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A Dynamic Network Production Model for Bangladeshi Banks

A Dynamic Network Production Model for Bangladeshi Banks. Seyd Akther 1 , Hirofumi Fukuyama 1* and William L. Weber 2 1. Faculty of Commerce, Fukuoka University, Japan 2. Department of Economics and Finance, Southeast Missouri State University, U.S.A. Standard Black Box Model.

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A Dynamic Network Production Model for Bangladeshi Banks

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  1. A Dynamic Network Production Model for Bangladeshi Banks Seyd Akther1, Hirofumi Fukuyama1* and William L. Weber2 1. Faculty of Commerce, Fukuoka University, Japan 2. Department of Economics and Finance, Southeast Missouri State University, U.S.A.

  2. Standard Black Box Model y=(y1,…,yM) desirable outputs b=(b1,…,bJ) undesirable outputs P(x)=the output possibility set x=(x1,…xN) inputs

  3. Bank Production Model-Asset Approach y=loans, securities investments x=labor, physical capital, equity b=non-performing (bad) loans bt-1 is an undesirable input that impacts the period t technology bt is an undesirable output for the period t technology that becomes an undesirable input for the period t+1 technology

  4. y1 P(xd, xu) P(xd’,xu’) y2 0

  5. y P(xd,xu) P(xd’,xu’) 0 b

  6. Are deposits an input or an output? Both? Core deposits=input Transaction deposits=output z=intermediate output=deposits

  7. A Two Stage Network Model Final Outputs y t=(yt1,…,ytM) bt=(bt1,…,btJ) Stage 2 P2(z)={(y,b) that can be produced by z} zt=intermediate output Stage 1 P1(x,b)={z that can be produced by (x,b)} xt=(xt1,…xtN), bt-1=(bt-11,…bt-1J),

  8. The Network Technology

  9. The two constraints First Stage Second Stage Can be rewritten as

  10. Dynamic Model Production in period t-1 affects the technology in period t Intermediate output produced in the second stage of production= iyt iyt affects stage 2 production in period t+1 iyt = Assets – Required Reserves – physical capital – loans - securities We will assume that intermediate and final outputs are additive fyt + iyt

  11. Dynamic Network Model (fyt,bt) (fyt+1,bt+1) (fyt+2,bt+2) P2(zt iyt P2(zt+1, iyt) iyt-1 P2(zt+2, iyt+1) , iyt-1) iyt+2 iyt+1 zt zt+1 zt+2 P1(xt,bt-1) P1(xt+1,bt) P1(xt+2,bt+1) bt+2 xt,bt-1 xt+1 bt xt+2, bt+1

  12. Dynamic Network Technology

  13. In the intermediate periods, t=2,…,T-1

  14. And in the final period, T,

  15. In the intermediate periods, t=2,…,T-1

  16. And in the final period, T,

  17. Table 1. Descriptive Statistics, 20 Banks, 2004 to 2009

  18. The choice of directional vector: will be the percent of the mean Let T=3.

  19. Estimates

  20. Actual and optimal unused assets

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