inflationary bias of the federal reserve system the creation of the federal reserve system coincides with a turning point in the inflationary history of the united states before 1914 there was no overall trend in the price level generally during war time periods the consumer price index increased significantly but during the intervening periods prices gradually declined to approximately their former levels however since the creation of the fed there has been an unmistakable and almost continuous upward trend in prices l

bureaucratic theory and the choice of central bank goals economists have frequently asserted that central bank priorities among economic goals have not been appropriate to the public s desires for example one interpretation of the results of reuber s pioneering study of central bank preferences was that the bank of canada s reactions reflect the placing of a very heavy implicit weight on price stability compared with higher employment presumably based on a judgement about the relative economic costs of more unemployment and more price inflation the evidence examined on the relative economic costs of price inflation and unemployment suggests that the economic costs of inflation are not as high relative to the costs of unemployment as the reactions and statements of the authorities have implied reuber p 132 1

interfirm rivalry in a repeated game an empirical test of tacit collusion rivalry in the vancouver retail gasoline market is modeled as a repeated game service station demand cost and intertemporal reaction functions are estimated from daily data on individual station prices costs and sales these functions are then used to calculate noncooperative and cooperative solutions to the constitutent game and the actual outcome of the repeated game the actual outcome is found to be substantially less lucrative than the monopoly solution nevertheless all stations are better off than if they played their noncooperative strategies in every period copyright 1987 by blackwell publishing ltd

price dynamics in the belarusian black market for foreign exchange using unique data from an internet based foreign exchange trading platform we show that the black market efficiently incorporated public information on the state of the belarusian economy during the balance of payments crisis of 2011 between may and october 2011 the government repeatedly devalued the belarusian ruble and eventually abandoned its fixed exchange rate regime measures derived from black market transaction data have significant predictive power for these devaluations the significance of these black market measures survives even when we include standard macroeconomic indicators in our forecasting model in line with standard economic theory activity in the black market has dried up subsequently

the effects of different contractual arrangements the case of retail gasoline markets the change in the contractual arrangement at a gasoline station from a refiner controlled to a franchise operation implies different incentives for the individual who sets prices and determines hours but reflects no change in the product nor the market environment the outcome can lead to higher prices and reduced hours at the station affected the divorcement experience in maryland illustrates how change can be imposed by the legal system average self service and full serve prices rose and hours of operation fell relative to those of competitors even though refiner operations that were forced to franchise had previously had prices below the competition the evidence of an effect on the prices and hours of competitors is less convincing 16 references 2 tables

fighting inflation with high interest rates the small open economy case under flexible prices in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used both to reduce inflation and to defend the domestic currency this paper analyzes the effectiveness of such a policy in the context of an open economy with flexible prices and exchange rates a temporary increase in the interest rate on money reduces the price level on impact but inflation follows an explosive path afterwards the domestic currency appreciates on impact but begins to depreciate immediately thereafter hence the analysis does not support the use of high interest rates in disinflationary programs copyright 1995 by ohio state university press

on the launching of a new currency this paper studies the appropriate way of launching a new fiat currency within a dual currency search theoretic framework we demonstrate that legal tender laws may not be sufficient to guarantee the acceptability of the new currency and that the old currency may continue to circulate if the enforcement power of legal tender laws is weak and the fraction of individuals endowed with the new currency is too low the possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws finally a network externality may generate inefficiencies in the decision to switch to the new currency

the hidden economy as an unobserved variable abstract the technique of unobserved variables is used to estimate the relative size and development time of the hidden economy of oecd countries the burdens of taxation and regulations and the tax morality turn out to be statistically significant determinants at the end of the scandinavian and benc lux countries are expected to have a relatively large and japan and switzerland a relatively small hidden economy canada and the united states are rank in the middle the size of all hidden sectors is estimated to have increased in the period 1960 1973 relative to officially measured gnp

price discrimination and retail configuration the hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing a test that discriminates between price structures associated with discrimination and with cost driven competitive differentials is developed and implemented with controls for variation in outlet and market characteristics a second test based on profitability variation rejects a competitive peak load pricing explanation for the observed price dispersion the data suggest that price discrimination at the retail level adds at least 9 a gallon to the average price of full service gasoline

inflationary bias of the federal reserve system a bureaucratic perspective abstract the federal reserve system does not receive a budget from congress but instead finances its operation from interest payments on its government security portfolio this peculiar financing arrangement provides the foundation for a bureaucratic model of federal reserve official behavior the empirical section tests the bureaucratic model by analysing the fed s expenditure record since 1947 and its policy actions during periods of constitutional revision

whither loose change the diminishing demand for small denomination currency while payment card usage has increased dramatically the stock of outstanding currency has not declined as rapidly we analyze changes in cash demand for 13 advanced economies from 1988 to 2003 by separating cash into three denomination categories to disentangle its store of wealth and payment functions defining denominations commonly dispensed by automated teller machines atms as the medium category we show that demand for small denomination currency decreases with greater debit card usage and with greater retail market consolidation in contrast the demand for high denomination notes decreases when interest rates rise but is generally unaffected by changes in debit card usage

cash burns an inventory model with a cash credit choice abstract a dynamic cash management model is analysed where agents choose whether to pay with cash or credit at every point in time in the model credit usage depends on the current stock of cash a novel result that matches recent micro evidence on households payment choices the optimality of such a decision rule is novel and cannot be obtained by models where cash credit decisions are made at the beginning of each period we discuss how to use the model to account for cross country evidence on the intensity of credit usage and for several statistics on the size and frequency of cash withdrawals the model is used to assess the household s welfare cost of phasing out cash

blessing or curse foreign and underground demand for euro notes public finance solutions to the european unemployment problem developing countries may hold as much as 25 30 of the 1 3 trillion oecd currency supply although dollar holdings appear to exceed dm holdings by a factor of four the advent of the euro may change this balance indeed by issuing large denomination notes of 100 200 and 500 the european central bank appears to be well poised to challenge the dominance of the ubiquitous us 100 note however large denomination notes are also extremely popular in the oecd underground economy which appears to hold at least 50 of the currency supply as a result the seigniorage revenues obtained by issuing large denomination notes may be an accounting illusion substantially or fully offset by losses due to increased tax evasion hence the new european central bank may wish to consider policies that discourage underground use of currency even at the expense of losing out on foreign demand kenneth rogoff

fed behavior in periods of price and wage controls there is a literature which addresses the bureaucratic behavior and incentives of the federal reserve system some of the papers along these lines include acheson and chant 1973 kane 1980 levy 1981 toma 1981 friedman 1982 shughart and tollison 1983 and allen 1986 this paper brings to bear some additional evidence on the behavior and the incentives of the fed in particular we examine the behavior of the fed during periods of price and wage controls the public interest approach to fed behavior suggests that the fed should pursue a monetary policy that is consistent with price and wage controls in order to control inflationary forces the private interest approach suggests that price and wage controls make seigniorage operations more profitable for the fed and make it more difficult for fed overseers to monitor fed performance in both cases leading the fed to pursue monetary expansion in its own self interest during a period of price and wage controls the setting of price and wage controls therefore provides a test of public versus private interest hypotheses about fed behavior the paper proceeds as follows section 2 develops the competing explanations of federal reserve behavior section 3 presents the estimates of a structural money supply reaction function and an arima transfer function model of fed behavior in each case controlling for ceteris paribus conditions and periods of wage and price controls the results of both models indicate a falsification of the public interest explanation of fed policy section 4 offers some concluding remarks

charity donations and the euro introduction some quasi experimental evidence on money illusion we compare the revenues of a house to house collection for a charity before and after the introduction of the euro in a ceteris paribus setting we find strong evidence of money illusion supplementing earlier econometric experimental and survey evidence on its existence

the market for electronic cash cards we develop a theoretical framework aimed to model the pricing of electronic cash cards and the market domain in which these cards will be used in an environment where charge cards and currency the legal tender are competing payment media we also investigate whether the adoption of the various payment media generates an underutilization or overutilization of the electronic cash cards relative to currency

the demand for money financial innovation and the welfare cost of inflation an analysis with household data we use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized baumol tobin model our data set contains information on average currency deposits and other interest bearing assets the number of trips to the bank the size of withdrawals and ownership and use of atm cards we model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest bearing assets the interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models however we find significant differences between individuals with an atm card and those without the estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to bailey s triangle but based on a rigorous microeconometric framework the welfare cost of inflation varies considerably within the population but never turns out to be very lar

network effects on cash card substitution in transactions and low interest rate regimes we develop a nash game on the adoption of a new eftpos electronic fund transfer at point of sale card payment media given cash is dispensed by a competitive atm automated teller machine network equilibrium conditions when cash and card use coexist entail a specific relationship between the card network coverage parameter super k and the proportion of cash financed expenditures we derive a payments innovation technology constrained transactions demand for money which is highly interest rate sensitive in low interest rate regimes data on cash card use in the uk 1990 97 is used to calibrate the model

the demand of liquid assets with uncertain lumpy expenditures abstract we consider an inventory model for a liquid asset where the per period net expenditures have two components one that is frequent and small and another that is infrequent and large we give a theoretical characterization of the optimal management of liquid asset as well as of the implied observable statistics we use our characterization to interpret some aspects of households currency management in austria as well as the management of demand deposits by a large sample of italian investors

pricing behavior and verticle contracts in retail markets recent developments in the economic theory of multifirm markets and firm organization have motivated several empirical studies of retail gasoline markets a growing body of theoretical work suggests that the behavior of firms in markets once viewed as workably competitive can diverge significantly from that characteristic of competitive markets static models of free entry markets where firms are horizontally differentiated suggest that the equilibrium price structure will reflect local market power dynamic oligopoly models suggest that repeated interaction can sustain tacitly collusive outcomes in multifirm industries because gasoline stations are strikingly simple firms and data are available on wholesale and retail gasoline prices this market has proven to be a useful arena for testing pricing predictions from these models these tests are discussed in section i another growth area in industrial organization is research on the nature of vertical contracts this work suggests that the optimal contract between a manufacturer and a retailer will be sensitive to the nature of downstream competition and the available control technology imperfect competition downstream can lead to double marginalization and imperfect monitoring can allow shirking or free riding the manufacturer can be expected to choose contractual forms that minimize these effects section ii discusses efforts to assess the effect of competition and monitoring on the refiner s choice of contractual form for retail outlets while examining contractual form is interesting in itself policy initiatives provide additional impetus for examining contracts in gasoline retailing refiners have long been a favorite target of antitrust enforcement and complaints regarding restraints imposed on retailers have been viewed sympathetically by the courts court decisions have made unlawful exclusive dealing clauses for gasoline and automotive products as well as the various arrangements through which a refiner can control the retail price at franchise outlets in the last decade federal and state governments have enacted legislation further restricting the nature of the contract between refiners and the retail outlets for their gasoline the growth in these restrictions naturally leads to positive questions about the nature and effect of contractual relationships between refiners and dealers

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

the case of the missing currency in late 1992 currency in the hands of the public was close to 300 billion representing nearly 30 percent of m1 one would think that an economic variable of this magnitude would be well analyzed and well understood quite the contrary the last serious surveys of currency holdings commissioned by the federal reserve were in 1984 and 1986 these surveys indicate that currency demand is not at all understood probably the most intriguing and newsworthy result of these surveys was that about 80 percent of currency holdings simply could not be explained despite the stir of general interest that followed those studies economists have shown little lasting interest in considering the implications of these findings this paper is written in hopes of stimulating more interest in currency behavior

how big is the shadow economy a re analysis of the unobserved variable approach of b s frey and h weck hannemann abstract in a widely quoted study b s frey and h weck hannemann estimated the size and the development of the shadow economy in 17 countries by means of the latent variable approach a re analysis of the data shows that the results of frey and weck hannemann s model are extremely unstable and cannot be regarded as reliable statements about the shadow economy of these 17 countries even minor variations in the number of countries included in the analyses in the period under investigation or in the index which is defined lead to a pronounced instability a critical look at the observational variables used in the model lead to the conclusion that the authors cannot even be sure that what they have investigated is indeed the shadow economy the latent variable could equally well be interpreted in other ways it could be for instance that they have measured the development of the welfare state

the demand for large bank notes in many countries the high share of the largest bank note denomination in the total currency circulation contrasts sharply with its limited use in payment transfers this somewhat puzzling phenomenon has been discussed more than once for the u s 100 bill which has a value share of nearly 50 percent see anderson 1977 kimball 1981 porter and bayer 1984 however the phenomenon is the more remarkable for countries like switzerland germany and the netherlands that issue a denomination at the upper end of the bank note range whose face value is five to fifteen times as high as the 100 note in the netherlands this is the fl 1 000 note with a face value at end 1990 of more than u s 500 1 the circulation of this fl 1 000 note has grown dramatically see table 1 at year end 1987 fl 1 000 notes accounted for almost 45 percent of the value of bank notes in circulation and this was thus the most important denomination in terms of value at that time there were approximately fifteen million fl 1 000 notes in circulation this works out at an average of one of these notes per head of the population and over 2 5 notes per household compared with less than one note per household just ten years earlier nevertheless fl 1 000 notes are seldom encountered in the course of everyday payment transactions analysis of the development of macroeconomic variables reveals that the remarkable increase in the importance of the fl 1 000 note since 1980 cannot be solely

liquidity risk and financial competition implications for asset prices and monetary policy abstract this paper studies the implications of banking competition for capital markets and monetary policy in particular i develop a two sector monetary growth model in which a group of agents is exposed to liquidity shocks and money is essential banks insure depositors against such risk and invest in the economy s assets in this setting i compare an economy with a perfectly competitive banking sector to an economy with a fully concentrated financial sector unlike previous work banks can have market power in both deposits and capital markets compared to a perfectly competitive financial sector i demonstrate that a monopolistic banking system can have substantial adverse consequences on capital formation assets prices and the degree of risk sharing furthermore multiple steady states can emerge and the economy becomes subject to poverty traps more importantly market power in financial markets may overturn the tobin effect present under a perfectly competitive financial sector this necessarily happens in economies with high degrees of liquidity risk and low levels of capital formation

estimating the size of the danish shadow economy using the currency demand approach an attempt the currency demand approach provides some insight into the size and development of the shadow economy in denmark currency demand is statistically affected by tax rates the difference in currency demand is calculated by comparing the actual tax burden over time to the lowest tax burden in the period 1952 82 the shadow economy grew steadily to 10 per cent of gnp in 1977 and then fluctuated between 7 10 per cent of gnp for the period 1978 82 the calculated size fits nicely with the results obtained using the same

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

deposit banks and the market for payment media this paper develops a model of bank deposit pricing with optimal consumer choices of spending shares among alternative media of exchange interpreting deposits as a tie in feature of the sale of bank payment services the paper shows that the wedge between consumer and social costs of currency use may reverse typical prescriptions regarding bank market structure and distortionary taxes on banks an explanation is offered for below cost bank service fees despite deregulated deposit interest rates while rate ceilings are shown to induce substitution into payment media with higher social costs copyright 1992 by ohio state university press

does money illusion matter comment abstract this paper experimentally investigates whether money illusion generates substantial nominal inertia building on the design of fehr and tyran 2001 we find no evidence that agents choose high nominal payoffs over high real payoffs however participants do select prices associated with high nominal payoffs within a set of maximum real payoffs as a heuristic to simplify their decision task the cognitive challenge of this task explains the majority of the magnitude of nominal inertia money illusion exerts only a second order effect the duration of nominal inertia depends primarily on participants best response functions not the prevalence of money illusion jel c91 d21 d83 e31 e41 e52 l11

dealing with monetary paralysis at the zero bound recently the key constraint for central banks is the zero lower bound on nominal interest rates central banks fear that if they push short term policy interest rates too deeply negative there will be a massive flight into paper currency this paper asks whether in a world where paper currency is becoming increasingly vestigial outside small transactions at least in the legal tax compliant economy there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live surprisingly this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out of the box solutions for dealing with it in an inversion of the old joke it is a bit as if the economics literature has insisted on positing assume we don t have a can opener without considering the possibility that we might be able to devise one it makes sense not to wait until the next financial crisis to develop plans fundamentally there is no practical obstacle to paying negative or positive interest rates on electronic currency and as we shall see effective negative rate policy does not require eliminating paper currency

how people pay evidence from grocery store data abstract empirical evidence based on grocery store transaction data shows that consumer payment behavior at the point of sale is important for understanding models of money demand there are statistically significant effects of transaction costs opportunity costs and product characteristics on the choice of payment instrument which then in turn affect money demand these results emphasize the overlap between the work of empirical researchers in payment choice and theoretical modelers of monetary economics and should inform both literatures

retail gasoline pricing what do we know abstract we use a data set consisting of a three year panel of prices from a sample of gasoline stations located in suburban washington dc and a corresponding census of the region s stations to develop three new empirical findings about retail gasoline pricing first while average retail margins vary substantially over time by more than 50 over the three years we analyze the shape of the margin distribution remains relatively constant second there is substantial heterogeneity in pricing behavior stations charging very low or very high prices are more likely to maintain their pricing position than stations charging prices near the mean third retail gasoline pricing is dynamic despite the heterogeneity in station pricing behavior stations frequently change their relative pricing position in this distribution sometimes dramatically we then relate these three findings to relevant theories of retail pricing while many models of retail pricing are consistent with some of our findings we find that all have serious shortcomings

euro illusion a natural experiment we collect and analyse data on church collections to assess whether the introduction of euro notes and coins had real effects on giving data for italy suggests that money is not completely neutral while irish data suggests a lower degree of money illusion a smaller data set from continental europe suggests different sorts of money illusion

prices for cash and cash for prices theory and evidence on convenient pricing a transaction between a seller and a buyer incurs a payment cost the payment cost is borne by the seller depending on the payment instrument the buyer chooses cash or card card payment is more costly than cash payment so the seller prefers that the buyer pays cash in this article we study the strategy of the seller setting a convenient price which simplifies transactions and pushes the buyer to pay cash the theoretical analysis which models both the seller and the buyer in a game setting derives two propositions 1 the seller is more likely to set a more convenient price and 2 the buyer is more likely to pay cash a more convenient price the empirical analysis supports both propositions thus sellers adopt a convenience pricing strategy prices for cash and this strategy pushes buyers to pay cash cash for prices

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

payment choice and currency use insights from two billion retail transactions abstract using three years of transactions data from a discount retailer with thousands of stores we study payment variation along three dimensions transaction size and location weekly and monthly frequencies and longer time horizons in each case we connect empirical patterns to theories of money demand and payments we show that cross sectional and time series payment patterns are consistent with a theoretical framework in which individual consumers choose between cash and non cash payments based on a threshold transaction size and we evaluate factors that may account for the variation in threshold distributions across locations and time

empirical evidence on payment media costs and switch points abstract this paper recovers micro cost schedules of consumers payment instruments from aggregate transaction costs we assume that only two moments of the size distribution of payments matter the number and volume of transactions these variables explain the transaction costs of currency and debit card payments with much precision for a representative 1998 sample of dutch retailers the results imply that low fixed transaction costs favor currency for small transactions while low variable transaction costs favor debit card payments for large transactions the switch point is 30 euros but including the hidden costs of currency would lower it to 13 euros

what determines the value and volume of noncash transactions evidence from a panel of european and north american countries using data from a panel of 15 countries over the period 1990 1998 the determinants of the use of non cash payment instruments are analysed the estimation results highlight the importance of distinguishing between the determinants of the value and volume of noncash transactions it is found in fact that the volume of these transactions is generally affected by changes in the determinants more strongly than their value and that variables such as the interest rate have a different impact on the volume and the value of the transactions the findings also suggest that past habits play a dominant role in the intensity of use of noncash payment instruments

foreign demand for domestic currency and the optimal rate of inflation we characterize the ramsey optimal rate of inflation in a model with a foreign demand for domestic currency in the absence of such demand the model implies that the friedman rule deflation at the real rate of interest is optimal we show analytically that in the presence of a foreign demand for domestic currency this result breaks down calibrated versions of the model deliver optimal annual rates of inflation between 2 and 10 the domestically benevolent government imposes an inflation tax to extract resources from the rest of the world in the form of seignorage revenue

disinflation and interest bearing money in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used as a disinflationary policy this paper analyzes the effectiveness of such a policy in the context of a closed economy staggered prices model both a permanent and a temporary rise in the interest rate on money provoke an inflation at the expense of a recession when the rise is temporary however the initial inflation slowdown is eventually followed by an upsurge of inflation over the level prevailing before the policy was implemented copyright 1996 by royal economic society

the speed of euro adoption this paper estimates the speed and determinants of euro adoption across italian provinces by exploiting the natural experiment in early 2002 when euro and lira dually circulated as legal tender a unique data set with daily observations on the net flows of euro banknotes from the branches of the bank of italy province by province is used the speed of euro adoption differs according to the availability of transaction technology and demographic characteristics lessons for countries adopting a new currency are obtained

effect of face value on product valuation in foreign currencies ringgits p 1 u s dollar four studies demonstrate the robustness of the face value dinar p 1 effect across different currencies exchange rate frames and with samples from two countries and two studies show that ability related factors such as time pressure and experience moderate the face value effect the article concludes by discussing the theoretical implications of the findings

consumers perceived risk and hold and use of payment instruments abstractconsumer decisions regarding retail payment instruments entail private and social costs due to these social costs policymakers are increasingly trying to understand the determinants of consumer payment choices as documented by the european central bank s regular publications this article contributes to this understanding by investigating the role of perceived risk based on an original survey of french consumers we measure the effects of perceived risk on the decisions to hold and use the main retail payment instruments cash card and cheque we point to the sequential dependence of the decisions to hold and use a payment instrument and study jointly both decisions the bivariate analysis based on risk factors shows that unavailability risk and time risk have the greatest transverse influence on holding and using payment instruments our results robust to controlling for consumer characteristics confirm their propensity for a quick to use and constantly available payment instrument we dis

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

monetary policy and the zero bound to interest rates a review1 this paper reviews the literature on what the zero bound to nominal interest rates implies for the conduct of monetary policy the aim is to evaluate the risks of hitting the zero bound and to evaluate policies that are said to be able to reduce that risk or policies that are proposed as means of helping the economy escape if it is in a zero bound trap i conclude that policies aimed at cure are arguably more uncertain tools than those aimed at prevention so prevention is a less risky strategy for policymakers but since the risks of hitting the zero bound seem quite small anyway and the risks of encountering a deflationary spiral smaller still it is conceivable that inflation objectives that typify modern monetary regimes already have more than enough insurance built into them to deal with the zero bound problem

market power vertical integration and the wholesale price of gasoline this paper examines empirically the relationship between vertical integration and wholesale gasoline prices we use discrete and differential changes in the extent of vertical integration generated by mergers in west coast gasoline refining and retailing markets to test for incentives to raise rivals costs the research design allows us to test for a relationship between vertical integration and wholesale prices controlling for horizontal market structure cost shocks and trends we find evidence consistent with the strategic incentive to raise competitors input costs this suggests that vertical integration can have a significant impact on wholesale prices

interchange fees in payment card systems a survey of the literature abstract this paper surveys the recent literature about interchange fees in payment card systems interchange fees are used by payment platforms to allocate the total cost of a payment card transaction between the cardholder s bank the issuer and the merchant s bank the acquirer each time a consumer pays by card its bank receives an interchange fee from the merchants bank banks argue that interchange fees are needed to encourage the use of electronic payment instruments whereas merchants claim that they artificially inflate the cost of accepting cards this paper sheds light on the ongoing debate that opposes banks to the regulatory institutions or the competition authorities in various countries by reviewing the theoretical results of the literature and highlighting some unanswered issues

retail bank deposit pricing an intertemporal asset pricing approach fundamentally spreads between market and deposit interest rates increase when interest rates rise and decline when rates fall recent empirical studies have found this phenomenon to be related to market concentration static equilibrium models are poorly equipped to explain this behavior in this paper the author applies an intertemporal asset pricing model incorporating bank deposits as a form of money in order to analyze the pricing behavior of a banking sector exercising market power his results extend the theoretical literature on deposit pricing and provide some insights into the behavior of interest rate spreads through time copyright 1995 by ohio state university press

inflation and financial sector size abstract traditionally the cost of expected inflation has been seen as the shoeleather cost of going to the bank more often this paper focuses on the other side of these transactions i e on the increased production of financial services i construct a model in which households must make purchases either with money or with costly transactions services produced by firms in the financial services sector in the model a higher inflation rate leads households to substitute purchased transactions services for money balances thereby boosting the size of the financial services sector a test of the model using cross sectional data finds that the size of a nation s financial sector is strongly affected by its inflation rate the empirical results provide an alternative way to measure the costs of inflation these costs appear to be large

tax evasion and the demand for currency in norway and sweden is there a hidden relationship variables associated with the level of hidden economic activity are examined in terms of their effects on the demand for currency in norway and sweden aggregate time series of marginal tax rates are compiled for this purpose no such effects are evident for norway while in the case of sweden the demand for currency was found to be significantly related to marginal tax rates these estimates are then used as a basis for deriving an estimate of the size of the hidden economy in sweden an analysis of the assumptions underlying this procedure shows that the uncertainty involved in applying the currency approach to measuring the size of the hidden economy is so great as to make it hazardous to rely on such estimates

price clustering and natural resistance points in the dutch stock market a natural experiment abstract this paper focuses on the tendency of stock prices to cluster at round numbers like 10 20 30 etc and to a lesser extent 5 15 25 etc and the related effect of round number price barriers prices pass round numbers less frequently than other numbers two competing hypotheses are tested using data from the dutch stock market of the period 1990 2001 after 1 january 1999 stock prices were listed in euros while guilders were still the currency of daily life until 2002 the aspiration level hypothesis predicts that round number effects in guilders will only slowly disappear the odd price hypothesis predicts an abrupt change in round number effects after 1 january 1999 generally the results are consistent with the odd price hypothesis