Since the turn of the millennium the problem of credibility of the social security system has spread to the private pension funds sector. This is evident for those countries, like Australia and Iceland, that have very large funded pensions assets as a result of strong pension reforms. The problem of trust could prevent pension fund investment from continuing to grow, weakening the privatization of the social security system. The objective of this study is to obtain new insights into the determinants of pension funds. We focus our analysis on the Australian and Icelandic experiences to study the credibility of pension fund performance and, as a consequence, of pension reform. Our credibility indicator is derived from a CAPM time-varying model. It can be used to investigate, using a Markov switching model, the linkages between economic fundamentals and the credibility of pension fund investment and the asymmetric effects of the fundamentals in the two regimes of low and hight credibillity. Our findings make a contribution to modelling policy credibility as a non-linear process with two distinct regimes. We also found large differences in the value of the coefficients for all macroeconomic variables between the low and high credibility regimes. This evidence strongly supports the hypothesis that the effects of macroeconomic fundamental variables on the level of credibility are asymmetric in all countries.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number
756.
Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports: