efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

inflation announcements and social dynamics this paper investigates the eectiveness of central bank communication when rms have heterogeneous ination expectations that are updated through social dynamics the bank s credibility evolves with these dynamics and determines how well its announcements anchor expectations we show that trying to eliminate high ination by abruptly introducing a low ination target can lead to short term overshooting

the impact of the federal reserve s large scale asset purchase programs on corporate credit risk estimating the effect of federal reserve s announcements of large scale asset purchase lsap programs on corporate credit risk is complicated by the simultaneity of policy decisions and movements in prices of risky financial assets as well as by the fact that both interest rates of assets targeted by the programs and indicators of credit risk reacted to other common shocks during the recent financial crisis this paper employs a heteroskedasticity based approach to estimate the structural coefficient measuring the sensitivity of market based indicators of corporate credit risk to declines in the benchmark market interest rates prompted by the lsap announcements the results indicate that the lsap announcements led to a significant reduction in the cost of insuring against default risk as measured by the cdx indexes for both investment and speculative grade corporate credits while the unconventional policy measures employed by the federal reserve to stimulate the economy have substantially lowered the overall level of credit risk in the economy the lsap announcements appear to have had no measurable effect on credit risk in the financial intermediary sector

on the international spillovers of us quantitative easing this article analyses the effects of the federal reserve s quantitative easing qe on global portfolio flows differentiating across recipient region of the flows type of flow and qe rounds furthermore the analysis differentiates between the impact of qe expansionary announcements and the actual market operations the analysis shows that qe1 resulted in slight rebalancing towards the us while qe2 and qe3 resulted in rebalancing towards non us assets this suggests that qe increased the pro cyclicality of flows outside the us in particular into emerging market equities the results also suggest a link between us macro financial conditions and the transmission of qe to portfolio flows

what is the effect of unconventional monetary policy on bank performance this paper examines the relationship between unconventional monetary policy and the us banking performance unconventional monetary policy is captured through the central bank s assets and excess reserves results show that unconventional monetary policy has a negative relationship with bank performance further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding we also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions finally we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value

forecasting and trading monetary policy effects on the riskless yield curve with regime switching nelson siegel models abstract we use 1982 2014 data on the us riskless yield curve to show that regime switching dynamics in nelson siegel factor models extended to encompass variables that summarize the state of monetary policy lead to superior predictive accuracy such spread in forecasting power turns out to be statistically significant even controlling for parameter uncertainty and sample variation exploiting regimes we obtain evidence that the increase in predictive accuracy is stronger during the great financial crisis when monetary policy underwent a significant sudden shift although more caution applies in comparisons to a naive random walk benchmark over a few sub samples and when transaction costs are accounted for we report that the increase in predictive power owed to the combination of regimes and of variables that capture the stance of unconventional monetary policies is tradeable we devise and test butterfly strategies that exploit the forecasts from the models and obtain evidence of risk adjusted profits both per se and in comparisons to simpler models

maturity structure of public debt and expected bond returns abstract the relevancy of changes in maturity structure is tested using a disaggregated measure of the maturity composition of government debt tests based on predictions from the market efficiency and rational expectations theories find evidence that maturity composition occasionally helps to predict future excess returns the maturity composition is also found to be correlated with the term premium and future changes in the short rate the evidence supports the claim that bonds with all the same characteristics except maturity are not perfect substitutes

a shadow rate new keynesian model abstract we propose a tractable and coherent framework that captures both conventional and unconventional monetary policies with the shadow fed funds rate empirically we document the shadow rate s resemblance to an overall financial conditions index various private interest rates the fed s balance sheet and the taylor rule theoretically we demonstrate the impact of unconventional policies such as qe and lending facilities on the economy is identical to that of a negative shadow rate making the latter a useful summary statistic for these policies our model generates the data consistent result a negative supply shock is always contractionary it also salvages the new keynesian model from the zero lower bound induced structural break

theoretical analysis regarding a zero lower bound on nominal interest rates this paper explores several issues concerning a possible zero lower bound zlb including its theoretical rationale the magnitude of effects of low sustained inflation on real interest rates the validity of analyzing monetary policy in models with no monetary variables and the dynamic stabilizing properties of taylor rules in a zlb context the most important argument however is that if the short nominal rate is immobilized at zero there nevertheless exists a route for monetary stabilization policy to be effective via the foreign exchange market its quantitative importance is examined in a calibrated optimizing open economy model

option prices as predictors of equilibrium stock prices the black scholes option pricing model modified for dividend payments is used to calculate jointly implied stock prices and implied standard deviations a comparison of the implied stock prices with observed stock prices reveals that the implied prices contain information regarding equilibrium stock prices that is not fully reflected in observed stock prices the implications of this finding are discussed this study investigates the role of call option prices as predictors of the equilibrium prices of their underlying stocks using the black scholes 3 bs model previous tests of the bs model have shown that the formula is highly successful in explaining the observed market prices of options see black and scholes 2 galai 8 chiras and manaster 6 and macbeth and merville 12 according to the model the option price is a function of the current value of the underlying stock the instantaneous variance of the stock s rate of return the time to maturity of the option the risk free rate of interest and the exercise price of the option 1 given an observed option price and known values of all input parameters to the bs model except the stock price one can determine the price of the underlying stock that equates the observed option price to its calculated value it follows from the underlying logic of the model that the implied price is the value of the underlying stock for which a continuously revised option bond portfolio would be a perfect substitute for the stock hence if options are actually priced according to the model implied stock prices will be the option market s assessment of equilibrium stock values previous empirical studies have assumed that observed stock prices are the relevant stock prices for option valuation however just as stock prices may differ in the short run from one exchange to another i e nyse midwest

international spillovers of large scale asset purchases this paper evaluates the international spillover eects of large scale asset purchases lsaps using a two country dynamic stochastic general equilibrium model with nominal and real rigidities and portfolio balance eects portfolio balance eects arise from imperfect substitution between short and long term bond portfolios in each country as well as between domestic and foreign bonds within these portfolios we show that lsaps lower both domestic and foreign long term yields and stimulate economic activity in both countries international spillover eects

the central banks ability to control variability of money market interest rates the case of inflation targeting countries abstract it is well known that variability of money market interest rates is time variant further the ability to control money market interest rates by central bank is also important for effectiveness of inflation targeting as a contribution to understanding the transmission between main monetary policy rate and money market interest rates an innovative formal framework of money market interest rate variability reflecting variety of macroeconomic shocks was developed subsequently a middle size macro financial model with exogenous variables is estimated by the bayesian method with sign restriction to identify main sources of macroeconomic shocks parameters of this model are estimated from a dataset of six countries with long lasting history of inflation targeting using the estimation results three measures of ability to control of money market interest rates are derived and they are used to compare time and country specific conditions of the effects of main policy rate on money market interest rates we consider these measures as an important contribution for evaluating suitability of var models as well as the one for measuring the ability of central bank to control money market rates our findings are interesting and the novel approach is applicable to solve similar problem

the case for open market purchases in a liquidity trap prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short term nominal interest rate renders open market operations ineffective for achieving macroeconomic stabilization goals we show that even were this the case there remains a powerful argument for large scale open market operations as a fiscal policy tool as we also demonstrate however this same reasoning implies that open market operations will be beneficial for stabilization as well even when the economy is expected to remain mired in a liquidity trap for some time thus the microeconomic fiscal benefits of open market operations in a liquidity trap go hand in hand with standard macroeconomic objectives motivated by japan s recent economic experience we use a dynamic general equilibrium model to assess the welfare impact of open market operations for an economy in japan s predicament we argue japan can achieve a substantial welfare improvement through large open market purchases of domestic government debt

the intra day impact of communication on euro dollar volatility and jumps abstract in this paper we examine the intra day effects of verbal statements and comments on the fx market uncertainty using two measures continuous volatility and discontinuous jumps focusing on the euro dollar exchange rate we provide empirical evidence of how these two sources of uncertainty matter in measuring the short term reaction of exchange rates to communication events talks significantly trigger large jumps or extreme events for approximately an hour after the news release continuous volatility starts reacting prior to the news intensifies around the release time and stays at high levels for several hours our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe and higher than normal disentangling the us and euro area statements we also find that abnormal levels of volatility are mostly driven by the communication of the euro area officials rather than us authorities

macroeconomics and the term structure this paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance the topic is important to investors and also to policymakers who wish to extract macroeconomic expectations from longer term interest rates and take actions to influence those rates the simplest model of the term structure is the expectations hypothesis which posits that long term interest rates are expectations of future aver age short term rates in this paper we show that many features of the configuration of interest rates are puzzling from the perspective of the expectations hypothesis we review models that explain these anomalies using time varying risk premia although the quest for the fundamental macroeconomic explanations of these risk premia is ongoing inflation uncertainty seems to play a large role finally while modern finance theory prices bonds and other assets in a single unified framework we also consider an earlier approach based on segmented markets market segmentation seems important to understand the term structure of interest rates during the recent financial crisis jel e31 e43 e52 e58

the capital gains and losses on u s government debt 1942 1987 the capital gains and losses on u s treasury securities are calculated and reported on a quarterly basis over the 1942 87 period these data are then used to calculate an adjusted measure of the federal budget deficit for the years 1975 87 whereas the rising trend in interest rates over the 1975 81 period substantially reduced the federal deficit this study shows that the reversal of that trend over the 1981 86 period contributed even more greatly to an increase in the deficit also calculated and reported are holding period rates of return on overall marketable treasury debt providing a contrast to existing interest rate series copyright 1989 by mit press

the effect of federal debt management policy on corporate bond and equity yields in theory federal debt management policy potentially plays an important role in determining treasury and private security yields however empirical studies have been unable to detect any significant effects from federal debt management in large part the insignificance of relative asset supply effects associated with federal debt management policy may result from the use of unrestricted reduced form models of interest rate determination using a disaggregated structural model of the markets for corporate bonds equities and four distinct maturity classes of treasury securities federal debt management policy is found to affect treasury and private security yields significantly furthermore the yields on corporate bonds and equities are influenced disproportionately

unconventional monetary policy fiscal side effects and euro area im balances we study the macroeconomic effects of unconventional monetary policy in the euro area using structural vector autoregressions identified with external instruments the instruments are based on the common unexpected variation in euro area sovereign yields for different maturities on policy announcement days we first show that expansionary monetary surprises are effective at lowering public and private interest rates and increasing economic activity consumer prices and inflation expectations we then document that the shocks lead to a rise in primary public expenditures and a widening of internal trade balances

quantitative easing a sceptical survey evaluation of quantitative easing qe is difficult as it is only used in response to severe and unusual economic difficulties despite this we argue that two main conclusions can be drawn from a sceptical reading of the evidence first large scale asset purchases reduce government bond rates especially at the longer end of the yield curve however this effect may be temporary and is small if bond rates are already low while initial waves of qe are more effective than subsequent programs second qe appears to have been effective in late 2008 and 2009 preventing even larger declines in output and inflation than were experienced we argue that the literature is limited relying on similar methodologies and largely originating in central banks exploration of alternative approaches to qe would be useful in widening an evidence base that is currently too narrow

incomplete contracts and excludable public goods abstract we study whether a firm that produces and sells access to an excludable public good should face a self financing requirement or alternatively receive subsidies that help to cover the cost of public goods provision the main result is that the desirability of a self financing requirement is shaped by an equity efficiency trade off while first best efficiency is out of reach with such a requirement its imposition limits the firm s ability of rent extraction hence consumer surplus may be higher if the firm has no access to public funds

an incomplete contract perspective on public good provision abstract this paper surveys what can be learned from recent advances in the incomplete contract literature to understand how public goods are or should be provided the paper starts with a section on the full information case that presents and discusses the classical samuelson condition on the optimal provision of public goods the rest of the paper presents results under asymmetric information it is constituted of two main parts in the first one the social planner has complete contracting ability we discuss the basic setting and assumptions of this comprehensive contracting approach and study the trade offs it generates the second part of the paper is devoted to the study of contracting incompleteness such incompleteness can emerge from various sources which we present and discuss we then study the case of a politically chosen decision maker and the consequences of its inability to commit for more than one period and of the ability for individuals to form groups finally we address the problem of the choice between public and private forms of public good provision the concluding section summarizes the main policy lessons

quantitative easing and the post crisis surge in financial flows to developing countries abstract this paper examines gross financial inflows to developing countries between 2000 and 2013 with a focus on the potential effects of quantitative easing qe policies in the united states and other high income countries we find evidence for potential transmission of qe along observable liquidity portfolio balancing and confidence channels moreover we find that qe had an additional latent effect over and above these observable channels one that survives an array of robustness tests retains its significance across different types of financial flows and which cannot be attributed to changes in expectations or elasticity our baseline estimates place the lower bound of a qe effect at around 5 percent of gross inflows above trend for the average developing economy which is a magnitude comparable to a one standard deviation change along the traditional channels we also find evidence of heterogeneity among different types of flows portfolio especially bond flows tend to be more sensitive than fdi to our measured qe effects

short and long interest rate targets can both short and long term interest rates be targeted independently can the target of the term structure help solve the problem of multiplicity of equilibria that occurs when only the short rate is targeted both questions are addressed and the answer is yes to both

put call parity theory and an empirical test of the efficiency of the london traded options market abstract put call parity theory in the presence of dividends is extended to take account of transaction costs and new testable models are derived these models are used to test the efficiency of the london traded options market using synchronous option and share prices when account is taken only of option spread significant numbers of deviations from put call parity are identified when commission costs on options and shares are considered however almost none of these deviations prove to be exploitable

global effective lower bound and unconventional monetary policy abstract in a standard open economy new keynesian model the effective lower bound causes anomalies output and terms of trade respond to a supply shock in the opposite direction compared to normal times we introduce a tractable framework to accommodate for unconventional monetary policy in our model these anomalies disappear we allow unconventional policy to be partially active and asymmetric between countries empirically we find the us euro area and uk have implemented a considerable amount of unconventional monetary policy the us follows the historical taylor rule whereas the others have done less compared to normal times

incomplete credit markets and monetary policy abstract we study monetary policy when private credit markets are incomplete the macroeconomy we study has a large private credit market in which participant households use non state contingent nominal contracts nscnc a second small group of households only uses cash supplied by the monetary authority and cannot participate in the credit market there is an aggregate shock we find that despite the substantial heterogeneity the monetary authority can provide for optimal risk sharing in the private credit market and thus overcome the nscnc friction via a counter cyclical price level rule the counter cyclical price level rule is not unique to pin down a unique monetary policy rule we consider two secondary goals for the monetary authority i expected inflation targeting and ii nominal gdp targeting we examine the impact of each of these approaches on the price level rule and other nominal variables in the economy

evaluating central banks tool kit past present and future abstract we develop a structural dsge model to systematically study the principal tools of unconventional monetary policy quantitative easing qe forward guidance and negative interest rate policy nirp as well as the interactions between them to generate the same output response the requisite nirp and forward guidance interventions are twice as large as a conventional policy shock which seems implausible in practice in contrast qe via an endogenous feedback rule can alleviate the constraints on conventional policy posed by the zero lower bound quantitatively qe1 qe3 can account for two thirds of the observed decline in the shadow federal funds rate in spite of its usefulness qe does not come without cost a large balance sheet has consequences for different normalization plans the efficacy of nirp and the effective lower bound on the policy rate

portfolio crowding out empirically estimated this paper tests hypotheses regarding the parameters in investors asset demand functions the hypothesis that federal bonds are closer substitutes for equity than for money implies portfolio crowding out by federal borrowing regression studies of asset demand functions have needed to impose prior beliefs to obtain precise and plausible estimates for the parameters this paper uses a mle technique that dominates regression in that it makes full use of the constraint that the parameters are not determined arbitrarily but rather are determined by mean variance optimization on the part of the investor the striking conclusion is that portfolio effects are close to zero

assessing the economy wide effects of quantitative easing this article examines the macroeconomic impact of the first round of quantitative easing qe by the bank of england we attempt to quantify the effects of these purchases by focusing on the impact of lower long term interest rates on the wider economy we use three different models to estimate the impact of qe on output and inflation a large bayesian vector autoregression var a change point structural var and a time varying parameter var our estimates suggest that qe may have had a peak effect on the level of real gdp of around and a peak effect on annual cpi inflation of about points

government debt learning and the term structure abstract does a change in the public s holdings of government debt affect the term structure of interest rates empirical analysis using a var model indicates that a rise in these holdings of the real debt to gdp ratio increases both the three month and ten year u s nominal yields in a statistically significant manner the maturity composition of debt is also found to matter innovations in holdings of long term debt affect the term structure while increases in short term debt affect inflation expectations these effects of changes in holdings of debt on the yield curve can be derived in a general equilibrium model in which the government issues exponentially maturing riskless debt financed by lump sum taxes and the optimizing agents are adaptive learners on calibrating the average maturity of debt in the model to match that of u s treasury debt since the 1980s i find that positive innovations in government debt lead to increases in asset yields this is because agents do not learn the principle of ricardian equivalence exactly and perceive increases in holdings of government bonds as a rise in their net wealth imposing rational expectations on the agents eliminates this channel and changes in holdings of government debt have no effect on yields the learning model also implies that as the real debt to gdp ratio increases and the average maturity of debt becomes longer the agents become less likely to learn that ricardian equivalence holds

do central bank liquidity facilities affect interbank lending rates in response to the global financial crisis that started in august 2007 central banks provided extraordinary amounts of liquidity to the financial system to investigate the effect of central bank liquidity facilities on term interbank lending rates near the start of the crisis we estimate a six factor arbitrage free model of u s treasury yields financial corporate bond yields and term interbank rates this model can account for fluctuations in the term structure of credit and liquidity spreads observed in the data a significant shift in model estimates after the announcement of the liquidity facilities suggests that these central bank actions did help lower the liquidity premium in term interbank rates

unconventional monetary policy and the spillovers to emerging markets abstract unconventional monetary policy such as quantitative easing qe is often considered to have considerable spillover effects on emerging market economies eme aims at quantifying these effects so far mostly use high frequency data around announcement dates panels or var models this paper proposes an alternative way to estimate the effects of qe on emerging markets that allows us to include macroeconomic i e low frequency data together with announcement dates a qual var is estimated that integrates binary information of qe announcements with an otherwise standard var including us and emerging market variables a key advantage is that the model accounts for the endogeneity and forecastability of qe announcements the model uncovers the fed s latent unobservable propensity for qe and generates impulse responses for eme variables to qe shocks the results suggest that qe has significant effects on eme s financial conditions and plays a sizable role in explaining capital inflows equity prices and exchange rates

the impact of large scale asset purchases on the s p 500 index long term interest rates and unemployment after the bankruptcy of lehman brothers in september 2008 and the financial panic that ensued the federal reserve moved rapidly to reduce the federal funds rate to 25 it was quickly judged that additional measures were needed to stabilize the us economy beginning in december 2008 the federal reserve bank initiated three rounds of unconventional monetary policies known as quantitative easing qe these policies were intended to reduce long term interest rates when the short term federal funds rates had reached the zero lower bound and could not become negative it was argued that the lowering of longer term interest rates would help the stock market and thus the wealth of consumers this article carefully investigates three hypotheses qe impacting long term interest rates qe impacting the stock market and qe impacting unemployment using a markov regime switching methodology we conclude that qe has contributed significantly to increases in the stock market but less significantly to long term inter

contract renegotiation and coasian dynamics consider a long term relationship between a seller and a buyer whose valuation for a per period service or a durable good is private as trade progresses the valuation will be partially revealed and it may be impossible for the parties to commit ex ante not to take advantage of this we analyse this situation first by supposing that the parties can sign a sequence of short term contracts and secondly by supposing that they can sign a long term contract but cannot commit not to renegotiate it later we find a close relationship in the second case between the optimal long term contract and the non commitment outcome in the standard coasian durable good model our results also have implications for hidden information principal agent models

quantitative easing auctions of treasury bonds abstract the federal reserve uses reverse auctions to implement its purchases of treasury bonds in quantitative easing qe to evaluate dealers offers across multiple bonds the fed relies on its internal yield curve model fitted to secondary market bond prices from november 2010 to september 2011 a one standard deviation increase in the cheapness of a treasury bond how much the market price of the bond is below a model implied value increases the fed s purchase quantity of that bond by 276 million and increases the auction costs on that bond by 2 6 cents per 100 par value controlling for standard covariates our results suggest that the fed harvests gains from trades by purchasing undervalued bonds but strategic dealers extract some profits because the fed s relative values can be partly inferred from price data

do changes in debt maturity composition affect the term structure some canadian evidence this paper examines the time series behaviour of the term structure of interest rates in the government of canada bond market to determine whether changes in the maturity composition of canada debt have had a significant effect on bond yields methodologically a reduced form model is estimated which incorporates exogenous information about both the level of domestic interest rates and the shape of the us term structure the empirical results indicate that the null hypothesis of no debt management effects in the government of canada bond market is rejected for monthly data

expectation and duration at the effective lower bound abstract with risk averse arbitrageurs and an effective lower bound elb on nominal rates nonlinear interactions among short rate expectations bond supply and term premia emerge in equilibrium these interactions which are absent from affine models help explain the observed behavior of the yield curve near the elb including evidence about unconventional monetary policy the impact of both short rate expectations and bond supply are attenuated at the elb however in simulations of the post crisis experience in the u s shocks to investors duration risk exposures have much smaller effects than shocks to the anticipated path of short rates the latter shocks matter in part because of the reduction in interest rate volatility associated with a longer expected stay at the elb a novel channel of unconventional policy

do excess holding period returns depend on the composition of outstanding federal debt the relationship between the composition of outstanding federal debt and the term structure of interest rates has been a much studied and debated subject this note examines the relationship between the excess holding period returns and the composition of debt over the post accord period the evidence fails to support a link between debt composition and excess holding period returns copyright 1996 by ohio state university press

stock splits volatility increases and implied volatilities a test of the efficiency of the chicago board options exchange relative to post split increases in the volatility of common stocks is presented the black scholes and roll option pricing formulas are used to examine the behavior of implied standard deviations isds around split announcement and ex dates comparisons with a control group of stocks find no relative increase in isds of stocks announcing splits however a relative increase is detected at the ex date therefore the joint hypothesis that 1 the blackscholes and roll formulas are true and 2 the cboe is efficient can be rejected recent studies by ohlson and penman 1985 dravid 1984 and dubofsky and french 1985 have documented significant increases in the observed variance of common stock returns subsequent to splits larger than 25 this is surprising because in theory no real event is associated with the actual day of the split dravid 1988 and lim and vijh 1986 have tried to explain the postsplit variance increase as the effect of stock price discreteness and the bid ask spread the evidence in lim and vijh 1986 and ohlson and penman 1985 suggests however that this is at best a partial explanation 2 although the causes of the volatility increase are not apparent the post split volatility increase should increase prices of calls on the splitting stock that expire after the ex date relative to those that expire before the ex date similarly prices of post split expiration calls on splitting stocks should increase relative to prices of calls on stocks that do not split in an efficient options market these relative price changes should occur at the announcement of the split in fact

the liquidity effects of official bond market intervention to ensure depth and liquidity the european central bank intervened in sovereign debt markets through its securities markets programme smp providing a unique opportunity to estimate the effects of large scale asset purchases on sovereign bond liquidity premia from reduced form estimates we find robust economically significant impact and lasting reductions in sovereign bonds liquidity premia in response to official purchases we develop a search based asset pricing model to understand our empirical results the theory implies that bond liquidity premia fall in response to both official purchases and rising sovereign default probabilities as seen in the data

global corporate bond issuance what role for us quantitative easing the paper analyses the link between global corporate bond issuance and us quantitative easing qe it finds that purchases and holdings of mbs and treasuries by the fed have a strong impact on gross corporate bond issuance across advanced and emerging economies the results are robust to a large number of checks including controlling for the reduced supply of domestic and international bank loans in the aftermath of the global crisis which might have induced the corporate sector to issue more bonds our results support the gap filling theory greenwood et al 2010 where corporate bonds replace the assets removed from the market by large scale asset purchases specifically asset holdings and purchases crowded out investors from the markets where the fed intervened and accelerated portfolio rebalancing across assets and countries leading to stronger corporate bond issuance across the globe a counterfactual analysis shows that bond issuance in emerging markets since 2009 would have been halved without qe

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

efficient mechanisms for public goods with use exclusions constrained efficient provision of an excludable public good is studied in a model where preferences are private information the provision level is asymptotically deterministic making it possible to approximate the optimal mechanism with a mechanism that provides a fixed quantity of the good and charges fixed user fees for access in general the fixed fees involve third degree price discrimination but if names are uninformative about preferences the analysis provides a justification for average cost pricing copyright 2004 wiley blackwell

dollar illiquidity and central bank swap arrangements during the global financial crisis abstract while the global financial crisis was centered in the united states it led to a surprising appreciation in the dollar suggesting global dollar illiquidity in response the federal reserve partnered with other central banks to inject dollars into the international financial system empirical studies of the success of these efforts have yielded mixed results in part because their timing is likely to be endogenous in this paper we examine the cross sectional impact of these interventions theory consistent with dollar appreciation in the crisis suggests that their impact should be greater for countries that have greater exposure to the united states through trade and financial channels less transparent holdings of dollar assets and greater illiquidity difficulties we examine these predictions for observed cross sectional changes in cds spreads using a new proxy for innovations in perceived changes in sovereign risk based upon google search data we find robust evidence that auctions of dollar assets by foreign central banks disproportionately benefited countries that were more exposed to the united states through either trade linkages or asset exposure we obtain weaker results for differences in asset transparency or illiquidity however several of the important announcements concerning the international swap programs disproportionately benefited countries exhibiting greater asset opaqueness

the federal reserve s large scale asset purchase programmes rationale and effects we provide empirical estimates of the effect of large scale asset purchases lsaps on longer term us treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred habitat literature and the duration channel associated with interest rate risk we also clarify lsaps role in the broader context of historical monetary policy strategy results indicate that lsap style operations mainly impact longer term rates via the nominal term premium within that premium the response is predominantly embodied in the real term premium the scarcity and duration channels both seem to be of considerable importance

perils of unconventional monetary policy abstract unconventional monetary policy by relaxing restrictions on the composition of the balance sheet of the central bank compromises control over the stochastic path of inflation or in open economies over the stochastic path of exchange rates if the composition of the balance sheet is unrestricted then the path of inflation is indeterminate this is the case under pure quantitative easing where the target is the size of real money balances in contrast credit easing policies restrict the composition of the portfolio by targeting a specific expansion in the maturity profile of bonds bought and thus can implement a determinate path of inflation the composition of the portfolios traded by monetary fiscal authorities also determines premia in asset and currency markets

the effectiveness of alternative monetary policy tools in a zero lower bound environment this paper reviews alternative options for monetary policy when the shortterm interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates we use a model of risk averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level slope and curvature term structure risk we find that these treasury factors historically were quite helpful for predicting both yields and excess returns over 1990 2007 the historical correlations are consistent with the claim that if in december 2006 the fed were to have sold off all its treasury holdings of less than 1 year maturity about 400 billion and use the proceeds to retire treasury debt from the long end this might have resulted in a 14 basis point drop in the 10 year rate and an 11 basis point increase in the 6 month rate we also develop a description of how the dynamic behavior of the term structure of interest rates changed after hitting the zero lower bound in 2009 our estimates imply that at the zero lower bound such a maturity swap would have the same effects as buying 400 billion in long term maturities outright with newly created reserves and could reduce the 10 year rate by 13 basis points without raising short term yields

credit and liquidity in interbank rates a quadratic approach a bank that lends on the unsecured market requires compensations for facing the default risk of the borrowing bank credit risk and the risk associated to its own future funding needs liquidity risk in this paper we propose a quadratic term structure model of the spreads between unsecured and risk free interbank rates our no arbitrage econometric framework allows us to decompose the term structure of spreads into credit and liquidity components and to identify risk premia associated with each of these two risks our results suggest that over the period 2012 2013 most of the reduction in interbank spreads comes from a decrease in liquidity related risk components

the effectiveness of non standard monetary policy measures evidence from survey data we assess the perception of professional forecasters regarding the effectiveness of unconventionalmonetary policy measures undertaken by the u s federal reserve after the collapse of lehmanbrothers using individual survey data we analyse the changes in forecasting of bond yields aroundthe announcement and implementation dates of non standard monetary policies the resultsindicate that bond yields are expected to drop significantly for at least one year after theannouncement and the implementation of accommodative policies

the interest rate effects of government bond purchases away from the lower bound abstract i analyze the recent experience of unconventional monetary policy in sweden to study the interest rate transmission mechanisms of government bond purchases when interest rates are away from the lower bound using dynamic term structure models and event study regressions i find that government bond purchases have important portfolio balance and signaling effects the signaling channel operates mainly by lowering short rate expectations in the intermediate segment of the yield curve while the portfolio balance channel is effective in lowering longer maturity term premia in addition i find that target interest rate policy and government bond purchases operate in different segments of the yield curve this suggests that a combination of the two policies can be used to lower interest rates across the whole maturity spectrum making monetary policy more expansionary

the effect of reducing quantitative easing on emerging markets on 22 may and 19 june 2013 the us federal reserve fed announced a reduction in the asset purchase programme of its quantitative easing policy this article investigates the impact of this news on the currencies of emerging markets using event study methodology our results report a global significant depreciation in the currencies of all emerging markets in our sample but with different depreciation sizes from one market to another to test whether the depreciation in currencies is driven by capital flow components a regression analysis is performed inward fdi as well as outward fdi appear to have more explanatory power than inward and outward portfolio investment in explaining the impact with the slowdown in asset purchases by the fed emerging countries have incurred large capital outflows from their markets to the us market resulting in a drop in their currencies

quasi monetary and quasi fiscal policy rules at the zero lower bound abstract this paper assesses adjustments at the zero lower bound zlb in an economy incorporating financial frictions and nominal price stickiness we examine the dynamic paths of key variables under recurring real productivity and financial net worth shocks under three alternative policy scenarios removal of the zero lower bound to allow for negative rates quantitative easing policies at the zlb and the use of endogenous tax rates rules for consumption and labor income at the zlb the results show that the fiscal tax rate rules acting like a quasi monetary policy with direct effects on consumption can be as effective as quantitative easing a quasi fiscal policy with indirect effects on investment in times of prolonged crises due to recurring negative shocks

the effectiveness of the fed s quantitative easing policy new evidence based on international interest rate differentials abstract this paper explores the effects of non standard monetary policies on international yield relationships we first document that long term rates followed a common global downward trend that had already manifested itself prior to the financial crisis the bond buying operations commonly dubbed quantitative easing qe of the us federal reserve did not disturb this global co movement i e the global downward trend in interest rates we model the relationship between usd and euro riskless long term interest rates using a cointegrated vector autoregressive model cvar employing recursive estimation methods we find no evidence that qe1 or the qe episodes destabilized the transatlantic interest rate relationship nor the relationship between interest rates and the us dollar exchange rate a robustness test using a vector autoregressive model var with interest rates inflation rates and output differentials for 11 countries relative to us yielded the same result there is thus little evidence that central bank bond buying in the us had an independent distinct impact on us interest rates

what does monetary policy do to long term interest rates at the zero lower bound this article uses a structural var with daily data to identify the effects of monetary policy shocks on various longer term interest rates since the federal funds rate has been stuck at the zero lower bound the var is identified using the assumption that monetary policy shocks are heteroskedastic monetary policy shocks have especially high variance on days of fomc meetings and certain speeches while there is otherwise nothing unusual about these days a complementary high frequency event study approach is also used i find that stimulative monetary policy shocks lower treasury and corporate bond yields but the effects die off fairly fast

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

announcements of ecb unconventional programs implications for the sovereign spreads of stressed euro area countries abstract this paper studies the effects of ecb communications about unconventional monetary policy operations on the sovereign spreads of greece ireland italy portugal and spain relative to germany between 2008 and 2012 more than fifty events concerning non standard operations are identified and classified with respect to the specific ecb program the empirical results suggest that the ecb announcements about unconventional monetary policies substantially reduced long term government bond yield spreads relative to german counterparts in all countries except greece particularly among the different types of measures news about the securities markets programme strongly affected the perceived sovereign risk of the five stressed euro area countries while the announcements of the outright monetary transactions seem to have a significant impact only in italy and spain

quantitative easing and unconventional monetary policy an introduction this article assesses the impact of quantitative easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007 we consider the implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies we also provide an overview of the contributions of the other articles in this feature

a note on the no premature exercise condition of dividend payout unprotected american call options a clarification abstract it is shown that merlon s sufficient condition for no rational premature exercise of a dividend payout unprotected american call option is frequently misunderstood and used incorrectly in the finance literature when applied to the multiple dividend case this is especially true in papers we receive to review for journals the purpose of this note is to clarify understanding of the no premature exercise condition

public good provision with many participants for a nonexcludable public good with benefit and cost functions independent of the number of participants this paper studies second best allocations under bayesian interim incentive compatibility and interim individual rationality as the number of participants becomes large second best provision levels converge in distribution to first best levels if the latter are bounded second best provision levels become large in absolute terms but small relative to first best levels if benefit and cost functions are isoelastic in contrast for an excludable public good the ratio of second best to first best levels is bounded away from zero

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation