some evidence on herding behavior of u s banks the authors examine the international lending decisions of u s commercial banks of different sizes from 1977 to 1982 for evidence ofthe ex istence of herding behavior granger sims causality tests for the loans gran ted by the top nine the next fifteen and the remaining u s banks provide no c lear evidence of herding between the top nine and the next fifteen banks there is however evidence that the remaining banks mostly small ones herded behind the top twenty four banks overall the analysis presented here points to a very weak herding behavior copyright 1987 by ohio state university press

group incentive compatibility in a market with indivisible goods abstract in a market where each trader has one unit of an indivisible good there are procedures for exchanging goods which result in competitive allocations one of these procedures the top trading cycle has the property that it is in each trader s best interest to report his true preferences over the set of goods this note shows that no subset of traders can misrepresent their preferences and improve the allocation for all members of the subset additionally if there are no indifferences in the preferences then some traders in a subset that misrepresents preferences do worse

currency unions in africa is the trade effect substantial enough to justify their formation using estimates that currency unions double trade we quantify the welfare effects of forming currency unions for the african regional economic communities and for the african union as a whole the potential increase in trade is shown to be small and much less than that resulting from the adoption of the euro allowing for increased african trade does not overturn the negative assessment of african currency unions due to asymmetries in countries terms of trade shocks and their degree of fiscal discipline

monetary union in west africa who might gain who might lose and why we develop a model in which governments financing needs exceed the socially optimal level because public resources are diverted to serve the narrow interests of the group in power from a social welfare perspective this results in undue pressure on the central bank to extract seigniorage monetary policy also suffers from an expansive bias owing to the authorities inability to precommit to price stability such a conjecture about the fiscal monetary policy mix appears quite relevant in africa with deep implications for the incentives of fiscally heterogeneous countries to form a currency union we calibrate the model to data for west africa and use it to assess proposed ecowas monetary unions fiscal heterogeneity indeed appears crit ical in shaping regional currency blocs that would be mutually beneficial for all their members in particular nigeria s membership in the configurations currently envisaged would not be in the interests of other ecowas countries unless it were accompanied by effective containment on nigeria s financing needs jel classification e58 e61 e62 f33 union monetaire en afrique de l ouest qui pourrait gagner qui pourrait perdre et pourquoi les auteurs developpent un modele dans lequel les besoins financiers des gouvernements depassent le niveau socialement optimal parce que des ressources pub liques sont detournees de maniere aservir les interets etroits du groupe au pouvoir dans une perspective de bien etre social cela entraine des pressions indues sur la banque centrale pour qu elle extraie du seigneuriage la politique monetaire souffre

on stable and strategy proof rules in matching markets with contracts abstract this paper studies stable and one sided strategy proof rules in many to one matching markets with contracts not assuming any kind of substitutes condition or the law of aggregate demand we obtain the following results first the number of stable and strategy proof rules is at most one second the doctor optimal stable rule whenever it exists is the unique candidate for a stable and strategy proof rule third a stable and strategy proof rule whenever it exists is second best optimal for doctor welfare in that no individually rational and strategy proof rule can dominate it this last result is further generalized to non wasteful and strategy proof rules due to the weak assumptions our analysis covers a broad range of markets including cases where a unique stable and strategy proof rule is not equal to the one induced by the cumulative offer process or the deferred acceptance algorithm

the strategy structure of some coalition formation games in coalitional games with side payments the core predicts which coalitions form and how benefits are shared the predictions however run into difficulties if the core is empty or if some coalitions benefit from not blocking truthfully these difficulties are analyzed in games in which an a priori given collection of coalitions can form as the collection of pairs of buyer seller in an assignment game the incentive properties of the core and of its selections are investigated in function of the collection furthermore the relationships with vickrey clarke groves mechanisms are drawn

real exchange rates within and between currency areas how far away is emu the renewed quest for a european monetary union raises the question is europe ready for a common currency we compare the conditional variance and the persistence of real exchange rate shocks within the german monetary union and between germany and eight european countries to assess the viability of a monetary union in europe the results suggest a europe of two speeds a core union among germany her smaller neighbors and france would be viable today further reduction of real exchange rate variability is needed in contrast between these countries and denmark italy and the united kingdom alternatively monetary union should be postponed until further adjustment has occurred such a waiting period would neither require nor benefit much from further tightening of the current ems copyright 1994 by mit press

rational herding in financial economics abstract this paper briefly describes recent papers on the economics of rational herding in financial markets some models can predict perfect herding in which rational agents all act alike without any countervailing force such herding typically arises either from direct payoff externalities negative externalities in bank runs positive externalities in the generation of trading liquidity or in information acquisition principal agent problems based on managerial desire to protect or signal reputation or informational learning cascades the paper also provides a few pointers to related literature and suggests issues to be addressed in future research

strategy proofness and essentially single valued cores revisited abstract we consider general allocation problems with indivisibilities where agents preferences possibly exhibit externalities in such contexts many different core notions were proposed one is the individually rational core ir core whereby blocking is only allowed via allocations where the non blocking agents receive their endowments we show that if there exists an allocation rule satisfying individual rationality efficiency and strategy proofness then for any problem for which the ir core is non empty the allocation rule must choose an ir core allocation and all agents are indifferent between all allocations in the ir core we further show that the result cannot be generalized to supersets of the ir core we apply our result to housing markets coalition formation and networks

generalized median voter schemes and committees abstract we define a multidimensional analogue of a single peaked preference and generalize the notion of a median voter scheme every onto strategy proof social choice function on a single peaked domain is a generalized median voter scheme since a single peaked preference can be identified unequivocally with its bliss point one can view a social choice function as an arrowian social welfare function we show that a social choice function is strategy proof iff viewed as a social welfare function it satisfies a monotonicity property finally we investigate strategic decision making in hierarchical committees journal of economic literature classification numbers c72 d71

hard or soft pegs choice of exchange rate regime and trade in africa summary this paper revisits the link between fixed exchange rate regimes and trade in the context of africa s exchange rate arrangements differentiating the effects of hard pegs currency unions from conventional soft pegs using a novel dataset of exchange rate regime classification the paper augments the gravity model of bilateral trade flows with measures of currency unions and conventional pegged arrangements and benchmarks africa s experience against the rest of the world we find that in both samples currency unions and pegs increase trade vis a vis more flexible exchange rate arrangements through channels in addition to reduced exchange rate volatility however the effect is almost twice as large for africa in addition the trade generating effect of pegs is at least as large for africa as that of currency unions suggesting that pegs could present a viable option perhaps an alternative to currency unions to promote trade in the region

bank runs as an equilibrium phenomenon a standard demand deposit contract in which individuals are entitled to their full deposit at any time provided the bank is solvent is analyzed in a context in which there are no exogenous events on which agents condition their behavior and a unique equilibrium involving a bank run with positive probability is shown to exist

loan loss provisioning rules procyclicality and financial volatility interactions between loan loss provisioning regimes and business cycle fluctuations are studied in a dynamic stochastic general equilibrium model with credit market imperfections with a specific provisioning system provisions are triggered by past due payments with a dynamic system both past due payments and expected losses over the whole business cycle are accounted for and provisions are smoothed over the cycle numerical experiments with a parameterized version of the model show that a dynamic provisioning regime can be highly effective in mitigating procyclicality of the financial system the results also indicate that the combination of a credit gap augmented taylor rule and a dynamic provisioning system with full smoothing may be the most effective way to mitigate real and financial volatility associated with financial shocks

house allocation with transfers we consider the shapley scarf house allocation problem where monetary transfers are allowed we characterize the class of mechanisms that are strategy proof ex post individually rational ex post budget balanced and collusion proof in these mechanisms the price of each object is fixed in advance and the objects are reallocated according to the unique core assignment of the shapley scarf economy associated with the prices the special case in which all prices are zero is the core mechanism studied by shapley and scarf our mechanisms are compelling alternatives to the groves mechanisms which satisfy neither budget balance nor our condition of collusion proofness journal of economic literature classification numbers c71 c78 d71 d78 d89

bank suspension of convertibility abstract a banking panic occurs when depositors at all banks seek a large reduction in their deposit holdings suspension of convertibility of demand deposits into currency was the banking system s response to a banking panic when depositors are incompletely informed about the state of bank investments a panic can occur when depositors expect capital losses conditional on having observed noisy indicators of the state of bank investments banks with superior information about the investments can signal to depositors by suspending convertibility that continuation of the long term investments is mutually beneficial

benefits from mutual restraint in a multilateral monetary union summary we show that monetary union can enhance price stability for its member countries even if none of them has a long history of stable prices and independent monetary policy as is the case in a number of monetary union initiatives among developing countries the positive effect obtains because the opportunistic objectives of one country s policy makers are kept in check at the union level by other members with disparate objectives we calibrate the model to evaluate the proposed monetary union in the east african community the empirical results show that the mutual restraint on monetary policy is an important determinant of the expected benefit from an eac monetary union

strategy proofness and essentially single valued cores in this paper we search for solutions to various classes of allocation problems we hand results pertaining to housing markets are much more encouraging roth 1982b shows that in the context of housing markets the core correspondence which is shown to be single valued by roth and postlewaite 1977 is strategy proof moreover ma 1994 shows that it is the only solution that is pareto efficient individually rational and strategy proof

core structure and comparative statics in a hybrid matching market abstract flexible firms compete by means of wages in the assignment market while rigid firms have no flexibility over terms of appointment in the marriage market workers trade with both kinds of firms in the hybrid market examples show that standard results that characterize the core of the marriage market respectively assignment market are not robust to the entrance of flexible respectively rigid firms to this market a new algebraic structure provides a different characterization for the core of the hybrid model and reflects a sort of robustness to the exit of rigid respectively flexible firms from this market meaningful comparative static results are derived

capital inflow surges in emerging economies how worried should latin america and the caribbean be in the years leading up to the global economic crisis latin america and the caribbean received large capital inflows nonetheless the region survived the albeit short lived dramatic events of 2007 09 reasonably well with no financial crisis in any of the larger economies after the crisis capital inflows rose again in 2010 gross inflows to seven latin american countries argentina brazil chile colombia mexico peru and venezuela amounted to more than 6 percent of gross domestic product gdp and net inflows exceeded 3 percent of gdp more recently following the may 2013 speech of then chairman of the u s federal reserve ben bernanke there has been concern regarding the potential effects of tapering asset purchases by the u s federal reserve system and rising interest rates possibly spelling the end of large capital inflows to the latin american and caribbean region the literature on capital inflows suggests that while these flows represent an opportunity to spur investment and growth they may also increase vulnerability to financial crises macroeconomic instability and ultimately recession a relevant question then is whether the region can declare victory in being able to manage large capital inflows successfully or whether risks remain that justify strong measures our starting point is that the region has enjoyed strong surges in capital inflows we therefore decided to condition the analysis on surges occurring we do not seek to explain the reasons for such a surge one justification for this decision is that capital flows appear to be driven as much if not more by push rather than pull factors more specifically we seek to understand what determines whether such surges end in either a banking crisis or a recession while there is a substantial literature on the determinants of capital inflows their potential impacts have received much less attention the contribution of this paper is to analyze when inflow surges may end in severe economic problems including financial or macroeconomic instability rather than to identify the determinants of those surges we must first tackle the question of how to define a capital inflow surge we are helped in this regard by a small but growing literature however the current definitions of inflow surges in the literature may be injudicious we propose a new definition which considers the total size of the inflow episode across countries we also employ a more traditional definition based on yearby year inflows relative to a country specific threshold we contrast relevant statistics on the identified episodes using these two definitions and compare our episodes with others found in the literature we also consider whether the analysis should be conducted using gross or net inflows we take the view that employing net flows may discard useful information and that gross flows are relevant where financial instability is a potential concern even if net flows are zero a domestic financial system may intermediate large gross inflows when domestic residents purchase assets abroad we choose to focus on gross inflows but we include gross outflows as a potential explanatory variable so as not to lose information 1the empirical analysis in this paper develops a set of parsimonious models that discriminate reasonably well between the different economic outcomes we then analyze the case of a typical country from the region with a recent capital inflow surge providing a set of simulations to illustrate the economic magnitude of our results we simulate the changes in the estimated probabilities of negative outcomes given changes in certain critical variables we suggest that depending on the country inflow characteristics different policy measures may then be justified however a caveat is that emerging economies in general and latin america and the caribbean in particular have been experimenting with new policy measures and we are not able to evaluate their potential effectiveness in this paper

the benefits and costs of monetary union in southern africa a critical survey of the literature with the 14 members of the southern african development community sadc having set the objective of adopting a common currency for the year 2018 an expanding empirical literature has emerged evaluating the benefits and costs of a common currency area in southern africa this paper reviews that literature focusing on two categories of studies 1 those that assume that a country s characteristics are invariant to the adoption of a common currency and 2 those that assume that a monetary union alters an economy s structure resulting in trade creation and credibility gains the literature reviewed suggests that a relatively small group of countries typically including south africa satisfies the criteria necessary for monetary unification the literature also suggests that in a monetary union comprising all sadc countries and a regional central bank that sets monetary policy to reflect the average economic conditions e g fiscal balances in the region the potential losses i e higher inflation from giving up an existing credible national central bank a relevant consideration for south africa could outweigh any potential benefits of trade creation resulting from a common currency

strategy proof contract auctions and the role of ties a contract auction establishes a contract between a center and one of the bidders as contracts may describe many terms preferences over contracts typically display indifferences the qualitative vickrey auction qva selects the best contract for the winner that is at least as good for the center as any of the contracts offered by the non winning players when each bidder can always offer a contract with higher utility for the center at an arbitrarily small loss of her own utility the qva is the only mechanism that is individually rational strategy proof selects stable outcomes and is pareto efficient for general continuous utility functions a variant of the qva involving fixed tie breaking is strategy proof and also selects stable outcomes however there is no mechanism in this setting that in addition also selects pareto efficient outcomes

the combinatorial assignment problem approximate competitive equilibrium from equal incomes this paper proposes a new mechanism for combinatorial assignment for example assigning schedules of courses to students based on an approximation to competitive equilibrium from equal incomes ceei in which incomes are unequal but arbitrarily close together the main technical result is an existence theorem for approximate ceei the mechanism is approximately efficient satisfies two new criteria of outcome fairness and is strategyproof in large markets its performance is explored on real data and it is compared to alternatives from theory and practice all other known mechanisms are either unfair ex post or manipulable even in large markets and most are both manipulable and unfair

exchange in a general market with indivisible goods abstract we show how to restrict trades in exchange markets with heterogeneous indivisible goods so that the resulting restricted exchange markets the fixed deal exchange markets have a unique core allocation our results on fixed deal exchange markets generalize classical results on the shapley scarf housing market in which each agent owns one good only furthermore we define the class of fixed deal exchange rules for general exchange markets and prove that these are the only exchange rules that satisfy strategyproofness individual rationality and a weak form of efficiency

coalitional strategy proof house allocation abstract we consider house allocation without endowments we show that there is a unique maximal domain including all strict preferences on which efficiency and coalitional strategy proofness are compatible a preference relation belongs to the unique maximal domain if it is a strict descending ranking of houses to a certain house and indifference holds over it and the remaining houses we also show that on this domain mixed dictator pairwise exchange rules are the only rules satisfying efficiency and coalitional strategy proofness journal of economic literature classification numbers c78 d63 d71

dynamic provisioning a buffer rather than a countercyclical tool this paper analyzes whether dynamic provisioning systems act as a dampener as intended or as a buffer after briefly reviewing the literature we explain the rationale for dynamic provisions and analyze the experience of three of the few countries that adopted them spain colombia and peru we conclude that in the case of spain which is the only one where dynamic provisions worked over a complete cycle the fact that market discipline only operated in the downturn implied that the system acted more as a buffer than as a dampener we also observe that even rule based systems tend to be applied in a discretionary way since they require a very reliable calibration of the cycle ex ante an assumption that has proven unrealistic the comparison of the spanish system versus the peruvian and colombian raises interesting policy conclusions on whether dynamic provisioning should be applied differently to industrial versus emerging countries

improving policy credibility is there a case for african monetary unions abstract this paper analyzes experience with monetary policy in africa focusing on countries that have participated in rule based regional monetary agreements cfa zone east african currency board and rand monetary area we show that african countries have generally lacked the political institutions necessary for governments to commit credibly on an individual basis to financial stability we argue that monetary unions can provide an alternative means of credible commitment to sound macroeconomic policies but only under certain conditions first exit from a union must be made costly by the existence of parallel regional agreements and or links to the financial and technical assistance of industrial countries second governance structures of monetary unions must be designed so as to maximize chances for enforcement of monetary rules and third if a state seeks to break the rules of a union other member governments must actively oppose such attempts

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

economic engineering and the design of matching markets the contributions of alvin e roth alvin roth s research on and design of new economic systems has had a wide and large impact on human welfare from the matching of residents to medical programs to the assignment of students to schools to the manner in which kidneys are allocated to patients needing transplants this article discusses his important contributions to the understanding and improvement of matching markets highlighting roth s key roles in some of the most prominent successes of market design and the ascension of economic engineering

credible group stability in many to many matching problems abstract it is known that in two sided many to many matching problems pairwise stable matchings may not be immune to group deviations unlike in many to one matching problems blair 1988 in this paper we show that pairwise stability is equivalent to credible group stability when one side has responsive preferences and the other side has categorywise responsive preferences a credibly group stable matching is immune to any executable group deviations with an appropriate definition of executability under the same preference restriction we also show the equivalence between the set of pairwise stable matchings and the set of matchings generated by coalition proof nash equilibria of an appropriately defined strategic form game

top trading with fixed tie breaking in markets with indivisible goods abstract we study markets with indivisible goods where monetary compensations are not possible each individual is endowed with an object and a preference relation over all objects when preferences are strict gale s top trading cycles algorithm finds the unique core allocation when preferences are not necessarily strict we use an exogenous profile of tie breakers to resolve any ties in individuals preferences and apply gale s top trading cycles algorithm for the resulting profile of strict preferences we provide a foundation of these simple extensions of gale s top trading cycles algorithm from strict preferences to weak preferences we show that gale s top trading cycles algorithm with fixed tie breaking is characterized by individual rationality strategy proofness weak efficiency non bossiness and consistency our result supports the common practice in applications to break ties in weak preferences using some fixed exogenous criteria and then to use a good and simple rule for the resulting strict preferences

on the adequacy of monetary arrangements in sub saharan africa we examine the economic rationale for monetary union s in sub saharan africa through the use of cluster analysis on a sample of 17 countries the variables used stem from the theory of optimum currency areas and from the fear of floating literature it is found that the existing cfa franc zone cannot be viewed as an optimum currency area cemac and uemoa countries do not belong to the same clusters and a core of the uemoa can be defined on economic grounds the results support the inclusion of the gambia ghana and sierra leone in an extended uemoa arrangement or the creation of a separate monetary union with the core of the uemoa and the gambia rather than the creation of a monetary union around nigeria finally the creation of the west african monetary zone wamz around nigeria is not supported by the data

domains of social choice functions on which coalition strategy proofness and maskin monotonicity are equivalent abstract it is known that on some social choice and economic domains a social choice function is coalition strategy proof if and only if it is maskin monotonic e g muller e and satterthwaite m 1977 the equivalence of strong positive association and strategy proofness j econ theory 14 pp412 18 this paper studies the foundation of those results i provide a set of conditions which is sufficient for the equivalence between coalition strategy proofness and maskin monotonicity this generalizes some known results

a literature survey on proposed african monetary unions this study provides a survey of recent advances in the literature on proposed african monetary unions the survey comprises about 60 empirical papers published during the past fifteen years four main strands are discussed individually and collectively notably the proposed west african monetary zone wamz east african monetary union eamu southern african monetary union samu and african monetary union amu we observe a number of issues with establishing the feasibility and or desirability of potential monetary unions inter alia variations in choice of variables empirical strategies sampled countries and considered periodicities we address this ambiguity by reviewing studies with scenarios that are consistent with hegelian dialectics and establish selective expansion as the predominant mode of monetary integration some proponents make cases for strong pegs and institutions as viable alternatives to currency unions using cluster analysis disaggregating panels into sub samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications we caution that for inquiries using the same theoretical underpinnings variables and methods just by modifying the scope context and periodicity may only contribute to increasing the number of conflicting findings authors should place more emphasis on new perspectives and approaches based on caveats of and lessons from the european monetary union emu and cfa zones

monetary financial and fiscal stability in the east african community ready for a monetary union we examine prospects for a monetary union in the east african community eac by developing a stylised model of policymakers decision problem that allows for uncertain benefits derived from monetary financial and fiscal stability and then calibrating the model for the eac for the period 2003 10 when policymakers properly allow for uncertainty none of the countries wants to pursue a monetary union based on either monetary or financial stability grounds and only rwanda might favour it on fiscal stability grounds we argue that robust institutional arrangements assuring substantial improvements in monetary financial and fiscal stability are needed to compensate

stable marriages and search frictions stable matchings are the primary solution concept for two sided matching markets with nontransferable utility we investigate the strategic foundations of stability in a decentralized matching market towards this end we embed the standard marriage markets in a search model with random meetings we study the limit of steady state equilibria as exogenous frictions vanish the main result is that convergence of equilibrium matchings to stable matchings is guaranteed if and only if there is a unique stable matching in the underlying marriage market whenever there are multiple stable matchings sequences of equilibrium matchings converging to unstable inefficient matchings can be constructed thus vanishing frictions do not guarantee the stability and efficiency of decentralized marriage markets

why bank credit policies fluctuate a theory and some evidence in a rational profit maximizing world banks should msdntain a credit policy of lending if and only if borrowers have positive net present value projects why then are changes in credit policy seemingly correlated with changes in the condition of those demanding credit this paper argues that rational bank managers with short horizons will set credit policies that influence and are influenced by other banks and demand side conditions this leads to a theory of low frequency business cycles driven by bank credit policies evidence from the banking crisis in new england in the early 1990s is consistent with the assumptions and predictions of the theory

the southern african development community suitable for a monetary union abstract this paper investigates whether a monetary union is desirable among the countries of the southern african development community sadc we employ a generalised auto regressive conditional heteroscedasticity garch model to consider the share of the variation in real exchange rates rers vis a vis south africa that can be explained by the divergence in monetary and fiscal policies the results show that monetary integration would substantially eliminate real exchange rate variation due to different monetary policies for some members the study concludes that a monetary union that embraces all sadc members would amass large costs relative to the benefits and hence would not be desirable

incentive compatibility in a market with indivisible goods abstract in a market in which each trader s initial endowment is one unit of an indivisible good there exists an incentive compatible procedure for reaching a competitive allocation this contrasts with some recent results for similar problems

is the proposed east african monetary union an optimal currency area a structural vector autoregression analysis summary this paper empirically assesses the suitability of the east african ea countries for a regional monetary union by testing for symmetry of the underlying structural shocks the results indicate that supply and demand shocks are generally asymmetric which does not lend strong support for forming a currency union in the ea region at the moment however the speed and magnitude of adjustment to shocks is similar across the countries therefore further integration of the economies might lead to more favorable conditions for a monetary union although evidence in favor of linking an ea currency to an external anchor is weak such support seems to favor the euro

strategy proofness and the core in house allocation problems abstract we study house allocation problems introduced by l shapley and h scarf 1974 j math econ 1 23 28 we prove that a mechanism a social choice function is individually rational anonymous strategy proof and nonbossy but not necessarily pareto efficient if and only if it is either the core mechanism or the no trade mechanism where the no trade mechanism is the one that selects the initial allocation for each profile of preferences this result confirms the intuition that even if we are willing to accept inefficiency there exists no interesting strategy proof mechanism other than the core mechanism journal of economic literature classification numbers c71 c78 d71 d78 d89