cross country variation in the liquidity effect the role of financial markets this paper examines cross country variation in the liquidity effect the negative response of interest rates to money supply shocks focusing on the role of financial factors in explaining this variation we estimate the liquidity effect for each of 21 countries using var models in which money supply shocks are restricted to be neutral in the long run then regress the estimated liquidity effect on financial market variables across countries we find that financial factors play an important role in determining the magnitude of the liquidity effect and that this evidence is most consistent with generalised versions of limited participation models

the influence of probability on risky choice a parametric examination abstract the appeal of expected utility theory as a basis for a descriptive model of risky decision making has diminished as a result of empirical evidence which suggests that individuals do not behave in a manner consistent with the prescriptive tenets of eut in this paper we explore the influence of probability on risky choice by proposing and estimating a parametric model of risky decision making our results suggest that models which provide for probability transformations are most appropriate for the majority of subjects further we find that the transformation differs for most subjects depending upon whether the risky outcomes are gains or losses most subjects are considerably less sensitive to changes in mid range probability than is proposed by the expected utility model and risk seeking behavior over long shot odds is common

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

risk aversion revisited in order to supply additional empirical evidence of the effect of wealth on relative risk aversion this study investigates households demand for risky assets using analysis of covariance techniques applied to the asset holdings of canadian individual households the extent and pattern of life cycle effects are also examined results generally point to decreasing relative risk aversion when housing is either excluded from the definition of wealth or treated as a riskless asset the investor s life cycle plays a prominent role in portfolio selection behavior with risk aversion increasing uniformly with age tax differentials do not seem to be an important element in investment decisions with respect to risk when the sample and wealth definitions are censored in order to approximate those of previous empirical studies their findings on relative risk aversion are generally corroborated this study presents an empirical investigation of the demand for risky assets of individual canadian households using data from the survey of consumer finances the results generally point to decreasing relative risk aversion when housing is either excluldied from the definition of wealth or treated as a riskless asset even when life cycle effects are controlled the investor s life cycle plays a prominent role in portfolio selection behavior with risk aversion increasing uniformly with age cohn lewellen schlarbaum 6 also found evidence of decreasing relative risk aversion using a restricted sample of stockowning investors while friend blume 12 concluded that constant relative risk aversion characterized household behavior the present study also finds that by restricting the sample and the wealth definitions to approximate those of cohn lewellenschlarbaum and those used by friend blume their empirical findings on relative risk aversion are generally corroborated the paper is divided into five sections the first reviews the literature on risk aversion and the second briefly describes the theory underlying the empirical tests the third section describes the data and statistical techniques used the empirical results are presented and discussed in the fourth section where the aggregate demand for risky assets is estimated and where the role of life cycle variables is examined the final section summarizes the main conclusions of the study

econometric analysis of structural systems with permanent and transitory shocks this paper considers the implications of the permanent transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock it provides a simple and intuitive generalization of the influential work of blanchard and quah 1989 the dynamic effects of aggregate demand and supply disturbances the american economic review 79 655 673 and shows that structural equations with known permanent shocks cannot contain error correction terms thereby freeing up the latter to be used as instruments in estimating their parameters the approach is illustrated by a re examination of the identification schemes used by wickens and motto 2001 estimating shocks and impulse response functions journal of applied econometrics 16 371 387 shapiro and watson 1988 sources of business cycle fluctuations nber macroeconomics annual 3 111 148 king et al 1991 stochastic trends and economic fluctuations american economic review 81 819 840 gali 1992 how well does the islm model fit postwar us data quarterly journal of economics 107 709 735 1999 technology employment and the business cycle do technology shocks explain aggregate fluctuations american economic review 89 249 271 and fisher 2006 the dynamic effects of neutral and investment specific technology shocks journal of political economy 114 413 451

risk averters that love risk marginal risk aversion in comparison to a reference gamble we propose an analytical distinction between standard risk aversion based on the valuation of a single gamble and marginal risk aversion based on the change in valuation between two gambles we measure marginal risk aversion in two dimensions mean and variance data from a field experiment is used to study marginal risk aversion our results suggest that individuals rely on a reference gamble when assessing marginal risk individual responses to marginal changes in mean and variance are nearly identical in direction and magnitude suggesting that information on both standard and marginal risk aversion is needed to accurately model behavior copyright 2008 oxford university press

estimation of farmers risk attitude an econometric approach abstract an econometric procedure for estimating arrow pratt coefficients of risk aversion is derived the model of farmers allocating land among different crops and time between leisure and labor allows for testing arrow s hypotheses of decreasing absolute risk aversion and increasing relative risk aversion the empirical results support these hypotheses

why farmers sometimes love risks evidence from india abstractusing a unique data set collected among farmers in india s semiarid tropics we document the surprising prevalence of risk taking behavior in the face of realistically framed high stakes gambles we hypothesize that this apparently anomalous behavior is due to a combination of credit constraints and nonconvexities in production in particular the high stakes nature of the gambles creates the potential for a farmer to undertake a productive investment that would normally be unaffordable and thereby move to a permanently higher level of income we show that the degree to which farmers are willing to accept risk in return for this opportunity appears to relate in an intuitive way to their current agricultural production technology as well as the demographic composition of their household

learning to carry the cat by the tail firm experience disasters and multinational subsidiary entry and expansion we investigate whether firm experience with discontinuous risks particularly high impact disasters that are episodic and difficult to anticipate moderates the relationship between disasters foreign entry and expansion decisions using a panel data set with 57 500 observations from 106 large european multinational corporations and their subsidiaries operating across 109 countries from 2001 to 2007 we find that although discontinuous risk was negatively related to firm entry and expansion firms that had experience with high impact disasters were more likely to expand in countries experiencing disasters

acreage decisions under risk the case of corn and soybeans an acreage supply response model is developed under expected utility maximization the resulting framework is used to specify and estimate a system of risk responsive acreage equations for corn and soybeans in the united states particular attention is given to the truncation effects of government price supports on the distribution of corn and soybean prices also a wealth variable is included in the acreage equations the empirical results indicate that risk and wealth variables play an important role in cornsoybean acreage decisions the analysis also shows that cross commodity risk reduction is important in acreage allocation decisions

risk preferences and pesticide use by cotton farmers in china abstract despite that insect resistant bt cotton has been lauded for its ability to reduce the use of pesticides studies have shown that chinese bt cotton farmers continue to use excessive amounts of pesticides using results from a survey and an artefactual field experiment we find that farmers who are more risk averse use greater quantities of pesticides we also find that farmers who are more loss averse use lesser quantities of pesticides this result is consistent with our conceptual framework and suggestive evidence where farmers behave in a loss averse manner in the health domain and place more weight on the importance of health over money in the loss domain

when do banks take equity in debt restructurings this article examines the conditions under which bank lenders make concessions by taking equity in financially distressed firms i show that the role banks play in debt restructurings depends on the financial condition of the firm the existence of public debt in the firm s capital structure and the ability of public debt to be restructured empirically i find that for firms with public debt outstanding banks never make concessions unless public debtholders also restructure their claims when banks do take equity on average they obtain a substantial proportion of the firm s stock and they maintain their position for over two years article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

foreign activities of u s banks since 1997 the roles of regulations and market conditions in crises and normal times abstract using a unique newly constructed dataset on u s banks foreign activities since 1997 this paper examines how bank market and regulatory conditions in the u s and host countries affect u s banks choices of which foreign markets to enter and how much claims and liabilities to take on there using a two stage structural estimation framework the determinants of foreign market entry exit cross border claims and foreign affiliate claims and liabilities choices are examined in 107 host countries around the world it is shown that 1 the health of the balance sheet is the primary driver of foreign market entry exit choices especially so during the subprime crisis while host market and regulatory conditions play important roles in the choice of claims liabilities volumes 2 banks choose their foreign activities during banking and market crises differently than they do in normal times and 3 in addition to bank size previous experience with managing a global lending network significantly increases the intensity of banks foreign involvement structural estimates of the costs of foreign market entry exit and host market regulatory stringency are also derived

the decision to establish a foreign bank branch or subsidiary an application of binary classification procedures this paper has two purposes first we model a key decision for inter national banks using data on the foreign direct investment fdi behavior of foreign banks in japan and california second we examine the utility of linear discriminant analysis and maximum likelihood logit analysis as statistical techniques for relating a qualitative dependent variable to a vector of inde pendent variables we apply these techniques to the decision by parent banks as to whether or not to have a subsidiary branch in california japan we treat the deci sion as a binary choice based on a consideration of various relevant factors the population for each of the countries consists of those foreign to the host country banks that already have a presence in the country the research ques tion then becomes given that a foreign bank is in the country does the extent of the parent bank s experience internationally and in the host country affect the probability that it will deepen its presence the choice of statis tical tools by which to examine this question gives rise to our methodological concerns

estimating shocks and impulse response functions this paper examines the issue of how to identify the shocks in a cointegrated var when the following assumptions are made the variables can be classified as endogenous or exogenous there are as many cointegrating relations as endogenous variables the cointegrating vectors are identified and they contain at least one exogenous variable it is shown that with these assumptions it is possible to identify the shocks without the use of further restrictions on the covariance matrix of the disturbances or the short run dynamics if the long run parameters are known the whole model can be estimated by ols the analysis is extended to allow the var to have both stationary and non stationary variables an illustration of the method is provided using the traditional benchmark var model involving us data on output prices interest rates and money a liquidity effect is not found using this var methodology

indian farmers valuation of yield distributions will poor farmers value pro poor seeds abstract potential poverty traps among the rural poor suggest a need to reduce poor farmers vulnerability by stabilizing crop yields and limiting yield losses advances in biotechnology will help address this need directly with crops that tolerate climate fluctuation or resist biotic stresses evaluating ex ante how farmers will value these pro poor seeds is important for delivery design but also challenging this paper describes an experimental economic approach to understanding farmers valuation of such seeds using data from a survey and experiment i assess indian farmers valuation of changes in the mean variance and skewness of payoff distributions these farmers value increases in expected value but seem indifferent about higher moment changes in payoff distributions farmer traits such as wealth and risk exposure affect their valuation of these changes only mildly while various limitations to the experimental approach must qualify practical implications of these findings the experiment demonstrates the viability of conducting valuation experiments with open ended questions in developing countries

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

an analysis of the transmission mechanism of monetary policy in ireland this paper examines the impact of a monetary policy shock on output prices and the exchange rate for ireland during its participation in the ems the paper draws on recent techniques used in the structural vector autoregression literature results suggest that an exogenous temporary increase in the short term interest rate leads to a decline in output and prices with the latter responding more sluggishly in addition a higher interest rate leads to an immediate appreciation of the domestic exchange rate and a subsequent depreciation of the currency exchange rate or forward bias puzzle which are prevalent in other studies are not found the robustness of these results is checked under a number of alternative identifications schemes

protectionism and international banking sectorial efficiency competitive structure and national policy abstract this paper deals with barriers to trade in services more specifically the paper deals with competition and its absence in the provision of international intermediation services by banks section 2 of the paper examines the substitutability of international trade and fdi foreign direct investment in the services sector as a basis for international competition it also considers the overlap between commercial policy measures and regulations governing the entry and operations of foreign affiliates section 3 describes the types of restrictions imposed on foreign banks and evaluates their effects existing practices in some countries are outlined in the fourth section the countries are the u s the u k switzerland australia brazil and taiwan section 5 evaluates competitive conditions in offshore banking centers and compares them with conditions in onshore markets the last section evaluates the costs and the benefits of an open free trade banking system such a system will tend to improve world welfare as well as the welfare of those countries who have a comparative advantage in international banking the results are not clear with regard to the countries who have a comparative disadvantage in banking

government policies market imperfections and foreign direct investment the internalization eclectic theory of foreign direct investment includes the important insight that government policies create market imperfections which make foreign direct investment an economically rational strategic alternative for firms this paper reexamines the effects of government policies on market imperfections and foreign direct investment fdi it broadens and refines the analysis of the impact of government policies by developing the following arguments 1 there is a wide range of government policies that affect firms fdi decisions via their effects on market imperfections 2 there are numerous dimensions of variability in government policies that need to be identified in order to understand fully the effects of government policies on market imperfections and hence fdi flows 3 some of the effects of government policies on market imperfections and fdi are the opposite of those previously noted in the fdi literature 4 the effects of government policies vary across the several individual components of fdi flows the paper thus examines the following variables and relationships more extensively and precisely than has the previous literature government policy variables as causal factors affecting fdi market imperfection variables as intervening factors in the causal connections between government policies and fdi and the multiple indicators of the various dimensions of fdi as dependent variables

is the recent low oil price attributable to the shale revolution the u s energy information administration estimates that approximately 52 of total u s crude oil was produced from shale oil resources in 2015 we examine whether the recent low crude oil price is attributable to this shale revolution in the u s using a svar model with structural breaks our results reveal that u s supply shocks are important drivers of real oil price and for example explain approximately a quarter of the 73 decline between june 2014 and february 2016 failure to consider statistically significant structural changes results in underestimating the role played by global supply shocks while overestimating the role of the demand shocks

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

the effects of monetary policy shocks comparing contemporaneous versus long run identifying restrictions this study compares the effects of monetary policy shocks on the macroeconomy using four different procedures for identifying policy shocks that use contemporaneous restrictions and a procedure that uses long run restrictions impulse response functions are computed using the same vector autoregressive var model and sample period the comparison is done for a model that includes only a short term interest rate and for a model that adds a long term rate as well sources of differences in the magnitude of effects across identification schemes are examined vector autoregressive var models have been widely used in recent years to analyze the effects of monetary policy shocks however estimates of the macroeconomic effects of monetary policy often differ across studies with regard to both timing and magnitude the studies generating these estimates frequently differ in terms of the variables constituting the model the sample period for estimation and the method of identifying policy shocks see e g christiano eichenbaum and evans 1994 1996 1998 gordon and leeper 1994 lastrapes and selgin 1995 pagan and robertson 1995 1998 leeper sims and zha 1996 certainly a critical element in the estimation of the effects of policy shocks is the identification of these policy shocks that is the determination of exogenous shocks to monetary policy two methods have been widely used in the var literature to identify structural shocks to monetary policy one general approach employs restrictions on the contemporaneous relations among the variables of the var model while the second general approach imposes restrictions on the long run relations among the variables although economic and institutional arguments can be used to rationalize each identification scheme there is no consensus as to which approach to identifying shocks is preferred and the weaknesses of both approaches have been discussed in the literature keating 1992 lastrapes and selgin 1995 and mccarthy 1995 consider limitations of the use of contemporaneous identifying restrictions faust and leeper 1997 discuss potential drawbacks of imposing long run restrictions the aim of this study is to examine the implications of contemporaneous versus long run

durable goods and the forward looking theory of consumption estimates implied by the dynamic effects of money abstract in this paper we analyze the effects of money on the market for durable goods using quarterly us data we estimate the dynamic responses of the price and quantity of durable goods and housing to money supply shocks assuming only that money is neutral in the long run we then match these responses to those predicted by an equilibrium model of the markets for durable goods the model relies on the standard theory of intertemporal consumer choice and the trade off between durable and non durable goods we find that money has important dynamic effects on the markets for durable goods and that the theory provides a reasonable framework for interpreting these responses for plausible parameter values

international banking a survey two distinct sets of issues are involved in the analysis of international banking one set the industrial organization issues centers on the patterns of expansion of foreign branches and subsidiaries of banks headquartered in the united states great britain japan and a few other industrial countries and on the nature of the advantage that these branches and subsidiaries have in relation to their host country competitors the second set the international finance issues involves the role of banks in cross border and cross currency financial flows both from their head offices and from their foreign branches and subsidiaries despite the attention to international banking there are few uniquely international institutions rather international banks are a subset of domestic banks with significant numbers of foreign branches and subsidiaries moreover there are few uniquely international banking activities although foreign exchange trading may seem to be one in many countries most or all foreign exchange trading involves domestic banks with few if any foreign branches the growth of foreign branches and subsidiaries of major banks occurred in two waves the first occurred in the decades before world war i when the war started

can long run restrictions identify technology shocks gali s innovative approach of imposing long run restrictions on a vector autoregression var to identify the effects of a technology shock has become widely utilized in this paper we investigate its reliability through monte carlo simulations using calibrated business cycle models overall gali s methodology appears to be fruitful the impulse responses derived from the artificial data generally have the same sign and qualitative pattern as the true responses and the approach can be informative in discriminating between alternative models however our results reveal some important quantitative shortcomings including considerable estimation uncertainty about the impact of technology shocks on macroeconomic variables more generally the conditions under which the methodology performs well appear considerably more restrictive than implied by the key identifying assumption this underscores the importance of using economic models to guide in the implementation of the approach in interpreting the results and in assessing its limitations jel c32 e32 o33

universal banking and firm risk taking abstract this paper analyzes the welfare implications of banks taking equity stakes in firms under conditions of imperfect information and moral hazard two cases of bank control over investment decisions are analyzed in the first the bank does not control the investment decisions of the firm here the investment efficiency is higher and bank risk is lower for an optimal positive level of bank equity holdings however in the case when the bank has veto power over investment proposals by the firm there is a trade off between increased investment efficiency and increased bank risk

international lending patterns of u s commercial banks the international lending behavior of the u s commercial banks depends upon economic links between countries much of the difference between the international loan portfolios of u s banks and those of the non u s banks may be explained by the patterns of trade flows and investments by nonfinancial corporations these trade flows and investment patterns explain most of the variations in the bank lending patterns for 70 80 percent of the countries the analysis points to an increasing influence of economic ties on the lending process over time

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

in search of the liquidity effect abstract a short run negative relationship between monetary aggregates and interest rates the liquidity effect is central to discussions of monetary policy this paper searches for this empirical relationship we investigate whether the characterization of the liquidity effect is sensitive to i changes in sample period ii conditioning the correlations on past information iii assuming money growth is exogenous and iv treating monetary changes as anticipated or unanticipated the correlations change substantially in each case we conclude that the traditional analysis and modern models which rely completely on demand side behavior cannot explain the observed correlations a successful characterization of the liquidity effect requires identification of both private and policy behavior

structural models of the liquidity effect in this paper we examine a number of recent studies that claim to have obtained a well defined liquidity effect using structural var models based on broad measures of money these studies can be distinguished in terms of the identifying restrictions sample periods and frequency of data used we show that estimation of the structural coefficients of all these models can be achieved by instrumental variable methods where the instruments are predetermined variables and the estimated structural errors from other equations in the system overall our judgment is that the evidence for a liquidity effect from these studies is much less certain than suggested in the original papers primarily because of the poor quality of the instruments used in estimation and the sensitivity of the estimates to the sample period used

estimating the effects of monetary policy shocks does lag structure matter this paper examines the implications of lag structure for estimating the effects of monetary policy shocks in a var a symmetric lag structure in which all variables have the same lag length and an asymmetric lag structure in which the lag length differs across variables but is the same for a particular variable in each equation of the model are examined this is important in light of the fact that the true lag structure is generally not known four commonly used identification schemes are employed to identify monetary policy shocks monte carlo simulations strongly indicate that the lag structure of a var model does matter when assessing the quantitative effects of monetary policy shocks given the inherent uncertainty about the true lag structure in practice it is thus important that one compare the impulse response functions from both symmetric lag and asymmetric lag vars in assessing the effects of monetary policy shocks

the effects of monetary policy in japan this article interprets time series facts regarding the sources of business fluctuations in japan and attempts to uncover possible characteristics of the effects of monetary policy over the last two decades it argues that given the institutional features of the bank of japan s operating procedures a simple recursive vector autoregressive var model that consists of interest rates money stock prices and output all in first differences may serve as a useful benchmark for japan the main finding is that monetary policy shocks in fact have a persistent effect on real output especially in the rise and fall of japan s bubble economy in the late 1980s

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

the price puzzle reconsidered abstract a large literature has employed structural vector autoregressive svar models to investigate the empirical effects of u s monetary policy many of these models regularly produce a price puzzle a rise in the aggregate price level in response to a contractionary innovation to monetary policy unless commodity prices are included conventional wisdom maintains that commodity prices resolve the price puzzle because they contain information that helps the federal reserve forecast inflation i examine a number of plausible alternative indicator variables and find little correlation between an ability to forecast inflation and an ability to resolve the price puzzle additionally a sub sample investigation reveals that evidence of a price puzzle is associated primarily with the 1959 1979 sample period and that most indicators including commodity prices cannot resolve the puzzle over this period

diminishing marginal utility of wealth and calibration of risk in agriculture expected utility theory eut has dominated the agricultural economics literature on behavior under risk particularly since the late 1970s in eut risk preferences are completely defined by the curvature of the utility function an expected utility maximizer with a concave utility curve would avoid choices that represent a greater wealth risk estimates of risk aversion coefficients based on assumed utility functional forms have been valued in predicting producers responses to proposed policy see saha shumway and talpaz for a review yet these estimates are biased if there are omitted variables such as knowledge understanding and managerial expertise that are related to the probability distribution of profit if the production function is jointly estimated with the utility function then the riskincreasing or risk reducing properties of production inputs may also wrongly be ascribed to the concavity of the utility function since allais substantial evidence has been accumulated to suggest systematic flaws in eut mostly in experimental settings with small stakes applied economists have regarded these violations as exceptions due to the special circumstances surrounding their observation recently rabin showed that attributing all risk behavior in small gambles solely to diminishing marginal utility of wealth leads to improbable levels of risk aversion his calibration theorem based on dichotomous choices suggests that a person who turns down a lottery with a 0 5 probability of winning 125 and 0 5 probability of losing 100 will always turn down any bet with a 0 5 chance of losing 600 no matter how large of a gain may be had with the remaining 0 5 probability we generalize rabin s work to continuous payoff distributions and continuous choice problems to show that his criticism extends to realistic risky situations the concavity problem is not limited to small money risks rather when risky choices have similar average payouts utility functions must display ridiculous levels of concavity to predict individual choices below we present our general calibration problem and apply the results to an empirical risk study in agricultural economics to illustrate the unintended consequences of using eut to explain risk response

political aspects of mne theory political behavior by mnes has usually been ignored downplayed or passively treated in dominant economic models of the multinational enterprise in order to remedy this lacuna dunning s eclectic paradigm is expanded to integrate political dimensions in the analysis of ownership internalization and location advantages

measuring producers risk preferences a global risk attitude construct in applied agricultural economic research various risk attitude elicitation techniques are used here we investigate whether risk attitude measures rooted in the expected utility framework are related to measures rooted in the multi item scale framework using a second order factor analytical model and data obtained from personal computer guided interviews with 373 farmers we investigate whether the common variance among the latent risk attitude measures can be accounted for by a global risk attitude construct we find that the different risk attitude measures are related and that the global risk attitude construct is significantly related to farmers intention to use futures contracts our research suggests that farmers risk attitude is a higher order characteristic that cannot be effectively extracted by a single measure in empiricalstudies deal ing with risk risk attitudes and producers market behavior various risk attitude measures are used two major approaches to quantify directly farmers risk attitudes can be distinguished measures derived from the expected utility framework and measures derived from responses to multi item scales e g antle chavas and holt goodwin and schroeder saha shumway and talpaz smidts the purpose of this research is to test whether risk attitude measures rooted in the expected utility framework are related to the risk attitude scales rooted in the multiitem scale approach and if so whether these risk attitude measures share a common

relative risk aversion revisited through cross sectional analysis of the asset holdings of individual households this study adds to the evidence available on relative risk aversion it utilizes the national longitudinal surveys nls 1 which have advantages over the data bases used in previous studies assumptions about relative risk aversion are made in a number of theoretical economic and financial models 2 an empirical study by cohn lewellen lease and schlarbaum clls 1975 concluded that relative risk aversion declined as wealth increased across households while a second empirical study by friend and blume f b 1975 concluded from mixed evidence that relative risk aversion remained relatively constant as wealth increased the present study finds that by restricting the sample to higher wealth households and by defining wealth narrowly patterns consistent with decreasing or constant relative risk aversion emerge and these are compatible with the earlier studies however the use of a broader based sample and a more comprehensive measurement of wealth alters the conclusions and a pattern indicative of increasing relative risk aversion emerges thus the paper cautions that constant or decreasing relative risk aversion assumptions in theoretic models may not be realistic descriptions of the risk attitudes of typical u s households first the literature on relative risk aversion will be reviewed second the model used to estimate the coefficient of relative risk aversion will be discussed the third section will present empirical results and contrast them with those of earlier studies finally the material will be summarized and the conclusions indicated

estimating the liquidity effect in post reform chile do inflationary expectations matter abstract in this paper we estimate the dynamic effects of domestic money supply shocks in chile over its post reform era we analyze chile since inflationary expectations could be very sensitive to changes in the money supply given past inflationary experience in the context of a var model containing both chilean and us variables we identify money supply shocks using long run monetary neutrality and block exogeneity restrictions our findings suggest that in chile over the period from 1977 to 1998 unexpected domestic money supply shocks have had a positive impact on interest rates in the short run and a negative impact on real money balances this differs markedly from the estimated responses of the us the findings are consistent with the notion that at least in chile inflationary expectations are very sensitive to news about the nominal money supply possibly due to high inflationary uncertainty and the lack of credibility of monetary reforms our results are generally robust to alternative model specification and identifying restrictions

patterns in the expansion of u s banks foreign operations combining foreign direct investment theory with data on 32 countries from the federal reserve board we examined u s banks patterns of foreign operations including their levels of banking services and choice of organizational forms in host countries results generally supported predictions but only in developed countries the lack of support in rapidly growing markets of asia and latin america raises serious theoretical concerns and presents fresh research opportunities into the global banking industry

the determinants of us banking activity abroad abstract the banking industry provides an excellent example of the internationalization of world business and economic interdependencies across countries analysis of the past growth of international banking operations can also prove useful to banks interested in augmenting their current business or expanding their international coverage and to banks who anticipated future competition in their markets from new or strengthened foreign competitors this study provides the most comprehensive examination of the development of us bank branches in other countries is presented and tested in order to facilitate the understanding of the expansion of international banking

the federal reserve s operating procedure nonborrowed reserves borrowed reserves and the liquidity effect abstract recently a number of researchers christiano and eichenbaum 1992 christiano et al 1996a b 1997 evans and marshall 1998 strongin 1995 pagan and robertson 1995 brunner 1994 claim to have found evidence of a statistically significant liquidity effect in a recursive structural var using nonborrowed reserves nbr it is claimed that innovations to nbr reflect the exogenous policy actions of the fed this paper argues that the opposite is true specifically i show that the fed has an incentive to offset bank initiated discount window borrowing when it implements the federal open market committee s policy directive and that it has done so since the late 1950s this practice has created a negative contemporaneous covariance between nbr and the funds rate that has been incorrectly attributed to the liquidity effect by showing that these models capture the endogenous response of the fed to bank borrowing on nbr rather than the effect of exogenous policy actions on the funds rate this paper also resolves the puzzle of the vanishing liquidity effect noted by pagan and robertson 1995 and christiano 1995

economic behavior under uncertainty a joint analysis of risk preferences and technology a method is developed to estimate jointly risk preferences and technology under general conditions the approach is illustrated in an application to the analysis of u s corn soybean acreage decisions over time the results provide useful information on the nature of farmers risk preferences and on the influence of price risk and production risk on acreage allocation and farmers welfare copyright 1996 by mit press

service multinationals conceptualization measurement and theory the application of mne definitions measurements and theories to international services is still in its infancy despite the considerable size and growth of this sector there are problems in defining classifying measuring comparing and explaining service mnes but they do not require special definitions and theories still research to date suggests 1 delinking the concepts of multinational enterprise and foreign direct investment under certain conditions and 2 qualifying the nature of ownership internalization and location advantages in fdi theory as far as service mnes are concerned

an application of the theory of foreign direct investment to multinational banking in ldcs for assessing the determinants of mnbs expansion into ldcs a model that incorporates both supply and demand factors is constructed a reduced form of the model is tested by using pooled data over the period 1975 1982 for a sample of twenty three ldcs the results of the study indicate that market size the presence of multinational corporations from the home country the extent of economic development and the balance of payments are all significant determinants of the growth of mnbs in ldcs

on marginal risk behavior this paper examines marginal risk behavior in a decision theoretic setting that is sufficiently general to accommodate any decision making model representable by a certainty equivalent the analysis shows that risk aversion in its usual sense is a special case of marginal risk aversion associated with mean preserving changes in gambles thus marginal risk behavior and risk behavior are not inherently different rather they manifest similar behavior evaluated at different gambles the paradox of marginal risk loving risk averters arises from mixing definitions of an increase in risk

the determinants of u s banks international activities abstract this paper develops a model and structural dynamic estimation of bank behavior to map the relationship between u s banks choices of foreign banking activities and bank and foreign market traits this estimation framework is applied to a unique bank level dataset compiled from regulatory sources covering u s banks foreign activities in 83 host markets over the 2003 2013 period bank traits are better able to explain the evolving patterns of foreign banking than host market characteristics after controlling for these traits the post financial crisis period shows a structural shift away from cross border claims towards foreign affiliate activities structural estimates of foreign market entry costs and regulatory attitudes towards risk are derived simulation exercises confirm the strong impact of banks and regulators risk stance on bank profits and portfolio composition

a long run structural macroeconometric model of the uk a new modelling strategy that provides a practical approach to incorporating long run structural relationships suggested by economic theory in an otherwise unrestricted var model is applied to construct a small quarterly macroeconometric model of the uk estimated over 1965q1 1999q4 in nine variables domestic and foreign outputs prices and interest rates oil prices the nominal effective exchange rate and real money balances the aim is to develop a model with a transparent and theoretically coherent foundation tests of restrictions on the long run relations of the model are presented the dynamic properties of the model are discussed and monetary policy shocks identified

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

the decision to double crop an application of expected utility theory using stein s theorem a nonlinear single equation acreage allocation model derived from expected utility theory using stein s theorem for covariance decomposition is developed this decomposition allows the covariance of utility parameters and revenues to be expressed in terms of measurable variables the model is applied to state level data to estimate the relative importance of various economic factors in determining the pattern of double cropping wheat and soybeans in the southeastern united states the hypothesis that the riskiness of returns is important in the aggregate is rejected for some of the states although the constrained expected utility model without the effect of risk performs better than a standard wheat acreage response model