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The paper discusses the long-run monetary conditions in Ethiopia in the last three decades. These decades can be characterized by large political changes, leading to shocks on income and population growth, and two serious periods of drought. Both affected inflation and real demand for M-1 through shortages of food. Shortage due to drops in rainfall might have long-run monetary consequences. Despite regime shifts we find support for stability of Ethiopian narrow money demand.

The introduction of the euro has led to renewed attention for monetary transmission in the European Union. This special issue of the Journal of Banking and Finance includes papers that contribute to the development of both the theory and empirical applications of the monetary transmission channel that assumes various types of imperfections. The issue includes papers that can best be described by the credit view and studies on concentration and competition in the European banking industry. This introduction positions the papers in this active field of research. (C) 2002 Elsevier Science B.V. All rights reserved.

Firms exporting their goods and services abroad face risks that are different from the risks faced by firms who do not engage in international trade. It is common practice to allow the receiving party to pay in instalments. The exporting firm faces credit risk, but as in most countries, Dutch firms can insure such risks. To some extent, such export credit risks can be insured on the private market. There are private insurance companies that insure short-term risks. On the Dutch market, Gerling NCM, Coface, and Euler-Cobac operate as insurers. The Dutch government acts as reinsurer of long-term export credit risks (three years or more). A reinsurance agreement exists with Gerling NCM for this purpose. Short-term and medium-term contracts can be reinsured in the private reinsurance market. In almost all OECD countries export credits are officially supported. This can take the form of direct finance (e.g. US, Canada) or the government can insure the export credit risks (directly as for example in the United Kingdom or indirectly by reinsuring a private insurer such as in the Netherlands). The role of this government-backed insurance on exports to certain countries is important as experience has shown that the private market is very reluctant to cover long term export risks to non-OECD countries. Considering the government involvement in this market, one can raise the following questions: 1. What are the key determinants of export credit risk insurability by the private market? 2. Which export credit risks can be covered by the private market? In the report, an answer to these questions is provided by means of a literature review and an extensive field study, with special emphasis on the role of the Dutch government as a reinsurer of export credit risks. The main conclusions are as follows. Economic theory predicts that firms that operate risk averse are willing to pay an insurance premium. Large (say listed) firms operate at a relative low degree of risk aversion. These firms can use internal risk hedging as a useful alternative to private export credit risk insurance. Medium-sized firms are more likely to apply for export credit risk insurance, while small firms probably face problems (since for this group there is only one supplier of insurance active in the Dutch market). Small firms do not have the knowledge to hedge export risks differently than by export credit insurance in the Netherlands. They lack the resources and knowledge to have access to the international insurance markets. Moreover, the duration of the coverage is often not as long as exporting companies would like (this is experienced by both large and small companies). This is partly due to reinsurance restrictions faced by the insurance companies. A related problem to insurability is the high market concentration of supply. Market dominance leads to monopolistic rent extraction. In the case of the Netherlands this might apply to Gerling NCM. On the other hand relationship insurance seems to be a popular model. In our field study, firms point at a preference for long-lasting relations. Most exporters seem to have low price elasticity of insurance demand. Economic theory predicts moral hazard to be an important determinant of insurability. The issue of moral hazard, though recognized by insurance companies, does not dominate the perception of insurability. The price of export credit insurance is largely determined by macroeconomic risk factors, such as political risk. This leads us to the second main issue: what role should the government play on the market for export credit risk insurance and which risks should be covered by the governement? We argue the following: ? In markets with asymmetric information it is likely that profitable projects will be denied insurance. If the government considers export growth as one of its main goals, it should interfere in the market by lowering relative prices; ? The government is equipped to hedge intertemporal risks due to a low social cost of capital. In our field study some market participants point at the responsibility the government should take, especially in the case of small exporting companies; ? The government should offer opportunities to hedge macroeconomic risks, such as political/country risk. These risk types are seen as the main drivers of export insurance premium contracts; ? Moral hazard of public (re-)insurance might be a problem, but is not perceived as such in our field study by (re)insurance companies operating in the private market. The relation between the Dutch government and Gerling NCM is different, though. Gerling NCM retains no risk on its public account, and the government cannot end its relation with Gerling NCM. Therefore, moral hazard could be a problem in this insurer/reinsurer relation; ? Besides direct interference, the government should take care of prudential regulation of the insurance sector. Monopolistic behaviour should be avoided by appropriate regulation. Especially contracts that have a large geographical nature are subject to at least monopolistic competition. Clients who are not satisfied with the monopoly supplier should be able to meet other suppliers (at home or abroad). This holds especially for long-term contracts. In all cases the government should operate in a prudential way. No involvement may prevent profitable projects from being insured, too much involvement may crowd out the market for private export credit risk insurance. Finally, based on the research, we recommend the following. ? It seems that the industrial organization of the market for export credit risks insurance is an important issue. Some firms that were interviewed mentioned the large number of alternatives in the London market. This reinforces the idea of increasing competition in the Netherlands. ? There is a large barrier to entry on the Dutch market: an insurance company needs extensive datasets to go into business. Old firms have a competitive advantage by controlling such databases. Perhaps public data collection (at EU level) could mitigate this problem. ? Especially smaller firms are not aware of possibilities on the international market for export credit risk insurance. A national campaign explaining and informing about alternative risk products (not necessarily insurance products) will help exporters to find a better solution for reducing the risks they are exposed to. Keywords: export credit risk, insurance, moral hazard, rating