Abstract

Inflationary Trend Capital Market Problems and Price-Index Linking

In the debate on price-index links in capital transactions, pride of place has so far been given chiefly to aspects of trade-cycle, distribution and social policy. On account of the inflationary trend, however, substantial capital market problems have also arisen, which could likewise be solved by way of price-index links. A renewed increase in interest rates, a further decrease in willingness to engage in long-term investment of money and a further shortening of maturities on the capital market must be expected in the event of a renewed, steeper rise in prices. These tendencies towards dissolution of the capital market in the money market and the related economic policy problems could be prevented by greater stability of the value of money. But since the chances of a stabilization policy having lasting effect have to be assessed more sceptically than optimistically, not the least of the reasons being the relatively narrow lımits to the employment policy measures of the Federal government and the Bundesbank, a “second-best” solution must be found. Index links suggest themselves as the most expedient “second-best”” way to find a solution also to the capital market problems. Setting out from these considerations, the costs of various varıants of priceindex linking are estimated and financing suggestions offered. Above all, the author examines what effects on the competitive situation of the various groups of banks can be expected, if price-index linking is financed via a corresponding increase in interest rates for credits. A far-reaching reduction of possible distortions of competition could be attained by limiting price-index links to investments for terms of 10 years and more. Apart from considerations of competition policy, the necessary stimulation and safeguarding of long-term dispositions on the capital market and wealth policy aspects would also speak in favour of this proposal.