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Do Fundamentals and Credibility Matter in a Funded Pension System ?A Markov Switching Analysis for Australia and Iceland

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  • Mariangela Bonasia
  • Oreste Napolitano

Abstract

Since the turn of the millennium the problem of credibility of the social security system has spread to the private pension funds sector. This study focus on the Australian and Icelandic experiences to study the credibility of pension fund performance and pension reform. Our credibility indicator is a derived from a CAPM time-varying model. We investigate, using the Markov switching model, the linkages between economic fundamentals, the credibility regimes. We found large differences in the value of the coefficients for all macroeconomic variables. Our findings make a contribution to modelling policy credibility as a non-linear process with two distinct regimes.

Suggested Citation

  • Mariangela Bonasia & Oreste Napolitano, 2007. "Do Fundamentals and Credibility Matter in a Funded Pension System ?A Markov Switching Analysis for Australia and Iceland," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(2), pages 221-248.
    • Handle: RePEc:bxr:bxrceb:2013/80291
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    References listed on IDEAS

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    1. Gabriel Perez‐Quiros & Allan Timmermann, 2000. "Firm Size and Cyclical Variations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(3), pages 1229-1262, June.
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    4. Tim Besley & Andrea Prat, 2005. "Credible pensions," Fiscal Studies, Institute for Fiscal Studies, vol. 26(1), pages 119-135, March.
    5. Hazel Bateman & John Piggott, 1997. "Private Pensions in OECD Countries: Australia," OECD Labour Market and Social Policy Occasional Papers 23, OECD Publishing.
    6. Groenewold, Nicolaas & Fraser, Patricia, 1999. "Time-varying estimates of CAPM betas," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 48(4), pages 531-539.
    7. Zacharias Psaradakis & Nicola Spagnolo, 2003. "On The Determination Of The Number Of Regimes In Markov‐Switching Autoregressive Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(2), pages 237-252, March.
    8. Hazel Bateman, 2003. "Regulation of Australian Superannuation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(1), pages 118-127, March.
    9. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
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    More about this item

    Keywords

    Credibility; Pension funds; Kalman filter; Markow switching model;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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