.

 

Available for download here.

Monahan: Understanding the Legal Limits on Public Pension Reform (AEI Report)

ABSTRACT:

The legal protections that apply to state employee pension benefits are a matter of state, and not federal, law. As a result, no simple answer to the question of what changes to public pension plans are permissible exists. Rather, the unique law of each state must be examined to determine what is and is not permissible. In the early 1900s, when many courts first considered the issue of whether or to what extent public pension benefits were legally protected against change, the legal consensus was that such benefits were entitled to no protection whatsoever. Pensions were considered to be mere “gratuities” from the government that could be amended or withdrawn at any time and for any reason.

Over the next several decades, however, courts changed course and overwhelmingly rejected this approach, which left employees’ pensions completely vulnerable to unilateral change. In place of the “gratuity” approach, courts have, for the most part, adopted one of two legal theories to protect public pension benefits: the property interest approach or the contract approach.

This policy brief will provide an overview of the various approaches that states take to protect public employee pensions, discussing first the protections that apply to employees who have not yet retired and then those that apply to already-retired employees. It concludes with a look at recent litigation in several states challenging public pension plan changes.

 

Available for download here.

Biggs and Smetters: Understanding the argument for market valuation of public pension liabilities (AEI Report)

ABSTRACT:

This paper first reviews how public pensions value their liabilities under current GASB rules. Next, it outlines the standard approach to valuing liabilities from an economic point of view and what this market-based approach implies for public-sector pensions and their funding levels. Following that, the authors provide examples designed to better convey the qualitative principles regarding the economic approach to pension liability valuation.

The emphasis here is not on detailed calculations of how fair-market valuation would affect pension funding in states and cities around the country, nor the increased budgetary burden the pensions might impose.Likewise, the emphasis is not on how defined-benefit pensions might be reformed in light of information conveyed via more accurate accounting rules.

Rather, the intent is to provide readers with a better handle on the simple intuition that lies behind the economists’ call for fair-market valuation of public pension liabilities. Those who follow the debate are aware that economists argue for using lower discount rates to value public pension liabilities but often are unaware of why economists believe what they do. This paper aims to better articulate those beliefs.

 

Available for download here.

Bovenberg and Mehlkopf: Optimal Design and Regulation of Funded Pension Schemes

ABSTRACT:

This paper reviews the literature on the optimal design and regulation of funded pension schemes. We first characterize optimal saving and investment over an individual’s life cycle. Within a stylized modeling framework, we explore optimal individual saving and investing behavior. Subsequently, various extensions of the model are considered, such as additional financial risk factors, stochastic human capital and more elaborate individual preferences. We then turn to the literature on intergenerational risk sharing,
which suggests that a long-lived entity such as a pension fund or the government can yield ex-ante welfare gains by allowing non-overlapping generations to trade risk. The scope for this type of intergenerational risk sharing, however, is limited by the ability to commit generations to the contract. These commitment problems raise concerns with respect to sustainability and intergenerational fairness. We explore the role of solvency regulations to address these concerns about intergenerational fairness and discontinuity risk.

 

Available for download here.

Ayensu: Managing Ghana's Oil Revenue: Ghana's Petroleum Funds (Gpfs)

ABSTRACT:

Petroleum receipts, for most oil dependent economies, constitute the major source of revenues for the government. These large revenues stream are effectively managed through the vehicle of Sovereign Wealth Funds (SWFs) as practiced by oil-producing nations such as Saudi Arabia, Qatar, United Arab Emirates (UAE) and then invested in strategic developmental sectors of the economy. The creation and management of SWFs falls within the responsibility of the Government of Ghana as the sole stakeholder entrusted by the Petroleum Revenue Management Act (PRMA), 2010 to ensure transparency and accountability in petroleum revenues. PRMA makes provisions for the creation of two SWFs entitled Ghana Petroleum Funds (GPFs) which are Ghana Stabilization Fund (GSF) and Ghana Heritage Fund (GHF). GSF exist to smooth out budget imbalances due to global oil price volatility while GHF aims to provide income for future generations when oil reserves would be depleted. The paper, therefore, examines and assesses Oil & Gas (O&G) revenues received and managed by the Government of Ghana in accordance with the Petroleum Revenue Management Act, 2010. The paper begins with an exposé on Sovereign Wealth Funds (SWFs) as an instrument for better accountability and transparency in Oil & Gas revenue management. The paper then discusses and analyzes petroleum receipts and allocation by the Government of Ghana and its investments in strategic sectors of the economy through Ghana Stabilization Fund and Ghana Heritage Fund.

 

Available for download here.

Loeffler, Schnabl & Schobert: Limits of Monetary Policy Autonomy and Exchange Rate Flexibility by East Asian Central Banks

ABSTRACT:

Given low interest rates in the large industrial countries and buoyant capital inflows into the emerging markets East Asian central banks have accumulated large stocks of foreign reserves.  As the resulting easing of monetary conditions has become a threat to domestic price and financial stability, the East Asian central banks have embarked on substantial sterilization operations to absorb what we call ‘surplus liquidity’ from the domestic banking systems. This has brought the East Asian central banks into debtor positions versus the domestic banking systems. We show based on a central bank loss function that given buoyant capital inflows and exchange rate stabilization the absorption of surplus liquidity leads either to financial repression, or rising inflation or both. Assuming that a debtor central bank moved towards a freely floating exchange rate to gain monetary policy independence, we show that monetary policy independence is undermined by sterilization costs and revaluation losses on foreign reserves.

 

Available for download here.

Smythe, McNeil & English: When does CalPERS’ activism add value?

ABSTRACT:

The California Public Employees’ Retirement System (CalPERS) is a pioneer of shareholder activism and a leading proponent of governance reform among public pension funds. We examine factors (such as board structure, ownership structure, past performance, and size of target firms, as well as proposed governance reform) that may be associated with the value of CalPERS’ activism. The results can be useful in guiding institutional governance efforts in the future. The results show that poor prior performance, smaller firm size, and a larger board are associated with greater announcement period returns. In addition, there is weak evidence of greater announcement returns when the board includes a greater number of insiders, CEO ownership is high, and director and officer (excluding CEO) ownership is low.

 

Available for download here.